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Trillium News
July 25, 2022

It’s Time to Divest From Guns

ElizabethLevy, Head of ESG Strategy, Portfolio Manager, Trillium Asset Management
Arleta Majoch, Chief Operating Officer, ImpactCubed

While small-cap stocks were hard hit during the first half of 2022, August’s earnings season revealed a bounce back for the asset class. What does this mean for Trillium’s ESG Small/Mid Cap Core Portfolio?

It’s Time to Divest From GunsIt’s Time to Divest From Guns

Dear U.S. Environmental Protection Agency Administrator and Members of Congress,

Trillium does not invest in gun or ammunition manufacturers, and we do not believe that school teachers, municipal workers, and other pension beneficiaries should have to either. In a recent piece co-authored with ImpactCubed, we make the case for removing gun manufacturers from the indices that underpin passive strategies utilized in many pensions and 401(k) plans in the United States.

‍Trillium Asset Management offers investment strategies and services that advance humankind towards a global sustainable economy, a just society, and a better world. Impact Cubed is a UK based firm specialising in ESG data, analytics, and investment services.

While we were encouraged to see both political parties come together to sign the most significant gun violence bill in decades, the Supreme Court decision limiting state-level gun regulation, and the unceasing gun violence in neighborhoods across the country, have brought renewed urgency to the use all of the tools at our disposal to stem this assault on our communities. Americans support actions to address gun violence; a Gallup Poll conducted in October 2021 found that 52% of Americans believed that gun restrictions should be made stricter[1], an opinion held by more than half of Americans in each of Gallup’s annual polls since October 2015.

According to the Congressional Research Service[2], in 2019 roughly two-thirds of American households had investment in the stock market through pension plans or other retirement plans. The stocks held in these types of investments are largely determined by trustees and other plan or fund professionals, not the investors whose money is invested. Many pension plans are invested in passive strategies, such as index and exchange-traded funds, which rely on index providers to set the companies in the index, and then buy the companies included by the index.[3]

Stock index providers use rules to decide which companies should be part of their indexes, but sometimes need to use judgement.For example, in July 2017, S&P Dow Jones Indices decided to bar companies with multiple share classes of stocks from joining their flagship US indices such as the S&P 500,[4]widely viewed as a reaction to the trend of companies restricting voting rights from their public equity investors.

What’s the link? In 2019, our analysis, found three publicly traded US companies that derived a majority of their revenue from manufacturing guns and ammunition, and they were included in indices from three of the most significant index providers in the US: FTSE Russell, MSCI and S&P. Pension assets that were benchmarked to these indexes automatically allocated capital to these gun companies, whether the pension plan investor participants knew, as determined by the index providers for which the plan or fund professionals abdicate responsibility. And yet these index providers continue to treat gun manufacturers the same as grocery stores or software firms: acceptable investments for American households.

Our 2019 analysis looked at the three gun and ammunition companies in the US at that time, American Outdoor Brands, VistaOutdoor, and Sturm, Ruger & Co. Removing these, or any, companies from indexes would reduce the automatic passive demand for their equities, and our analysis at that time showed that this could have lowered their share prices by between 30-40%.Potential for such share price movement could force the manufacturers to rethink whether to even participate in this market—and indeed, American Outdoor Brands announced in 2020 they would be spinning Smith & Wesson guns out into a new company now called Smith & Wesson Brands. And just this month Vista Outdoor announced that they plan to separate their “sporting” (i.e. guns and ammunition) company from their “outdoor” brands in 2023[5].  

Today, indexes from FTSE Russell, MSCI andS&P still include the gun manufacturers as well as ammunition manufacturers, including: Sturm, Ruger; Smith & Wesson Brands; VistaOutdoors; Olin Corp; and National Presto Industries[6]. Accordingly, passive index investment strategies, like those held in pensions and other retirement plans, account form any of the largest shareholders of these gun and ammunition companies[7].

Our earlier work showed that the removal of these three firms would have had a statistically negligible impact on the performance of the underlying indices and investment products based on them. However, from a psychological perspective, investors would experience a significant benefit by escaping the cognitive dissonance of investing in companies that make products that make them feel deeply uncomfortable.

