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March 29, 2006
Shareowner Resolutions Overcome Obstacles to Promote Sustainability Reporting
    by Bill Baue

A campaign advocating for sustainability reporting refines its strategies, shifting from requiring adherence to recommending Global Reporting Initiative guidelines.


Sustainability reporting has come of age, growing almost tenfold in the past decade to nearly 2000 such reports issued last year (according to CorporateRegister.com), with more than 800 currently following Global Reporting Initiative (GRI) guidelines. However, there remain many companies that have not issued sustainability reports, prompting shareowner activists to file resolutions asking these companies to get with the program.

This proxy season, more than 15 sustainability reporting resolutions have been filed.

"We've had some great successes--we've already negotiated positive steps with about a half dozen companies that are going to be undertaking their first-ever sustainability reporting efforts," said Steve Lippman, vice president of social research at Trillium Asset Management. "We've also overcome past Securities and Exchange Commission rulings that were a barrier to filings like these."

2006 Shareowner Resolutions
Requesting Sustainability Reports

This campaign, which dates back to 2002, has faced and overcome significant obstacles since the Social Investment Research Analysts Network (SIRAN) issued a statement in October 2004 urging companies to issue sustainability reports using the GRI guidelines. In the 2004 proxy season, members of the Interfaith Center on Corporate Responsibility (ICCR), a coalition of 275 faith-based institutional investors that conduct shareowner action, filed almost 20 resolutions asking companies to issue GRI-based sustainability reports.

"Two years ago the SEC ruled against sustainability reporting resolutions that called for GRI reporting in the resolved clause on the grounds of 'vagueness,' on the theory that the GRI is a complicated external standard and shareholders might not understand what they are voting for," Mr. Lippman told SocialFunds.com. "In response, Domini and others developed a new sustainability reporting resolution, and the SEC has upheld this new resolution against vagueness challenges."

However, SEC staff issue decisions without explaining their rationale. It is therefore impossible to know exactly why resolutions survive company challenges (which usually entail several lines of argument), according to Adam Kanzer, general counsel and director of shareholder advocacy for Domini Social Investments. Last year Domini filed a sustainability reporting resolution with Wendy's International (WEN) that the company challenged. However, Domini agreed to withdraw the resolution when the company agreed to issue a report. Unfortunately, the report fell far below Domini's expectations.

"We gave them a lot of feedback and we felt that they didn't really take our feedback seriously and hadn't incorporated it, so we chose to re-file the resolution," said Mr. Kanzer. "We added a paragraph in the supporting statement where we recommended using GRI--we didn't tell them to do it, we just suggested it."

"It was an experiment to see if we could get GRI into the resolution and still pass a challenge at the SEC," Mr. Kanzer told SocialFunds.com. "Of course Wendy's challenged it again on the grounds they had 'substantially implemented' it."

Mr. Kanzer reviewed past decisions on similar resolutions where shareowners asked companies who had already issued sustainability reports to do a better job. He came across several instances, including one from a few years earlier when the SEC barred Johnson Controls (JCI) from omitting the resolution despite the fact that it had issued a sustainability report--presumably because the report did not meet the standard set in the resolution.

"The Johnson Controls report wasn't the greatest in the world, but it wasn't bad--it was certainly much better than the Wendy's report," explained Mr. Kanzer. "I argued that since Johnson Controls lost its challenge and it was a much better report, that if the SEC allowed Wendy's to omit our resolution, it was essentially reversing the Johnson Controls decision."

"If the only thing you ask for is a sustainability report and you don't give any definition as to what it is or how to do it, I think the SEC is willing to set the bar pretty low," Mr. Kanzer added. "But if a resolution asks companies to go through a specific process--conduct a company-wide review, disclose practices, include indicators--I think the SEC holds companies to a higher standard."

While the campaign has met with some such struggles, it has also resulted in significant cooperation. For example, Walden Asset Management withdrew its resolutions at two companies--SBC (SBC--now AT&T) and Chubb (CB)--that agreed to move take action on sustainability reporting.

"Walden and co-filers submitted a sustainability report resolution to SBC prior to the AT&T merger for a number of reasons, primarily due to concern that environmental and social programs might get lost or de-prioritized in the shuffle of the merger," said Meredith Benton, research associate at Walden. "We have been very pleased with the open and responsive way in which AT&T addressed the resolution's request, and we have been impressed with the dedication we have seen early on to developing a substantive report."

 

 
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