We are global investors, seeking to apply our standards consistently across markets. For certain markets that present unique sustainability challenges, however, we have developed specialized standards to guide our ESG research and review process. This paper outlines the factors we consider when evaluating the eligibility of companies for our portfolios that operate in Burma (Myanmar). We hope that it will help to illustrate how Domini addresses these key challenges, as well as provide guidance to other investors and corporations.
While the democratic transition in Burma (Myanmar) is widely welcomed and foreign investments are critically needed, challenges remain. The country remains a high risk environment for business operations due to weak human rights protections, weak environmental regulations and weak institutional governance.
Domini’s policy is to assess each company’s involvement in Burma, on a case-by-case basis. In this analysis, we consider ten severe categories of human rights violations and governance concerns, paying particular attention to certain high risk sectors and business activities. We also evaluate positive actions companies are taking in Burma to advance democratic reform and improve lives.
For many years, Domini’s policy was to exclude from our mutual fund portfolios any companies with significant involvement in Burma, a country run by a military regime that held its democratically elected leader under house arrest. By avoiding investment in companies doing business in Burma, and encouraging companies to leave, we sought to highlight the critical importance of democracy to both human rights and long-term investment returns, avoid a variety of human rights risks, and apply leverage to an unjust regime.
We were proactive in addressing these concerns as well. For example, our research on Toyota Motor uncovered previously unknown connections between a key trading affiliate and the Burmese military regime. Although we have consistently excluded the company from our funds, we helped to lead a three-year engagement by responsible investors, culminating in the company’s announcement in 2010 that its trading affiliate had divested itself from the joint venture.
In 2011, following a historic election that brought long-imprisoned democratic leader Aung San Suu Kyi to the Burmese parliament, the U.S. government began the process of lifting long-standing economic sanctions, and corporations announced that they would soon resume business there.
The U.S. State Department developed a set of reporting requirements to ensure that companies doing business in Burma disclose sufficient information to allow the U.S. government to evaluate their impact on human rights and democratic reform. In 2012, Domini participated in an in-person meeting with National Security Council (NSC) directors to share our concerns, including: the continued imprisonment of political prisoners; weak rule of law, including a weak judicial system; continuing violence against ethnic minorities; and the potential financing of notorious human-rights violators. We then worked independently and with other members of the EIRIS Conflict Risk Network to develop and submit concrete recommendations1 to inform that reporting process. Although the State Department adopted at least two of our recommendations, our most important concerns regarding public transparency in several key areas were not addressed. Leading companies, however, chose to issue public reports, which served as a basis for engagement with responsible investors and a framework for accountability.
In October 2016, as a final step in the process of lifting sanctions, the US government announced that it would no longer require US firms operating in Burma to report on their human rights risk assessments, a decision that faced strong objections from various human rights organizations due to an array of ongoing serious human rights violations, as reported by the US State Department.2
Challenges Facing the Democratic Transition
As investors evaluate corporate activity in Burma, it is important to understand that, despite important steps towards democracy, very serious challenges remain. All corporate activity in Burma should be evaluated against the backdrop of the following ongoing human rights violations:
These violations are compounded by a number of governance concerns, including:
Despite what appears to be a green light from the U.S. State Department, these concerns will continue to present material legal, operational and reputational risks to businesses operating in Burma including the ongoing potential for:
• Violations of the U.S. Foreign Corrupt Practices Act
• Violations of the regulations prohibiting the importation of goods made with child or forced labor
• Consumer boycotts
• Complicity in severe human rights violations.
The potential failure of democratic reform in Burma represents even greater risks to its citizens and the region, risks that also carry economic import.
Based on these observations, it is important to consider any business operations in Burma with enhanced due diligence. At the same time, it is also true that foreign investment is a key to economic development for the country, providing access to essential products and services, and needed improvements to the country’s infrastructure.
We believe that responsible investors can play an important role in Burma’s progress towards democracy and prosperity by shifting from a strategy of avoidance and divestment to one of careful scrutiny and engagement.
For Domini, this means that we will devote particular scrutiny to a select group of high risk sectors and business operations. In recognition of the difficulty in addressing these problems, and the critical need for foreign investment, we will also seek to incorporate into our analysis positive actions companies are taking to advance democracy and human rights in Burma.
High Risk Sectors/Areas of Business
We consider the following sectors highest risk, requiring the closest scrutiny:
Energy, particularly fossil fuel exploration and production operations,6 including oil-field service providers and wholesale trading companies where a government stake or ownership is required in the projects. Investors should pay particularly close attention to operations where joint ventures with government entities are required, as the risk of corruption is particularly high.7
Infrastructure Projects raise the possibility of corruption, land grabs, forced migration or displacement, and labor rights concerns. Companies should undertake careful and transparent environmental and societal impact assessments before undertaking such projects, and be prepared to discuss these assessments with investors.
