ESG Investing

Acting through Investments: Investors Engage with Weapons Manufacturers


War and violence are unfortunate constants in the human experience, for reasons endlessly debated by philosophers. What makes the modern era distinct is that there are more types of weapons than ever before—and more destructive ones at that—to use on the battlefield and on each other. One result of this unprecedented access is an equally unprecedented level shareholder engagement as investors leverage their positions to promote a safer society.

Shareholder Engagement for Gun Safety

“The level of investor engagement and public interest in gun violence prevention has never been higher than at this moment in history,” says Nick Suplina, Managing Director of Law and Policy at the advocacy group Everytown for Gun Safety. “There has been more corporate and financial engagement on gun safety in the last 18 months than ever before.”

He points to the February 2018 shooting at Marjory Stoneman Douglas High School in Parkland, Florida, as a turning point for investors and corporate leaders: “[After the shooting] BlackRock announced that it would engage the firearms industry, with whom it holds shares, to ask tough questions. BlackRock also created an index fund carving out civilian gun manufacturers, giving investors an opportunity to step down.”

Further, CalSTRS, State Street, and other institutional investors, representing $4.8 trillion in assets under management, created the Principles for a Responsible Civilian Firearms Industry. The Principles offer a framework for shareholder engagement with gun manufacturers, including calls to make firearms safer, implement universal background checks, and train gun retailers. Commercial banks, including Bank of America and Citigroup, have also introduced new policies on lending to gun manufacturers.

According to Suplina, this is the result of activist pressure, shareholders responding to acts of gun violence, and businesses recognizing that there is a role they can play to make our communities safer. As an organization, Everytown’s primary role with the financial services industry is to create a dialogue with and offer guidance to business leaders and investors.

“There’s a growing recognition that [the threat of] divestment is a lever to pressure gun manufacturers, distributors, and sellers to take the kind of commonsense steps we advocate for,” Suplina explains.

The Principles for a Responsible Civilian Firearms Industry offer a framework for shareholder engagement with gun manufacturers.

Divesting from Nuclear Weapons

Divestment is also emerging as a tactic for ridding the world of nuclear weapons, part of a cyclical pattern of heightened interest in one of the deadliest known forces.

Throughout the 1940s and ’50s, the nuclear industry was framed as “cool, sexy, and exciting,” explains Susi Snyder, nuclear disarmament programme manager at Pax for Peace. That is, until research on the health effects of radiation emerged in the 1960s, swinging public opinion in the other direction and putting new restrictions on manufacturers in the name of public safety. According to Snyder, the issue spiked again in the 1980s when the disasters at Three Mile Island and Chernobyl and the 1983 nuclear-holocaust film The Day After brought public awareness to the tens of thousands of nuclear weapons in circulation. The 1987 Intermediate-Range Nuclear Forces (INF) Treaty signed near the end of the Cold War significantly reduced those stockpiles over the following 20 years.

Today, nuclear power and nuclear weapons are once again in the public consciousness as part of broader concerns about climate change. Although international treaties continue to keep proliferation at bay, eliminating nuclear weapons takes that commitment a step further. Snyder and the International Campaign to Abolish Nuclear Weapons (ICAN) won a Nobel Prize in 2017. At the time, her research found that more than 30 institutions already had policies specifically preventing investments in nuclear weapons manufacturers. As of October 2019, that list has grown to 77.

“More often than not, when we inform an institution that we found these investments [in nuclear weapons manufacturers], the response is, ‘What companies should we be aware of?'” Snyder says. “Everybody wants to be safe and secure, but not at all costs. There’s a line that we draw.”

For some investors, the reasoning was philosophical—Pope Francis is among several faith leaders who have argued that such weapons are immoral—but for others, like the Dutch pension fund system, the motivating factor was a pending international ban treaty and the expectation that nuclear weapons will eventually be made illegal, making such investments too risky.

“We know from experience that when there’s a good that a company produces that does not feel good for people—whether it’s porn, or tobacco, or fast food additives—people say no. People want to find a way to say no,” says Snyder. “And they will act through their investments.”

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