1. Public Pension Fund Divestment: A Protest Tactic
“When we’re dealing with investments of our membership’s funds, if
we’re dealing with them with an eye to making or influencing social
policy as opposed to an eye solely to the investment potential–the
profitability–, then we’re really doing a disservice to our members.”
–Suzanna Buriani-DeSantis
New Jersey State Investment Council
New Jersey Star Ledger (4/21/06)
“We’re not setting foreign policy. We just don’t want to be associated
with genocide and terrorism.”
–Joseph Clary
Illinois State Senate Attorney
Wall Street Journal (5/8/06)

2. This presentation examines whether public pension fund divestment is an effective and equitable tactic
for achieving social goals.
The presentation consists of the following sections:
• Historical context
• Review of positions of proponents and opponents
• Framework for evaluation
• Case: New Jersey divestment of Sudan holdings
• Conclusions and recommendations

3. CONTEMPORARY CONTEXT
Since last year, states and cities have begun to divest their pension funds from businesses with ties to
Sudan.
These divestments protest violence in Sudan’s Darfur region, which the United States has labeled
genocide. Over 200,000 people have died of government-sponsored violence there.
New Jersey passed the first divestment statute in July 2005 and just one year later will have divested
$2.16 billion from its pension funds.
A growing student movement is also pressing for university endowment divestment. Harvard University
took the lead by divesting PetroChina, an oil company that does business with the Sudanese government.
Divestments since 2005
1
States: New Jersey, Illinois, Oregon, California State Teachers’ Retirement Fund
Cities: Providence, RI; New Haven, CT
Universities: Harvard, Yale, Stanford, Columbia, University of California system
1
Wall Street Journal, 5/8/06.

4. HISTORICAL CONTEXT
Divestment is one of three forms
2
of “socially responsible investment” (“SRI”) to emerge in the 1970s:
Screening – Investment funds include or exclude certain businesses, industries, or countries in
order to achieve social goals. Divestment is a form of screening.
Shareholder activism – Shareholders form alliances in order to influence corporate policy.
Community investment – Investment funds invest in underserved communities or industries.
Examples of SRI
1970s Pax World Fund created in response to Vietnam War; the mutual fund screens for
businesses involved in weapons production.
1980s Exxon shareholders push for environmental policies after Valdez oil spill.
1980s – 90s Universities and pension funds divest from South Africa in protest of Apartheid.
1990s Universities and pension funds divest from tobacco firms.
2000s New York City Comptroller (manager of Police and Fire Department pension funds)
asks firms to end business ties with countries that sponsor terrorism.
2
Rivoli.

5. CASE: SOUTH AFRICA AND APARTHEID
Divestment was one among multiple tactics applied to South Africa during the 1980s and 1990s in the
effort to end Apartheid there.
The United States exerted political and economic pressure on South Africa in three ways:
• 1986 Comprehensive Anti-Apartheid Act, which imposed sanctions on South Africa.
• Divestment by private equity funds, public pension funds, and university endowments.
• Withdraw of multinational corporations, including IBM, Ford, and Exxon.
3
These interventions were made within the context of strikes by Black gold miners, civil unrest, and daily
violence in Soweto and Johannesburg.
Apartheid ended in 1994.
3
Siew, Welch, and Wazzan.

6. PROPONENTS OPPONENTS
FINANCE Divestment decreases stock values,
thereby forcing firms to rethink corporate
policy.
In a perfect market, divestment won’t make
any difference since politically indifferent
investors will still buy divested stocks.
POLITICS Pension fund divestment is a tactic that
works when other options, from diplomacy
to UN intervention, are politically
untenable.
Foreign policy is the responsibility of the
State Department, not pension fund
managers.
MANAGEMENT Pension fund managers are elected and
their decisions reflect investor interests.
Divestment goes against the fundamental
principles of pension fund management.
ECONOMY Pension funds are huge. Divesting pension
funds can have a significant impact on a
firm, industry, or country.
Countries in trouble are in need of foreign
investment for infrastructure, education, and
economic development. Divesting will only
make conditions worse.
RETURNS Firms that are doing harm will have
unprofitable returns in the long run.
Divestment policies make it difficult to earn
any return from private equity at all.
VOICE Pension fund investors shouldn’t have their
“deferred payments” sponsoring firms or
regimes they oppose.
By divesting, pension fund investors give up
their “shareholder voice” and the opportunity
to influence corporate policy.
WINNERS & LOSERS Divestment may create unintended winners
and losers.
Divestment may create unintended winners
and losers.
MORAL COMPASS The interests of humanity come before
everything else.
The interests of the pension fund investors
come before everything else.
POSITIONS OF PROPONENTS AND OPPONENTS

