With the unfortunate proliferation of mass shootings around the county, both in schools and elsewhere, several of our clients have begun to ask about their portfolio exposure to small arms and controversial weapons. Gitterman Wealth Management’s SMART (Sustainability Metrics Applied to Risk Tolerance)® Investing Services utilize multiple ESG (Environmental, Social, and Governance) data providers, including Morningstar’s Product Involvement data set, which helps us to better understand the practical implications of our investments.
With this particular tool, Morningstar provides information related to numerous environmental, social, and governance issues, including thermal coal, alcohol, nuclear power, gambling, GMOs, palm oil, animal testing, small arms, and controversial weapons, among many others. Within each of these categories, direct and indirect involvement is taken into account.
With regard to small arms, direct involvement relates to whether a company manufactures or sells small arms, or key components of small arms, to civilian customers, the military, or law enforcement. Indirect Involvement relates to whether a company is involved in retail / distribution of small arms or their key components.
Morningstar’s list of controversial weapons includes anti-personnel mines, biological and chemical weapons, cluster weapons, depleted uranium ammunition, nuclear weapons, and white phosphorus weapons. Direct involvement refers to a company that is involved in core weapon systems, or components of the core weapons systems that are considered tailor-made or essential for the lethal use of the weapon. Indirect involvement refers to a company that provides components for core weapons systems that may not be considered tailor-made or essential to the lethal use of the weapon.
Within our current SMART Investing models, our revenue exposure to small arms is zero, both directly and indirectly. With regard to controversial weapons, our revenue exposure is zero in 15 of the 18 funds we are currently working with, with minimal exposure ranging from .03% – 2.31% in the other three funds.
The fund we hold with the most controversial weapons exposure (2.31%), was cited by Morningstar because it works with a company that offers services in resource management, infrastructure, and communications. The company was cited for “indirect involvement of non-essential and non-tailor made” weapons, as they work for the US Army Corp of Engineers, but the company is not responsible for any direct weapons production.
The second of our funds that was cited (0.69% controversial weapons exposure) was due to a company within the fund that provides engineering, maintenance, and repair services to a number of systems aboard U.S. Navy vessels. We also consider this exposure to be indirect in nature, and estimate that it too accounts for a very small percentage of the company’s overall annual revenue.
The third fund that Morningstar cited (0.03% exposure) was due to an aviation company within the fund that designs and produces cabin interior, communications, and other products for commercial and military customers. We also feel this to be minimal and indirect exposure to anything controversial.
As you can see, the exposure in our SMART Investing models to small arms and controversial weapons is extremely small. In many respects, this is a natural by-product of using ESG data sets and investing in sustainable funds, as weapons exposure is rarely a component of these types of products.
ESG tools such as Morningstar’s Product Involvement data set are showing to be invaluable in this regard, as they give advisors the ability to easily understand and explain to clients their portfolio exposure to individual sectors in the environmental, social, and governance arenas. These tools bring transparency and accountability to investing in a way that we have never seen before. It is part of an evolutionary leap, helping people to better understand the deeper implications of risk management and the non-financial, intangible information that accounts for much of a company’s value in today’s increasingly transparent world.
If you would like to have your portfolio reviewed for weapons exposure by Gitterman Wealth Management for weapons exposure please contact Adam Bernstein at 212-243-5760 or abernstein@GittermanWealth.com
For more information about Gitterman Wealth Management’s SMART (Sustainability Metrics Applied to Risk Tolerance)® Investing Services for individuals and financial professionals, please visit www.GittermanWealth.com and click on Sustainable Investing.
Related to this piece, please also see the MarketWatch article, Are You a Proponent of Gun Control? Take a Very Close Look at Your 401(k), which includes commentary from Gitterman Wealth Management ESG/Impact Analyst Adam Bernstein.