Ignorance is Risk
Calvert engagement with Hanesbrands yields a commitment to investigate and report on water risk in its supply chain
No longer are investors ignoring companies that ignore water risk. The steady increase in population and water demand, coupled with the affects of worsening water quality and climate change, makes fresh water scarcity a global problem that cannot be ignored. Companies, governments and communities should know how much water it takes to make their products, protect their people, and sustain their water resources.
In late 2011, Calvert filed a shareholder resolution with Hanesbrands, Inc., a leading cotton apparel company with popular brands Hanes, Champion and Playtex. Calvert's proposal asked the company to clarify its strategy for mitigating water risk in its supply chain.
The company currently measures and reports on efficient water use in its manufacturing facilities. It also has supplier standards that require legal compliance with product quality, safety and environmental standards. But Hanesbrands' public reports and investor information did not address the strategic importance of water throughout the value chain including upstream in the agricultural production of cotton. Water shortages can cause production shortfalls, price volatility, higher energy costs, regulatory action and competition. Rising cotton prices in recent years have lead to higher retail prices and have caused some manufacturers to use cotton substitutes such as acrylic or flax. Hedging may help, but the long-term solution for Calvert as a long-term investor is a sustainable water management strategy that extends throughout the entire value chain from cotton seed to hand-me-downs.
Hanesbrands' response has been commendable. Following a constructive dialogue, Calvert withdrew its resolution in February 2012. Hanesbrands is in the process of updating its corporate goals and sustainability web pages. The company has agreed to further investigate the water footprint of cotton and will explore corporate water risk modeling tools. Hanesbrands will remain involved with the Sustainable Apparel Coalition and Conservation International's Business and Sustainability Roundtable and consider other venues for creative problem solving. Calvert will engage with Hanesbrands over the next several months as water-related risks are disclosed and will continue to encourage the company to pursue similar sustainability solutions.
As of February 29, 2012, accounts managed by Calvert Investment Management, Inc. held securities issued by Hanesbrands Inc. Calvert may or may not still invest in, and is not recommending any action on, companies listed.
Calvert Investment Management, Inc., 4550 Montgomery Avenue, Bethesda, MD 20814.