The Economist, a sober British weekly, summed up the events in the United States as follows: “The political dysfunctionality of America has been on display as never before, to the nation’s shame. And it can still do plenty of harm to a very sick economy.”

It’s easy, under these circumstances, to join the “doom and gloom” chorus. I obviously don’t know what other disasters will come down between the time I finish this column and the time it is published, but I thought it might be useful to look for some silver linings or unexpected developments. So here goes.

Did you see where Ralph Nader has taken up shareholder activism again? Few people remember Nader’s early and influential shareholder campaigns at General Motors in the early 1970s. He is, of course, best known for his role as a consumer advocate and as a presidential also-ran who siphoned off enough Democratic voters in 2000 to enable George W. Bush’s election. Now Nader has a new target: Cisco Systems.

In an interview with the Wall Street Journal, Nader disclosed that he owns 18,000 shares of Cisco, now worth about $288,000. Nader is a longtime Cisco shareholder. When he was running for President a decade ago, his stake was worth $1 million – and Ralph doesn’t appreciate this performance. In June he shot off a letter to Cisco’s longtime CEO, declaring that it is time for him to do something for the long suffering shareholders. He suggested a special dividend of $1 a share and an increase in the regular dividend from 24 cents a year to 50 cents. “If they can’t give shareholders value, they have to give cash,” said Nader.

Ralph Nader becoming a crusader for shareholders – who would have thunk it? Nader was, of course, one of the first to use the proxy statement to advance social issues – he mounted a campaign against General Motors in 1970 – but this marks the first time he has gone to bat for shareholders who have seen their stock languish for more than a decade.  He may have opened up a new career path for himself.

One of my favorite companies is the Seattle-based specialty department store chain, Nordstrom, one of only four companies that have graced every list Robert Levering and I have done since 1984 identifying the “100 Best Companies to Work For” in America. Nordstrom has stores all over the country but it has never found a way into New York City – until now. In August it opened a store in Soho called Treasure & Bond. It’s less than one-tenth the size of a regular Nordstrom and it has a different mix of merchandise – housewares and rugs, for example. The idea is to give the company some experience in the New York market. A Nordstrom store will follow later on.

But here’s the interesting feature of Treasure & Bond: all the profits will go to children’s charities.

I always look forward to the weekend edition of the Financial Times, where the third page of the second section is devoted to an interview over lunch with someone prominent from academia, the arts, politics or business. In August, staff writer Peter Aspden took Diego Dalla Valle to lunch at the celebrated Milanese restaurant, Il Bareto al Baglioni. Dalla Valle runs the luxury goods company, Tod’s, founded by his family in the early years of the twentieth century.

For lunch they both had my favorite Italian dish, veal Milanese washed down with a Montalcino red. They rarely prepare it anymore in Italian restaurants in America. Because of its shape, it’s sometimes called “elephant’s ear.”

Tod’s recently pledged Â20 million to support the restoration of the Roman Colosseum, the most visited tourist destination in Italy. Work starts in September and will take two to three years. When completed, it will look just the way it did centuries ago. Della Valle explained this investment as follows: “We have an obligation to do things for our country. To create a sense of solidarity. Our country is made by proud Italians.”

In the United States corporations put their names on ball parks. Dalla Valle promises that Tod’s will not commercialize its restoration of the Colosseum. We can all subscribe to his idea of what a corporation should be about.

The DOJ upended the story of inevitability that AT&T was asserting about its $39 billion purchase of T-Mobile, arguing that AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market, and would:

Result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services. Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers.

The deal would have been particularly bad for minorities. The National Hispanic Media Coalition reports:

Latinos pay the highest rates on AT&T, averaging bills of $120 per month, and the lowest on T-Mobile, averaging $102. Thus, it should be no surprise that approximately 21–25 percent of T-Mobile’s 34 million customers are Latino, compared to 12 percent of AT&T’s customers. If this acquisition were approved, T-Mobile customers would have fewer choices for pricing plans and devices and would be subject to AT&T’s documented history of poor customer service.

The DOJ action is a strong rebuke to the corrosive influence of mammoth lobbying budgets. AT&T had pulled out all the stops in its lobbying efforts, and it is no small victory of the rule of law over political spending that this tactic appears to have failed. Bloomberg reported that the company boosted its spending on lobbying by 30 percent to $11.7 million in the first six months of 2011 (from the same period last year) as it sought regulators’ blessing for the merger. Its political action committee, which distributes money raised from employees, gave over $800,000 to federal candidates in 2011, more than any other company, according to the Center for Responsive Politics.

By many indications, despite AT&T’s pledge to fight the DOJ to the bitter end or try and negotiate a settlement, the proposed mergers seems on the path to failure. The highly respected telecom analyst Craig Moffett of Bernstein Research concluded in the wake of the DOJ’s announcement that the deal “can be considered all but definitely dead.”

But even if the deal is dead, a problem of great concern remains – the movement of the US wireless internet access market toward a duopoly in which AT&T and Verizon act as gatekeepers to the Internet with the power to exercise discriminatory pricing. Without net neutrality, AT&T and Verizon would have powerful economic incentives to promote the content of their “partners” – big content producers, like Disney, NBC and NewsCorp, from whom they can charge higher prices, while offering slower, inferior service to small, independent or politically controversial voices that are unwilling or unable to “pay to play”.

In support of net neutrality, the California chapter of the National Organization for Women stated, “The Internet is one of the few ways left for ordinary people to make their views heard in a national forum. Organizations, coalitions and individuals from underserved and underrepresented groups can use the web to get their issues and voices heard. If content from large corporations gets priority, what happens to these voices?” The Internet is has become the public square of the 21st century and it must be protected as a resource for all of us.

This is why we will continue to press AT&T and Verizon through shareholder proposals to make meaningful and specific commitments to respect net neutrality – the principle that they cannot privilege, degrade or prioritize information transmitted over its wireless infrastructure based on its source, ownership or destination.

As the lawsuit and potential settlement negotiations proceed this fall and winter, we will be making our case to AT&T and Verizon shareholders that for the good of our society, our economy, and yes, the individual companies, that they should adopt and abide by strong net neutrality principles.

—
Sources: U.S. Department of Justice Press Release, August 31, 2011 (www.justice.gov); National Hispanic Media Coalition (www.nhmc.org); Financial Times, September 1, 2011; OpenSecrets blog, August 31, 2011 (www.opensecrets.org); California National Organization for Women statement, November 23, 2010 (www.canow.org).

The text for these resolutions can be found here.

* Meeting will take place this autumn

I was 18 when two atom bombs were dropped on Japan, and I remember feeling relieved because it meant that we probably would not need to sacrifice thousands of soldiers’ lives in a frontal invasion of the Japanese mainland. There were few dissenters to this action, which did accomplish its mission. Seeing the destruction wrought in Hiroshima and Nagasaki, the Japanese government surrendered, ending World War II.

