Capitalism Reimagined | May 31, 2022

Can investors respond to the systemic risks gun violence poses to the American economy?

Dennis Price and Amy Cortese
ImpactAlpha Editor

Dennis Price

ImpactAlpha Editor

Amy Cortese

ImpactAlpha, May 31 – Investors may not be primarily responsible for finding ways to reduce the risk of mass shootings. That would be our political leadership. 

But investors do have their responsibilities. America’s staggering level of gun violence has become a systemic risk that undermines the long-term health of their portfolios.

“As an investor, if a country had a known track record of killing its children in acts of terrorism, we would start a movement to divest. The global community would consider economic sanctions as well,” says Nia Impact Capital’s Kristen Hull, who wrote, Investors Can Help Stop Another Massacre,” in the days following the Parkland school massacre in 2018. 

“We are at that point,” says Hull. “It’s time for all of us to raise our voices for pragmatic gun laws.”

The cost of guns is very human: More children die each year from gun violence than police officers in the line of duty and active military personnel. The cost is also economic. The bill for taxpayers, survivors, families, employers, and communities is at least $280 billion a year, according to Everytown for Gun Safety, the nonprofit advocacy group for gun control chaired by Michael Bloomberg.

As other countries have shown, we know sensible gun control saves lives. Among the simplest ways to curb gun violence are enacting gun laws with fewer loopholes, red flag laws and laws that take guns away from domestic and alcohol abusers.

And investors do have leverage. Will they use it? 

Shareholder activists are calling on fellow investors in gunmaker Sturm Ruger to vote yes on a proxy resolution at the firm’s annual meeting on Wednesday that would trigger a third-party human rights assessment of the company’s operations. The audit would identify potential human rights impacts inherent in the business that can pose significant reputational, financial, and legal risk. 

Not taking every possible step to prevent mass shootings “is an abdication of responsibility that almost ensures they will recur,” said Laura Krausa of CommonSpirit Health, a large nonprofit health provider, who filed the proposal with other members of the Interfaith Center on Corporate Responsibility. 

The giant asset manager BlackRock, the largest shareholder in Sturm Ruger and other publicly traded American gun makers, voted against a similar shareholder proposal in 2020 calling on  Smith & Wesson to adopt a comprehensive human rights policy, brought by Catholic nuns, denying it majority approval.

In 2013, after the mass shooting at at Sandy Hook Elementary School in Connecticut, the California State Teachers Retirement System divested from publicly traded gun makers. But that didn’t affect the majority of gun makers, which are privately held. 

“These are public policy problems, they’re not really investment problems,” ImpactAlpha contributing editor Imogen Rose-Smith said on the Impact Briefing podcast. 

Taking a stance against gun makers is not without financial risks of its own, of course. Banks have softened previous policies on gun industry financing in the wake of laws passed by Texas and being considered by other states that ban government agencies from awarding contracts to banks that “discriminate” against gun makers, as Dealbook pointed out this weekend. That includes lucrative bond underwriting. 

Systemic investing

Climate change and income inequality have awakened investors to environmental and social risks that have a material impact on the longterm performance of their portfolios. The emerging doctrine of universal ownership is upending traditional asset management and laying the foundation for more active ‘stewardship’ to mitigate systemic risks to the economic system as a whole.

‘Universal owners” has long meant the large pension, sovereign wealth and insurance funds that are so broadly invested that they effectively “own the market.” Increasingly, the term is being adopted as well by retail holders of broadly diversified and passively managed index funds, including through 401(k) and college savings accounts.

“Index funds should focus on how gun sales affect the systems on which all of the companies in the index depend,” Rick Alexander, then of B Lab and now at Shareholder Commons, wrote after the Parkland massacre in a guest post on ImpactAlpha. “Investors should be asking how much gun violence costs the economy in medical care and lost wages. How much of our educational budget is spent on protection? How is the tourism industry affected?”

Gun makers are the obvious target, but not the only company investors should be training their scrutiny upon, says Shareholder Commons’ Sara Murphy. The teenager that killed 10 people in a Buffalo supermarket in mid-May “was radicalized online and subscribed to extremist, racist ideologies and false conspiracy theories such as the “great replacement” lie” promoted by Fox News’ Tucker Carlson, she notes. 

“Where do Fox News’ shareholders lie in this equation?” ask Murphy. “Does a marginal uptick in Fox’s internal financial returns outweigh the devastating costs of a terrorized Black population?”

Last year the advocacy group introduced shareholder resolutions at Fox New and other media companies pressing for the companies to provide an “accurate understanding of current events through the exercise of journalistic integrity.” The case they made to investors: disinformation decimated by a single company is a systemic risk to their entire portfolios. 

At Meta Platforms’ annual meeting last week, a Shareholder Commons proposal asking the company to disclose the external costs of misinformation received just 3% of the vote. “Investors are failing grievously to account for the deep wounds disinformation is inflicting on our society,” Murphy told ImpactAlpha

Risk transparency

ESG ratings aren’t designed to reflect systemic risks. Sustainalytics deems Smith & Wesson “low risk” even as it cites the company’s “weak” management of environmental, social and governance issues. It gives Sturm Ruger a “high” ESG risk rating. 

Such ESG ratings assess financial risk relative to a company’s sector, while ignoring the broader systemic impacts of a company’s core products, such as guns or fossil fuels. “ESG must take into account the impact of a company’s actions, whether intended or not, on the world in which it lives,” argues Brad Swanson of Developing World Markets in a guest post. “Good corporate citizens should be recognized and bad actors exposed.” 

Systemic investing can also uncover the deeper patterns that underlie current arrangements. Laws making guns easily accessible, for example, have racist roots, says Rachel Robasciotti of Adasina Social Impact. The origins of the Second Amendment at the time of the nation’s founding lie in the concerns of slave-holding states that state militias were needed to protect slave owners against uprisings from the Black people they enslaved. Thus the sometimes forgotten clause, “a well-regulated militia,” with which the amendment begins.

“Real freedom would mean that every person, every family, every community has easy access to the resources they need to thrive,” Robasciotti told ImpactAlpha, “and the freedom to gather at church, go to school, or shop for groceries without fear of violence.”

As the poet Amanda Gorman writes in her new poem, “Hymn for the hurting”:

May we not just grieve, but give:

May we not just ache, but act;

May our signed right to bear arms

Never blind our sight from shared harm;

May we choose our children over chaos.

May another innocent never be lost.

Every sector faces responsibility for solving the saturation of guns and mass murders in the U.S., says Lisa Woll of sustainable investment advocacy group US SIF. Federal, state and local governments bear the ultimate responsibility, she says. “Philanthropy, the nonprofit sector and the private sector also have responsibility to assess what they can do to stop this scourge.” Investors can determine the gun-related holdings of their mutual funds and ETFs with As You Sow’s Gun Free Funds tool. 

“True change will come only at the ballot box,” says Woll. “It’s up to each of us, investors included, to show up and vote for candidates who believe ‘enough is enough’ and will move policy forward to address it meaningfully.”