Investors alarmed by gun violence can have an impact.
Freedom Group, the manufacturer of the rifle used in last Friday's horrific shooting at a Newtown, Conn., elementary school, is being sold, The New York Times reported on Tuesday. Cerberus Capital Management, a private equity firm, will be selling the gun-maker as a result of the events last week.
Not coincidentally, one of Cerberus' biggest investors has a connection to schools. The California State Teachers' Retirement System, or CalSTRS, has $750 million invested with the firm.
CalSTRS executives and other public officials applauded Cerberus’ action, the Times reported. According to the story: "Thomas P. DiNapoli, the New York state comptroller, said he supported Cerberus’ decision to sell the Freedom Group and ordered a review of the state pension fund’s investments in firearms manufacturers. The $150 billion New York State Common Retirement Fund has $50 million invested with Cerberus."
The sale of Freedom Group demonstrates how investors can use their clout. "CalSTRS, the second-largest pension plan in the U.S., was beginning to ask questions and then yesterday we heard that the private equity firm (Cerberus) had made the decision to sell," says Steven J. Schueth, president and chief marketing officer of First Affirmative Financial Network, which describes itself as a socially responsible investment management firm.
Other financial institutions are defending their holdings in gun manufacturers. Reuters reported on Tuesday that index fund giant Vanguard Group Inc. explained that its shares in firearms makers Smith & Wesson and Sturm Ruger & Co. are in index funds that must exactly mirror market indices. Vanguard said its funds cannot meet what it called the "social concerns" of all shareholders, the Reuters story reported.
'Sustainable and responsible' investing
The situation highlights how difficult it may be for small investors to put their money solely into companies that reflect their values. Investors in index funds have a hard time if they want to avoid companies that sell weapons, alcohol and tobacco or, on the other side, if they want to invest only in environmentally-aware businesses.
In many cases, people probably don't even know all the companies they own through mutual funds.
"Individual investors must ask questions and must know what they own. They should ask questions of their financial planners and advisers, money managers, broker-dealers, pension funds and others on what types of companies are included in their portfolio and in their retirement plans," says Alya Kayal, director of policy and programs at US SIF, a trade group for investment professionals, firms, institutions and organizations focused on what its members describe as sustainable and responsible investing.
Individuals who invest primarily through workplace retirement plans are particularly limited. Only 14 percent of defined contribution plans offer one or more sustainable and responsible investment, or SRI, option, according to a 2011 survey of plan sponsors by US SIF and the human resources consulting group Mercer.
"If you're an employee of a company with a retirement plan that doesn’t have responsible investment options, start asking for them. That is the only way it happens. The only way they will move off the dime is if they experience demand from inside the firm," says Schueth, of First Affirmative Financial Network.
If you're stuck owning a piece of a company you disagree with, you can try to change the company. Publicly-traded businesses hold votes every year on a host of issues. Votes are done via proxies, ballots that are mailed in if you can't attend the annual shareholders meeting.
"I'd also say to the small investor that if you own a company through a mutual fund, the fund company will vote shares on your behalf," says Schueth. Investors can typically find out on a fund company's website how their fund votes proxies. Most mutual funds tend to vote with management.
"There are a group of funds out there that not only look at environmental, social or governance issues in the investment process but also vote shares on behalf of clients in a responsible manner. If you own stock directly you can vote -- even if you own a little bit," Schueth says.
If shareholders don't vote their proxies, "you're giving up an opportunity to make a difference," he says.
Are there any companies you'd rather not hold in your current portfolio?
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