It’s eerie that 66 years later nuclear energy is again causing havoc in Japan, although this time it was self-imposed. The combination of a 9.0 earthquake and subsequent tsunami crippled the Fukushima Daiichi nuclear plant operated by Tokyo Electric Power (TEPCO). It’s a disaster predicted 32 years ago in the movie, The China Syndrome, where utility executives are portrayed as obtuse deniers of any dangers associated with nuclear energy operations. Tokyo Electric Power is the world’s largest privately owned electricity company, and it has been cast in the same light as the executives in that movie, charged with ignoring previous warnings about design flaws. The Economist, in its April 2 issue, cited this appraisal of TEPCO by the well known Japanese management consultant, Kenichi Ohmae: “This company is really rotten to the core.” TEPCO shares on the Tokyo Stock Exchange have slid 83 percent since March 11, the day the earthquake hit.

It’s interesting that the first warnings about the hazards of nuclear energy came from the scientists whose research paved the way for the atomic bomb, among them Hans Bethe, Leo Szilard, Enrico Fermi, J. Robert Oppenheimer. They founded The Bulletin of Atomic Scientists to express their concerns. Oppenheimer once said: “When you see something that is technically sweet, you go ahead and do it and you argue about what to do after you have had your technical success.” And in 1946 Albert Einstein said: “The unleashed power of the atom bomb has changed everything save our modes of thinking, and thus we drift toward unparalleled catastrophe.”

Early investment advisors using social screens took their cue from this group, establishing nuclear power as a no-no for investment along with tobacco and weapons production. General Electric, Westinghouse, Babcock and Wilcox and Emerson Electric were thus rendered ineligible for Social Responsible Investments (SRI). No new nuclear plants have been ordered in the United States since 1978.

SRI’s position on nuclear power began to soften with the advent of climate change and sustainability as important social issues. The argument here is that we need to reduce our carbon footprint to curb the warming of the globe – and in that struggle nuclear power can play a role. Compared to coal, it is clean energy, provided it doesn’t implode. One of the major converts to nuclear power was Stewart Brand, founder of the Whole Earth Catalog (in 1972) and someone who had a long association with environmentally-conscious groups. He changed his mind about nuclear energy in 2004 and has since debated Amory Lovins on this subject. Here is Brand’s view:

Coal’s waste stream of carbon dioxide is turning the Earth into a solar cooker. Nuclear’s waste stream is tiny by comparison, and it’s easily contained and monitored locally. Furthermore, with fourth generation reactors, the spent fuel can be reused.

Also pro-nuclear: the Obama administration.

These ideas have had an impact in the world of social investing. No advisor that I know has added General Electric to its portfolio but at least two leading mutual fund operators – Calvert and Pax World – have relaxed their total ban on companies with nuclear involvement. Bennett Freeman, Calvert’s Senior Vice President of Sustainability & Policy Research, explained the firm’s position:

In 2007 we decided to allow for the first time investment in companies that may have legacy nuclear plants, but only in certain funds. We do not invest in companies that are developing new nuclear capabilities. We made the change for several new funds, not as any kind of endorsement of nuclear power, but because we felt it was important to have a full spectrum of energy options. If you’re a utility like Florida Power & Light, which is generating 40 percent of the wind capacity in the United Sates, we want to acknowledge that affirmatively. We don’t want to penalize you because at the same time you’re operating a few legacy plants from the ’60s and ’70s.

That’s quite a different position from the one held by Physicians for Social Responsibility, a longtime campaigner against use of nuclear power. After the Fukushima plant blew up, the group issued a broadside which said: “Nuclear power is uneconomical. Nuclear power is polluting. Nuclear power is a health threat.”

Nothing equivocal about that statement.

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In the Winter 2011 issue of Investing For A Better World, our colleague Farnum Brown described shareholder advocacy as version 2.0 on SRI’s (socially responsible investment’s) travels towards 3.0, and discussed the importance of directly pressing companies to improve their environmental and social impacts. Similarly, Amy Domini of Domini Social Investments recently wrote passionately in the Huffington Post about the importance of shareholder advocacy as a meaningful way for investors to have a positive impact on the world. Both pieces touched upon the ongoing debate about what to call our field. What was once “socially responsible” or “ethical” investing is now “ESG” (environmental, social and governance) investing or “sustainability” investing. We welcome the newest arrival, “impact investing” into the lexicon as a term that encompasses the new types of enterprises being started by social entrepreneurs as well as one that describes what labor plans, religious shareholders and socially concerned investors been doing for three decades.

Both Farnum’s and Amy’s pieces also noted some examples of successful shareholder advocacy that speak to the impact of SRI/ESG investing. We thought it might be a useful contribution to the nomenclature discussions to devote some space to reviewing some of the most recent “impactful” shareholder campaigns from SRI/ESG firms (with apologies to language purists).

Toxic Chemical Phaseouts. Some of shareholder activists’ “greatest hits” have been in persuading companies to reduce or eliminate their use of toxic chemicals. They are found in virtually every ecosystem in the world, and up to 300 toxic chemicals have been found in humans. The following are examples of company actions taken following shareholder dialogues and/or proposals:

• General Mills announced that it would no longer use bisphenol A (BPA) in its Muir Glen brand tomatoes packaging (2010)
• Apple announced it would stop using brominated flame retardants in its computers (2007)
• Sears Holdings (Sears and K-Mart) began a multi-year process of phasing out PVC products and packaging (2007)
• Whole Foods announced that it would remove baby bottles and other products that contain BPA from its shelves (2006).

Political Spending Disclosures. The Citizens United Supreme Court case of 2010 renewed attention to the role of the corporate sector in politics and the public policymaking process. Shareholders have been working to lift the veil on corporate political spending since 2004. Assisted by the nonprofit Center for Political Accountability, shareholders have persuaded 52 major corporations (including 35 in the S&P 100) to disclose and require board oversight of their political spending with corporate funds, beyond what is required to comply with the laws.

Corporate Sustainability Reporting. Before SRI investors founded Ceres and the Global Reporting Initiative, standardized corporate sustainability reporting was virtually nonexistent, and where it did exist it was guided by trade association criteria that lacked public credibility. Today, thanks to persistent and diligent shareholder advocacy, about 1,800 companies produce reports based on the GRI guidelines, and demonstrating that “what gets measured gets managed.”

Lesbian, Gay, Bisexual and Transgender nondiscrimination policies. Shareholder advocates can rightly claim credit for persuading many of the nation’s most prominent corporations to adopt inclusive nondiscrimination policies. Activists have filed well over 200 resolutions that have led to better policies at 150-plus corporations – affecting the lives of millions of workers around the world. Many additional companies have changed policies simply in response to inquiries from shareholders.

Home Depot Wood Purchasing Policy. In the late 1990s a broad coalition of shareholders added their voices to the campaign demanding that the world’s largest retailer of lumber products stop selling wood products from endangered forests. Using the vehicle of a shareholder resolution and outreach to large institutional investors, the shareholders generated twice as much support as was typical for a resolution in the 1990s. The campaign resulted in a commitment to phase out sales of wood products from endangered forest areas within three years, and the company’s commitment to give preference to Forest Stewardship Council certified lumber wherever possible.

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BOSTON///April 12, 2011///Nearly 30 investor organizations representing over $170 billion in assets are urging the U.S. Environmental Protection Agency (EPA) to initiate a review process under the Clean Water Act to evaluate the mine waste impacts of the proposed Pebble Mine on Alaska’s Bristol Bay watershed, which produces roughly half of the world’s commercial supply of wild sockeye salmon.

