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Christie Renner, First Affirmative Shareowner Advocate

First Affirmative’s advocacy initiatives involve several tools and engagement strategies for voicing our concerns on environmental, social, and governance (ESG) issues. We collaborate with investment firms and related organizations to engage companies on issues ranging from executive compensation and fair labor practices, to environmental contamination and climate change. Some of these initiatives involve signing letters and investor statements, while other engagements include company dialogues and filing shareholder proposals to be voted on at company annual meetings.

During the 2009–2010 proxy season, First Affirmative co-filed a dozen shareholder proposals, many of which focused on transparency and disclosure. Resolutions filed at Google and Aqua America requested that those companies begin producing sustainability reports. Resolutions filed at Kroger and JM Smucker asked the companies to report on risks of climate change to their supply chains. First Affirmative joined CalSTERS to co-file a resolution at Conoco Phillips urging the company to report on the environmental impact of its oil sands operations in Canada’s boreal forest.

Many of these resolutions reach beyond disclosure to address changes in company policy. For example, a “say on pay” resolution that First Affirmative co-filed at Johnson & Johnson received 47% support from voting shareowners. Separately, a resolution we co-filed at PepsiCo asked the company to implement a better container recycling policy. Four months after the resolution was filed, PepsiCo announced plans to create partnerships intended to increase U.S. beverage recycling rates to 50% by 2018 and the resolution was withdrawn.

We were able to withdraw three additional resolutions due to successful company engagement, including resolutions requesting that JPMorgan Chase improve its commitment to the Carbon Principles, that Colgate Palmolive implement a shareholder advisory vote on executive compensation, and that Proctor & Gamble report on its efforts to mitigate the impact of its supply chain on deforestation. As sustainability priorities increasingly penetrate corporate board rooms, shareowners welcome the opportunity to withdraw resolutions when corporate leaders agree to tackle ESG goals.

A resolution we co-filed at Home Depot requesting that the company disclose equal employment opportunity data received 27% support. And a resolution at RR Donnelley asking the company to develop a sustainable paper purchasing policy received 10% support.

First Affirmative continues to follow the issue areas mentioned above, as well as other topics of concern, including the contamination risks of hydraulic fracturing operations, toxicity in consumer products, and human rights issues in supply chains. First Affirmative signed an investor statement regarding conflict minerals from the Democratic Republic of the Congo (DRC) in January, calling for companies to acknowledge and address the human rights violations resulting from warfare in the DRC.

Concerns about sustainable procurement in the agriculture and aquaculture sectors led First Affirmative to partner with other investors to send a letter to Costco encouraging the company to follow some of its peers by adopting a seafood sustainability policy, taking steps to stop selling threatened species, and forming a relationship with a third-party organization such as an aquarium or non-governmental organization (NGO) to help guide the company toward science-based policies and best practices. Conversations with Costco continue.

In support of international reporting mechanisms, First Affirmative recently became a signatory to both the CDP Water Disclosure Project and the Forest Footprint Disclosure Project. Supporting investor statements and initiatives, and participating in company dialogues and conversations are key components of First Affirmative’s advocacy work.

The regulatory context in which companies operate continues to shift. In January 2010, the Securities and Exchange Commission (SEC) issued guidance for how companies should report on risks and opportunities related to climate change, a welcome recognition that climate change presents serious risks and that investors need to know about them. The SEC will also be able to rule on proxy access for shareholder director nominations, as a component of the Dodd-Frank Wall Street Reform and Consumer Protection Act that is likely to make it to the president’s desk for a signature by the end of July. This financial reform legislation embraces several priorities shared by many socially conscious investors, including a mandate for companies to implement “say on pay” policies and the creation of a new consumer protection bureau. First Affirmative was active in contacting appropriate members of Congress to share our perspective throughout the financial reform debate.

The concerns and opportunities companies face related to ESG issues can have a significant impact on shareowner value. While shareholder proposals are non-binding, they provide a critical avenue for investors to bring issues of concern to a wider base of shareowners and to company management. It is our goal to support companies in making improvements and to help point them to examples of successful policies, practices, and reporting mechanisms. As we wrap up our most successful season yet, we look forward to continuing our advocacy work and deepening our collaborations in the coming years.

Note: Mention of specific companies or securities should not be considered a recommendation to either buy or sell that security. For information regarding the suitability of any security for your investment portfolio, please contact your financial advisor.