April 26, 2002
New Research Tool Identifies Terrorism Risk in Institutional Investments
by William Baue
The Global Security Risk Monitor allows investors to study risks to their investments from
companies operating in countries that sponsor terrorism and weapons proliferation.
Terrorism and the proliferation of weapons of mass destruction threaten to destabilize the global
political landscape. Investors increasingly realize they cannot afford to ignore the economic
implications of these threats.
Earlier this month, the Investor Responsibility Research Center (IRRC), a Washington,
DC-based provider of impartial research on investing, and the Conflict Securities Advisory Group
(CSAG), a Washington-based firm that identifies security risks to global markets, jointly
introduced the Global Security Risk Monitor. The GSRM assesses reputational and financial risks
posed to publicly-held corporations operating in six countries designated by the U.S. Department of
State as state-sponsors of terrorism and/or involved in the proliferation of weapons of mass
"The Global Security Risk Monitor is the world’s first global
security risk profile and assessment product,” said CSAG President and Chief Executive
Officer Roger W. Robinson, Jr., who is a former White House National Security Council (NSC) senior
director of International Economic Affairs. “Prior to September 11th, no institutional
investors or fund managers systematically incorporated terrorism- and proliferation-related
concerns into their risk assessments and investment policies."
risks to investments and fiduciaries did garner official recognition even before September 11.
IRRC traces the genesis of the GSRM back to a May 2001 correspondence between Acting SEC Chair
Laura Unger and Representative Frank Wolf (R-VA) regarding disclosure of “material”
business activity in countries under U.S. economic sanction for terrorism. Almost immediately
after September 11, investors recognized the need for risk management strategies to enable them to
enact prudent investment policies.
"We now have an obligation to make sure our investments
are not inadvertently funneling money into terrorist coffers," said Pennsylvania Treasurer Barbara
Hafer, who is also the president of the National Association of State Auditors, Comptrollers and
Treasurers, in an October 2001 conference call of state treasurers to discuss the possible impact
of global security on the investment policies of public pension systems. Ms. Hafer acts as the
primary fiduciary for almost $100 billion in state funds.
The GSRM identifies broader
issues than just the enrichment of terrorist organizations. Companies operating in the six target
countries--Iran, Iraq, Libya, North Korea, Sudan and Syria--may have quite benign activities that
nevertheless put them at risk due to regional instability. Also, companies’ reputations
could suffer if their mere presence in these countries, no matter how benign, generates negative
publicity. The Monitor identifies such risks without dictating the political and economic
“It is important to recognize that the Monitor is not an endorsement
of the United States' or any other nation's policies,” said IRRC President and Chief
Executive Officer Linda Crompton. “Instead, the Global Security Risk Monitor is a tool
designed to help clients assess potential portfolio risk.”
The Monitor, which costs
$12,500 per year, provides profiles of approximately 300 companies, security overviews of the six
countries, security analyses by sector, overviews of proliferation of weapons of mass destruction
and ballistic missile delivery systems, and lists of involved companies indexed by country and by
company. Companies have the opportunity to review their profiles in advance of publication, and
their comments are included in the report.
About a third of the listed companies reside in
the European Union, and about a quarter are based in Asia, predominantly in Japan and South Korea.
Less than ten percent are U.S.-based companies, more than a dozen of which appear on the Standard &
Poor’s 500 LargeCap Index. However, U.S.-based companies dominate the list of companies
potentially linked to proliferation, at almost 60 percent.