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Energy

U.S. funds face renewed divestment calls on Sudan

* Activists press human-rights concerns

* Three largest fund companies face proxy questions

BOSTON, June 2 (Reuters) - The three largest U.S. mutual fund firms face a wave of shareholder proposals this summer calling on them to divest from companies doing business in Sudan over human rights concerns.

The votes expected at funds operated by Fidelity Investments and Vanguard Group Inc, and at one of Capital Group Cos’ American Funds, are unusual because unlike public companies, most mutual funds rarely hold shareholder meetings except for administrative reasons.

But that is now the case at Fidelity, which is changing the structure of the board that oversees fixed income and asset allocation funds, and at Vanguard, which wants to change technical rules such as when its funds can borrow money.

A third divestment proposal likely will be on the ballot by September or so of an American Funds’ mutual fund that does hold a regular annual meeting, said Chuck Freadhoff, a spokesman for Capital Group Cos, the family’s parent.

“This is laying the groundwork for an interesting set of battles this summer,” said Eric Cohen, chair of Investors Against Genocide, a Boston-based nonprofit group proposing the nonbinding measures.

The proposals call on companies to avoid or to sell shares in companies that “substantially contribute” to egregious human rights violations.

In practice they point to companies such as PetroChina 601857.SS, whose parent China National Petroleum [CNPET.UL] has been blamed by activists for paying royalties to the Sudanese government, widely criticized for abuses in the country's western Darfur region.

Fighting there began in 2003 between rebels and the central government in Khartoum, which turned to militias to crush the revolt. In March the prosecutor of the International Criminal Court in The Hague accused Sudan’s president Omar Hassan al-Bashir of war crimes and crimes against humanity including murder and intentionally directing attacks against civilians. Bashir has denied the charges. Both sides recently have held peace talks.

A representative of China National Petroleum did not immediately return a message on Tuesday. On its website, the company notes donations it has made for schools and healthcare in Sudan.

A number of state pension funds, including Vermont and California, have already taken steps to pull money out of companies doing business in Sudan.

Cohen’s group has won as much as 31 percent support from Fidelity fund shareholders in past votes, and Fidelity has reduced some holdings. Cohen said he could not predict how the measures might fare this year.

Both Fidelity and Vanguard oppose the resolutions, noting their obligations to seek the best returns for investors. In a regulatory filing, Fidelity said the investments are allowed under U.S. law, though investments in companies owned or controlled by the Sudanese government are not. In addition, Vanguard has said it has put in place a system to monitor human rights abuses.

American Funds has not filed its proxy for its fund, known as the Investment Company of America. In a statement the company said it continues to monitor the situation in Sudan, and added that “divestiture can sometimes be counterproductive, especially when it harms not just the current government but also the economy on which the victims of repression depend for their livelihoods.”

One success for activists came March 26 when TIAA-CREF, the big financial firm focused on serving nonprofits, said it would pressure companies doing business in Sudan and would sell shares if it failed to see progress within nine months. (Reporting by Ross Kerber; Editing by Tim Dobbyn)

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