Agricultural projects raise risks of child labor, land grabs, and forced migration or displacement. Again, companies should undertake careful and transparent environmental and societal impact assessments prior to investment and on an ongoing basis. 8
Information and Communications Technology (ICT). While this sector provides critical services needed to advance both democracy and economic development, companies and investors should pay careful attention to risks of government censorship and surveillance, including requirements in government contracts to customize services to enable censorship and surveillance.9 Domini encourages companies to comply with guidelines developed by the Global Network Initiative to address these risks.10
Materials & Wholesale Trading. Investors should pay particular attention to timber, minerals and gems such as ruby and sapphire, for potential environmental and human rights violations. 11
Key Factors to Consider when Evaluating Business Involvement
Each of the high-risk industries present important opportunities for the people of Burma and, therefore, for investors. Without proper attention to the concerns noted above, however, these opportunities can be transformed into long-term, intransigent risks. Careful and responsible judgment is called for, and can make an important difference. Domini recommends the following four key factors to consider when evaluating corporate operations in Burma:
Positive Efforts to Promote Democratic Transition and Improve Lives
Foreign investment is necessary, but not sufficient, to further advance democratic reform in Burma and to improve the lives of the Burmese people. A company’s proactive efforts to address the challenges discussed above can be just as important as the products and services it provides. In particular, we encourage companies to engage in the following:
- Participate in, or support, institutional capacity building, through active involvement in multi-stakeholder collaborations. In particular, reforms are needed to strengthen Burma’s legal systems, including independence of the judiciary, environmental protection, and labor rights, including legal protections for labor unions.
- Provide education or vocational training to employees and local communities.
- Provide access to products and services to disadvantaged communities.
- Promote international human rights standards for its supply chain and other partners in Burma.
- Mitigation and Remediation. According to the UN Guiding Principles on Business and Human Rights, companies have an obligation to mitigate and remediate potentially adverse human rights impacts and to monitor progress in key areas of concern.
Companies seeking to do business in Burma face an array of difficult human rights, environmental and governance challenges. As investors, Domini encourages companies to engage in robust human rights impact assessments prior to entry and, if they do choose to enter, to continue to engage and report on how they are addressing these ongoing challenges. Investors with an understanding of these issues can help to advance democratic reforms while mitigating risk to their portfolios.
Peace and prosperity for the people of Burma is in the best long-term interests of investors and corporations. This can only be achieved by a functioning democracy supported by a fair economic system.
We hope that this description of our evaluation process will help to communicate our expectations to corporations while assisting other responsible investors seeking broad-based wealth creation for society as well as their clients.
1 Domini’s letter to the State Department regarding Reporting Requirements on Responsible Investment in Burma (Oct. 3, 2012), available at: http://www.reginfo.gov/public/do/DownloadDocument?objectID=38146500; EIRIS CRN letter re: same (Oct. 4, 2012), available at: https://business-humanrights.org/sites/default/files/media/burma_reporting_requirements_-_investor_comment_4_oct_2012.pdf Domini is represented on the EIRIS CRN advisory board.
2 U.S. Department of State 2015 Country Report on Human Rights Practices in Burma (April 13, 2016), available at http://www.state.gov/j/drl/rls/hrrpt/2015/eap/252751.htm
3 Attention has focused on the Rohingya population in Rakhine State (formerly known as Arakan state), near the Bangladeshi border, with recurring reports of rape, massacres, torture and extrajudicial executions. See, e.g, Burma: Satellite Images Show Fire-Damaged Villages (Human Rights Watch, Oct. 31, 2016), available at: https://www.hrw.org/news/2016/10/31/burma-satellite-images-show-fire-damaged-villages; Dispatches: Burma’s Rohingya Muslims in Desperate Straits (Human Rights Watch, April 26, 2016), available at: https://www.hrw.org/news/2016/04/26/dispatches-burmas-rohingya-muslims-desperate-straits; Myanmar: Kofi Annan to head Commission on Rakhine state (Amnesty International, Aug. 24, 2016), available at: https://www.amnesty.org/en/latest/news/2016/08/kofi-annan-to-head-commission-on-rakhine-state/. Abuses and violence against Karen and Kachin groups has also been reported. See, e.g.,The Farmer Becomes the Criminal: Human Rights and Land Confiscation in Karen State (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/report/2016/11/03/farmer-becomes-criminal/human-rights-and-land-confiscation-karen-state. See also, Indigenous Peoples’ Rights and Business in Myanmar (Myanmar Centre for Responsible Business, Feb. 8, 2016), available at: http://www.myanmar-responsiblebusiness.org/publications/indigenous-peoples-rights-and-business-in-myanmar.html
4 The Farmer Becomes the Criminal: Human Rights and Land Confiscation in Karen State (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/report/2016/11/03/farmer-becomes-criminal/human-rights-and-land-confiscation-karen-state
5 See, generally, Human Rights Watch: https://www.hrw.org/asia/burma.
6 Review Domini’s policy on fossil fuel exploration and production at http://domini.com/responsible-investing/key-issues/our-position-fossil-fuel-owners-and-producers
7 See Myanmar Oil & Gas Sector-Wide Impact Assessment (SWIA) (Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/oil-and-gas.html
8 Burma: Farmers Targets of Land Grabs (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/news/2016/11/03/burma-farmers-targets-land-grabs
9 See, Sector-Wide Impact Assessment of Myanmar’s ICT Sector (Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/ict.html
10 http://globalnetworkinitiative.org/ Domini is a founder, and is represented on the Board, of the Global Network Initiative.
