By Heidi Soumerai, CFA
From the Winter 2013 Edition of Values
The Intergovernmental Panel on Climate Change (IPCC) recently released its Fifth Assessment Report that focuses on the physical science behind the earth’s warming. There is no ambiguity in the report’s conclusion: Global warming is virtually irrefutable and human activity is “extremely likely” to be the main culprit.
Climate Change, Lobbying, and the Environment
Walden has a strong commitment to comprehensive engagement on climate change risk (see Catalyzing a Climate of Change). In addition to our primary focus on encouraging science-based greenhouse gas reduction goals, Walden is making good progress on climate related initiatives. United Natural Foods completed a water risk assessment in its Albert’s Organicsdivision using location-specific water risk tools such as Aqueduct by the World Resources Institute and Water Risk Filter by the World Wildlife Fund. Management reported that water analysis tools could help the company evaluate existing and prospective supplier relationships. The spice-maker McCormick published its first sustainability report after having received significant input from Walden and Calvert Investments. It included goals for reductions in electricity and water use, greenhouse gas emissions, and container packaging weight.
Encouraged by Loring Wolcott & Coolidge and Walden, Microsoft amended its Oversight and Transparency of Trade Association Contributions policy and committed to an annual review of trade association memberships. Despite its membership in the Communication and Technology Task Force of ALEC (American Legislative Exchange Council), an organization working to thwart state renewable energy initiatives, Microsoft stated publicly: “ALEC is not speaking for us on renewable energy policy.” Moreover, Microsoft will lobby for renewable energy in U.S. states where it has operations. This initiative is part of Walden’s larger strategy to challenge companies to review and assess their support for organizations attempting to influence public policy, like ALEC, that could undermine their own climate change objectives and long-term interests.
As a member of Ceres’ Investor Network on Climate Risk (INCR), Walden joined investors representing $3 trillion in assets who asked 45 of the world’s major fossil fuel and electric power companies to assess their exposure to carbon asset risk—risk related to achieving climate polices consistent with IPCC targets as well as those associated with the physical impacts of climate change. Also with INCR, Walden signed a letter to President Obama supporting the Environmental Protection Agency’s (EPA) proposed carbon pollution standards for new power plants and encouraging strong guidelines for existing sources. In November, we expressed support for robust pollution standards for existing power plants to the EPA directly through testimony at the Agency’s “listening tour” in Boston. Such regulation is critical in that fossil fuel–fired electric power plants are the single largest source of CO2 in the United States, representing approximately one-third of greenhouse gas emissions. Reduced reliance on coal-fired power plants would also have a beneficial impact on the nation’s public health.
For client portfolios that include fixed income assets, Walden is expanding efforts to identify attractively valued bonds that finance projects with social and environmental benefits. Examples include the first green bond of the Export-Import Bank of Korea, which funds clean energy (wind, hydroelectric, and solar), energy efficient products and appliances, and toxic waste minimization through water treatment and other means. A North American Development Bank bond purchase finances environmental infrastructure projects for potable water and wastewater treatment in the U.S. –Mexico border region. Walden also participated in a landmark Massachusetts Green Bonds issue that emphasizes energy efficiency and conservation, improved water quality, habitat restoration, and pollution remediation. Most recently, we selected International Finance Corporation Green Bonds (IFC is a World Bank Group member that finances private investment) that fund renewable energy, energy efficiency, and related projects such as sustainable forestry and carbon capture and storage in developing countries. As we invest, Walden is encouraging greater transparency about the impacts of the projects funded.
Engagement with portfolio companies that do not have women on their boards of directors continues to be a priority of Walden. In particular we work to leverage our partnership with the Thirty Percent Coalition—a network of women’s organizations, governance experts, investors, and others who have joined forces to press companies to increase representation of women on their corporate boards. To encourage progress, we seek: adoption of corporate governance policies and nominating charters that include gender and race explicitly among the factors considered in director selection; a public commitment to a diverse candidate pool; and a description of implementation plans (e.g., mandates to director search firms or recruitment from less traditional venues).
Of eleven companies with whom Walden has communicated over the last year, we are pleased to report that five have added women directors: American Science and Engineering, NetApp, ResMed, Riverbed Technologies, and Sapient. Additionally, a candid conversation with City National assured us that the bank is taking meaningful steps to identify women candidates.
Social and Economic Justice
Amidst emerging bipartisan support for immigration reform over the summer, Walden co-led an investor statement calling for the U.S. Congress to take immediate action on commonsense immigration reform that includes a pathway to citizenship for undocumented residents. Described as an economic and human rights imperative, the statement attracted more than 70 institutional investors representing nearly $900 billion in assets, including prominent state and municipal pension funds and fiduciaries, unions, and faith-based investors. While comprehensive legislation did pass in the Senate, the prospect of immigration reform has dimmed due to obstruction in the House.
In September, a controversial component of the Dodd-Frank financial reforms overcame fierce opposition from the U.S. Chamber of Commerce and others when the U.S. Securities and Exchange Commission (SEC) released proposed rules mandating disclosure of CEO pay relative to that of median employees. Such disclosure helps investors better evaluate compensation and, from a societal perspective, contributes to our understanding of the corporate role in growing income inequality—a challenge to economic growth and a more widely shared prosperity. Walden wrote to the SEC in support of this new rule.