Posted By: CFP&WM On: Jun 7th, 2013 In: Investing Money Matters

Socially Responsible Investing: Would Avoiding Investments in Gun Manufacturers Reduce Gun Violence?

Can Socially Responsible Investing Help

It is with great pain and sorrow that many of us can too easily recall the awful and tragic shooting which took place last year in a Colorado theater, followed a few months later by yet another shooting, this time in a Sikh Temple in Wisconsin, and even more recently and that much more horrifying because it involved children, the senseless shooting at Sandy Hook Elementary School in Connecticut. As a result, some people are asking “Can Socially Responsible Investing help prevent these types of incidents in the future?”

The beginning of Socially Responsible Investing (SRI) was with religious groups who intentionally wanted to avoid investing money in companies whose products were harmful to their congregations. This avoidance or exclusion-type investing typically included gambling, tobacco, and alcohol. Later, other harmful industries were added including pornography, the military and weapons. Long before SRI became fashionable, there is at least a 60-year history of some investors avoiding those companies that make guns.

The answer to the question “Can SRI decrease gun violence” is generally and sadly… no. SRI would do very little to help reduce gun deaths and here are some of the reasons why.

The first reason is that an SRI approach to gun manufacturers only could “potentially” (not certainly) impact the manufacturing of future guns and does not address the more than 3 million guns that are currently legally owned by Americans.

Another reason has to do with the ownership interests of these manufacturers. Of the dozens of gun makers in the United States, some are privately held while others are Limited Liability Companies with a single or limited number of participants. Still others are closely held corporations or are a wholly owned subsidiary of a holding company where shares are not traded. Only the largest manufacturers are publicly traded corporations where SRI could possibly (again, not certainly) make an impact.

As a result of the recent shootings, several large pension plans have decided to limit their exposure to gun manufacturers. The Chicago Teachers pension, for instance, recently sold $200,000 in gun manufacturers’ stock, but this is out of a total portfolio of $9 billion.

However, there is one little glimmer of hope. Freedom Group, which is the company that manufactured the gun used in the recent Connecticut shooting, has recently been sold. It was a wholly owned subsidiary of Cerberus Capital Management, which is a private equity firm. The California Teachers Retirement System has $750 million invested in Cerberus, and by selling the Freedom Group, the company may have hoped that the sale would keep the California teachers group from pulling out their money. It should be pointed out Freedom Group will continue to manufacture guns but they will do it under new ownership.

Carol Pierson Holding, who is a writer on environmental issues and social responsibility policy and news publications, believes that SRI would have no real impact and believes that only new regulations will stem the tide of gun violence. But will it really?

Let’s look at the example of Stag Arms, which is a major manufacturer of AR15 assault style rifles. The company is owned by an individual, Mark Malkowski. Stag is the company that, five weeks after the Connecticut governor signed a gun control law outlawing any retail sales of assault type of guns, unveiled a “new design” so as not to be subjected to the Connecticut ban.  It seems that, regardless of new regulations or legislation and the good intentions of those that try to do the right thing through SRI, there will always be those individuals who are only in it to make a buck and will try their damnedest to circumvent new laws that are designed to help solve the problem.

Existing laws often have less impact than they should, due to criminal activity.  According to Mark Follman, of the mass shootings that occurred over the last 30 years, 72% of the shooters obtained their guns legally, but 18% came by their guns illegally.

There is far more gun violence and deaths associated with gangs and other illegal activity; according to ATF agent Jay Wachtel, stolen guns account for only about 10% to 15% of those that were used in the commission of a crime. The biggest source of criminal guns is a “straw-purchase” where a non-criminal buys a gun legally and then gives or sells it to the criminal. The next largest source of illegal guns are those which are sold by legally licensed but corrupt at-home and commercial gun dealers. In other words, criminals will always find a way to get a gun.

The conclusion; while SRI has worked in some areas, decreasing gun violence does not, unfortunately, seem a reasonable outcome even when combined with tighter gun regulations.

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