Genocide-Free Investing Group Lobbies Congress

The thorn in the fund industry’s side will not go away.

Investors Against Genocide, the activist group that has used a very public campaign to bring pressure on fund giants to divest their funds from companies with links to the ongoing genocide in Sudan, yesterday briefed members of the Congressional Human Rights Caucus about their efforts.

“Is there anything that Congress can do, should be doing, to support the idea of socially responsible, genocide-free investing?” asked Rep. James McGovern (D-Mass.) in an opening statement to the briefing of the caucus. (Congressional caucuses provide a forum for members of Congress to discuss issues and legislative agendas.)

“The moral outrage is not working,” says McGovern, in an interview with Ignites following the briefing. The consensus from yesterday’s briefing, he says, is that there should be formal congressional hearings to explore the issues further and to figure out whether legislation is needed. McGovern says he plans to talk with the chairmen of the House foreign affairs committee and the financial services committee to discuss putting a hearing on the agenda for 2009.

Yesterday’s hearing and the possibility of another, more formal, hearing before Congress in 2009 are the latest indications that Investors Against Genocide is not giving up its fight to change fund firms’ ways.

Firms that have drawn fire from the activist group include Fidelity, Barclays, Franklin Templeton, TIAA-Cref, T. Rowe Price and Vanguard.

Working with Congress is the appropriate channel for the activists to use, says Mercer Bullard, president of Fund Democracy. “Interest groups lobby Congress, trying to bring about change, and that’s where the debate should be fought out,” he says. “It should not be top-down pressure on investment vehicles to change their investment rules.”

Investors Against Genocide has used other tactics in its mission to bring about “genocide-free investing.” Most recently it was able to place a proposal on Fidelity’s proxy that, if passed, would have required the boards of the funds to screen out investments in companies it deems “substantially contribute” to genocide.

The proposal garnered between 21% and 30% support from voting shareholders of more than a dozen of Fidelity’s funds. It’s unusual for such social issues to get more than single-digit support. The group has submitted the proposal to the other firms it has pressured; however, they do not have votes scheduled at this time.

Eric Cohen, Investors Against Genocide’s chairman, said in a statement from yesterday’s briefing that one of the objectives of the future hearing would be to “get perspective from senior management of mutual fund and investment companies on why they continue to invest in genocide. Hearings would force management to answer hard questions rather than deflecting public concerns with simplistic excuses.”

Fund firms have argued that investors have chosen to invest in their funds for their current stated investment objectives, which do not include screening the holdings for links to the genocide in Sudan. The argument is, unless they have clearly defined social criteria for investment decisions, then funds that divest from companies linked to the genocide may not be doing their shareholders’ bidding.

President George Bush passed the Sudan Accountability and Divestment Act last December, which essentially provides a safe harbor for asset managers (as well as state and local governments) that divest from companies with ties to Sudan’s oil, mining, power and military equipment industries.

Cohen said he was disappointed to report that the major mutual fund companies “have remained unmoved” by the law.

Adam Kanzer, managing director and general counsel of Domini Social Investments also attended the briefing. Kanzer said that fund firms’ fiduciary duty to fund shareholders does not compel them to profit from genocide.

“Can we honestly sit here today and argue that honesty, care and loyalty — the core concepts guiding the law of fiduciary duty — permit me to make money for my client at the expense of the lives of innocent men, women and children?” Kanzer stated.

Investors Against Genocide notes in its press release about the hearing that the Investment Company Institute, Fidelity and Franklin Templeton declined to attend yesterday’s meeting.

"ICI officials were unable to attend today's briefing due to a longstanding scheduling conflict. ICI and the fund industry continue to support efforts to ensure responsible and ethical investing,” says Mike McNamee, spokesman for the ICI.

“We were unable to attend, however we did inform officials about our statement [related to divestment], which is on our website,” says Vincent Loporchio, spokesman for Fidelity.

Franklin Templeton did not have anybody available to attend the event, according to Lisa Gallegos, a spokeswoman for the firm.