Can you make a difference by not buying a stock?

Divestment efforts haven't attracted too much attention since an antiapartheid campaign against South Africa in the 1980s. Now one against the Sudanese government is catching on. Ethnic cleansing in Darfur Province has been so extreme that some states and universities are pulling (or plan to pull) their money out of corporations with operations there.

Can such moves make a difference? To find out, the Monitor's Laurent Belsie interviewed Don Pollak, senior vice president of Northern Trust Global Investments, which sells a Sudan-free portfolio to institutional investors, and Eric Fernald, research director for KLD Research & Analytics, a group that evaluates which companies should be avoided. Here are excerpts of their conversation:

Mr. Pollak: There's been a great deal of activity along that line and a lot of discussion. I'm aware of four states that have passed binding legislation that calls for divestment and 20-some universities with a couple dozen more states who have some legislation pending.

Pollak: Illinois thus far has put the most wide-ranging definition around the investment program. Illinois's, unlike some of the others, includes both US companies and non-US companies.

Pollak: Some of them aren't due to take effect for a couple more years.... And some of the states have put laws into effect that would allow them to hold what they already hold but just not buy anything new. So there's varying definitions across the map and a large lack of consistency.

Mr. Fernald: It's difficult research. I think the hardest area – well, one area – is companies that are providing humanitarian assistance and how you draw the line there. Sometimes, the definitions are not quite as clear as they should be. For example, General Electric has donated some medical supplies [to Sudan]. And that, we considered, was not worthy of being on the exclusion list. It was purely humanitarian. But Procter & Gamble is on the list because of razors that are distributed in Sudan.

Fernald: It's not considered directly humanitarian so [Procter & Gamble] is on the list. Some of these issues are difficult areas to decide on. Are you helping build the infrastructure of a country, which can obviously support the people of the country? Or, as you help build up the structure, are you actually empowering the government, which is carrying out the atrocities?

Fernald: We contact all the companies that make it on our list. And they do respond. They don't want to be on the list. We had Xerox tell us that they're getting out of Sudan. Total, the oil company from France, is involved in Sudan, but they sent us a long letter explaining the exact nature of the involvement and how, in their eyes, it's not an active support for the Sudanese government.

Fernald: They have a percentage of one of the fields. [But] they're not actively drilling. So are they giving any revenues to the government right now? They claim they're not. But the energy industry, that's what drives the government right now. And, of course, you wouldn't want to be supporting a company that's selling to the military.

Fernald: Well, they qualify [for the list] under the Illinois legislation.

Fernald: Two American companies – [oil-service firm] Baker Hughes and Xerox – have told us that they are preparing to leave Sudan. So we will watch that closely. And if it comes to fruition, then they'd be removed from the list.

Pollak: Different research companies have different definitions. We work with KLD, and KLD's list has at this point about 160 names. Nine of them are US companies; 38 of them are within the EAFE [Europe, Australia, and Far East] Index; another 16 are within the emerging markets piece of the Morgan Stanley indexes; and the remainder aren't part of established benchmarks. But it's a pretty wide-ranging list that you'll notice if you're not investing in it.

Pollak: I wouldn't say that investors are flocking to it. I think at this point they're looking to those bodies that either make policy for them – or their own policies – and saying: "If we're going to do this, how can we minimize the impact of these restrictions on our overall investment goal?"

Pollak: For example, the 39 companies that are part of the developed, non-US countries represent almost 9 percent of that index. So you're taking out a large portion of that.

Fernald: You can certainly educate yourself on the issue. There's a lot of traffic on the Internet on it. So if you're interested, you can certainly find certain lists [of companies with links to Sudan]. I wouldn't claim that they would be exhaustive or as complete as ours, for example, but you can certainly make a beginning.

Pollak: The important thing, I think, is to have a definition that you're comfortable with as you get to be Sudan-free.... If you're not thoughtful about putting that definition together, you could wind up very unhappy with your returns.

Pollak: I think organizations like KLD and other firms that are doing the research would look for some proof that it's sustainable before they would reduce their list to zero. I think the legislatures and the foundations and endowments would do the same thing.

Fernald: We'd all be thrilled to see that take place.... If that actually came about, then I'm sure, fairly quickly, this issue would go away.