Outcome: Withdrawn following a productive and on-going dialogue.
Managing and reporting on environmental, social, and governance (ESG) topics such as worker health and safety, resource usage, operational environmental impacts, and corporate governance policies helps companies compete in a business environment characterized by finite natural resources, changing legislation, and heightened public expectations for corporate accountability. Transparent, substantive reporting allows companies to gain strategic value from existing sustainability efforts and identify emerging risks and opportunities.
Recent reports show workforce injury rates at Tesla’s Fremont, CA facility were significantly higher than industry average from 2014-2016. Proponents are concerned that this alarming trend could also lead to litigation, production disruptions, reputational damage, and an inability to attract and retain workers.
Tesla responded by making some improvements to its policies and practices, resulting in lower injury rates for the first quarter of 2017. However, it is imprudent to assess the effectiveness of Tesla’s strategies solely on one quarter of improved performance. As such, investors believe annual, standardized disclosure is warranted, especially as the company ramps up production in a manner that CEO Elon Musk has described as “production hell.”
Beyond health and safety, Tesla does not substantively report on its policies and programs to manage other ESG topics, leaving investors unable to adequately evaluate how the company is managing these significant risks and opportunities.
Corporate sustainability reporting is now a mainstream business practice, undertaken by 82% of the S&P 500 in 2016 according to the Governance and Accountability Institute. Globally, 73% of 4,500 companies surveyed in 2015 by KPMG publish corporate responsibility reports. Notable examples include Ford, GM, Daimler, Toyota, Volkswagen, BMW, Cooper Tire, Delphi Automotive, BorgWarner, and Honda.
ESG factors are widely linked to financial outperformance. Oxford University and Arabesque Partners reviewed 200 studies on sustainability and corporate performance and found 90 percent of studies show high ESG standards reduced companies’ cost of capital, and 80 percent show a positive correlation between stock price performance and good sustainability practices.
Investors have demonstrated strong interest in corporate reporting on sustainability policies, practices, data, and improvement targets. The 1,500 signatories, representing over $60 trillion in assets under management, of the Principles for Responsible Investment have pledged to seek “appropriate disclosure on ESG issues.” The Task Force on Climate-related Financial Disclosures, whose members include JPMorgan Chase, UBS Asset Management, Generation Investment Management, and BlackRock, recommends that companies disclose targets to measure and manage climate risks and performance against these targets.
Shareholders request Tesla issue an annual corporate sustainability report describing the company’s policies, strategies, performance, and improvement targets on material environmental, social, and governance (ESG) topics. This report should be prepared at reasonable cost and omit proprietary information.
The report should address relevant policies, practices, metrics, and goals on topics such as: supply chain management, greenhouse gas emissions, waste minimization, energy efficiency, workforce health & safety, product quality and safety, and other relevant impacts.