Asset managers and pension funds are being confronted with tough questions about their investments in US private prison providers, as the issue re-emerges as a hot political topic in the race for the White House.
Human rights abuses in private prisons and migrant detention centres have galvanised campaign groups, which have called for asset managers such as Vanguard, BlackRock and Fidelity to divest from CoreCivic and Geo, the largest operators of US private prisons and migrant detention centres.
In the aftermath of the 2016 presidential elections, banks including Wells Fargo and JPMorgan Chase were criticised for the lines of credit they provided to private prisons. Both banks have since cut ties with the sector. The issue has come back to the fore in the Democratic party primaries for this year’s US election, with candidates criticising Michael Bloomberg for his campaign’s use of prison labour.
Democratic candidates Elizabeth Warren, Bernie Sanders, Pete Buttigieg and Joe Biden have all criticised the industry on the campaign trail. In October, California became the first state to ban private prisons.
New York became the first big US city pension fund to divest fully from private prison companies in 2017. The sector is “financially risky and morally bankrupt”, according to Scott Stringer, New York City comptroller.
“This industry’s business model is fundamentally premised on taking criminal justice backwards, and their reported human rights abuses pose enormous long-term financial and reputational risks to our pension fund portfolio,” he said.
Last year the deaths of children at migrant detention centres drew attention to the racially charged issues of criminal justice reform and US immigration. Advocacy group SumOfUs started an online petition that asked investors to demand that Vanguard and Fidelity divest from the private prison groups.
SumOfUs said it focused its campaign on Fidelity and Vanguard because of their size and the influence that their actions could have on other asset managers.
A previous campaign by SumOfUs and Leadnow, another advocacy group, which targeted the C$392bn (US$295bn) Canada Pension Plan Investment Board, clocked up more than 55,000 signatures. Campaigners also spoke out against CPPIB’s investments in private prisons at the pension board’s public meetings in Vancouver and Toronto. The CPPIB subsequently divested from CoreCivic and Geo, but a spokesperson for the scheme said the decision was not in response to the campaign.
Campaigners have also targeted BlackRock, the second-largest shareholder in both CoreCivic and Geo. Last year Art Space Sanctuary, an artist-driven initiative, carried out a campaign against New York’s Museum of Modern Art focused on one of its trustees, Larry Fink, the chief executive of BlackRock.
The group sent a letter calling on MoMA to demand BlackRock divests from the private prison operators or for Mr Fink to step down as a trustee. It was signed by more than 220 artists, academics and curators, including art critic Hal Foster and artist Andrea Fraser.
The pressure from campaigners on asset managers appears to be paying off. Fidelity has sold its Geo stock, and owns just 1.5 per cent of CoreCivic having been a top-10 shareholder last year. The fund manager denied this was a response to client pressure, but said it considered “social responsibility” when structuring its investment portfolios.
Vanguard — the largest shareholder in CoreCivic and Geo — described the immigration crisis at the US-Mexico border as “deeply saddening”, but added “this troubling issue needs to be solved by our elected officials”.
Vanguard said private prisons makes up a “very modest portion” of its funds’ portfolios, which were largely held in index funds. The fund manager owns shares worth $306m in CoreCivic and $335m in Geo, according to S&P Capital IQ, the data provider.
Last year the California Public Employees’ Retirement System, which manages $373bn on behalf of 2m members, divested from both private prison operators.
Calpers told FTfm the decision was made solely on investment grounds, following a comprehensive review of the plan’s holdings, which resulted in 217 companies being ditched. Calpers said the review was based on considerations including materiality, liquidity, geography and governance rights.
Emily Goldman, founder and director of ESG Transparency Initiative, an advocacy group, said the decision taken by Calpers and others reflects a wider shift within the industry. “I’m cautiously optimistic that we’re seeing a couple interlinked trends: pension fund divestment from for-profit prisons; and a fundamental shift in the evolving standard of fiduciary duty based on greater — often implicit — recognition of the financial materiality of environmental, social and governance issues.”
In January, the Rhode Island public pension fund announced that it would become the latest to divest from for-profit prisons. This followed similar moves in recent years by the Philadelphia Board of Pensions and Retirees, the New York State Common Retirement Fund, the Chicago Teachers’ Pension Fund, the New Jersey Pension Fund and the California State Teachers’ Retirement System.
The Oregon State Treasury, which manages the $81bn Oregon Public Employees Retirement Fund on behalf of nearly 375,000 current and former public employees, has retained small investments in CoreCivic and Geo. But it is showing its displeasure with the prison providers as a shareholder.
In January, Oregon state treasurer Tobias Read and attorney-general Ellen Rosenblum wrote to CoreCivic and Geo. They accused the directors of the companies of breaching their fiduciary duties by failing to provide “safe, humane detention centres”.
Geo told FTfm that the letter was “clearly a politically motivated portrayal of our company based on a false narrative and deliberate mischaracterisation of our role as a longstanding government services provider”.
CoreCivic said it appreciated the opportunity to engage with all of its stakeholders, “including those who own stock in the company”.