April 28, 2009
PepsiCo Agrees to Policy Respecting Human Right to Water
by Robert Kropp
Shareowner advocates led by NorthStar Asset Management succeed in engagement with PepsiCo on
resolution calling for adoption of water management policy.
Current global water management practices are not sustainable, according to the CEO Water
Mandate, a public-private initiative launched in 2007 by the UN Global Compact . Companies, especially those whose
water usage is considerable, have a responsibility to make water resource management a priority.
Yet the CEO Water Mandate is "voluntary and aspirational," and falls short of
mandating that its signatory companies adopt specific policies and procedures addressing water
management resources that endorse the United Nations' policy on the Human Right to Water. In 2002,
the United Nations defined the Human Right to Water as "all people's right to safe, sufficient,
acceptable, physically accessible and affordable water for personal and domestic use."
Julie Goodridge, founder of NorthStar
Asset Management, a Boston-based investment management firm, told SocialFunds.com, "If you read
the CEO Water Mandate, it doesnít directly address community impact." So when NorthStar found
itself with shares of PepsiCo in its portfolio, a staff member urged Goodridge to submit a
shareowner proposal directing PepsiCo to create a policy articulating its commitment to the Human
Right to Water.
In 2003, PepsiCo's water-use license was revoked in Pudussery, India,
because of claims that its bottling plants there were over-consuming and depleting community
groundwater, which is a direct violation of the Human Right to Water. Goodridge said, "The
community of Pudussery found that their well was dry, and had to raise a big stink before the local
government addressed it. PepsiCo came in with a lot of scientists to try to prove that it was not
responsible for the groundwater depletion."
The shareowner resolution, crafted with the
help of water justice experts at the Unitarian
Universalist Service Committee (UUSC), an international human rights organization, was
submitted for the 2008 proxy season. PepsiCo challenged the resolution at the US Security and
Exchange Commission (SEC), claiming that the proposal was vague and ambiguous, and contained
charges of illegal or immoral conduct without proof.
The SEC disallowed PepsiCo's
challenge to the resolution, and the resolution went on to gain 7% of shareowners' votes, easily
exceeding the threshold of 3% that is required by the SEC for a shareowner proposal to be
re-submitted for a second year.
Goodridge said, "When we prepared to submit the proposal
for the 2009 proxy season, Lauren Compere at Boston Common got in touch with us, and they co-filed
the resolution." Compere is the Director of Shareholder Advocacy at Boston Common Asset Management.
continued, "We've had success with shareholder resolutions dealing with human rights in the
workplace, but I always thought of them as black-and-white issues, as no-brainers. The issue of
water rights is much more complex."
"We're a money management firm, not water activists,"
said Goodridge. "It's hard for an office with four people managing portfolios to take on corporate
giants. Lauren has had much more experience with this kind of action than we have."
PepsiCo resolution was re-filed in November, 2008. In December, PepsiCo contacted NorthStar and
asked for an example of the kind of policy the investment firm would like to see it adopt.
"I had to craft a water policy document for a major corporation," Goodridge said. "I sat down
and in fifteen minutes wrote a policy. PepsiCo got back to me and said that they thought this was
something they could work with."
Negotiations continued through the winter. According to
Goodridge, her original statements were much stronger than the language eventually agreed upon, but
did achieve a starting point. In March, NorthStar announced that PepsiCo had agreed to adopt an
official policy in support of the human right to water. PepsiCo is the first publicly traded,
multinational corporation to create such a policy.
In its Guidelines in Support of the
Human Right to Water, PepsiCo agreed to steps to ensure that its global business engagement
respects that right. The company agreed to ensure that its activities preserve the quality of the
water resources in the communities in which it operates, do not diminish the availability of
community water resources, and do not adversely impact accessibility of community members to water
PepsiCo also agreed to involve communities in its plans to develop water
resources, and to advocate that safe water supplies should be available to members of the
"This is our first attempt at a resolution this complex, and it is a huge
victory," said Goodridge. "The PepsiCo agreement goes way beyond the CEO Water Mandate, and puts a
policy into place that requires engagement with the community."
Referring to the
give-and-take of the negotiations, Goodridge continued, "I really hate to be middle of the road,
because I consider myself to be a radical. But this is step one in a process. If we find that
PepsiCo hasnít lived up to its promises, we will re-file the resolution next year."
PepsiCo is not the only major corporation targeted by NorthStar in its shareowner advocacy
campaign this year. The firm also filed a resolution with Intel, whose challenge on the grounds
that the proposal was duplicative of the company's existing policies was disallowed by the SEC.
Intel reported that it used 7.5 billion gallons of water in 2007. And while the company is
recognized as a leader in water reclamation programs, it operates in countries that enforce the
Human Right to Water. Therefore, it is likely that Intel's water usage and respect for local
communities will remain under scrutiny.
Arguing that "Global corporations operating
without strong human rights and environmental policies face serious risks to their reputation and
share value," the resolution requests that Intel create a policy articulating its commitment to the
Human Right to Water.
"Intel challenged our resolution in a big way," said Goodridge. "But
if we can get the resolution passed, it would be an enormous step."