Perspectives on the recent resurgence of state-level divestment
On June 27, GMF hosted a discussion entitled "States and Foreign Policy: Perspectives on the Recent Resurgence of State-level Divestment." The panel, consisting of President and CEO of the Organization for International Investment Todd Malan, Director of USA Engage Jake Colvin, and Executive Director of Sudan Divestment Task Force Adam Sterling, was moderated by GMF Senior Transatlantic Fellow Jim Kolbe.
In his opening remarks, Mr. Kolbe highlighted that divestment has been used as a political and foreign policy tool with mixed results. For example, divestment policies were used against South Africa in the 1980's driven by rising opposition to the apartheid government. This is often cited as a successful example where divestment coupled with multilateral cooperation had a constructive impact. However, when considering the United State's unilateral approach towards Cuba, divestment is solely symbolic and ineffective. Despite this lack of certainty about the effectiveness of such policies, we now see increasing use of such policies against countries like Iran and Sudan by U.S. state lawmakers, universities, and financial institutions.
Mr. Colvin argued that it is unconstitutional for individual states to make national foreign policy decisions and that doing so risks the result of disjointed bills that interfere with the President's ability to conduct foreign policy. Furthermore, the expertise of local bureaucrats and fund managers and other non-experts to assess complex foreign policies was also called into question. Instead of focusing on their fiduciary responsibilities to investors, fund managers are making key investment decisions based on foreign policy judgements. "Gateway" legislation may lead to more aggressive and more incoherent sanctions in the future and is a blunt instrument for complex issues that are carefully weighed by federal government.
While divestment is not the only foreign policy tool available, Mr. Malan argued that given the right circumstance, it can complement policies abroad. Transparency should prevail and bills should more carefully consider the fiduciary responsibilities to investors. Investments that do not contribute to terrorism should not be sold at inappropriate times or in a manner inconsistent with fiduciary obligations. New Jersey, for example, has recently received media attention for divesting over $2.1 billion dollars of its investments from companies operating in Sudan but has never disclosed to investors if the stocks were sold at a loss or gain.
Mr. Sterling noted that 18 states have already adopted Sudan divestment policies, twelve of which have passed the Sudan Divestment Task Force model. However, without a clear message from the federal government and specifically from the U.S. Securities Exchange Commission (SEC), it is difficult to ensure consistent policies across the board. Using a targeted divestment model, Mr. Sterling outlined the three step approach implemented by the taskforce. While admittedly imperfect, the proposed model does have a sunset. According to Mr. Sterling, Sudan is one case where financial divestment is a crucial component of influencing the government.
While the administration has been opposed to state level divestment legislation, panelists stated that we urgently need a clear policy at the federal level to ensure consistency and multilateral cooperation. All panelists re-emphasized the need to exercise caution in drafting sanction policies and were especially critical of leadership at the federal level. The increasing momentum behind state level divestment policies was seen largely as the result of the lack of clear and decisive policies in this area from the federal government. Along with federal policy, we must also work towards multilateral regulatory cooperation with the EU and other partners to truly have the desired impact.