11 See, Myanmar Mining Sector-Wide Impact Assessment (SWIA)(Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/mining.html; See, also, Burma’s Gem Trade and Human Rights Abuses (Human Rights Watch, July 29, 2008), available at: https://www.hrw.org/news/2008/07/29/burmas-gem-trade-and-human-rights-abuses.
12 From Red to Green Flags - Respecting Human Rights in High-Risk Countries (Institute for Human Rights and Business, (April 27, 2011) available at: https://www.ihrb.org/focus-areas/commodities/report-from-red-to-green-flags; Business and Human Rights Guide for Companies in Burma (Myanmar Centre for Responsible Business, April 7, 2015), available at: http://www.myanmar-responsiblebusiness.org/news/business-and-human-rights-guide.html
14 http://www.ungpreporting.org/ Domini is represented on the Eminent Persons Group that has advised on the development of the framework.
Originally Appeared in Domini Funds' 2017 Semi-Annual Report
In a tightly interconnected world, investors can no longer afford to ignore the social and environmental costs of business as usual. For decades, responsible investors have joined with civil society organizations, corporations and public institutions to address working conditions in global supply chains and, although problems persist, we’ve made significant headway.
Twenty years ago, companies argued that they carried no responsibility for working conditions in factories they did not own. We no longer hear that argument. While it is true that these human rights abuses occur at factories and fields owned by third-parties, global companies can exercise significant influence. According to the United Nations’ Guiding Principles on Business and Human Rights, adopted in 2011, global businesses are obligated to identify these problems and do what they can to address them.
Around the world, approximately 150 million people leave their countries each year in search of economic opportunities elsewhere, often passing through the hands of unscrupulous recruiters with every incentive to take advantage of their vulnerable situation. Many workers find themselves working months on the job simply to pay off exorbitant recruitment fees. In other words, they are working for no pay at all. This is known as ‘bonded labor’ – a form of forced labor where a person is working to pay off a debt. It is considered the most common, and least known, form of modern slavery.
The International Labor Organization estimates that almost 21 million people are trapped in conditions of forced labor, generating over $150 billion for other parties. More than 75% of these workers work within the private sector, particularly in industries such as agriculture, construction and manufacturing.
Migrant workers are among the most vulnerable members of the global workforce and are subject to multiple forms of abuse across industries.
While attention has been paid to conditions in the factory or on the farm, less attention has been paid to the path migrant workers take to get to the workplace, and the unique risks they face. Today, that is changing.
What Can Investors Do?
Our experience teaches us that investors can have significant influence over corporate practices.
Domini has worked closely with the Interfaith Center on Corporate Responsibility (ICCR), a coalition of faith-based and socially responsible investors, since our inception. ICCR has launched a “No Fees Initiative” to address unethical recruitment practices, based on three pillars:
1. No Fees: Workers should not be obligated to pay for their job and should be immediately reimbursed for any fees charged. If a worker is indebted to her recruiter, she can effectively work months without pay. She may even feel honor-bound to repay these unjust debts. According to a 2014 US Department of Labor-funded study, “92 percent of the migrant workers in Malaysia’s electronics industry had paid recruitment fees and…92% of that group had paid fees that exceeded legal or industry standards.”
2. Workers should be provided with contracts in their own language: If a worker’s contract is written in another language, he can’t agree to the terms of his employment, and he can’t understand his legal rights.
3. No passport retention: If a worker cannot retain her passport or other identify documents, then she is unable to go home.
These are the most common factors that hold these workers in debt bondage, often without their awareness.
According to Know the Chain, a project led by Humanity United that ranks companies in the apparel, tech and food and beverage sectors on their responses to forced labor issues, corporate awareness of unethical recruitment practices is very low. For example, in the tech sector, out of twenty companies reviewed, “only four of the companies demonstrate awareness of the risks of forced labor that can arise from the use of recruitment agencies.” Know the Chain awarded the industry an average of 20 points out of 100 on recruitment issues.
Investors have important opportunities to raise awareness of the problem, set expectations and engage with companies to eradicate these practices.
The Corporate Response
Many of us first learned about the extreme conditions migrant workers can face after a series of articles broke in the Guardian and the Associated Press in 2014 and 2015, uncovering slavery in the Thai shrimp supply chain. Our research department spotted the issue early, leading to decisions to continue excluding Thai Union and Charoen Pokphand (CP) Foods, two Thai companies at the heart of the controversy, from the Domini Funds. We made those decisions before these stories broke.
Often, we are unable to obtain reliable information about labor issues from the companies themselves. In the absence of corporate reporting, we must rely on what we know about these industries and the regions where they operate. Reliable NGOs can be an invaluable source of information. In this case, a report published by Finnwatch in 2013 highlighted problems identified by interviewed workers including accusations of low wages, child labor, a large migrant workforce, and unpaid compensation and leave. The report stated that about half of Thai Union Manufacturing’s (TUM) employees were Thai citizens and the rest were migrant workers from Myanmar and Cambodia. Finnwatch reported that violations of migrants’ rights are common in Thailand. The NGO also reported the company’s denial of these allegations.
