The Congressional Human Rights Caucus is pressuring mutual fund companies voluntarily to divest their holdings in companies that do business in Sudan.
Under U.S. law, it is legal for asset management firms to invest in foreign companies that are doing business in the Darfur region, or have links to the Sudan government, despite the genocide that many world leaders contend is occurring there.
Nonetheless, some on Capitol Hill are looking for a way to prevent investments from being made in the region.
When representatives from mutual funds "tell me that people gave us their money to invest, and we need to follow a certain set of guidelines and we can't possibly go back and rearrange their investments, that's as if genocide is beside the point," said Rep. James McGovern, D-Mass., a co-chairman of the caucus.
"Genocide cannot be beside the point. Some things are so horrific," he said.
The caucus, a bipartisan organization of representatives that focuses on human rights issues, held a briefing last week with presentations from Domini Social Investments LLC of New York; the Enough Project, a Washington-based anti-genocide group; and Investors Against Genocide, a Boston-based advocacy group.
For its part, Investors Against Genocide plans to target mutual fund companies in a shareholder proxy campaign designed to encourage firms to adopt policies of divestment from Sudan.
"There are executive orders that prevent Exxon [Mobil Corp. of Irving, Texas] and Chevron [Corp. of San Ramon, Calif.] from doing business in Sudan," said Eric Cohen, chairman of Investors Against Genocide. "Yet the largest [financial] institutions in America are giving billions of dollars of capital to their competitors who are doing just that."
In Mr. Cohen's view, the regulations governing fiduciary responsibility need to change so that divesting is permissible.
"They can fulfill their fiduciary responsibility without investing in PetroChina [Co. Ltd.]," a Beijing-based oil company that does business in Sudan.
But such an approach could cause problems for fund companies.
"The issue is challenging because of a firm's fiduciary responsibility to investors and absent a socially responsible fund, their responsibility does not include a focus on issues like divestment," said Burton Greenwald, a Philadelphia-based mutual fund consultant.
If the firms ignored a ground-swell of shareholder sentiment, they would have a problem, though so far that hasn't occurred.
"There's no doubt it's a moral issue. I think the shareholders are alert to it," Mr. Greenwald said.
"They can walk with their feet," he said. "That damages a fund in the sense of losing assets."
REVIEW REQUIREMENTS
Also, Investors Against Genocide wants Congress to review disclosure requirements as well as the shareholder proxy process.
If moral suasion fails, the Sudan divestment issue could be on the legislative agenda of Congress next year.
"I want an agreement that we're going to follow some different standards," Mr. McGovern said. "If that doesn't work, then we'll look at legislative remedies."
That could include hearings in 2009 geared toward persuading mutual fund companies to provide options.
"I don't want to preach to anybody or hurt anybody's business model. I just want the average investor to have some reasonable investment alternatives," said Rep. Michael Capuano, D-Mass., a caucus member.
Investors Against Genocide is pushing for senior executives from mutual fund firms to speak on the record at the hearings about their dealings in Sudan.
But, even if hearings don't materialize, the pressure is unlikely to subside, at least any time soon.
"It seems to me that the next step is we need to follow the money and squeeze the Sudanese government into doing the right thing," Mr. McGovern said.
E-mail Sue Asci at [email protected].
