Wall Street

BlackRock says it's time to take action on guns, may use voting power to influence

Key Points
  • The world's largest asset manager details its approach to the gun industry in a three-page letter in response to overwhelming customer interest.
  • BlackRock says it is showing customers options for changing their investments to exclude stocks of gun makers and is considering new funds that don't invest in the industry.
  • BlackRock and other large passive fund managers haven't been vocal activists in the past.
BlackRock talking with clients about exposure to gun stocks
BlackRock talking with clients about exposure to gun stocks

The world's largest money manager is breaking its silence on the nation's current gun debate.

In a client update outlining its approach to the gun industry on Friday, BlackRock said last month's deadly shooting at a Florida high school has driven home for the firm the "terrible toll from gun violence" in the U.S., something that "requires response and action from a wide range of entities across both the public and private sectors."

That includes, it says, possibly voting against directors or against management on shareholder proposals. BlackRock said it has been working with customers to help them explore options for changing their investments to exclude gun industry stocks and is exploring ideas for new funds, including index funds that specifically exclude firearms makers and retailers.

It put out its three-page update in response to a deluge of customer questions.

BlackRock oversees more than $5 trillion of assets for major pensions and endowments as well as mom and pop fund investors, much of that in funds that track market indexes. As such it is the biggest owner of two publicly traded gun makers and the second biggest in a third one, putting it in a position to influence the current debate on guns.

That isn't a power fund companies like BlackRock and its rivals have typically wielded. As fund managers, they have seen their mission to be stewards of investor money, not social or political activists. They talk to companies, but behind the scenes.

But earlier this year, BlackRock's CEO, Larry Fink, made a somewhat surprising statement: "Companies must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate." He went on to say that key to long-term success for companies is "understanding the societal impact of your business" and how it will "affect your potential for growth."

Larry Fink
David Orrell | CNBC

BlackRock said Friday that it has reached out to the publicly traded civilian firearms makers and retailers in the last week and has had "constructive" discussions with some.

It continues to explore talks with others as part of an upswell of activism on Wall Street in response to the public outcry about gun violence. Rival fund giant State Street has also said it was reaching out to gun makers and sellers,

Several gun retailers, including Dick's Sporting Goods and Walmart, have taken action in recent days. Dick's CEO said Wednesday the company would stop selling assault-style weapons and raise the minimum age for gun sales to 21. Walmart is also raising the minimum age, as is Kroger at its Fred Meyer stores.

Even privately held companies are making public statements: L.L. Bean raised its minimum purchase age to 21 and REI, another outdoor retailer, said it stopped its relationship with Vista after the gun company wouldn't outline a clear plan of action.

There are three publicly owned U.S. companies that make guns: American Outdoor Brands, Vista Outdoor and Sturm Ruger & Co., and others that are privately held.

On a conference call Thursday to discuss quarterly earnings, James Debney, CEO of Smith & Wesson parent American Outdoor, said, "We share the nation's grief over this incomprehensible and senseless loss of life, and we share the desire to make our community safer."

Earlier this week, CNBC reported about the efforts of several religious groups, led by Sister Judy Byron of the Northwest Coalition for Responsible Investment in Seattle, to talk to gun makers about the financial and reputational risks of gun violence and ways to produce safer guns. They have submitted proposals for shareholders at American Outdoor and Sturm Ruger to vote on at their next annual meetings.

Byron told CNBC, "Our hope is now with the large investors asking questions that they would support our efforts" with these proxy proposals.

In its update on the gun industry on Friday, BlackRock said despite its size it doesn't see it as "our place" to dictate what a company should do. However, "based on our engagement conversations and our long-term view of the company, we may vote against specific directors or we may vote against management on shareholder proposals."

"This is an issue of tremendous urgency and we are bringing, and will continue to bring, a sense of urgency to our engagement efforts in this area," BlackRock said.

WATCH: BlackRock to engage with weapons makers, sellers

BlackRock: Will engage with weapons makers, sellers
BlackRock: Will engage with weapons makers, sellers