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Guns Won't Be a Quiet Governance Issue for California Pension
CalSTRS’ board approves plan to pressure gun companies and retailers on assault weapons.
The California State Teachers’ Retirement System will use its clout and money to pressure companies that it owns to stop producing and selling firearms that are illegal in the state.
CalSTRS, which oversees $222.5 billion of assets, announced Thursday that it will consider divesting from manufacturers and retailers that refuse to comply with its demands. The pension joins big asset managers such as BlackRock in taking a tougher stance on investing in companies that make and sell weapons, moves made after the February mass shooting at Marjory Stoneman Douglas High School in Parkland, Florida killed 17 students.
State Treasurer Chiang, who is a member of CalSTRS' board and is running for governor this year, urged institutional investors in March to take matters into their own hands if lawmakers refuse to enact more sensible guns laws. The California pension plans to take a more aggressive approach with assault weapons than it does with other corporate governance issues.
“Unlike other CalSTRS engagements, where our staff practices quiet diplomacy, this plan advances a more public approach, to leverage the public pressure that has been mounting in this country in response to recent tragic gun violence such as the school shootings in Parkland, Florida in February and Las Vegas in November,” Harry Keiley, chair of the investment committee, said in Thursday's statement.
If engaging weapons retailers and gun makers in California fails, CalSTRS may construct custom indexes to exclude these companies from its portfolio.
[II Deep Dive: How an Asset Manager Pressured a Grocery Chain on Gun Sales — and Won]
There has been an explosion of interest from institutional and retail investors in funds managed with an eye toward environmental, social and governance goals, which may include mitigating climate risks, increasing board diversity and challenging companies that contribute to gun violence. As a result, State Street Global Advisors and PGIM, the investment management business of Prudential Financial, are among managers making ESG criteria part of their overall investment processes.
Still, the debate about ESG concerns is a complicated one. Chiang initially pushed CalSTRS to make changes to its governance policy on guns in October. Other big investors, such as the Ontario Teachers’ Pension Plan, believe that they’ll do what they can to meet ESG demands from their retirees and the public, but their primary responsibility is to maximize returns. “We're investing if we can get the return we need, whether in electric utilities, battery technology, micro grids,” Ron Mock, Ontario Teachers' CEO and interim chief investment officer, said this month at the Milken Institute's 2018 Global Conference.