Pension Funds Weigh In on Iran




By Craig Karmin

With states around the country working on bills to force their public pension funds to unload shares of foreign companies doing business in Iran, a coalition of large public funds has begun pressuring companies to reconsider their ties to that nation.

The coalition is composed of pension funds in California, New York, Illinois and North Carolina. It collectively controls $570 billion in assets -- or nearly a fifth of all public pension fund assets nationwide -- including $3.7 billion invested in energy companies doing business in Iran.

• The Situation: A coalition of large public pension funds is pressing companies to reconsider ties to Iran.

• The Background: State lawmakers around the country are working on measures to force their pension funds to sell shares of foreign companies doing business in Iran.

• What It Means: The coalition's effort reflects what some say is a bid to regain control of the investment process from lawmakers.

Recently, these pension funds voluntarily contacted several foreign energy companies to discuss steps to minimize the risks the funds perceive in doing business in Iran, which is designated by the U.S. State Department as a state sponsor of terror.

Although U.S. companies are banned from doing business with Iran or any other country classified as a terror sponsor, many foreign companies are under no such constraints and are active there. In what has become a popular issue for lawmakers, more than a dozen state legislatures have passed laws or are working on measures that could compel public pension funds to divest holdings in companies doing business in Iran.

The funds' inquiry to the companies is a relatively modest step. Indeed, most state measures require pension funds to make such a consultation before selling any shares. The coalition's plan marks what some say is the first coordinated effort to wrest back control of the investment process from state legislatures on the issue.

"These funds don't want to be restricted by political considerations," says Cynthia Steer, chief research strategist at the consulting firm Rogerscasey. "They are trying to elevate the issue into a question of corporate governance and move it out of the political arena."

Some politicians have greeted the moves by members of this coalition -- which includes the U.S.'s largest public pension fund, California Public Employees' Retirement System -- with skepticism. California State Assemblyman Joel Anderson, author of an Iran divestment bill that passed the state Assembly and now goes to the Senate, says pension funds that have lobbied hard against these divestment bills can't be trusted to follow through with divestment.

"All of a sudden they got religion?" Mr. Anderson asks. "I don't believe for a second [Calpers] would continue with the process of divestment unless we made it law." Calpers declined to comment.

State senator Jeff Klein, sponsor of New York's divestment bill, says talking to the foreign energy companies -- Royal Dutch Shell PLC, Spain's Repsol YPF SA and France's Total SA, among them -- about the risks of doing business with a volatile country like Iran is a good start. Still, he thinks legislation is necessary. "A lot of [foreign] companies need to be pressured immediately," he says.

Both the New York State Common Retirement Fund and New York City Pension Funds are part of this coalition, though New York state's divestment bill wouldn't apply to the city's pension funds.

Ken Sylvester of the New York City Comptroller's office, which oversees the city's pension funds, says the coalition's ultimate goal is for the energy companies to stop doing business in Iran. He thinks a dialogue is better than dumping the shares:

"We can have a greater effect as shareholders than if we immediately divest," he says.