Active Ownership 2016
Our work last year moving companies toward social justice & sustainability
Zevin Asset Management activates our clients’ portfolios to manage long-term risk and make a positive impact on social justice and the environment.
Our major tool is shareholder advocacy — improving companies’ conduct through dialogue with executives and the use of legal rights like sponsoring formal proposals that challenge management on social and environmental issues.
Now more than ever — amid political turmoil and regulatory uncertainty — investors must hold companies accountable for their deeds and join with civil society to support the struggles we care about.
This is a summary of the shareholder advocacy Zevin pursued on behalf of our clients in 2016. We focused our work last year in three major areas of concern: economic justice, climate change & civil rights.
Economic justice
After an election marked by economic anxiety and resentment, Americans are wondering how to rebuild the social contract. The private sector should help address inequality and marginalization — or get out of the way.
Prescription for parity
In 2016, we continued a dialogue about inequality with CVS Health that started when the pharmacy-retailer won the dubious distinction of having America’s largest gap between CEO’s compensation and average worker pay. We argue that firms that inflate executive pay at the expense of rank-and-file employees might risk their reputations, morale, and long-term profitability.
The SEC agrees that CEO-to-worker pay disparity is a significant issue for investors and will require all companies to disclose their gap as a numerical ratio in 2018. In view of CVS’s extreme lopsidedness, Zevin filed a shareholder proposal insisting that the company go beyond that number to explain big changes in the pay gap and analyze disparities against potentially harmful decisions like layoffs or benefit cuts. We re-filed the proposal for 2017 to keep up the pressure and work with CVS to produce meaningful disclosure.
Microsoft lends a hand
Irresponsible marketing breeds injustice and lands companies in legal and reputational trouble. In recent years, state attorneys general and the Consumer Financial Protection Bureau (CFPB) have cracked down on payday loan companies that target low-income people and charge sky-high interest. By 2016, Google had banned paid search results promoting predatory payday lenders, but Microsoft still allowed them on its Bing engine. We pointed out the risks of staying in this risky business, and after months of engagement with Zevin and other stakeholders, Microsoft agreed to ban predatory payday loan companies from showing up in paid search results.
Climate change
The year began with an effort to implement the Paris Agreement, the landmark deal committing virtually every country to combat climate change, plan for adaptation, and cut emissions to avoid global warming two degrees Celsius beyond pre-industrial levels.
One year later, the new U.S. administration is suppressing basic climate science, the U.S. commitment to Paris is in tatters, and (depending on the response of other large emitters such as China and India) the world could lose precious time to avert catastrophic warming.
Even when the climate policy future seemed more certain and it appeared that the U.S. would keep working to cut carbon, investors were already asking: how can big companies respond to climate change? Now that question is even more urgent.
Aiming for Paris
If there is any hope to avoid the two-degree red line, companies need to set greenhouse gas (GHG) reduction targets that are based on the progress we must make globally — rather than simply pulling goals out of thin air.
That is why Zevin is pushing companies across client portfolios to adopt science-based GHG targets modeled on the Paris Agreement. In November 2016, we joined with a group of religious investors and wrote to over 100 companies considering setting a science-based target, urging them to set ambitious goals and warning that investors would be watching. We have engaged CVS Health and TJX Companies in extended dialogue about their climate strategies, focusing on efforts to purchase or produce low-cost renewable energy. Disappointingly, they have still not set renewable energy goals. However, due in part to our continued pressure, both companies have begun working toward science-based GHG targets.
PepsiCo, which already has a science-based commitment to reduce emissions across its supply chain, went a step further on renewable energy last year. Zevin’s proposal on renewable energy targets at the annual meeting of stockholders propelled our dialogue with the company in 2016 culminating in Pepsico’s endorsement of the Renewable Energy Buyers Principles, a commitment to work with other large companies and spur utilities to meet their demand for renewables.
Greater greenhouse transparency
UPS is a company with a big climate footprint in global logistics but an equally large opportunity to lead on energy efficiency and low-emission vehicles. For many years, Zevin sponsored shareholder measures challenging the company’s support for trade associations (including ALEC) that lobby against GHG regulation, and last year we filed a new proposal challenging UPS to set a renewable energy target.
After some negotiation, we were able to expand our focus and lay the groundwork for further impact: UPS agreed to announce that it is exploring a renewable energy goal, and the company joined a group of investors led by Zevin in a comprehensive dialogue on climate change that will continue through this year.
