These recommendations are in response to the following referrals:

            2008 Referral: Alternate Resolution to Item 11-01. On Peace and Justice in Palestine and Israel, Recommendation 6. Instruct the Committee on Mission Responsibility Through Investment (MRTI) to Report Regularly to the General Assembly Council on Its Communication and the Compliance, or Lack Thereof, by Caterpillar, Motorola, and Other Corporations Involved with Regard to General Assembly Guidelines and Concerns for Justice and Human Rights—From the 218th General Assembly (2008) (Minutes, 2008, Part I, pp. 45, 46, 1137–39).

            2008 Referral: Item 11-27. Report of the Committee on Mission Responsibility Through Investment of Its Engagement with Corporations Involved in Israel, Gaza, East Jerusalem, and the West Bank. Recommendation 4. Direct the General Assembly Council, Through Its Committee on Mission Responsibility Through Investment, to Continue the Corporate Engagement Process, and Report on Its Status with Any Recommendations to the 219th General Assembly (2010)—From the Committee on Mission Responsibility Through Investment (Minutes, 2008, Part I, pp. 46, 47, 1223–25).

Report of the Committee on Mission Responsibility Through Investment of Its Engagement

with Corporations Involved in Israel, Gaza, East Jerusalem, and the West Bank

MRTI Report on Engagement with Corporations on Israel-Palestine Issues from 2004 to 2009

Historical Background: 2004-2006

The 212th General Assembly (2004) instructed the Committee on Mission Responsibility Through Investment (MRTI) to begin a process of “phased, selective divestment” related to corporations doing business in Israel. Following the assembly, MRTI initiated a process consistent with General Assembly (GA) policy. First, MRTI reviewed the 1984 GA policy on the use of divestment as a strategy for socially responsible investing, and the criteria for consideration of any recommendation for divestment. Also reviewed was the 1985 GA policy describing the process of phased, selective divestment.

At its first meeting following the General Assembly, MRTI identified GA policy positions on the obstacles to a just peace in Israel and Palestine. These included the ongoing violence perpetrated by Israelis and Palestinians against innocent people; the Israeli occupation of the West Bank, Gaza, and East Jerusalem in violation of the Fourth Geneva Convention and United Nations resolutions; the presence of Israeli settlements in the occupied territories; the construction of the separation barrier; and the need for a viable Palestinian economy to enhance the possibility of a successful Palestinian state. These GA policies were incorporated into criteria to focus the research into corporations that may be profiting from involvement in any of the obstacles to a just peace. The MRTI also adopted a clear statement on the process of progressive engagement of any such companies that affirmed the cycle of dialogue, shareholder resolutions, and proxy voting and more dialogue before MRTI would be in any position to consider recommending possible divestment action to the General Assembly. This was reported to the General Assembly Mission Council (GAMC), and publicized widely.

The MRTI conducted research to determine which corporations, if any, met the criteria. In August 2005, MRTI reviewed the research to select from among the identified companies an initial group to engage. These were Caterpillar, Citigroup, ITT Industries, Motorola, and United Technologies. The MRTI also maintained contact with various ecumenical partners that were committed to engaging companies on the issue of their involvement in Israel and Palestine. These included the Episcopal Church, the Evangelical Lutheran Church in America, the United Methodist Church, the United Church of Christ, and several Roman Catholic religious orders.

The MRTI began the process of contacting and meeting with the five companies (meetings were held with Citigroup, ITT Industries, and Motorola), communication with the presbyteries where the companies are headquartered, and continued interpretation of the process to the church and the general public. The MRTI also worked ecumenically on strategies for proactive investment in Israel and Palestine by churches and corporations in consultation with James Wolfensohn, special envoy for the Quartet (the United States, the European Union, the United Kingdom, and Russia), whose charge included helping to rebuild the Palestinian economy.

In 2006, the General Assembly responded to numerous overtures regarding corporate engagement on Israel-Palestine issues, and approved a statement urging that “… financial investments of the Presbyterian Church (U.S.A.), as they pertain to Israel, Gaza, East Jerusalem, and the West Bank, be invested in only peaceful pursuits, and affirm that the customary corporate engagement process of the Committee on Mission Responsibility Through Investment of our denomination is the proper vehicle for achieving this goal”(Minutes, 2006, Part I, p. 944.)

The MRTI continued its work with considerable time devoted to fostering ecumenical cooperation on engagement. To that end, an informal table called the Ecumenical Action Group: Investment for a Just Peace in Israel /Palestine (EAG) was created. As a result, corporate dialogues were expanded to include participation by representatives of other Protestant denominations and Roman Catholic religious orders. These have included the Episcopal Church, Evangelical Lutheran Church in America, United Church of Christ, United Methodist Church (General Board of Global Ministries, General Board of Church and Society, General Board of Pensions and Benefits, and the New England Conference), United Church of Canada, Mercy Asset Management, the Passionists, Ursuline Sisters, and the Dominican Sisters. Also participating has been KAIROS Canada and the World Council of Churches.