Led by Trillium Asset Management Corp. (Trillium) and Calvert Investments (Calvert), the organizations hold over 13 million shares in Anglo American plc, the UK-based mining company behind the proposed mine.

“This proposed mine has potentially devastating consequences for the people and the ecosystem of Bristol Bay,” said Jonas Kron, vice president at Trillium. “The potential impact of this project and the national importance of Bristol Bay means review under Section 404(c) of the Clean Water Act is warranted.”

“Ecosystem degradation is of serious concern to investors,” said Stu Dalheim, director of shareholder advocacy at Calvert. “A recent United Nations report showed environmental costs from global human activity equate to an estimated US$ 6.6 trillion – approximately 11% of global GDP in 2008. Responsible resource development is critical to all economic, environmental and cultural stakeholders.”

The Bristol Bay region of Alaska is the site of the largest remaining runs of wild sockeye salmon and is the home of Alaska Native people who continue the subsistence fishing and hunting traditions of their ancestors. Bristol Bay is an important economic driver for the commercial fishing, sport hunting and sport fishing industries of North America, generating $450 million in annual revenue and providing some 10,000 jobs.

Pebble Mine is a copper, gold and molybdenum mine proposed at the headwaters of the Bristol Bay Fishery Reserve by U.K.-based Anglo-American and Northern Dynasty Minerals Ltd of Canada.  The combined impact and risks associated with a proposed mine in this region are unprecedented. Under current plans, the project would involve the largest open pit mine in North America, enormous toxic tailing ponds and a significant infrastructure footprint in critically important habitat. A peer reviewed 2010 risk assessment by The Nature Conservancy studied the impacts of such large-scale mining in the Bristol Bay region, and concluded that the risks to wild salmon populations are “very high,” and that it is cause for significant concern regarding the long-term abundance and sustainability of salmon in the region.

This investor statement comes on the heels of the EPA’s announcement in February in response to petitions by Bristol Bay native tribes and corporations, commercial fishermen, businesses, and others that the Agency would conduct a scientific assessment of the Bristol Bay watershed to evaluate the suitability of large-scale development in the region. Many observers see the assessment as a precursor to a full EPA 404(c) review.

Section 404(c) authorizes EPA to “prohibit, restrict, or deny the discharge of dredged or fill material at defined sites in waters of the United States (including wetlands) whenever it determines, after notice and opportunity for public hearing, that use of such sites for disposal would have an unacceptable adverse impact on one or more of various resources, including fisheries, wildlife, municipal water supplies, or recreational areas.”

For the full text of the statement go to: http://trilliuminvest.com/wp-content/uploads/2011/04/Investor-Statement-on-the-Proposed-Pebble-Mine.pdf

The signatories to the statement include:

Advanced Investment Partners

As You Sow

Boston Common Asset Management, LLC

Calvert Investments

Catholic Health East

Christian Brothers Investment Services

Clean Yield Asset Management

Congregation of St. Basil

Domini Social Investments

Everence Financial

First Affirmative Financial Network

Goodfunds Wealth Management

Green Century Capital Management

Local Authority Pension Fund Forum

Maryknoll Sisters

Midwest Coalition for Responsible Investment

New Outlook Financial, LLC

Northwest Coalition for Responsible Investment

Pax World Management Corp.

Portfolio 21 Investments

Region VI Coalition for Responsible Investment

Sisters of Charity of Cincinnati

The Sustainability Group at Loring, Wolcott & Coolidge

Three Sisters Sustainable Investments

Tri-State Coalition for Responsible Investment

Trillium Asset Management

Unitarian Universalist Association

Walden Asset Management, a division of Boston Trust & Investment Management

Zevin Asset Management, LLC

ABOUT TRILLIUM AND CALVERT

Trillium Asset Management Corporation is the oldest and largest independent advisor devoted exclusively to sustainable and responsible investing.

Calvert Investments has been a leader in the field of sustainable and responsible investing (SRI) for over 25 years, demonstrating that investors may manage risk and enhance long-term portfolio performance by investing in well-governed, sustainable and responsible companies.

CONTACTS: Jonas Kron of Trillium at (503) 592-0864 or jkron@trilliuminvest.com or Stu Dalheim of Calvert at (301) 961-4762, Stu.Dalheim@Calvert.com or Patrick Mitchell for Calvert at (703) 276-3266 or pmitchell@hastingsgroup.com.

In October, as the first snow of autumn begins to fall near Alaska’s Bristol Bay, I found myself visiting with a group of locals. Among them was Robin Samuelsen, a Yupik Eskimo and board member of the Bristol Bay Economic Development Corporation. The conversation began light and jovial as he fondly recalled fishing adventures with his father and grandchild. Then his voice grew anxious: “I’ve never seen the people of Bristol Bay so scared. If there ever is a mining accident our people are finished. Our way of life will be gone.”

At issue is the controversial Pebble Mine Project, envisioned to be one of the world’s largest open pit copper and gold mines in the headwaters of Bristol Bay, already one of the world’s richest salmon fisheries. Commercial fishing is a $300 million a year industry in Bristol Bay, which produces half the global supply of wild sockeye salmon. An astonishing 30 million salmon spawn in its rivers, creeks and lakes each year, feeding humans, bears and birds. Local support for the mine is scant, given the deep cultural roots to salmon fishing. For generations the Yupik people, a majority in the region, have depended on wild salmon as a staple in subsistence diets.

Despite the fishing industry’s size, it financially pales to the $300 billion of gold and copper wealth buried in the Pebble deposit. The project backers, British mining company Anglo American and Canada’s Northern Dynasty, promote the economic benefits to community including roads, power plants, and about a thousand jobs for the duration of the mine’s life.

Contrary to developers’ assurances, developing Pebble would carry huge environmental risks. For example, 10 billion tons of toxic mining waste would sit behind earthen dams in the seismically active area. Catastrophic releases do happen. The Nature Conservancy found 147 cases since 1960 of disastrous dam failures of mining waste. One occurred in Hungary just last year.

Even more likely to emerge is the slow developing threat of drainage and leaching from sulfuric acid, cyanide, arsenic and cooper. Once in waterways, the contamination risks to salmon speak for themselves. Wayne Nastri, a former highly ranked EPA official, told us, “in my experience I don’t know of a major hard rock mine near a water body that hasn’t had significant leaching.”

For concerned environmental and indigenous rights advocates there is hope Pebble Mine can be halted. One promising avenue is the U.S. Environmental Protection Agency’s (EPA’s) authority under the Clean Water Act to protect Aquatic Resources of National Importance. The EPA has begun the process necessary to assess Bristol Bay’s “national importance” and mining’s potential impacts on the watershed.

At Trillium we strongly believe the Bristol Bay fishery is of national importance and is inappropriate for extensive hard rock mining. The Bay’s national importance extends to anyone who wishes to continue enjoying fish for dinner. Trillium is writing directly to the EPA, making inquiries at Goldman Sachs (due to our expectation that they will be approached to underwrite the project), and preparing for potential engagement with Anglo American should the need arise.

