Enhanced Investor Due Diligence for Conflict-Affected and High-Risk Areas (Cahras): South Sudan
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ISSUE PAPER Enhanced Investor Due Diligence for Conflict-Affected and High-Risk Areas (CAHRAs): South Sudan Introduction At Domini Impact Investments, we work to be consistent in the application of our Impact Investment Standards globally, but certain markets present distinct challenges. In these cases, we conduct enhanced due diligence processes to determine whether companies operating in line with our long-term goals of universal human dignity and environmental sustainability. In this paper, we outline the human rights situation in the Republic of Sudan (South Sudan) and explain why and how we perform additional analysis for companies that operate or have ties to business in the country, including the factors that help us determine whether these companies are eligible for investment. Additionally, we illustrate the supplementary actions investors can take to mitigate risk and promote responsible business conduct. We hope it serves as a guide for other investors, and for companies with ties to operations in conflict zones. The Republic of the Sudan (South Sudan) After years of conflict with its northern neighbor Sudan, South Sudan’s declaration of independence in 2011 was heralded as a new beginning for the war-torn region. Unfortunately, violence quickly returned. Since December 2013, a civil war between the South Sudanese government and opposition groups has destabilized the fledgling nation and created a humanitarian crisis.i Both the government and opposition militias target civilians, often along ethnic lines, causing widespread food insecurity and famine and the largest refugee crisis in Africa, displacing over 4 million people.ii Tens of thousands of people have been killed. As of 2018 South Sudan was ranked as the most fragile state in the world by the Fund for Peace.iii Page 1 of 19 Two key factors make South Sudan a particularly high-risk environment for businessiv: The struggle for control of oil reserves Both the government and opposition and other natural resources is fueling are kleptocratic in nature and the conflict. complicit in the ongoing atrocities. Domini’s policy is to assess each company’s involvement in South Sudan on a case-by-case basis, rather than issue a blanket exclusion. We consider whether there is evidence that a company’s involvement in South Sudan may have a net positive impact. Potentially beneficial operations include companies with contracts with multilateral agencies, including the United Nations, and those providing critical infrastructure and services. Companies that are otherwise involved in South Sudan, particularly in the areas of oil, mining, and the military are considered high-risk, including those that operate in that country through subsidiaries. For these companies that are not already excluded by our military weapons and fossil fuel exclusions,1 our analysis focuses on each company’s degree of involvement with the South Sudanese government and its response to the ongoing civil war and associated conflicts. Domini and Darfur Beginning with the Darfur crisis in western Sudan in 2003, Domini adopted a policy of targeted divestment and engagement regarding corporate operations in the region. As in the current conflict, government-backed militias perpetrating genocide in Darfur were financed with oil revenues, making the region a risky area for business involvement. Domini took a wide range of actions to use our influence as investors to seek to mitigate the crisis in Darfur. We worked with the Sudan Divestment Task Force to conduct research on foreign investment in conflict areas and to perform targeted divestment and engagement. Domini is a founding member of the Conflict Risk Network (now EIRIS Conflict Risk Network), the organization that succeeded the Sudan Divestment Taskforce, and has been serving on its advisory board since 2009. CRN continues to utilize the influence of asset owners and managers to hold corporate actors to their human rights responsibilities and promote peace and stability. See Box , “Domini’s Actions in Response to the Sudan Crisis and Darfur Genocide, “ for further examples. 1 Domini generally excludes from its mutual fund portfolios military weapons manufacturers and fossil fuel owners and producers (the latter group defined as companies that are substantial owners and producers of oil or natural gas reserves and are included in the Integrated Oil & Gas or Oil & Gas Exploration & Production Industries as defined by the Global Industry Classification System (GICS), as well as companies significantly involved in coal mining). Page 2 of 19 Timeline of Violence In 2005, following almost two decades of conflict that killed over 2 million people, Sudan and South Sudan signed a peace agreement Domini’s Actions in that included the right to self-determination for South Sudan. In Response to the Sudan Crisis 2011, South Sudan became an independent nation after a and Darfur Genocide referendum in which 98.8% of South Sudanese citizens voted for independence.v CORPORATE