April 28, 2009
PepsiCo Agrees to Policy Respecting Human Right to Water
by Robert Kropp
Shareowner advocates led by NorthStar Asset Management succeed in engagement with PepsiCo on
resolution calling for adoption of water management policy.
Current global water management practices are not sustainable, according to the CEO Water
Mandate, a public-private initiative launched in 2007 by the UN Global Compact . Companies, especially those whose
water usage is considerable, have a responsibility to make water resource management a priority.
Yet the CEO Water Mandate is "voluntary
and aspirational," and falls short of mandating that its signatory companies adopt specific
policies and procedures addressing water management resources that endorse the United Nations'
policy on the Human Right to Water. In 2002, the United Nations defined the Human Right to Water as
"all people's right to safe, sufficient, acceptable, physically accessible and affordable water for
personal and domestic use."
Julie Goodridge, founder of NorthStar Asset Management, a Boston-based investment
management firm, told SocialFunds.com, "If you read the CEO Water Mandate, it doesnít directly
address community impact." So when NorthStar found itself with shares of PepsiCo in its portfolio,
a staff member urged Goodridge to submit a shareowner proposal directing PepsiCo to create a policy
articulating its commitment to the Human Right to Water.
In 2003, PepsiCo's water-use
license was revoked in Pudussery, India, because of claims that its bottling plants there were
over-consuming and depleting community groundwater, which is a direct violation of the Human Right
to Water. Goodridge said, "The community of Pudussery found that their well was dry, and had to
raise a big stink before the local government addressed it. PepsiCo came in with a lot of
scientists to try to prove that it was not responsible for the groundwater depletion."
shareowner resolution, crafted with the help of water justice experts at the Unitarian Universalist Service Committee (UUSC), an international
human rights organization, was submitted for the 2008 proxy season. PepsiCo challenged the
resolution at the US Security and Exchange Commission (SEC), claiming that the proposal was vague
and ambiguous, and contained charges of illegal or immoral conduct without proof.
disallowed PepsiCo's challenge to the resolution, and the resolution went on to gain 7% of
shareowners' votes, easily exceeding the threshold of 3% that is required by the SEC for a
shareowner proposal to be re-submitted for a second year.
Goodridge said, "When we
prepared to submit the proposal for the 2009 proxy season, Lauren Compere at Boston Common got in
touch with us, and they co-filed the resolution." Compere is the Director of Shareholder Advocacy
at Boston Common Asset Management.
Goodridge continued, "We've had success with shareholder resolutions dealing with human
rights in the workplace, but I always thought of them as black-and-white issues, as no-brainers.
The issue of water rights is much more complex."
"We're a money management firm, not water
activists," said Goodridge. "It's hard for an office with four people managing portfolios to take
on corporate giants. Lauren has had much more experience with this kind of action than we have."
The PepsiCo resolution was re-filed in November, 2008. In December, PepsiCo contacted
NorthStar and asked for an example of the kind of policy the investment firm would like to see it
"I had to craft a water policy document for a major corporation," Goodridge said.
"I sat down and in fifteen minutes wrote a policy. PepsiCo got back to me and said that they
thought this was something they could work with."
Negotiations continued through the
winter. According to Goodridge, her original statements were much stronger than the language
eventually agreed upon, but did achieve a starting point. In March, NorthStar announced that
PepsiCo had agreed to adopt an official policy in support of the human right to water. PepsiCo is
the first publicly traded, multinational corporation to create such a policy.
Guidelines in Support of the Human Right to Water, PepsiCo agreed to steps to ensure that its
global business engagement respects that right. The company agreed to ensure that its activities
preserve the quality of the water resources in the communities in which it operates, do not
diminish the availability of community water resources, and do not adversely impact accessibility
of community members to water resources.
PepsiCo also agreed to involve communities in its
plans to develop water resources, and to advocate that safe water supplies should be available to
members of the community.
"This is our first attempt at a resolution this complex, and it
is a huge victory," said Goodridge. "The PepsiCo agreement goes way beyond the CEO Water Mandate,
and puts a policy into place that requires engagement with the community."
the give-and-take of the negotiations, Goodridge continued, "I really hate to be middle of the
road, because I consider myself to be a radical. But this is step one in a process. If we find that
PepsiCo hasnít lived up to its promises, we will re-file the resolution next year."
PepsiCo is not the only major corporation targeted by NorthStar in its shareowner advocacy
campaign this year. The firm also filed a resolution with Intel, whose challenge on the grounds
that the proposal was duplicative of the company's existing policies was disallowed by the SEC.
Intel reported that it used 7.5 billion gallons of water in 2007. And while the company is
recognized as a leader in water reclamation programs, it operates in countries that enforce the
Human Right to Water. Therefore, it is likely that Intel's water usage and respect for local
communities will remain under scrutiny.
Arguing that "Global corporations operating
without strong human rights and environmental policies face serious risks to their reputation and
share value," the resolution requests that Intel create a policy articulating its commitment to the
Human Right to Water.
"Intel challenged our resolution in a big way," said Goodridge. "But
if we can get the resolution passed, it would be an enormous step."
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