As You Sow, which promotes ESG and values-aligned investing and calls itself the “nation’s leading shareholder advocacy nonprofit,” is out with a new report this week sounding alarms about “significant investments in nuclear and other controversial weapons” made by U.S. mutual fund managers responsible for funds found across thousands of 401(k) plans.
The new analysis found the top 25 U.S. fund managers all earn a “D” grade or worse, with significant investments in arms manufacturers and major military contractors, including companies involved with nuclear weapons and controversial weapons like cluster munitions, anti-personnel landmines, incendiary weapons, and depleted uranium.
“Many investors, given a choice, would not want to profit from companies that manufacture weapons of mass destruction”
As You Sow CEO Andrew Behar
“Many investors, given a choice, would not want to profit from companies that manufacture weapons of mass destruction,” said Andrew Behar, CEO of Berkeley, Calif.-based As You Sow. “Yet nearly every retirement plan has nuclear and other controversial weapons embedded in their plan. Our new ratings empower investors with the tools to know what they own so they can invest their money in alignment with their values.”
As You Sow’s analysis looks at hundreds of mutual fund managers, with a focus on comparing the top 25 largest firms to the 25 largest sustainable fund managers. “Fund managers commonly found in corporate 401(k)s like American Funds, John Hancock Funds, and Franklin Templeton Investments were among the most exposed among the largest fund managers,” As You Sow’s press release claims.
A chart embedded in the analysis shows John Hancock, American Funds, Columbia Threadneedle, Franklin Templeton, and MFS with exposures over 4%. American Century Investments had the lowest exposure among the top 25 asset managers by USD invested at 2.51%.
All but two of the top 25 sustainable fund managers earned a “C” grade or higher, with almost one-third of them receiving an “A” grade with no identifiable exposure to military weapons.
The As You Sow release said sustainable investing has traditionally avoided weapon investments not only for moral reasons, but with the goal of avoiding the financial risk inherent in the business models of arms manufacturers. “Research shows that sustainable indexes that screen out nuclear weapons largely track or outperform comparable non-sustainable indexes,” the release states.
As You Sow’s analysis found that the Engine No. 1 ETF had the highest percentage (5.78%) of exposure to military weapons on average among the top 25 fund managers that focus on sustainable investing. The analysis notes that most of these fund managers have less exposure to military weapons on average, and earn mostly “C” grades or better. It found seven funds—Eventide Funds, Ecofin, New Alternatives, Vert Asset Management, Aspiration Funds, Thrivent, and Kayne Anderson had no exposure.
The Weapon Free Funds database launched by As You Sow lists the military manufacturer holdings for individual funds by ticker. Any fund with 5% or more of its investments in weapons-related companies is graded with an “F” by the group.
Scrutiny for ESG investing
The As You Sow report comes at a time when ESG investing is increasingly under fire. A new report from the Republican ESG Working Group highlights how ESG has been letting investors down with unclear goals, politicized portfolios and disappointing returns.
BlackRock CEO and Chairman Larry Fink said earlier this year that he will no longer utilize “ESG” in his language due to its concept being “totally weaponized” and “misused by the far left and the far right.”
BlackRock, one of the world’s largest asset managers, faced immense controversy after Fink said it would embrace ESG investing back in 2018.
It is also notable that while the Department of Labor’s new rule governing ESG factors in retirement plans allows retirement plans to consider environmental, social and governance (ESG) factors when making investment decisions, it also leaves in place the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights regulation that reasserts a basic premise of ERISA—that the financial interests of retirement plan participants and beneficiaries are paramount and may not be subordinated to other considerations.
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