Ted Stevens, the late Republican senator from Alaska, may have said it best: “I am not opposed to mining, but [Pebble] is the wrong mine for the wrong place.”

In the 1950s, I began driving Fords. I am not sure why. They were always breaking down. At the same time I began following the entry of foreign cars into the United Sates as a reporter for Advertising Age. It was just a trickle at that point – and Detroit treated it as a laughing matter. The U.S. has these long highways, and these small cars would never make it here, said the moguls at General Motors, Ford and Chrysler.

Journalists love incisive, eye-catching leads and I had one of my best in 1959 when I crafted this opening sentence on a story sent to Chicago, where Ad Age was then published: “Doyle Dane Bernbach, the agency for El Al Israel Airlines, the Israel Tourist Office and Levy’s Real Jewish Rye, was today appointed to handle the advertising for the German import, Volkswagen.” On Monday when copies of the issue arrived in New York, I was horrified to find that the subordinate clause listing DDB clients had been excised. The editors in Chicago explained to me that they thought the clause was irrelevant. I remember screaming into the phone: “Didn’t you guys in the Midwest hear about the Holocaust?”

In 1971, I moved from New York to the Bay Area, and I saw at first hand how the imports were beginning to take over the California market. In Marin County, where I now live, kids grew up not knowing what a Chevy or Ford looks like. We used to have one billboard in Marin along the 101 Freeway that cuts through the country. It was used to advertise GM cars. People began going out at midnight to tear it down. Finally, GM gave it up. So now we have a billboard-free county.

These reflections came to mind as I was reading Steven Rattner’s new book, Overhaul. Rattner is the Wall Street pro appointed by Barack Obama to orchestrate the bailout of General Motors and Chrysler. Both companies went, hat in hand, to Washington to accept bailout funds from TARP (Troubled Asset Relief Program), and both went into Chapter 11 bankruptcy to enable them to emerge as slimmed-down versions of their old selves. The priority for the Obama administration was to save General Motors. Chrysler was considered expendable.

And Chrysler was ticketed for oblivion until Sergio Marchionne, the feisty CEO of Italy’s Fiat, arrived on the scene, ready to take the reins. We – the U.S. government – were so delighted to have a possible savior of the company that we said: “You want Chrysler? Here, take it, please.” So Fiat now controls Chrysler even though it only owns 20 percent of the shares. And it didn’t have put up a single lira for it. Chrysler’s largest shareholder is the United Auto Workers retiree healthcare trust. It owns 55 percent.

The reshaping of the auto industry has been dramatic. GM discarded its Oldsmobile, Pontiac and Saturn brands. It sold off Saab and Hummer. Ford shut down its longstanding Mercury brand. Ford also gave up on Volvo passenger cars, Jaguar, Aston Martin and Land Rover, brands it had acquired along the way. Volvo went to a Chinese company, Geely. Jaguar and Land Rover are now owned by the big Indian conglomerate, Tata.

We are no longer the world’s largest automaker. That distinction belongs to China, where output is over 15 million cars a year, compared to the 11.5 million rolling out of U.S. factories. And GM is no longer the No. 1 automaker. That title belongs to Toyota. Ironically, China has become GM’s biggest market. The Chinese are nuts about Buicks. More Buicks are sold there than in the U.S. And they are being built there.

In Germany, after bitter bumper-to-bumper combat over four years, Volkswagen and Porsche are about to be melded into one company. It’s not clear who is buying whom. They will have a portfolio of ten brands: Volkswagen, Audi, SEAT, Skoda, Bentley, Lamborghini, Bugatti, Porsche and Scania. The Rolls-Royce brand now belongs to BMW.

Everyone is the world wants a car but the United States is no longer the prime supplier. As for me, I’m driving a Honda Civic.

Investors are increasingly recognizing the important role that stock exchanges can play in improving corporate sustainability reporting and ultimately a sustainable economy. Markets, where investors and companies meet, are driven by information. Because of this strategic position, the exchanges, through their listing requirements (which dictate the information corporations must disclose on an annual basis in order to remain listed) have the power to either mandate or incentivize how companies report on their environmental and social impacts. They can also create indexes that recognize leaders in sustainability.

One could argue that the most significant environmental and social impact of an exchange is its listing requirements. If the requirements include ESG (environmental, social and governance) information, then investors will not only get quarterly profit and earnings reports, but they will receive information relevant to long term valuations and assessments of sustainable performance. With that information, investors will be better equipped to choose stocks informed by environmental and social sustainability considerations.

The Johannesburg Stock Exchange (JSE) is the clear leader for those of us in the investment world who think about and act upon this information. Why the JSE? In part because in the aftermath of apartheid, South Africa needed to rebuild the reputation of its business community and address the crushing economic inequities in its economic system. How companies’ policies and practices impacted the poor was of particular interest in a nation where at least half of its citizens lived in poverty.

In 1994, the King Commission on Corporate Governance (chaired by the current chairman of the Global Reporting Initiative, Mervyn King) published the first of three reports, the King Report on Corporate Governance (known as “King I”). King I broke important ground in South Africa, which eventually led to the “King II” report’s 2002 conclusion that:

Corporate governance is the manner in which organisations direct and control their assets, resources and actions. In companies, direction and control is in the hands of the directors who are accountable not only to shareholders but also indirectly to other stakeholders such as employees, suppliers, customers, the government and the community.

This articulation was put into practice the following year when the JSE required companies to report on their social, ethical, health, and environmental practices or to explain their non-compliance. Companies were required to develop reporting metrics, and to publish a narrative statement of how they were addressing these sustainability challenges.

King II also led to the creation of the JSE Socially Responsible Investment (SRI) Index in 2004 to “meet the emerging requirements of investors and civil society for companies to demonstrate more socially responsible behavior.” Like most SRI indices, the JSE’s evaluates companies against a set of economic, social and environmental criteria to determine whether they will be identified for investors as companies that have sufficiently integrated environmental and social performance into their business model.

These were firsts in emerging markets, and in many respects they were ahead of developed market exchanges. Today, only six of the 30 leading stock exchanges in the world provide any sort of sustainability guidance for listing requirements.

“King III” (2009) culminated the exchange’s work by requiring “an annual integrated report that focuses on the impact of the organisation in the economic, environmental and social spheres.” As the report summarized:

Sustainability is now the primary moral and economic imperative and it is one of the most important sources of both opportunities and risks for businesses…. Incremental changes towards sustainability are not sufficient – we need a fundamental shift in the way companies and directors act and organise themselves.

The anti-apartheid divestment movement of the 1970s and ‘80s gave birth to the modern day shareholder advocacy movement, inspiring a generation of investors to evaluate companies’ environmental and social impacts. With its groundbreaking work on “sustainable exchanges,” it appears that South Africa will continue to play a critical role helping the world developing a more sustainable economic system.

If Karl Marx was still living, I think he would probably be invited to ring the opening bell at the New York Stock Exchange or at NASDAQ. Or, more likely, the Hong Kong or Shanghai stock markets. And why not? His penetrating analysis of capitalism’s tendency to self-destruct might well have inspired some Wall Street traders to anticipate the financial crisis of the past two years. Dialectical materialisms certainly did not hinder Russia and China from creating huge capitalist corporations.

