California's teachers' retirement system will pressure retail companies it is invested in to stop selling firearms and parts that are outlawed by the state — and would consider divestment from firms that refuse to make changes, a key panel decided Wednesday.
The vote by the Investment Committee for the California State Teachers' Retirement System was supported by panel member and state Treasurer John Chiang even though he had asked in October that the system take more immediate action to stop investing in the gun retailers.
"If Congress and state houses are either unwilling or unable to pass sensible policies to stop our schoolyards, work sites and places of worship from becoming killing fields then let's take the battle to where the money is," Chiang, a candidate for governor, told the Investment Committee before the unanimous vote to adopt the engagement policy.
California bans the sale of assault weapons, which are any semiautomatic, centerfire rifle or semiautomatic pistol that lacks a fixed ammunition magazine and has any of a number of parts that include a telescoping stock. The ban includes AK-47s and other military-style rifles.
The new policy was drafted in the wake of mass shootings in San Bernardino and Orlando, Fla., and more recently at Marjory Stoneman Douglas High School in Parkland, Fla., where a gunman killed 17 students and faculty in February.
CalSTRS' move follows recent actions by several Wall Street firms, including the nation's largest money manager, to employ their financial heft to push for stricter gun laws.
BlackRock Inc., with $6.3 trillion of assets under management, plans to remove the stocks of retailers that sell firearms from some of its existing and planned investment funds.
And Citigroup Inc. said it would place restrictions on firearms sales for its new retail business clients, including a requirement that they don't sell guns to someone who hasn't passed a background check or is under 21.
Chiang said he and legislators also will pursue a bill to force the larger California Public Employees' Retirement System to adopt a faster action plan that would eliminate investment in gun sellers that fail to change by July 1, 2021.
The policy adopted Wednesday by CalSTRS does not include deadlines for engagement to result in changes.
The teachers board voted to hire two full-time employees to try to persuade companies it is invested in to stop selling assault rifles. If that doesn't work, the retirement system officials will use their proxy voting authority to vote against all members of the company's governing board.
If those two steps fail, CalSTRS would initiate a review process under the new policy to determine whether it should divest from a company and whether that would hurt its ability to pay pension benefits.
CalSTRS' $225-billion investment portfolio includes more than $400 million in holdings in Walmart Inc., Kroger Co. and other firms that it contends sell firearms outside California that are banned in the state, according to a staff report.
However, the staff report submitted to the board said the two main companies are already making changes.
Kroger has indicated it is going to "responsibly phase out sales of firearms and ammunition," and both it and Walmart have raised the age limit for gun purchases to 21, the report said.
In 2015, Walmart stopped selling guns it considered assault rifles, including weapons that accept high-capacity ammunition magazines.
On Wednesday, Walmart spokesman Casey Staheli said that decision satisfied CalSTRS' latest demands. "We stopped selling modern sporting rifles in 2015," he said.
Walmart and Kroger took their latest actions after Dick's Sporting Goods banned gun sales to customers under 21 at its 800 Dick's stores and 35 Field & Stream outlets — and stopped selling assault-style weapons at Field & Stream — following the Florida high school shooting.
The decision by Dick's, one of the nation's largest sporting goods retailers, drew praise at the time from Harry M. Keiley, chairman of the Investment Committee and a high school teacher with the Santa Monica-Malibu Unified School District.
"Classrooms are meant to be sacred spaces for our children to learn and grow, where fear and violence have absolutely no place and will not be tolerated," he said.
There isn't uniform agreement, though, at CalSTRS that divestment works.
Christopher Ailman, chief investment officer of CalSTRS, said at the Milken Institute Global Conference in Beverly Hills this month that divesting ends any influence an investor might have.
"Divestment hasn't made the world a better place," he said.
Also attending the conference was Vicki Fuller, chief investment officer of the New York State Common Retirement Fund — the third largest public pension plan in the nation — who had the same take.
"If we divest, we don't have a place at the table and we don't change behavior," Fuller said. "We do need our companies to be thinking long term about how they are going to be able to continue to generate their earnings."
But on Wednesday, the CalSTRS panel heard emotional testimony from current and former teachers who said they have been shaken by the spread of campus gun violence.
CalSTRS has an obligation to engage corporate executives to try to make changes in business practices that reduce gun violence, Keiley said.
"I'm under no illusion that actions that we take today or into the future will end these horrific acts of murder at the hands of people who are mentally ill using assault weapons, whose only purpose is to kill other human beings," Keiley said during the board hearing.
"But to sit back and say that we have done enough, that there's nothing else we can do, I believe would be a breach of our fiduciary duty," he added.
CalSTRS has taken action before in response to gun violence. After the 2012 massacre at Sandy Hook Elementary School in Connecticut, the teachers' retirement system adopted a divestment policy for companies that manufacture firearms that are banned in the state.
Bloomberg and Times staff writer James F. Peltz contributed to this report.