Divestment: Another Investor Approach to Social Issues?
Last summer, Liz wondered whether shareholders would show renewed interest in “firearms responsibility” during the 2020 proxy season. In December, the Connecticut Treasurer announced a “responsible gun policy” that goes past engagement and right on to divestment. We’ve discussed about how the NY Comptroller is considering divestment as part of its “decarbonization” plan as well – but of course it’s too early to tell whether divestment will become a real threat on these types of “social” issues.
Here’s an excerpt from the Connecticut Treasurer’s FAQs about its new policy:
As State Treasurer, the costs and risks of gun violence are a matter of significant financial concern, and the business of guns is becoming an increasingly risky proposition. Under Connecticut statute, the State Treasurer is empowered to consider the social, economic and environmental implications of specific investments. The Treasurer will propose amendments to the current Investment Policy Statement, with appropriate public notice prior to consideration and approval by the Investment Advisory Council.Following amendment of the Investment Policy Statement, fund managers will be instructed to reallocate investments into comparable substitutes in a similar industry that have the same risk and return characteristics as civilian gun manufacturing companies.
The Connecticut Retirement Plans and Trust Funds (CRPTF) currently hold $30 million of equity investments in 5 companies involved in the manufacture of ammunition for the civilian market (Northrop Grumman, Olin Corp., Daicel Corp., Clarus Corp., and Vista Outdoor). These investments represent .08% of the CRPTF’s portfolio.
While the CRPTF currently does not own investments in Sturm, Ruger & Company, a publicly traded civilian firearms manufacturer headquartered in Southport, CT, the Responsible Gun Policy will prohibit consideration of future investments with this company unless they move to advance smart gun technology. Other manufacturers, such as Colt (based in West Hartford, CT), are privately-held and would not be impacted by divestment.
The CRPTF is currently invested in Northrop Grumman, a multi-billion dollar global security company which wholly-owns Adaptive Optics Associates Xinetics (AOX) in East Hartford. Since Northrop Grumman is also in the civilian firearms ammunition manufacturing market, its securities would be subject to the Responsible Gun Policy and as such, $28 million currently invested in Northrop Grumman would be reallocated to an economically equivalent substitute.
Besides prohibiting Connecticut’s pension funds from investing in such companies, the policy will also require banks and other financial institutions that want to work with the state to disclose their policies on guns. When making decisions to contract with a bank or financial institution, the state will consider the institution’s gun policies as one factor in its decision making process.
-Lynn Jokela, TheCorporateCounsel.net January 14, 2020
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