These recommendations are in response to the following referral: Alternate Resolution to 2006 Referral: Item 11-01. On Rescinding and Modifying Certain Actions of the 216th General Assembly (2004) Regarding the Israeli-Palestinian Conflict, Recommendations 2.a.-d. Direct Mission Responsibility Through Investment (MRTI) to Ensure That Its Strategies for Engaging Corporations with Regard to Israeli and Palestinian Territories—From the 217th General Assembly (2006) (Minutes, 2006, Part I, pp. 44, 943-54).

The 216th 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 policy.

First, MRTI reviewed the 196th General Assembly (1984) 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 197th General Assembly (1985) policy describing the process of phased, selective divestment. At its first meeting following the General Assembly, MRTI identified General Assembly 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 General Assembly 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 GAC, 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, and the United Church of Christ.

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.

The 217th General Assembly (2006) 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.”

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 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, Ursuline Sisters, and the Dominican Sisters. Also participating has been KAIROS Canada and the World Council of Churches.

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 General Assembly Council, may recommend to the General Assembly divestment from particular corporations.

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.

The Motorola 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, and security technology for Jewish Israeli settlements on 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 will go before the annual shareholders meeting on May 5. 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 may potentially create a more productive arena for analyzing the Israel-Palestine conflict and other world situations and ought to be continued.

Shareholder resolutions for consideration at the 2008 annual meetings were also filed with Caterpillar, ITT Industries, and United Technologies. The resolution at Caterpillar requests 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. The resolutions at ITT Industries requested a report on foreign military sales, and at United Technologies requested that ethical criteria be applied to foreign military contracts. The United Technologies resolution 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, should the shareholders decide to resubmit it.

In the case of Caterpillar, there were two developments. First, several religious shareholders sent a letter to the company requesting a meeting to discuss non-military 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.”

Secondly, the resolution submitted by the Presbyterian Church (U.S.A.) and the Dominican Sisters produced a dialogue on January 30, 2008. Caterpillar representatives reviewed their Worldwide Code of Business Conduct. Discussion focused on the human rights dimensions of the code, what it included or omitted, and who beyond the company’s employees it affected or not. Religious shareholders, including MRTI representatives, raised the need to address the end-use of company products, particularly in countries with human rights challenges. After further discussions, the shareholders agreed to withdraw the resolution from consideration at the 2008 annual meeting in exchange for an ecumenical dialogue with the company on human rights and the end use of Caterpillar products. It is hoped that this dialogue will begin in May or June 2008.

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. The position of ITT 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 will be considered at the ITT Industries annual meeting on May 13, 2008.

The Episcopal Church is the primary shareholder proponent with United Technologies, and had a brief phone conversation with company officials.

The process of corporate engagement will be evaluated by the ecumenical participants, and strategic adjustments made for the next round of engagement.

In sum, momentum has increased, participation has broadened, and issues with companies are clearer and sharper. Although major changes in corporate policies and practices remain elusive to date, MRTI believes that the engagement process is on track and ought to be continued and completed in accordance with regular General Assembly policies governing our engagement process and in response to the 2004 and 2006 mandates. The committee is not prepared to make a final recommendation at this time regarding the corporations described above but intends to pursue its assignment with all due diligence and persistence.