Under the spotlight of public attention, conditions are changing. Large consumer-facing brands like Costco and (William) Morrisons (United Kingdom) are taking action as part of the Shrimp Sustainable Supply Chain Task Force, a multi-stakeholder alliance which aims to tackle forced labor and human trafficking in Thailand’s seafood supply chain. The ability to track workers far out at sea is one critical piece of the problem they are trying to solve. CP Foods and Thai Union are also engaged, and working to improve their practices.
Unfortunately, the flawed recruitment system that produced those horrifying conditions also serves a wide range of industries. And in those industries as well, several long-term Domini Funds holdings have taken leadership.
HP Inc. reports that it was the first IT company to develop its own foreign migrant worker standard, a standard that addresses each of the three pillars of ICCR’s initiative. But the company took a step further that gets much closer to the root of the problem: HP is the first company in its industry to require direct employment of foreign migrant workers in its supply chain. Its policy, and the audit tools it has developed to enforce them, were developed in collaboration with Verité, a well-respected international nonprofit that promotes safe, fair, and legal working conditions, with particular expertise in combatting forced labor in supply chains.
When a person works in a factory, but is employed by the labor agency that recruited them, they are at far greater risk of exploitation. According to Verité, “HP’s standard requiring direct hiring will remove a key obstacle to ethical treatment of migrant workers. The standard sets a new bar and will likely result in substantial financial benefit to foreign migrant workers in HP’s supply chain, and we hope other companies will adopt similar policies.” We agree, and are raising this issue with other companies. Direct employment may be the solution to this problem, but we will need to overcome objections from factory owners and others that argue that it is too expensive or burdensome for small suppliers to adopt.
Companies realize that they need to work collaboratively to find solutions to these endemic problems. Leading companies in the electronics industry have turned to the Electronics Industry Citizenship Coalition (EICC). EICC members share a common code of conduct for their supply chains and a common factory audit process. Thanks to the leadership of companies like HP, the EICC code of conduct now addresses unethical recruitment practices.
Another important collaborative effort cuts across industries. The Coca-Cola Company, HP Inc., Hewlett Packard Enterprise, IKEA and Unilever launched the Leadership Group for Responsible Recruitment, focused on promoting ethical recruitment and combating the exploitation of migrant workers in global supply chains across industries. Walmart and Marks & Spencer (M&S) have joined the initiative, which is supported by the Institute for Human Rights and Business, ICCR, the International Organization for Migration and Verité. The Leadership Group is working to champion the “Employer Pays Principle”, which states that no worker should pay for a job – those costs should be borne by the employer.
Case Study: Turning Words into Deeds
In many instances, Domini has acted as a catalyst for change, helping to set a company on a new course that may produce substantial benefits in the future. Apple is a case in point.
In 2004, when we first reached out to Apple, the company was silent about working conditions in its supply chain, and did not have a policy to protect the rights of these workers. We changed that. After months of dialogue with Domini, Apple adopted a strong code of conduct, committing it to uphold core labor rights in its global supply chain.
Only words on paper. But when a corporation adopts a policy, it works to implement it. That code provided the foundation upon which to build a labor standards program. The company soon began public reporting, to ensure a degree of public accountability. Public reporting is needed to ensure effective implementation of these kinds of policies, and to educate others about the kinds of problems that are found, the tactics that work and those that don’t. It is also a necessary mechanism for building trust with investors, consumers and other stakeholders, a valuable asset for any global brand. Our engagement also provided the foundation for a dialogue we have maintained with the company ever since.
Today, Apple is far more transparent about problems in its supply chain, and actively works to address them. Visit www.apple.com and click on “Supplier Responsibility” to read the story of Rechel Ragas, a factory worker recruited from the Philippines to Taiwan in search of higher wages. Apple reports that “to secure a factory position there, Rechel had to use a job broker agency that charged her more money than she made in an entire year working in her home country.” When Apple uncovered these fees – fees that were legal, but violated Apple’s policies – it ensured that she received full reimbursement. As a result, she was able to return home six months earlier than she had planned. Apple is the only company we are aware of that discloses the amount of recruitment fees it has reimbursed to workers: $25.6 million since 2008, including $4.7 million in 2015.
The company has not solved all of the problems it has found in its supply chain. We don’t demand perfection – not because we don’t want to see it, but because we don’t expect to find it. We do expect companies to acknowledge these challenges and demonstrate how they are meeting them.
Apple has come a long way since 2004 and, although we would never claim that our efforts were responsible for all of this hard work, we believe we have had an impact.
We applaud the EICC’s efforts to address unethical recruitment issues, but still believe the industry should be doing more. On behalf of a group of institutional investors affiliated with ICCR, we wrote to IBM and Motorola Solutions with a series of questions about how they ensure that workers in their supply chains are free of these abuses. We also signed letters to Broadcom, Canon, Cisco, EMC, Hitachi, Johnson Controls, Medtronic, Microsoft, Qualcomm, Texas Instruments and Xerox.
