CSR Press Release

Corporate sustainability has evolved from an intricate dance between stakeholders, companies, shareholders, regulators, academics, and others. Antagonistic activism still plays a role addressing egregious problems, but increasingly, social and environmental activists engage collaboratively with companies to achieve progress toward sustainability.

For example, Nestle Waters North America announced in its first corporate citizenship report its precedent-setting goal to lead the industry to take back and recycle 60 percent of its PET (polyethylene terephthalate) bottles by 2018 (Coca-Cola had committed to 50 percent.) Nestle Waters Director of Corporate Citizenship Alex McIntosh acknowledged the role shareholder activism played in its decision. "Over the past two years, AYS engaged Nestle Waters North America in a respectful but insistent dialogue on container recycling. Its 2006 container recycling report and scorecard got our attention, and encouraged us to look at the recycling challenge more broadly," he added, referring to the report that gave Nestle a failing grade.

On the global stage, UN Principles for Responsible Investment (PRI) signatories managing $4.4 trillion are appealing to 9,000 CEOs worldwide to join the UN Global Compact, which requires companies to commit to (and annually communicate their progress on) ten principles in the areas of human rights, labor, environment, and anti-corruption. The letter PRI sent to companies in the MSCI World, FTSE All-World, and IFC Emerging Markets indexes represents a 'carrot' of sorts, noting that PRI members prefer to invest in companies proactively pursuing ESG best practices, such as the Global Compact principles. Of course, the implicit 'stick' is divestment from (or underweighting of) companies failing to manage ESG effectively.

On the regulatory front, the SEC called for public comments on its 21st Century Disclosure Initiative seeking to modernize its transparency regulations, and a host of shareholder activists submitted letters urging the commission to integrate environmental, social, and governance (ESG) considerations into its reporting requirements. Ceres coordinated a letter from 14 members of its Investor Network on Climate Risk making the case for ESG disclosure. The letter reiterated Ceres' 2007 climate risk disclosure petition to the SEC. "Climate change, like subprime mortgages, poses far-reaching hidden financial risks that investors cannot ignore," said Ceres President Mindy Lubber. Joining Ceres in submitting comment letters was the Investor Environmental Health Network, Trillium Asset Management, Domini Social Investments, and the Interfaith Center on Corporate Responsibility. ICCR Executive Director Laura Berry stated the case most succinctly: "It is time for the SEC to begin requiring ESG issue reporting."

Shareholders also register their concern with companies on the proxy ballot, filing shareholder resolutions on ESG issues such as climate, human rights, and executive compensation. Turns out these shareholder activists were prescient on the role of executive compensation as a bellwether for financial risk associated with the market meltdown. According to research by Fund Votes, 8 of the 9 financial firms named in the US bailout plan had received executive compensation resolutions seeking 'say on pay' in 2008. While mainstream mutual funds doubled support for executive compensation resolutions since 20 support percent levels in 2004 when the SEC first required funds to disclose proxy voting records, they still fell far short of the near universal support achieved by socially responsible investing (SRI) firms on such resolutions.

Information such as this plays the music that feeds the sustainability dance. FTSE and KLD Indexes are turning up the volume by partnering to provide ESG indexes. Announced at SRI in the Rockies, the annual SRI industry meeting, the collaboration promises to continue the integration of sustainability into mainstream corporate and investment decision-making.

This article was written by CSRwire contributor Bill Baue. Disclosure: Bill has worked with Ceres, IEHN, ICCR, and Fund Votes.