State and municipal officials fearful of becoming unwitting supporters of global terrorism are seeking ways to screen their stock investments.
Pennsylvania, California and the city of New York are reviewing a new product called the Global Security Risk Monitor that identifies 260 firms doing business in six countries--Iraq, Iran, Sudan, Syria, Libya and North Korea--identified by the State Department as sponsors of terrorism, some of them suppliers of weapons.
Though the U.S. government has published a financial blacklist of 210 alleged terrorists or terrorist-financing organizations, officials at the National Assn. of State Auditors, Comptrollers and Treasurers said they want to go further to ensure their investments are not going into the coffers of Al Qaeda or other groups.
"No Americans want to see our pension moneys go to companies supporting terrorism," said Pennsylvania State Treasurer Barbara Hafer, president of the national association and overseer of state retirement funds worth more than $90 billion. "It is complex, but if we can set up the [screening] system, we can send a very large message to people that we don't like what they are doing."
The monitor is produced by the Investor Responsibility Research Center and the Conflict Securities Advisory Board, a Washington group headed by Roger Robinson, a former National Security Council official. Washington-based IRRC, a 30-year-old research firm specializing in corporate governance, produced a similar list used during the successful South Africa divestiture campaign.
State and local officials have taken the lead in shareholder divestiture campaigns aimed at tobacco companies and Swiss banks accused of collaborating with the Nazis.
Because it is global and covert, terrorism is far more complex than earlier targets of shareholder divestiture campaigns, such as those aimed at South Africa's apartheid regime or the military government in Myanmar, formerly known as Burma. An antiterrorism investment movement could pose a serious threat to corporate reputations already battered by a spate of scandals.
David DeRosa, president of Connecticut-based DeRosa Research & Trading Inc., said a company selling "Coca-Cola in the Sudan" shouldn't face a problem. "On the other hand, if you're selling electronics or something that's of a critical nature, your company could wind up becoming an investment leper."
The IRRC will not disclose the firms on its global security list. However, Germany's Siemens, Japan's Mitsubishi Corp. and Houston-based energy giant Conoco Inc. reportedly are named. U.S. firms account for just 15% of the total, which is not surprising because the U.S. government already has economic sanctions against the suspect countries.
Robinson said his firm is not advocating shareholder divestiture but simply providing investors with the information to make an informed choice. The monitor includes background on company operations, a political and economic snapshot of the targeted countries and an assessment of the security risks of key industries such as energy and telecommunications. None of the companies is accused of illegal activities.
"Getting ahead of these potential blows to the share value of portfolio companies is what risk management is all about," he said.
California State Treasurer Phil Angelides said he has asked the California Public Employees' Retirement System, known as CalPERS, and the California State Teachers' Retirement System, or CalSTRS, to evaluate the monitor and "see if it raises any issues in our portfolio." The treasurer is on the boards of both funds, which are among the nation's largest, with portfolios of about $250 billion.
At the urging of Angelides, CalPERS this year adopted standards that for the first time linked investment decisions to nonfinancial issues such as political stability and human-rights protections. Under the new policy, CalPERS will not invest in Thailand, Indonesia, Malaysia or China.
Angelides said security issues were not included in that review because the state couldn't get enough information about the funding sources for the global terrorism network.
"If the federal government wants to facilitate global investment, it must also provide the tools to protect American investors against unknowing actions that could threaten our society and our country," he said.
Congress also has threatened to jump into the fray. Sen. Robert C. Byrd (D-W.Va.) has proposed legislation requiring companies that want to access the U.S. capital markets to disclose financial dealings of more than $10,000 with countries that sponsor terrorism. The Senate Select Intelligence Committee has approved a provision by Sen. Fred Thompson (R-Tenn.) that would require U.S. intelligence agencies to investigate whether foreign groups involved in the "proliferation of weapons of mass destruction" are raising money in U.S. capital markets.
Drawing the Line