ENGAGEMENT In December 2013, civil war erupted in the newly formed country 2007 when forces in the Sudan People’s Liberation Army (SPLA) loyal to Domini joined other President Salva Kiir, a Dinka, and those aligned with his former Vice investors and NGOs in vi President, Riek Machar, a Nuer, fought in the capital city of Juba. meetings with US banks to There was longstanding tension between the two leaders, and Mr. discuss their responses to Kiir had alleged that Mr. Machar was plotting a coup. the crisis. One bank adopted a formal policy on Sudan in The SPLA was a guerilla force during the war with Sudan consisting response. of militias organized along ethnic lines and was not adequately professionalized after independence. There has been historical 2008 competition between the Dinka and Nuer ethnic groups, mainly for Domini joined a wide range grazing land and water. This ethnic conflict has been exacerbated of civil society organizations by drought and the influx of heavy weapons during the war with and investors in a letter to Sudan.vii the UN Global Compact, seeking the expulsion of a Competition is focused on control of South Sudan’s extensive oil state-owned oil company reserves, virtually the only domestic source of income, and from the signatory list due to viiiix complicated by a web of pre-existing power struggles. Oil its operations in Sudan. income was largely spent on maintaining the loyalty of the elites and the military after independence, creating a situation ripe for 2009 instability when revenues decreased due to disputes with Sudan Domini became a founding and a drop in global oil prices. member, and joined the Advisory Board, of Conflict The initial conflict was concentrated in the Jonglei, Upper Nile, and Risk Network (CRN), the Unity regions in the northeastern part of South Sudan. However, successor organization to starting in late 2015, violence spread to previously stable areas, the Sudan Divestment Task including the greater Equatoria region which had been the Force. breadbasket of the country.x A peace agreement creating a transitional national unity Continued on next page government was signed in August 2015, but fighting and extensive abuses against civilians have continued unabated and have spread in the last two years.xi The agreement called for elections to be held by July 2016, but they have been postponed.xii A ceasefire Page 3 of 19 2010 agreement was signed in December 2017 but was immediately • Domini initiated an violated. engagement with an oil company and its joint Continuing Human Rights Violations venture partner regarding their alleged complicity in a The ongoing civil war has been marked by crimes against humanity series of atrocities against xiii committed with virtual impunity. Both sides have intentionally community residents near a targeted civilians and civilian property to flush out opposition drilling site in southern fighters and exact revenge for attacks. The African Union, United Sudan, near Juba. Nations and civil society organizations including Amnesty International and Human Rights Watch have documented mass • rapes and rampant sexual violence, targeting of civilians along Domini joined CRN in writing ethnic lines, and the use of child soldiers.xivxv Arbitrary detention, to 18 oil & gas and torture and enforced disappearances, extrajudicial killings, and telecommunications other war crimes have been widespread.xvi These conditions have companies operating in caused an internal and external refugee crisis of massive scale. Sudan, asking them to take UN officials have warned that this conflict is an ethnic war with the steps to ensure protection of potential for genocide.xvii In December of 2016, the chair of the UN human rights during the Commission on Human Rights in South Sudan warned of “a steady upcoming public referendum. process of ethnic cleansing underway in several areas of South Sudan using starvation, gang rape and the burning of villages.”xviii In • We initiated an engagement many cases, intercommunal tensions have been purposely with a Swedish industrial xix seeded. equipment firm regarding its sales of mining equipment to The use of rape as a weapon of war is widespread, affecting Sudan. The engagement xx thousands since the beginning of the conflict. According to one evolved into a multi-year 2015 United Nations Population survey, seventy-two percent of dialogue involving other women living in U.N. Protection of Civilian (PoC) sites in the capital investors and CRN. The firm city of Juba had been raped, mainly by soldiers and police. Many ultimately initiated a human victims were selected based on their ethnicity. There has been little rights due diligence process to no physical or mental care available to survivors, and little to no in Sudan and elsewhere, consequences for the perpetrators. which included the The conflict has been particularly devastating for children. Both the publication of case studies in government and opposition forces have forcibly recruited and used high-risk countries. more than 19,000 child soldiers over the course of the war and over 2,300 children have been killed, injured or assaulted.