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Of Mutual Interest

More firms invest with society in mind

By Mark Jewell
Associated Press / May 10, 2009
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The financial disclosures investors get in the mail from mutual fund companies don't normally capture Nancy Prindle's attention.

Then again, the dry brochures rarely delve into anything as gripping as the bloodshed in Sudan's Darfur region - a topic that has inspired action from Prindle, a Delaware, Ohio, woman who counts a handful of Vanguard Group funds in her retirement nest egg.

"I don't have any idea what ought to be done in the Sudan, but I don't want to help fund what is going on," Prindle said about the conflict in Darfur, where the United States accuses the Sudanese government of committing genocide.

The 63-year-old educational consultant said she was horrified to learn recently that five Vanguard funds invest in a Chinese company exploring for oil in Sudan.

So Prindle cast a yes vote on an activist-backed proxy ballot proposal on human rights that Vanguard mailed to millions of its investors, leading up to a July 2 special shareholder meeting in Scottsdale, Ariz.

A handful of large fund companies - among them T. Rowe Price Group and TIAA-CREF - are now confronting and even embracing the idea that they should screen out investments that may be linked to human-rights abuses abroad.

The willingness of some mainstream companies to address issues they once tried to avoid is creating new options for investors. In the past, the big players mostly left socially responsible investing to boutique firms whose funds aren't typically included in employers' 401(k) plans.

"Common sense tells us that a lot of large asset managers, 401(k) plans, and the household names in the investment world are not going to want to be seen as ignoring the attention that's being focused on issues like genocide in Sudan," said Jane Meacham, a research analyst with RiskMetrics Group, a financial risk management firm.

Vanguard says it has begun screening companies across all its 157 funds to identify any company "whose direct involvement in crimes against humanity or patterns of egregious abuses of human rights could warrant engagement or divestment."

The activist-backed ballot measure affects 30 Vanguard funds. It would go further than the company's screening policy, requiring Vanguard to "institute procedures to prevent holding investments in companies that, in the judgment of the board, substantially contribute to genocide or crimes against humanity."

The Vanguard proxy campaign is led by Boston-based Investors Against Genocide. The nonprofit says the proxy measure is needed because, even though Vanguard has a screening policy, the company has continued investing in a company that's a lightning rod for activists. Vanguard's latest holdings reports, as of March 31, list five funds with shares of PetroChina Co.

The company's oil exploration in Sudan provides revenue to the African nation's government - money that activists say perpetuates an ethnic-rooted conflict that the United Nations estimates has killed 300,000 people, and forced 2.7 million to flee their homes.

Vanguard says the proxy proposal duplicates its existing policy. Spokeswoman Linda Wolohan called Vanguard's holdings in PetroChina and its parent, China National Petroleum Corp., "modest," accounting for less than 1 percent of each of the five funds' portfolios. The largest fund with a PetroChina stake is Vanguard Emerging Markets Stock Index, which has $14 billion in assets.

Vanguard's policy - which hasn't yet led the company to divest any stocks - leaves it to its trustees to determine whether a portfolio holding should be sold because of possible links to human-rights abuses. But Vanguard's acknowledgment that there's a need to screen its portfolio for human rights issues is something of a victory for activists - at least compared with what happened last year at another fund industry giant that Investors Against Genocide targeted.

Shareholders at 14 Fidelity Investments funds rejected proposals similar to the one at Vanguard, with the measures typically achieving support of 20 to 30 percent. Fidelity doesn't screen any of its more than 400 funds based on social criteria, although spokesman Vin Loporchio said his company "may, however, take the potential effect of political or social actions of a company into consideration" when making buy-or-sell decisions.

Another major player, T. Rowe Price recently stepped up monitoring of potentially problematic companies to address what it calls "extra-financial risk" from investments. Its policy says the company determined the "risks outweighed the potential benefits" from investing in companies doing business in Sudan, so it sold off Sudan-related holdings.

However, T. Rowe Price leaves open the possibility that it could reverse course - its policy says the company "may change our thinking about this particular risk factor in the future."

Investors Against Genocide dropped its campaign against TIAA-CREF after the financial services organization strengthened its policies in March. TIAA-CREF, which offers mutual funds along with core products geared toward higher education workers, pledged to confront companies in Sudan like PetroChina, and "divest from those that fail to take meaningful steps to respect human rights within a reasonable time frame."

Fund industry observers agree the activist campaigns are gaining momentum. But the movement still faces resistance from those arguing that government, not the business world, is the best place to address human-rights policy.

Investment companies for the most part contend their obligations largely come down to getting shareholders the best returns.

"Large asset managers will continue to serve as publicity-generating targets of advocacy groups," said Rob Ivanoff, an analyst with industry tracker Financial Research Corp.

But global human rights, Ivanoff said, are "best dealt with at the federal level, where democracy, world politics, and finance intersect."

Mark Jewell writes for the Associated Press.