A major pension fund and longtime investor in Walmart has blacklisted the retailing behemoth, citing poor labor practices and the company's anti-union stance as the driving force behind its rejection.

Walmart typically shrugs off criticism of its labor practices as union-driven propaganda and insists that its employees are happy and well-managed, but investing experts say that when one of the largest pension funds in the world divests, the company would be wise to listen to the message. It's the same message the American labor movement has been pushing for decades.

On Tuesday, the Netherlands' biggest pension fund, Algemeen Burgerlijk Pensioenfonds, with more than $300 billion in assets, announced that it was blacklisting the largest retailer in the world for noncompliance with the United Nations' Global Compact principles. The Global Compact presents a set of core values relating to human rights, labor standards, the environment and anti-corruption efforts. Sixteen other companies were blacklisted along with Walmart, nearly all of them excluded for producing chemical or nuclear weapons that violate the Nuclear Non-Proliferation Treaty.

ABP said on Wednesday that the decision to pull its investment from Walmart was not hasty. The fund declined to say how much money is involved, but according to ABP records, it had invested some 95 million euros, worth $121 million today, in U.S. Walmart stores as of June 30, 2011. The fund first sent a letter to Walmart executives in 2008, a year after ABP formalized its responsible-investing policy. Four years later, after many meetings with employees and all levels of management, ABP concluded the retail giant was still falling short.

Back in 2007, as ABP began to comb through its investments with an eye toward corporate responsibility, the fund was struck by the staggering number of lawsuits and National Labor Relations Board complaints against Walmart, explained Anna Pot, a senior sustainability specialist involved in the decision.

For four years, the fund met repeatedly with Walmart executives, trying to use its shareholder's influence to persuade the company to improve corporate practices, especially with regard to labor and the environment. There were some signs of improvement along the road: Last year's ABP Responsible Investment Report noted that "the company has taken steps in the right direction," pointing to the $100 million Walmart paid to settle court actions in November and December of 2009 alone. It also noted that, based on discussions with management, ABP felt that Walmart had changed its attitude toward unions.

But by January 2012, ABP decided that the company's time was up.



"There has been a change, but in the end we had to conclude that it was not enough," said Pot. "We felt that if the workers are not happy, then what does it mean for the company?"

A Walmart spokesperson declined to comment on the divestment, adding that the company never discusses investors' decisions to buy or sell, regardless of the circumstances.

UNIONS PUSH

Meanwhile, leaders at the United Food and Commercial Workers International Union (UFCW) -- one of the key unions engaged in the decades-long battle to organize Walmart's massive workforce -- hailed ABP's decision as a message to the company and its other shareholders: Treating workers badly is bad for business.

ABP's decision also might suggest that one of the UFCW's more recent strategies could be bearing fruit.

After decades of failing to unionize employees at the retail goliath, American labor shifted its strategy. If Walmart's anti-union apparatus was too powerful for organizers to overcome, they would focus on shareholders and customers instead.

This past fall, a handful of Walmart workers and a union analyst showed up at Walmart's annual investor meeting to offer an unusual presentation of their own: a union-authored report and testimony from employees designed to convince outside investors that the company's much-criticized labor practices are diminishing its long-term value.

At the time, Walmart executives dismissed the group's claims, reportedly calling the employees a "bunch of malcontents" and describing the presentation as an attention-seeking stunt by union organizers to "further their own political and financial agenda."

But Pot, who attended that meeting, thought it was useful. Although it was not the only factor driving ABP's decision to divest, it was among them. Also high on the list: a job description found on Walmart's website last June, seeking a new director of labor relations whose listed duties included "support continued union free workplace."

Pot stressed that divestment was an action of last resort and that ABP would be happy to reinvest with Walmart should the company show that it was meeting international labor standards. But, she added, referring to the job advertisement, "so long as we see lines like that, we know that is not yet the case."

MORE SOCIALLY RESPONSIBLE

In the past decade, socially responsible investing (sometimes called activist investing) has become increasingly common. In the U.S. in 2010, nearly one of every eight dollars under professional money management followed some strategy of socially responsible investing. Since 2005, the pool of assets engaged in socially responsible investing has grown by more than 34 percent while the broader universe of professionally managed money has been stagnant, according to a report from the Forum for Sustainable and Responsible Investment. This shift has come in part, experts say, because research has shown that good labor practices actually improve a company's performance rather than dragging it down.

According to research by Wharton finance professor Alex Edmans, companies that appear on Fortune magazine's annual list of the "100 Best Companies to Work For in America" also earned returns at a rate more than double that of the overall market.

"The perception used to be that socially responsible investors were hippies," Edmans said. "But they aren't tree-huggers. They are active money managers with lots of money."

Still, divesting from Walmart is hardly a widespread phenomenon. In 2006, the Government Pension Fund of Norway dumped more than $400 million worth of Walmart shares, also citing labor standards and union obstruction. But researchers at the UFCW could not name any major U.S. pension funds that had divested.

A spokesman for the New York State Common Retirement Fund said that in the fund's 90-year history, it has only divested once. In 2009, it pulled some $86.2 million in investments from companies doing business in Iran and Sudan, citing terrorism and genocide, respectively.

"We have a fiduciary duty, and that is really the main guide for us," said Eric Sumberg, a press secretary at the Office of the New York State Comptroller.

Most pension funds view divestment as the option of last resort, and a politically charged move. It also means relinquishing the opportunity to perhaps influence change at a company.

"It's a choice: Do you actively engage with the company or do you pull out?" said Nien-hê Hsieh, an associate professor of legal studies and business ethics and of philosophy at the Wharton School. "At the end of the day, it's not clear how much of divesting is about effecting change or taking a stand."

