SOCIAL TOPICS (Archive): HISTORY OF WALDEN ASSET MANAGEMENT/SRI

Published, Summer 2002

       By Ken Scott

       The tools of the socially responsive investor are the tools of any activist: letters, phone calls, public education, participation in public policy, press releases, and coalition building. Investors have one additional tool of last resort: the shareholder resolution. Walden has employed all these tactics, with significant success thus far, in our efforts to reduce the devastating impacts of mercury pollution. This story traces the evolution of a Walden shareholder campaign.

What are the concerns surrounding mercury pollution? Waste incinerators emit mercury when they burn mercury thermometers and other waste that has been improperly disposed of. Power plants that burn fossil fuels also emit mercury. This airborne mercury pollution is deposited in water bodies where it can be transformed into methylmercury, and accumulate in water life. It can then adversely affect the nervous system of those who consume fish. There are other historical sources of mercury pollution as well. The U.S. Centers for Disease Control estimated that 10 percent of women in the U.S. have levels of mercury in their blood that are high enough to cause neurological effects in their offspring. Because of this pollution, 40 U.S. states have advisories for mercury in one or more water bodies, and 11 states have issued statewide mercury advisories.

       Inspired by the mandate of the Hippocratic Oath: "First do no harm," the public health coalition Health Care Without Harm (HCWH) began two years ago to encourage retail pharmacy chains to phase out mercury thermometers voluntarily, in favor of solar digital thermometers and other proven, cost-effective alternatives. Many pharmacies agreed. Rite-Aid was the first large chain to do so, and set the dominoes falling. With mild pressure, Wal-Mart and Walgreens and others joined in. Unfortunately, several other large pharmacy chains were not responsive to HCWH's requests.

Walden first tried phone calls and letters to encourage a number of pharmacy chains that were held in client portfolios to phase out mercury thermometer sales. We also wrote to thermometer manufacturer Becton Dickinson. There were some successes. Unfortunately, several companies resisted or did not respond to our communications. In late 2000, Walden filed shareholder resolutions with CVS and Longs Drug Stores when they did not to commit to a phase-out. Walden withdrew its resolutions when both companies agreed to phase out.

       We issued a press release to praise their decisions but also to identify holdouts, such as Kroger, Cardinal Health and Safeway, hoping that questions from reporters would add pressure. Safeway and the New York City chain Duane Reade noted that they were phasing out mercury thermometers after receiving calls from Wall Street colleagues whom Walden had contacted. While most Walden clients owned neither Safeway nor Duane Reade, the momentum generated by successive phase-outs, in addition to the positive environmental impact, puts pressure on more recalcitrant companies.

       We do not automatically resort to shareholder resolutions. For example, we believed, based on past experience, that a resolution would not necessarily be successful with the large supermarket company Kroger, whom we had already pressured with letters and in press releases. Therefore Walden assembled a coalition of religious institutional investors and colleagues in the socially responsive investment community to send a letter together asking Kroger to phase out mercury thermometers. Kroger began phasing out mercury thermometers a few weeks after receipt of a second letter from the coalition. In late 2001, Walden also successfully withdrew a resolution with J.C. Penney, which owns the Eckerd pharmacy chain. Walden estimates that as of May 2002 that 71 percent of chain pharmacy stores have phased out sales of mercury thermometers.

In addition to its standing as shareholders, a.k.a. owners of corporations, other factors also favor Walden on this campaign. Foremost is the groundwork laid by HCWH, including its willingness to provide Walden with substantive technical assistance, and the ongoing mercury reduction efforts by dozens of HCWH members. A second factor is that the action is relatively easy and cost-effective for most companies to implement. A third factor is momentum. Each company that seeks to avoid the dubious distinction of being the largest pharmacy chain not to have committed to phase out mercury thermometers puts pressure on the next.

       Momentum works in the opposite direction, from the bottom up, in the political arena. Local councilmembers Marjorie Decker in Cambridge and Mickey Roache in Boston led those cities to restrict sales of mercury thermometers. Undoubtedly, their efforts made it easier for Representative James Marzilli to encourage his colleagues in the Massachusetts House of Representatives to pass legislation at the state level. According to the public health group Mercury Policy Project, eight U.S. states have recently passed legislation that restricts the retail sale of mercury thermometers. This likely makes the work of U.S. Senator Susan Collins easier as she encourages passage of a federal bill restricting mercury. Walden and HCWH testified in favor of the Cambridge and Massachusetts legislation, and wrote to Senator Collins in support of her bill. Certainly these activities in the legislative arena help motivate voluntary corporate actions.

The challenge now for Walden clients and staff is to carry this momentum to other sources of mercury pollution. We expanded our mercury reduction campaign this year by taking advantage of HCWH's expertise in working with hospitals. In early 2002, Walden withdrew a shareholder resolution at HCA, the largest private hospital chain, when that company agreed to phase out the use of mercury-containing thermometers and blood-pressure devices by 2005.

       In May 2002, Walden filed a shareholder resolution against Cardinal Health, which may be the largest distributor of mercury-containing medical devices. In addition, Cardinal Health's Medicine Shoppe pharmacy franchise is currently the largest pharmacy chain not to have committed to a mercury thermometer phase-out. Walden and HCWH still need to pressure smaller pharmacy chains and other health care facilities and distributors to phase out. However, the health care sector accounts for only about 10 percent of mercury emissions. Future targets, now on the radar screen of the Mercury Policy Project and other regulators and environmentalists, may include electric utilities, and electronics and consumer products companies that make products containing mercury, such as Honeywell's thermostats, or GM's auto switches.

Ken Scott is a research analyst and portfolio manager of Walden's SmallCap Innovations portfolios. He also leads shareholder actions on a number of environmental and social issues.

       Walden's dialogue with Coca-Cola Company and PepsiCo is more reflective of the challenges we face as advocates than is the fairly straight-forward campaign against mercury. For the past two years, Walden has encouraged Coke and Pepsi to use at least 25 percent recycled content in their beverage containers, and to recover 80 percent of used beverage containers. The GrassRoots Recycling Network and other environmental activists have pushed for similar recycling goals. Coke and Pepsi have both agreed to use at least 10 percent recycled content by 2005, a partial victory for concerned stakeholders and the environment. Unfortunately, both companies have resisted calls to set container recovery goals, despite a precipitous decline in recycling rates. Coke and Pepsi also lobby against container deposit systems, which help recover about 80 percent of beverage containers in the 10 U.S. states where they exist. Our shareholder resolutions this year at both companies gained only about 5 percent of votes in favor. Institutional investors indicated willingness to support recycling goals, but reluctance to proscribe an 80 percent target. Walden will consider this feedback as it seeks to build peer support on this issue.

Ken Scott is a research analyst and portfolio manager of Walden's SmallCap Innovations portfolios. He also leads shareholder actions on a number of environmental and social issues.