Social Inclusion & Human Rights

5 Views on Firearms Divestment and Shareholder Engagement

portfolio screening trends
April 19, 2018

The February 2018 school shooting in Parkland, Florida, hasn’t just sparked a dialogue among policymakers—it has some investors considering firearms divestment, while others are seeking alternative approaches. Here’s a look at the conversation from five different perspectives.

Legislating Divestment

What happened: Two Massachusetts state congressmen filed a bill that would compel the state’s pension fund to eliminate companies that produce firearms or ammunition from its portfolio. Massachusetts is not the only state considering such a move. Connecticut, New Jersey, Florida, and California are weighing similar measures.

Why it matters: While the holdings of Massachusetts alone are not large enough to have a material impact on gun stocks, the move could spark the beginning of a larger trend.

Read more: Legislation would force Mass. pension fund to sell gun stocks, Boston Globe, March 15, 2018

Holding On to Gun Stocks

What happened: Even as some institutional investors announce plans to divest, other fund managers say removing gun stocks is more complicated than it may seem. According to one attorney who advises state pension funds, “pension administrators are legally bound to replace [any] economically prudent investment — in this case a gun manufacturer — with a stock that has a similar risk/return profile.”

Why it matters: The wariness around divestment reflects the pressure that pension funds face to maximize their returns. Eliminating gunmakers from passively managed funds could potentially have a negative impact on portfolio performance. In turn, that may violate managers’ fiduciary duty.

Read more: Why taking gun stocks out of the Florida teachers pension is not simple, The Washington Post, February 22, 2018

Acting on Passive Investments

What happened: Morningstar published a paper offering a how-to approach for individual investors to determine whether they own gun stocks via their mutual funds and discussing how to approach firearms divestment. Eliminating a portfolio of such stocks typically requires actively managed funds. It also encourages investors to find out whether their asset manager has plans to engage with gun manufacturers on the issue.

Why it matters: Continued pressure from retail investors could prompt institutional investors to amp up their discussions with firearms manufacturers or to consider gun-free funds.

Read more: Finding Gun Stocks in Fund Portfolios, Morningstar, March 1, 2018

Screening and Engaging

What happened: In a press release following the Parkland shooting, BlackRock explained two approaches available to clients who are averse to firearms investments:

  • Offering funds that don’t contain any firearms manufacturer or retailer holdings
  • Engaging with firearms manufacturers and retailers to discuss whether their current policies properly mitigate the growing reputational and financial risk inherent in manufacturing or selling weapons to civilians.

Why it matters: As one of the largest asset managers in the country, BlackRock has enough influence to prompt change at the companies in which it invests. In January, BlackRock cofounder and CEO Larry Fink wrote a letter to the executives of large public companies urging them to engage with social concerns and pursue social purposes.

Read more: The BlackRock Letter: Going In-Depth on 5 Issues Raised by Larry Fink’s 2018 Message to CEOs, Impactivate: The Impact Investing Exchange, March 8, 2018.

Buying a Seat at the Table

What happened: Rather than simply exclude such companies from their portfolios, some faith-based investing groups have decided to purchase shares in firearm manufacturers with the intention of using shareholder engagement strategies to influence change.

Members of the Interfaith Center on Corporate Responsibility (ICCR), a coalition of faith-based investors and shareholders, bought shares in gun manufacturers American Outdoor Brands and Sturm, Ruger & Company. In January 2018, the group filed resolutions calling for those companies to report on their policies around weapons safety, monitor shootings involving their weapons, and explain how they’re addressing the risks associated with the business.

Why it matters: Faith-based groups have a history of winning victories via shareholder engagement. Recently, the ICCR got ExxonMobil to appoint a climate scientist to its corporate board.

Read more: Gun Company Investors Push for Change After Florida School Shooting, The Guardian, February 28, 2018.

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