We followed our letter to Motorola with a shareholder proposal on the topic, which prompted a constructive conversation with the company. Motorola Solutions has policies in place to address these issues, and as an EICC member, has adopted a “no fees” commitment. The company tells us that it is actively working through the EICC to develop more effective responses to these unethical recruitment practices. We recognize these efforts, but believe that investors have insufficient information to gauge how well the company is addressing these serious risks to workers. Our proposal seeks to rectify that by requesting an annual report disclosing the company’s efforts to ensure that its global supply chain is free of forced or bonded labor, including any efforts to reimburse workers for recruitment fees that were paid in violation of company policies. We look forward to continuing our dialogue with the company.
Out of twenty apparel companies, Know the Chain found only seven that were aware of the risks of exploitation to migrant workers. They found only two companies that encouraged the direct hiring of workers in their supply chain.
Adidas (Germany) received the top ranking in Know the Chain’s 2016 survey, and the top score for worker recruitment practices. Know the Chain praised Adidas’ “strong awareness” of the risks facing migrant workers and listed a number of leading practices. Of particular importance, if an agency is involved in the recruitment process, Adidas requires that workers sign contracts directly with the factory, not with the recruitment firm. The company requires suppliers to disclose the recruitment firms it uses, and to monitor all recruiters. The Adidas Group publishes a list of names and addresses for its primary factories, subcontractors and licensees, a practice adopted by many leading companies in the apparel and electronics sectors.
We recently met with Gap to discuss its approach to these issues, including the possibility of adopting a direct employment policy, and wrote to Ralph Lauren, Michael Kors (where we ultimately submitted a shareholder proposal), Nike, L Brands (Victoria’s Secret, Bath & Body Works) and Coach.
Ralph Lauren reports that it is working towards a “recruitment fee–free” environment for all workers. The company reported to Know the Chain that an audit had uncovered that a group of new Bangladeshi workers had recently started work in one of its supplier facilities in Jordan, and had paid recruitment fees. The factory is now fully reimbursing the 33 workers affected over a period of 3 months.
These kinds of reports should help to illustrate a basic point – these problems are out there to be found and addressed. No company’s supply chain is immune. Our letter prompted a constructive conversation with the company, which we look forward to continuing. We appreciate the company’s recognition of the plight of migrant workers and are encouraging clearer commitments and more transparent reporting.
Another long-term Domini holding that has taken leadership on these issues is Unilever (Netherlands, United Kingdom). The company ranks first on Know the Chain’s benchmark for the food and beverage sector, because of its commitment to traceability. The company’s commitment to eradicating modern slavery and human trafficking is impressive given that it reportedly has 76,000 suppliers. Unilever is working to reduce the number of recruiters used by factories. It reports that it uses very limited numbers of recruiters in North America, Europe and South America, but larger numbers in Asia and Africa.
Consider how you might handle the daily struggles these migrant workers take on, day after day. They are working far from home for people that speak another language. They may not be in the job they thought they bargained for. Those in the fishing industry may never have seen the sea before. Many find that their paycheck is considerably less than expected, but they have no option but to keep working -- they have family back home depending on them.
We invest in companies that can make a significant difference in the lives of migrant workers. That means that we can make a significant difference, as long as we refuse to turn a blind eye, and we persist in raising these concerns and pressing each company that recognizes the issue to do more.
Spring is the time of year when most corporations hold their annual meetings and shareholders cast votes on the board of directors, executive compensation and proposals submitted by shareholders.
Our proposals are conversation starters. They get executives’ attention, and hold it long enough for us to make our case. The shareholder proposal is a tool to help us persuade companies to see our point of view. The Domini Impact Equity Fund has submitted more than 250 shareholder proposals since 1994.
After we submit our proposals, we often receive a phone call from the company’s Corporate Secretary to get a better understanding of our concerns and to see if they can convince us to withdraw the proposal. This year, these conversations led to agreements with Best Buy, First Solar, and Target. We also worked with our colleagues at Clean Yield Asset Management to withdraw our proposal at Whole Foods. Read more about these agreements.
But what happens when we are unable to reach agreement? At that point, the process reaches a public stage – the company annual meeting.
At the annual meeting, we have an opportunity to make a brief speech in the presence of the CEO, the Board of Directors and other shareholders (Some of these meetings are also webcast, taking our message to a global audience).
The Chipotle annual meeting, in Denver, was a lively one, following a nationwide rash of e-coli and norovirus outbreaks that has battered confidence in the brand. At the meeting, a couple of people spoke about working conditions at a Chipotle supplier, and several questions were asked about food safety.
Our speech began with a reminder that sustainability is key to the long-term success of this company. We applauded Chipotle for its efforts to embed sustainability into the brand, exemplified by its commitment to “Food with Integrity.”
