Companies that Operate or Manage
Prison Facilities Added to List of
Ineligible Securities

On Your Behalf—February 2012

After six months of study, discussion and prayerful consideration, Wespath Investment Management (Wespath), the investment division of the General Board of Pension and Health Benefits of The United Methodist Church (General Board), has added companies that manage or operate prison facilities to its list of ineligible securities. Wespath instructed its investment managers to sell any “company/corporation in which 10% or more of gross revenue is derived from the management or operation of federal, state, county, or municipal correctional facilities (jails, prisons, penitentiaries, detention centers, prison camps, transfer centers).”

Private sector companies that own or operate prisons have grown dramatically since the 1980s. Deregulation, budget constraints, the move towards privatization as well as an expanding prison population have contributed to this growth.

Interagency Task Force Raises Concerns

In recent years, both critics and supporters of privately-operated prisons have become more vocal. In 2011, bishops Minerva Carcaño (Desert Southwest) and Julius Trimble (Iowa), as leaders of the United Methodist Interagency Task Force on Immigration—created following the General Conference of 2004 with membership from several boards, caucuses, conferences and concerned stakeholders—informed Wespath of their concern about the privately-operated prison industry. They specifically mentioned Corrections Corporation of America (CCA) and The GEO Group, Inc., which are the largest companies operating private prison facilities in the United States. The Task Force was concerned with reports alleging that CCA and The GEO Group operate abusive and dangerous immigrant detention centers while profiting from the incarceration of illegal immigrants. Wespath held shares of both companies in two passively managed index funds.

In response to the Task Force’s concerns, Wespath wrote to CCA and The GEO Group in June 2011 announcing it would be joining already-existing company engagements organized by members of the Interfaith Center on Corporate Responsibility (ICCR). These engagements took place over many years and focused on issues relating to the human rights of inmates. To prepare for full participation in these engagements, Wespath requested copies of each company’s human rights policy.

Wespath also began collecting background information on the for-profit prison industry, including statistics, news articles and the positions of other denominations. This information was presented to General Board leadership and members of the board of directors. In July, Wespath staff had its first meeting with CCA and toured a CCA-operated facility in Marion County, Indiana. A multi-shareholder dialogue with executives of The GEO Group then took place in November.

The board of directors considered many factors in reaching its decision, but ultimately felt that incarceration is not an appropriate industry for pension-related investments. Chief Investment Officer David H. Zellner summarized the position of the board when he said, “profiting from the incarceration of others was just not consistent with our view of what the (denomination’s) Social Principles ask for”. The board announced its decision on January 3, 2012, though it had sold all of the shares it held in the two companies before the end of the year. At the time of sale, the value of shares held in both companies was less than $1 million.

Screening and Other Socially Responsible Investing Tools

Excluding (or screening) certain companies from an investment portfolio has long been an important element of socially responsible investing. For faith-based investors in particular, portfolio screening is a way to uphold deeply-held denominational values. United Methodist investors, for example, tend to avoid investments in companies involved in alcoholic beverages, tobacco products, gambling, pornography and weapons. The Book of Discipline (¶716) specifically identifies these activities as businesses the Church should not be supporting.

Screening, however, is only one of the tools of socially responsible investing. Most socially responsible investors, including Wespath, seek to engage corporations on the many environmental, social and corporate governance issues that are increasingly recognized as necessary for long-term financial sustainability. These engagements take the form of letters, shareholder resolutions and company dialogues. They can, and frequently do, result in positive change in the corporate world.

Together, portfolio screening and corporate engagement represent two powerful ways responsible investors work towards a more sustainable and equitable economy.