History of the Use of Divestment as an Ethical Strategy
by the Presbyterian Church (USA)
Definition of Divestment
In 1984, the 196th General Assembly approved a statement of principles and criteria for considering divestment as an ethical strategy along with a study paper on the subject. In the study paper, divestment was defined as “a conscious decision to dispose of any current financial stake in an enterprise or class of enterprise because of policy or practice in regard to a social issue and to prohibit future stake so long as the offending situation holds.”
Tobacco, Alcohol and Gambling:
The earliest experience with divestment for the Presbyterian Church (U.S.A.) is the historic decision not to invest in the so-called TAG or “sin” stocks of tobacco, alcohol and gambling companies. This probably dates to the time of the temperance and moral welfare movement, and remains the policy and practice of the denomination’s investing agencies, and includes domestic and international equities.
The next discussion of corporate engagement and divestment recorded in General Assembly Minutes dates to 1965. Awareness of the importance and extent of involvement in South Africa by U.S. corporations was noted, and the Commission on Religion and Race was directed to convene a group of United Presbyterian business people and bankers “to consider the moral implications of economic relationships with South Africa (Minutes, UPCUSA, 1965, Part I, p.405.)
In 1967, a report from the consultation was presented to the General Assembly. It outlined steps U.S. businesses and banks might take to help change the situation, including withdrawal from involvement in South Africa. In addition though, the General Assembly noted: “On the other hand, if firms cannot be persuaded to cooperate, we urge the United Presbyterian Church in the United States of America and individual investors to protest by beginning to divest themselves of their holdings in such business enterprises (Minutes, UPCUSA, 1967, Part I, p. 329.) This direction was affirmed by the General Assembly in 1969.
General Assembly Investment Policies Adopted in 1971 and 1976
As denominations and other faith-based organizations became interested in how their investments could promote their mission goals (equal employment at Eastman Kodak and human rights in South Africa at General Motors), the move toward developing formal policies on socially responsible investment began. In the United Presbyterian Church, the 1971 General Assembly adopted a policy affirming the theological and ethical dimensions of investments, and committing the church to using its investments to promote the General Assembly’s mission goals. One year later the Committee on Mission Responsibility Through Investment (MRTI) was formed to implement the policy. The Presbyterian Church in the United States adopted a similar policy in 1976.
Divestment in the Post-Policy Era
The 1974 disaster at Duke Power Company’s Brookside mine in Kentucky resulted in the deaths of 89 miners, and revealed a history of poor safety practices. As part of a national campaign, the church divested its holdings in Duke Power and pledged “to refrain from purchasing any Duke Power stock or bonds until the miners at Brookside are protected by an adequate contract.”
The 1971 General Assembly socially responsible investment policy identified concerns related to military production: sheer size of military spending and weapons whose use could not distinguish between civilians and combatants. Corporate engagement began around these concerns.
The 1980 Call to Peacemaking asked all agencies and committees of the church to consider what more they could do to promote peacemaking. This initiated a study of investments in military-related companies, corporate engagement, and possible divestment linked to General Assembly policies on military production.
In 1982, the General Assembly of the United Presbyterian Church adopted a divestment and proscription recommendation according to a precise formula for identifying companies most heavily involved in military production by total dollar volume and as a percentage of revenue and those directly involved in nuclear warhead production.
This policy has been amended three times since then to reflect changes in the industry due to consolidation, and to add foreign military sales and other weapons such as anti-personnel land mines. Currently, twenty-one companies are on the General Assembly’s divestment list as a result, somewhat larger than in 1982. This is mostly due to the significant increase in foreign military companies among the top 100 companies with contracts from the U.S. Department of Defense.
As the situation in South Africa with its apartheid system continued to deteriorate, the church ramped up its engagement of companies. In 1978, the General Assembly urged that investments and bank accounts be limited to financial institutions that precluded additional loans to the government of South Africa. Almost half of the fifty-five shareholder resolutions filed by the United Presbyterian Church from 1974 to 1982 dealt with South Africa and Namibia.
