[Ip-health] Dark Cloud Over Good Works of Gates Foundation (mea culpa?)

[Riaz K Tayob]

     Dark Cloud Over Good Works of Gates Foundation
     By Charles Piller, Edmund Sanders and Robyn Dixon
     The Los Angeles Times

     Sunday 07 January 2007

     The world's largest philanthropy pours money into investments that
are hurting many of the people its grants aim to help.

     First of Two Parts

     Ebocha, Nigeria - Justice Eta, 14 months old, held out his tiny thumb.

     An ink spot certified that he had been immunized against polio and
measles, thanks to a vaccination drive supported by the Bill & Melinda
Gates Foundation.

     But polio is not the only threat Justice faces. Almost since birth,
he has had respiratory trouble. His neighbors call it "the cough."
People blame fumes and soot spewing from flames that tower 300 feet into
the air over a nearby oil plant. It is owned by the Italian petroleum
giant Eni, whose investors include the Bill & Melinda Gates Foundation.

     Justice squirmed in his mother's arms. His face was beaded with
sweat caused either by illness or by heat from the flames that
illuminate Ebocha day and night. Ebocha means "city of lights."

     The makeshift clinic at a church where Justice Eta was vaccinated
and the flares spewing over Ebocha represent a head-on conflict for the
Gates Foundation. In a contradiction between its grants and its
endowment holdings, a Times investigation has found, the foundation
reaps vast financial gains every year from investments that contravene
its good works.

     In Ebocha, where Justice lives, Dr. Elekwachi Okey, a local
physician, says hundreds of flares at oil plants in the Niger Delta have
caused an epidemic of bronchitis in adults, and asthma and blurred
vision in children. No definitive studies have documented the health
effects, but many of the 250 toxic chemicals in the fumes and soot have
long been linked to respiratory disease and cancer.

     "We're all smokers here," Okey said, "but not with cigarettes."

     The oil plants in the region surrounding Ebocha find it cheaper to
burn nearly 1 billion cubic feet of gas each day and contribute to
global warming than to sell it. They deny the flaring causes sickness.
Under pressure from activists, however, Nigeria's high court set a
deadline to end flaring by May 2007. The gases would be injected back
underground, or trucked and piped out for sale. But authorities expect
the flares to burn for years beyond the deadline.

     The Gates Foundation has poured $218 million into polio and measles
immunization and research worldwide, including in the Niger Delta. At
the same time that the foundation is funding inoculations to protect
health, The Times found, it has invested $423 million in Eni, Royal
Dutch Shell, Exxon Mobil Corp., Chevron Corp. and Total of France - the
companies responsible for most of the flares blanketing the delta with
pollution, beyond anything permitted in the United States or Europe.

     Indeed, local leaders blame oil development for fostering some of
the very afflictions that the foundation combats.

     Oil workers, for example, and soldiers protecting them are a magnet
for prostitution, contributing to a surge in HIV and teenage pregnancy,
both targets in the Gates Foundation's efforts to ease the ills of
society, especially among the poor. Oil bore holes fill with stagnant
water, which is ideal for mosquitoes that spread malaria, one of the
diseases the foundation is fighting.

     Investigators for Dr. Nonyenim Solomon Enyidah, health commissioner
for Rivers State, where Ebocha is located, cite an oil spill clogging
rivers as a cause of cholera, another scourge the foundation is
battling. The rivers, Enyidah said, "became breeding grounds for all
kinds of waterborne diseases."

     The bright, sooty gas flares - which contain toxic byproducts such
as benzene, mercury and chromium - lower immunity, Enyidah said, and
make children such as Justice Eta more susceptible to polio and measles
- the diseases that the Gates Foundation has helped to inoculate him
against.

     Investing for Profit

     At the end of 2005, the Gates Foundation endowment stood at $35
billion, making it the largest in the world. Then in June 2006, Warren
E. Buffett, the world's second-richest man after Bill Gates, pledged to
add about $31 billion in installments from his personal fortune. Not
counting tens of billions of dollars more that Gates himself has
promised, the total is higher than the gross domestic products of 70% of
the world's nations.

