Campaign To Divest From Iran Struggles With Costs of Making Portfolio ‘Terror-Free’
Washington – As the demand to divest from Iran becomes a signature issue for the Jewish community, activists are finding it difficult to actually implement divestment both on a national level and within Jewish communal organizations.
Three states have passed legislation that should move their pension funds out of companies that do business with Iran, but legislation in most states has either failed or was not yet introduced. On the federal level, Congress is still far from making a decision on bills supporting divestment. Among the most notable slow movers, though, have been the Jewish communal organizations, which are struggling with the financial and technical difficulties of rearranging investment portfolios.
Divestment has been seen as one of the best hopes for pressuring a recalcitrant Iran to drop its nuclear program, given the political liabilities involved with discussing military action against Iran. The idea of pulling out of companies that do business with Iran is based on earlier such efforts that crippled the apartheid South African government. But thus far, the South African campaign has not been replicated.
“We have not yet reached the critical mass needed to make the divestment noticed,” said a Jewish official, speaking on condition of anonymity. “The Iranians aren’t feeling the pressure yet.”
The reason for much of this difficulty is very modern and deceptively simple: hedge funds. It is estimated that at least a quarter of the endowments held by Jewish federations are invested in hedge funds, which are traded daily, thus making it nearly impossible to monitor the content of the portfolio and to make sure that it is “terror free” — a term now widely used to describe investments that do not include companies doing business with Iran or with Sudan.
It is possible to make Iran-free investments by pulling out of hedge funds, but that brings the risk of decreased returns. The current hope is that with pressure from large pension funds, new Iran-free funds will be created, similar to the “green funds” that were created in response to calls from environmentally conscience investors.
“If that will lead to the creation of an Iran-free fund, then we will ask federations to divest their own endowments,” said Hadar Susskind, Washington director of the Jewish Council for Public Affairs.
“Of course people are concerned about being asked ‘Why aren’t you divesting yourself before telling the state to do so?’” Susskind said.
These difficulties have not stopped Jewish organizations from pushing the issue. Last Thursday, The Israel Project — a group focusing on making the case for Israel’s security in the media — challenged all presidential candidates to take a stand on the issue of Iran.
The candidates themselves did not show up at the Capitol Hill press conference, but they did send in written statements. Standing in front of a stack of mailboxes filled with signed petitions to lawmakers, The Israel Project’s staff members read the statements, which reflected a general consensus regarding the need to block Iran from obtaining nuclear weapons, and a support for divestment from companies dealing with Iran.
“We are only at the beginning of a long road,” said Jennifer Laszlo Mizrahi, founder and president of The Israel Project. “Candidates are just learning about the issue now.”
Laszlo Mizrahi, who has focused her group’s work on promoting divestment from Iran and strengthening economic pressure on the country, said she still sees reluctance on behalf of businesspeople to bring moral and social issues into their financial decisions.
“They say that money is only about making money,” she said.
The best results so far have been achieved at the state level. Fourteen states this year have discussed divesting their pension funds from Iran, with Missouri, Florida and Louisiana already taking action and California expected to pass this fall a resolution pulling some $24 billion that is invested in companies dealing with Iran.
California State Assemblyman Joel Anderson, who pushed for the legislation, told the Forward that he had to use a two-pronged approach in convincing legislators to support divestment: “There are those who listened to the social arguments and those who prefer the fiscal ones.”
Anderson made the point that maintaining investments in companies doing business with Iran would be financially unwise, due to the instability that Iran is facing and the toughening sanctions against the country. “How can you gamble with taxpayers’ money?” Anderson asked.
In some states, such as Maryland, legislation fell through; in others, legislation was not completed before the end of the session. In Ohio, proponents of an Iran divestment bill were forced to accept a voluntary commitment of the pension funds to divest after partisan disagreements caused legislation to fail.
Bonnie Burdman, director of community relations and government affairs at Ohio’s Jewish Community Relations Council of the Youngstown-area Jewish federation, was among those pushing lawmakers to take action. “The challenge we were facing was dealing with the belief that the state should not meddle in foreign policy and should not get involved in how pension funds conduct their business,” she said.
For Jewish groups that want to proceed with divestment, the best hope could come from a move reported Tuesday in The Wall Street Journal. According to that report, a coalition of pension funds from California, New York, Illinois and North Carolina began pressuring energy companies to cut their ties with Iran. The pension funds represent a $3.7 billion investment in these companies and thus could lead to the creation of a new investment vehicle that could then also be used by Jewish organizations.
Even without these new funds, one organization, United Jewish Communities, has managed to create an Iran-clean portfolio. UJC, the umbrella group for local federations, has a $75 million portfolio.
“We are very much at the cutting edge of dealing with these issues, but they are not simple and clear cut,” said William Daroff, UJC’s vice president of public policy.
Daroff stressed that in making the decision, the organization kept in mind that “there are things more important than the rate of return.”
UJC’s portfolio is relatively small compared with the $13 billion held in the endowments of local Jewish federations. UJC has put out guidance “encouraging the Federations of North America to seriously consider these issues and to take appropriate action.” The decision on how and when to divest was left up to each local federation, and many local groups are considering taking measures.
Major Jewish organizations, which also control large endowment funds, face a similar dilemma. While strongly supportive of the idea, most groups have yet to present a final report making sure their own assets are free from investments in Iran.
The Anti-Defamation League checked its portfolio and found no investments related to Iran and Sudan, according to spokeswoman Myrna Shinbaum. A source at the American Israel Public Affairs Committee said that the lobby is “committed to doing all we can to make sure our holdings are free from companies doing business in Iran’s energy sector.”