Calvert  News & Commentary

Strong votes on Calvert Shareholder Resolutions Demonstrate Growing Investor Focus on Corporate Sustainability

Calvert Investments shares vote results from four recent annual meetings

6/3/2013

As the corporate annual general meeting season heats up, four Calvert sponsored shareholder proposals have gone to a vote in recent weeks demonstrating the value Calvert places on active ownership with the objective of improving corporate sustainability and financial performance. Our engagement takes many forms, but among the most direct and impactful ways to seek improvement on environmental, social, and governance issues is to take an issue directly to the Board of Directors, Senior Management and fellow shareholders by filing a shareholder resolution.

Calvert filed 22 such proposals during the 2013 proxy season on a broad set of issues including board diversity, climate change, governance of sustainability, and animal welfare. Many of these proposals were withdrawn when Calvert and the company in question reached agreement on how to move forward. Here are the results on four proposals that went to a vote in April and May:

Cleco Corporation – Sustainability Report

Issue:

As a diversified energy services company, Cleco Corporation operates in a sensitive and vitally important sector and faces a range of environmental and social risks to its business. Yet the company discloses very little about its approach to these challenges. For example, water scarcity poses significant business risks and climate change is expected to exacerbate such risks. Given that thermoelectric power generation is responsible for approximately 40 percent of water withdrawals in the U.S., much of the company’s business model is inextricably linked to this dwindling resource. Water scarcity is already having a material impact on thermal power generators and can influence business decisions, yet Cleco currently provides no meaningful information on its water use and water–related risks.

Shareholder Resolution:

On April 26 shareholders voted on Calvert’s proposal that Cleco issue a sustainability report that includes a discussion of the company’s sustainability risks and opportunities, including an analysis of material water–related risks.

Result:

Our proposal received more than 45% support from shareholders, which is a very high vote and represents an increase of 11% support from the same proposal in 2012. This sends a strong message to the board and senior management that nearly half of their shareholders believe it is important for the company to report on its approach and management of sustainability risks and opportunities. Calvert will be sure that the company understands this message.

Health Management Associates – Sustainability Report

Issue:

As a hospital company, Health Management Associates faces significant health and safety issues as well as environmental issues. The process of reporting helps companies better understand their sustainability risks and opportunities and then take steps to address and/or rectify areas of weakness and build upon areas of strength. For example, the quality of hospital patient safety and care can affect not only the company’s reputation but is also impacted by worker quality and safety. Hospitals are large producers of waste, much of which can be considered hazardous. Since medical and environmental waste can pose business risks if not addressed or disposed of properly, compliance issues or fines can result along with health hazards to the local community. In addition, hospitals use a great deal of energy, in fact, costing the sector as a whole about $6.5 billion per year. By contrast, the most efficient hospitals in Northern Europe use only about 35% of the energy of the average U.S. hospital. Yet Health Management Associates provides very little information on its approach to these operational and sustainability challenges and stakeholders could benefit from increased disclosure.

Shareholder Resolution:

Calvert presented its shareholder proposal asking for a sustainability report at the company’s annual meeting on May 21.

Result:

Our proposal earned more than 31% of the vote, sending a message that a significant portion of investors care about this issue and want to see progress on, and disclosure of, the company’s sustainability risks and opportunities. We will continue to engage with the company to make sure that senior management understands the importance of moving forward.

Fossil Inc. – Water and Climate Risks

Issue:

The steady increase in population and water demand, coupled with the effects of worsening water quality and climate change, makes fresh water scarcity a global problem. Apparel companies that rely on cotton, leather, and other agricultural inputs are among the companies that face the most significant risk related to water. Indeed some apparel companies’ earnings have already been affected by drought, which has driven increases in prices for the commodities in their supply chain. Water shortages can cause production shortfalls, price volatility, higher energy costs, and regulatory action, all while increasing competition for this scarce resource.

Shareholder Resolution:

At the Fossil Inc. annual meeting on May 22, Calvert presented its shareholder proposal asking the company to describe its approach for managing water risks in its supply chain.

Result:

At the 2012 meeting our proposal on the same subject earned 31% support. In 2013 support dipped to 29%. However, this level of support continues to demonstrate that a significant group of Fossil investors want the company to take steps to address these risks. Calvert will stay vocal in an effort to convince Fossil to take action before water risks translate into costly business impacts.

Pioneer Natural Resources – Hydraulic Fracturing

Issue:

Dramatic improvement in unconventional oil and gas exploration and production techniques and technologies has created significant opportunities for Pioneer and its peers. However, these opportunities are accompanied by new operational and regulatory risks. The risks include accidents or spills that could harm the environment, pollute drinking water, and undermine the company’s relationships with the communities where it conducts business. Furthermore, increased scrutiny or tighter rules from regulators could slow development of the company’s assets, with potential negative results for the company’s financial performance.

Shareholder Resolution:

At the Pioneer annual meeting on May 23, Calvert presented its shareholder proposal asking the company to describe how it manages the environmental and social challenges and opportunities associated with onshore unconventional oil and gas development that involves hydraulic fracturing.

Result:

Our proposal earned more than 41% of the vote, a very strong response to an environmental proposal. Calvert’s engagement with Pioneer is ongoing and we anticipate that the company will take action in response to the proposal in the company year.

Calvert Investment Management, Inc., 4550 Montgomery Avenue, Suite 1000N, Bethesda, MD 20814



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