SOCIAL TOPICS (Archive): ENVIRONMENT

Published, August 1996

       by Robert Kinloch Massie

       Twenty-five years ago, American capitalism took a new turn when John Hines, the presiding bishop of the Episcopal Church, stood up at the General Motors annual meeting in Detroit and asked the board of directors to withdraw its operations from South Africa. His deed marked the beginning of a wave of shareholder activism that is still reshaping the investment landscape. Today hundreds of large institutional investors, exercising their rights as owners of the firms in which they invest, routinely express their views on everything from executive compensation and corporate governance to employment practices and environmental responsibility.

       It is from this last area — the alarm over environmental destruction and the interest in moving to a more ecologically sustainable economy — that the newest relationship between investors and managers has emerged. In 1989 several immense institutional investors (such as public pension funds of New York City and California) came together with some of America’s largest environmental groups (such as Sierra Club and the National Wildlife Federation) to form the Coalition for Environmentally Responsible Economies (CERES).

       The original intent was to encourage companies to adopt a positive environmental ethic. After much discussion, the CERES coalition crafted a set of principles that asked companies to integrate environmental concerns into their planning and reporting and to take other steps to protect the biosphere.

       Against all odds, it worked. Over the past few years more than 60 companies, ranging from Ben and Jerry’s to General Motors, have endorsed the CERES Principles and taken steps to meet its goals. Even more remarkably, executives from these companies are working with other members of the coalition to tackle some of the toughest problems of environmental management.

       Such cooperation is new. Since Earth Day 1970, environmentalists and government officials have focused on establishing limits for what came out of the end of the pipe or the top of the smokestack. Fearful of the impact on their competitiveness and profitability, industry almost always fought such limits. The aggressive regulatory approach curtailed the wanton release of dangerous toxins, but it also distracted everyone from asking more systematic questions. While regulation and enforcement will always be important, there is now agreement among government officials, scientists, environmentalists and business leaders that a broad transition to sustainability will require approaches beyond command, control and compliance.

       What are those new approaches?

       First, institutional investors are pushing for more reliable data on environmental performance so they can make better choices about investments. Just as accountants and auditors gradually discovered and refined effective financial comparisons between companies, different stakeholders are now working through CERES to establish the best standardized indices of sustainability. Companies participating in this process have found that such analysis and transparency improve management decisions and increase trust among their various communities.

       Second, companies are abandoning the old view that environmental responsibility is in conflict with competitiveness in favor of the belief that the two will soon be inseparable. “Environmental progress demands that companies innovate to raise resource productivity,” write professor Michael E. Porter and Claas van der Inde in a recent article in the Harvard Business Review, “and that is precisely what the new challenges of global competition demand.”

       Third, even companies with well-established commitments to the environment such as Polaroid Corporation in Massachusetts have found that the interactions facilitated by CERES have helped them. “We had a very good environmental program when we first considered becoming part of CERES,” says Harry Fatkin, Polaroid’s divisional vice president of health, safety and environmental affairs, “but working with America’s premier environmental groups and other members of CERES is helping us to evolve to a much higher level. That’s a big benefit.”

       Fourth, all the participants — managers, investors and activists — have discovered to their surprise that a willingness to talk honestly about differences in perspective can lead to unexpected consensus and change. A generation ago activists believed the only way to raise tough issues with companies like General Motors was to disrupt the annual meeting. Now a delegation of executives from GM comes to every meeting and sits at the same table as some of their former adversaries. Environmentalists, in turn, are learning to appreciate more fully the complexity of management. Equally important, firms now have a mechanism for exploring choices before making a public commitment, and environmental leaders have a way of influencing corporate policy without going to court or to Congress.

       This should fill us with hope. CERES offers a successful model of productive discourse in the face of disagreement, a model America sorely needs. At a time when American political debate often resembles snipers trying to pick each other off at a distance, the idea of a process that can move beyond confrontation and bring potential adversaries to a shared understanding of the present and consensus about the future might seem an idealistic fantasy. But, 25 years after Bishop Hines’ dramatic appeal, that is exactly what has come to pass.

Robert Kinloch Massie, the 1994 Democratic nominee for lieutenant governor in Massachusetts, is the executive director of CERES. An ordained Episcopal minister, Mr. Massie previously taught at Harvard Divinity School where he ran the Project on Business, Values and the Economy. His book on the history of US/South African relations and the divestment movement is available through Doubleday. This article originally appeared on the op-ed page of The Boston Globe.

       USTC has been active in CERES since its inception in 1989 and currently is represented on the board by Kristin Finn, who leads the CERES Report Committee. Over the years, USTC has promoted the CERES Principles at portfolio companies through various forms of shareholder activity. In late 1995, USTC filed a shareholder resolution at Leggett & Platt urging the furniture components manufacturer to curb its toxic emissions and to publicly disclose information about its environmental performance by completing a CERES Report. Cosponsoring the resolution with USTC were clients Jessie Smith Noyes Foundation and Sierra Club Legal Defense Fund. Ms. Finn argued in favor of the resolution, which received support from 13% of voting shareholders, at Leggett & Platt’s May 15 annual meeting at its headquarters in Carthage, MO.