What ESG-conscious investors can do about guns
Mass shootings in the United States are sadly becoming a seemingly regular feature of the news. The Parkland, Florida high school shooting resulting in 17 deaths in February put the spotlight on this issue again in 2018. Before that horrific event, mass shootings have occurred at various locations in the country, including public and military service centers, churches and entertainment venues. The largest mass shooting in modern US history took place October 2017 in Las Vegas, Nevada, when a shooter killed 59 people and wounded almost 500 more at a country music festival. In 2012, 20 children and six adults were killed by a lone gunman who entered Sandy Hook Elementary School in Newtown, Connecticut.
A number of investment institutions, particularly state and municipal funds, curtailed their gun-related investments in the wake of the Newtown shooting. Institutional investor policies that restrict or exclude weapons-related investments applied to more than $1.5 trillion in assets under management as of 2018, a more than 20-fold increase from the $74 billion identified in 2012.
Many investors, including individual investors, do not wish to profit or earn income from harmful products or companies such as firearms producers, and investment restrictions help them avoid these companies. Divesting conveys an important signal to the marketplace and to these companies that a growing number of investors choose not to finance their current business model. However, individuals who invest in index funds based on certain S&P or Russell mid-cap and small cap indices may be surprised to learn that they are still invested in firearms companies.
Here are investment vehicles and approaches for both retail and institutional investors concerned about gun violence to consider.
Mutual funds and exchange-traded funds:
Chances are an investor who owns a mutual fund or ETF that tracks a small-cap equity index, owns stock in a gunmaker. American Outdoor Brands (formerly Smith & Wesson), Sturm Ruger and ammunition maker Olin, which owns Winchester, are all members of the Russell 2000 and Russell 3000 indices, so investors in funds that follow either of these indices may be invested in gun stocks without realizing it. As noted in an article by the Associated Press, “many investors who never directly purchased shares of gun companies may nevertheless have them in their 401(k) accounts.”
While these weapons manufacturers are too small to make it into large-cap indices such as the S&P 500, such indices and the funds that track them may include big retailers such as Cabela’s that are important players on the guns and ammunition distribution front. Moreover, any actively managed fund that invests without regard to environmental, social and corporate-governance (ESG) issues could hold the stocks as well.
A website investors can use to check their current fund holdings for gun makers and sellers is Goodbye Gun Stocks. Investors who don’t like what they see there can contact the fund sponsors to demand gun-free options, but it may be more effective to divest and reallocate to one of the growing number of ESG focused investment options in the market.
US SIF’s member mutual funds and ETF chart has a screening/advocacy tab with a field for defense/weapons, among many other ESG criteria. The tab shows if the criterion has policies for no investment (excludes investments engaged in this activity), restricted/exclusionary investment (seeks to avoid poorer performers in this area), or no screens, among other policies. Many of the funds listed have restrictions or no investments in defense/weapons.
Separate account strategies:
The chart of SRI account strategies offered by US SIF members also has a screening/advocacy tab enabling viewers to check investment policies on defense/weapons companies for these investment vehicles.
Private equity/venture capital:
Private equity and venture capital (PE/VC) fund managers may have investments in defense/weapons companies. For example, private equity firm Cerberus Capital Management has since 2007 owned gunmaker Remington Outdoor Company, Inc., which filed for bankruptcy in February 2018. Investors, which must be accredited for these investment vehicles, should check if PE/VC firms of interest have investments in defense/weapons, and their policies towards these companies, if any.
Shareholder engagement:
Shareholder engagement involves the actions sustainable investors take as asset owners to communicate their concerns to the management of portfolio companies about the companies’ ESG policies and to ask management to study these issues, disclose more information about them and make improvements. Given the resources required, institutional investors rather than individual investors are generally more likely to participate in shareholder engagement.
Approaches include voting proxies, conducting letter-writing email campaigns, meeting with company executives, and filing or co-filing shareholder resolutions. These strategies can be used to support measures that are intended to reduce and/or eliminate handguns and other weapons. They can take place in coordination with other investors and non-investor organizations.
Investors affiliated with the Interfaith Center on Corporate Responsibility (ICCR) have tried from time to time, by filing shareholder resolutions, to question major retailers that sell guns in their stores about these policies. However, the Securities and Exchange Commission Staff has generally permitted retailers to exclude shareholder proposals addressing the social or environmental impact of products sold in their stores. In the SEC's view, this question is an "ordinary business" question that is solely for management to resolve, not shareholders.
