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February 09, 2006
Shareowner Action on Product Toxicity Shifts from Isolated Resolutions to Become a Campaign
    by Bill Baue

Fueling this development is the increasing visibility of product toxicity in the news, with the Environmental Protection Agency issuing record fines.

The risks of toxics contained in products (from human health, environmental, and investment perspectives) are gaining a much higher profile lately, both in mainstream news and in socially responsible investing (SRI) shareowner activism. In December 2005, the US Environmental Protection Agency (EPA) levied the largest civil fine ever ($16.5 million) against DuPont (ticker: DD) for withholding information for over two decades on the environmental and health risks of perfluorooctanoic acid (PFOA), a chemical used to make Teflon. Then on January 25, 2006, the EPA announced its request of eight chemical companies (including DuPont, the only US maker of PFOA) to voluntarily reduce use of PFOA by 95 percent by 2010 and eliminate it by 2015.

On the shareowner action front, the number of shareowner resolutions filed on product toxicity and environmental health has increased from isolated instances to a veritable campaign, with almost a dozen resolutions covering a wide range of issues filed for the 2006 proxy season.

"Several years ago there were some chemical-specific shareholder resolutions, for example on mercury thermometers and phthalates," said Rich Liroff, a senior fellow in the toxics program at the World Wildlife Fund (WWF), who collaborates with shareowner activists on this campaign. "So far this season 11 resolutions have been introduced, far more than ever before."

"This reflects investors' considerable and growing interest, and the tally doesn't include inquiry letters that may lead to more resolutions later this year and next proxy season," Dr. Liroff told "This environmental health campaign, while sometimes highlighting individual chemicals, essentially provides an overarching logical framework for addressing toxic chemicals in products and production processes across the board."

Company Shareowner Resolution
Avon (AVP)Toxics Policy Report
Becton-Dickinson (BDX)Report on brominated flame retardants and other toxic chemicals
CVS (CVS) Product Safety (cosmetics reformulation)
Dow (DOW)Report on pesticides/asthma linkage
Dow Report on increasing inherent security of chemical facilities
DuPont Report on increasing inherent security of chemical facilities
DuPont Report on PFOA (“Teflon chemical”) phase-out
Johnson and Johnson (JNJ)Product safety (cosmetics reformulation) (resolution withdrawn)
ServiceMaster (SVM)Report on substituting safer lawncare services
Wal-Mart (WMT)Report on safer chemicals policies
Whole Foods Market (WFMI)Report on endocrine disruptors and other toxic chemicals

The campaign borrows from the playbook of the successful climate change campaign, which has resulted in the withdrawal of resolutions at a number of companies as they enact the requested actions of reporting on (and mitigating) climate change risks.

"For example, the safer chemicals benchmarking framework is derived from a similar benchmark that Doug Cogan of the Investor Responsibility Research Center produced in a report commissioned by Ceres," said Dr. Liroff.

For a report from the Rose Foundation for Communities and the Environment, Dr. Liroff created a safer chemicals benchmarking framework, a set of corporate governance best practices for companies to avoid risks and seize opportunities on environmental health and product toxicity.

The first resolution in this campaign has already gone to vote at healthcare technology company Becton-Dickson in late January, with 8.7 percent of shareholders supporting the proposal asking the company report on brominated flame retardants (BFRs) and other toxic chemicals. This tally is a very impressive showing for a first-year resolution, almost tripling the three percent threshold required by the Securities and Exchange Commission for re-filing the resolution next year.

"As toxic chemicals in products are increasingly scrutinized and regulated, those companies that are slow to respond in eliminating toxics in their products are most likely to lose market share and shareholder value," said Karen Shapiro of Domini Social Investments, lead filer of the resolution. "Becton-Dickinson couldn't tell us if their products contain BFRs, while many of Becton-Dickinson's competitors have already eliminated these chemicals."

Throwing its considerable weight behind the resolution was the New York City Retirement System (NYCERS), which owns approximately 1.1 million of the 14.4 million shares voting in favor of the resolution. Institutional investor support, which is key to shareowner resolution success, often hinges on how proxy voting services recommend voting.

Institutional Shareholder Services (ISS), which did not have a policy on this issue until its 2006 update, now recommends voting "for" resolutions requesting disclosure of policies related to toxic chemicals but "against" those requiring product reformulation on a specific timeline. ISS develops recommendations of a case-by-case basis for resolutions asking that companies evaluate and disclose the potential financial and legal risks associated with certain chemicals.

Another factor impacting shareowner activism is the degree to which companies negotiate and compromise with resolution filers. For example, Citizens Funds withdrew its cosmetics reformulation resolution at Johnson & Johnson after the company agreed to greater transparency and engagement with stakeholders.

Whole Foods Market recommends voting "against" a resolution requesting a report on endocrine disruptors such as Bisphenol A (BPA) and other toxic chemicals in products it sells, but the company does note advances it has made.

"For example, we recently stopped the sale of BPA-containing baby bottles because of emerging scientific evidence on their risk," states Whole Foods in its proxy statement.

Is this adequate advancement to satisfy the resolution filers?

"No, not yet," said Andrew Shalit, director of shareholder advocacy at Green Century Funds, the lead filer of the resolution. "We're pleased that Whole Foods has phased out kids cups and baby bottles containing BPA due to our resolution and dialogue with them."

"But they still sell a lot of other products containing BPA--for example, they sell tomato products in cans that are lined with BPA, which means pregnant women and babies in utero can still be exposed," Mr. Shalit told "Now that Whole Foods has acknowledged the risk, they need to move the rest of the way on BPA and on the larger range of concerns raised in the resolution."


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