On Monday, September 20, the film director Oliver Stone strode into NASDAQ’s site in the heart of Times Square to ring the opening bell. He had in tow three performers – Shia LaBeouf, Josh Brolin and Carey Mulligan – from his soon-to-be-released film, Wall Street: Money Never Sleeps, a sequel to the Wall Street film he brought out 23 years ago. Not along for the ride, because of a bout with throat cancer, was Michael Douglas, who starred in both films, playing the “greed is good” investment banker Gordon Gekko. That night, Stone showed up with Brolin and Mulligan at a pre-opening party held at Cipriano 42 and attended by the likes of Spike Lee, Tayna Lewis Lee and the nation’s richest man, Warren Buffet, who has a cameo part in the movie. Celebrities at work.

You might wonder why NASDAQ leaders would allow their podium to be used to promote a film whose content was unknown to them. Many people thought that Stone would level a severe indictment of Wall Street for igniting the financial crisis. But that didn’t happen. Yes, there is obviously skullduggery going on but it’s mostly conducted off screen so that viewers never have a chance to understand how Wall Street makes its money. Stone has no explanations for us on how the crisis seized up the economy.  “Money never sleeps” is just a cliché.

Three weeks before the movie opened Stone had lunch at the Grill Room of the Four Seasons with Andrew Ross Sorkin, the New York Times columnist who wrote the blow-by-blow account of how the crisis came down in his book, Too Big to Fail. Sorkin reported in his column that Stone looked around the room and commented, “You know half the people in this place could be prosecuted.” This was juicy lunchtime conversation, but it never surfaces in Stone’s movie. If it had, it might have concerned Rupert Murdoch, whose company, Twentieth-Century Fox, distributed Wall Street: Money Never Sleeps.

Anyway, the film finally opened on Friday, September 24, at theaters across the country, to mixed reviews. It grossed $19 million at the box office that weekend. Okay, but certainly not earth-shaking.

More than 50 books dealing with the financial crisis have been published in the past two years – and they are still coming down the pike. Not all of them are as clueless as Oliver Stone’s movie but Americans, for the most part, seem to have reached no consensus on why it happened or, most important, what should be done about it now. I was amused to see the venerable British weekly, The Economist, opine the other day that it might be a good idea for President Obama to act nicer to the business community. It appears that business people are unhappy about the way the President disparages them. The Economist said:

No sane leader of a country would want business people to think that he was against them, especially at time when confidence is essential for the recovery.

Perhaps the Brits need to be reminded of Franklin D. Roosevelt’s first inaugural address, when he said:

…rulers of the exchange of man’s goods have failed through their own stubbornness and their own incompetence, have admitted their own failure and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

And four years later, in his second inaugural, FDR said:

We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays.

Sounds like a good movie.

The world will not soon forget the power and significance of Google’s decision this past January to stop censoring search results in China. That bold action will likely be seen as a watershed moment in the history of corporate social responsibility. Google deserves accolades for its environmental and social behavior in many respects. The company ranked first among Fortune magazine’s top places to work in 2007 and 2008, and its charitable arm has taken innumerable important steps towards addressing our economy’s dependence on carbon based fuels.

Hence, many people are surprised to learn that the company has completely failed to meet a cornerstone of corporate responsibility: an annual sustainability report.

Sustainability reporting is a linchpin because (1) what gets measured gets managed, and (2) reporting facilitates transparency, and therefore accountability. That is, sustainability reporting provides stakeholders with a way to keep companies accountable for their social and environmental impacts. Perhaps not too surprisingly, companies that measure and report on their social and environmental performance also appear to be better financial performers.

Many observers understand comprehensive sustainability reporting to be best practice for a large company like Google, the 16th largest stock in the S&P 500. The consulting firm KPMG conducted a survey recently that showed that nearly 80 percent of the orld’s 250 largest companies now produce a sustainability report.¹

According to the Corporate Register (www.corporateregister.com), corporate sustainability reports published in 2008 numbered 3,100, a 55 percent increase from the previous year; the corporate reporters included two-thirds of the Global FT 500. A report for the Sustainable Investment Research Analyst Network (SIRAN) written by KLD Research & Analytics, Inc. found that 66 firms in the S&P 100 produced a formal sustainability report with performance data in 2008, a 35 percent jump from 2007.²

It also appears that sustainability reports may be associated with good performance. A study released by RiskMetrics Group found that sustainability reporters have outperformed the MSCI World Index over the past two years. The research found that a set of public companies whose reports were singled out for praise by the U.N. Global Compact had consistently outperformed the MSCI World Index by an average of 7.3 percent since March 2007.³

Google is often criticized for its lack of transparency.
Forbes recently noted:

Among this year’s high-profile no-shows (on the Corporate Responsibility Magazine list of responsible companies): Google, which [CR Magazine editor] Whitehead describes as “one of the least transparent companies ever.” “Google’s opacity is high for a tech company,” he says. “They made a conscious decision early on not to disclose a lot, because they thought it would make them less competitive. ‘Don’t be evil’ is their motto, but ‘Don’t be transparent’ is part of their culture.”⁴

Google received an “F” in sustainability reporting by the Roberts Environmental Center of Claremont McKenna College.⁵

While Google provides some information about its environmental, social and governance (ESG) goals, practices and policies, it is mostly expressed as percentages, goals or qualitative objectives, rather than, for example, concrete data on greenhouse gas emissions, which is reported on by its peers.

The company also provides no hard data on its emissions reduction goals, total electricity consumption, water usage, and other such quantified metrics either for company buildings or data centers. Instead, it presents percentage goals for reductions, information on its goal to be carbon neutral by 2007, and percentage of water from recycled sources. This is particularly troubling given the increasing emphasis at the Securities and Exchange Commission (SEC) on climate change and sustainability reporting in SEC reporting. Google’s reporting also provides no data on employee diversity such as percentage of females or minorities.

For all of these reasons Trillium filed a shareholder proposal with the company calling on it to begin annual sustainability reporting. We were joined by the Treasurers of Oregon and Connecticut as well as the First Affirmative Financial Network as co-filers. Shares cast in support by non-insiders totaled 34%, so we are hopeful that the company will decided to adopt the proposal so that a re-filing will be unnecessary in 2011.

1. KPMG (October 27, 2008) “KPMG Analysis Shows Number of U.S. Companies Reporting Sustainability Data Has Doubled Since 2005”,
press release, retrieved June 9, 2010.

2. “S&P Sustainability Report Comparison,” SIRAN, December 16, 2010.

3. “Notable Reporters Outperform Key Stock Index,” United Nations Global Compact, June 17, 2009.

4. “The 100 Best Corporate Citizens,” Forbes, March 3, 2010.5. http://www.environmentalleader.com/2008/06/19/chevron-a-google-f-in-sustainability-reporting-efforts/.

