A Caterpillar Divestment Victory?

Stock Cut From Pension Giant's Fund, But Not Over Israel

By Nathan Guttman

Published June 22, 2012.
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A victory celebrated by supporters of the movement to boycott, divest, and sanction Israel, could be significantly overstated.

The movement, which advocates economic pressure on Israel to push for an end to its occupation of the West Bank and for the right of Palestinian refugees to return to Israel, has been hailing investment giant TIAA-CREF’s recent decision to drop Caterpillar Inc. from its socially responsible investment portfolio. The pro-BDS groups have attributed the decision to concerns over Caterpillar’s sale of bulldozers to Israel, which militarizes them for use in demolishing Palestinian homes in the West Bank — a practice condemned by the U.S. State Department as a violation of human rights.

But clarifications provided to the Forward by the companies involved in the move paint a different picture.

Caterpillar, one of the world’s largest heavy machinery manufacturers, has long been a target of BDS groups because of its Pentagon-financed sale of bulldozers used to demolish the Palestinian homes.

TIAA-CREF, according to company sources and to its online publications, chooses the companies for its social responsibility accounts based exclusively on screening done by MSCI, a company that analyses companies and stocks. MSCI, in turn, produces the World ESG index, which rates companies by their performance on environmental, social and governance matters. It was MSCI that downgraded Caterpillar’s rating to a level that expelled it from the ESG index. This downgrading, in turn, led TIAA-CREF to immediately drop the company from its social investment portfolio.

But senior MSCI officials made clear the downgrade was not directly related to Caterpillar sales to Israel.

Caterpillar’s rating by MSCI on issues relating to social, governance, and environmental issues was, until recently, described by MSCI as ‘B.’ This was considered below-average, but still high enough to allow Caterpillar’s presence on the list of stocks that make up the ESG social investment package. Several months ago, Caterpillar’s rating fell from ‘B’ to ‘CCC’ leading MSCI to remove the firm from its ESG Index. This led TIAA-CREF to sell off its $72 million worth of Caterpillar stock from its socially responsible portfolio. Though a senior MSCI executive would not speak on the record, he made clear to the Forward that the immediate reason for the downgrade had nothing to do with Israel. It was because of labor issues raised in the context of Caterpillar’s closing of one of its plants in Canada.

But the executive’s explanation also indicated that the BDS movement did have some part in the process that led the Illinois-based corporation to losing its favorable social rating.

Among the reasons Caterpillar was earlier rated as a below-average ‘B’ company before downgrade to ‘CCC,’ were “human rights concerns relating to its activity in the territories” he said. Other issues leading MSCI to rate Caterpillar as ‘B’ had to do with labor management, employment safety and environmental concerns.

Available information does not make it possible to evaluate the weight of the Israel factor in MSCI’s earlier decision to rate Caterpillar at ‘B.’ The impact of that move on the subsequent downgrade to ‘CCC’ is therefore unknown. Still, this information does indicate that divestment activists had at least a small measure of success in the past in making investment firms and analysts take their claims into consideration.

The nuances of TIAA-CREF’s decision could prove significant in the battle over divestment from companies doing business with Israel. If TIAA-CREF’s dropping of Caterpillar from its socially responsible portfolio was related to Israel in some significant measure, it would be the first and most significant victory to date of the BDS movement. If, on the other hand, it was first and foremost Caterpillar’s bad labor relations in Canada that caused its disappearance from this list, anti-BDS groups could credibly claim that BDS had no real impact.

The debate over the interpretation of TIAA-CREF’s move is thus likely to continue.

Blair Thornburgh and Hannah Rubin also contributed reporting for this story.


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