Beats | September 11, 2019

On guns, faith-based investors provide an object lesson in shareholder engagement

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

ImpactAlpha, September 11 – Just after the mass shooting at an El Paso in Walmart that killed 22 people, David Schilling sent his condolences to Walmart CEO Doug McMillon.

The Interfaith Center on Corporate Responsibility, where Schilling heads the human rights work, has been advocating for Walmart to change its gun policy for a long time. The ICCR proposed its first gun-related resolution to Walmart shareholders a quarter-century ago. 

Walmart this month announced that it would stop selling ammunition for assault rifles and handguns in its stores, and would discourage open-carry in its stores. McMillon said the company would push Congress to “strengthen background checks” and to at least debate an assault rifle ban. The new ammunition policy is expected to cut Walmart’s 20% share of ammunition retail sales in the U.S. by more than half.

“It’s clear to us that the status quo is unacceptable,” McMillon wrote.  

The ICCR is a coalition of more than 350 faith- and values-based investors and organizations managing more than $500 billion in assets. Its long-term commitment is what enables ICCR’s members, many of whom have relatively small investment portfolios, to get the ear of corporate behemoths like Walmart.

“We were deeply concerned about the families and Walmart associates who were affected, and also about this very clearly racist component of the shooter,” says Schilling. “We knew the company was needing to go through a discernment process and make changes.”

Schilling said the ICCR is pleased with the progress but that there’s more to be done. “Given the fact that we’ve stuck in there for almost three decades, the company knows we want it to improve, and will keep pressing for that. They know we’re not transactional; we’re committed for the long-term.”

What’s the fiduciary duty of index investors when it comes to gun companies?

Engage or divest?

In the debate over shareholder “engagement” vs. “divestment,” the members of the coalition make a virtue of necessity. Pragmatically, faith-based organizations have to invest in the public markets, Schilling told ImpactAlpha, because they have pensions to pay and charity programs to fund. So they make it their business to watchdog the human rights records and social impact of the companies they invest in.

And so, activist nuns like the Sisters of Charity of Elizabeth, N.J. and others have initiated internal conversations with management, filed resolutions, and banded together with other faith-based investors to drive discussion on not only guns, but climate change and other social and environmental issues as well. Investors representing $5.5 trillion in assets, more than 10 times ICCR’s weight, signed on to the ICCR’s recent statement calling on oil and gas companies to oppose EPA methane control rollbacks. 

“We don’t represent that kind of money, so it’s really hard to get to that amount without some of the very large asset owners,” says ICCR’s Christina Herman. “Our power lies in our ability to dig into issues, understand them, understand companies, and draw in other investors.”

Of course, shareholder engagement means faith-based organizations have to maintain their equity positions in companies with practices they oppose, and resist calls from other activists to, say, divest from fossil fuel-based companies. 

 “If you want to change the market, you have to own them to talk to them,” said Herman. “Our members believe deeply in the markets and in the importance of companies acting in a way that will benefit society and the economy.”

Buying in

Many investors, including faith-based investors, screen out so-called “sin stocks” like public tobacco, firearms, or alcohol entities. But some faith-based investors have gone the other way, overriding such screens to add recalcitrant companies to their portfolios. The 14-member Northwest Coalition for Responsible Investment, for example, bought into several of the major U.S. gun manufacturers in 2017. 

“With each successive mass shooting, there would always be a press release, even from the NRA, but we never heard a word from the manufacturers,” the coalition’s director, Judy Byron, told ImpactAlpha. “I asked our members if any of them would be interested in engaging, and they were.”

Gun money roundup

The coalition started with formally writing companies like retailer Dick’s Sporting Goods and gun manufacturers American Outdoor Brands (Smith & Wesson) and Sturm Ruger about their concerns. 

The coalition backed a series of shareholder resolutions. Dick’s engaged right away. After talking to the company, Byron says, “We were confident enough with what they were doing to withdraw the resolution.” After the mass shooting in Parkland, Fla., Dick’s stopped selling assault weapons and banned the sale of ammunition and other guns to anyone under 21. “I don’t really care what the financial implication is,” CEO Ed Stack said at the time

Human rights

The coalition has pressed forward with support for resolutions against American Outdoor Brands and Sturm Ruger, including one led by Catholic Health Initiatives calling for company reporting on efforts to promote gun safety. It has backed resolutions against board members at the two gun makers, both of which received a majority of shareholder support. 

It most recently has been working to build shareholder support for a resolution calling for American Outdoor Brands to adopt a human rights policy in line with the U.N. Guiding Principles on Business and Human Rights. Byron has also engaged Walmart on gun issues.

Gun manufacturers have publicly lashed out against investors like ICCR’s and Northwest Coalition’s members, accusing them of using human rights as a cover for their activism. 

The investor groups say human rights is not a pretext, but a foundation of their faith-based work. The work on gun policy exemplifies the need for patient, long-term shareholder engagement, they say. “We are working to change companies to be better, and we do it respectfully and patiently,” Byron says. 

It is those values that enable faith-based investors to build trust, as with Walmart. “These engagements aren’t just a one-off,” she adds. “We really believe in what we are asking from companies and are willing to help them.”