Royal Dutch Shell Plc .com: State pension fund has ties to firms operating in Sudan

From The Boston Globe
By Raja Mishra, Globe Staff, July 8, 2006

Stakes top $300 million; bill would force divestment

The Massachusetts state worker pension fund holds investments worth more than $300 million in 23 overseas companies doing business in Sudan, a Globe review found. A violent campaign in the Darfur region there has been called genocide by the Bush administration and has drawn worldwide condemnation.

In addition, the pension fund has $383 million invested in five companies active in Iran, which the United States considers a state sponsor of terrorism and which is at odds with the international community over its nuclear program.

A bill before the Legislature would force the pension fund to get rid of investments in companies doing business in Sudan, with exceptions for humanitarian work. Five other states, including Maine and Connecticut, and many universities, including Harvard, have passed similar measures, as outrage over atrocities in Darfur has spread in the last two years. There is no legislation pending on Beacon Hill on Iran-related investments.

The pension fund’s investments in Sudan and Iran are dominated by foreign oil firms. The fund has $119.8 million in Royal Dutch Shell and $33.3 million in PetroChina, which both operate in Sudan and Iran.

The state officials who run the $36.3 billion pension fund, called the Pension Reserves Investment Trust, said their main objective in selecting investments is to fund retirement, disability, and survivor benefits for more than 480,000 active and retired state workers.

“You hire us to make you money, and when you restrict our ability to pick stocks, you likely will restrict our ability to get returns,” said Michael Travaglini, the trust’s executive director.

He said, however, that the fund would follow any directive issued by the Legislature. By state law, the fund cannot invest in tobacco firms. In the past, it has been ordered to dump investments in firms active in South Africa and Northern Ireland, though both bans were lifted after political changes in those nations. The state also passed a Burma divestment law, but it was struck down in court and never went into effect.

“We’re not policy makers; that’s what the Legislature does,” said Travaglini, who is the brother of Senate president Robert E. Travaglini. “When the Legislature provides guidance about what we should and shouldn’t be investing in, we follow that accordingly.”

The small cadre of lawmakers behind the bill to withdraw Sudan-related investments say the situation there — as many as 400,000 killed and 2.5 million displaced in three years, say human rights groups — warrants action.

“We talk about the Holocaust and say, `Never again.’ We talk about Rwanda and say, `Never again.’ Yet this is still going on. This is genocide,” said state Senator Patricia D. Jehlen, a Somerville Democrat. “It’s a moral choice. I don’t think our retirees would want their pension funds invested in companies that profit from genocide.”

The Globe obtained a list of the 13,378 investments held in the trust through the Freedom of Information Act. At the Globe’s request, Conflict Securities Advisory Group, a Washington, D.C., consulting firm that specializes in spotting investments linked to nations thought to be global security risks, reviewed the list and found a total of 23 companies with facilities, employees, or subsidiaries in Sudan. The consulting firm declined to identify the individual companies, because it profits from selling the information to investors, and firm officials said having it in the public domain could harm its business.

The Globe, however, was able to identify nine companies doing business in Sudan and five doing business in Iran, using records from the US Securities and Exchange Commission, which collects records from many foreign firms that sell stock in the United States.

While federal law prohibits US firms from doing business in Sudan or Iran, no such restrictions apply to foreign firms. State pension funds are permitted to invest in foreign firms, subject only to limits set by state legislatures.

The conflict in the Darfur region in western Sudan began in 2003, when violent militias, called the Janjaweed, began attacking tribes there. Villages have been systematically destroyed, forcing millions into squalid refugee camps. Tens of thousands have been killed, and there have been widespread rapes, human rights groups say.

US officials assert that the Sudanese government has been supporting the Janjaweed. Because the militias and the ruling government are mostly Arab and the affected villagers are predominantly black, human rights groups have called the bloodshed ethnic cleansing and genocide.

In September 2004, the Bush administration agreed, with Secretary of State Colin L. Powell calling it genocide. The United States has sent more than $1 billion in humanitarian aid and supports sending in United Nations peacekeeping troops. Currently, about 7,000 African Union troops are there, but have largely been unable to stop the violence.

Numerous foreign firms have continued to operate there throughout the conflict, including 23 invested in by the Pension Reserves Investment Trust. State workers and teachers pay into the fund while working, then collect pensions from it in retirement. State officials invest the funds in stocks, bonds, and mutual funds to ensure that enough money is available.

The trust produced a 10.7 percent return on investment over the last 10 years, compared with an 8.8 percent median 10-year return among all public pension funds in the United States, placing it among the best-performing funds in the nation.

Travaglini said that prohibiting Sudan-related investments would set a bad precedent. “If it was tobacco yesterday and Sudan today, what is it going to be tomorrow and the day after that?” he asked.

He said the pension fund holds investments in liquor and gambling firms that could potentially be targeted, though he also acknowledged that pulling out of tobacco firms did not harm the fund’s performance much.

“This fund makes money on a lot of investments that some people might question,” he said. “That’s the slippery slope we fear.”

The issue of divestment from Sudan has provoked controversy around the nation. In addition to the five states that have passed measures — New Jersey, Illinois, Oregon, Maine, and Connecticut — another 12 states are considering legislation. Harvard recently divested from firms active in Sudan, as have more than a dozen other universities.

But such moves have also generated opposition from many trade and investor groups, which say those moves hurt retirees and question their effectiveness.

The National Foreign Trade Council, which lobbies for free trade on behalf of US companies, is preparing to sue Illinois over its Sudan divestment law, said William A. Reinsch, the group’s president. The group successfully sued Massachusetts over its Burma divestment law, winning a 2000 decision in the US Supreme Court. Lawmakers behind the Sudan bill say it is narrowly tailored to avoid constitutional problems.

“What you’re going to have is a whole bunch of firefighters and policemen wondering years from now why their pension funds are lower,” Reinsch said. “And the likelihood that anything the state of Massachusetts does will affect the government of Sudan is virtually zero.”

The bill’s supporters said that publicity about the measure, if it passed, would increase pressure on Sudan’s regime. And they said that pulling investments from companies would eventually force those firms to either pressure the Sudanese government directly or leave the country, thus hurting the regime.

Most of the companies identified by the Globe said in corporate reports that they do not believe that divestment by pension funds in the United States will significantly hurt their businesses. Whether or not divestment achieves its goals continues to be a matter of debate among academics and foreign policy specialists.

Robert Rotberg, a South Africa specialist at Harvard’s Kennedy School of Government, said: “Divestment is usually a way of showing public distaste for a regime. That’s what happened in South Africa. But the economic impact is somewhat less . . . It didn’t change the structure of South Africa’s economy or deprive it of needed capital.”

State Representative Jay Kaufman, a Lexington Democrat who helped draft the Sudan bill, said he was certain that pensioners would not be harmed in the process.

“I’m entirely satisfied that the investment board can do an entirely responsible job of meeting its obligations to retirees,” he said. “It really doesn’t pose any serious threat to our investment returns, but it does pose a threat to our integrity.”

But if lawmakers do not act on the Sudan bill before the session ends in the next three weeks, it probably will not come up again until January.

A spokesman for Governor Mitt Romney, who sits on the pension fund’s board of trustees, said he had no position on the Sudan bill but would thoroughly review it if the Legislature passes it.

One lawmaker from Cape Cod who worked on the bill said he could not help but act, though the issues involved were far removed from concerns of his constituents.

“We can’t have tunnel vision and just focus on what happens in Massachusetts,” said Representative Cleon Turner, a Dennis Democrat. “We as human beings aren’t alone in the world.”

Raja Mishra can be reached at [email protected]