BP? We’re out of it. With the benefit of perfect hindsight, I wish we’d sold before the Deepwater Horizon catastrophe; this wasn’t the first lethal BP disaster in recent years. We could also see the company’s commitment to shareholder engagement on environmental, social and governance matters (ESG) slipping as well, but were hoping that the collective efforts of the social investment community could turn that around. We held out hope because BP is still the oil and gas company with the lowest carbon footprint (it was the first to acknowledge the reality of global warming) and maintains a far better human rights record than the other oil supermajors. CEO Tony Hayward was said to be making progress on safety issues as well.

Divestment isn’t about punishing companies, at least as we practice it. We divest when we’ve lost faith in management’s ability to achieve excellence either financially or in ESG matters. Accidents do happen, but the catastrophe in the Gulf was less an accident than a series of outrageous, stupid, and preventable decisions exacerbated by the failure of the federal government to properly regulate the oil industry. We are sick at the loss of the oil rig workers, the marine life, and the security of those whose livelihoods depend up on it.

Speaking of Big oil, in May I had the dubious pleasure of attending Chevron’s annual stockholder meeting, to present a shareholder proposal filed by Trillium and co-filed by the Pennsylvania Treasury and Amnesty International USA. The proposal called for the company to fill upcoming board vacancies with at least one director who has environmental expertise, a request that seems laughably obvious in the wake of the Deepwater Horizon blowout until (a) you do your research and find out that Chevron’s failure to do so is quite in keeping with its peers’ practices, and (b) only 27% of the votes cast by other shareholders supported you. Twenty-seven percent, on the other hand, is very high support for any proposal opposed by management. In any event, it far exceeds resubmission thresholds, so it’s likely to get the attention of management, and even if it doesn’t, we can keep putting it on the ballot until it gains majority support.

The meeting itself, the first one presided over by new CEO John Watson, was efficient and businesslike for the most part, focusing on such good news as Chevron’s impressive 10.6 percent return on capital for 2009. Only a few angry comments and desperate appeals this year from around the around the world concerning environmental contamination, abuse of human rights or corruption. Something was…different this year…something seemed…missing. Of course! The twenty-seven advocates and community leaders from around the world who had been turned away by security personnel despite having legal proxies and written authorization from shareholders to attend in their place. That’s why it was so peaceful inside the meeting.

I am not sure how peaceful it was in the Houston jail, where seven of those proxy holders who would not take ‘no’ for an answer ended up. One of those dragged away was Mitch Anderson, who bore the proxy for shares owned by Amazon Watch, the leading critic of Chevron for refusing to make full restitution for damage done to the Ecuadorian Amazon by its subsidiary Texaco in the 1970s and ‘80s. Anderson certainly did not come to praise Chevron, but he is a legal proxy holder (as were, it appears, the majority of those turned away). At Mr. Watson’s compensation level (nearly $9 million a year, according to Bloomberg Businessweek), you’d think for one morning a year he would be willing to listen to a little in-your-face criticism. But his enthusiasm is beside the point. For that one morning per year, he is obliged to listen to his shareholders’ representatives whether he likes what they’re saying or not, because Chevron is a publicly traded company, not some mom-and-pop shop selling lotto tickets on the corner. Let’s hope that the Securities and Exchange Commission will step up to the plate and crack down on companies like Chevron that so blatantly disrespect the rules and regulations that govern the proxy process and the spirit behind them.

Now if you’ll excuse me, I must get back to the task of searching for some nice oil company to replace BP in our portfolios. Wish me luck.

According to Advertising Age, the authoritative source for such statistics, the 10 largest advertisers in the U.S. in 2008 were Procter & Gamble ($4.8 billion), Verizon ($3.7 billion), AT&T ($3 billion), General Motors ($2.9 billion), Johnson & Johnson ($2.5 billion), Unilever ($2.4 billion), Walt Disney ($2.2 billion), Time Warner ($2.2 billion), General Electric ($2 billion), and Sears Holding ($1.8 billion).

As astronomical as those figures may seem to you, they mask the discrimination that has prevented these companies from spending even more money to express their opinions. You may be annoyed by the constant interruption of TV programs by idiotic commercials, but the fact is, corporations have, until now, been saddled with restraints inhibiting them from exercising their right to speak.

That’s over now. In January the Supreme Court stepped up to the plate and ruled unconstitutional laws that prohibited companies (and labor unions, too) from spending their general funds on advertising for the election or defeat of a political candidate. Now they are free to spend as much money as they want in political campaigns.

And why not? We are a country that abhors discrimination of any kind. Remember when African-Americans were kept from voting in Southern states by imposition of a poll tax? And remember when women were not allowed to vote? Those restrictions were comparable to the barriers we put up to deny corporations the right to spend their well-deserved profits on political advertising. Millions of Americans wrote checks to help Barack Obama win the 2008 presidential election. But what about Procter & Gamble, General Motors, Verizon and Walt Disney? They were disenfranchised. As Cleta Mitchell, a top Republican election lawyer, said after the Supreme Court decision came down, the ruling “has ripped the duct tape off the mouths of the American people.”

To refresh or memories, let’s keep in mind what the First Amendment to the onstitution says:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof, or abridging the freedom of speech, or of the press, or the right of people peaceably to assemble, and to petition the Government for a redress of grievances.

That amendment was intended to safeguard the rights of individuals to voice their opinions. There was no mention of corporations but that’s because they really were not around in 1791 when this amendment was ratified. Now they play a major role in our economy and are considered “persons.” So, just like you and me, they have the right to speak up. Five justices on the Supreme Court took it upon themselves to go beyond the narrow issues of the case before them – Citizens United v. Federal Election Commission – and go for the jugular: strike down laws discriminating against corporations. Lawyers for Citizens United had not asked for such a sweeping judgment but the court majority came to the aid of the Fortune 500. Representative Mike Pence, a Republican from Indiana, hailed the decision, saying it “takes us one step closer to the Founding Fathers’ vision of free speech.”

Now corporations juggling their billion-dollar ad budgets will be able simply to add political candidates to their brand lineup. And best of all, there will be no limits on how much they can spend. It’s only fair. They have the money and should be allowed to spend it to voice their opinions. If you don’t like it, you can always push the mute button on your remote.

If you find yourself traveling in the Four Corners region of Northwestern New Mexico you’ll see many fine sights – broad mesas with pinon pines, red rocked desert towers, Anasazi ruins and historic frontier towns. Look closely and you may catch a glimpse of local wildlife such as Gambel’s quail, mule deer or elk.  In addition you’ll see oil and gas activity – over 20,000 wells are producing in the region’s San Juan Basin.

Since discovery in the 1920s, the San Juan Basin has pumped out 36 trillion cubic feet of natural gas. Today it’s the nation’s second largest source of gas. The vast mineral wealth below ground has transformed the local economy above. “This was a very vibrant ranching community before,” says retired rancher Don Schreiber. “It’s pretty much a monoculture of oil and gas now. There’s virtually no one left here.”

The San Juan’s long-lived gas boom has changed more than the community – it has changed the natural landscape. On this topic Don and his wife Jane Schreiber see big room for improvement starting in their own backyard. Quite literally, in fact, as 99 gas wells reside within the 5,760 acre Devil’s Spring Ranch and grazing allotments. The ranch, sitting mostly on Bureau of Land Management (BLM) property, has a split deed granting the Schreibers surface rights and energy company ConocoPhillips (COP) mineral rights, common throughout the West.

