Calvert Advocacy Highlights for 2012
Investors have a right and a responsibility to engage with companies on environmental, social and governance (ESG)–related issues where shareholder value is at stake and improved performance is within reach. Calvert uses shareholder advocacy and public policy initiatives to encourage positive change in companies in virtually every industry, both to establish certain commitments and to encourage concrete progress on issues of demonstrated or potential material importance to our funds and shareholders. In 2012 Calvert used the full combination of our engagement and shareholder advocacy tools, emphasizing direct company and multi–stakeholder dialogues alongside proxy voting and shareholder resolutions.
Rio+20: Missed Opportunities and Signs of Progress
Twenty years ago, the first Earth Summit in Rio de Janeiro, Brazil, was a watershed event. It created climate and biodiversity conventions and set the stage for formal and informal frameworks and platforms to address global environmental degradation, climate change and poverty. But at last June’s "Rio+20 Summit" it was the side events—especially the external meetings led by the private sector and civil society—that achieved the most compelling and concrete commitments as governments failed to reach consensus on further binding commitments to reduce greenhouse gas emissions. Calvert CEO Barbara Krumsiek was there and spoke at several events bringing Calvert’s perspective on sustainable investment to this global gathering. During a discussion on Gender Equality and Sustainability, Calvert shared its experience related to business and women primarily through the Calvert Women's Principles®. On a separate panel Calvert made the case for the green economy, describing how sustainability can drive a business model and represent an investment opportunity.
Climate Disruption Underlines the Urgency of Adaptation and Mitigation
Natural catastrophes, primarily extreme weather, caused more than more than $148 billion in economic losses in 2011, setting a new record. The massive disruptions predicted by climate change scientists continued last year; according to the National Oceanic and Atmospheric Administration (NOAA), 2012 was the warmest year on record for the contiguous United States, wildfires raged through western states, extreme drought hammered crops across much of the country, and the super–storm Sandy caused tragic human losses and billions of dollars of damage to communities in New Jersey and New York. Companies and investors that do not adapt to the changing climate do so at their peril, even as the political prospects for achieving regulation of greenhouse gas emissions all but disappeared in 2012.
Calvert nonetheless maintained its leadership role, calling for urgent action as it has done for more than a decade. In 2012, in order to help make the financial implications for investors and companies clear and to encourage efforts to adapt to climate change Calvert co–released two reports with NGO and corporate partners. “Physical Risks from Climate Change: A guide for companies and investors on disclosure and management of climate impacts" focuses on companies in the agriculture, food and beverage, apparel, electric power, insurance, mining, oil and gas, and tourism sectors –– all of which are considered to be highly vulnerable to climate impacts. Calvert and other leading companies from the Partnership for Resilience and Environmental Preparedness (PREP) released a first–of–its–kind guide for businesses to assess and prepare for the risks and opportunities posed by climate change, entitled, “Value Chain Climate Resilience: A guide to managing climate impacts in companies and communities."
As Climate Costs Mount, Supporting the Transition to Cleaner Energy
While critical, Calvert believes that climate change adaptation efforts will only succeed if we also reduce the pollution that causes climate change. Even though there was no real progress on broad policy measures aimed at climate change in the United States or in international negotiations, investors continued to make the case that action is urgently needed. Calvert played a leading role within the Investor Network on Climate Risk (INCR) on major public policy victories including the extension of important incentives for renewable energy production included as part of the “Fiscal Cliff" deal, stronger fuel economy standards for automobiles which the Obama Administration established in August and protection of Clean Air Act Rules that will reduce harmful pollutants produced by electric power plants. These rules and incentives send an important signal to market participants. In 2013, Calvert will continue to support policy that accounts for the true cost of greenhouse gas pollution, which is a crucial part of the transition to a lower carbon economy and a more secure and independent energy supply.
Climate, Scarcity and Growing Demand Put Spotlight on Water
As drought plagued half the continental United States and the United Nations reported that more than one billion people do not have access to clean drinking water, the urgency of addressing the global water challenge was clear in 2012. Calvert called upon companies exposed to water risk in sectors such as apparel (Hanesbrands), food manufacturers (Sysco), beverage companies (Coca Cola and Pepsi Co), and electric utilities (Duke Energy) to develop and disclose water management systems and to reduce their use of this limited resource. Water scarcity along with inadequate infrastructure is driving innovation and investment opportunities, which can create shareholder value while helping to solve the global water crisis. Through dialogue with at risk companies, shareholder resolutions, participation in global standard setting initiatives and presentations at conferences Calvert focused sharply on these risks and opportunities and helped move companies toward improved management of this challenging set of issues.
Demonstrating Shared Responsibility for Safer, Healthier Food
Calvert participated in a new multilateral stakeholder initiative on ethically–produced food in the U.S. and serves on the Steering Committee of the EquiTABLE Food Initiative, a certification program designed to improve farmworker welfare, environmental performance and product safety of domestically grown fruits and vegetable crops. The Steering Committee includes Oxfam America, the United Farm Workers, Costco, Bon Appétit Management Co, A&W Growers, and environmental and consumer safety NGOs. The program has completed pilot testing of draft standards at two California farms and is hiring trainers to ramp up the project. Its aims include decreasing pesticide use and supporting and improving farmworker welfare and the safety of domestically grown fruits and vegetables.