This seems like a simple solution: index providers have previously used index composition rules to take a stand on issues, and should do so again, to exclude companies that primarily manufacture guns and ammunitions from their indices. And, in fact, we are not the first ones to suggest they take this kind of action. In February 2019, a global group of investors representing $6.8 trillion of assets sent a letter to index providers asking them to exclude controversial weapons manufacturers from global mainstream indices.[8]In response to that request, the indexers demurred, pointing out that investors who want to avoid these weapons can choose from specialty indices that don’t include them.[9]

But this is not a real choice. The average American investor, such as a pension plan participant, is stuck with what their trustees choose for them. It is the indexers that are making a choice, and we believe they need to be held accountable for that choice. Will they choose to include and support gun and ammunition companies, or will they exclude them? We believe it is time for the indexers to acknowledge the choices and responsibilities they have, and to take action. Pension plan participants, including teachers and other municipal workers in the cities from Newtown to Parkland to Buffalo to Uvalde should not have to fear that their retirement investments are profiting from, and propping up, the manufacturers of the weapons that were used to murder children, students, colleagues, friends, and neighbors.

Read the full white paper: The Financial Case for Gun Divestment

Important Disclosure: This is not a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. The specific securities were selected on an objective basis and do not represent all of the securities purchased, sold or recommended for advisory clients.

[1] Gallup PollsIn Depth Topics: “Guns” https://news.gallup.com/poll/1645/guns.aspx, accessed May25, 2022.
[2] https://crsreports.congress.gov/product/pdf/IF/IF12117
[3] https://www.pionline.com/article/20190204/PRINT/190209954/funds-turn-back-clock-in-return-to-active-equity.
[4] https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/561162_spdjimulti-classsharesandvotingrulesannouncement7.31.17.pdf?force_download=true, accessedOctober 3, 2019.
[5] https://news.vistaoutdoor.com/2022-05-05-Vista-Outdoor-Announces-Plan-to-Separate-its-Outdoor-Products-and-Sporting-Products-Segments-Into-Two-Independent,-Publicly-Traded-Companies
[6] Source: Factset, data accessed May 25, 2022
[7] Source: Factset, data accessed May 25, 2022
[8]http://www.sustainablefinance.ch/upload/cms/user/Controversial_Weapons_Letter_FINAL_2019_01_31.pdf accessedOctober 3, 2019.
[9] https://www.ipe.com/news/esg/index-providers-respond-to-controversial-weapons-campaign/www.ipe.com/news/esg/index-providers-respond-to-controversial-weapons-campaign/10029460.fullarticle.

‍

‍Trillium Asset Management offers investment strategies and services that advance humankind towards a global sustainable economy, a just society, and a better world. Impact Cubed is a UK based firm specialising in ESG data, analytics, and investment services.

While we were encouraged to see both political parties come together to sign the most significant gun violence bill in decades, the Supreme Court decision limiting state-level gun regulation, and the unceasing gun violence in neighborhoods across the country, have brought renewed urgency to the use all of the tools at our disposal to stem this assault on our communities. Americans support actions to address gun violence; a Gallup Poll conducted in October 2021 found that 52% of Americans believed that gun restrictions should be made stricter[1], an opinion held by more than half of Americans in each of Gallup’s annual polls since October 2015.

According to the Congressional Research Service[2], in 2019 roughly two-thirds of American households had investment in the stock market through pension plans or other retirement plans. The stocks held in these types of investments are largely determined by trustees and other plan or fund professionals, not the investors whose money is invested. Many pension plans are invested in passive strategies, such as index and exchange-traded funds, which rely on index providers to set the companies in the index, and then buy the companies included by the index.[3]

Stock index providers use rules to decide which companies should be part of their indexes, but sometimes need to use judgement.For example, in July 2017, S&P Dow Jones Indices decided to bar companies with multiple share classes of stocks from joining their flagship US indices such as the S&P 500,[4]widely viewed as a reaction to the trend of companies restricting voting rights from their public equity investors.

What’s the link? In 2019, our analysis, found three publicly traded US companies that derived a majority of their revenue from manufacturing guns and ammunition, and they were included in indices from three of the most significant index providers in the US: FTSE Russell, MSCI and S&P. Pension assets that were benchmarked to these indexes automatically allocated capital to these gun companies, whether the pension plan investor participants knew, as determined by the index providers for which the plan or fund professionals abdicate responsibility. And yet these index providers continue to treat gun manufacturers the same as grocery stores or software firms: acceptable investments for American households.

Our 2019 analysis looked at the three gun and ammunition companies in the US at that time, American Outdoor Brands, VistaOutdoor, and Sturm, Ruger & Co. Removing these, or any, companies from indexes would reduce the automatic passive demand for their equities, and our analysis at that time showed that this could have lowered their share prices by between 30-40%.Potential for such share price movement could force the manufacturers to rethink whether to even participate in this market—and indeed, American Outdoor Brands announced in 2020 they would be spinning Smith & Wesson guns out into a new company now called Smith & Wesson Brands. And just this month Vista Outdoor announced that they plan to separate their “sporting” (i.e. guns and ammunition) company from their “outdoor” brands in 2023[5].  

