Sunday Late Night: Why Aren’t We Hearing More About Gun Divestment?

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Remember apartheid divestment?

Disinvestment (or divestment) from South Africa was first advocated in the 1960s, in protest of South Africa’s system of Apartheid, but was not implemented on a significant scale until the mid-1980s. The disinvestment campaign, after being realized in federal legislation enacted in 1986 by the United States, is credited[2] as pressuring the South African Government to embark on negotiations ultimately leading to the dismantling of the apartheid system.

Now there’s gun divestment. Today:

California’s pension fund for teachers made official on Friday its plan to divest holdings in firearms companies whose weapons are illegal in the state.

The California State Teachers’ Retirement System will now sell holdings in two publicly traded gunmakers Sturm, Ruger & Co and Smith & Wesson Holding. The investments are worth about $3 million.

The divestment plan has been in play since January at the $161.5 billion pension fund after State Treasurer Bill Lockyer advanced it in response to the mass shooting at the Sandy Hook Elementary School in Connecticut in December.

But it’s not new. Last week:

Public Advocate Bill de Blasio joined MSNBC’s Martin Bashir to discuss his national divestment campaign against companies that manufacture assault weapons and high-capacity ammunition clips for the civilian market. As lawmakers work in Washington to break the NRA’s stranglehold on gun control legislation, de Blasio pledged to add economic pressure to the gun industry and its lobbyists by launching a new organizing drive to place 50,000 phone calls to major hedge funds urging divestment from gunmakers.

Last month:

The Oakland City Council voted last night to divest the city as completely as possible from firearms and ammunition manufacturing companies. The resolution, brought forth by City Attorney Barbara Parker, prohibits the city from holding investments in gun and ammo companies, urges the city’s old Police and Fire Retirement (PFRS) and Municipal Employees Retirement (OMERS) pension systems to divest from gun and ammo companies, and also urges other cities and state agencies to follow suit.

In February:

The New York City teachers’ pension fund, reacting to an outcry that has intensified since the school shootings in Newtown, Conn., has voted to shed its portfolio of five gun companies despite the objections of a representative for a prominent gun-control advocate: Mayor Michael R. Bloomberg.

With $46.6 billion in holdings, the teachers’ pension fund becomes the biggest in the country so far to divest its gun holdings, said John C. Liu, the city comptroller, who announced the divestment Friday. Many others funds are exploring that option or are beginning to divest, including the California teachers’ retirement system.

In January:

A pension fund for Chicago public employees has voted to divest its holdings in three companies that manufacture assault weapons, an official with the fund confirmed on Thursday.

The Municipal Employees Annuity and Benefit Fund (MEABF) voted on Wednesday to sell off just over $1 million in investments in Freedom Group Inc, Sturm Ruger and Co Inc and Smith & Wesson Holding Corp, MEABF Executive Director Jim Mohler told Reuters.

The move comes in response to the shooting last month at a Connecticut elementary school that left 20 first graders and six educators dead, shocking the nation and sparking a heated debate over gun control in the United States.

Questions remain about whether gun divestment can have the same success, or simply the good publicity, of both apartheid divestment and tobacco divestment:

But are such divestments likely to have any impact on the gun industry, which despite the shooting, racked up $11.7 billion in sales last year?

One historical example that may give insight into the effects of pension fund divestment is the tobacco industry in the mid-1990s.

A $35 billion industry at the time, tobacco faced a public relations nightmare after whistleblower Jeffrey Wigand, the former vice president of research and development at Brown & Williamson, exposed the company’s efforts to deceive the public of cigarette’s dangers on 60 Minutes.

Amidst the controversy, public pension funds began pulling their money out of tobacco stocks. Between March of 1996 and October of 2000, more than 16 major public pension funds sold or put restrictions on their tobacco investments. The largest, according to the Council for Responsible Public Investment (CRPI), was the Florida State Retirement Trust Fund, which in 1997 sold $835 million of tobacco securities. The California Public Employees’ Retirement System (CalPERS) sold all of its tobacco holdings, valued at about $525 million. The California State Teachers’ Retirement System (CalSTRS) sold just its passively held tobacco investments, which amounted to about $238 million.

Others included the New York State Common Retirement Fund, the New York State Teachers’ Retirement System, The Vermont State Retirement System, the Minnesota State Board of Investment, the Maryland Retirement and Pension System, and the Massachusetts’ Public Retirement Investment Management Trust, which divested about $268 million of its holdings in 1997 as a result of state legislation. By the end, some $2.6 billion worth of tobacco stocks were divested or frozen, according to the CRPI.

Gun companies, compared to tobacco companies, are small, extremely profitable, and lack the need for public investment to fund infrastructure improvements. They also, thanks to 2005 GOP Congressional action, lack the liability uncertainty faced by the tobacco giants:

“If a significant portion of the market decided they wanted to divest, and I mean a significant portion, then the stock price might go down. But how long will that persist?” said Julie Gorte, Senior Vice President for Sustainable Investing at Pax World Management LLC.

As of Jan. 17, 89 percent of the stock of Sturm, Ruger& Co., for instance, was held by 176 Funds and Institutions, few of which were public pension funds, according to Yahoo! Finance. And yet the company has flourished: its stock price was up 35 percent in 2012, outperforming the S&P, which was up just 12.6 percent during the same period. And its revenue continues to rise, hitting $443 million in 2012, up from $328 million in 2011, and $255 million in 2010.

Sturm also pays an above average 3.6 percent dividend, which represents a 34 percent payout ratio. If gun stocks are anything like tobacco stocks, the allure of profits may be hard to resist.

“The firm is rewarding its investors more than the other way around. This company can continue to operate profitably without any public pension investment,” McDonald said.

Sturm rival Smith & Wesson’s stock was also up, a whopping 88 percent in the last year.

So, I guess we’re not hearing about gun divestment because it won’t hurt the gun makers like it could have hurt the tobacco manufacturers or South Africa. That’s why the NYC Public Advocate’s campaign matters: he’s taking divestment beyond the public funds, and pressing Wall Street on the profits they make, and enable, due to gun death.

If gun death can be made a hideous way to make a buck in America, maybe gun makers will be hurt. But first we need to hear more about it.

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