October 14, 2013 — Dunkin’ Donuts’ customers might not give much thought to what kind of oil their food is fried in. But last spring enough of the company’s shareholders did that they convinced Dunkin’ Brands to commit to using only certified sustainable palm oil.
It seems like an odd, even convoluted tale: The director of New York state’s public employee pension fund, nearly $2 million of which is invested in doughnuts (and ice cream, since Dunkin’ also owns Baskin Robbins), filed a resolution asking that the company reconsider its use of palm oil, whose production is a major contributor to deforestation in Indonesia
and elsewhere. To avoid putting the resolution to a vote of all its shareholders, Dunkin’ More than 400 sustainability-focused shareholder resolutions were filed at U.S. companies this year.agreed to only buy oil from members of the Roundtable on Sustainable Palm Oil.
This kind of interaction is happening more and more often over an ever-expanding range of issues, many of which have not traditionally been considered shareholder concerns. More than 400 sustainability-focused shareholder resolutions were filed at U.S. companies this year — a record, according to the Sustainable Investments Institute, or Si2, a Washington, D.C.–based nonprofit organization that studies initiatives to promote corporate social responsibility.
Not only that, many of those resolutions saw support that was nearly unheard of a decade ago. In 2013, Si2 found, more than half of all sustainability-focused resolutions that went to a vote got upwards of 20 percent support. “It used to be groundbreaking to hear” that a sustainability-focused resolution received 20 percent approval, says Fran Teplitz, director of social investing and policy for the consumer organization Green America. Many other resolutions were withdrawn because the targeted company agreed to negotiate.
In theory, shareholder resolutions aren’t a particularly powerful tool for change: Nearly all are nonbinding, and by the rules of the Securities and Exchange Commission, they cannot deal with a company’s “ordinary business” — day-to-day decisions or the processes at the core of a company’s operations. Shareholders also have to prove that the issue raised will have “material impact” on the company — not just for environmental or social reasons, but also for the bottom line. “There are contested views about what’s material, and lawyers will argue long and hard,” says Si2 founder and executive director Heidi Welsh.
Yet many shareholder resolutions aimed at boosting corporate sustainability are achieving real results. Dunkin’ is only the latest of a number of companies to change its palm oil sourcing. Last winter, investor pressure convinced the largest leaseholder in the Bakken oil fields to reduce methane flaring at its drill sites to as close to zero as possible. And just last month, after years of pressure from the shareholder advocacy group As You Sow, McDonald’s agreed to phase out polystyrene cups in its U.S. restaurants. In recent years, other companies targeted by shareholder activists have promised to reduce greenhouse gas emissions, increase investments in renewable energy, use more sustainable ingredients and packaging, or hold discussions on implementing take-back policies for electronics recycling.
Secrets to Success
So when and how does shareholder activism succeed? It’s sometimes through behind-the-scenes negotiation and sometimes through public votes at annual shareholder meetings to call media attention to an issue, embarrassing a company into action. Even non-binding votes without majority-level support can make a splash, says Welsh.
Success depends on making a compelling case that environmental concerns are business concerns.Large-scale investors and coalitions — including pension funds, religious groups and asset managers — often lead the charge, but individual investors can also introduce and vote on resolutions.
Success depends on making a compelling case that environmental concerns are business concerns. Richard Liroff, founder of the Investor Environmental Health Network, points to shareholder resolutions that targeted bisphenol-A years before a cascade of companies began dropping the compound from their products over consumers’ health fears.
“Shareholders can provide good over-the-horizon radar for companies of issues that are emerging that they ought to be paying attention to,” he says. IEHN is currently focused on getting companies involved in fracking to disclose the risks involved; so far, the group has filed 37 shareholder resolutions at 20 companies.
Given the strictures on shareholder proposals, it’s common for investor advocates to push not for specific changes, but for analyses of risk: asking companies to publicly measure their greenhouse gas emissions, to analyze the environmental impact of their global supply chains, or, in a strategy pioneered last year, to quantify their exposure to “stranded assets,” such as fossil fuel reserves that would exceed the world carbon budget. Knowing — and publicly acknowledging — these risks has led to concrete changes in company policies. “It’s a cliché,” says Liroff, “but in business, what’s measured gets managed.”
In some cases the business implications are fairly obvious. “If a company gets on the wrong side of things — and if there’s a spill or there’s some kind of controversy because of problems with their business practices, that can have a real bottom-line impact,” says Welsh. In recent years, however, investors have also been pushing companies to get serious about risks that may seem more distant: in particular, the changing climate. In 2010, a coalition of investor advocates convinced the SEC to require all public companies to acknowledge what financial risks climate change could pose to their business.
Many investors see this form of advocacy as just one part of a broader tool kit: a rare chance for regular people to redefine the concept of “maximizing shareholder value” by forcing companies to pay attention to long-term risks as well as short-term gains.
Yet recent studies have found that company compliance is low, so shareholders are continuing to push individual companies to take a hard, data-driven look at what climate change will mean for them. Many shareholders are truly worried, says Mindy Lubber, who, as president of Ceres, works with a network of large-scale investors collectively holding hundreds of billions in assets.
“We’re no longer talking about risks, we’re talking about massive risks,” Lubber says. It helps, too, that shareholders no longer have to prove that climate change matters to each company’s bottom line. “Having the SEC say that climate is a material risk changed the debate,” she says.
Part of the Kit
There are questions about whether pressuring companies through shareholder activism is the best way to create change — especially when the crisis is urgent, or when it’s not just cooking oil you’re concerned about.
“Sometimes,” says Welsh, “there are really significant controversies that are not going to be resolved by sitting down over a cup of coffee. They have to do with the basic direction of a company’s business.”
Still, many investors see this form of advocacy as just one part of a broader tool kit: a rare chance for regular people to redefine the concept of “maximizing shareholder value” by forcing companies to pay attention to long-term risks as well as short-term gains. For proof, says Teplitz, look to the growth in shareholder-led proposals ranging from political spending to palm oil. “The level of specificity and the wide range of issues covered now shows how effective engagement can be,” she says.