Today, indexes from FTSE Russell, MSCI andS&P still include the gun manufacturers as well as ammunition manufacturers, including: Sturm, Ruger; Smith & Wesson Brands; VistaOutdoors; Olin Corp; and National Presto Industries[6]. Accordingly, passive index investment strategies, like those held in pensions and other retirement plans, account form any of the largest shareholders of these gun and ammunition companies[7].

Our earlier work showed that the removal of these three firms would have had a statistically negligible impact on the performance of the underlying indices and investment products based on them. However, from a psychological perspective, investors would experience a significant benefit by escaping the cognitive dissonance of investing in companies that make products that make them feel deeply uncomfortable.

This seems like a simple solution: index providers have previously used index composition rules to take a stand on issues, and should do so again, to exclude companies that primarily manufacture guns and ammunitions from their indices. And, in fact, we are not the first ones to suggest they take this kind of action. In February 2019, a global group of investors representing $6.8 trillion of assets sent a letter to index providers asking them to exclude controversial weapons manufacturers from global mainstream indices.[8]In response to that request, the indexers demurred, pointing out that investors who want to avoid these weapons can choose from specialty indices that don’t include them.[9]

But this is not a real choice. The average American investor, such as a pension plan participant, is stuck with what their trustees choose for them. It is the indexers that are making a choice, and we believe they need to be held accountable for that choice. Will they choose to include and support gun and ammunition companies, or will they exclude them? We believe it is time for the indexers to acknowledge the choices and responsibilities they have, and to take action. Pension plan participants, including teachers and other municipal workers in the cities from Newtown to Parkland to Buffalo to Uvalde should not have to fear that their retirement investments are profiting from, and propping up, the manufacturers of the weapons that were used to murder children, students, colleagues, friends, and neighbors.

Read the full white paper: The Financial Case for Gun Divestment

Important Disclosure: This is not a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. The specific securities were selected on an objective basis and do not represent all of the securities purchased, sold or recommended for advisory clients.

[1] Gallup PollsIn Depth Topics: “Guns” https://news.gallup.com/poll/1645/guns.aspx, accessed May25, 2022.
[2] https://crsreports.congress.gov/product/pdf/IF/IF12117
[3] https://www.pionline.com/article/20190204/PRINT/190209954/funds-turn-back-clock-in-return-to-active-equity.
[4] https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/561162_spdjimulti-classsharesandvotingrulesannouncement7.31.17.pdf?force_download=true, accessedOctober 3, 2019.
[5] https://news.vistaoutdoor.com/2022-05-05-Vista-Outdoor-Announces-Plan-to-Separate-its-Outdoor-Products-and-Sporting-Products-Segments-Into-Two-Independent,-Publicly-Traded-Companies
[6] Source: Factset, data accessed May 25, 2022
[7] Source: Factset, data accessed May 25, 2022
[8]http://www.sustainablefinance.ch/upload/cms/user/Controversial_Weapons_Letter_FINAL_2019_01_31.pdf accessedOctober 3, 2019.
[9] https://www.ipe.com/news/esg/index-providers-respond-to-controversial-weapons-campaign/www.ipe.com/news/esg/index-providers-respond-to-controversial-weapons-campaign/10029460.fullarticle.

‍

Read more (PDF)

‍Trillium Asset Management offers investment strategies and services that advance humankind towards a global sustainable economy, a just society, and a better world. Impact Cubed is a UK based firm specialising in ESG data, analytics, and investment services.

While we were encouraged to see both political parties come together to sign the most significant gun violence bill in decades, the Supreme Court decision limiting state-level gun regulation, and the unceasing gun violence in neighborhoods across the country, have brought renewed urgency to the use all of the tools at our disposal to stem this assault on our communities. Americans support actions to address gun violence; a Gallup Poll conducted in October 2021 found that 52% of Americans believed that gun restrictions should be made stricter[1], an opinion held by more than half of Americans in each of Gallup’s annual polls since October 2015.

According to the Congressional Research Service[2], in 2019 roughly two-thirds of American households had investment in the stock market through pension plans or other retirement plans. The stocks held in these types of investments are largely determined by trustees and other plan or fund professionals, not the investors whose money is invested. Many pension plans are invested in passive strategies, such as index and exchange-traded funds, which rely on index providers to set the companies in the index, and then buy the companies included by the index.[3]

Stock index providers use rules to decide which companies should be part of their indexes, but sometimes need to use judgement.For example, in July 2017, S&P Dow Jones Indices decided to bar companies with multiple share classes of stocks from joining their flagship US indices such as the S&P 500,[4]widely viewed as a reaction to the trend of companies restricting voting rights from their public equity investors.

