January 02, 2013
Top Sustainable Investment Stories of 2012, Part 3
by Robert Kropp
For some institutional investors, shareowner tactics evolve from resolutions to engagement, and
proposals addressing hydraulic fracturing focus concerns on community impacts.
The second of the six Principles for
Responsible Investment (PRI) commits signatories to a policy of active ownership, which
includes both the development of a corporate engagement strategy and the filing of shareowner
Traditionally, the approaches of
European and US-based shareowner activists have differed. In a 2009 paper outlining the differences
in approach, James Gifford of PRI wrote, "There is a cultural difference between the US and the UK
on the issue of filing shareholder resolutions, with this tool being much more common in the US due
to weaker shareholder rights leaving shareholders with fewer options, as well as a more
confrontational corporate culture."
But according to Tim Smith, Senior Vice President and
Director of ESG Shareowner Engagement at Walden Asset Management, the trend toward engagement has
been underway for years, as companies increasingly recognize the materiality of environmental,
social, and corporate governance (ESG) factors. Also, successful legislative and regulatory
initiatives such as Dodd-Frank and rulings by the Securities and Exchange Commission (SEC) on
executive compensation and climate change disclosure have contributed to a decrease in the filing
of some types of resolutions.
For 26 years, Smith served as Executive Director of the Interfaith Center on Corporate Responsibility
(ICCR). In 2011, Laura Berry, the current Executive Director of the faith-based investor
network, told SocialFunds.com, "The only real win is withdrawn resolutions, when companies look to
us as a focus group for risk management."
That ICCR's philosophy on corporate engagement
has undergone a fundamental evolution was evident in its 2012 Proxy Resolutions and Voting Guide.
The Guide reported that the number of resolutions filed by ICCR members, which totaled 308 as
recently as 2010 and once totaled as many as 650 resolutions in a single proxy season, decreased to
only 160 in 2012. Members also report that they are engaged in 170 ongoing dialogues with
"We seek a global community built upon on justice and sustainability through
the transformation of the corporate world," Berry told SocialFunds.com when the 2012 Guide was
published. "When you start to use language around transformation and collaboration, it starts to
leave the field of adversarial conversations and pushes us toward everyone having a stake in
"When companies see that you're not only at the forefront of filing
proposals and pushing them to change, but are also willing to acknowledge when they do change, they
begin to change their way of looking at what corporate social responsibility means," she continued.
"They're willing to take more risks with us because we understand that moving through system change
ICCR Focuses on Dialogues More than
Resolutions in Corporate Engagement
Ceres is another investor network that has taken a leading role in
shareowner action for years, especially on environmental issues. The organization's 2012 shareowner
resolution tracker reports that the number of resolutions filed by members has remained fairly
constant, totaling 110 this year. But what is notable is that nearly half were subsequently
withdrawn following successful corporate engagement, suggesting that for Ceres as well as ICCR
dialogue is growing increasingly robust.
Ceres also noted that shareowner resolutions
addressing environmental and social issues consistently gain more than 30%, and often more than
40%, of shareowner support, indicating that increasing numbers of mainstream investors are
supporting those resolutions.
Rob Berridge, Senior Manager of Investor Programs at Ceres,
told SocialFunds.com that successful engagement on ESG issues may well have driven regulatory
"We hope there are feedback loops going on," he said. "In 2010, the SEC issued
guidance on climate risk disclosure. We think that the work investors did prior to that got
companies to recognize climate change as a risk, which made it easier for the SEC to issue its
Resolutions or Engagement? Ceres
Prepares for Proxy Season by Using Proxy Ballot to Encourage Change
Proxy Season Results Support
Mainstreaming of ESG
Sometimes, the evolution of engagement by shareowners with
corporations can be found in the wording of the resolutions themselves. Sustainable investors have
been engaging for several years with companies engaged in the controversial practice of hydraulic
fracturing, or fracking. The primary focus of the resolutions filed had been environmental
concerns, such as groundwater contamination and the use of toxic chemicals in the process.
During the 2011 proxy season, shareowner resolutions addressing the environmental impacts of
hydraulic fracturing gained an unprecedented 40% support.
In 2012, shareowners expanded
their scope to include community impacts. "Shale gas companies must earn their 'social license' by
operating in a more responsible manner," Nora Nash of the Sisters of St. Francis of Philadelphia,
an ICCR member, said in May. "Companies must address the community and environmental concerns
prompting bans and moratoria. They must listen closely, respond sensitively, and account to both
investors and communities for their actions. Otherwise, this is an uncharted process of unwanted
development that deprives communities of their rights and leads to litigation and loss of investor
In April, the Environmental Protection Agency (EPA) issued regulations
designed to lessen air emissions from the hydraulic fracturing, or fracking, process. Soon
afterward, an international coalition of 55 institutional investors with $1 trillion in assets
under management called for the adoption of best practices by corporations engaged in hydraulic
Shareowners Continue Campaign
for Disclosure of Risks Associated with Fracking
Investors Continue Pressure for
EPA Finalizes Rules on
Emissions from Fracking
A Trillion Dollar Call for Best
Practices in Fracking Operations
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