New York City may have taken a stance against sugary drinks, but it still has investments in Coca-Cola and Pepsi. Smoking is illegal in bars and parks but Philip Morris is still in New York's pension portfolio. Calories aside, New York City's retirement accounts hold $123 million in McDonald's shares. Wal Mart has never been able to open a store in town, but the city owns part of Wal Mart. And amid all the concerns about climate change in our seaside metropolis, Exxon is the city's top stock holding.

So perhaps it shouldn't be that surprising that the city's pension funds, which are valued at $127.8 billion, own nearly $18 million in firearms-related stock.

Nor should it be shocking that, after the horror in Newtown, there are growing calls for the city to shed those holdings.

Calls for a 'sell' off

New York City is hardly along in holding gun stocks. So do public pension funds for New York State, Florida, Pennsylvania, North Carolina—even Illinois, which is probably the only place with tougher gun laws than the Empire State.

But those investments might change after the Sandy Hook shootings. California's statewide teachers' pension fund earlier this week said it was reconsidering its firearms holdings, prompting a spokesman for New York City Comptroller John Liu, who oversees the city's funds, to say, "We are currently conducting a review of our holdings and aggressively exploring all options, including divestment."

On Wednesday, Public Advocate Bill de Blasio called for the city to sell its gun-related stock. That includes its shares in Olin Corporation ($14 million), a chemical conglomerate that includes the Winchester ammunition company; Sturm, Ruger ($2.3 million), the nation's leading pistol maker; Smith & Wesson ($1.6 million), a top manufacturer of revolvers; and Taurus ($17,866), which produces pistols.

"It's a bad investment to put money behind companies that put military-grade weapons on our streets and refuse to take responsibility for the outcome," de Blasio said in a statement. "Beyond our fiduciary duty, we should not be giving capital to an industry that is responsible for the deaths of thousands of Americans each year."

The details of divestment

New York's pension funds, which are among the largest in the country, have been called on to divest before. In 1984 the funds divested from businesses operating in South Africa. In 2009, under then-comptroller Bill Thompson, the funds partially divested from Iran.

But divestment is not a simple choice.

By owning stock the city has some influence over corporate policy. In the past year the city submitted 61 shareholder resolutions to 58 firms. Some succeeded: According to a recent report, Apple, Cisco, Dell, Hewlett Packard, Intel, and Oracle agreed to do more to make sure their suppliers met environmental and human rights standards, while Goldman Sachs and MetLife "agreed to provide annual disclosure detailing the composition of their workforce by race and gender across major job categories." When the city's cuts ties to a company, it loses that influence.

The pension funds primary purpose is to support hundreds of thousands of retirees without having to have taxpayers bail them out. If the funds start considering things other than profit in making investment decisions, it could hurt returns and threaten solvency.

For that reason, divestment probably couldn't happen quickly. The funds would have to study the impact of divestment on their bottom lines and then decide whether to pursue it, and how far to go: Do you divest just from gun manufacturers, or also from companies that make firearms accessories? What about big retailers (like the aforementioned Wal Mart) that, among thousands of other products, also sell guns?

This isn't a decision Liu alone can make. It would be rendered by the independent boards that run each of the five pension funds—the Employee Retirement System, Board of Education Retirement System, Teachers' Retirement System, Fire Department Pension Fund and Police Pension Fund.

Those boards invest money not in individual stocks but in financial managers who run index funds. Index funds try to select a broad pool of stocks to track—or, ideally, beat—the overall market. So it's not like the city pension funds could just sell their shares in Sturm, Ruger. They would have to find index funds that avoid gun stocks. And the more stocks that are off-limits, the harder it is for managers to create a robust index. That can mean higher management fees for the city.

Risks become the reason

But while the funds' responsibility to retirees can complicate divestment, it can also justify it. Sometimes the moral objections to a particular product are mirrored by the market: If the outrage over Newtown does long-term damage to gun companies' sales, then shedding those holdings could be a business decision as well as a political one.

There are multiplying signs of a financial fallout from the shootings—a holding company looking to sell a giant firearms conglomerate, classified advertisers suspending gun ads, sporting goods companies halting some weapons sales.

In a letter to Liu, de Blasio made the dollars-and-sense case for the city funds to get out of guns. "Increased regulation and possible litigation against these gun manufacturers could have an adverse effect on pension funds that are invested in the sector. Divestment from these companies is both prudent and necessary," he wrote.