Trust Funds

Caterpillar and Human Rights in Israel

UW System Trust Funds
Investments and Social Responsibility:
Caterpillar and Human Rights in Israel
December 2004

Company Background

Caterpillar operates in three major lines of business: machinery, engines and financial products.  Its machinery business designs, manufactures and markets construction, mining, agricultural and forestry machines, including track and wheel tractors, track and wheel loaders, pipelayers, motor graders and wheel tractor-scrapers.1  “The company states that it has a global network of approximately 220 dealers, most of them independent, and sells products in more than 200 countries worldwide.  At the end of 2003, Caterpillar employed 69,169 people—33,909 of them were located outside the United States.”2 For the 2003 calendar year, Caterpillar reported $22.8 billion in revenues and $1.1 billion in net income.Caterpillar is ranked 77th in the Fortune 500, has a market capitalization of $31.3 billion, and represents 0.3% percent of the total market capitalization of the S&P 500 Stock Index.  

Caterpillar Bulldozers in Israel

Caterpillar has been scrutinized for the controversial use Israeli defense forces have made of the company’s products.  According to peace activists, the Israel Defense Forces (IDF), using Caterpillar bulldozers, have razed thousands of Palestinian homes since 1967 and destroyed hundreds of thousands of trees in Palestinian-owned orchards in the last few years alone. 

“Concerns have risen about the use of Caterpillar equipment since the Israel Defense Forces began a major operation in April 2002 in the Jenin refugee camp to capture or kill Palestinian militants responsible for killing over 70 peoplein a quick succession of attacks and suicide bombings.  In the process, the IDF, using American-made Caterpillar bulldozers, destroyed 140 Palestinian homes and caused serious damage to another 200.  Some homes were destroyed with civilians still inside them.  Nearly a year later, an IDF soldier driving a Caterpillar bulldozer crushed an American human rights activist, Rachel Corrie, as she tried to stop the demolition of a home in the Gaza Strip.”

Caterpillar has stated that its bulldozers are purchased by the U.S. government and given to Israel through the U.S. Foreign Military Sales Program created under the Camp David Accord.  These military exports are part of the U.S. government’s foreign aid package to Israel.  The company has not disclosed how much it makes through its participation in this program.2

Some activists assert that because the bulldozers are given to Israel through the U.S. Foreign Military Sales Program, they are considered military in nature.  It claims that the United States therefore is violating the U.S. Arms Export Control Act, which prohibits the use of military aid against civilians.  These proponents contend that Caterpillar could withdraw from the Pentagon program.

“One of the primary bulldozers in question is the Caterpillar D9 bulldozer, which weighs over 60 tons and stands 13 feet tall.  The IDF has retrofitted the bulldozers with armored plating so they can operate under heavy fire in military operations.  The IDF has also added machineguns, smoke projectors and even grenade launchers to individually modified D9 units. Israeli troops have nicknamed the behemoths Duby, which means ‘bear’ in Hebrew.  The IDF made headlines in October with its plans to make the bulldozers remote-controlled, claiming that the new feature would lower the risks to its soldiers.  Palestinians say that more civilians will be needlessly killed because of greater operating errors.”2 (Note: We have not uncovered any evidence suggesting that Caterpillar itself produces a product specifically customized for the IDF.)

“The bulldozers have been used for a variety of military and nonmilitary purposes in Israel.  The most contentious are the razing of Palestinian homes that have been built without proper permits, and the destruction of homes for security purposes; clearing tracts of land near outposts and security checkpoints; and destroying homes as a collective punishment for the families of suspected Palestinian militants.  Bulldozers have also been used in military offensives to destroy buildings that militants are using for cover, and for destroying explosive devices in homes that would otherwise injure Israeli troops.  The bulldozers have been used to clear tracts of land for the new separation barrier, which Israel contends is necessary to stop terrorist attacks.  Palestinian orchards have been destroyed to ensure that militants do not use the trees for cover.”2 

“‘These cases of demolition… were executed pursuant to Regulation 119 of the Emergency Defense Regulations’ which states that a military commander ‘may by order direct the forfeiture’ of any house, structure or land from which ‘he has reason to suspect’ an attack has originated, as well as ‘any house, structure or land, situated in any area, town, village, quarter or street the inhabitants or some of the inhabitants of which he is satisfied have committed, or attempted to commit, or abetted the commission of, or been accessories after the fact’  to any offence ‘involving violence or intimidation,’ and that ‘when any house, structure or land is forfeited as aforesaid, the Military Commander may destroy the house or the structure or anything growing on the land.’”1

