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December 21, 2012

Newtown Tragedy Galvanizes Debate on Corporate Responsibility
    by Robert Kropp

The UN-endorsed Guiding Principles on Business and Human Rights recommends that companies address adverse impacts with which they are involved, and Robert Zevin of Zevin Asset Management reminds investors of their historic role in effecting social change.

SocialFunds.com -- In the wake of the recent horrific shootings of children in Newtown, CT, a long-overdue conversation about gun control appears to have resumed. Although many sustainable investors exclude weapons manufacturers from their portfolios, their involvement in the issue is a welcome development; after all, divestment campaigns aimed at tobacco companies and companies doing business in apartheid-era South Africa helped lead to historic social changes.

As Robert Zevin, the founder of Zevin Asset Management, told National Public Radio's Boston-based affiliate after the shooting, "The history of the social investment movement suggests that investors do have a role to play in social change."

And while many sustainable investors have little financial leverage with which to influence the behavior of companies in which they do not invest, such is not always the case with some of the largest: pension funds. When the private equity firm Cerberus Capital Management announced that it would divest its holdings in the manufacturer of the firearm used in the Newtown killings, the California State Teachers' Retirement System (CalSTRS)—one of the nation's largest pension funds and a signatory to the United Nations' Principles for Responsible Investment (PRI)—acknowledged a 2.4% ownership stake in the firearms manufacturer.

"CalSTRS has established a thorough vetting process for potential investments that seeks to test not only their financial potential, but their social, human and environmental impacts as well," the pension fund stated. "Moving forward, CalSTRS will work to ensure that all of our investments are taking these very important criteria into consideration."

Meanwhile, the state treasurers of Massachusetts and Connecticut have ordered reviews of the holdings of the states' pension funds to determine the extent of their investment in firearms manufacturers. Massachusetts Treasurer Steve Grossman found that the fund had holdings in such companies worth approximately $27.8 million; while he did not state a position on either divestment or engagement, he did call for the reinstatement of a ban on assault weapons that was allowed to expire in 2004.

Members of the faith-based Interfaith Center on Corporate Responsibility (ICCR) may be among the least likely investors to have holdings in firearms manufacturers, but in keeping with their commitment to social justice they have spoken out on the issue of gun violence. In a conversation with Eleanor Bloxham of the Value Alliance, Reverend David Schilling made reference to the Guiding Principles on Business and Human Rights, a blueprint for corporate social responsibility endorsed by the UN Human Rights Council in 2011.

The second pillar of the Principles, Bloxham pointed out, addresses "corporate responsibility to respect human rights, which means that business enterprises should act with due diligence to avoid infringing on the rights of others and to address adverse impacts with which they are involved."

Mutual funds, with almost $12 trillion in assets under management, have been slow to address issues beyond financial reports with companies in the portfolios, as analyses by Fund Votes repeatedly emphasize. Indeed, Vanguard Group, one of the nation's largest fund families, stated that it did not consider divestment to be an appropriate response to the killings in Newtown.

Mutual funds, a Vanguard spokesperson said, "Are not optimal agents to address social change." Vanguard also stated that many of its funds are passively managed, which prevents them from divesting companies listed on the indexes they track.

In the NPR interview, Zevin observed, "Almost all of the criteria that social investors have applied have not interfered with optimizing or maximizing returns."

"This is another excellent opportunity for states to begin to express their interest in reducing the cost to the states in terms of police, prisons, health care, public safety, and therefore the attractiveness of the states for investment from the outside," he continued.

Referring to the efforts of state treasurers to determine the extent of their pension funds' holdings in firearms manufacturers, Zevin said, "The states have a huge interest in reducing gun ownership and gun violence, and to begin to codify that by first divesting before pursuing other avenues such as legislation and even lawsuits against companies."

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