"What money managers are doing with Israeli assets,"

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The debate over if and when investors should dump assets on ethical grounds has dragged on for years. Many argue that divesting shares does nothing to hurt the companies concerned, which merely end up with a less scrupulous shareholder base.

But the long-running divestment movement targeting Israel has been given new impetus by the war in Gaza, and the student protests calling for multibillion-dollar university endowments to offload Israeli assets. And new European regulatory requirements, which require investors to pay greater attention to human rights risks, are a further factor for fund managers to consider...

On Thursday, the FT reported that the UK’s Universities Superannuation Scheme had sold £80mn ($102mn) of Israeli assets, including government debt. With 500,000 members — mainly higher education workers — and £79bn in managed assets, USS is the UK’s biggest private-sector pension fund manager. The University and College Union, which represents USS members, has been pressuring the fund to divest assets linked to Israel’s campaign in Gaza.

USS has since published a statement saying it was “wrong to state, or imply, that our decisions were made for anything other than financial reasons”. But the move was hailed as a victory by the pro-Palestinian Boycott, Divest and Sanctions movement, which has been lobbying investors, businesses and officials to cut ties with Israel for nearly 20 years, drawing intense scrutiny. The BDS campaign, modelled on the 1980s drive to put pressure on apartheid South Africa, aims to impose costs on Israel that will force its government to improve its treatment of Palestinians in the West Bank and Gaza.

Publicly reported ditching of Israeli or Israel-linked assets, however, remains the exception rather than the rule, and most investors have been reticent on this issue. Last month, the non-profit Business and Human Rights Resource Centre approached 21 investors to ask about their response to a call by UN experts for arms companies to immediately halt arms sales to Israel. The institutions had been named by UN experts as significant investors in arms companies. Only three of them — Amundi Asset Management, Norges Bank Investment Management (NBIM) and Germany’s Union Investment — responded to the inquiry...

Other investors have taken a hard look at their exposure to companies doing business in or with Israel. In June, Norway’s biggest pension fund KLP said it would sell a $69mn stake in Caterpillar over concerns that the US company “may be contributing to human rights abuses and violation of international law in the West Bank and Gaza”. The bulldozer producer had failed to reassure KLP over the potential use of its products in the military campaign in Gaza, as well as in the clearance of Palestinian homes for West Bank settlements, KLP said.

Kiran Aziz, KLP’s head of responsible investment, told me that the fund manager was required by new EU and Norwegian legislation to undertake extensive due diligence around human rights risks surrounding its investments. Caterpillar had failed to give detailed responses to KLP’s queries on this subject, she added. “They are not able to give us anything concrete apart from referring to their policy — it doesn’t give us any value at all.”

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