Research & Advocacy in Action

by Heidi Soumerai

In this environment of extraordinary financial market and economic angst, we have questioned whether our environmental, social, and corporate governance (ESG) research and engagement priorities are less relevant, and wondered if companies would be less responsive to our inquiries. On both counts, we think the answer is a resounding no. Walden has long held that the ESG topics we raise with management contribute to long-term business success. Perhaps more than ever, this long-term view is appropriate.

Fortunately, we have not detected a difference in the character or quality of company interactions in recent months, with many initiatives showing positive momentum. And come January, when President-elect Barack Obama assumes his new role, we are likely to have a more receptive political environment and shared vision with respect to ESG policies and priorities.

Company Dialogues and Shareholder Resolutions

Walden believes strongly that all companies must work to strengthen public disclosure of their ESG policies, practices, and progress through sustainability reporting. We were pleased to withdraw a shareholder resolution at South Jersey Industries when management reported its plans to create a board-level Corporate Responsibility Committee and produce its first annual Corporate Responsibility Report by late 2009. South Jersey is one of two dozen small capitalization (cap) companies to which we wrote in an effort to expand our reach to a universe of firms that tends to be less scrutinized on ESG performance.

Walden is part of a small group of investors advising Walt Disney on the content of its ESG report, which is expected to be published in 2009. Additionally, we have filed resolutions requesting a sustainability report at several companies that had not responded adequately to our requests, including DENTSPLY (for a second year after garnering 36 percent shareholder support in 2008), St. Jude Medical, and Stryker, with the two latter companies since responding positively. On the issue of climate risk disclosure, Walden successfully encouraged oil equipment service company Weatherford International to respond comprehensively to the Carbon Disclosure Project, a repository for corporate responses to climate change on behalf of 385 global investors with assets of $57 trillion.

We also examined the proxy voting records of investment managers to better understand if and how they considered ESG factors such as climate change in voting decisions. We learned that State Street’s institutional investment arm, State Street Global Advisors (SSgA), consistently votes against ESG-related shareholder resolutions, backing management recommendations even when major proxy advisory services firms support such resolutions with a strong economic rationale. Ironically, State Street manages $80 billion according to ESG criteria, expresses publicly its belief that strong ESG performance helps protect shareholder value, and reports its own greenhouse gas emissions and active role in addressing climate change. Hence, Walden filed a first-of-its-kind shareholder resolution asking for a board-level review and update of SSgA’s proxy voting polices with respect to ESG-related proposals. Similar discussions at Northern Trust revealed that a thoughtful review of proxy policies is underway, with particular attention to guidelines related to climate change.

Walden continues to encourage companies to adopt inclusive nondiscrimination policies, again extending our reach to small cap companies where more improvement is needed. Three such companies–ArthroCare, e-Health, and John Wiley– have confirmed that their equal employment opportunity (EEO) policies include sexual orientation explicitly. Medtronic, a large medical technology company, confirmed that its policy also includes gender identity and expression, a best practice standard.

Our recent emphasis on international labor standards and monitoring in the agricultural sector led to two resolutions at small cap companies, Diamond Foods and United Natural Foods, requesting a vendor code of conduct based on International Labour Organization standards. We withdrew the resolution at Diamond Foods upon receiving management’s commitment to share its research and to seek our input on a code of conduct survey of vendors planned for 2009.

Advocating for Better Public Policies

Walden joined a coalition of investors, environmental organizations, and other groups responding to U.S. Securities and Exchange Commission’s proposed rule changes on accounting for proven oil and gas reserves, to call attention to the need to address the implications of climate change and carbon-related regulations in the valuation of these assets. Led by Ceres and the Investor Network on Climate Risk (see page 3), Walden also petitioned the U.S. Senate to extend the renewable energy and energy efficiency tax credits that would otherwise expire this year.