After several years, however, we have been unable to convince Chipotle to publish meaningful sustainability information. Although Chipotle increasingly discusses sustainability on its website (and provided some metrics in its proxy, in response to our proposal), the company still fails to provide comprehensive information to help us understand how it is managing its key sustainability risks. Our speech sought to educate the Board about the critical importance of sustainability reporting to risk management (references to ‘our company’ in these speeches refers to the company that we, as shareholders, collectively own):
An annual report that identified our company’s key sustainability challenges would have flagged food safety long ago. It would have helped to build confidence in our company’s food safety systems. It would have helped management identify gaps, receive feedback, and improve its efforts. It might not have prevented last year’s outbreaks, but it would have helped to build trust, an essential driver of long-term value that is now very much at risk.
Sustainability reporting is about accountability, not marketing. It is a key part of getting the job done.
We were told that Chipotle will be releasing more information around sustainability and that we will be happy with the results. Our proposal’s strong 43% vote should send a strong signal that our message resonates with the company’s shareholders.
For many years, we have been concerned about the flood of ‘dark money’ in our elections – money that cannot be traced to anyone. This spending undermines confidence in our democracy and, we believe, weakens our economy’s overall resilience. We have therefore been working to convince corporations to publicly disclose their spending on elections.
In 2007, Verizon began full disclosure of its direct spending on elections, in response to a Domini proposal. In 2012, Domini welcomed AT&T’s decision to begin full disclosure of its direct electoral spending, including additional details about its board oversight process.
We continue to seek disclosure from both companies of an even riskier area of political spending. We are asking Verizon and AT&T to disclose their indirect political spending -- payments to trade associations and 501(c)4 organizations that are used to influence the outcome of elections.
From our speech at the Verizon meeting:
Verizon speaks about its need to participate in politics to allow it to compete fairly in the marketplace. Is it fair for Verizon to keep its indirect financing of American elections secret?
Fair competition is based on honesty and transparency. Disclosure is a bedrock principle of our capital markets and our democracy. Neither can function properly without it.
Disclosure would cause management and the board to think twice before funding political spending it would not wish to be associated with. It would lead to better decision making.
We also pointed out that both companies can simply ask these organizations not to use their money to finance elections, a step a number of other companies have taken.
At Nucor’s annual meeting in North Carolina, we called for a report on the company’s lobbying activities and drew attention to a press leak in 2012 that revealed that Nucor had contributed to the Heartland Institute, a notorious climate denial organization. We raised concerns with the company at the time, and determined last year to take this a step further when we saw that the company still had not produced any form of public report on these activities.
Nucor’s mission includes a commitment to being “environmental stewards in our communities where we live and work.” As the nation’s largest recycler of steel, we want to ensure Nucor’s lobbying is consistent with that commitment.
This year, we also delved into a more traditional corporate governance area, because we see significant implications for sustainability – capital allocation decisions and share buybacks.
The temptation to devote capital to share buybacks is strong. Shareholders celebrate the short term boost in stock price and the increase in earnings per share, which may explain the very low vote we received on our proposal at 3M. But while share buybacks may boost stock prices in the short term, we are concerned that they can deprive companies of the capital necessary for creating long term growth. In conversations with both Target and 3M, we questioned whether sufficient capital was being allocated to climate change mitigation or to employee development.
Our proposal is designed to help ensure that future capital allocation decisions are not influenced by executive compensation incentives that may be impacted by large buybacks. In our speech, we asked whether 3M’s priorities were properly aligned:
In October, a columnist for Market Watch asked about 3M: “What do you make of a company that announces restructuring moves that include possible job cuts while it buys back shares?”
We would also ask what to make of the fact that 3M, a company that is driven by innovation, has spent $16 billion in research and development and capital expenditures over the past five years to support organic growth programs, and $21 billion to buy back its own shares. If you add in $6 billion spent on strategic acquisitions during that period, 3M has split its spending to grow the business roughly equally with spending to buy its shares.
As long-term investors, we question whether the line is being drawn in the right place. We question whether incentives might be misaligned.
Throughout the year, on behalf of our fund shareholders, we will continue to ask the hard questions that help corporate management to see risks and opportunities in a new light, in order to help to build value for all of us.
Domini Proposals that Went to a Vote this Season
|3M||De-link executive compensation incentives from share buybacks||5.8%|
|AT&T||Indirect political contributions disclosure||29%|
|Chipotle Mexican Grill||Sustainability reporting||43%|
|Nucor||Political lobbying disclosure||32.3%|
|Verizon Communications||Indirect political contributions disclosure||30%|
|UPS||Political lobbying disclosure||22.6%|
In addition to using social, environmental and governance standards to select our investments, each year the Domini Social Equity Fund submits shareholder proposals to corporations in its portfolio, addressing a broad range of social and environmental issues. They send a strong message to corporate management, and can often encourage the company to speak to us about reaching an agreement. Since 1994, the Fund has submitted more than 250 proposals to more than 95 major corporations.