     Like most philanthropies, the Gates Foundation gives away at least
5% of its worth every year, to avoid paying most taxes. In 2005, it
granted nearly $1.4 billion. It awards grants mainly in support of
global health initiatives, for efforts to improve public education in
the United States, and for social welfare programs in the Pacific Northwest.

     It invests the other 95% of its worth. This endowment is managed by
Bill Gates Investments, which handles Gates' personal fortune. Monica
Harrington, a senior policy officer at the foundation, said the
investment managers had one goal: returns "that will allow for the
continued funding of foundation programs and grant making." Bill and
Melinda Gates require the managers to keep a highly diversified
portfolio, but make no specific directives.

     By comparing these investments with information from for-profit
services that analyze corporate behavior for mutual funds, pension
managers, government agencies and other foundations, The Times found
that the Gates Foundation has holdings in many companies that have
failed tests of social responsibility because of environmental lapses,
employment discrimination, disregard for worker rights, or unethical
practices.

     One of these investment rating services, Calvert Group Ltd., for
example, endorses 52 of the largest 100 U.S. companies based on market
capitalization, but flags the other 48 for transgressions against social
responsibility. Microsoft Corp., which Bill Gates leads as board
chairman, is rated highly for its overall business practices, despite
its history of antitrust problems.

     In addition, The Times found the Gates Foundation endowment had
major holdings in:

     Companies ranked among the worst U.S. and Canadian polluters,
including ConocoPhillips, Dow Chemical Co. and Tyco International Ltd.

     Many of the world's other major polluters, including companies that
own an oil refinery and one that owns a paper mill, which a study shows
sicken children while the foundation tries to save their parents from AIDS.

     Pharmaceutical companies that price drugs beyond the reach of AIDS
patients the foundation is trying to treat.

     Using the most recent data available, a Times tally showed that
hundreds of Gates Foundation investments - totaling at least $8.7
billion, or 41% of its assets, not including U.S. and foreign government
securities - have been in companies that countered the foundation's
charitable goals or socially concerned philosophy.

     This is "the dirty secret" of many large philanthropies, said Paul
Hawken, an expert on socially beneficial investing who directs the
Natural Capital Institute, an investment research group. "Foundations
donate to groups trying to heal the future," Hawken said in an
interview, "but with their investments, they steal from the future."

     Moreover, investing in destructive or unethical companies is not
what is most harmful, said Hawken and other experts, including Douglas
Bauer, senior vice president of Rockefeller Philanthropy Advisors, a
nonprofit group that assists foundations on policy and ethical issues.
Worse, they said, is investing purely for profit, without attempting to
improve a company's way of operating.

     Such blind-eye investing, they noted, rewards bad behavior.

     At the Gates Foundation, blind-eye investing has been enforced by a
firewall it has erected between its grant-making side and its investing
side. The goals of the former are not allowed to interfere with the
investments of the latter.

     The foundation recently announced a plan to institutionalize that
firewall by moving its assets into a separate organization, the Bill &
Melinda Gates Foundation Trust. Its two trustees will be Bill and
Melinda Gates. The trust will invest to increase the endowment, while
the foundation gives grants.

     "We've been operating under these principles for many years," said
Harrington, the foundation policy officer. "But having an official
separation makes it even more clear."

     With the exception of tobacco companies, asset managers do not
avoid investments in firms whose activities conflict with the
foundation's mission to do good.

     "Because we want to maintain a focus on the programmatic work,"
Harrington said in a written response to Times questions, "we have made
it a policy to not comment on individual investment holdings."

     Finally, the foundation does not invest any portion of its
endowment in companies specifically because they advance its
philanthropic mission.

     Much of the rest of philanthropy, however, is beginning to address
contradictions between making grants to improve the world and making
investments that harm it. According to recent surveys, many foundations,
including some of the nation's largest, have adopted at least basic
policies to invest in ways that support their missions.

     Major foundations that make social justice, corporate governance
and environmental stewardship key considerations in their investment
strategies include the Ford Foundation, worth $11.6 billion, the
nation's second-largest private philanthropy; the John D. and Catherine
T. MacArthur Foundation; the Rockefeller Foundation; and the Charles
Stewart Mott Foundation.