Devil’s Spring Ranch Owners Don & Jane Schreiber

In 2007, ConocoPhillips informed the Schreibers of its plans to ramp up new drilling activity threefold, prompting the couple to reevaluate drilling impacts and also their role as stewards of the land. With the help of nonprofit Holistic Management International (HMI), they decided to conduct a study of the ranch’s gas well sites previously restored to BLM standards. The Schreiber’s conclusion: “Our experience shows us that the BLM standards don’t really make a big contribution out here.”

A Bland Recipe

The central critique of BLM’s current restoration standard is that it requires actions rather than results. For example, two acres of land can be restored immediately after construction of a new gas well. The oil company is required to reshape the land with mechanical equipment and throw grass seed on the ground. If grass doesn’t grow in two years, it must throw seed down again. At this point, regardless of what does or doesn’t grow, the oil company has fulfilled its obligation.

Not surprisingly this restoration recipe does not produce an abundance of sustainable grasslands. A study on the Schreiber’s ranch found that half of restored areas end up as bare ground with topsoil vulnerable to wind and rain. Undesirable weeds and woody plants, not typical in untouched areas, cover another quarter. Successful growth of grass occurs on less than a quarter of the land deemed restored.

As the Schreibers see it, that’s not good enough. “An oil company is told to put eggs and flour in there,” Don says, “but if it doesn’t make a cake that’s just fine. What’s missing are incentives for companies to surpass the standard or find ways that work better.”

Improving the Recipe

Concerned, the Schreibers took the risky step of appealing to BLM. “We were fortunate to be able to engage a federal bureaucracy that can be very mystifying to us and our neighbors.” The BLM did listen and in January 2008 issued a suspension of all new drilling at Devil’s Spring Ranch. Don acknowledges “it was this federal protection that got us to first base” and brought ConocoPhillips seriously to the table. Recognizing a unique opportunity, the Schreibers built on their partnership with nonprofit HMI and reached out to political representatives such as Senators Jeff Bingaman (D–NM) and Mark Udall (D–CO), and Representatives Ben Lujan (D–NM) and Harry Teague (D–NM).

“There’s a growing recognition in the general public of the need for land stewardship,” says Tracy Favre, senior director of contract services at HMI, a New Mexico nonprofit with 26 years’ experience improving ecosystem functions for landowners and wildlife. “At BLM this makes it conducive to look at something more innovative.”

Land in the Open Space Pilot Project

This innovation is taking form in what has become the Open Space Pilot Project, a working partnership between BLM, Devil’s Spring Ranch, HMI and ConocoPhillips. The partnership has already achieved several of its goals. Ninety percent of new wells planned by Conoco at Devil’s Spring Ranch will now share pads with existing wells. This technique, called ‘twinning,’ saves the construction of new roads, pipelines and well pads. The pilot project also has upgraded 23 miles of existing road using a Zeedyk design to reduce erosion and return more water in a beneficial way to the land.

The large remaining task facing the Open Space Pilot Project is sustainable restoration of native grasses around well sites. Holistic techniques employed at one well site in Devil’s Spring produced nearly 100 percent grass cover, a promising sign but small first step. Assuming funding is obtained, the Schreibers and HMI hope to comprehensively restore 44 well sites, scientifically monitor results for a five-year period, and then teach other ranchers their techniques.

By Don’s estimation, “The cost to properly restore the well sites would be less than one percent of the overall well development cost, but a healthy and aesthetic restoration supporting wildlife is one area where the public can see a real benefit.”

Tracy Favre insists, “We can’t think about this as a single ranch restoration but a step in restoring an entire watershed.”  A wider view yet may be justified if BLM’s toolkit or policies are updated. Booming domestic natural gas production has raised the profile of gas drillers and the associated environmental concerns. Leaders of the recent unconventional gas boom nationally include Chesapeake Energy (CHK), Southwestern Energy (SWN) and XTO Energy (XTO).

The Open Space Pilot Project has shown one route for addressing the environmental concerns of natural gas drilling – diverse multi-party partnerships between business, landowners, government and nonprofits. “All parties in the project are willing and congenial,” says Tracy Favre, “and they have a long history together primarily due to Don’s efforts. At meetings they all are joking around. With a little gentle ribbing, yes, but all very respectful of each other.”

What a difference a change in Administration makes. Champagne corks popped in the offices of socially concerned shareholders all throughout the land in October, when, with a few strokes of the pen, the Security and Exchange Commission (SEC) restored a necessary dose of common sense to the shareholder resolution process that lacking in the Bush years.

To appreciate the change, a little background is necessary. When filers of shareholder resolutions send off a resolution to a company, said company will typically scrutinize it to see if it conforms to rules governing such proposals, rules that are enforced by the SEC. If it believes that it does not conform those rules, it can appeal to the SEC for permission to exclude the resolution from its proxy statement (the annual ballot sent to shareholders that allows them to vote on both shareholder and management resolutions). The SEC then weighs the company’s and the shareholders’ arguments and makes a decision in advance of the annual stockholder meeting.

You don’t need a law degree to see that everything depends on how the SEC interprets the rules. It may come as no surprise that under the previous administration, the agency took a sweeping view that the risks associated with such topics as climate change, subprime lending, toxic chemicals, rising healthcare costs and other pressing issues were not a suitable subject for shareholder proposals.

This so-called “risk evaluation exclusion” severely cramped the ability of shareholders to hold corporations fully accountable for the financial, environmental and social implications of their policies in these high profile issue areas. Socially concerned shareholders universally saw it as a major impediment to meaningful activism.

For example, two years ago the SEC gave Lehman Brothers and Washington Mutual permission to exclude proposals that asked for “a report discussing the company’s potential financial exposure as a result of the mortgage securities crisis,” because they did not raise a “significant public policy issue.” This was just months before Washington Mutual went into receivership and Lehman had to file for bankruptcy because of their mortgage related risk exposure.

A year later, the SEC gave the thumbs-down to proposals filed with several coal companies that requested reports on greenhouse gas emissions. All three proposals were excluded because they focused on the “day-to-day affairs” of the company. However, identical proposals went to a vote at a couple of other companies that declined to challenge them, where they received over 40% of the vote. Clearly in the opinion of the shareholders, the issue of greenhouse gas emissions was anything but a “day-to-day affair” for coal companies. It should also have been abundantly clear to the SEC that climate change was a significant policy issue, given the legislation before Congress and vigorous public debate on how best to reduce greenhouse gases.

The SEC explained that these proposals were inappropriate for shareholder consideration because they sought an “evaluation of risk.” This was the reasoning formalized in an SEC legal bulletin in 2005 that laid the foundation for what became an ever expanding barrier to effective shareholder engagement with management, directors and fellow shareholders.

Shareholder advocates like ourselves found that explanation untenable. Understanding risk is a critical component to any investment strategy. So prohibiting questions about risk, at best, seemed inconsistent with the SEC’s mandate to protect investors and at least lacking in common sense. The timing of these new policies also smelled of politics, emerging after the 2004 Presidential election and the further entrenchment of Bush era staff appointments.

