Sudan Divestment Campaign Begins to Bear Fruit(A)
The systematic killing, raping and displacement of hundreds of thousands in the African nation of Sudan is so dire, divestment is on the table for many institutional investors who haven’t looked seriously at the “D” word since the apartheid years. The focus of concern is Darfur, a region in western Sudan whose tribal peoples, some of them aligned with insurgents, have been subjected to a campaign that the U.S. has officially deemed to be genocidal. The goal of divestment proponents: to use institutional investor clout to deprive the brutal National Islamic Front government of Sudan and its janjaweed militias of commercial revenues – particularly revenues from the oil industry — that fund the killing. Divestment is also a potent tool to focus a distracted world’s attention on Darfur.
The Darfur genocide is the most recent episode in a twenty-year war waged by the Sudanese government against insurgents. The north-south conflict against Christian and tribal rebels in southern Sudan, which has claimed over 2 million lives since 1984, gave rise to the divestment movement. The role of the oil industry in fueling the conflict led to the call for divestment: oil projects displaced residents, and government oil revenues have funded the government’s attacks on insurgents and civilians. Oil monies are alleged to have funded human trafficking by northern Arab Sudanese, of black Sudanese women and children. To combat these abuses, divestment advocates first targeted Greater Nile Petroleum, the state-sponsored company developing oil fields in the southern part of the country. Talisman Energy was another target, accused of allowing its facilities to be used as outposts for the government’s helicopter attacks on civilians.
In January 2005, a peace agreement was signed that brought an official end to the north-south conflict. Yet a new conflict had meanwhile broken out in the western region of Darfur, in 2003. The government used genocidal tactics against the insurgents there as the international community stood by. The African Union has been the only entity to provide peacekeeping troops, yet its several thousand have been unable to stop the killing. Given China’s dominant position in the Sudanese oil industry, U.N. sanctions are an extremely remote possibility. The U.S. response has been uneven. U.S. sanctions enacted in 1997 banned nearly all trade with Sudan except for the provision of humanitarian goods. But in 2002, legislation failed that would have prohibited companies involved in Sudan from trading on American capital markets. And while the U.S. had been supporting African Union peacekeepers, Congress recently cut all funds. The Administration also opposed prosecution of the Sudanese government by the International Criminal Court because it does not want to legitimize that body. An additional complication is the Administration’s desire to cultivate the Sudanese government as an ally in pursuing international terrorists.
There may be as many as 130 foreign companies operating in Sudan (estimates vary). The most prominent include PetroChina (90% owned by the China National Petroleum Co., and a 40% stakeholder in Greater Nile Petroeum), Sinopec (China), Siemens AG (Germany), ABB Ltd. (Switzerland), Tatneft (Russia), Total SA (France), and Alcatel (France).
Pressure from activists is likely to have contributed to the refusal of several major public pension funds to participate in the initial public offering of PetroChina in 2000; any linkage was not publicly acknowledged. However, when the Canadian firm Talisman Energy announced that it was selling its 25% share in Greater Nile Petroleum to an Indian firm, the campaign’s role was indisputable. The Investor Responsibility Research Center observed:
Often, when a company makes a move that it has been under pressure to take, it attributes the action to “business reasons,” rather than to outside factors. But Talisman’s CEO Jim Buckee was unusually frank… comment[ing] that “Talisman’s shares have continued to be discounted based on perceived political risk. Shareholders have told me they were tired of continually having to monitor and analyze events relating to Sudan.” He said he had concluded that the controversy had discounted the company’s share price to an extent that “was unacceptable for 12 percent of our production.”
Public pension funds currently hold over $91 billion in companies with business interests in Sudan, according to Divest Sudan. Many are now examining the appropriateness of such holdings, which has led several prominent divestment announcements. Four states (Illinois, Louisiana, Oregon and New Jersey) have passed legislation requiring or recommending divestment, and at least ten have bills pending (New York, Massachusetts, North Carolina, Arizona, Texas, California, Maryland, Vermont, Indiana and Ohio). In August 2005, New York City Comptroller William C. Thompson wrote to twenty-four companies requesting that each review its business ties to Sudan, examine any potential financial and reputation risks, and report its findings to shareholders. In December, California State Treasurer Phil Angelides recommended that the California State Teachers’ Retirement System sell its more than 27 million shares in PetroChina – spurred by a deadly explosion at a company plant and a subsequent cover up resulting in contamination of drinking water supplies, but also credited to its Sudan business.
Three prominent universities have taken divestment stands, prompted by student pressure. Stanford voted to divest of PetroChina, ABB, Tatneft, and Sinopec. Harvard announced its divestment of PetroChina holdings, and Dartmouth has also taken a partial divestment stand. Other campuses with active campaigns include the University of Pennsylvania, Duke, University of California, Columbia, George Washington and Brown. The risks to corporations and their investors from Sudanese involvement are real. Talisman Energy is facing a lawsuit filed under the U.S. Alien Tort Claims Act by the Presbyterian Church of Sudan, alleging complicity in the government’s human rights abuses in southern Sudan. The lawsuit claims these abuses amounted to genocide.
Support for divestment is growing, but it is far from universal. As would be expected, the anti-sanctions USA Engage and the American Enterprise Institute have expressed their opposition. Staking out the middle ground is the European Coalition on Oil in Sudan (ECOS), an alliance of over 80 organizations working for peace and justice in Sudan that was established, according to the group’s web site, “when [members] saw that oil, rather than bringing peace and prosperity to the people of Sudan, caused massive human suffering.” The January 2005 north-south peace agreement “allows a sharp turn away from past practices, when oil brought misery to many people. There is a widely shared hope that natural resources will be instrumental to bring peace and prosperity.” To that end, ECOS has released recommended benchmark practices for oil and other businesses doing business in Sudan. These recommend, for example, that companies practice transparency around payments to the government and for security arrangements, renegotiate product sharing agreements, practice non-discrimination, and support the peace process and human rights, among other key areas.
As for investors, is divestment the right course? It’s often considered a tool of last resort among socially concerned investors, a blunt tool like chemotherapy that can destroy the good along with the bad. Engagement is more often the preferred approach. Stock ownership offers unique leverage – such as the ability to file shareholder resolutions — and social investors are reluctant to divest their holdings completely because of this advantage. Mainstream institutional investors are loathe to accept any limits on their investment choices. For these reasons, divestment campaigns are unpopular and infrequent. That the Sudan divestment campaign has gained as much traction as it has is a sign of how desperate the situation there has become.
Trillium Asset Management is reviewing its portfolio holdings for involvement in Sudan and evaluating screening options.