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Calpers exit creates storm

April 2002

One of the world’s biggest pension funds has come under attack for deciding to stop investing in parts of Asia on largely ethical grounds.

The California Public Employees’ Retirement System will gradually withdraw around $200million (£141m) of investments in Indonesia, Malaysia, the Philippines and Thailand. This follows an internal review of emerging market countries that for the first time gave issues such as transparency, political stability and labour standards equal weight with financial matters. The review concluded that the four countries did not meet its standards.

The decision by Calpers, the largest public pension fund in the US with assets of $151billion, has caused upset both in the countries involved and within the ethical investment community.

The Hong Kong-based Association for Sustainable and Responsible Investment in Asia, whose members control $10billion of ethical investments worldwide, said that while the decision to include socially responsible investment issues in the review was ‘a significant advance in the principle that humanitarian factors can impact investment returns,’ it felt engagement with companies was a better approach.

It said the decision would do little to encourage companies or governments in the countries concerned to implement reforms and could unfairly penalize those who had made progress. In Thailand, for instance, Asria claims the government ‘has been making significant progress since 1997’on human rights issues.

It added that the decision ‘may also reinforce the view that SRI is nothing more than the imposition of a western cultural agenda with little regard for the development realities of different countries’.

Tessa Tennant, Asria’s chair and a leading figure in the SRI world, said she was ‘surprised’ by Calpers’ application of screens on issues such as labour standards at the country rather than the company level.

‘By excluding entire countries, companies that have good social and human rights records are not incentivized to continue their policies,’ she said. ‘It doesn’t really help anyone at the corporate level if there’s just a blanket ban.’

Others in the investment world have also been critical. Ray Jovanovich, head of institutional asset management at Credit Agricole Asset Management in Hong Kong, said the timing was questionable. ‘I’m rather surprised by the move, particularly in the context of what is clearly an improving situation,’ he said.

Lee Leok Soon, executive director of the Malaysian Institute of Corporate Governance, said: ‘They should come to these countries and tell them what they are doing wrong rather than just pulling out.’

However, Calpers stressed that the policy was not set in stone. ‘This is a living document subject to on-going change, not a static policy,’ said William Crist, president of the Calpers board.




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