How the UN turned a profit from Israeli settlements

The United Nations is failing to do proper due diligence on where it puts its money, says Jack Davies.

Fawzia stands on the ruins of her house, after her Palestinian ex-husband demolished the dwelling to not face the prospect of Israeli settlers moving in after he lost a land ownership case in Israeli courts, in the East Jerusalem neighbourhood of Beit Hanina, July 19, 2018. REUTERS/Ammar Awad
Pension-fund investments fly in the face of multiple UN resolutions which declare Israeli settlements to be a violation of international law in Occupied Territories such as East Jerusalem, the site of this photograph showing a Palestinian woman in the ruins of her home last July. REUTERS/Ammar Awad

An investigation by New Internationalist can reveal that the UN is holding investments in companies operating in illegal Israeli settlements situated in the West Bank.

The fund, officially known as the United Nations Joint Staff Pension Fund (UNJSPF), services some 205,000 serving and former UN employees and falls under the authority of UN Secretary General António Guterres. Its holdings are shrouded in secrecy, with even the fund’s board of directors unable to locate precisely where the funds are being put to use.

In 2014, the UNJSPF gave its blessing – and financing – to the establishment of two exchange-traded funds (ETFs) designed to channel investments to companies actively working to lower their carbon emissions. ETFs invest in multiple assets, such as stocks and commodities, and are then traded themselves on stock markets, enabling investors to easily spread their capital and risks across multiple investments.

Trading under the names LOWC and CRBN, the two ETFs the UN pension fund helped launch had the noble aim of encouraging ecologically friendly business practices.

However, they also wound up investing at least $7.5 million into businesses whose activities fly in the face of multiple UN resolutions which declare Israeli settlements in the Occupied Palestinian Territories a violation of international law.

The combined value of the assets managed by the two ETFs is $677 million, meaning companies exposed in the West Bank account for slightly over one per cent of their portfolios.

The largest of the controversial investments is $2.3 million of shares held by the LOWC ETF in Leumi Bank, an Israeli financial institution documented by Human Rights Watch to have financed housing developments in illegal Israeli settlements.

Dr Susan Power, head of legal research and advocacy at the Palestinian civil society organization Al-Haq, reviewed the list of companies the ETFs holds stocks in that are active in Israeli settlements.

Al-Haq told New Internationalist they are ‘particularly concerned’ that the ETF is ‘providing equity investments to Leumi Bank, which provides loans to incentivize the purchase of properties in settlements, thereby facilitating the transfer in of settlers, in violation of Article 49 of the Fourth Geneva Convention, and which may amount to war crimes and crimes against humanity of forcible transfer, prosecutable at the International Criminal Court.’

Her statement also highlighted that every company on the list has been ‘persistently reported’ to UN human rights bodies ‘in relation to on-going violations of international human rights and humanitarian law.’

Other firms on the list have been documented by human rights groups as providing demolition and construction equipment used in the eviction of Palestinian families and the development of Israeli homes and businesses on their land. These include Caterpillar, in which the ETFs have $1.3 million of shares; Hitachi, approximately $600,000; Volvo, $450,000; Hyundai Heavy Industries, $300,000.

Michael Lynk, the UN’s special rapporteur on human rights issues in Palestine, highlighted the irony of the UN’s investments given that in 2016 the global body’s Human Rights Council called for the creation of a database of companies that profit from activities in Israeli settlements, a database which has yet to be completed.

‘Any business activity that sustains or helps expand the economic viability of Israeli settlements is contributing to significant human rights abuses,’ he said. ‘It should behold any pension plan not to invest in activities that create human rights violations, that should be particularly of concern to the UN pension fund.’

The ETFs jointly hold $183,000 of Motorola stocks. Motorola’s wholly-owned Israeli subsidiary developed and supplied surveillance technology in use not only in the settlements but also on the so-called ‘separation wall’ constructed by Israeli authorities in Palestine. A 2004 ruling by the International Court of Justice found the wall to be illegal and called for it to be dismantled, although the Israeli government is yet to do so.

Director of Amnesty International UK’s economic affairs programme Peter Frankental said that given the number of reports coming out of the UN regarding the situation in the Occupied Territories, ‘the staff pension fund thinking it’s ok to invest in companies doing business in the settlements seems incongruous, so it seems to be time for a review.’

‘They should not be investing in settlements which are illegal under international law because to do so is to recognize and assist an illegal situation, so to do so they are contributing to the human rights violations taking place there,’ he added.

The revelation that the UN holds investments in companies operating illegally in Palestinian territories carries a particular irony, given that the UN has an entire humanitarian relief agency dedicated to Palestine. As of December 31 last year, the agency, UNWRA, had an operating budget of $634 million, almost as much as the combined value of the two ETFs.

The UNJSPF is not alone in finding itself exposed to illegal activities in the West Bank. In January 2017, DanWatch reported that Europe’s five largest pension funds had a total of €7.5 billion invested in companies profiting from Israeli settlements.

Chief among those five culprits was the Norwegian state pension fund, which according to Al Jazeera had $5.6 billion invested in companies operating in Israeli settlements. However, as early as 2009 the Norwegian fund had begun the process of identifying and divesting from companies profiting from the occupation. That eight years later it still held such a large number of problematic investments is illustrative of the uphill struggle funds with such large portfolios face in doing proper due diligence across the full spectrum of their portfolios.

The UNJSPF would not say precisely how much money it currently has invested in the two ETFs. While the UN is likely to be a significant investor in the ETFs, the relatively small size of the two funds mean its holdings with them represent just a drop in the vast $64 billion ocean of investments held by the UNJSPF.

Regardless of the relatively small role LOWC and CRBN play in the fund’s overall holdings, civil society representatives were unanimous in their calls for the UN to review its holdings in them and consider removing the shroud of secrecy with which it currently covers its investments.

Thomas Kuchenmeister, director of Facing Finance, a German NGO, called on the UN to improve its practices.

‘By investing in companies doing business in the [Occupied Palestinian Territories] the UN is thwarting its own guidelines and is benefiting from multiple violations of international law,’ he wrote in an email. ‘It is absurd that the UN does not have guidelines for its financial bodies, including its pension systems, that ensure observance of its own norms, standards and guidelines. Without putting these in place and ensuring strict adherence, the UN will completely lose credibility.’

True to form, the UNJSPF declined to answer questions regarding the scale of its exposure to the problematic stocks, whether it was appropriate for it to hold those investments, or whether it would be heeding civil society groups’ calls for a review of those investments.

‘As a matter of policy, UNJSPF does not comment on individual holdings,’ a spokesperson wrote in an email.

The days of the UN holding investments in LOWC and CRBN – and the problematic companies along with them – may be numbered, though. They are, the spokesperson explained, part of the UNJSPF’s ‘passive’ low-carbon strategy, whereas the fund is soon to move to a new ‘active’ strategy. What role, if any, the ETFs would have in that new strategy is currently unknown.

However, even if the UN does divest from LOWC and CRBN, it is hard to know whether its exposure to human rights violations in the West Bank ends here, or if it holds other similar investments elsewhere.

David Pred, executive director of Inclusive Development International, described the UNJSPF as ‘one of the least transparent pension funds in the world.’ Neither its beneficiaries, its board of directors, nor the public at large (whose taxes bankroll the UN) are allowed to know what it invests its $64 billion in.

‘That it hides the vast majority of its investment portfolio from the public flies in the face of the UN’s commitment to transparency and accountability,’ Pred wrote in an email. ‘The fund must bring itself into line with the rest of the financial world – and the UN’s stated values – and disclose all of its investments now.’