Missouri's terror-free investing plan draws interest of states, businesses

Missouri’s state treasurer has spearheaded an effort to divest state investments from companies with potential ties to terrorism, and other states and businesses are taking notice.

Steelman’s efforts began when she first took office in January 2005, and she examined financial brokers the state used for its overnight repurchase agreements, or daily transactions related to money-market investments.

She found that one of the banks the state was using, Paris-based BNP Paribas, did business with Iran, one of four countries the U.S. State Department has named as a state sponsor of terrorism. The other countries on that list are Syria, North Korea and Sudan.

“I decided that it was wrong for our taxpayer money to be invested in companies that have a financial relationship with a government that the U.S. has said is a state sponsor of terror,” Steelman said.

After her office decided to stop using BNP Paribas for those deposits, Steelman reviewed the state’s other investments, starting with the Missouri State Employees’ Retirement System, or MOSERS, for which Steelman serves on the board of directors.

The terror-free investment policy now applies to MOSERS, the Missouri Investment Trust and all of the state’s public pension funds, including those for public school teachers and sheriffs, and affects a combined total of nearly $46 billion.

There are more than 400 companies on the prohibited-investments list used by Steelman’s office, though she can’t distribute the entire list due to an agreement with Conflict Securities Advisory Group, the private company that collected the information.

Following Missouri’s lead

Steelman and her staff members have testified in front of state legislatures in California, Ohio, Louisiana, Florida and Iowa. She also has spoken on national networks CNBC and Fox News to tout the benefits of terror-free investing.

California passed legislation earlier this year that forces the state public employees’ and state teachers’ pension funds to divest from any foreign company doing business in Iran. Those two funds – two of the largest in the nation – have combined holdings of nearly $400 billion.

California Assemblyman Joel Anderson, R-San Diego, sponsored the legislation, which has passed both houses of the California Legislature and awaits Gov. Arnold Schwarzenegger’s signature.

Anderson, who discovered that as much as 9 percent of the state employee pension fund was invested in companies doing business in Iran, said he is trying to make a social statement with his bill.

“Money is the mother’s milk of terrorism,” Anderson said. “I couldn’t look at our first responders in the face and say it was a good idea to take their financial future and invest it with the very people that helped to create Sept. 11.”

Steelman said she is thrilled that other states, particularly California, are following Missouri’s lead.

“When California (passes the law), there are going to be a lot of products that come forward,” she said, “and it will have a monumental effect on those terrorist government’s economies.”

Businesses also are joining the effort. UMB Financial Corp.’s investment division announced in August that it will offer a terror-free investment product through a state college savings, or 529, plan.

“Just as many investors choose to place their investments in environmentally supportive funds, this presents yet another way we are able to meet the unique needs of investors and allow choices in how their dollars are invested,” said Peter deSilva, president and chief operating officer of UMB Financial Corp., in an Aug. 29 news release.

Investing with a conscience

Socially conscious investing – putting money with companies that support specific principles or beliefs – is not a new idea, according to Jeff Jones, a finance professor at Drury University.

“In the mutual fund world, there are certain funds that focus specifically on not investing in firearms, tobacco, alcohol; they’re called social choice funds,” Jones said. “Then on the flip side, there are actually funds that invest exclusively in those things. Those ‘vice funds,’ from all the information I’ve seen, significantly outperform the social choice funds.”

Despite the limitation in investing opportunities, Steelman said the performance of state funds doesn’t seem to be suffering; she said the Missouri Investment Trust has seen a 28 percent rate of return in the last year. A comparable fund, the MSCI EAFE global index, returned 24 percent during the same period.

Steelman added that the U.S. Congress is considering legislation that would offer protection from legal action to trustees of funds that choose to divest their holdings in companies or countries that support terrorists.

That’s an important step, she said, because those funds are not only making a social statement – they’re also investing wisely.

“A company doing business in Iran right now has significant risk involved,” Steelman said. “I think we’re exercising our fiduciary responsibilities when we don’t invest in companies that have that kind of global risk.”

The List

While the state treasurer’s office can’t divulge the entire list of more than 400 companies with potential links to terrorism or to nations that sponsor terrorist activity, due to the agreement with the private company that compiled the list, here are some companies the office discovered during its own research:

Arab Bank

BNP Paribas

China Petroleum & Chemical Corp Sinopec

Chiyoda Corp.

Deutsche Bank

ENI

HSBC

National Petrochemical Public Co. Ltd.

Petrochina Co. Ltd.

PTT Public Co. Ltd.

Royal Dutch Shell

Siam Cement Public Co. Ltd.

Sinopec Shanghai Petrochemical Co. Ltd.

Sinopec Yizheng Chemical Fibre Co. Ltd.

Societe Generale

Thai Olefins Public Co. Ltd.

Total

Source: Missouri State Treasurer’s Office[[In-content Ad]]