In October 2007, the World Council of Churches convened a meeting of U.S., Canadian, and European churches working on corporate engagement. As a result, there has been increased sharing of research, and broader participation in dialogues and shareholder resolutions. United States and Canadian churches continue to cooperate in the EAG.

In Europe, churches in the Netherlands reported on engagements with a Dutch company that subsequently moved its facilities out of the West Bank and back into Israel. Swedish churches were instrumental in convincing Assa Abloy, a locksmithing company, to move its facility out of the Barkan settlement in the West Bank to the other side of the Green Line. This ecumenical cooperation has helped identify several European and other companies with extensive ties to the Occupation including Veolia, AIG, Ahava, and Alstom.

Additional dialogues were held with Motorola and Citigroup. These dialogues were the first step of the corporate engagement mandated by the 216th and 217th General Assemblies (2004 and 2006). Corporate engagement is a deliberate process outlined in the basic policies of the General Assembly on socially responsible investment, dating to 1971, 1976, and 1984. Elements of this process include research, correspondence, dialogue, proxy voting, and the possible filing of shareholder resolutions. Only after all other options fail to achieve the desired results, the committee on MRTI, through the GAMC, may recommend to the GA divestment from particular corporations.

Citigroup: The Citigroup dialogue was highly productive. The primary concern with Citigroup involved an allegation that Citigroup had provided insufficient controls to prevent the transfer of funds to Palestinian organizations supporting violence. In conversation with MRTI representatives, the company provided assurance that the bank had robust controls in place to monitor and prevent questionable money transfers. There have been no subsequent reports alleging inappropriate funds transfers by Citigroup. In addition, Citigroup expressed willingness to assist the religious community with exploring how to increase microcredit lending in the region to address the lack of adequate investment opportunities in Palestine. Therefore, in June 2007, MRTI removed Citigroup from its focus list of companies for corporate engagement.

Motorola: The dialogue focused on human rights standards and conventions, and explored the company’s involvement in the occupation through sales of military communications products, fuses for bombs, security technology for Jewish Israeli settlements on the West Bank, and operating a cell phone business in the West Bank. Motorola denied that any of its activities implicate it in the Israeli occupation, or raise human rights concerns. A shareholder resolution addressing broader human rights issues was filed by several religious shareholders in the fall of 2007. In response, Motorola requested a follow-up meeting, which occurred in January 2008. The company indicated its intent to review and amend its policies but would not specify the particular changes under consideration and made clear that its human rights policies would not be applied to their business relationships with foreign governments. This lack of clarity and limited scope led the religious investors, including MRTI representatives, to decline to withdraw their resolution, which went to a vote at the annual shareholders meeting on May 5, 2008. It received more than 12 percent of the shareholder vote, enough to be resubmitted in 2009. Although the conversation with Motorola has been less productive than hoped, religious shareholders agree that more in-depth dialogue on corporate social responsibility and human rights might potentially create a more productive arena for analyzing the Israel-Palestine conflict and other world situations and ought to be continued.

Caterpillar: The resolution at Caterpillar requested the board of directors to review the company’s human rights policies and amend them where applicable. Caterpillar also received a resolution on foreign military sales from a coalition of shareholders including several Roman Catholic religious orders and Jewish Voice for Peace.

There were two developments at Caterpillar. First, several religious shareholders sent a letter to the company requesting a meeting to discuss nonmilitary sales of company products in Israel and Palestine. The company replied by letter on December 13, 2007. While not responding to the request for a meeting, the company said for the first time that “As an industry leader, Caterpillar advocates responsible use of our equipment. We expect our customers to use the products they purchase from us in environmentally responsible ways and consistent with human rights and requirements of international humanitarian law.”

ITT Industries: The resolution at ITT Industries requested a report on foreign military sales. On March 4, 2008, religious shareholders, including MRTI representatives, met with ITT Industries. The company wanted to discuss its new corporate ethics program rather than foreign military sales. ITT’s position is that it will not disclose its foreign military sales claiming that all the information is publicly available. ITT had challenged the resolution at the Securities and Exchange Commission. The SEC’s decision upholding the shareholders was announced later in March. The resolution was voted on at the ITT Industries annual meeting on May 13, 2008, receiving more than 7 percent of the proxy vote.

