Investor Perspective Critical in Addressing Pressing Business Risks
July 10, 2012—On issues ranging from political spending to controversial gas drilling to risky coal ash management, investors play a vital role in pressing companies to increase disclosure and minimize financial and environmental risks.
In this election year, particular attention has been paid to the role of companies in influencing regulations and elections. Green Century Capital Management (Green Century), the investment advisor to the environmentally responsible Green Century Funds, and Trillium Asset Management (Trillium) broke new ground by challenging companies to refrain entirely from political spending. Green Century filed the proposal at Target Corporation* (Target) and Trillium filed it at Bank of America* and 3M*.
The Supreme Court’s January 2010 Citizens United decision reversed the long standing prohibition on the unlimited use of corporate treasury funds for political purposes. Investors are increasingly concerned that such funds, which can be funneled to SuperPACS, trade associations and other organizations for political use, often without proper oversight or board and shareholder knowledge, could create a risk to shareholder value.
In 2010, Target made a $150,000 contribution to MN Forward, a group supporting a gubernatorial candidate in Minnesota whose stance on LGBT rights was contradictory to Target’s corporate policies. Following the donation, the company experienced boycotts, public backlash and degradation of employee morale.
“Target has experienced firsthand the impact that controversial contributions can have on the company’s reputation and employee morale, demonstrating that such spending can result in business risk,” said Larisa Ruoff, Director of Shareholder Advocacy for Green Century. “As a result, we believe the only way to eliminate such a risk entirely is to refrain from making political contributions,” she continued. The proposal received nearly double the level of support necessary to refile it again next season.**
In addition to this effort, Green Century also filed proposals challenging companies to increase transparency and accountability around their political contributions and lobbying expenditures. “Shareholders have the right and responsibility to understand how company resources are being spent in efforts to influence both elections and public policy,” said Ruoff.
Also this proxy season, Green Century continues to coordinate efforts by multiple shareholder organizations to encourage energy companies to increase disclosures and reduce impacts on communities and the environment from shale gas operations dependant on hydraulic fracturing (“fracking”). This season, investors filed 10 shareholder proposals and withdrew 70 percent of them after companies agreed to improve disclosure. The proposal went to a vote at ExxonMobil*, Chevron* and Ultra Petroleum* and received an average of 30% of the vote.**
“We are starting to see some companies become more transparent in how they are managing the risks associated with fracking, but ExxonMobil, Chevron and Ultra Petroleum are industry laggards when it comes to disclosure,” said Richard Liroff, Executive Director of the Investor Environmental Health Network, which co-leads the investor effort on this issue. “It is time for these major oil and gas companies to take a hard look at how they are going to manage the inherent financial and environmental risks of their fracking practices.”
This season, Green Century continued its work to press First Energy Corporation* (FirstEnergy) and Southern Company* (Southern) to reduce the environmental and health hazards of coal ash stored in ponds, landfills and mines. This year, the proposals continued to receive strong support with the proposal receiving nearly 30% of the vote at First Energy and 26% at Southern.** “Unlike electoral campaigns which require a majority vote, shareholder proposals require a much smaller threshold to make an impact. When over one in four shares are voted in support of an environmental resolution, this sends a very clear message to the company that a meaningful portion of its owners are demanding action on this issue,” Ruoff continued.
“Each year, more investors ask corporations to look beyond simple short-term profits to sustainable, long-term performance. You can see the consensus building in this year’s shareholder resolutions,” said Mindy S. Lubber, president of Ceres, which helped coordinate the shareholder filings on fracking and coal ash.
Green Century Capital Management is an investment advisory firm focused on environmentally responsible investing. Founded by a partnership of non-profit environmental advocacy organizations in 1991, Green Century's mission is to provide people who care about a clean, healthy planet the opportunity to use the clout of their investment dollars to encourage environmentally responsible corporate behavior. Green Century believes that shareholder advocacy is a critical component of responsible investing and actively advocates for greater corporate environmental accountability.
*As of March 31, 2012, the Green Century Balanced Fund and the Green Century Equity Fund did not hold Bank of America, ExxonMobil, Chevron Corp., Ultra Petroleum, FirstEnergy Corporation or Southern Company. As of the same date, Target Corp. comprised 0.00% of the Green Century Balanced Fund and 0.63% of the Green Century Equity Fund; and 3M comprised 0.00% of the Green Century Balanced Fund and 1.01% of the Green Century Equity Fund. Green Century Capital Management, Inc., the investment advisor to the Green Century mutual funds, owns shares of stock in ExxonMobil, Chevron, FirstEnergy Corporation and Southern Company. Green Century engages with companies, including those that do not meet the environmental criteria of the Green Century Funds, to improve the companies’ environmental performance and help foster a sustainable economy. Please refer to the Green Century Funds website for current information regarding the Funds' portfolio holdings. These holdings are subject to risk as described in the Funds' prospectus. References to specific investments should not be construed as a recommendation of the securities by the Funds, their administrator, or their distributor.
** The percentage in favor was calculated by (i) dividing the number of votes in support of the proposal by (ii) the sum of the number of votes voted in support of and against the proposal. Abstentions and broker non-votes were not included in the calculation.
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