In early March, asset management firm BlackRock Inc. (NYSE: BLK) began asking gunmakers and distributors how they were going to respond to the killing of 17 students and faculty at Marjory Stoneman Douglas High School in Parkland, Florida. In a note to clients on Thursday, the firm announced several steps it is taking in order “to provide more choice for clients seeking to exclude firearms companies from their portfolios.”
When BlackRock, with $6.3 trillion in assets under management, takes a step like this, people notice. What the firm is doing is nothing less than giving investors a way to build a portfolio that excludes equities in firms that engage in businesses that the investors would choose not to support.
BlackRock expects to launch a new small-cap ETF in its Environmental, Social and Governance (ESG) product line on or about April 12: the iShares MSCI USA Small-Cap ESG Optimized ETF (ESML). The firm also has filed an initial registration statement for the iShares ESG US Aggregate Bond ETF based on a new index that “excludes all producers and large retailers of civilian firearms.”
The firm also plans to eliminate firearms makers and large retailers for all six of its existing iShares ESG funds. Two large retailers that would be excluded from the fund are Walmart Inc. (NYSE: WMT) and Dick’s Sporting Goods Inc. (NYSE: DKS), both of which have limited firearms sales to people 21 and older.
Kroger Co. (NYSE: KR), owner of Fred Meyer stores, also could be affected although a spokeswoman told The Wall Street Journal that the Fred Meyer stores are “quickly working to responsibly phase out sales of firearms and ammunition.” Only stores in Alaska, Idaho, Oregon and Washington sell firearms and ammo and represent $7 million in annual revenue or “about 0.006% of Kroger’s annual sales.”
BlackRock also will offer five strategies to track the S&P 500, Russell 1000, Russell 2000, Russell 3000 and MSCI World (not including the United States) that will exclude all gunmakers and large retailers of civilian firearms. The firm will implement these strategies in pooled funds available to institutional investors seeking firearms-free funds for employee retirement programs.
Finally, BlackRock is reducing its net expense ratio on the ESG ETFs and other funds from 50 basis points to 25 basis points. The ESG funds currently have some $2.2 billion in assets, according to the Wall Street Journal.
In its Thursday announcement, BlackRock noted:
BlackRock manages money for a diverse set of investors, including pension plans, insurers and individual investors, who have a wide range of views on firearms. It is ultimately our clients’ choice about the types of funds they invest in.
BlackRock could wield a lot of influence over Walmart and Dick’s. The firm is one the three largest shareholders in both companies. How BlackRock decides to exercise its influence with these companies is a longer term issue and ultimately will reveal how serious the firm is in its efforts to contribute to a reduction in gun violence in the United States.