STEARNS AND SPIEGEL: Ethical investment in the Congo

Imagine the following situation: A businessman runs a profitable company, providing much-needed employment to the economy. An integral part of the business, however, consists of paying off thugs who terrorize the community, stealing and raping at will. Would you invest in this business?

This is essentially the question that the Yale Corporation and other investors face regarding the mineral trade in the eastern Congo. There, pick and shovel mining puts cash in the pockets and food on the tables for hundreds of thousands spread over an area the size of Florida. The minerals they mine are also estimated to provide the largest source of financing for armed groups that commit thousands of rapes and murders each year.

This epidemic of violence led the United Nations Special Representative on Sexual Violence to dub the Congo “the rape capital of the world,” and recent health surveys suggest that as many as 40 percent of women in the eastern Congo have been sexually abused. Mortality studies show that 5.4 million people died as a result of the conflict between 1998 and 2007, and thousands have been killed in recent years.

While the roots of the conflict are complex, there is no doubt that rebel soldiers make millions each year off the mineral trade — numerous United Nations reports detail armed groups taxing trade routes and mining pits, owning transport companies and smuggling ore into neighboring countries.

Something had to be done. In July 2010, U.S. legislators inserted several pages into the mammoth Dodd-Frank financial regulation bill to help regulate this mineral trade; once this part of the law goes into effect, companies listed on U.S. markets will have to publish conflict mineral reports detailing what they have done to find out whether they use minerals involved in the conflict.

This bill does not sanction businesses trading in conflict minerals. It doesn’t even require them to stop buying these tainted goods. Rather, the law only requires that companies make their supply chains more transparent. Penalties are left to private investors and concerned individuals.

This is where Yale comes in. Around the same time as the Dodd-Frank bill was passed, we approached Yale’s Advisory Committee on Investment Accountability (ACIR) about weighing in. This is the body that recommended that Yale divest from Apartheid South Africa and from companies doing business with Sudan.

We urged the committee to adopt a policy of engagement: Tell companies that Yale will not invest in supply chains that finance violence, provide a grace period for companies to implement substantial reforms and otherwise consider divesting.

Unfortunately, ACIR is reluctant to take a position on the matter. “We couldn’t conclude with any certainty that if we started boycotting them it wouldn’t do more harm than good,” ACIR chair Jonathan Macey told the News last month. The problem, he said, was that the committee found conflicting data.

Some journalists and academics are concerned that the Dodd-Frank bill has resulted in a boycott of Congolese minerals and pushed hundreds of thousands of Congolese into unemployment. Yet most experts and field researchers disagree. A United Nations expert panel found that the Dodd-Frank bill led to a decrease in mineral production. While some miners have indeed lost their jobs, those losses are likely lower than many estimates. Many miners have migrated to other jobs. The Congolese army has withdrawn from some key mining areas, and mining companies have begun to separate clean from dirty minerals.

The UN panel backs the Dodd-Frank legislation, as do campaign groups like Global Witness and Amnesty International, several dozen Congolese human rights groups and the Catholic Church. The Congolese government has also thrown its weight behind the U.S. legislation.

So is the data really so conflicting?

There is no doubt that the crackdown on conflict minerals will lead some miners to lose their jobs in the short run. But to compare these modest job losses with the rape and killing perpetrated by armed groups is untenable. Yale has fallen behind Harvard, Stanford and Dartmouth in its efforts to ensure that its investments do not underwrite violence.

Now is not the time for risk-aversion and hesitation. Just this month, violence displaced another 100,000 people in the eastern Congo. And thanks to industry lobbyists with far deeper pockets than human rights groups — and without firm action from private investors like Yale — the Dodd-Frank legislation risks being diluted into a toothless bill. Yale now has to decide: Will it lead?

Jason Stearns is a third-year graduate student in political science. Julia Spiegel is a third-year joint degree student at the Yale Law School and Princeton.

Clarifiction: March 26 2012

The headline of this column was changed from “Divestment in the Congo” to “Ethical investment in the Congo” to better reflect the ideas presented in the piece”

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