Sudan Divestment – Ethical Investment In Hard Economic Times

The current economy is bad. Everyone knows it. Unemployment; foreclosures; business failures. Not just locally or nationally, but globally as well. Bailouts and stimulus packages are the hope for better days.

There’s a general consensus that genocide is bad. Mass murder of men, women, and children; violent gang rapes of women and young girls; villages burned to the ground. The list of atrocities rage on as a part of daily life in Darfur, Sudan.

The arrest warrant for Sudanese President Bashir issued by the ICC last week offers a glimmer of hope. However, the hail of applause for this long anticipated action should neither deafen nor deter the need to pressure this oppressive government to end its reign of terror on civilians.

History has shown that the Sudanese government will bow to economic pressure. Divesting from companies that support genocidal acts in Sudan provides that pressure. In fact, in March 2006 the Sudanese embassy purchased a six-page ad in the New York Times to counter divestment actions. Translation: divestment works!

When the Sudan Accountability and Divestment Act was signed into law, it encouraged federal, state, and local governments and institutions to divest from Sudan. The state of California adopted a policy (AB 2941) to divest from Sudan. So have 26 other states, 23 cities, 61 universities, and 11 other international and religious institutions. Also 18 countries and 55 universities have initiated campaigns to divest.

Sounds like a no-brainer, right? Wrong! With economic turmoil, financial markets down, retirement savings cut in half – well, it’s all about making the dollar. Realizing a positive return on investment and reaching certain benchmarks is the core of any prudent investment policy. So, does it matter where the money comes from? Is there a place for ethical investing in such turbulent times?

Recently, members of Orange County for Darfur met with members of the Orange County Employees Retirement System asking for the adoption of an ethical investment policy to divest from a small targeted list of “worst-offending” companies. While generally receptive to the need to end genocide, the OCERS executives were unwaivering in their commitment to achieve certain benchmarked return on investment goals. They did not want to add restrictions on their investment managers that would block their ability to invest in any company that met their investment return criteria, including these targeted worst offenders. The OCERS cited certain challenges to compliance with such a policy due to passive asset management, and rejected offers to work with them to overcome these objections. OCERS argued that divestment should best be handled by approaching investment managers or by having federal or state laws mandating divestment – not by having local institutional investors adopt an ethical investment clause.

Should the driving force for divestment come from the top down or bottom up? That is, should legal mandates be in place before an institution divests? Or should individual investors demand divestment from their money managers? The answer: both.

Individual investors may start the process, but to maximize affect in a shorter time span – which is needed to address the urgent nature of genocide – it is imperative that institutional investors join the effort. The targeted companies have refused to listen to their shareholders and failed to alter their problematic business operations in Sudan. If OCERS divested, it would represent up to 33,000 members pulling their money out as opposed to a single individual investor. Through the combined sale of stock by many institutional and individual investors will there be increased pressure to cause the offending company’s share price to fall. With the fallen stocks out of favor, the funding for genocide decrease . . . and hopefully ends.

Bloomberg, LP did an analysis showing that on average, the worst-offending companies in Sudan underperformed their peer group average by 45.97% over one year, 22.23% over three years, and 7.22% over 5 years. Institutional investors can rest easy that adopting an ethical policy and Sudan-free investing will not result in a lower return on investment.

Orange County for Darfur has just begun a Sudan divestment campaign targeting the Orange County area. OCERS represents 33,000 workers. Perhaps the outcry of those who are covered under the OCERS will be the impetus needed for ethical investment led from the bottom-up.