Why BlackRock is engaging with gun makers

-- | 08/05/2018

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Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. In an unusual move, asset manager BlackRock released a list of questions that they were asking gun retailers and gun manufacturers in the aftermath of the Parkland, Fla., shooting.

I'm here with Jon Hale, he is our director of sustainable investing research, to see if this kind of engagement from an asset manager is a way to make an impact.

Jon, thanks for joining me.

Jon Hale: Thank you.

Glaser: Let's look at this letter. As I said, it was somewhat unusual. We know this engagement goes on behind the scenes. But this was very public. Why do you think BlackRock decided to make this public? How do you make sense of this engagement?

Hale: BlackRock has been ramping up its engagement activities in general for a couple of years now and there was a very widely publicized letter that CEO Larry Fink released in January basically stating that they were going to engage even more. And so, kind of in the immediate aftermath of that came the Parkland tragedy.

Glaser: When we think about BlackRock, a lot of their funds are passive. Is this kind of engagement effective given that they can't actually sell these shares in many cases?

Hale: I think engagement can be a very effective approach, especially when you're talking about the world's largest asset manager in BlackRock. In the case of guns, we've seen actions taken by some of the largest retailers that they are invested in, retailers like Dick's Sporting Goods; Walmart; The Kroger Company, which just announced earlier this week that they were going to end gun sales completely in the Fred Meyer stores that they had been selling guns in. And just yesterday Dick's CEO, Edward Stack, published an op-ed in The Washington Post saying that Congress needs to take more decisive action.

So, I think, a lot of these efforts by investors are behind the scenes. You don't know exactly what they are talking about. Although BlackRock has said in its letter pretty much here the things we are talking to them about. But whether it's investor pressure behind the scenes or whether it's sort of public and reputational, I think, it's a mix of those two that are causing the action to be taken by these gun retailers.

Glaser: You mentioned the retailers here, but the makers themselves, this is their business. What are they going to do in response to a letter like this?

Hale: Well, investors have been engaging with the three publicly traded gun makers. And these businesses are obviously not likely to stop selling guns altogether. But investors are asking them about how they monitor violence associated with their products, their efforts to research and produce safer firearms, and also just sort of how gun violence may affect their corporate reputation and risk.

Glaser: We know that not all investors are necessarily interested in this kind of engagement. If you are in a BlackRock fund, how should you think about that, that this is something that BlackRock management is so engaged in?

Hale: I think if you agree with CEO Larry Fink that companies ought to pursue a sort of public purpose as a part of their overall strategy and mission, then you should be thinking that BlackRock itself is actually trying to do that as well. That's number one. 

And then number two, from a more of a fiduciary standpoint, I think, you really should be thinking in terms of BlackRock in their passive funds, which you are most likely to be invested in if you are a BlackRock investor, they can't sell out of them. So, what they are trying to do is improve the performance of those companies through engagement.

Glaser: Jon, thanks for joining me today.

Hale: My pleasure.

This report appeared on www.morningstar.com.au 2021 Morningstar Australasia Pty Limited

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