What money managers are doing with Israeli assets #NewsMarket

This weekend’s Israeli air strike on a school in Gaza City, which killed more than 80 people, was the latest tragic incident in a full-scale conflict that has now been running for more than 10 months — and which has prompted a wide range of responses from institutional investors.

The debate over if and when investors should dump assets on ethical grounds has dragged on for years. Many argue that divesting shares does nothing to hurt the companies concerned, which merely end up with a less scrupulous shareholder base.

But the long-running divestment movement targeting Israel has been given new impetus by the war in Gaza, and the student protests calling for multibillion-dollar university endowments to offload Israeli assets. And new European regulatory requirements, which require investors to pay greater attention to human rights risks, are a further factor for fund managers to consider.

Divestment

UK pension fund’s Israeli asset sale highlights pressure on investors

Most of the protests that swept college campuses in the US and Europe over the war in Gaza have subsided over students’ summer vacations.

But the war that began with Hamas’s brutal attack on Israeli civilians last October rages on, with Israel’s ground offensive in Gaza now responsible for more than 39,000 deaths, according to Palestinian health authorities. And a central part of students’ agenda — divestment from Israeli and Israel-linked assets — has been gaining some traction.

On Thursday, the FT reported that the UK’s Universities Superannuation Scheme had sold £80mn ($102mn) of Israeli assets, including government debt. With 500,000 members — mainly higher education workers — and £79bn in managed assets, USS is the UK’s biggest private-sector pension fund manager. The University and College Union, which represents USS members, has been pressuring the fund to divest assets linked to Israel’s campaign in Gaza.

USS has since published a statement saying it was “wrong to state, or imply, that our decisions were made for anything other than financial reasons”. But the move was hailed as a victory by the pro-Palestinian Boycott, Divest and Sanctions movement, which has been lobbying investors, businesses and officials to cut ties with Israel for nearly 20 years, drawing intense scrutiny. The BDS campaign, modelled on the 1980s drive to put pressure on apartheid South Africa, aims to impose costs on Israel that will force its government to improve its treatment of Palestinians in the West Bank and Gaza.

Publicly reported ditching of Israeli or Israel-linked assets, however, remains the exception rather than the rule, and most investors have been reticent on this issue. Last month, the non-profit Business and Human Rights Resource Centre approached 21 investors to ask about their response to a call by UN experts for arms companies to immediately halt arms sales to Israel.

The institutions had been named by UN experts as significant investors in arms companies. Only three of them — Amundi Asset Management, Norges Bank Investment Management (NBIM) and Germany’s Union Investment — responded to the inquiry. That’s a far lower rate than BHRRC typically gets with such exercises, executive director Phil Bloomer told me.

Rather than pushing for investors to divest from Israel or the companies its government deals with, he said, BHRRC was urging them to undertake “enhanced due diligence” around potential human rights risks. Bloomer argued that this was required by the UN Guiding Principles on Business and Human Rights, whenever investors and companies face potential links with conflict.

Still, the divestment campaign has gained momentum amid the ongoing war in Gaza. Pension Denmark, with more than 800,000 members and €42bn ($46bn) under management, has sold its investments in four Israeli banks “as we could not reject that they are involved in illegal activities by financing settlements on occupied Palestinian territories”, it told me in a statement last week. In an advisory opinion last month, the International Court of Justice said that Israel’s occupation of Palestinian territories and its settlements there were illegal.

Ireland’s finance minister said in April that its €15bn sovereign wealth fund would divest from six Israeli companies, including major banks, over their activities in the occupied Palestinian territories, while Trinity College Dublin — the country’s most prestigious university — made a similar pledge to student protesters.

Other investors have taken a hard look at their exposure to companies doing business in or with Israel. In June, Norway’s biggest pension fund KLP said it would sell a $69mn stake in Caterpillar over concerns that the US company “may be contributing to human rights abuses and violation of international law in the West Bank and Gaza”. The bulldozer producer had failed to reassure KLP over the potential use of its products in the military campaign in Gaza, as well as in the clearance of Palestinian homes for West Bank settlements, KLP said.

Kiran Aziz, KLP’s head of responsible investment, told me that the fund manager was required by new EU and Norwegian legislation to undertake extensive due diligence around human rights risks surrounding its investments. Caterpillar had failed to give detailed responses to KLP’s queries on this subject, she added. “They are not able to give us anything concrete apart from referring to their policy — it doesn’t give us any value at all.”

Yet even as some investors move to reduce their exposure to Israel, others are doubling down. Some residents of Florida’s Palm Beach are pursuing a lawsuit against the county comptroller over his decision to invest $660mn of local taxpayers’ money in Israeli bonds since the outbreak of conflict in October. Local governments in other states including Indiana, New York and Ohio have also made large investments in Israeli bonds over the same period. Meanwhile, US universities — some of which have been accused of being soft on antisemitism — have overwhelmingly declined to follow student calls for divestment.

For investors like KLP, divestment is a last resort when engagement with companies proves futile, Aziz said. “I’m not so sure that it’s going to help the people in Gaza,” she added. “But that signalling effect can have an impact.”

This article has been amended to reflect a statement from USS stressing that its investment decisions were made purely on financial considerations.

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