America's gun problem: does the answer lie with Wall Street?

In 1994, President Bill Clinton signed a ban on semi-automatic assault-style weapons into law. Eight weeks later the Democrats were out of office and pro-gun lobby group, the National Rifle Association (NRA), claimed it as a scalp. A decade later Congress let the ban lapse. Twitter is littered with the use of “#1994” – a warning to politicians of what can happen should they go head-to-head with the NRA.
Following the shooting that killed 17 at a school in Florida, Democrats are making fresh calls to ban semi-automatic firearms. The gun used was a semi-automatic assault rifle, an AR-15. As the school community took to social media to decry the 150th mass shooting since 1966, shares in gun manufacturers bounced. People expected the traditional response: a spike in gun sales.
Standing in front of an array of weaponry, Howell Copp reflected on how demand for guns is already on the increase in the wake of the Parkland shooting.
Fearing fresh curbs on gun ownership, enthusiasts are digging deep to buy firearms that could be harder to get if new restrictions are put in place.
“It has been happening already,” he told The Sunday Telegraph. “I have definitely seen business pick up.”
America's gun problem: does the answer lie with Wall Street?

Gun dealer, Howell Copp, in his Maine store 

David Millward/The Telegraph
Howell’s indoor range and gun shop is a family owned business, which has been in operation for 36 years. Its entrance is next door to the Frisky Whisk Bakery.
Business seemed brisk as purchasers inspected a wide array of merchandise, from rifles to pistols to assault weapons and even an Uzi machine gun. Copp’s experience seems at odds with major gun retailers.
“We have heard you. The nation has heard you,” said Edward Stack, the chief executive of Dick’s Sporting Goods, one of the US’s biggest gun retailers, on Wednesday. The company announced it would no longer sell assault rifles in the wake of the Florida shooting, adding that it would back “common sense gun reform”.
On Wednesday’s market close, following the announcement, its shares rose 8pc. Gun maker American Outdoor Brands (formerly Smith and Wesson) has reported a 32.6pc year-on-year decline in gun sales, amid “challenging market conditions”.
Walmart, another major retailer, has said it will raise the buying age for guns to 21 in its stores. Copp says imposing age limits will boost sales too. “These kids will come out and buy guns. People will drive the price up.”
Paradoxically, demand for guns fell when Donald Trump was elected and the threat of restrictions receded.
Just as with the Democrats’ new bill, Dick’s response to the shooting is history repeating itself. Dick’s stopped selling modern sporting rifles for a period following the shooting at Sandy Hook school. It later resumed them.
Fierce lobbying from the NRA has played a part, limiting gun control’s clout on the political agenda. The NRA spent $31m (?22m) on backing Trump’s election efforts. However, a range of retailers and services firms cut ties with the NRA in the wake of the Florida murders.
America's gun problem: does the answer lie with Wall Street?