We were pleased to reach agreements to withdraw four proposals during the first quarter. In response to our request to adopt a set of principles for minimum wage reform, Best Buy informed us that its board of directors was overseeing a process already underway to further develop the company’s position on wage levels within the company to ensure its employees have sustainable careers and that Best Buy continues to attract the best talent. We chose to withdraw our proposal in exchange for the company’s agreement to include additional factors in that process, including the effect of minimum wage reform on the company. Domini is also helping to coordinate investor education on this issue.
We were pleased to withdraw our proposal with First Solar after dialogue in the fourth quarter about the company’s political activities. At our request, First Solar’s board adopted a resolution to begin full disclosure of its political contributions, and also adopted a policy to restrict its trade associations from using its dues payments for electoral purposes.
Working with other investors, we withdrew our shareholder proposal to Whole Foods seeking information about the company’s efforts to mitigate the impact of its palm oil purchases on deforestation and human rights. The company agreed to enhancements to its Palm Oil Pledge, and to continuing dialogue to discuss implementation.
Our proposal to 3M addressing share buybacks caught the attention of Gretchen Morgenson, the Pulitzer Prize-winning Market Watch columnist for the Sunday edition of the New York Times: “We’re not against buybacks,” said Adam M. Kanzer, a managing director at Domini. “The question is at what point do buybacks become excessive and when do they undermine the long-term value of the company?” We pointed out that 3M spent $21 billion to purchase its own shares over the past five years, but only $22 billion on research and development and strategic acquisitions. When such a substantial portion of a company’s capital expenditures is directed to buybacks, we believe it makes sense to ask whether there’s a more constructive way to invest that capital, such as research and development, employee compensation and training, and climate mitigation. The proposal prompted constructive conversations with 3M and Target. At Target, we were able to withdraw our proposal in exchange for a commitment to enhanced disclosures.
In addition to the above-mentioned engagements, we also spoke with Chipotle regarding its food safety and sustainability reporting policies, with Facebook, Google, LinkedIn, Microsoft and Yahoo on matters relating to the Global Network Initiative and human rights, with Home Depot on its phasing out of pollinator-harming pesticides, and with Staples on minimum wage reform.
In August, the New York Times reported that Coca-Cola was funding an organization called the Global Energy Balance Network (GEBN), which promoted scientific research on obesity. The organization was accused of emphasizing the need for exercise, shifting the blame for obesity away from sugary beverages. Coke’s CEO, Muhtar Kent, responded with an op-ed in the Wall Street Journal, pledging to ‘do better.’ In that piece, he noted that in addition to disclosing all of its spending relating to addressing obesity, the company would “engage leading experts to explore future opportunities for our academic research investment and health and well-being initiatives,” led by Sandy Douglas, President of Coca-Cola North America. Coke’s subsequent disclosures led to a series of articles in the Times. Ultimately, GEBN was shut down and Coke’s head scientist took an early retirement.
We have had constructive engagements with Coca-Cola on a wide range of issues, for many years, including human rights, water use and recycling. On the basis of this relationship, we were invited to participate in a one-on-one call with Mr. Douglas, as part of his expert “listening tour.” We discussed what he has learned so far from the public health experts he’s met with, Coke’s historical response to the problem of obesity and some changes they will be making. We look forward to continuing this dialogue.
Investors, companies and the general public have a strong interest in maintaining the integrity of scientific research. We are therefore encouraging companies that fund research to fully disclose these expenditures. In addition to Coca-Cola, we have also opened dialogue with Pepsi to discuss its approach to scientific funding, and to encourage greater transparency.
On June 26, 2015, the Supreme Court reaffirmed what many of us have long believed—the Constitution is a living, breathing document built on a foundation of equality and the pursuit of happiness. It did not take a constitutional amendment to establish marriage equality, because those concepts are embedded in our nation’s founding documents.
The struggle for that important achievement was carried out over many years, from the streets, to the court rooms, to the board rooms.
We were pleased to join 379 employers and employer organizations in a friend of the court (amicus curiae) brief to the US Supreme Court to explain how discriminatory restrictions on the right to marry hurt business. According to the Court:
“As more than 100 amici make clear in their filings, many of the central institutions in American life—state and local governments, the military, large and small businesses, labor unions, religious organizations, law enforcement, civic groups, professional organizations, and universities—have devoted substantial attention to the question. This has led to an enhanced understanding of the issue—an understanding reflected in the arguments now presented for resolution as a matter of constitutional law.” Obergefell v. Hodges, Slip Op. at 23 (emphasis added).
Some of the largest publicly traded corporations in the world signed that brief, demonstrating that this issue had already been settled in the mainstream business community. By 2012, the vast majority of Fortune 500 companies prohibited workplace discrimination based on sexual orientation, setting a higher standard than the law required.
That didn’t happen by accident. Much of it happened, company by company, due to the hard work of investors who believe that discrimination is bad for business. Companies were persuaded through letters from their shareholders, face to face meetings and the submission of shareholder proposals that were put to a vote at company annual meetings across the country. Some of these dialogues took years to achieve success.
The Domini Social Equity Fund played a small part in these efforts, convincing several companies to amend their non-discrimination policies to include “sexual orientation,” and voting for shareholder proposals submitted by others. A small change brought about by your mutual fund can have ripple effects throughout society.
