Last month the $21 billion Methodist pension divested from five Israeli banks to appease the church’s anti-Israel Boycott, Divestment and Sanctions (BDS) group, known as the United Methodist Kairos Response (UMKR).
As more information emerges on the Methodist pension’s decision- making process, it has become evident that the pension board violated its own policies, as well as the values and ethics of the broader Methodist community, in order to enact an anti-Israel agenda.
When the decision to divest from Israeli banks was finalized, UMKR and other BDS organizations were ecstatic, but complaints from pension holders poured in. Even senior executives at the pension have been brave enough to voice their outrage. Rhys Read, the controller and treasurer of the Methodist pension, believes the Israeli divestment decision “has now resulted in grave reputational and potential financial risks. The decision to divest is not in accordance with our investment policy.”
Amid the outpouring of criticism, the pension board hid behind responsible investing by stating: “We integrated research from an independent and objective third party expert to identify the 39 companies subject to our guideline.”
The third party hired by the pension board was Sustainalytics, a firm they knew in advance would bless their biased agenda as it is neither independent nor objective on Israel.
The firm is part owned by PGGM, the Dutch pension that touted its own divestment from Israeli banks in 2014. Sustainalytics profits from the sale of an Occupied Territories Involvement Report. The report gives companies with involvement in the West Bank, Gaza and the Golan Heights a “controversy” score.
The BDS movement is actually in control of the controversy score.
When BDS activists publicly target a company, Sustainalytics increases that company’s controversy score.
The score is then used as “independent and objective” research by Sustainalytics’ clients, including the Methodist pension, to justify supporting the BDS movement and divesting from Israel.
The pension’s investment policy permits the exclusion of companies that are not aligned with United Methodist values, provided that to do so does not abrogate the board’s fiduciary responsibility. Similar to other responsible investors, the Methodist pension’s guidelines target companies for divestment if 10 percent or more of a company’s revenue is earned from objectionable products or services.
As Read points out, the pension divested from “five Israeli banks because they maintain retail branches in the disputed territories and provide a few home loan mortgages for property owners in the West Bank.
These are worldwide banks with branches in Europe, Asia, and North America, which engage in commercial banking, investment banking, and other activities. The retail activities in Hebron and East Jerusalem cannot account for more than onetenth of 1% of these banks’ total revenues, much less 10%. We are thus inconsistently applying our criteria.”
The Israeli bank divestment was cloaked in the pension’s new human rights policy focused on high-risk countries and areas. Yet, not surprisingly, the pension still holds investments in Egypt, Saudi Arabia, Russia, China and a number of other countries with significantly worse human rights violations according to Freedom House. Freedom House is the organization the pension claimed to rely upon for information on high-risk areas, and then apparently ignored completely when selecting divestment targets.
The pension board has not been able to come up with any objective criteria to explain their decision.
They rely on Sustainalytics, but don’t divest from many of the categories that Sustainalytics reports on.
They have a 10% revenue threshold rule that they ignore. They cite Freedom House but then remain invested in countries on Freedom House’s worst offender list. They mention conflict zones, but ignore most of the world’s conflict zones such as Syria, Ukraine and Yemen. Without the reliance on objective criteria, the pension holders are subject to the whims and prejudices of the small pension board.
Read is actively working to overturn the decision by recommending the pension “immediately and publicly reverse this decision and restore these banks to our portfolio and eligible investments. Further, as they have proven to be not independent and have made recommendations contrary to our investment policy, I recommend we discontinue our use of Sustainalytics as a consulting firm.”
Over 90,000 Methodist clergy and lay employees rely on the pension for long-term savings and retirement.
While investing sustainably with a focus on Methodist values is noble and important, using deceptive tactics to covertly support a politically-motivated and controversial campaign is a complete abuse of trust and perhaps a violation of fiduciary obligation.
The Methodist pension board should listen to their pension holders and employees, reverse their prejudicial Israeli divestment decision, return the thousands of dollars spent on Sustainalytics to pension holders’ accounts and restore the church to an admired leader in responsible investing. The consequences of inaction are grave including financial and reputational risks.
Meanwhile, the Church’s anti-Israel BDS group UMKR, buoyed by its initial success, has already submitted four more anti-Israel BDS resolutions for the Methodists’ 2016 General Conference. The Methodist pension board has opened a door to abuse of their responsible investing policy that may prove very hard to shut.
The writer is executive director of JLens, an organization that connects the Jewish community to the responsible investing field.