January 4, 2010 / 6:55 PM / 10 years ago

UPDATE 1-TIAA-CREF is first fund firm to divest over Sudan

* TIAA-CREF says sold stakes in four Asian oil companies

* New York firm says targets were unresponsive to talks

* Says it keeps Petronas stakes as talks progress (Adds Petronas details, reaction)

By Ross Kerber

BOSTON, Jan 4 (Reuters) - TIAA-CREF has become the first large U.S. fund complex to sell stakes in a group of Asian energy companies over human rights concerns in Sudan.

The sales of shares of China’s PetroChina Co Ltd (601857.SS), CNPC Hong Kong (0135.HK) and Sinopec (600028.SS), and Oil and Natural Gas Corp (ONGC.BO) of New Delhi totaled $42.7 million, TIAA-CREF said on Monday.

The stakes sold were just a small slice of New York-based TIAA-CREF’s assets under management, which stood at $402 billion at the end of September, and a tiny percentage of the oil companies’ market capitalization.

Still, the move could put more pressure on the companies over their business ties to Sudan’s government, which is widely accused of war crimes.

The move by TIAA-CREF, which provides financial services to nonprofits like hospitals and universities, also marks a milestone for rights activists who have tried for years, mostly in vain, to line up the influential fund industry behind its social agenda.

“We hope this could send a strong message to the companies,” said Hye-Won Choi, TIAA-CREF’s head of corporate governance. She said her firm had sold the shares only after talks with the energy companies went nowhere.

“We always believe engagement is far more effective than divestment,” Choi said, noting that TIAA-CREF did not sell shares of companies doing business in South Africa in the 1980s, the last major public effort to promote divestment.

“However, in this situation, engagement was not effective, and we believed the gravity and magnitude of the situation in the Sudan required a different response,” she said.

The companies are among those whose royalty payments activists blame for propping up Sudan’s government. The International Criminal Court has charged the nation’s president, Omar Hassan al-Bashir, with crimes against humanity and war crimes stemming from the ongoing conflict in the country’s western Darfur region.

Asked about the sales, a Sinopec spokesperson said: “Investors make rational judgments based on value. If some sell, others will buy.” The other companies were not immediately available for comment on Monday.

PRESSURE TO FOLLOW SUIT?

Many U.S. universities, state pension funds and other organizations have sold shares of the companies, hoping to put pressure on the central government in Khartoum.

However, large mutual fund firms, including Fidelity Investments, Vanguard Group Inc and American Funds’ parent Capital Group Cos, have resisted calls to do the same. Some said their investments could create leverage to improve conditions in troubled countries.

TIAA-CREF blazed a trail when it said in March that it would seek meetings with the four companies and Petronas [PETR.UL] over their Sudan dealings. It had threatened at the time to divest shares unless the companies began a progressive dialogue.

Only Petronas has met those terms, TIAA-CREF said, adding that the Malaysian state oil company’s chief executive officer, Tan Sri Hassan Marican, met in Kuala Lumpur over the summer with leaders who included the fund complex’s CEO, Roger Ferguson Jr.

“They acknowledged this was an issue of concern,” Choi said, adding that other executives have held discussions since then on exactly what policy changes might improve the situation in Sudan. As of last week TIAA-CREF said it held $4.7 million worth of shares in two Petronas subsidiaries, Petronas Gas and Petronas Dagangan (PETR.KL).

Whether TIAA-CREF’s actions will spark similar moves by other fund companies remains to be seen.

In Hong Kong, Nicholas Yeo, an equity executive with Aberdeen Asset Management, said he didn’t expect other managers to follow unless their clients pressed for action.

Although Aberdeen holds shares of PetroChina and has heard concerns from some of its U.S. and European investors, it has not heard enough of an outcry to sell its shares.

“For us, PetroChina is a China play, and not solely a Sudanese one,” he said.

Eric Reeves, a professor at Smith College in Northampton, Massachusetts, and prominent critic of the Sudan regime, said TIAA-CREF’s move was “an enormously important victory” that would add to pressure on other fund companies.

“Every time there is a divestment discussion,” Reeves said, “they will have to explain why they are not doing so.” (Reporting by Ross Kerber in Boston, Chen Aizhu in Beijing and Sue-Lee Wee in Hong Kong; Editing by Ros Krasny and Lisa Von Ahn)

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