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Not So Complete Divestment

January 9, 2007

After receiving much praise for taking an ethical stand to sell off stocks in companies that may support genocide in Darfur, Harvard University finds itself accused of continuing to profit from investments in that region of Sudan.

Based on Harvard's last report filed with the Securities and Exchange Commission, the Harvard Crimson noted that, as of September, Harvard had 492,493 shares of the index fund FTSE/Xinhua China. The fund is managed by Barclays Global Investors, which reported on Friday that 8.38 percent of the fund's assets are held in PetroChina Co., along with an additional 0.91 percent in Sinopec -- the two companies the university pledged to stop owning any part of.

Bloomberg reported that Harvard has an additional 4.6 million shares of the iShares MSCI Emerging Markets Index fund. The fund has around 0.7 percent of its assets invested in Sinopec.

The Harvard Corporation Committee on Shareholder Responsibility advised the university to divest from PetroChina in April 2005, and made a similar recommendation regarding Sinopec last March. But if Harvard maintains its shares in both mutual funds, that means it has millions invested in both companies it has publicly promised to divest from.

"It is our policy not to discuss individual investments," said John Longbrake, a spokesman for Harvard.

“Certainly an institution the size of Harvard can find out what companies their mutual fund is holding. It’s entirely within their power,” said Michael Connor, publisher and editor of CRO, a publication serving corporate responsibility officers.

Peter Kinder, president of KLD Research and Analytics Inc., agreed with Connor, but said that it can be difficult to track every dollar. His firm provides advice for professionals seeking to invest ethically, and it currently provides investment managers with lists of the companies to avoid if shareholders choose to divest from Sudan.

Kinder said that Harvard could have looked a little more closely at the index fund to ensure that none of the assets would end up in companies that the university is trying to avoid, but he added that there are limits to what an investor can do and what fund managers can provide. For instance, he said that a mutual fund that tries to avoid a category like weapons stocks will usually only guarantee that no more than 1 percent of assets will end up in defense holdings.

“Even after all the research, the reasonable expectation of actually getting down to zero is virtually impossible,” Kinder said. “So you have to hedge your bets.”

A spokesman for Barclays Global Investors, who did not wish to be identified, said that the FTSE/Xinhua China index fund is a little over two years old and tracks the largest companies in China’s equity market that are available to international investors. He said that he is pretty certain that the fund has maintained investments in the same companies over the fund's lifetime, as companies are not moved in and out of the fund’s portfolio all that often. “This is not that kind of fund,” he said. “The index would not change quickly over time.”

The spokesman added that investors can call Barclays to learn if their investments might have shares in companies that are accused of funding genocide in Sudan. “We have screened portfolios. These types of strategies are available for Barclays’ investors,” he said.

Adam Sterling, director of the Sudan Divestment Task Force, said that of the 35 universities that have adopted divestment strategies against Sudan, only two have applied the policy to their holding in mutual funds. “Harvard is in the norm,” Sterling said. “The only ones that have sold investments in mutual funds are the University of Maryland and the University of Colorado.”

After examining the index carefully, Jason Miller, the national policy director of the Sudan Divestment Task Force, said that Harvard should simply sell its shares and “find a better way to invest in China that is consistent with its own investment policy against Sinopec and PetroChina.”

 

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