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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 environment."

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 still vulnerable."

"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 continued.

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."

The US-based 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. 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."

CalPERS announ 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 2006.

"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 company.

"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."

"It really 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."


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