United Technologies: The resolution to United Technologies requested that ethical criteria be applied to foreign military contracts, and, with the Episcopal Church as the primary filer, was supported by 23.8 percent of shareholders voting at the annual meeting; a very strong showing, considering resolutions of this nature submitted to major defense contractors routinely receive 3 to 5 percent of the shareholder vote. The vote was sufficient to qualify the resolution for automatic reconsideration at next year’s annual meeting. The Episcopal Church had a brief phone conversation with company officials, and received a commitment to a dialogue on developing a human rights policy.

Regular reports on the corporate engagement process were made to the GAMC. The 218th General Assembly (2008) received a comprehensive report on MRTI work that included the committee’s belief that more engagement was the appropriate course of action at that time. It also called upon corporations doing business in Israel, Gaza, East Jerusalem, and the West Bank “… to confine their business activity solely to peaceful pursuits, and refrain from allowing their products or services to support or facilitate violent acts by Israelis or Palestinians against innocent civilians, construction and maintenance of settlements or Israeli-only roads in East Jerusalem and the West Bank, the Israeli military occupation of Palestinian territory, and construction of the Separation Barrier as it extends beyond the 1967 “Green Line” into Palestinian territories” (Minutes, 2008, Part I, p. 1223).

The GA also directed MRTI “to continue the corporate engagement process, and report on its status with any recommendations to the 2010 General Assembly” (Minutes, 2008, Part I, p. 1223).

In accordance with this directive, the corporate engagement process continued in late 2008 and 2009.

Caterpillar: A second dialogue was held on September 10, 2009, to continue the discussion of the previous year. Additional information had become public that was added to the agenda for discussion. An article in Haaretz, an Israeli newspaper, dated March 11, 2009, reported on the close relationship between Caterpillar’s Israeli dealership and the Israeli military. This includes selling the Caterpillar D-9 bulldozers to the Israeli Defense Forces who has them weaponized by an Israeli company. The article notes that the IDF has used these bulldozers from the mid 1980s, and has hundreds of them in its arsenal. After that, the Caterpillar dealer provides maintenance work. The dealership’s mechanics provided maintenance in the recent Gaza war (These dealership employees maintained and serviced Caterpillar equipment during the Gaza War of January 2009, when more than 1,300 civilians were killed and the entire civilian infrastructure of the territory was destroyed) and the Second Lebanon War. The dealership noted publicly its close working relationship with the Israeli Defense Forces, according to Haaretz in an article dated March 17, 2009, the IDF also “is planning to draft civilian bulldozer-maintenance personnel for reserve duty, marking the first time the army will be conscripting the staff of a private firm in wartime.”

The dialogue clarified several issues, but did not produce any progress. Company officials made it clear that the company took no responsibility for the use of its products even by its dealers (the only party considered to be a customer), had no procedure in place for monitoring or ensuring compliance with Caterpillar’s stated expectations even in a situation with a documented historic pattern of the equipment being used in human rights violations, and no desire to develop such a procedure. Further, they indicated that Caterpillar, although a global company doing business in virtually every country except where prohibited by U.S. law, had no capacity to evaluate whether particular actions are in accord with human rights conventions or international humanitarian law. Finally, Caterpillar did not provide information on whether its dealership was selling equipment to major construction companies building the illegal settlements, the separation barrier, or the Jewish Israeli-only roads in the occupied territories as requested. It also did not provide an update on the effort to expand its philanthropic activities as announced at the 2008 meeting.

Meanwhile, a shareholder resolution requesting a report on foreign military sales was refiled by Jewish Voice for Peace and several Roman Catholic religious orders for consideration at the 2009 stockholders meeting in June. The resolution garnered slightly less than six percent of the shareholder vote, and failed to requalify automatically for the 2010 meeting. Whether they will switch to another resolution is unclear. (Note: A new CEO has been appointed to take office at Caterpillar, July 22, 2010.)

Motorola: A shareholder resolution similar to the one from 2008 was filed with Motorola requesting that the company amend its human rights policies “to conform more fully with international human rights and humanitarian standards…” The resolution was co-filed by the General Board of Pensions and Health Benefits of the United Methodist Church, Mercy Investment Program, and the Episcopal Church. The company did not respond to a request in the filing letter for a meeting to discuss the resolution. When the filers tried to set one up following the annual meeting, the company declined, but offered to answer written questions. The stockholder meeting was held on May 4, 2009. Speaking in support of the resolution, which received 9.7 percent of the vote, were representatives of the United Methodist Church and the Presbyterian Church (U.S.A.).

The resolution received nearly 7 percent of the shareholder vote at the May 2009 annual meeting. It can be refiled for the 2010 meeting.

United Technologies: The Episcopal Church filed a resolution with United Technologies asking for a report on the ethical criteria for its foreign military sales. The company agreed to develop the report, and a meeting was held on August 17, 2009, to discuss how the report and a policy on sales would be implemented. This was the first meeting with company officials, and was a productive session according to the participants.

