Progress for terror-free investment index

Developments in Louisiana are bringing Americans one step closer to total terror-free investment.

(Washington, DC): One of the most groundbreaking bills authored to date in the Divest Terror movement has quietly made its way through the Louisiana state legislature and was signed into law this week.

The bill, written by State Representative Pete Schneider and designated HB 864, passed resoundingly in both chambers of the legislature in the House of Representatives by a floor vote of 100-0, and the Senate by a tally of 35-0.

There are two reasons why HB 864 is of national significance.  First, it will result in the establishment of a terror-free investment index for international investments.  Once this index is established it will become available to public, institutional and perhaps even individual investors across America.  This removes the biggest obstacle to terror-free investing in the 3 years of Divest Terror’s existence.

[More]Second, and in a sharp contrast to other states, the Louisiana pension systems took an active role drafting and supporting HB 864.  The most noteworthy help came from the Louisiana Sheriffs Pension and Relief Fund and the Louisiana Firefighters Pension Fund.  Both objected to their retirement funds being invested in terror-sponsoring states, and cast their lot with the Divest Terror program.

A Primer on Index Investing

Index investing is one of the most popular forms of investing in the US among individual and institutional investors.  Literally tens of millions of Americans invest in different vehicles that are designed to track various indexes, in the form of Index Mutual Funds and Exchange Traded Funds (ETFs).

The most widely watched index, S&P 500, covers US companies and thus is not directly relevant to terror-free investing, since US companies are forbidden from doing business directly in Iran, Syria, Sudan and North Korea.

Foreign companies are not subject to the jurisdiction of US restrictions on business with terror nations.  For that reason, the relevant index for terror-free investing is the EAFE Index, an index of European, Australian and Far East Companies that is popular for international index funds and ETFs.

The EAFE Index may be a convenient way for individual, institutional and public investors to invest internationally, but it has also proven an obstacle to terror-free investing and divestment from terrorist regimes because there is no way to simply divest a portion of an index b it’s all or nothing.  Until an entire index goes terror-free, any attempts to wield them as Divest Terror tools will be only ineffective half-measures.

Progress, At Last

For some time now, Wall Street firms have averred that a terror-free international index can be created, but no entity has specifically requested that one be created.

HB 864 in Louisiana changes that.  It will result in the creation of a terror-free index available to public, institutional, and individual investors across America.  The bill mandates that fund managers with international experience create “an international terror- free index fund which identifies and excludes from the fund companies having facilities or employees or both in a prohibited nation.”  The “prohibited nations” are Iran, Sudan, Syria and North Korea, each from the US State Department’s official list of terrorist sponsoring nations.  The creation of this index must take place within 180 days of the bill’s passage, and it must replace the excised stock with those of equal value.

The Center for Security Policy cannot overemphasize the importance of this precedent and the attractiveness of this legislation as a model. Whereas some states have announced that they intend to divest from companies doing significant business in Iran’s energy sector, when a pension system shifts from its current international index to a terror-free index, many more companies that do business in Iran – and Syria, Sudan and North Korea will get left out, and we will be that much closer to victory in the War for the Free World.