Institutional Investors Launch Firearms Industry Framework

As part of an effort to address gun safety issues and reduce investment risk, a coalition of institutional and private investors with combined assets of more than $4.83 trillion has created a framework for engaging with companies that manufacture, distribute, sell, or regulate products within the civilian firearms industry.

“This is a very sensitive issue across the country, and it needs to be talked about,” Christopher Ailman, chief investment officer at the California State Teachers’ Retirement System (CalSTRS) told CIO.

Signatories include CalSTRS, the California Public Employees Retirement System (CalPERS), Connecticut Retirement Plans and Trust Funds, Florida State Board of Administration,  Maine Public Employees Retirement System, Maryland State Retirement and Pension System, TIAA’s Nuveen, OIP Investment Trust, Oregon Public Employees Retirement Fund, Rockefeller Asset Management, San Francisco Employees’ Retirement System, State Street Global Advisors, and Wespath Investment Management.

The focus of the group is to engage with companies involved throughout the entire firearms supply chain, from weapons manufacturers such as American Outdoor Brands Corp. (formerly Smith & Wesson), to major retailers like WalMart and Dick’s Sporting Goods. The coalition’s plans don’t include divestment from the companies.

“CalsSTRS did divest of gun manufacturers in 2013, and we realized without question that divestment didn’t bring about much change,” Ailman said. “It changes our risk, but doesn’t change the industry’s.”

Ash Williams, CIO of the Florida State Board of Administration (SBA), echoed this sentiment.

“We see the engagement approach as an appropriate and constructive alternative to divestiture, which we think is not an effective approach,” he told CIO, adding that divestment risks contradicting the SBA’s fiduciary duty as it could likely lead to increased costs, losses, and changes to the fund’s risk profile.

However, Williams acknowledged that the coalition is “not entirely sure yet” how it will engage with firearms related firms to help improve gun safety, and reduce gun casualties and deaths.

“That’s the reason you have dialogue,” he said. “We’re not interested in pulling things out of thin air and then trying to force them on people, we want to have a discussion.”

The powerful gun lobby led the National Rifle Association (NRA) will most likely push back against the coalition’s initiative. The NRA recently lashed out at doctors of gun violence victims who called for stricter gun control laws, saying in a Tweet that “someone should tell self-important anti-gun doctors to stay in their lane.”

But Williams said the coalition is not taking on the NRA, and “is in no way taking issue” with the second amendment.

“Florida is a very conservative state,” Williams said. “It’s a state with a large community of outdoorsmen and hunters, and plenty of people who are involved in shooting sports for recreation … and who lawfully use those weapons.”

But Ailman insists that working to help reduce gun violence is part of their business.

“This is part of the holistic picture of being an asset owner. It’s absolutely within our fiduciary duty to engage and try to bring about change,” said Ailman.

However, he also noted that talk of gun control can sometimes be counterproductive when trying to bring change to the industry.

“The firearms industry survives on creating a climate of fear and trying to arm whoever they can,” said Ailman. “Every time someone uses the word gun control—even though they probably want to reduce the number of guns—the reality is that when they use those words they are actually increasing gun sales.”

At the heart of the framework are five main principles to guide institutional investors’ approach to affecting change within the firearms industry:

• Principle 1: Manufacturers should support, advance, and integrate the development of technology designed to make civilian firearms safer, more secure, and easier to trace.

• Principle 2: Manufacturers should adopt and follow responsible business practices that establish and enforce responsible dealer standards, and promote training and education programs for owners designed around firearms safety.

• Principle 3: Civilian firearms distributors, dealers, and retailers should establish, promote, and follow best practices to ensure that no firearm is sold without a completed background check in order to prevent sales to persons prohibited from buying firearms or those too dangerous to possess firearms.

• Principle 4: Civilian firearms distributors, dealers, and retailers should educate and train their employees to better recognize and effectively monitor irregularities at the point of sale, to record all firearm sales, to audit firearms inventory on a regular basis, and to proactively assist law enforcement.

• Principle 5: Participants in the civilian firearms industry should work collaboratively, communicate, and engage with the signatories of these principles to design, adopt, and disclose measures and metrics demonstrating both best practices and their commitment to promoting these principles.

Ailman emphasized that the group of investors isn’t looking to be an antagonist to the companies involved in the firearms supply chain, but to work with them to improve their product, similar to the way safety advocates in the 1980s successfully lobbied for nationwide seatbelt laws.

“We’re calling on the entire industry food chain to be much more responsible in how they do things,” said Ailman. “When car accidents starting getting worse and worse, somebody had the idea that seatbelts had to be mandatory in every car—we didn’t outlaw cars, we didn’t divest from car companies … there are still a lot of car accidents but there are a lot less fatalities.”

However, it should be noted that in the 1980s the automobile industry, and even some civil liberties advocates, were vehemently opposed to any legislation that proposed mandatory seat belts in cars. And nearly a century passed between the time the automobile was invented and US laws requiring the wearing of seat belts were enacted. 

And although the coalition faces a difficult task, Williams said he is confident enough to “bet on the better angels” in people in general, including those in the firearms industry to precipitate change. He also cited the different geographical and political backgrounds of the coalition’s asset owners as an example of how it’s possible to bridge the political divide on this hot-button issue.

“One the strengths of this country has always been the ability of a diverse population with different perspectives to put their heads together and come up with solutions to tough problems,” Williams said. “We want to be reasonable people and face a problem that has been pretty visible in a lot of places and pretty visible in Florida.”