     Moreover, nearly one-third of foundations participate directly in
shareholder initiatives, voting their proxies to influence corporate
behavior. A few have become shareholder activists. In recent years, for
instance, the Nathan Cummings Foundation, with an endowment of $481
million, has sponsored proxies to force corporations to address
environmental sustainability and political transparency.

     Harrington said the Gates Foundation's investment managers vote
proxies, but declined to give any specifics. The foundation would not
make its chief investment manager, Michael Larson, available for an
interview. In May, Harrington told the Chronicle of Philanthropy that
the Gates Foundation did not get involved in proxy issues.

     At the Charles Stewart Mott Foundation, on the other hand, Michael
J. Smith, its chief investment officer, said voting proxies to improve
corporate behavior had become a fiduciary necessity.

     "Companies that have good governance are generally well-managed,"
he said, "and have a good record of profitably."

     Even the relatively tiny Needmor Fund, with a $27-million
endowment, screens its investments to bar companies with poor
environmental records, antagonism to worker rights or tolerance for
repressive governments.

     Leadership, however, is open to the Gates Foundation. It has unique
power to move the debate, Bauer said. If Gates adopted mission-related
investing, Bauer, of Rockefeller Philanthropy Advisors, said in an
interview, the shift in the world of philanthropy would be "seismic."

     The foundation did not respond to written questions about whether
it might change its investment policies.

     Life in "Cancer Valley"

     At a clinic in Isipingo, a suburb of the South African port city of
Durban where the HIV infection rate is as high as 40%, Thembeka Dube,
20, was getting a checkup.

     Dube had volunteered for tests of a vaginal gel that researchers
hope will be shown to protect against HIV. The tests are part of a study
conducted by the New York-based Population Council, and funded by a
$20-million grant from the Bill & Melinda Gates Foundation.

     Dube's boyfriend won't use condoms. She hoped the tests would show
she could use the microbicidal gel, called Carraguard, and stop worrying
about AIDS.

     Research into prophylactics such as Carraguard can fight AIDS by
empowering women, Bill Gates told the International AIDS Conference in
Toronto in August. "Whether the woman is a faithful married mother of
small children, or a sex worker trying to scrape out a living in a slum
..." he said, "a woman should never need her partner's permission to
save her own life."

     Two days before Gates spoke, Kyrone Smith was born only a few
kilometers from the Isipingo clinic. At the same time the Gates
Foundation was trying to help Dube, it owned a stake in companies that
appeared to be hurting Kyrone.

     At six weeks, his lungs began to fail. Kyrone struggled to cry, but
he was so weak that no sound came out - just husky, labored breaths.

     His mother, Renee Smith, 26, rushed him to a hospital, where he was
given oxygen. She feared it would be the first of many hospital visits.
Smith knew from experience.

     "My son Teiago was in and out of hospital since the age of 3," she
said. "He couldn't breathe nicely.... There are so many children in this
area who have the same problems."

     Two of the area's worst industrial polluters - a Mondi paper mill
and a giant Sapref oil refinery - squat among the homes near Isipingo
like sleepy grey dragons, exhaling chemical vapors day and night.

     The Sapref plant, which has had two dozen significant spills,
flares, pipeline ruptures and explosions since 1998, and the Mondi plant
together pump thousands of tons of putrid-smelling chemicals into the
air annually, according to their own monitoring.

     In 2002, a study found that more than half of the children at a
school in nearby Merebank suffered asthma - one of the highest rates in
scientific literature. A second study, published last year, found
serious respiratory problems throughout the region: More than half of
children aged 2 to 5 had asthma, largely attributed to sulfur dioxide
and other industrial pollutants. Much of it was produced by companies in
which the Gates Foundation was invested.

     Asthma was not the only danger. Isipingo is in what environmental
activists call "Cancer Valley." Emissions of benzene, dioxins and other
carcinogens were "among the highest levels found in any comparable
location the world," said Stuart Batterman at the University of
Michigan, a coauthor of both studies.

     The Gates Foundation is a major shareholder in the companies that
own both of the polluting plants. As of September, the foundation held
$295 million worth of stock in BP, a co-owner of Sapref. As of 2005, it
held $35 million worth of stock in Royal Dutch Shell, Sapref's other
owner. The foundation also held a $39-million investment in Anglo
American, which owns the Mondi paper mill.