General Resources
For more information about sustainable, responsible and impact investing, please visit US SIF’s website. An overview of SRI approaches, motivations and trends, can be found on US SIF’s SRI Basics webpage. In addition, this concise “how to” resource is available specifically for individual investors: Getting Started in Sustainable and Impact Investing: A Guide for Retail Investors.
A number of investment institutions, particularly state and municipal funds, curtailed their gun-related investments in the wake of the Newtown shooting. Institutional investor policies that restrict or exclude weapons-related investments applied to more than $1.5 trillion in assets under management as of 2018, a more than 20-fold increase from the $74 billion identified in 2012.
Many investors, including individual investors, do not wish to profit or earn income from harmful products or companies such as firearms producers, and investment restrictions help them avoid these companies. Divesting conveys an important signal to the marketplace and to these companies that a growing number of investors choose not to finance their current business model. However, individuals who invest in index funds based on certain S&P or Russell mid-cap and small cap indices may be surprised to learn that they are still invested in firearms companies.
Here are investment vehicles and approaches for both retail and institutional investors concerned about gun violence to consider.
Mutual funds and exchange-traded funds:
Chances are an investor who owns a mutual fund or ETF that tracks a small-cap equity index, owns stock in a gunmaker. American Outdoor Brands (formerly Smith & Wesson), Sturm Ruger and ammunition maker Olin, which owns Winchester, are all members of the Russell 2000 and Russell 3000 indices, so investors in funds that follow either of these indices may be invested in gun stocks without realizing it. As noted in an article by the Associated Press, “many investors who never directly purchased shares of gun companies may nevertheless have them in their 401(k) accounts.”
While these weapons manufacturers are too small to make it into large-cap indices such as the S&P 500, such indices and the funds that track them may include big retailers such as Cabela’s that are important players on the guns and ammunition distribution front. Moreover, any actively managed fund that invests without regard to environmental, social and corporate-governance (ESG) issues could hold the stocks as well.
A website investors can use to check their current fund holdings for gun makers and sellers is Goodbye Gun Stocks. Investors who don’t like what they see there can contact the fund sponsors to demand gun-free options, but it may be more effective to divest and reallocate to one of the growing number of ESG focused investment options in the market.
US SIF’s member mutual funds and ETF chart has a screening/advocacy tab with a field for defense/weapons, among many other ESG criteria. The tab shows if the criterion has policies for no investment (excludes investments engaged in this activity), restricted/exclusionary investment (seeks to avoid poorer performers in this area), or no screens, among other policies. Many of the funds listed have restrictions or no investments in defense/weapons.
Separate account strategies:
The chart of SRI account strategies offered by US SIF members also has a screening/advocacy tab enabling viewers to check investment policies on defense/weapons companies for these investment vehicles.
Private equity/venture capital:
Private equity and venture capital (PE/VC) fund managers may have investments in defense/weapons companies. For example, private equity firm Cerberus Capital Management has since 2007 owned gunmaker Remington Outdoor Company, Inc., which filed for bankruptcy in February 2018. Investors, which must be accredited for these investment vehicles, should check if PE/VC firms of interest have investments in defense/weapons, and their policies towards these companies, if any.
Shareholder engagement:
Shareholder engagement involves the actions sustainable investors take as asset owners to communicate their concerns to the management of portfolio companies about the companies’ ESG policies and to ask management to study these issues, disclose more information about them and make improvements. Given the resources required, institutional investors rather than individual investors are generally more likely to participate in shareholder engagement.
Approaches include voting proxies, conducting letter-writing email campaigns, meeting with company executives, and filing or co-filing shareholder resolutions. These strategies can be used to support measures that are intended to reduce and/or eliminate handguns and other weapons. They can take place in coordination with other investors and non-investor organizations.
Investors affiliated with the Interfaith Center on Corporate Responsibility (ICCR) have tried from time to time, by filing shareholder resolutions, to question major retailers that sell guns in their stores about these policies. However, the Securities and Exchange Commission Staff has generally permitted retailers to exclude shareholder proposals addressing the social or environmental impact of products sold in their stores. In the SEC's view, this question is an "ordinary business" question that is solely for management to resolve, not shareholders.
General Resources
For more information about sustainable, responsible and impact investing, please visit US SIF’s website. An overview of SRI approaches, motivations and trends, can be found on US SIF’s SRI Basics webpage. In addition, this concise “how to” resource is available specifically for individual investors: Getting Started in Sustainable and Impact Investing: A Guide for Retail Investors.