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July 14, 2012

ICCR and the Business Case for Sustainability
    by Robert Kropp

For the first time, members of the Interfaith Center on Corporate Responsibility engage in corporate dialogues more often than submit shareowner resolutions, reflecting the growing awareness of the business case for corporate sustainability measures. Second of a two-part series. -- Launched more than 40 years ago, the Interfaith Center on Corporate Responsibility (ICCR) was a pioneer of modern shareowner activism. Its members were instrumental in the divestment campaign that helped end apartheid in South Africa, and the shareowner resolutions they have filed over the years, calling for corporate attention to environmental, social, and corporate governance (ESG) issues, number in the thousands.

So what is one to make of the fact that for the first time, the corporate dialogues engaged in by ICCR members outnumber the shareowner resolutions filed? Thus far during this proxy season, ICCR members have engaged in 170 dialogues and filed 160 resolutions.

According to Executive Director Laura Berry, the trend can be attributed primarily to two factors: increasing support from mainstream investors for resolutions addressing ESG issues, and more widespread corporate recognition of the business case for sustainability.

"The number of mainstream investors that are voting with activist shareholders like ICCR has been going up in orders of magnitude," Berry told "It used to be we'd get excited if we got three or five percent of the vote. Now we really expect to get 30 or 40 or 50 percent."

"When you start to see such big numbers around issues such as political accountability and executive compensation, it means that this is making sense to a much larger audience," she continued.

A look at this year's shareowner resolution tracker from Ceres makes an emphatic case that increasing numbers of mainstream investors are supporting resolutions addressing sustainability. According to Ceres, resolutions addressing environmental and social issues are consistently gaining more than 30%, and often more than 40%, of shareowner support.

Also, almost half of the resolutions coordinated by Ceres—many of which were co-filed by ICCR members—were withdrawn following successful engagement. Clearly, more companies are seeking to avoid the negative publicity that can accompany high shareowner votes. Companies also recognize that most if not all resolutions addressing ESG issues are attracting far more than enough support to exceed the minimum vote required by the Securities and Exchange Commission (ESG) for re-filing next year.

"How do you take 650 resolutions without much dialogue, and distill them down to 150 with much richer dialogue and get ten times as may mainstream investors voting with you?" Berry asked. Even if companies want to avoid the negative publicity associated with high shareowner votes, the number of withdrawn resolutions documented by Ceres, as well as the dialogues engaged in by ICCR members, suggest that many are now recognizing a business case for sustainability.

"The business case for sustainability has become more specific," Berry said. "It's become more useful for companies, and they're starting to get the point. It no longer requires a belief system, because it's become meaningful for companies' business practices. And ultimately, all of our work is about changing how companies do business."

As an example, Berry cited recent findings by the Hudson Institute, a conservative think tank. Surveying the food and beverage sector, the Institute's Hank Cardello concluded that consumer packaged goods (CPG) corporations with above-average sales of better-for-you (BFY) products had larger sales increases over a five-year period, and offer superior investment opportunities.

"Companies can make money while selling healthier products," Cardello wrote. "Shareholders have reason to nudge companies they invest in to pay more attention to selling more BFY items as this may lead to higher returns on their investment."

ICCR members have been engaging with food and beverage companies on issues of health and childhood obesity for years. Berry said of the Institute's recommendations, "Not only is it the right thing to do, there is a profound business case for doing it as well. If you look through this lens you start to discover business practices that actually give you an advantage in the marketplace."

Given ICCR's long experience in shareowner action, then, it is not surprising that the organization's members are taking a leading role in corporate dialogues that have become increasingly effective.

"In the corporate engagement and advocacy arena, longstanding engaged shareholders like ICCR members, who know how to run a corporate dialogue and have a profound sense of what the issues are and what the steps to get there are, are now acting as curators," Berry said. "We're translating resolutions into business cases, justice cases, and sustainability cases, and developing the language for those conversations in important ways."

She continued, "We're playing a bridge-building role, because we're coming to this from the perspective of moving companies toward a better way of doing business. We're in boardrooms because we believe companies have the power to make the changes to build a more just and sustainable world."

That the business case has gained widespread acceptance from mainstream investors and corporations is all the more remarkable when one realizes that the transition has occurred in the absence of legislative or much regulatory action. Using the guidance on climate risk disclosure issued in 2010 by the SEC as an example, Rob Berridge of Ceres suggested to, "The work investors did prior to that got companies to recognize climate change as a risk, which made it easier for the SEC to issue its regulatory statement."

Nevertheless, much remains to be done on the regulatory front in order to embed climate change mitigation and other sustainability concerns into the nation's economy. As Berry observed, "Corporations cannot do this by themselves, and corporations are still very much biased toward profits. You contain that bias in a civil society by creating and enforcing rules."

'"What suffers in the ideological divide in politics right now is the ability to regulate and enforce," she said. "If you have regulations like Dodd-Frank that are trying to become real functioning parts of the system, but you have no money to enforce them—like the ridiculous underfunding of the SEC, for example—that's a huge problem."

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