7. 4
Siew, Welch, and Wazzan.
UNPACKING THE FINANCE POSITIONS
Strongest argument in favor of divestment is that Apartheid no longer exists in South Africa.
Yet some argue that basic finance principles suggest divestment achieves nothing.
The finance argument – In an efficient market, divestment may temporarily lower a stock price, but
the present value of the stock’s future cash flows do not change. The marginal investor (who is
politically indifferent) will perceive lower prices as a profit opportunity and purchase the stock.
One study shows that the 1980s divestment had no negative impact on South African financial markets.
4
It should be remembered that divestment was one tactic among others in South Africa. Further, external
pressures were intensified by internal social instability.
Divestment might therefore be seen as one intervention that supports others.
Example: The divestment of $9.5 billion by CalPERS contributed to the decision of GM and Exxon
to withdraw from South Africa altogether.

8. UNPACKING THE MANAGEMENT POSITIONS
Strongest argument against divestment is that it violates fundamental principles of public pension fund
management.
“Standard of Prudence”
5
– ERISA (1974) establishes that investments should be made solely in the
interests of the investors. Unless the divested stocks pose an investment risk, divestment deviates
from this standard.
Asset Allocation – Up to 90% of portfolio returns are attributible to asset allocation. Divestment may
increase risk and decrease returns by reducing pension fund portfolio diversity.
Transparency – In pension funds the fiduciary (decision-maker) and investor (stakeholder) are not
the same person. It is problematic if the fiduciary chooses to divest without considering investors’
opinions.
Benefit Principle – Pension fund investments are made today so the fund will fulfill its future
promised payments. The operating assumption is that investors pay into the fund with “deferred
payments” and share the burden of the future payments. If divestment today creates a pension
shortfall in the future, then there is a problem of intergenerational equity.
However, prudence is a vague and flexible concept. The legality of divestment is established by the South
Africa and tobacco industry divestment precedents.
Also is reasonable to believe that assets can be re-allocated to achieve comparable returns.
5
Peterson.

9. UNPACKING THE ECONOMY POSITIONS
The role of multinational corporations in the global economy gives reason for caution with divestment.
Foreign investment is a source of jobs, infrastructure, and economic development. Economic isolation
may make oppressive regimes in poor countries worse.
Divestment tactics should identify a continuum of business activity. Divestment can “target” firms that
contribute to harm, while avoiding firms that play a positive role.
Divestment Continuum
DIVESTMAYBE DIVESTDON’T DIVEST
Manufacturer supplies equipment
parts for local agriculture.
Bank invests in government
bonds issued for capital projects.
Oil company pays export tariffs
used by government to
purchase weapons.

10. BALANCING CONFLICTING PERSPECTIVES
Divestment can be an effective tactic, but the evaluation of divestment proposals requires a balancing of
conflicting perspectives.
• Divestment is often intended to improve the conditions of oppressed people, but to do so, the
fair treatment of ordinary pension investor must be considered too.
• Divestment aims at achieving social goals, but the pension fund portfolio’s overall return must
also be kept in sight.
The framework for evaluating divestment must grapple with conflicting imperatives and provide clear
decision-making measures at the same time.

11. FRAMEWORK FOR EVALUATION
The recommended framework for evaluation is composed of a Technical and Public Policy Report Card
which is followed by a “Winners and Losers” analysis.
The Report Card grades divestment in 8 categories on an A to F scale:
Technical categories Pubic Policy categories
1. Transparency 5. Political Effectiveness
2. Clarity 6. Equity
3. Specificity 7. Operational Efficiency
4. Diligence 8. Accountability
For a divestment proposal to be approved, it must receive an overall grade of A.

