By Carly Greenberg and Heidi Soumerai
From the Summer 2015 Edition of Values
Investor collaborations can bring greater influence to shareholder advocacy on environmental, social, and governance (ESG) performance and practices. While Walden has a well-established record of success in one-to-one company engagement, sometimes management is more likely to take notice when institutional investors join together.
Walden has been pleased to collaborate in coalitions with state and city pension funds, faith-based investors, union retirement funds, foundations, and like-minded investment firms and mutual funds, often representing $U.S. trillions in assets under management. Broad-based investor coalitions bring not only the benefit of large collective ownership to a dialogue with a company, but also the enhanced public visibility and media attention that comes with the involvement of major investors. We also appreciate how smaller, strategic collaborations can foster positive corporate change.
Benefits of these partnerships go beyond the monetary stake they represent as stockholders. Leadership and participation in investor groups extends Walden’s engagement reach through simple division of labor—we can address more issues with more companies in a more efficient manner. Collaboration also allows us to tackle ESG issues in a systemic way, by addressing through partners the companies that are not held in Walden client portfolios. For example, the Thirty Percent Coalition, where Walden serves as co-chair of the Institutional Investor Committee along with CalSTRS (California State Teachers Retirement System), contacted the approximately 160 companies in the Russell 1000® and S&P 500® indexes that lack women directors to encourage concrete steps to improve board diversity. Collaboration also provides an opportunity to share information and expertise that helps define, and continually refine, best corporate practices and shareholder engagement strategies.
For several years, Walden and AFSCME Employees Pension Plan have jointly coordinated a comprehensive investor initiative to improve disclosure of corporate lobbying policies, practices, and oversight among large U.S. companies. Enhanced accountability helps investors assess the consistency of corporate policies with their public policy advocacy to determine if lobbying activities are in the long-term best interests of shareholders or a source of potential business and reputational risk. In 2015 alone, 65 institutional and individual investors filed shareholder resolutions at more than 50 companies seeking disclosure of federal and state lobbying activities, payments to trade associations used for lobbying, and funds supporting tax-exempt organizations that write and endorse model legislation. Shareholder support for these proposals has grown steadily, averaging 26 percent in 2014. This campaign is having a positive impact; according to AFSCME, more than 35 companies have improved lobbying disclosure.
Since 2010, Walden has co-led an investor collaboration with Pax World with the objective of improving overall ESG transparency at smaller-sized companies where sustainability reporting is much less prevalent but no less important. Comprehensive ESG reporting enables investors to assess more fully the long-term risks and opportunities at companies. In 2014 and continuing into this year, 13 investment organizations representing $43 billion in assets under management are encouraging 33 companies to begin or improve sustainability reporting. Walden is leading company engagements at eight companies. Thus far, Darling Ingredients agreed to produce an inaugural report. Walden expects to encourage more robust ESG reporting over time. Other investors in the group have also seen significant progress at several companies.
Walden and Calvert Investments joined forces last fall to begin conversations with 21 large companies whose climate-related goals are set to expire in 2015. We are encouraging them to base their new goals in climate science, specifically consider climate impacts in their entire value chain, evaluate the role of renewable energy, and assess potential public policy avenues to help meet their new targets. Discussions are underway with nearly half of the companies and many are incorporating climate science in the development of their next generation goals. Nestlé has indicated its intention to power all of its operations with renewable energy. Bank of America, Citigroup, Nestlé, and PepsiCo are all developing (or have developed) goals and targets incorporating their value chain. While companies acknowledge the importance of aligning public policy with their climate-related goals, political polarization at the federal level has created a challenging environment. Yet companies such as Bank of America have supported climate-related efforts in California, while others are joining various business coalitions that are publicly articulating the business imperative for action on climate change and proactively engaging legislators.
Proxy Season Summary
Walden led or co-led 23 shareholder resolutions at company annual meetings of shareholders on a variety of ESG topics in 2015, and co-filed ten others led by other investors (see Walden’s 2015 Shareholder Resolutions). We are pleased that nearly half of the 23 were withdrawn, almost all based on our reaching meaningful agreements with the companies. Most that have been voted to date received strong shareholder support (as high as 46 percent at Commercial Metals), which should bolster ongoing dialogues.
Advancing LGBT Rights
We are pleased to report that all of Walden’s resolutions in 2015 on equal employment opportunity (EEO) for Lesbian, Gay, Bisexual, and Transgender (LGBT) individuals were withdrawn as the companies agreed to adopt or publish more inclusive policies. Our client, Pride Foundation, experienced similar success with its company engagements. Walden led 4 and co-filed 1 resolution to strengthen EEO policies, while Pride led 9 and co-filed 1 resolution. Combined with progress achieved through dialogue outside of the proxy resolution process, Walden and Pride Foundation reached agreements with 20 companies during the 2014-2015 engagement seasons. Currently 96 percent of the holdings of a representative Walden core equity portfolio include sexual orientation in their non-discrimination policies and 78 percent include gender identity or expression (excluding firms headquartered outside of the U.S.). We are honored to collaborate with Pride and, together, to achieve significant progress toward greater equality in the workplace.