HARRISBURG — Pennsylvania Treasurer Robin L. Wiessmann today announced that she will divest Pennsylvania’s $1.2 million investment in China Petroleum and Chemical Corporation, which operates in Sudan, the African nation whose government is responsible for the genocide that has killed at least 400,000 and displaced more than 2.5 million citizens in the Darfur region.
Treasurer Wiessmann’s announcement is a result of a recent amendment to Treasury’s current Investment Policy that addresses the “next frontier of investing” by weighing the impact of geopolitical, environmental, governance, and other strategic factors on an investment’s financial appropriateness. These factors will allow Treasury’s investment decisions to be accompanied by economic analysis of long-term considerations, including sustainability.
In making the announcement, Treasurer Wiessmann stressed that the volatile climate in Sudan, combined with growing international pressure, threatens Pennsylvania’s long-term value in these investments and poses risks to the Commonwealth’s holdings.
“Despite multiple attempts by many institutional investors, China Petroleum and Chemical Corporation has refused to engage its shareholders in dialogue, representing risks that cannot be fully evaluated and are no longer considered prudent for Pennsylvania,” Wiessmann said.
Treasurer Wiessmann is also beginning discussion with Weatherford International Ltd. and Schlumberger Ltd., a combined holding of $13.6 million, to influence their company behavior. Weatherford and Schlumberger, as well as China Petroleum and Chemical, are involved in the development of oil-rich parts of Sudan, and oil revenue is funding the activities of government-backed militias in the country.
In addition to protecting the Commonwealth’s investment position, such action will signal to companies and countries alike that there are tangible consequences for their conduct.
Treasurer Wiessmann emphasized that properly structured divestment from these companies should not adversely impact the Commonwealth. According to Treasury’s financial analysis, the approach will identify acceptable investment alternatives that should result in comparable financial returns.
“There is no good reason that taxpayer dollars should support companies that subsidize a genocidal regime when acceptable investment alternatives exist,” Wiessmann continued.
Treasurer Wiessmann is directly responsible for investing money belonging to nearly all state agencies. Her broad authority to place these funds in a wide range of investments, including equity securities and mutual funds, is subject to well-established standards that prudent persons would follow in the management of their own funds.
Decision grounded in economic analysis
Treasury’s recently amended Investment Policy recognizes that geopolitical, environmental, and governance factors influence the long-term value and performance of investment portfolios. The revised policy will assist Treasury in carrying out its fiduciary responsibilities in an enhanced and more comprehensive manner.
It includes the following guidelines:
- Treasury will continue to consider conventional factors such as earnings-per-share and price-to-earnings or competitive advantages enjoyed by a company such as lower production costs, intellectual property rights, or a stronger brand presence.
- Treasury will incorporate strategic factor analysis into its investment decision-making when the Treasurer believes these factors may affect the performance of an asset or sector.
- Treasury will begin to examine, and will direct advisors to examine, such factors as geopolitical circumstances, environmental factors, and governance practices (for example, genocide, terrorism, corporate ethics, financial transparency, climate change, and the nationalization of industries).
- Once a company is identified as “at risk,” Treasury will become an active shareholder and encourage corporate management to alter business practices to reduce that risk. If the company does not respond to these actions, Treasury will consider either making no new investments or divesting consistent with sound investment practice.
“Addressing this next frontier of investing will respond to the demand for an expanded assessment of the appropriateness of an investment,” Wiessmann said. “Traditional economic factors are the primary driver of investment decision-making. However, there are additional corollary factors that a fiduciary must also consider when making such decisions.”
Treasurer Wiessmann helps cultivate next investment frontier
In taking the step to address strategic factors, Treasurer Wiessmann joins a growing number of institutional investors, financial organizations, and investment managers working to cultivate this next investment frontier.
State Treasury Departments from around the nation, including Connecticut, New York, Vermont and California, have begun taking these strategic factors into consideration when making investment decisions. Several organizations have provided similar frameworks and research for institutional investors, taking into account the impact of these geopolitical and environmental considerations on long-term investment performance. They include the Principles for Responsible Investment (PRI) project, created through a partnership with the United Nations Environment Programme Finance Initiative and the United Nations Global Compact; the Enhanced Analytics Initiative (EAI), an international collaboration between asset owners and asset managers; the Global Framework for Climate Risk Disclosure, developed by 14 leading investors and other organizations worldwide, including the Connecticut State Treasurer’s office and the California state pension funds; and the Investor Network on Climate Risk, coordinated by Ceres, a coalition of investors and environmental groups working to advance sustainable prosperity.
Treasury’s amended policy confirms that even investors guided by fiduciary obligations to their beneficiaries are obliged to take serious notice of the special risks posed to their investment strategies by companies whose long-term prospects may be clouded by their choice of business patrons.
“There is a growing consensus among institutional investors that these strategic factors have moved beyond the niche realm of ‘social investing’ to take their place as a necessary component of an investor’s tool kit,” Wiessmann said. “As such, I believe that my fiduciary responsibility requires me to look at the entire picture, including an investment’s sustainability, when investing the public’s funds, and I believe that Pennsylvania’s pension funds have the same obligations.”
Treasurer Wiessmann will use her position as a member of Pennsylvania’s pension funds’ Board of Directors to encourage swift adoption of a similar framework with an immediate focus on holdings in Sudan. Treasurer Wiessmann serves as statutory custodian of about $94 billion belonging to the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS), the investment of which is under the exclusive control of the SERS and PSERS trustees.
“I believe that our framework for considering the economic significance of unconventional strategic factors is a useful tool that can be utilized by other fiduciaries of public funds,” Wiessmann said. “I call upon all agencies charged with investing the public’s money to consider incorporating our framework into their existing policies to address this next investment frontier.”
The Pennsylvania Treasury Department, under the leadership of Treasurer Robin L. Wiessmann, acts as the Commonwealth’s bank, serving as custodian, investor, and disburser of the Commonwealth’s funds. Treasury also offers a wide range of programs and services to Pennsylvania families, such as helping to make college possible with the nowU Pennsylvania College Savings Program; returning abandoned and unclaimed property to its rightful owner or heir; offering Pennsylvanians an alternative to payday lending through Better Choice; and funding energy efficient home improvements through the KeystoneHELP low-interest loan program. For more information about Treasurer Wiessmann and the Pennsylvania Treasury Department, visit www.patreasury.org.
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