Since the turn of the century, investor activists have been pushing public companies toward more disclosure about climate change and similar issues. Only recently have companies really started listening to—and granting—their demands.
Those activist victories were discussed in detail recently at the annual conference of CERES, a coalition of investors lobbying for environmental causes. Bennett Freeman, head of social research and policy at the Calvert Group, said the investment firm had filed resolutions on climate change disclosure at 10 companies this proxy season; six of them—Big Lots, Lowes, Kirby, Ryder, Continental Airlines, and Harley-Davidson—subsequently agreed to produce climate change reports rather than face a proxy fight.
Freeman
Each of these companies has agreed for the first time to disclose “specific steps that they’re prepared to take to address climate change risks, as well as opportunities,” Freeman said. “This is all taking us closer toward our goal, which is comprehensive disclosure of climate change risk across the whole S&P 500.”
In addition, Calvert has also filed resolutions with the airline industry that call for corporate strategy focused on greenhouse gas emissions. “We’ve been frankly disturbed by the lack of quality in reporting by U.S. domestic airlines, so we want to try a different approach and see if it will pass muster by senior management,” he said.
The California State Teachers Retirement System, which sits on $164 billion in assets, has also vowed for the first time this year to file proposals on climate risk, “which is important to us,” CalSTRS spokesman Brian Rice says. For example, the fund recently negotiated with Dynegy Corp. to prepare a report on the feasibility of reducing greenhouse gas emissions from existing and proposed power plants, Rice says. The agreement comes as Dynegy is proposing to build as many as six new coal-fired power plants in the United States, which will be especially vulnerable to emerging carbon-reducing regulations.
Lindblom
Such successful outcomes are becoming more common thanks to better dialogue among investors and companies, according to Lance Lindblom, CEO of the Nathan Cummings Foundation (a charity started by the founder of the Sara Lee Corp.). The best outcomes, Lindblom said, “are when we have a resolution and it’s withdrawn, because there’s a discussion that’s been started. This is happening more and more.”
Calvert, too, has noted some success. Of 25 resolutions filed this proxy season, 16 have been withdrawn, Freeman said at the CERES conference. The fund has been using a basic framework for climate risk disclosure it helped develop in 2006, he added. “That framework has very much been the template that’s guided our policy objectives and … our many resolutions in our climate change disclosure,” he said.
TOXIC DECISION
A sampling of shareholder resolutions on toxic chemicals filed by investors in 2008:
Company
Subject
Outcome
Filer
Avon
Nanomaterial Product Safety
Vote: 25.4%
Calvert Investments
Becton, Dickinson
BFRs in Products
Vote: 36.1%
Domini Social Investments
Circuit City
PVC, Other Toxic Chemicals
Withdrawn
Sisters of St. Francis of Philadelphia
Colgate Palmolive
Nanomaterial Product Safety
Withdrawn
Calvert Investments
Dow Chemical
Pesticides Linked to Asthma
Pending
Trillium Asset Management
Family Dollar Stores
Product Safety
Omitted, per SEC
New York City Pension Funds
Home Depot
Product Safety
Omitted, per SEC
New York City Pension Funds
JC Penney
PVC Packaging and Products
Withdrawn
Domini Social Investments
Mattel
Report on Products Manufactured by Licensees
Pending
Marie-Claude Hessier-Grisel
Wal-Mart
Nanomaterial Product Safety
Omitted, per SEC
As You Sow Foundation
Source
Investor Environmental Health Network (2008).
In total, a record 54 corporations have already faced shareholder resolutions on climate issues this year. That contrasts to just 20 companies who faced similar efforts in all of 2007, and 12 in 2006, according to the Investor Environmental Health Network.
More on the Horizon
Investors have many other environmental battles they want to fight with companies as well.
Specifically, shareholders have filed a record 21 resolutions at 17 companies this 2008 proxy season concerning toxic chemicals and product safety. That compares to only 13 such resolutions filed in 2007 and 12 in 2006, according to the IEHN.
Concern over such issues is growing in the wake of high-profile toy and pet food recalls, and greater public concern over nanomaterials (ultra-small engineered particles) used in making products like baby bottles, cosmetics, and cooking products. “This nanotechnology issue has emerged in such a significant way in the last couple of years,” said Freeman.
Nanomaterials are so small (far thinner than a human hair, for example) that they can be inhaled or absorbed through human skin. That has prompted environmental activists to call for more testing on their toxicity to ensure safety and avoid future litigation risks.
All that pressure from both shareholders and the public has already spurred several companies to take action. Of the 21 chemical-related resolutions filed this season, 11 have been withdrawn, IEHN says.
Best Buy, JCPenney, Circuit City, and Costco, for example, have all agreed to provide reports on the elimination of polyvinyl chloride (PVC) packaging and products. Target and Pier 1 agreed to produce reports on corporate product safety policies and practices, while Hasbro agreed to talk with stakeholders on sustainability issues.
In addition, said Freeman, Calvert withdrew a resolution at Colgate-Palmolive after the company published a corporate policy addressing nanomaterials in its products and how it might address or alleviate any risks. A similar resolution with Avon, which Calvert co-filed with Domini Investments, did not prove as successful, “which has only reinforced our determination to carry forward with the resolution,” Freeman said.
Avon, however, is not the only company hesitant to take action. In a newly released report by the IEHN, several companies affected by product toxicity risks are doing a poor job of informing shareholders of market risks they face due to toxic chemicals in their products.
The report, “Toxic Stock Syndrome: How Corporate Financial Reports Fail to Apprise Investors of the Risks of Product Recalls and Toxic Liabilities,” was based on searches through thousands of SEC filings and detailed reviews of more than 25 companies’ annual reports for 2006 and 2007.
Lewis
“Our analysis shows that the managers of these companies know much more about these product toxicity risks than they are choosing to share with investors,” says Sanford Lewis, an environmental lawyer and lead author of the report. “The companies are not engaging in timely investor disclosure of financially important information on product toxicity risks.”
That could mean increased shareholder resolutions down the line, given that product toxicity concerns are not going away anytime soon. “It’s a very significant thing, and I just want to underscore that nanotechnology is here to stay,” Freeman said. “So stay tuned. It’s an exploding issue.”
Two other shareholder resolutions on toxic chemical and product safety issues are coming soon: Mattel shareholders will vote May 29 on whether the company should report on product safety and occupational health issues; the Kroger supermarket chain will vote June 26 on whether to address various toxic chemicals present in packaging and products.
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