Values-based investing remains an aspiration

OREGON’S STATE employee pension fund is invested in an Israeli company whose smartphone spyware has been used against dissidents, human-rights defenders and journalists by repressive regimes. It’s also invested in two prison companies that run immigrant detention facilities, even though Oregon pioneered statewide sanctuary status. Investors around the globe are increasingly incorporating social values like climate change and human rights in deciding where to put their money. Asset managers in the United States (US) consider such criteria across US$11.6 trillion in assets, representing roughly US$1 out of every US$4 under professional management, according to a 2018 survey by the US Forum for Sustainable and Responsible Investment. Oregon’s situation shows that the practice remains aspirational in even some liberal states, while others have made strides.

NEW INITIATIVE

A new initiative in New York, for instance, allows its state employee pension plan, with US$210 billion in assets, to divest from coal and other sectors with climate considerations. New York also decided in July to sell nearly US$10 million in pension investments in GEO Group and CoreCivic, two prison companies that operate immigrant detention facilities in California, Florida, Texas, and New Mexico.

GEO Group and Core Civic also were among 217 companies that California pension fund managers removed from an index fund as they sought to mitigate risks, fund spokeswoman Megan White said in an email.

But US$2 million in Oregon’s pension fund remains invested in the two companies as part of an index fund, according to the Oregon State Treasury.

“Does this mean (we) are insensitive to and/or unconcerned with the various social and political challenges? No,” Treasurer Tobias Read’s office said in a statement.

Read’s staffers insisted only the index provider can determine what’s added or dropped from the index and that if Oregon officials intervene, the pension fund would incur costs that violate the “paramount objective” of making money.

Some residents, including Portland attorney Pamela Quinlan, have advocated for divestment. Quinlan wrote to Read on October 30, saying nothing prevents officials from shedding the prison stocks.

“I feel that owning these stocks is an insult to many Oregonians and an insult to our values as Oregonians,” she said in a telephone interview.

Quinlan also warned Read that if one of the several top Democratic presidential candidates who want to eliminate private prisons wins the White House, the stocks could become worthless. The Obama administration ordered the Federal Bureau of Prisons to phase out private prisons in 2016, but the Trump administration reversed that decision.

Meanwhile, Oregon’s pension fund has a US$233-million investment in Novalpina Capital that, along with partners, recently bought a majority share of NSO Group, the Israeli spyware company.

The seeds for Oregon’s current NSO Group involvement were planted at Oregon treasury offices in a nondescript office park in the Portland suburb of Tigard.

Stephen Peel and Stefan Kowski, two founding Novalpina Capital partners, showed up in November 2017 to make a pitch to the Oregon Investment Council, which oversees the state’s US$77-billion pension fund.

Newly created, the London-based private-equity firm was seeking US$1.1 billion for its debut fund. Private-equity investments go into companies that are not publicly traded on a stock exchange.

Peel described the Novalpina partners’ experience in Europe and explained their strategies, according to an audio tape of the meeting posted on treasury’s website.

“As investors, we assume we have to be

contrarian,” Peel told the council. “We have to find deals that other people don’t see or don’t want to do for various reasons.”

After Peel and Kowski left, a senior investment officer who had investigated Novalpina recommended a US$233-million commitment. The council unanimously voted yes.

Later, the Alaska Permanent Fund Corporation and England’s South Yorkshire Pensions Authority invested US$59 million and US$33 million, respectively.

This year, Novalpina Capital became the focus of controversy when it and the founders of NSO Group acquired a majority stake in the company from another privateequity firm, Francisco Partners, that the Oregon pension fund had previously invested in.

Amnesty International and other rights groups wrote to Novalpina Capital, saying NSO Group’s Pegasus spyware, which can steal data from smartphones and turn them into eavesdropping devices, targeted at least 24 humanrights defenders, journalists, and parliamentarians in Mexico; an Amnesty International employee; and a human-rights campaigner in the United Arab Emirates.

The spyware was also implicated in the killing of Saudi journalist Jamal Khashoggi, who was dismembered in the Saudi consulate in Istanbul last year. NSO Group has said the allegations are unfounded.

Last month, Facebook sued NSO Group for allegedly targeting some 1,400 users of its encrypted messaging service WhatsApp.

It’s unclear whether Novalpina’s founders already intended to invest in NSO Group when they came to Oregon. Novalpina did not respond to a request for comment.

TRANSPARENCY

Peel told the human-rights groups in a May 15 letter that Novalpina intends to “establish a new benchmark for transparency and respect for human rights in full compliance with the UN Guiding Principles”.

“We are determined to do whatever is necessary to ensure that NSO technology is used for the purpose for which it is intended – the prevention of harm to fundamental human rights arising from terrorism and serious crime,” Peel wrote.

But David Kaye, the United Nation’s special rapporteur on freedom of opinion and expression, said NSO Group has not explained how its new policy will improve things for surveillance-harassment victims.

In a telephone interview from Berlin, Likhita Banerji, Amnesty International’s adviser for technology and human rights, called Peel’s letter an “attempt to whitewash violations” and said it’s critical that Oregon and other Novalpina Capital investors respect human-rights obligations.

Rukaiyah Adams, chairwoman of the Oregon Investment Council, said she cannot comment on private equity investments but insisted investors have limited say in them once they’re completed.

Private equity has tended to do better for Oregon in the long run, with 14 per cent returns over 10 years compared with 9 per cent for public equity, treasury documents show. About 22 per cent of Oregon’s pension fund is invested in private equity, and 33 per cent in public.

“The story about private assets is, you have one moment of leverage: before you invest,” Adams told The Associated Press. “And so, the challenge in such a big programme is exerting influence before we invest. We’re not monkeying around in the day-to-day operations of our private-equity partners.”

She said the investment council is moving towards stronger environmental, social, and governance standards, known as ESG, and noted that the treasury last year hired a staffer to focus on it. But she acknowledged that the state has catching up to do.

“I would say that we’re late to the party, frankly,” Adams said.