What’s the link? In 2019, our analysis, found three publicly traded US companies that derived a majority of their revenue from manufacturing guns and ammunition, and they were included in indices from three of the most significant index providers in the US: FTSE Russell, MSCI and S&P. Pension assets that were benchmarked to these indexes automatically allocated capital to these gun companies, whether the pension plan investor participants knew, as determined by the index providers for which the plan or fund professionals abdicate responsibility. And yet these index providers continue to treat gun manufacturers the same as grocery stores or software firms: acceptable investments for American households.

Our 2019 analysis looked at the three gun and ammunition companies in the US at that time, American Outdoor Brands, VistaOutdoor, and Sturm, Ruger & Co. Removing these, or any, companies from indexes would reduce the automatic passive demand for their equities, and our analysis at that time showed that this could have lowered their share prices by between 30-40%.Potential for such share price movement could force the manufacturers to rethink whether to even participate in this market—and indeed, American Outdoor Brands announced in 2020 they would be spinning Smith & Wesson guns out into a new company now called Smith & Wesson Brands. And just this month Vista Outdoor announced that they plan to separate their “sporting” (i.e. guns and ammunition) company from their “outdoor” brands in 2023[5].  

Today, indexes from FTSE Russell, MSCI andS&P still include the gun manufacturers as well as ammunition manufacturers, including: Sturm, Ruger; Smith & Wesson Brands; VistaOutdoors; Olin Corp; and National Presto Industries[6]. Accordingly, passive index investment strategies, like those held in pensions and other retirement plans, account form any of the largest shareholders of these gun and ammunition companies[7].

Our earlier work showed that the removal of these three firms would have had a statistically negligible impact on the performance of the underlying indices and investment products based on them. However, from a psychological perspective, investors would experience a significant benefit by escaping the cognitive dissonance of investing in companies that make products that make them feel deeply uncomfortable.

This seems like a simple solution: index providers have previously used index composition rules to take a stand on issues, and should do so again, to exclude companies that primarily manufacture guns and ammunitions from their indices. And, in fact, we are not the first ones to suggest they take this kind of action. In February 2019, a global group of investors representing $6.8 trillion of assets sent a letter to index providers asking them to exclude controversial weapons manufacturers from global mainstream indices.[8]In response to that request, the indexers demurred, pointing out that investors who want to avoid these weapons can choose from specialty indices that don’t include them.[9]

But this is not a real choice. The average American investor, such as a pension plan participant, is stuck with what their trustees choose for them. It is the indexers that are making a choice, and we believe they need to be held accountable for that choice. Will they choose to include and support gun and ammunition companies, or will they exclude them? We believe it is time for the indexers to acknowledge the choices and responsibilities they have, and to take action. Pension plan participants, including teachers and other municipal workers in the cities from Newtown to Parkland to Buffalo to Uvalde should not have to fear that their retirement investments are profiting from, and propping up, the manufacturers of the weapons that were used to murder children, students, colleagues, friends, and neighbors.

Read the full white paper: The Financial Case for Gun Divestment

Important Disclosure: This is not a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. The specific securities were selected on an objective basis and do not represent all of the securities purchased, sold or recommended for advisory clients.

[1] Gallup PollsIn Depth Topics: “Guns” https://news.gallup.com/poll/1645/guns.aspx, accessed May25, 2022.
[2] https://crsreports.congress.gov/product/pdf/IF/IF12117
[3] https://www.pionline.com/article/20190204/PRINT/190209954/funds-turn-back-clock-in-return-to-active-equity.
[4] https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/561162_spdjimulti-classsharesandvotingrulesannouncement7.31.17.pdf?force_download=true, accessedOctober 3, 2019.
[5] https://news.vistaoutdoor.com/2022-05-05-Vista-Outdoor-Announces-Plan-to-Separate-its-Outdoor-Products-and-Sporting-Products-Segments-Into-Two-Independent,-Publicly-Traded-Companies
[6] Source: Factset, data accessed May 25, 2022
[7] Source: Factset, data accessed May 25, 2022
[8]http://www.sustainablefinance.ch/upload/cms/user/Controversial_Weapons_Letter_FINAL_2019_01_31.pdf accessedOctober 3, 2019.
[9] https://www.ipe.com/news/esg/index-providers-respond-to-controversial-weapons-campaign/www.ipe.com/news/esg/index-providers-respond-to-controversial-weapons-campaign/10029460.fullarticle.

‍

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It’s Time to Divest From Guns
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