12. REPORT CARD CRITERIA
Technical Report Card Public Policy Report Card
TRANSPARENCY Is there open communication
between divestment decision-
makers and pension fund managers
and investors? When funds are re-
allocated, is there a system of
checks so that there exists neither
conflict-of-interest or corruption?
CLARITY Does the pension fund resolution or
divestment legislation send a clear
message? Will the divested firms
know what they must do to avoid
divestment and why?
SPECIFICITY Is there a divestment continuum? Is
the action a “targeted divestment”
such that it effectively divests from
firms that contribute to harm while
minimizing negative impacts of the
divestment on society?
DILEGENCE Does divestment occur within the
appropriate timeframe? Are there
reliable sources of information on
the business ties of firms?
POLITICAL
EFFECTIVENESS
Does the divestment achieve its
social goals? Is divestment a stand-
alone tactic, or is it one source of
pressure among many? Is there
international support? Does
divestment encourage similar
actions from university endowments
or private equity funds?
EQUITY Is divestment fair to pension fund
investors or does it compromise
their future benefits? Will it create
an intergenerational equity problem?
In directing resources away from the
divested country or industry, does
divestment harm more than help?
OPERATIONAL
EFFICIENCY
Will the divested pension fund
remain competitive? Does asset
allocation manage risk with portfolio
diversity and maximize return by
shifting funds to investments with
comparable returns?
ACCOUNTABILITY Does divestment set a precedent
that holds firms accountable for their
business practices?

13. CASE: NEW JERSEY DIVESTMENT
The following report card evaluates the State of New Jersey’s recent divestment from Sudan using
information available from recent press and media.
A legislative statute requiring New Jersey to divest its pension funds of investments in firms with business
ties to Sudan took effect on August 1, 2005.
New Jersey was the first state to pass such a statute. By August 2006, New Jersey pension funds will
have divested $2.16 billion of investments in 17 firms.
By comparison, the GDP of Sudan is $84.93 billion,
6
which makes New Jersey’s divestment from firms
with business ties to Sudan the equivalent of 2.5% of Sudan’s GDP.
6
This figure is the “purchasing power parity” GDP, www.cia.gov/cia/publications/factbook/.

14. NEW JERSEY REPORT CARD
Technical Report Card
7
Bergen County Record, 6/2/05.
8
New York Times, 2/19/06.
9
New Jersey Star Ledger, 4/21/06.
TRANSPARENCY The New Jersey State Legislature and Governor made the
decision to divest over the objections of the State Treasurer,
who advocated for shareholder activism.
GRADE: B
CLARITY The divestment statute itemizes grievances against the
Sudanese government, which include arbitrary arrests, torture,
and executions.
7
GRADE: A
SPECIFICITY The statute requires divestment of any holdings with a business
that has equity stakes, facilities, or employees in Sudan. The
New Jersey statute is not “targeted divestment.”
8
GRADE: C
DILIGENCE By August 2006, New Jersey will have divested itself of $2.16
billion in 17 firms doing business in Sudan. The divestment
occurs two years ahead of schedule. The New Jersey
Treasurer says the early divestment is in part due to the
declining stock value of the firms.
9
GRADE: A

15. NEW JERSEY REPORT CARD
Public Policy Report Card
POLITICAL
EFFECTIVENESS
New Jersey is the first state to divest its pension funds from
Sudan. It therefore sets a precedent that has been followed by
other states and cities as well as university endowments. The
United States has imposed sanctions on Sudan since 1997 and
in 2005 labeled the violence in Darfur genocide. However,
significant international support for divestment has not yet
emerged.
GRADE: A
OPERATIONAL
EFFICIENCY
The statute does not include a pension fund re-allocation plan.
The New Jersey Treasurer said that divestment would make
the pension funds less effective and less diversified.
10
Without
information how those investments are re-allocated it is difficult
to predict how the fund will perform.
GRADE: B
EQUITY The interests of pension fund investors are neglected by the
statute, which did not guarantee that returns will remain the
same after the divestment. Moreover, because this is not
“targeted divestment,” it is assumed that some positive impacts
of foreign investment in Sudan will be lost in the short-run.
These short-run losses may, however, be a necessary trade-off
if genocide is to end in the long-run.
GRADE: C
ACCOUNTABILITY The terms of divestment set a tough precedent for firms.
Spread evenly over the 17 firms, the divestment amounts to
over $100 million divestment per firm. That is serious money.
GRADE: A
10
Wall Street Journal, 5/8/06.