Hewlett-Packard: On March 5, 2009, several religious shareholders were scheduled to hold a conference call with Hewlett-Packard, and had submitted a detailed list of questions for the discussion. The company then cancelled the call saying it would respond in writing, and only then consider a meeting. The shareholders reviewed the company’s written answers, and noted that they were vague or incomplete. The General Board of Pensions and Health Benefits of the United Methodist Church contacted the company to renew the request for a dialogue. Hewlett- Packard again declined saying they would only respond in writing. Two rounds of letters produced only vague answers to the shareholders’ questions.

The company sells hardware to the Israeli Navy that is used for its operational communications, logistics, and planning including the ongoing naval blockade of the Gaza Strip. This blockade has included interdicting humanitarian supplies by attacking or turning back international vessels carrying the supplies, and attacks on Palestinian fishermen. The company also is involved through its ownership of Electronic Data Systems in providing electronic biometric identification scanning equipment to monitor Palestinians at several checkpoints inside the West Bank.

Soldiers in the IDF are issued a Tadiran Communications ruggedized personal digital assistant (RPDA) based on the Hewlett-Packard IPAQ . This RPDA has been selected for Israel’s Anog soldier modernization program. Its use enforces the occupation. In July 2009, HP won a contract for the installation of software products in a three-year IDF virtualization tender offer valued at an estimated $15 million, with a two-year option to extend. Further, Hewlett-Packard’s HP Invent subsidiary outsources information technology services to Talpiot, a subsidiary of Matrix. Talpiot’s main outsourcing center is in the illegal West Bank settlement of Modi’in Illit. By using Talpiot’s services, clients of the company are profiting from the company’s relationship with an illegal settlement, and are helping solidify the occupation. Finally, as with Motorola Israel, HP’s Israeli subsidiary does not disclose its equal employment opportunity record of its hiring practices.

A shareholder resolution was developed requesting a review of HP’s human rights policies, and a report on their implementation. It was filed by the PC(USA), United Methodist General Board of Pensions and Benefits, and four Roman Catholic religious orders. The filing letters requested an opportunity for dialogue, and prompted a positive response by the company. On October 28, 2009, several religious participants met with company officials by conference call. The discussion reviewed HP’s policies and procedures, and identified issues of concern for further discussion. Participants were grateful for the positive atmosphere, and willingness to cooperate. As the company agreed to initiate a board of directors level review of its human rights policy, and committed to positive follow-up to the issues identified in the dialogue, the shareholders decided to withdraw the resolution.

Summary: While progress might not be as complete or as rapid as we might hope, the committee believes there has been progress in our dialogues with four of the five current companies we have been intentionally engaging in the process that began six years ago:

1.   Motorola has taken positive steps, though some of these steps were likely motivated by business decisions rather than engagement with investors. In any case, the effort has seen positive results as the company has reduced its involvement in obstacles to a just peace.

2.   ITT has seen a decrease in sales to conflicted regions, largely due to restrictions on sales to the U.S. Department of Defense. The company has been willing to meet with MRTI, and local Presbyterians have contributed in positive ways to establishing opportunities for dialogue. Continued engagement would focus on the company’s human rights practices.

3.   United Technologies was always less involved in the region than some others, with most of their involvement coming as a subcontractor for companies with larger financial stakes. The company is open to further conversation.

4.   HP had expressed some hesitation about meeting with ecumenical investors but following the filing of a shareholder resolution has apparently received the dialogue with openness and sincerity. The company has committed to continued conversations.

The Committee on Mission Responsibility Through Investment is deeply disappointed that the dialogue between the Caterpillar corporation and our committee (together with ecumenical partners) has not borne more fruit. Caterpillar continues to accept no responsibility for the end use of their products. Over many years, the company has not indicated a willingness to review its policies for distribution or sales in conflicted areas like Israel/Palestine, and does not acknowledge a responsibility for its dealers’ adherence to human rights law in these areas.

Caterpillar’s own high standards of global citizenship are being undermined by its unwillingness to critically self-assess its own conduct in Israel/Palestine. It is the conclusion of MRTI that further efforts to engage Caterpillar through ordinary means (including shareholder resolutions, and written and oral communications) are unlikely to be successful.

While not all of Caterpillar’s operations are involved in non-peaceful pursuits, a significant portion of them are. Thus, the company does not measure up to the General Assembly’s stated position that the church’s investments in companies doing business in Israel, Gaza, East Jerusalem, and the West Bank be in companies involved in only peaceful pursuits.

The committee calls upon all potential customers and investors to carefully review the human rights records of Caterpillar and any other companies doing business in the region as they make their own decisions as consumers and investors. The committee stands ready to take whatever steps going forward as the assembly may direct.