US Boston investors distance them self from Sudan
By Eli Clifton
March 16, 2007 (WASHINGTON) — One of the largest community foundations in the United States has introduced a new divestment strategy from Sudan in a bid to increase pressure on the Sudanese government to curb what many rights groups describe as an ongoing “genocide” in the country’s Darfur region.
The Boston Foundation, which holds assets of more than 830 million dollars, announced Thursday that it would begin a strategy to distance itself from investments in Asian and European companies that continue to do business in Sudan.
Crucial to this strategy will be a new approach of shorting stocks that are held indirectly by the foundation through various equity funds.
The decision, which will affect holdings in five companies representing 1.5 million dollars in assets, represents a new method for offsetting stock in companies owned by the foundation through mutual funds.
The foundation’s move to neutralise its economic involvement with ethically questionable stocks comes as growing pressure has led seven U.S. states and more than 30 universities to begin divesting endowments and pension funds from Sudan.
One of the biggest obstacles to an all-out divestment strategy has been mutual funds with small investments in companies that invest in Sudan.
Companies and organisations have been slow to reject such funds based on their small percentage of investment in Sudan and general lack of knowledge of the individual stocks purchased by fund managers.
The strategy introduced by the foundation will not immediately sell the ethically questionable stocks but will counter any portfolio gains from the shares in companies investing in Sudan by taking short positions against the stocks in a separate investment account.
This separate account will neutralise the financial profits or losses from the stocks in the mutual fund.
Shorting a stock is a method of betting that its share price will fall. An investor agrees to sell the stock at a certain contracted price at a specified date. If at that time the stock’s market price is less than the contract price, the investor gets to keep the difference.
By shorting the stock as well as investing in its growth through the mutual fund, the foundation is effectively neutralising their position on the stock and their effect on its stock price.
The foundation is advocating this strategy because it avoids disrupting its investment programme while addressing the fact that “àinstitutions such as the Boston Foundation have little or no control over specific investments in pooled funds or separate managed accounts,” according to a press release.
This approach to neutralising the ownership of ethically questionable stocks is a “breakthrough because it gives anyone contemplating divestment a model,” Eric Reeves, a professor at Smith College, told IPS.
Reeves is credited with starting a college campus-based movement to encourage large investors including states and universities to use the power of divestment to press for the end to genocide in central Africa.
The policy of shorting shares of offending companies to offset financial gains in mutual funds will be coupled with informing fund managers that the foundation is supporting the targeted divestment movement in hopes they will divest their funds of stocks in companies that invest in Sudan.
Although the strategy does offset any economic interest held by the foundation in ethically questionable stocks, some say it fails take a strong advocacy role in forcing fund managers to refrain from purchasing stocks in companies invested in Sudan.
“Divestment is primarily symbolic, it doesn’t directly involve the company,” Simon Billenness, a board member at the U.S. Campaign for Burma and expert in the use of state and local selective purchasing and divestment laws, said in an interview with IPS.
“The Boston Foundation is a big customer of funds and money managers. They could demand a Sudan-free portfolio. That might be a more effective way of tarnishing companies who are invested in Sudan,” he said.
Although the foundation’s approach is not as direct or as advocacy-focused as some would hope, its decision to nudge fund managers to divest is in line with a history of socially responsible investing.
The Boston Foundation was the first community foundation in the country to exercise its right to proxy voting to influence issues ranging from racial and ethnic inclusion to environmental practices.
It was a leader in the 1980s in the effort to force the end of apartheid in South Africa through divestment from companies profiting from that system of racial exploitation, and in 1995, it divested from companies in the tobacco business.
The foundation is made up of 850 separate charitable funds established by donors either for the general benefit of the community or for targeted purposes.
(IPS)