Voting with the portfolio: Fidelity and Sudan divestment

This is the 21st century version of “voting with the wallet.” Socially responsible investing is not a new idea. SRI mutual funds have been around since the 1970s and they even have their own S&P-equivalent index (Domini Social Index 400) as benchmark to gauge the performance of different offerings.

But a renewed interest in the unstable situation in Sudan suggests the difficulty defining responsibility and making it actionable. A number of people have called for a divestment from all companies benefitting from the war in Sudan. This is no fringe movement: no less than Harvard University has implemented the recommendation by elliminating its positions in PetroChina and Sinopec, both oil companies drilling in Sudan. (Quote: “Although Harvard maintains strong presumption against the divestment of stock …we believe that the case for divestment in this instance is persuasive.”)

In spite of its wealth, Harvard still controls a small amount of total US capital invested overseas. Mutual funds control the lion’s share, on behalf of ordinary citizens and institutional investors. Case in point: Fidelity is the largest investor in PetroChina and not surprisingly one website singles out Fidelity to drop any Sudan-related equities from its mutual funds. Fidelity’s take on the problem? According to this Money/CNN article, primarily denial and form letters:

“We believe the resolution of complex social and political issues must be left to the appropriate authorities of the world that have the responsibility, and capability, to address important matters of this type. And we would sincerely hope that they would do so wisely on behalf of all of the citizens of the globe.”

Deja vu? Sounds like the same spineless stance Fidelity has taken in the past, when confronted with the decision to support shareholders demanding greater accountability from boards.

The page pointledly notes that Fidelity handles retirement accounts for a number of large companies including Microsoft and Time Warner. This raises an interesting question for what individuals can do. While there is no control over choice of brokerage for corporate accounts, typically employees do have a say in what funds they hold in those accounts. (Don’t expect unbiased representation though: it is natural for the brokerage to emphasize its own funds.) There is a second question around whether the issue taints all Fidelity funds or only those with positions in the questionable equities. One might expect that only foreign funds are impacted, which would be bad enough considering the exodus of money into foreign funds owing to this class having outperformed domestic stocks for 3 years. But according to this helpful breakdown of holdings, even the domestic weighted and extremely popular Contrafund (FCNTX) is involved, increasing its position by close to 10% in the 3rd quarter of CY2006.


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