In a related win, last year Zevin helped convince Emerson Electric to issue its first-ever sustainability report, which will track and focus the company’s work on climate change issues. And our efforts to push Emerson and other companies (listed right[PT1] ) on destructive lobbying against climate action continued. That work paid off when Centerpoint Energy, a gas and electric utility, responded to our 2016 shareholder proposal by publishing a list of trade associations and political action committees that use its money for policy work. The next step would be to rein in risky, anti-science lobbying completely.
Mixed signals from the oil majors
But it won’t matter what retailers and logistics firms do if the big oil companies are allowed to continue business as usual, ignoring risks and developing more and more fossil fuels which — if burned — will push the climate over the edge. Although the oil majors are not held widely in client portfolios because of our environmental and social guidelines, a few clients have enough legacy shares to enable Zevin to make an impact through shareholder advocacy.
We co-sponsored shareholder proposals in 2016 challenging ExxonMobil to level with investors about how global climate regulation in line with the Paris Agreement’s two-degree pledge would sap its business and to appoint a board director with independent climate change expertise. Instead of providing a good-faith climate change analysis, ExxonMobil spent most of 2016 fighting state attorneys general about allegations that the company conspired since the 1970s to hide climate risks. But then, in a surprise move at the beginning of 2017, ExxonMobil finally responded to investor pressure and named a prominent climate scientist to its board.
We continued working with a group of investors who urged Chevron to change myopic compensation policies that reward executives for simply banking more and more risky fossil fuel reserves. Toward the end of 2016, Zevin helped ramp up pressure on Chevron, co-sponsoring a proposal asking the company to disclose its own two-degree scenario plan and leading a push to get the company to separate the roles of CEO and chairman — a commonsense governance reform that would improve the way the company oversees climate risks and its huge environmental liabilities. Both measures are up for a vote this May, and Chevron has confirmed to Zevin that it is close to publishing a new climate change analysis commissioned by the board in response to investor pressure.
Civil rights
Zevin expects companies to respect and protect the rights of customers and communities. In the coming years especially, investors should be extra vigilant, highlighting how firms might support systems of oppression and urging the private sector to watch out for government abuses and overreach.
Last year, we continued our work addressing the private sector role in America’s mass incarceration crisis. Although Zevin does not invest in for-profit jailers such as CoreCivic and GEO Group, a wide range of companies in other sectors should reckon with how they might support the status quo by providing goods and services to prisons, buying goods made with prison labor, or enforcing hiring policies that needlessly exclude formerly incarcerated people.
The prison labor puzzle
Zevin encouraged companies across our clients’ portfolios to scan their supply chains for goods produced in federal and state prisons, where wages are often garnished and prisoners work in poor conditions. Ahead of a nation-wide prison labor strike in September we raised concerns with PepsiCo, Starbucks, and Target. Many of the firms we spoke to acknowledged that a few of their suppliers — some past, some present — use prison labor, but they were under-aware of working conditions and not prepared for the reputational risks they could face if their brands become linked with prison profitability.
We also began a productive conversation with Intel along those lines. The chipmaker has a sophisticated supply chain management system and it pledges to combat “forced and bonded” labor overseas, but Intel had not considered prison labor in the American context. Last year, Zevin convinced the company to inspect its U.S. supply chain. This year, we will work with executives to examine ethical risks and push Intel to develop a policy on this issue.
Prime concerns
The intersection between mass incarceration and racial discrimination can also affect big employers. We wrote to Amazon.com with our concerns when dozens of its delivery drivers — mostly people of color with long records of service — were summarily fired after a criminal background check last autumn. A shareholder proposal we co-sponsored challenging the retail giant to disclose more about its hiring policies is pending approval at the SEC, and the company has chosen confrontation over dialogue for now. Amazon has a new-and-improved approach to environmental issues and ethical sourcing. But it avoids questions about its massive logistics workforce and front-line contractors. Engagement will be challenging, but using our rights as shareholders will help put labor issues on the agenda at a company that is shaping commerce and work in the twenty-first century.
And more…
We are working on more issues in each of the categories above, including:
- Urging companies to tackle minimum wage reform and pay disparities based on gender and race
- Pushing pharma companies to curb drug prices in response to consumer outrage and legislative risk
- Shining a light on Apple’s lack of diversity and encouraging the company to accelerate change
- Challenging investment firms to vote for commonsense shareholder proposals on climate change
- Helping companies like Airgas and Expeditors International to increase transparency of critical environmental, social, and governance issues
Please contact Pat Miguel Tomaino (pat@zevin.com), our Associate Director of Socially Responsible Investing, with questions about how Zevin amplifies your investor voice or suggestions about the issues and companies that matter to you.
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