TIAA-CREF Divests from Caterpillar

By Julia Glauberman

In recent weeks, TIAA-CREF, a leading financial services organization that manages nearly $500 billion in assets, has announced that it will remove Caterpillar, Inc. from its socially responsible investment portfolio and to sell Caterpillar’s shares, which are worth around $73 million. Like the company’s move to divest from companies with business ties to the Sudanese government three years ago, this decision comes after much contentious debate on the subject.

Caterpillar has recently been the target of criticism for selling bulldozers to the IDF, which uses the machines to demolish Palestinian homes in Gaza, the West Bank and East Jerusalem. However, TIAA-CREF’s public relations department has avoided citing the Israeli-Palestinian conflict as the source of its decision, instead pointing to Caterpillar’s recent downgrading in MSCI’s Environmental, Social, and Governance (ESG) ratings index.

TIAA-CREF’s apparent desire to distance itself from this decision and any related controversy is not surprising. Prior to MSCI’s revision of its ESG index, TIAA-CREF released a statement in response to calls to divest from Caterpillar that included the following: “While TIAA-CREF acknowledges participants’ varying views on Israeli and Palestinian policies and the Gaza Strip and West Bank, we are unable to alter our investment policy in accordance with those views.” But unlike TIAA-CREF, MSCI has acknowledged the conflict as one of three “key factors” that led to the ESG index revision.

Since TIAA-CREF’s announcement of its decision to divest, groups like Jewish Voice for Peace, BDS (Boycott, Divestment and Sanctions), and the Rachel Corrie Foundation are claiming the divestment as an indisputable victory. Whether or not the MSCI and TIAA-CREF decisions resulted directly from the actions taken by these groups, advocates of divestment surely have reason to celebrate. This is especially true for Craig and Cindy Corrie, parents of the late Rachel Corrie and creators of the foundation that bears her name. Rachel Corrie, a college student from Olympia, Washington, was killed in Gaza in 2003 after putting herself between a bulldozer and a Palestinian home.

Since Rachel’s highly publicized death, the Corries have brought lawsuits against both the State of Israel and Caterpillar. While they are still waiting on a decision from the Haifa District Court, which will be handed down in late August, their case against Caterpillar in the United States has already been dismissed, appealed and dismissed again. The Ninth Circuit Court of Appeals affirmed the lower court’s decision on the basis that, among other things, the judicial branch cannot and should not make rulings that affect foreign policy.

The decision also noted that even if the court possessed the power to make such rulings, Caterpillar could not be held accountable on the charges of aiding and abetting war crimes or violating any other international laws because the corporation is not a “state actor.” Furthermore, Judge Wardlaw, the author of the final decision, points out that the case is further complicated by the fact that all of Caterpillar’s contracts with the IDF have been approved and financed by the U.S. government as far back as 1990.

Despite the clearly controversial nature of Caterpillar’s involvement with the IDF and the potentially massive negative impact of the downgrading in MSCI’s ESG index, Caterpillar seems to still be faring well financially. Recent reports from Bloomberg, Forbes, and the Wall Street Journal point to impressive risk-adjusted gains, high dividend payouts, and increased global sales. Nevertheless, it should be interesting to see how the ESG downgrading, as well as the divestments by more firms like TIAA-CREF that may follow, will impact Caterpillar and its involvement with Israel.