ESG Investing

Investors Question Private Prison Holdings


In recent decades, an increasing share of incarcerated people have been held in private prisons. Between 2000 and 2016, the number of inmates in private prisons grew five times faster than the rise in the total incarcerated population. Reports of neglect, abuse, and preventable inmate deaths have led to scrutiny of private prison operators. In August 2016, the US Department of Justice announced it would reduce its reliance on private prisons to house inmates, though in 2017, it reversed that position.

Now, the issue is attracting attention among environmental, social, and governance or ESG investing trends. Advocates for prison divestment are calling on financial institutions to give up their shares in private prison companies and asking public funds, universities, and other investors to take a stand as well.

Some Organizations Opt to Divest

Some public pension plans have chosen the divestment approach. In 2017, the New York City Pension Funds announced it would fully divest from private prisons, making it the first major US public pension system to do so. The funds sold $48 million in stock and bonds from GEO Group, CoreCivic, and G4S following concerns about safety and accusations that private prison operators have withheld medical care and infringed on inmates’ rights. A 2016 report by the New York City Comptroller’s Office concluded that divestment would not have a significant negative effect on the funds and that the reputational and legal risks of the private prison industry justified selling these holdings.

Likewise, the California State Teachers’ Retirement System (CalSTRS) announced in November 2018 that it would divest from CoreCivic and GEO Group within six months over risks stemming from the companies’ handling of inmates’ civil and political rights. Although the pension fund’s staff members did not find direct evidence of certain alleged human rights abuses when they toured private prison facilities housing undocumented immigrants, the CalSTRS investment committee voted to divest by a narrow margin. Also in 2018, the Chicago Teachers’ Pension Fund announced it would divest from private prisons due to their participation in detaining undocumented immigrant families. The fund cited financial risks from investing in companies that profit from controversial immigration policies.

Some students have advocated for their universities to divest from private prisons with varying results. In 2015, Columbia University became the first US university to divest from private prisons after students urged it to sell its shares in Corrections Corporation of America (now CoreCivic) and G4S. Students argued that private prisons encourage mass incarceration and longer prison terms because they benefit financially from incarceration.

Not all student campaigns supporting divestment have been so successful. Though Princeton students petitioned, the university’s Resources Committee ultimately decided against recommending divestment. The committee stated that it agreed with the need for criminal justice reform but that committee members were divided in their views of private prisons. At Harvard, student activists have met with opposition from the school’s leadership. University President Lawrence S. Bacow told the Harvard Crimson that he did not support altering the school’s investments “to achieve political ends.”

Some students have advocated for their universities to divest from private prisons with varying results.

Other Investors Turn to Shareholder Engagement

Although prison divestment appears to be one of several burgeoning ESG investing trends, and advocates of prison divestment can point to a number of victories, some argue that the pace of divestment is still slow. For those who are dissatisfied with the progress of divestment, shareholder engagement may represent a viable alternative.

For the 2019 proxy season, members of the Interfaith Center on Corporate Responsibility filed two shareholder resolutions with private prison operators, spurred by the companies’ involvement in enforcing immigration policies and detaining undocumented immigrants. One resolution, filed with CoreCivic, relates to charges that the company withheld medical care from detainees and instituted forced labor. It asks the company to base executive compensation on detainees’ rights. The second, filed with GEO Group, was motivated by concerns over safety, medical care, and human rights. It requests that the company disclose information about the treatment of inmates and how it responds to instances of abuse. A separate resolution was filed with CoreCivic by Alex Friedmann, associate director of the Human Rights Defense Center. It asked the company to prohibit housing children who have been removed from their parents. CoreCivic has stated that it does not house children who have been separated.

Investors who are troubled by alleged abuses in the criminal justice system may decide to use their financial clout to exert pressure on the companies that operate private prisons because they believe private prisons have worse records than public ones. Others choose to do so because they believe private prisons face misaligned incentives and unjustly profit from humanitarian crises. Unless they can allay these concerns, private prison operators will likely continue to face challenges from investors.

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