May 27, 2011
As Violence Erupts Again in Sudan, Investors Call for Engagement
by Robert Kropp
An Investor Statement by the Sudan Engagement Group of the Principles for Responsible Investment,
issued before this week's occupation of Abyei, calls for awareness of risks associated with doing
business in conflict areas.
This year's hopes for a peaceful transition to a declaration in July of independence by South Sudan
were dealt a jarring setback this week, as the army of Sudan moved to occupy the disputed border
state of Abyei. An area which was to be the subject of negotiation between the parties has instead,
according to John Prendergast of the Enough
Project, become yet another example of an ethnic cleansing strategy by the north, similar to
actions in Darfur that have received widespread international condemnation.
Described by the US government as the first genocide of the 21st century, the government
of Sudan's actions in the Darfur region has led to the killing of hundreds of thousands, as well as
long-term displacement into camps of another three million people. This week, a reported 80,000
civilians have fled Abyei.
The proper role of businesses operating in the world's conflict
zones is spelled out in a document entitled Guidance on Responsible Business in
Conflict-Affected and High-Risk Areas. Published in 2010 by the UN Global Compact and Principles for Responsible Investment Initiative (PRI), the
document states, "The private sector can make a meaningful contribution to stability and security
in conflict-affected and high-risk areas."
"When companies and investors are able
to understand and take steps to address complex issues," the document continues, "They can mitigate
the risks and negative impacts posed to and/or by corporate activities, ensure long-term financial
performance of business and play an important role in supporting peace and development."
The Sudan Engagement
Group (SEG) of PRI is a group of 22 institutional investors that for several years has engaged
with companies doing business in Sudan, seeking to better understand "the steps companies need to
undertake in order to avoid activities that exacerbate or fuel instability and a negative business
Shortly before the occupation of Abyei took the international community by
surprise, SEG issued an Investor Statement, in which the group warned "that risks and challenges remain as the
new states of north and south Sudan have not reached safe harbor and peace and human rights are
"Companies, especially those within the oil industry, and their
shareowners must continue to pay significant attention to the risks, challenges and opportunities
of doing business in this historically conflict-affected region of the world," the statement
While SEG acknowledges "ongoing calls for international companies to withdraw
from Sudan…the Group recognizes that withdrawing from a country may not be the most viable or
constructive solution for protecting human rights and promoting the strong governance, long-term
stability, and economic development that benefits ordinary citizens."
SEG is, therefore,
"Involved in ongoing engagement with selected companies operating in Sudan."
Investors Against Genocide (IAG)
has prioritized divestment in its engagement with financial institutions, arguing that the
government of Sudan has pursued genocide in Darfur, "drawing on its oil revenue to provide arms and
funding for the genocide, rather than economic development for the people of Sudan." Last year,
IAG's engagement with the Teachers Insurance
and Annuity Association - College Retirement Equities Fund (TIAA-CREF) led to the financial
services company's divestment of its holdings in four of the five major Asian state-owned oil
companies with significant operations in Sudan.
SocialFunds.com spoke with Bill McGrew,
Portfolio Manager at California Public
Employees' Retirement System (CalPERS). The pension fund is a member of SEG and a signatory to
the recent investor statement.
Referring to the fund's Statem
ent of Investment Policy Regarding Divestment, McGrew said, "The policy highlights, first and
foremost, the importance of engagement, of having a voice at the table with any company, and the
rights that shareowners have to catalyze change to benefit our interest as a fiduciary. It
specifically references that divestment is an option, but that's a tool of last resort."
ced last week that it will divest its shares in eight companies doing business in Sudan and
Iran. However, as McGrew noted, "CalPERS will be divesting from a small group of companies that
have failed to address the California Divest from Sudan Act requirements." The law was enacted in
"We are still very much shareowners of a number of large companies that continue to
do business there, and do business to the extent possible the right way," McGrew said, citing, as
did the Investor Statement, the example of Schlumberger, the world's largest oilfield services
"Companies like Schlumberger communicate more efficiently and systematically,"
McGrew said. "They are willing to meet with all stakeholders, not just investors. They are open and
transparent, and promote transparency."
He continued, "I think where the problems come
about is in situations where the companies are not forthcoming and don't promote open dialogue,
especially with those shareowners that have a direct economic interest in the company. It really
gets down to transparency and disclosure. The boards of these companies are expected to oversee our
interests, and when you operate in conflict-affected areas of the world, they need to make a
concerted effort to make sure they're taking all their stakeholder interests into consideration."
Asked about the plans of SEG in the aftermath of the north's occupation of Abyei, McGrew
said, "The plan of the Engagement Group is to diligently move forward, especially in this year of
significant transition taking place. This is a group that is dedicated to doing what we can to have
positive relationships with the companies we own that are operating in Sudan. It's important that
companies and investors support a positive and peaceful resolution there."
comes down to the notion of collaboration and partnership," he continued. "Shareowners as well as
corporations can be instrumental in encouraging responsible corporate citizenship. Governments can
be equally instrumental."