Published by Financial Times.

By Joe Morris

Shaken by evidence of human rights abuses in Sudan, US pensions and endowments began divesting from companies linked to the government years ago, but financial companies and mutual funds almost uniformly still cling to shares.

Pressure groups point to four oil companies – PetroChina, Sinopec, ONGC and Petronas – as crucial to sustaining the Khartoum government. Activists have hounded a handful of investment companies with sizeable stakes, shattering the routine of annual shareholder meetings with long-shot proxy fights.

The upcoming proxy season will be no different.

For the fourth year running, JPMorgan Chase is fighting to block a shareholder proposal calling for divestment, while Franklin Resources is lobbying against one for the second time. Similar initiatives are pending at more than 100 mutual funds.

The initial resistance of the target investors was not surprising, says Eric Cohen, co-founder and chairman of Investors Against Genocide, the advocacy group. But he finds their continued opposition hard to justify.

“Here we are now 11 years since the genocide in Darfur started; how is it that we still have to be arguing with the Fidelitys and the JPMorgans of the world that maybe it is a problem to have large investments in companies like PetroChina that are propping up the regime in Sudan?” Mr Cohen says.

JPMorgan, which owned $1.3bn of PetroChina at midyear, or 7 per cent of shares outstanding, asked the Securities and Exchange Commission last month for clearance to exclude Investors Against Genocide’s proposal from this year’s proxy because it had appeared in previous years and failed to garner more than 10 per cent in the last ballot.

Franklin also asked to exclude the proposal, partly on grounds that it sought too much control over company decisions, but the SEC refused in December. The vote takes place next month.

A new Investors Against Genocide proposal has been drawn up for Goldman Sachs, though Goldman officials are in consultation with the group, Mr Cohen says. Next on the group’s target list are BlackRock and ING US.

Formed in 2006, Massachusetts-based Investors Against Genocide began by writing letters to Fidelity, at the time the biggest US shareholder in PetroChina, the most active oil developer in Sudan. The effort quickly escalated to proxy proposals at other large shareholders.

Evidence of rights abuses has only mounted since then. In 2010, the International Criminal Court issued an arrest warrant against Omar al-Bashir, president of Sudan, for war crimes including genocide in the government’s conflict with rebels in the Darfur region. Mr Bashir is simultaneously battling rebel groups in the peripheral states of Blue Nile and South Kordofan.

Investors Against Genocide is not a shareholder in the companies it targets. The proposals are submitted by like-minded individual shareholders with whom it typically makes contact via an email distribution list of more than 10,000. Only in rare instances have activists purposefully built up the stakes necessary for sponsoring motions – worth $2,000 or more, and owned at that level for at least a year – in order to petition.

Its proposals call for “transparent procedures” against investing in companies that “in management’s judgment substantially contribute to genocide or crimes against humanity”. The wording is meant to avoid micromanaging investments, Mr Cohen says.

“We have set a bar that is pretty clear, and we are leaving it to them to define what substantial means and how their judgment comes into play,” he says.

Typically, companies respond by asking the SEC for permission to keep the proposals off their proxies. Failing that, they recommend shareholders vote against the proposals. Shareholders usually comply.

Some campaigns have succeeded, however.

TIAA-CREF and T Rowe Price voluntarily adopted anti-genocide policies following consultations with Investors Against Genocide, Mr Cohen says, and a 2012 vote at ING Emerging Countries fund, in which management took a neutral stance, passed with 59 per cent support.

“Determining when a particular security poses too much risk is a highly subjective and fluid process, and we may change our thinking about this particular risk factor in the future,” says Brian Lewbart, a T Rowe spokesman. “However, at the present time, we believe that excluding these companies from consideration for investment in our clients’ portfolios best serves their interests.”

State pensions in California, Connecticut, Florida, New York and Ohio, as well as about 60 college endowments have also supported genocide-free investing policies.

Even Fidelity, which spawned the Investors Against Genocide campaign, has dumped shares. The company continues to oppose anti-genocide shareholder motions, but fund manager Will Danoff, whose portfolios owned nearly all Fidelity’s New York-listed PetroChina shares, divested completely in early 2007.

The action seemed prompted by the lobbying, Mr Cohen says, and it highlighted the enormous challenge of overcoming institutional inertia, even on issues that move people viscerally.

“It seemed to us that the lesson was the individuals get it,” Mr Cohen says, “but the institution is still resistant.”