16. NEW JERSEY REPORT CARD
Winners Losers
• Pension fund investors (if the • Divested firms and their employees.
values of divested stocks
decrease in the long-run).
• Firms to which divested funds • Sudanese government.
are re-allocated.
• Genocide victims in Darfur. • Sudanese citizens who benefit
from activities of divested firms.
• Society as a whole. • Oil consumers.

17. NEW JERSEY REPORT CARD
OVERALL GRADE: B
The New Jersey divestment has significant flaws.
• The State may have first exerted shareholder activism while it more fully considered divestment.
The trade-off between divestment and shareholder activism, however, is time.
(Shareholder activism has been successful, for example, in the New York City Comptroller’s
campaign to persuade firms to end business ties to countries that sponsor terrorism.
11
)
• More consideration should have been given to pension fund investor interests; according to the
available information, there does not appear to have been a re-allocation plan at the time the
divestment decision was made.
• The divestment is not “targeted,” which makes it likely that there will be unintended losers.
EX POST FACTO GRADE: A
Despite these flaws, New Jersey receives an A for taking a risk and assuming a leadership role in the
effort to end genocide in Sudan.
11
New York Times, 3/10/05.

18. CONCLUSIONS & RECOMMENDATIONS
Divestment can be an effective and equitable tactic for achieving social goals.
Decisions to undertake divestment should be evaluated within the framework outlined in this presentation
and should be particularly attentive to the following points:
• Divestment should give significant consideration to pension fund investors. While the equity
goals of divestment are noble, it is only fair to protect members’ retirement investments as well.
• Shareholder activism may be just as effective as divestment and can help to avoid unintended
negative consequences of divestment.
• The highest level of effectiveness and equity is achieved with “targeted divestment.”
• Divestment should be thought of as one tactic among many.

19. SOURCES
Fried, Carla, “How States are Aiming to Keep Dollars Out of Sudan,” in the New York Times, February 19, 2006, p. 5.
Gaffney, Frank, et. al., “The Terrorism Investments of the 50 States,” Center for Security Policy, Washington, D.C., August 12, 2004.
Graham-Felsen, Sam, “Divestment and Sudan,” in The Nation, May 8, 2006.
Hammond, William, “Fighting Terrorism with Funds,” in the New York Times, August 30, 2004, p. 13.
McNichol, Dunstan, “State to Wrap Up Sudan Divestment by August: Panel Bows to Legislative Order Two Years Ahead of Time,”
in the New Jersey Star Ledger, April 21, 2006.
Munnell, Alicia and Annika Sunden, “Social Investing: Pension Plans Should Just Say No,” paper presented at “Costs and Benefits: “Socially
Responsible” Investing and Pension Funds,” a conference at the American Enterprise Institute, Washington, D.C., June 7, 2004.
Page, Jeffrey, “Message from N.J. to Sudanese Government,” in the Bergen County Record, August 2, 2005, p. L13.
Peterson, John, ed., Local Government Finance: Concepts and Practices (Chicago: Government Finance Officers Association, 1999).
Rivoli, Pietra, “Making a Difference or Making a Statement?: Finance Research and Socially Responsible Investment,”
in Business Ethics Quarterly 13:3, July 2003
Siew, Teoh Hong, Ivo Welch, and Paul Wazzan, “The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the
South African Boycott,” in the Journal of Business 72:1, January 1999.
Spencer, Jane, “Sudan-Divestment Laws Draw Attacks from Fund Managers, Business Groups,” in the Wall Street Journal, May 8, 2006.
Stuart, Catriona, “Effort to Divest from ‘Rogue States’ Working, City Says,” in the New York Times, March 10, 2005, p. 4.
Vick, Karl, “Oil Money is Fueling Sudan’s War; New Arms Used to Drive Southerners from Land,” in the Washington Post, June 11, 2001, p. 1.