Following years of organizing to push the SEC and Congress to address our concerns, Trillium took a leadership role to fix the situation. In November 2008, Trillium helped draft a letter from 60 prominent shareholders to then president-elect Obama calling for the retraction of the 2005 legal bulletin. With pressure growing on the SEC, in September 2009, the agency  held an invitational meeting at the Commission’s headquarters to discuss these issues. At the meeting, I argued vigorously for a rational approach that respected shareholder legitimate concerns about both the economic, social and environmental performance of companies and how these issues impact portfolio company performance.

Hence our profound relief and gratification when the SEC quickly responded and reversed the previous policy just in time for the 2010 shareholder season. This change is compelling confirmation that the SEC is taking positive steps to bring its actions in line with its mission to protect investors and serve the public good. Over the next year we will continue our advocacy at the SEC so that it facilitates meaningful shareholder engagement on the important social and environmental issues confronting companies.

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Trillium Asset Management Corporation (“Trillium”) has been pressing restaurant chains to reduce the use of pesticides in their supply chains, continuing our research and advocacy on sustainable food and agriculture.¹

Reducing pesticides is a logical step toward protecting the health of farm workers and consumers and minimizing soil and water contamination. The introduction of GMO seed has actually resulted an increase in pesticide use. Yet the restaurant industry has by and large failed to exercise its influence for good in this area. We think it is important for restaurants to get active to reduce pesticide use for a couple of reasons.

First, new research is providing stronger evidence of the link between pesticides and serious conditions such as cancer and other chronic diseases. For example, scientists have known for some time that two pesticides commonly used on tomatoes and other vegetables, maneb and paraquat, trigger a neuro-degenerative process that leads to Parkinson’s disease in animals. In April of this year, two UCLA researchers produced the first study linking the two to high rates of Parkinson’s disease in humans as well. Residents of California’s largely agricultural Central Valley exposed to maneb and paraquat showed a 75 percent increased risk of developing Parkinson’s disease over a 25-year span. The risk of disease increased with earlier exposure in life.²

Second, as attested to in the growth of organic food purchases, consumers are paying more critical attention to the origins of their food. Although organics still represent a very small slice of overall food sales, their sales tripled from $393 million in 2002 to $1.7 billion in 2007. Consumers’ access to good information about pesticides is improving. The Pesticide Action Network (PAN) recently launched a “What’s On My Food” website and iPhone app. The app pairs US Department of Agriculture pesticide residue and toxicity data with common fruits and vegetables for easy lookup in the producer aisle.

In recent months we’ve approached Chipotle Mexican Grill about pesticides. Chipotle offers fast food diners burritos, tacos and salads made with fresh ingredients. Using the slogan “Food with Integrity,” the company sells hormone and antibiotic-free sour cream, chicken and pork. Customers who never before gave much thought to where restaurant meat came from can learn about Chipotle’s meat suppliers on its website.

In dialogue and letters to the company over the past year, we’ve been pushing Chipotle to take their good intentions farther, into produce as well as dairy and meat. We’ve asked the company to disclose what steps they are taking to promote sustainable produce farming. Chipotle told our shareholder group that it is gathering data on water and pesticide management from its avocado suppliers. The company’s web site discusses its sourcing of organic beans (35% of total bean purchases). However, the water and avocado efforts are not reported publicly.

In collaboration with members of the Investor Environmental Health Network, Trillium is filing a proposal asking Chipotle to publish a comprehensive report to shareholders discussing how the company is addressing pesticide use reduction in its supply chain.

Chipotle can bolster the credibility of “Food with Integrity” by prioritizing pesticide use reduction, beginning with high-residue crops such as green peppers tomatoes and lettuce.

Chipotle’s forays into sustainable purchasing lead us to believe the company can undertake this work more holistically and more transparently. Doing so will be certainly be a factor in the company’s successful entrée into the U.K. next year, where consumer awareness and expectations about supply chain issues is higher.

Click footnote number to return to text above:

1. See “Betting on the Farm” from the Spring 2009 issue of Investing For A Better World.

2. American Journal of Epidemiology, April 15, 2009.

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* Collaboration between client and Responsible Wealth, a project of United For A Fair Economy
** Successfully withdrawn this autumn.

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The Investor Statement calls on companies to address the role conflict minerals play by implementing a system for determining the origins of materials, creating a non-conflict material policy and working with their suppliers to ensure adherence to it.

The DRC, which has been plagued by a civil war since 1998, continues to lose 45,000 people each month to violence and disease, even though the war officially ended in 2003. In total, more than 5.4 million people have lost their lives and millions more have been displaced.  Secretary of State Hillary Clinton has called the widespread sexual violence against women in the eastern Congo “a crime against humanity.”

The militias that are responsible for the conflict use the abundance of coltan, gold, tin and tungsten deposits (which make the DRC one of the most mineral rich countries in the world) to finance their operations.  These militias, who control most of the mines in the eastern DRC, demand bribes, unofficial taxes and other payments for the minerals. The minerals are smuggled into neighboring countries including Rwanda and Burundi, smelted and eventually used in making laptops, cell phones, medical devices, airplane engines, and other consumer goods.

Some companies are already addressing this issue, most notably Hewlett Packard, which has implemented a metals traceability project. In addition, the EICC (Electronic Industry Citizenship Coalition) and GeSI (Global E-Sustainability Initiative) have recently commissioned the nonprofit organization RESOLVE to map the supply chain of various metals including tin and tantalum, which is made from processing coltan.

For more information:

“Investor Statement Regarding Conflict Minerals from the Democratic Republic of the Congo,” January 11, 2010.

“Boundaries of Responsibility,” Investing For a Better World, October 2008.

“Investors Urge Companies to Keep Minerals from War-Torn Congo Out of Supply Chains,” Social Investment Forum press release, January 14, 2010.

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The story can be found here.

The 275-member Interfaith Center on Corporate Responsibility (ICCR) reported today that 60 of its faith-based and concerned institutional investor members have contacted a total of 36 companies by letter or direct outreach asking the major publicly traded firms to clarify whether or not the Chamber speaks for them on healthcare reform and, if not, to make a public statement to that effect. The full text of the letter from the ICCR is available online at www.iccr.org.

Laura Berry, executive director, Interfaith Center on Corporate Responsibility, said: “Faith-based investors already concerned about the ‘disconnect’ between the U.S. Chamber of Commerce and its leading members on climate legislation are now troubled to see the same dynamic at work on the healthcare reform bill. We want to be very clear that every single one of these companies had previously agreed to adopt healthcare reform principles that are directly at odds with the extremist position that has been taken up by the U.S. Chamber of Commerce. Faith-based investors see the passage of healthcare reform as an historic opportunity that calls for all stakeholders, including companies, to step up and be counted. These companies should make it abundantly clear that they stand by their principles on healthcare and that, as such, the U.S. Chamber does not speak for them.”

Trillium believes healthcare reform is not only essential for social and economic reasons, but is in the long-term interest of these companies. It is time for them to stand up for healthcare reform, make good on their pledges, and make it clear that the U.S. Chamber does not represent their position.