     The foundation has held large investments in all three companies
since at least 2002. Since then, the worth of BP shares has shot up by
about 83%, Royal Dutch Shell shares by 77% and Anglo American shares
about 255%. Dividends have padded the foundation's assets by additional
millions of dollars.

     The foundation has gotten much more in financial gains from its
investments in the polluters than it has given to the Durban microbicide
study to fight AIDS.

     Sapref said it had cut sulfur dioxide emissions by two-thirds since
1997 and spent more than $64 million over 11 years on environmental
initiatives. It said lead in its gasoline and sulfur in its diesel fuel
were reduced a year ago. Plant officials said: "Sapref does not accept
any responsibility for any health issues in South Durban."

     Mondi said that its Merebank paper mill had cut "chemical oxygen
demand," a key pollutant, in 2005, and that it was cutting its sulfur
dioxide emissions. But by the company's own estimate, the mill still
releases about three times the combined amount of sulfur dioxide
produced by Mondi plants in five other nations, and the other plants
operate at nearly six times the capacity. Merebank uses a coal-fired
power plant, while the others burn cleaner fuel.

     Just as the Gates Foundation investments in Mondi, BP and Royal
Dutch Shell have been very profitable, so too have its holdings in the
top 100 polluters in the United States, as rated by the University of
Massachusetts, and the top 50 polluters in Canada, as rated by the trade
publication Corporate Knights, using methods based on those developed by
the university.

     According to the foundation's 2005 figures, it held a $1.4-billion
stake in 69 of those firms. They included blue chips, such as Chevron
Corp. and Ford Motor Co., as well as lesser-known companies such as
Lyondell Chemical Co. and Ameren Corp.

     At the same time, the foundation held a $2.9-billion stake in firms
ranked by the investment rating services as among the worst
environmental stewards, including Dominion Resources Inc. and El Paso Corp.

     Without double-counting companies flagged by both the University of
Massachusetts and the rating services, the combination totals an
investment of about $3.3 billion.

     The Gates Foundation did not respond to written questions about its
investments in companies that were high polluters or those rated as poor
environmental stewards.

     Drugs Out of Reach

     Nearly every morning, a 56-year-old retired soldier named Felix
makes a short trek from his house on the outskirts of Lagos, Nigeria, to
a factory to purchase a 40-cent block of ice.

     Felix has a pressing, private reason to get the ice: He needs it to
keep his medicine from melting.

     Two years ago, Felix's wife died from AIDS, and he learned he was
HIV-positive.

     He told his six children, now 16 to 24 years old, but no one else.
He was afraid of the stigma of HIV. He agreed to be interviewed only if
he was identified by his first name alone. "I thought the world had come
to an end for me," Felix said. "Everyone believes that once you have it,
you're a living ghost."

     He took antiretroviral drugs and felt better. But his treatment was
interrupted frequently because he could not afford the cost: $62 a
month. His pension as a former staff sergeant was $115 a month, and the
money came sporadically.

     Worse, his body soon stopped responding to the drugs. His kidneys
began to fail, and his count of immune cells crucial to fight off
infections plummeted.

     In May, Felix began taking Kaletra, a second-line AIDS drug -
needed when the first round of treatments fail.

     His health rebounded, but It came at a cost.

     Gel capsules of Kaletra melt in Nigeria's sweltering climate, where
temperatures often top 100 degrees. Felix kept his Kaletra in a small
chest filled with ice.

     Each day, he had to go get more ice. And each day, he had to take
Kaletra precisely at 10 a.m. and 10 p.m. These things made it difficult
for him to work, even at odd jobs.

     A new version of Kaletra does not require refrigeration. But his
physician, Dr. T.M. Balogun, who helps run the AIDS program at Lagos
State University Teaching Hospital, told him not to get his hopes up.

     The hospital is helped by the Nigerian government, which gets money
from the Global Fund to Fight AIDS, Tuberculosis and Malaria. The fund
has been awarded $651 million by the Gates Foundation. Yet the hospital
does not offer the new Kaletra. It is too expensive.

     In August, private pharmacists said they could sell it for $246 a
month. But that was far out of Felix's reach.