Recent Shareholder Proposal

Two religious investors, the Mercy Investment Program and the Sisters of Loretto, sponsored a resolution for consideration at the company’s 2004 annual shareholder meeting asking Caterpillar to appoint a committee of its outside directors to report on “the process for review and evaluation used to determine whether the sale of Caterpillar equipment to the IDF comports with Caterpillar's Code of Worldwide Business Conduct”.2 The shareholder resolution in its entirety reads as follows:3

“WHEREAS;

Caterpillar's Code of Worldwide Business Conduct states that ‘Caterpillar accepts the responsibilities of global citizenship’ and recognizes that Caterpillar's ‘commitment to financial success must also take into account social, economic, political, and environmental priorities;’

The Code of Worldwide Business Conduct recognizes that ‘Caterpillar prospers not only by our customers' acceptance of our products and services, but also by the public's acceptance of our conduct;’

Through the Code of Worldwide Business Conduct Caterpillar has made a commitment to ‘respond to public inquiries..with prompt, courteous, honest answers;’ It is a matter of public record that since 1967, the Israeli government has used Caterpillar equipment, including specially modified D9 and D10 bulldozers to destroy over 7,000 buildings in the West Bank and Gaza Strip, leaving 50,000 men, women and children homeless;

It is a matter of public record that the Israel Defense Forces (IDF) have used Caterpillar equipment to uproot hundreds of thousands of olive trees as well as orchards of dates, prunes, lemons and oranges causing widespread economic hardship and environmental degradation in rural areas of Palestine;

Spokesmen for Caterpillar, Inc. have acknowledged that Caterpillar is aware of the IDF's use of Caterpillar equipment to destroy civilian homes, infrastructure and agricultural resources but has, nevertheless, refused either to condemn these practices or to take actions necessary to halt the sale or transfer of Caterpillar equipment to the IDF;

In response to the above-described abuses, public campaigns in the United States and Europe are advocating boycotts of Caterpillar industrial and consumer products.

THEREFORE BE IT RESOLVED: The shareholders request that the Board of Directors appoint a committee of outside directors to issue a report, omitting confidential information and prepared at reasonable cost, by October 1, 2004, addressing the following:

The process for review and evaluation used to determine whether the sale (either directly or through intermediaries, including agencies of the United States government) of Caterpillar equipment to the IDF comports with Caterpillar's Code of Worldwide Business Conduct.

Supporting Statement of Proponent

We are concerned by the actual and potential damage to Caterpillar's international sales and worldwide reputation because of the widely-publicized use of Caterpillar equipment, particularly D9 and D10 bulldozers to destroy Palestinian homes, infrastructure and agricultural resources. We are interested in determining if the evidently small amount of revenue derived from these sales outweighs the economic and public relations costs, especially in the United States, Europe and Arab countries, and whether Caterpillar's Directors can reconcile acquiescence in the IDF's use of this equipment for these purposes with Caterpillar's Code of Worldwide Business Conduct.

Statement in Opposition to Proposal

Caterpillar shares the world's concern over unrest in the Middle East and we certainly have compassion for all those affected by the political strife. However, more than two million Caterpillar machines and engines are at work in virtually every country of the world each day. We have neither the legal right nor the means to police individual use of that equipment. We believe any comments on political conflict in the region are best left to our governmental leaders who have the ability to impact action and advance the peace process.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ‘AGAINST’ PROPOSAL 5.”

The resolution received 4.0% support at the Caterpillar Annual Meeting on April 14, 2004, which meets the minimum requirements for resubmission (3% for a first year resolution).

UW Trust Funds Holdings

The UW Trust Funds currently has one Caterpillar holding, as defined below.

As of Date

Description

Maturity

 Cost

 Market Value

Coupon Rate

12/02/04

CATERPILLAR FINL

5/15/2007

$ 74,948

$ 74,203

3.10%

Sources:

  1. Human Rights Watch, Palestine Media Center, July, 2004
  2. Investor Responsibility Research Center, March, 2004 Company Report, Caterpillar
  3. Caterpillar Proxy Statement, April 14, 2004