A young attendee inspects an assault rifle during the 2013 NRA Annual Meeting 

Getty Images/ Justin Sullivan
“It’s the companies’ prerogative. But it’s a double-edged sword. These companies can boycott the NRA, but NRA members will boycott them,” says Copp. One of his customers, Benjamin Rosso, 43, made it clear that he was also ready to vote with his wallet and take his business to companies who are friendlier to NRA members.
“If I know they are boycotting the NRA, I would probably think twice about using them.”
A meaningful shift in legal policy will be hard fought. Large swathes of the US population are psychologically wedded to guns. Two thirds of those who say they live in a very safe community still cite protection as a major reason why they own a gun. Copp says one of his biggest markets is single, divorced women who buy a firearm “because they feel vulnerable”.
Gun ownership in the country is vast with an estimated 245m firearms. Some 42pc of households have at least one. There are 630,000 registered machine guns in US homes, nearly 300,000 short barrelled rifles and those are just the two most popular varieties. With such entrenched relationships with arms and such well established pro-gun lobbies, hopes are mixed that meaningful change will come following the Florida shootings.
If it does, it will in large part be down to the actions of Wall Street and the largest global money managers.
US gun ownership demographics
Funds and banks that keep gun makers in business could find their investments become just as toxic as those brands ditching their NRA member discounts. Ultimately that will hit returns on investment. The risk of policy change is mounting. With Trump stepping into the debate, and with US midterms coming up, politicians will be fearful of their votes. And there’s another reason. Wall Street is already scrambling to adapt to the activist investor movement. Activist investors, including the Church Investment Group, have become emboldened in their approach to some of the world’s largest companies, using their votes as a weapon.
Recently, the fund joined with others to force energy giant Exxon to report on its impact on climate change. It did the same with Shell and BP.
Teachers are also realising the power of their huge pension funds.
In 2015, Calstrers, California’s huge pension pots for state teachers, sold off its stakes in publicly listed gunmakers following the shooting at Sandy Hook School. Chief investment officer Christopher Ailman says it was a financial decision, not a moral one. He believed a regulatory crackdown was in the offing. The fund has also divested from some tobacco, coal, and other holdings at risk from greater legislative restrictions. While returns may have been a consideration the pressure from teachers was considerable.
America's gun problem: does the answer lie with Wall Street?

Many protests, including a 'sit-in' in the house of representatives, in the US, have drawn media attention in recent years

Such moves are symptomatic of a climate in which pension managers are finding that the basic task of getting the best return is complicated by social activism. Politically minded pension holders and consumers are increasingly proactive in their lobbying of government, their buying decisions and how their money is managed. Technology allows social networks to co-ordinate boycotts, lobbying and divestment. Risks that investors cannot afford to ignore. Following the Florida attack, teachers across the US have called on their pension funds to ditch holdings in the firearms industry.
The rise of activist investment had already provoked a response from BlackRock, the world’s biggest fund manager, well before the Florida shooting. Head of the $6.3 trillion fund manager Larry Fink, made an unprecedented step in January this year. In a letter to the chiefs of the world’s biggest companies he told them firms must make a “positive contribution to society”.
This shift demanded “a new model of shareholder engagement” that goes far beyond the use of “proxy votes at annual meetings”. 
A source familiar with the matter said at the time that this marked an end to the sense that you can “park your money in the index and leave it”.
America's arsenal - different kinds of registered guns in the US
This bold move has made it very difficult for funds such as BlackRock to fall back on a traditional defence – that holding money in index funds, investments which mirror an index such as the Dow Jones or FTSE 100, rather than individual companies means their hands are tied. The “we can’t just sell and walk away” argument no longer holds. The source said the letter was “recognition that as an index investor you are in a good position to exercise stewardship [ …] it gives you responsibility for long-term success of the company”.
America's gun problem: does the answer lie with Wall Street?

BlackRock, a massive investment fund, is one of the biggest investors in some major US gun makers

BlackRock is the biggest shareholder in American Outdoor Brands and Sturm Ruger. It said in a statement that it has asked “to understand [gunmakers] response” in the fallout from the shooting.
Wall Street is already going above and beyond its traditional approach of quiet diplomacy.
A source at a major US bank with significant interests in gun companies told The Sunday Telegraph that they had “never gone this far before” in terms of public statements and private actions on gun control.
A senior investor said that “there is much more to come” on the issue. Things are different this time, they suggested.
Norway’s $1.1 trillion oil fund slashed stakes in US firearms companies last year.
Political pressures could see these stakes vanish entirely. Pressure is already mounting on the Finance Ministry, which dictates exclusion rules to the fund’s ethics board to reconsider holdings in gambling. Eli Lund, head of the secretariat of the ethics council, told The Telegraph that “Politicians can at any time change criteria for exclusion for the fund. Parliament could perfectly well add firearms.”
Back in the gun shop, Rosso rules out what he describes as “binge buying” of guns ahead of any curbs. Panic buying, he says, would be an admission of defeat. “I believe you should stand up and fight.”
For once, history might not repeat itself. Fink’s letter faces a great test. If Wall Street really has shifted to embrace the tide of activist investing, Rosso and the NRA might not win this round.
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