While the engagement process had made some headway in changing corporate practices, clearly more needed to be done. In 1981 and 1982, both predecessor denominations adopted comprehensive policies on South Africa and Namibia. In addition, in 1981, the General Assembly of the United Presbyterian Church adopted an overture from the Presbytery of Chicago directing the General Assembly Mission Council “to study the possibility of divestment of stock in corporations that do business in the Republic of South Africa…” and report back to the 1983 General Assembly.
The study was divided, with General Assembly approval, into two stages. The first stage was an analysis of divestment in general, approved by the 196th General Assembly (1984). It contained two sections: a background paper on the ethical and institutional context of divestment; and a statement of principles and criteria for considering divestment. The second stage applied the principles and criteria specifically to South Africa. Adopted in 1985, the General Assembly called for a selective and expanding use of divestment as a strategy in addressing issues of corporate involvement in South Africa, and received description of such a process now usually described as “phased, selective divestment.” This involves seeking change in corporate practices through correspondence, dialogue, proxy voting, and filing shareholder resolutions, and then, if the desired changes have not been achieved, recommend divestment action by the General Assembly. Initially, four companies were placed on the General Assembly divestment list, and all told, a total of sixteen companies were added. As companies pulled out of South Africa, they were removed from the divestment list. When apartheid ended in 1993, the policy was rescinded, and all remaining companies were removed from the divestment list.
In 1992, the General Assembly formalized a policy of non-investment in the top ten tobacco companies by volume of revenue from tobacco products averaged over two years.
Human rights concerns related to the military government of Burma prompted shareholder advocacy in the early 1990’s. The main focus was the offshore gas project with a pipeline across a narrow part of southeast Burma (including allegations of forced labor) to supply electricity to Thailand. In 1998, the General Assembly adopted a Commissioners’ Resolution on Burma that included a call for increased corporate engagement, and urged application of the 1984 policy on phased, selective divestment.
MRTI consulted with several organizations advocating pressuring corporations about their involvement in Burma. Noting that many corporations had severed ties to Burma as a result, MRTI maintained a position of continued corporate engagement with the General Assembly’s concurrence.
The war in Sudan waged by the government, based in the northern section of the country, against a largely Christian and animist population of southern Sudan included a struggle over oil revenues. At the center of the issue was a pipeline being constructed to transport oil from the oil fields, also in the South, to the coast for refining and/or shipment. Talisman Energy of Canada was the lead partner in a consortium building the pipeline. Sudan’s government was buying military equipment on credit using future oil revenues as collateral.
In 2000, the General Assembly directed MRTI “to explore the appropriateness of complete divestment from Talisman [Energy Inc.],” and report any recommendations to the 2001 General Assembly. MRTI had already been engaging Talisman in cooperation with Canadian church partners. The continued corporate engagement, including a meeting with the CEO, clarified that Talisman had no intention of withdrawing from Sudan as requested by the New Sudan Council of Churches, a PCUSA partner.
In 2001, the General Assembly adopted MRTI’s recommendation that Talisman Energy be added to the divestment list “until such time as it ends its operations and withdraws its investments from the Sudan.”
Talisman later withdrew from the Sudan following considerable pressure from global investors. However, when MRTI recommended that Talisman Energy be removed from the GA’s divestment list, the 2003 General Assembly postponed action on the removal for a year pending MRTI’s verification that the company’s other international operations were not involved in human rights violations. The 2004 General Assembly approved the removal following MRTI’s verification report.
The 2004 General Assembly instructed MRTI to begin phased, selective divestment of companies doing business in Israel. MRTI developed criteria to determine which companies to engage based upon General Assembly policies regarding a just peace in the region. In 2006, the General Assembly stated that the church’s investments related to Israel, Gaza, East Jerusalem and the West Bank should be in companies that are only involved in peaceful pursuits, and that the normal MRTI process of corporate engagement is the vehicle for making that determination. Since 2006, corporate engagement has continued. A recommendation to the 2014 General Assembly of divestment involving three U.S. companies (Caterpillar, Hewlett Packard and Motorola Solutions) was passed in June 2014.