It has become more and more clear that shareholders can have tremendous leverage to influence corporate and industry practices globally, often in collaboration with coalitions of other shareholders and activist organizations. At Boston Common Asset Management, our avenues for promoting change have included constructive dialogue, targeted data gathering and promoting industry best practices, key performance indicator (KPIs) and metrics development, multi-stakeholder initiatives, shareholder resolutions, public policy testimony, and proxy voting. For the past decade, we have developed our engagement strategy as long-term, global investors and have promoted constructive dialogue as a primary tool in non-U.S. markets, where shareholder resolutions are a rarity.
The most effective shareowner engagement platform comes from leveraging a variety of investor tools to support constructive dialogue. These include public rankings, such as the Access to Medicines Index and Access to Nutrition Index (ATNI); public scorecards, such as the recently released “Disclosing the Facts: Transparency and Risk in Hydraulic Fracturing Operations,” the Emerging Markets Disclosure Project scorecard used in Brazil, South Africa, and South Korea; and a company’s own reporting and public commitments through industry initiatives, such as the Carbon Disclosure Project (CDP), the Global Compact, and the Global Reporting Initiative (GRI). We also use NGO reports to flag emerging issues, such as the 2013 Oxfam Behind the Brands Report, which ranked the ten largest food and beverage companies on a variety of key social and environmental impacts in the global food supply chain.
Global investor statements have played a critical role in raising awareness and support for better sustainability practices. Notably, the Emerging Markets Disclosure Project was signed by over 50 in asset owners and asset managers with over $1 trillion in assets. They have also issued urgent calls to actions, such as the one following the deaths of over 1,100 garment factory workers in the 2013 Rana Plaza tragedy in Bangladesh. The investor statement coordinated by the Interfaith Center on Corporate Responsibility came out shortly after the tragedy and called for systemic change in the apparel industry. It was signed by over 200 global organizations from 16 countries with $3.1 trillion in assets. Finally, we have worked collaboratively under multi-stakeholder initiatives, such as the one organized by the Responsible Sourcing Network to address the U.S. Securities & Exchange Commission’s rule-making (Section 1502 of the Dodd-Frank Act) process on conflict minerals. Notwithstanding the political challenges associated with this effort, for two years, this brought together a core group of companies, investors, and human rights groups, which met on a regular basis to develop a common framework and specific recommendations on conflict minerals disclosure requirements that are now a matter of public record.
Access to high-level management, in some cases including board members and CEOs, is a key contributor to the success of these efforts. Additionally, building a network of corporate, investor, industry, and non-governmental organizations around the world, which has served as an invaluable sounding board and has inspired partnerships on numerous shareholder initiatives. Boston Common has served in leadership roles in industry initiatives, such as the Access to Medicines Index (ATM Index), Access to Nutrition Index (ATNI), the Global Network Initiative (GNI), and the Investor Environmental Health Network (IEHN). We have also played a leading role in building partnerships with organizations, such as the Interfaith Center on Corporate Responsibility (ICCR), the Ecumenical Council for Corporate Responsibility (ECCR), Ceres, ASrIA, and the Principles for Responsible Investment (PRI) to develop a platform on social, environmental, and corporate governance issues.
While one voice can make a difference, the collective voice of these coalitions is dramatically amplified. Impact and change cannot always be defined by a single act or response, but a series of events and changes can affect the entire trajectory of a company or sector’s approach in managing key ESG risks and leveraging opportunities. It may take years for efforts of constructive dialogue to bear fruit, but like a patient vintner tending her grapes, the results can be bountiful, robust, and long-lasting. The approach must continue to be global, transparent, and focused on the long-term to bear more sustainable bounty.
Two examples of constructive dialogue that continue to bear fruit include Apache and the oil and gas sector, and cross-broader collaboration in the UK on lobbying disclosure and best practices with GlaxoSmithKline:
Example: Oil and Gas Sector
Boston Common’s annual off-the-record shareowner meeting with Apache’s Chair and CEO, Steve Farris—now in its ninth year—has helped to drive new environmental, social, and governance changes by Apache and its sector peers. The meetings have provided investors with valuable insights. The September 2013 meeting addressed climate change and asset risk, hydraulic fracturing and water management, human rights policy and Egypt, Alaska and Indigenous Peoples rights policy, and Apache’s produced water spill in Canada.
Constructive dialogue to set the agenda, combined with hard-hitting facts from the November 2013 report, “Disclosing the Facts: Transparency and Risk in Hydraulic Fracturing Operations,” which analyzed the public disclosure of oil and gas companies regarding their hydraulic fracturing operations in the U.S. and Canada, is an effective strategy. “Disclosing the Facts” examined the reporting practices of 24 companies on five key metrics: (1) toxic chemicals; (2) water and waste management; (3) air emissions; (4) community impacts; and (5) management accountability, on a play-by-play basis. The year-long study by Boston Common, As You Sow, Green Century, and the Investor Environmental Health Network found that companies as a whole are not providing sufficient information for investors on their efforts to reduce community and environmental impacts. The study also gave examples of notable practices by companies and detailed recommendations for improvements.
Example: GlaxoSmithKline: Lobbying Disclosure
As investors, we encourage transparency and accountability. One area that has attracted much attention is the use of corporate funds to influence legislation and regulation—both directly and indirectly. Many UK companies, especially those with large U.S. footprints, are actively engaged in corporate political and lobbying activities in the U.S.–directly, through the formation of Political Action Committees (PACs), and indirectly, through trade associations and other third party organizations.
Boston Common hosted a meeting with GlaxoSmithKline’s (GSK) CEO, Sir Andrew Witty, in November 2013—a successful example of encouraging this type of disclosure and transparency at the company level. We commended GSK’s recent departure from ALEC, the U.S. trade association that wrote model state legislation including the controversial “Stand Your Ground.” We also applauded GSK’s enhanced lobbying disclosure, which the company released in 2013 as a result of our year-long dialogue.
During the 2013 proxy season, Boston Common also co-led a broad investor initiative engaging half of the FTSE 100 companies in the UK, calling for greater disclosure and due diligence procedures related to corporate political and lobbying activities. By year-end 2013, over thirty-two companies had responded with seventeen indicating consideration of enhanced disclosure in their 2014 annual reports. In October 2013, AstraZeneca joined GlaxoSmithKline and Unilever in publicly disclosing they had left ALEC. The initiative has provided some public disclosure on the companies and template letter which was posted on ShareAction’s website.