Sustainability Oversight and Disclosure - Reporting

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Standard sustainability reporting requests:
All but three of the relatively standard two dozen sustainability reporting resolutions are to new recipients. These proposals all ask companies to provide public reports explaining how they address matters that have been hard to quantify and have not been included on traditional balance sheets, with variations, as noted in the table above. Ten ask specifically about setting GHG goals, four also ask about other environmental issues and three about employee safety and/or human rights. Most are requests for company assessments of ESG issues, and six indicate the proponents want to see specific targets. The Berkshire Hathaway resolution wants the company’s subsidiaries to be included, while proponents at Dollar General, Rite Aid and Tesla indicate they want supply chain information. In varying formulations, the resolutions ask for quantification of these metrics and assessments of related risks and opportunities perceived by the companies. (See table for the issues raised this year.)

Last year, a vote on sustainability reporting was 38.5 percent at Kinder Morgan, where it also earned 34.1 percent in 2016, 30.5 percent in 2015 and 27 percent in 2014. The resolution has included mention of indigenous peoples’ rights since 2016, in reference to the TransMountain pipeline in Canada. At Middleby, after an unsuccessful SEC challenge that said it was moot because its 10-K mentions climate change, as does a sustainability report, the 2017 resolution earned 44.6 percent.

Vote—Acuity Brands investors gave a near-majority vote to the proposal on January 5, in the first vote of the year. It earned 49.8 percent.

Withdrawal—Trillium withdrew at A.O. Smith, given what it said was the “company’s commitment to publishing its first sustainability report in 2018, and to continuing dialogue on the contents of the report.” Trillium also filed and withdrew the same proposal in 2017, for the same reason.

SEC action—There are four company challenges to the resolutions at the SEC, to which the commission has yet to respond:

  • Anthemis arguing the proposal is moot given its current sustainability report discussion of GHG emissions targets, plus website disclosures.
  • Host Hotels & Resorts says it cannot implement the resolution because it is a Real Estate Investment Trust and cannot compel its third-party brand managers to report, and that the resolution’s references to Global Reporting Initiative standards are too vague to implement. Earlier, NYSCRF withdrew a 2014 sustainability reporting resolution focused on climate change and other issues after reaching an agreement with the company.
  • Middleby has filed a challenge to the resolution again this year, contending it concerns ordinary business since it is about the company’s products, employees and supply chain management.
  • Rite Aid argues the resolution is about ordinary business because of the specific elements cited in the proposal—although none of the precedents it cites concern sustainability report requests. Rite Aid also contends the resolution is moot because the company mentions sustainability in its Code of Ethics and it has one webpage about green business principles and energy efficient stores. The company does not appear to issue a sustainability report.

Other sustainability reporting requests:
Five more proposals are fairly specific and depart from the usual formulation; companies lodged challenges to three of them and two have been withdrawn.

Two are at Still pending is a resolution from the AFL-CIO that asks the company

to analyze and report to shareholders on the risks arising from the public debate over Amazon’s growth and societal impact and how Amazon is managing or mitigating those risks. The report should address risks related to Amazon’s role in providing physical and digital infrastructure, use of and control over data about customers and competitors, increasing reliance on automation and influence on the quality and diversity of content.

The company has challenged the proposal at the SEC, arguing it concerns ordinary business, since it relates to public relations and the ways in which it sells its products, and is too vague. The commission has not yet responded.

Lily Bowles has withdrawn the second resolution, after saying the company “demonstrated sincere willingness to engage on the issue.” Amazon also had challenged the proposal at the SEC, arguing the proponent did not provide sufficient proof of stock ownership, but the withdrawal came before any SEC response. A similar proposal last went to a vote at in 2016 and earned 27.3 percent, similar to the 26.2 percent it received in 2015. The proposal this year asked for a report on “material ESG-related policies, programs, and performance using company-specific information and sustainable accounting metrics in its next Annual Report (Form 10-K).” It noted the report could exclude “information as well as data the Company is reluctant to share.”

At DTE Energy, the company successfully challenged a proposal that asked for “an assessment of the long-term impact its environmental record has had on its capital access, equity performance and brand value or goodwill.” The commission agreed it can be excluded because it concerns ordinary business, saying, “we note that the Proposal relates, in part, to an assessment of potential antitrust fines.” The staff did not comment on arguments that it constituted multiple proposals and was too vague.

A new resolution to Tesla from Elizabeth Bowles and Calvert Investments appears to be the first to explicitly request integrated reporting, the dual reporting of both financial and ESG metrics. It asks that the company “begin reporting material ESG information using company-specific narrative and sustainable accounting metrics in its 2019 Annual Report (Form 10-K).”

Finally, Walden Asset Management withdrew a resolution at Walgreens Boots Alliance. It requested a report “describing the company’s implementation plans ensuring how its policies and practices are advancing and not undermining the [UN] Sustainable Development Goals.” While lauding the company’s efforts to delivery health care services, it also noted Walgreens’ sales of tobacco, “the number one cause of preventable death and disease worldwide.” In Walden’s view, selling tobacco is inconsistent with working towards the UN goals.

Expert Insight: Sustainable Development Goals Provide Practical Framework for ESG Investing