Spotting links to Terrorism, Inc.
A new investing tool screens for firms tied to countries singled out by the US government as 'sponsors' of terrorism. But will it sully some upstanding firms?
Does your portfolio "support" terrorism?Skip to next paragraph
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It's a shocking thought, but not as far-fetched as it sounds.
As companies expand their global reach, they risk smudging their reputations by linking up with less-than-savory regimes. Even firms with good reputations reach into dark corners.
Take Royal Dutch/Shell. Although highly regarded for its environmental and human rights stances, the oil giant is drilling in Iran. Or consider Swedish carmaker Volvo. Despite its nice-guy image, it has sold trucks to Iraq.
Until Sept. 11, no group formally screened publicly traded companies for their links to terrorism or the spread of weapons of mass destruction. But as the United States has focused on terrorism, so some groups have begun to look at companies linked to it, even peripherally.
Earlier this month, a socially responsible investors group announced it had compiled a list of nearly 300 such firms. The group, the Investor Responsibility Research Center (IRRC), along with the Conflict Securities Advisory Group (CSAG), prefers to sell its list to subscribers (at $12,500 a year) rather than make it public. Nevertheless, the statistics it has released make interesting reading.
For example, of the 260 or so firms linked to countries supporting terrorism and developing weapons of mass destruction, a third are European. More than a quarter come from Asia. Only 10 percent are American.
But of the 30 or so other companies linked to proliferation issues, some two-thirds hail from the US. The reason is that the US government is more likely to identify companies that export high technology with potential military uses than many foreign governments are.
Still, the long list raises a disturbing possibility. Bad publicity could hurt a broadening range of firms, including ones you invest in. "We believe terrorism and weapons proliferation merit investor attention now more than ever," says Linda Crompton, IRRC's president. "There can be enormous negative publicity."
For example: Talisman Energy, a Canadian oil company based in Calgary, has operated in Sudan since 1998. The US State Department has designated that country a state sponsor of terrorism. But after shareholders questioned the move, Talisman produced an independently audited social-responsibility report, detailing its $3.2 million effort to build schools and a hospital, train women as entrepreneurs, and provide water wells for 28 communities.
"Reputational risk is in the eye of the beholder," says Dave Mann, the company's manager of investor relations. "I don't think it's going to come as any surprise to our investors that we're operating in Sudan.... We are a force for good regionally around the oil fields, but also a voice for peace."
Now, however, the company is fighting a new threat to its reputation. A group of Sudanese have filed suit in a New York district court alleging that the company urged the government to clear villagers from its oil properties in a military operation. The group has even produced a document Â- from the government, it alleges Â- ordering various military actions to be carried out "fulfilling the request of the Canadian company." The company denies the allegations and vows to defend itself. Nevertheless, the allegations may have already hurt Talisman's reputation.