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June 13, 2007

Shareholders Push Social and Environmental Issues to the Forefront
    by Anne Moore Odell

Proxy season 2007 sees a huge number of social and environmental resolutions at US companies with the growing support of voters. -- With weeks still left in the US proxy season, the 2007 season is on track to set new record highs for the number of social and environmental resolutions in front of shareholders. As of the end of May, there were 359 social and environmental resolutions proposed, reports the Social Investment Forum (SIF), the national association for the social investment industry. SIF used data supplied from Institutional Shareholder Services (ISS).

Four themes dominate the socially responsible resolutions: the environment, political giving, executive compensation and sustainability reporting. Sustainability reporting has already seen a 100% increase with shareholders asking companies to increase their sustainability reporting with 40 resolutions already filed, as compared to only 20 similar resolutions in 2006. Shareholders are also concerned about how corporations are spending their money in the political arena and are demanding clearer disclosure of political contributions and trade association ties. Climate change leads environmental resolutions, with 79 companies already facing votes on this issue. Sixty resolutions on executive compensation have already been in front of shareholders.

"Investor support for proposals asking for better corporate performance and disclosure on social and environmental concerns has been rising fairly steadily over the past decade, and the first vote results available from the 2007 season are consistent with this trend," said Meg Voorhes, ISS Social Issues Services Director.

Shareholders want more oversight of corporate political giving, with this issue leading the social and environmental docket SIF reports. Forty-four resolutions on this issue were voted on last year. This year, there have already been 62 resolutions filed by shareholders. Most of the proposals ask companies to disclose the political contributions made with corporate funds. The proposals also ask companies to include in this disclosure, dues paid to trade associations that support political causes. Many companies belong to trade associations that reject climate change while the companies themselves proclaim they are working to mitigate climate change.

Companies seem to be responding to shareholder concern over political giving with 17 companies so far this year agreeing to political disclosure, compared to just two companies withdrawing over this issue four years ago. Investor are voting in greater numbers for the proposals that make it to vote. In 2004 and 2005, only 10% voted for these resolutions, growing to 20% support so far in 2007. The Center for Political Accountability reports that a political contribution proposal at Unisys received 51% support, the first time that this type of proposal has had majority support.

Echoing the concerns of people all over the world on the changing climate, shareholder at US companies are concerned if the companies they invest with are considering the risks climate change poses. Thirty-nine climate change proposals had been filed as of May 30. Climate change resolutions include a number of different tacks including asking companies to reduce their greenhouse gas emissions, report on their climate change strategies, and invest in renewable energy.

Ceres, a nonprofit coalition of investors and environmental groups that works to address sustainability issues, points to some of the major highlights on climate change resolutions this year. ExxonMobil saw a 31% vote on climate change issues this year, while its competitor CononoPhillips announced that it was joining the US Climate Action Partnership and is also funding a $22.5 million research program at Iowa State University that will help develop biofuel technologies. The vote at another energy provider, Allegheny, showed a 39% support of its climate resolution. Ceres also noted that Wells Fargo agreed, after its proxy statement had been printed, do a climate assessment in three key sectors of its lending portfolio and to share findings with the proponents.

Forty resolutions have been filed this year asking companies o create sustainability reports. Yet less than half of the proposals filed will be voted on, the SIF reports, as filers and companies have reached agreements. Many of the resolutions ask the company to use reporting standards created by the Global Reporting Initiative.

Another issue that bridges the environmental, sustainability and social are the proposals that ask companies to address the toxic chemicals found in their products or usedto make their products,

"The nearly 45% vote at Hasbro on a sustainability report, based on our concern about polyvinyl chloride, was the second highest vote ever recorded for a sustainability resolution opposed by management," said Dr. Richard A. Liroff, Executive Director, of the Investor Environmental Health Network (IEHN), a group of investment managers that work with their portfolio companies concerning the toxic chemicals in their products.

Liroff continued, "Equally noteworthy, however, are the votes that didn't occur because resolutions were withdrawn at companies that either made firm public commitments to act, like Apple on PVC and brominated flame retardants or were willing to begin conversations with filers on safer chemicals policies, like Sears on PVC, Mohawk Industries on PVC and PFOA, and CVS on cosmetics."

Liroff pointed to several companies that are working on developing best practices around toxic chemical reporting and sustainability. SC Johnson's Greenlist program works to systematically reduce the toxicity of chemicals in SC Johnson products and reports that thus far it has made progress towards its goal, and the progress is cost-neutral.

"Nike's 'Considered Chemistry' program, pat of its 'Considered Design' program, has also shown important progress," Liroff said. "Wal-Mart's "Preferred Substances Policy" offers great potential, but still hasn't produced the critically important "chemicals scorecard" to guide suppliers towards safer chemicals use," he added.

ISS reports that according to preliminary vote results over the 18 votes this year on executive compensation as of May 18, support for shareholder advisory votes has averaged 42.5%. Shareholders are also asking for changes in how executives are rewarded stock options and for advisory votes on supplemental retirement benefits executives receive if the company is sold. On May 9, shareholders of Blockbuster voted 57% in favor of the "say on pay" proposal filed by the New York City Employees' Retirement System.

"This is the first year that there has been a critical mass of resolutions on 'Say on Pay'" Timothy Smith, Senior Vice President of Walden Asset Management and SIF member told SocialFunds. "Last year there were just over 5votes. The response has been a significant show of support for this reform with 4 votes over 50 % and many in the 40% to50% range, with an average at present of 42%. We believe this indicates a range of investors, including those voting yes for the first time, believe this is an important and necessary change."

Social and environmental resolutions are important vehicles for concerned investors to let companies know what shareholders think is important. As support grows for social and environmental issue, companies and their boards are seeing that the environmental and social issues are not the domain of special interest groups, but rather, important to many investors and, finally, to their company's financial performance.

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