Pensions to drop firms with Iran ties

UnionTribune (2007-09-25) BillAinsworth

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Governor to sign bill by La Mesa lawmaker

By Bill Ainsworth STAFF WRITER

September 25, 2007

SACRAMENTO -- While Iranian President Mahmoud Ahmadinejad was making waves at Columbia University, Gov. Arnold Schwarzenegger was a few miles away at the United Nations doing his best to make the Iranian regime an international pariah.

Schwarzenegger announced that he would sign legislation requiring California's two huge pension funds to divest from companies that have energy or defense-related business in Iran.

He said the legislation makes California a leader in ethical investing and allows the state to take a "powerful stand against terrorism."

The Republican governor was in New York to talk about California's fight against global warming at a United Nations conference. The Iranian president is scheduled to address the United Nations today.

The governor's decision puts California on the forefront of a national movement that sprang from a most unlikely source: freshmen Assemblyman JoelAnderson, R-La Mesa.

Anderson, who serves on the legislative committee that reviews pension bills, said he thought the state should act after he looked at the portfolios of the California Public Employees' Retirement System, known as CalPERS, and the California State Teachers' Retirement System, CalSTRS.

Anderson said he was shocked to find that the funds have more than $24 billion invested in companies that do business inside Iran. Those companies are foreign-owned; the United States prohibits American companies from doing buiness with Iran.

"There's no logical reason to be there," he said in an interview.

Anderson's Assembly Bill 221 would not affect all those investments, however. Initially, his legislation applied to all firms that do business in Iran but was narrowed to avoid harming companies that promote health, welfare and education in Iran or had permission from the U.S. government to do business there.

Royal Dutch Shell and Total, a French oil company, are among the foreign companies that could lose investments by California pension funds, Anderson's aides said.

According to some estimates, the top 100 American pension funds have investments totaling $188 billion in countries accused by the State Department of sponsoring terrorism, including Iran, North Korea and Syria.

Anderson, a conservative, borrowed a tactic more frequently identified with liberals -- using investment policy to exert pressure on companies and countries.

In 1980s, this approach found some success against South Africa, which enforced apartheid at the time.

Last year, the California Legislature passed two bills requiring the pension funds to divest from Sudan because of the atrocities committed in the Darfur region. Schwarzenegger signed both bills, saying they helped California "take a stand against genocide."

This year, Anderson's legislation won unanimous approval in the Assembly and the Senate. It was backed by Jewish groups, unions, Republicans and Democrats.

"Everyone understands that money is the mother's milk of terrorism," Anderson said.

Now 17 states, including Texas and Florida, have either passed laws divesting from companies that do business in Iran or are considering such legislation.

U.S. Rep. Brad Sherman, D-Sherman Oaks, is sponsoring federal legislation that would require the U.S. government to more strictly enforce penalties against foreign companies that invest in Iran.

Anderson said he was "very excited" about Schwarzenegger's decision and hoped that the economic pressure will help changes in Iran. But some skeptics said the limited-reach of his bill would do little to alter Iran's behavior.

In any event, Anderson said Iran's efforts to become a nuclear power could make the country so unstable that investments there could be risky.

Anderson said he believes his bill got a boost when former Israeli Prime Minister Benjamin Netanyahu called Schwarzenegger and urged him to sign it.

But not everyone favors his idea.

Representatives from both CalPERS and CalSTRS have voiced strong opposition.

CalPERS estimates that it will cost $17 million in transaction fees to divest $2 billion from the 10 companies that do defense and energy business in Iran.

Pat Macht, a spokeswoman for CalPERS, said the bill puts the pension fund at a disadvantage because it doesn't require other public employee pensions to divest, even those that represent other public employees in California.

Further, she said, it forces CalPERS to violate its fiduciary duties to get the highest return for its retirees, leaving the fund open to lawsuits.

In addition, CalPERS contends it is more effective to change a firm's behavior by being a shareholder and exerting pressure from inside.