· 4 min read
The majority of professional investors have signed charters and principles for responsible investment, many of which are imbued with international law. Some pension funds, sovereign wealth funds, and asset managers have even developed specific policies regarding investments in conflict zones. So how do these institutions position themselves in relation to the Israeli-Palestinian conflict—and how do they act on these positions?
A common first step is consulting published lists of companies alleged to be complicit in the establishment of illegal settlements in the Occupied Palestinian Territories. These lists are compiled by the United Nations and by non-governmental organisations (NGOs) such as the American Friends Service Committee, Who Profits, the Don't Buy Into Occupation coalition, and Boycott, Divestment and Sanctions (BDS) movement. Companies span a wide range of business sectors: arms, technology, construction, telecoms, tourism, real estate, banking, commerce, renewable energy. They also include Israeli, foreign and multinational firms of all sizes.
Pressure from the base
Some investors then use these lists to divest or exclude securities from their investment portfolios. In recent years, several public sector pension funds in countries such as Norway, the Netherlands, the United Kingdom, and the United States have made this choice under pressure from members and stakeholders. In Geneva, Switzerland, for example, the Green Party and the public service trade union are calling on the cantonal pension fund to halt investments in Israeli companies and sovereign bonds.
What are the impacts of such divestment? It allows investors to align their portfolios with their values and manage reputational risk. But what about the effects on the ground? Opinions are divided about the real-world impact. The BDS movement argues that targeted boycotts weaken the Israeli technology sector and its broader economy, thereby potentially pressuring the current government's position on issues such as settlements and Palestinian rights.
Nonetheless, calls for a financial boycott face significant limitations. Many companies on these lists are among the world’s largest and most profitable including Alphabet, Amazon and Microsoft, making it difficult for pension funds to give up this income. Moreover, when shares in these companies are sold, they are typically bought back by other investors, leaving the companies’ finances largely unaffected.
Norwegian Prime Minister Jonas Gahr Stoere (Social Democrat) responding via Reuters to calls from the LO trade union for Norway’s sovereign wealth fund to divest from Israel, stated: "We don't plan to change our strategy. Engagement, rather than boycott, is the way to influence behaviour".
The promises of engagement
Shareholder engagement is a central pillar to sustainable investing. This approach involves maintaining investments in sensitive regions or sectors and using investor influence to encourage companies to reduce harm and improve practices by way of positive contributions. For example, Dutch asset manager Robeco has conducted a dialogue with the German cement manufacturer HeidelbergMaterials, which operates in the Occupied Palestinian Territories. According to Robeco, this engagement led the company to strengthen its approach to human rights and conflict sensitivity. Similarly, the Local Authority Pension Fund Forum (UK) has engaged with Motorola and Bank Leumi.
Engagement can also take the form of public advocacy, as recently illustrated by the ‘Call for Responsible Corporate Policy and Practices on Human Rights in Conflict-Affected and High-Risk Areas’, an initiative led by the French Forum for Responsible Investment and backed by the International Federation for Human Rights. The Sustainable Finance Geneva association is also working to raise awareness of this issue.
Supporting local economies
Corporate social responsibility can mean supporting local economic development, particularly in vulnerable regions. In 2008, Cisco launched an initiative to promote the development of the technology sector in the Palestinian territories, bringing together a coalition of 35 companies. As John Chambers, the former CEO of Cisco, explained: “The way to end this conflict is to create a very large middle class and be inclusive in how you go after it across all individuals, regardless of age, religion or gender.”
More recently, the European Union announced a new support programme for Palestine, with a focus devoted to developing its private sector. With this in mind, investors seeking economic and social impact may also consider engaging with companies listed on the Palestine Exchange.
According to academic studies, economic sanctions are most effective when used in conjunction with other strategies rather than in isolation. The same is likely true for boycotts. Divestment and shareholder engagement are complementary tools rather than mutually exclusive ones. Investors and companies are facing mounting pressure from critical voices—including elected representatives, political parties, NGOs and trade unions—urging investors and companies to demonstrate greater responsibility.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
