By Joel Magalnick, Editor, JTNews
A tactic taken by some of the most populous states in the country has made its way to Washington State. The Washington State Investment Board, which oversees investments for such public employees as teachers, police officers and judges, as well as public funds to benefit industrial insurance, colleges and universities, and also wildlife protection, passed a resolution in February to divest from any foreign company that does business in Iran’s energy sector.
The American Israel Public Affairs Committee, the Jewish Federation of Greater Seattle, and StandWithUs met with employees of the investment board in January to begin work on the resolution, and the final version was passed in its meeting on Feb. 21.
“The idea was that the [Iranian] government is terribly dependent on the energy sector,” said Rob Jacobs, director of StandWithUs’ Seattle chapter. “American companies are already barred from doing business with the energy sector in Iran, but foreign companies haven’t been, so companies like British Petroleum, or Royal Dutch Shell, do a significant amount of business in Iran.”
The Iran Sanctions Act bans “U.S. trade with and investment in Iran,” according to the text of the act. The rationale behind the act was to “curb the strategic threat from Iran by hindering its ability to modernize its key petroleum sector, which generates about 20% of Iran’s GDP.”
The strategic threat described in the act refers specifically to Iran’s ongoing nuclear program, which many countries, including Israel and the U.S., believe is being carried out to eventually produce nuclear weapons.
Several other states have taken similar measures — the legislatures in Florida and California have passed bills barring investment in Iran’s energy sector while New York’s treasurer instructed his office to do the same.
“By investing a state’s public pension funds in companies doing business with Iran’s petroleum and natural gas sector, state pension funds put their shareholders at financial risk because those companies are subject to sanctions under U.S. law,” said Jennifer Cannata, AIPAC’s press secretary, in a statement. “Divestment reduces the risk to state investors and sends a strong signal to Iran that American states will not provide funds to help Iran advance its nuclear weapons pursuit and support terrorism.”
Divestment legislation introduced by Washington State Rep. Bruce Chandler (R–South Central Wash.) during this year’s session never left the House floor.
Though Jacobs said Chandler introduced his bill independently from the organizations working with the investment board, Liz Mendizabal, WSIB’s public affairs director, said that legislators guided the three organizations to her office.
Mendizabal said that a resolution from the board that does the investing is more appropriate than legislative directives, citing a “slippery slope on getting legislative mandates” that could lead to calls for divestiture from companies lawmakers may not like, such as automakers, for example.
“The board is very, very concerned [that] we don’t… lose our independence,” she said.
The resolution’s starting point came from language the board used on a similar divestment measure the WSIB passed last year on the Sudan. The WSIB uses outside fund managers, Mendizabal said, who do screening on these issues as well.
One difference between Washington and a state like New York, which passed a similar resolution, is that Washington has very little in direct holdings. Influencing investment decisions therefore occurs at the fund level, rather than making a statement directly to a corporation.
“With the power of other institutional investors who are doing the same thing… you become California size by strength through numbers,” Mendizabal said.
California, with one of the largest economies in the world and two multi-billion dollar pension funds, passed a divestment resolution through its legislature. Florida, which also has huge investment holdings, did the same.
None of the resolutions passed, however, are truly binding.
“The resolution does not mandate divestment. The resolution does say that it is an option,” Mendizabal said. “The binding part of it is that we follow these protocols and we do what we’re supposed to do, which is: We do what’s within our fiduciary duty. I guess you have to have some faith in all of this.”
Not adhering to that duty could cost the state billions of dollars if it can’t fund pensions for its public workers.
“We do have a fiduciary duty to our members and our board sticks to that very, very rigorously,” Mendizabal added. “At the same time, there’s good reason to be taking a look at companies that are doing business in those locations and what they’re doing to make sure they’re not breaking any laws.”
The WSIB resolution recognizes the U.S. State Department’s designation of Iran as a sponsor of terror, “funding such groups as Hamas, Hizballah, and Islamic Jihad, as well as providing support for Iraqi insurgents.” At the same time, it states that “the WSIB is entrusted with managing investments for public pension and other trust funds and is committed to doing so with the utmost integrity, prudence and skill,” while taking into account the potential risks — economic and reputation — involved in investments with companies that do business in Iran.
Jacobs framed the divestment push as a means to avoid getting involved in a military conflict with Iran.
“That’s the thing we’re trying desperately to avoid, whether it’s the U.S. or Israel. Both have said it’s unacceptable for Iran to have nuclear weapons,” he said. “If we can do this without ever picking up a weapon of any kind, then the entire Middle East region will be much more stable.”