When do you divest from a company?

When the chairman of a company authorizes spying on fellow board members? When earnings have been manipulated to meet forecasts? When its investment in renewable energy technologies shines like a green-and-yellow sunburst logo but its pipeline maintenance needs to go back to engineering school? What if it seems to be paying its debts and moving forward?

Likewise, when do you divest from a country? Do you wait for U.S. or international sanctions? Do you wait for an internal, ‘legitimate’ voice of the people to call for economic disengagement? Do you need evidence that you won’t hurt the people you are trying to help – or do you just go ahead and break a few eggs for the sake of the omelet?

Ethics aside, the practical considerations of divestment are a tricky business. The would-be ex-investor should feel pretty certain that constructive engagement is a dead end because the act of divesting is a one-time, high-minded gesture of protest; it may help to confer a pariah status on a country or company, but except in very rare circumstances, it won’t depress a stock price and keep it low.

For all these reasons and more, we don’t do a lot of splashy divestments here at Trillium. We prefer to manage the risks of corporate misbehavior through pre-screening and engagement. Nonetheless, managing stock portfolios while wearing the “socially responsible” hat is a constant exercise in moral ambiguity. I often wish Trillium could create a dazzlingly competitive product that exceeds all investment benchmarks in every quarter, consisting of nothing but renewable energy companies offering the next generation of employee benefits (pet health insurance, anyone?), and donating 10% of their pre-tax profits to social justice organizations overlooked by the United Way. Until that breakthrough moment, however, we just accept a certain background level of angst that periodically spikes when one of our companies makes the papers in an article also containing words like ‘controversy’ or ‘indictment.’

But this summer, Trillium’s decision to throw whatever weight we have behind the Sudan divestment movement came rather easily. Regardless of the peace agreement that exists on paper, the Sudanese government can’t seem to stop itself from committing genocide against the people of Darfur. (See“Sudan Divestment Campaign Begins to Bear Fruit” in the December 2005 edition of Investing For A Better World). Frustrated by the ineffectiveness of already-existing sanctions and the inattention of the Bush administration, grassroots activists snuck under the radar and created a divestment movement that just keeps gathering force. No one seems to have a good answer to the question, “If divesting from a genocidal regime isn’t appropriate, when is divestment ever appropriate?”

Fourteen states and 25 universities have taken action to address the question of investing in companies that do business with Sudan. Over a dozen more states and 20-plus additional universities have active divestment movements.[1] Their activities include direct engagement with companies doing business in Sudan, monitoring their investments more closely to identify any holdings linked to Sudan or other terrorist states, and complete or selective withdrawal from companies with ties to Sudan, particularly those in key sectors such as oil and gas, electric power, or telecommunications.

We chose the last option, also known as ‘targeted divestment.’ Reviewing client portfolios (which contain legacy holdings as well as stocks chosen by us), we found only one holding that we need to attend to: Schlumberger, which has been described as ‘the French Halliburton.’ Since the genocide began, Schlumberger’s business in Sudan has only increased. Frankly, we don’t have a lot of confidence that our letter to the company threatening a few thousand dollars of divestment will turn this company around, but in piling onto a rising tide of pressure from investors the world over, something may eventually give. It did in South Africa.

[1] For more detail, see the regularly updated “State of Sudan Divestment Report” by the Sudan Divestment Task Force at www.sudandivestment.org.

For Trillium Divestment Policy click here.