In 2012, Calvert helped finalize a groundbreaking law that promotes good governance and investment stability in the oil, gas and mining sectors. On August 22, the SEC issued its final rules for Section 1504 of the Dodd-Frank, which requires oil, gas and mining companies to disclose the payments they make to the governments where they operate. Since 2008, Calvert has pushed for this critical reform so that investors have the information necessary to understand the risks oil, gas and mining companies face when they operate in unstable countries. The disclosures should also help the citizens of these countries fight corruption and claim a greater share of the revenue generated by resource extraction. Calvert’s comments to the SEC were cited and quoted extensively in notes to the rules, especially with respect to the materiality of the required disclosures. Calvert Senior Sustainability Analyst Paul Bugala was named to the United States Extractive Industries Transparency Initiative (EITI) Advisory Committee by Interior Department Secretary Ken Salazar on December 21, reflecting Calvert’s leadership on this issue.
Curtailing Conflict Minerals to Help End Civil War in the Congo
Calvert continued to be a leader among investors in 2012 on “conflict minerals" through a coalition with companies including AMD, HP, GE and Ford and human rights advocacy groups led by the Enough Project and Global Witness (plus shareholder advocates As You Sow and other SRIs). The multi–stakeholder group has supported disclosure requirements to certify that certain minerals used in cell phones and other consumer electronic components (tin, titanium, tantalum and gold) are not illegally mined to fuel the continuing bloody conflict in the Democratic Republic of Congo (DRC). Such requirements were enacted as Section 1502 of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. The SEC voted on August 22 on the final rule regarding disclosure and reporting obligations to implement the requirements of Section 1502. Calvert helped to draft statements commenting on the rule, reflecting the consensus shared among our investor allies and other multi–stakeholder group allies that while the phase–in for reporting is unnecessarily long—especially given that the rule was only released two years after the enactment of the law—its other key provisions are sufficient to ensure the kind of information necessary for investors to assess due diligence efforts on the part of affected companies. Calvert also took the lead among investors in the multi–stakeholder group to forge a common statement urging implementation of the law along the lines outlined by the rule, regardless of the subsequent lawsuit filed by the U.S. Chamber of Commerce.
The UN Guiding Principles on Business and Human Rights, endorsed by the UN Human Rights Council in 2011, began to gain traction in 2012 with Calvert taking a leading role among investors on a global basis. We completed work in late 2012 together with the Institute for Human Rights and Business and the Interfaith Center on Corporate Responsibility on an Investor Guide to the Guiding Principles, to be launched on the web and at events in New York and London in early 2013.
As the only investor to speak at the UN Forum on Business and Human Rights in Geneva in December, Calvert SVP– Sustainability Research and Policy Bennett Freeman emphasized the utility of the guiding Principles as a risk assessment and due diligence framework for investors and highlighted examples of current issues on which investors have worked together with companies and NGOs to diminish human rights risk, citing conflict minerals in the DRC as well as standards for companies entering Burma and Internet companies facing issues related to freedom of expression and privacy around the world.
On Burma, Calvert played a key role among investors under the umbrella of the Conflict Risk Network in raising specific concerns with the White House and State Department over draft guidelines for company reporting on their human rights performance.
Calvert also maintained its leadership role on the Board of the Global Network Initiative (GNI), the multi–stakeholder initiative launched in 2008 that has brought together major internet and communications technology companies along with human rights NGOs, other SRIs and academic experts. Facebook became an observer, joining Microsoft, Google and Yahoo! the initial company signatories, within GNI in 2012 and a group of European telecom companies were poised to form a partnership with GNI in early 2013.
An African–American was reelected President, more women were elected to the U.S. Senate in 2012 than ever before and major strides were made toward LGBT equality in states across the country, yet few would argue that equality has been fully achieved in the U.S. Likewise while there has been continued progress on diversity in Corporate America (with crucial support from investors), the pace of change remains far too slow. While there were both important advances with 50 companies that Calvert has engaged to date publicly committing to create more diverse boards, the representation of women and minorities in the boardrooms and executive suites of the largest companies in the United States remains uneven. Calvert’s 2012 diversity report, Examining the Cracks in the Glass Ceiling, slated for release in early 2013, benchmarks the diversity performance of the S&P 100. As the New Year begins we draw inspiration from leading companies such as Coca–Cola Company, Pepsi Co., and American Express Corp, all of which continue to raise standards for inclusion in Corporate America because they recognize that diversity is a critical component of strong corporate governance and durable competitive advantage.
Calvert won commitments for improved disclosure from companies that will help us make more informed investment decisions and drive improved sustainability performance on the part of business. Our work to expand disclosure of environmental and social risks and improve the corporate management systems to address these risks included successful direct dialogue with companies like Hanesbrands, Williams Sonoma and many others. Calvert also played a leadership role in a multi–year effort (that concluded with the release of a final report in 2012) to push for greater disclosure in emerging market companies, an important initiative given the growing investment opportunities in these companies.
An important recent trend has accelerated toward oversight of companies’ key environmental and social risks by senior executives and boards of directors. When disasters strike, they shine a light on corporate accountability, and boards increasingly recognize that issues like human and labor rights, and water and energy scarcity, can have material financial impacts on a company’s bottom–line. Calvert believes it is critical for companies to “set the tone at the top" regarding sustainability risks, material business impacts, and disclosure. During the past year, four companies, including Comcast, Xerox, Jones Apparel Group, and Graftek International agreed to adopt formal measures of board oversight of sustainability.
During the 2012 proxy season Calvert also filed proposals addressing board diversity; sustainability disclosure; water and climate change–related risks; and bank loan servicing to lower income borrowers. We withdrew sixteen of the twenty–three proposals we filed after the companies agreed to take steps to address our key elements of concern. Our engagement with JM Smucker’s led to significant improvements by the company on climate risk related to coffee.
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