     Kaletra is made by Abbott Laboratories. As of this September, the
Gates Foundation held $169 million in Abbott stock. In 2005, the
foundation held nearly $1.5 billion worth of stock in drug companies
whose practices have been widely criticized as restricting the flow of
key medicines to poor people in developing nations.

     On average, shares in those companies have increased in value about
54% since 2002. Investments in Abbott and other drug makers probably
have gained the foundation hundreds of millions of dollars.

     Drug makers say they need price protection for research and
development. "Our global needs and global systems are in conflict,"
Miles White, Abbott's chief executive, wrote in the Financial Times last
year. "This threatens to harm one goal, innovation, in the name of
another, access to medicine."

     In 1994, however, the drug makers, with other research-intensive
businesses, lobbied hard and successfully for the international
Agreement on Trade-Related Aspects of Intellectual Property Rights,
which made it harder to move from costly brand-name drugs to cheap
generics. The agreement protected new-drug monopolies for 20 years or more.

     This meant no low-priced generic for Kaletra. The pact locked in
Abbott as its sole supplier, and Abbott set prices for the world.

     Under pressure from activists, Abbott and other companies cut
prices for key AIDS drugs in poorer nations. In Guatemala and Thailand,
the new Kaletra costs $2,200 per patient per year, plus taxes and fees -
a fraction of the more than $8,000 it costs in the United States. In
poorer Nigeria, the official price was $500 a year.

     But this was still too costly for most patients, including Felix.

     The industry's approach "has the effect of making medicines
available only to a narrow spectrum of a rich elite in a developing
country," said Brook Baker, an intellectual property expert at
Northeastern University.

     He called it "pharmaceutical apartheid."

     Drug companies say critics overlook billions of dollars worth of
drugs they donate to developing nations. Abbott says it has given AIDS
drugs to 25,000 patients, along with millions of test kits, and has
underwritten a major project to improve AIDS services in Tanzania.

     In emergencies, critics welcome donated drugs. The problem, they
say, is that donations scare away generic suppliers. Donations, said
Ellen 't Hoen, who directs a drug-access program for Doctors Without
Borders, "remove the prospect of any stable supply."

     And when the free drugs are gone, patients die.

     Most medicines are reliably profitable. In the most recent quarter,
Abbott posted a gross profit margin of 59% of sales, and recently paid
its 331st consecutive quarterly dividend. A congressional analysis shows
that during the first six months of 2006, the 10 largest drug companies
earned $39.8 billion in profits.

     The Gates Foundation's top priority is stopping AIDS, Bill Gates
told the International AIDS Conference in August. Since its inception,
the foundation has donated more than $2 billion to fight the disease.

     The foundation did not respond to written questions about the
problems of patients who cannot obtain needed AIDS drugs due to
pharmaceutical company policies.

     Meanwhile, the foundation holds its grant recipients to a far
higher standard than the drug companies on which it bets large portions
of its endowment. Its grant form says it expects recipients "to exercise
their intellectual property rights in a manner consistent with the
stated goals of the Bill & Melinda Gates Foundation to promote the ...
availability of inventions for public benefit in developing countries at
reasonable cost."

     Some critics say the foundation's failure to use its own
investments "to promote ... public benefit in developing countries at
reasonable cost" might trace back to the source of most of its money -
Microsoft - which Bill Gates serves as chairman.

     Microsoft monopolies in computer operating systems and
businesssoftware depend upon the same intellectual-property and
trade-law approaches favored by drug companies.

     "The Gates Foundation is in a position to change the dynamic, to
make sure that drugs get first to the places they are most needed," said
Daniel Berman, deputy director in South Africa for Doctors Without
Borders. "But it conflicts with the interests of Microsoft."

     In response to written questions, Harrington, the Gates Foundation
policy officer, said the foundation tried to guarantee that grantee
discoveries made in partnership with for-profit companies trickled down
to people in developing nations.

     "The foundation's goal is to help ensure that new scientific
knowledge is broadly shared ... and that lifesaving health advances are
created and made available and affordable to those most in need," she
said. "We also recognize that private industry needs adequate incentives
to develop new drugs."

     The foundation's pharmaceutical company investments, Harrington
said, "are completely separate from what's being done on the
programmatic side to help spur the development and delivery of
drugs/vaccines."