This work helped to lay the groundwork for marriage equality by changing perceptions in the investor and business communities, strengthening the notion that an employee’s sexual orientation or gender identity has nothing to do with their ability to perform on the job. We explained that corporations would benefit by greater employee loyalty and commitment. They would also gain the ability to recruit from the broadest possible pool of talent.
In the world of finance, the phrase “domestic equity” does not refer to marriage equality, it refers to the stock of American companies. But the word “equity” has a double-meaning. After all, a system that is fundamentally unfair is also not good for business in the long run.
In addition to using social, environmental and governance standards to select our investments, each year the Domini Social Equity Fund submits shareholder proposals to corporations in its portfolio, addressing a broad range of social and environmental issues. Since 1994, the Fund has submitted more than 250 proposals to more than 95 major corporations.
Frequently, companies will reach out to us to see what steps they could take to convince us to withdraw our proposal and avoid a shareholder vote on the issue. A high vote on a proposal is nice, but we always prefer to withdraw our proposal in exchange for an agreement. Over the years, often in partnership with other investors or NGOs, we have convinced numerous companies to adopt new policies to protect factory workers and the environment, and to enhance public transparency.
In the first quarter of 2015, we withdrew four proposals in exchange for the following commitments:
Lowe’s, the world’s second largest home improvement retailer, agreed to eliminate neonicotinoid pesticides — a leading contributor to global bee declines — from its stores by 2019. The company will also redouble its pesticide management efforts with its plant suppliers, and will begin a variety of consumer education initiatives focused on pollinator health. Lowe’s has also informed us that it now offers a full range of natural or organic alternatives to its synthetic pesticide offerings. Read more about this important announcement.
Avon agreed to review and revise its palm oil purchasing policies to address impacts on deforestation and human rights. Avon utilizes palm oil derivatives (products derived from palm oil) in a wide variety of products. About 60% of the palm oil consumed globally is in the form of derivatives. Read more about this important announcement.
Southwestern Energy committed to publishing annual methane emission reduction targets and to include these targets in determining bonuses for management and staff. Methane is a relatively short-lived, but potent, greenhouse gas. The company is leading a group of companies called the ONE Future Coalition, a collaborative effort to reduce methane leakage below 1%, from the well-head to your kitchen burner. Southwestern, however, has not set its own targets yet. This is the first time the company has publicly committed to do so.
MeadWestvaco agreed to full disclosure of its political contributions. Thanks to concerted efforts by investors, including Domini, more than 140 large corporations now disclose their political spending so that they may be held accountable by their investors and consumers.
Domini Social Investments announced today that Avon Products (Ticker: AVP) has agreed to review and revise its palm oil purchasing policies to address impacts on deforestation and human rights, in response to a shareholder proposal filed by the Domini Social Equity Fund (Ticker: DSEFX). The proposal was co-filed by the Appleseed Fund, in collaboration with Ceres.
“We were very pleased to withdraw our proposal in response to these new commitments from Avon,” said Adam Kanzer, Managing Director and Director of Corporate Engagement at Domini. “As investors, we are seeking to invest in good companies and make them better. Our proposal has helped to spur an internal dialogue about the impact of Avon’s palm oil purchases, encouraging the company to set the bar higher.”
Over the past several years, Domini has been encouraging companies in its Fund portfolios to adopt appropriate policies and procedures to address the impact of its commodity purchases on forests and human rights, including palm oil. According to WWF, “Large areas of tropical forests and other ecosystems with high conservation values have been cleared to make room for vast monoculture oil palm plantations – destroying critical habitat for many endangered species, including rhinos, elephants and tigers. In some cases, the expansion of plantations has led to the eviction of forest-dwelling peoples.”
Avon is a member of the Roundtable on Sustainable Palm Oil (RSPO), and has previously committed to purchase GreenPalm certificates equivalent to 100% of its palm oil supply. These certificates are used to finance sustainable palm oil production, but cannot guarantee that Avon’s actual palm oil purchases are produced sustainably.
Most of Avon’s palm oil purchases are in the form of products derived from palm oil (“palm oil derivatives”), further complicating the company’s ability to trace its purchases back to their source. Avon utilizes palm oil derivatives in a wide variety of products. About 60% of the palm oil consumed globally is in the form of derivatives.
In response to Domini’s proposal, Avon has committed to take the following additional steps:
- Avon agrees to establish a cross-functional internal team to assess the Company’s palm oil sourcing and develop a recommendation for implementing a time-bound sustainable sourcing plan.
- Avon will revise its palm oil policy to establish a time-bound plan to purchase certified Mass Balance or segregated sustainable palm/palm kernel oil, with full traceability back to the planation for all direct purchases and the majority of its palm oil derivatives purchases. “Mass Balance” is a term established by the RSPO to denote palm oil supply that contains a mix of certified and uncertified palm oil. “Segregated” refers to 100% certified sustainable palm oil that can be traced to its source.
- Avon commits to provide updates on its website about the development and implementation of these new palm oil commitments.
- Avon commits to a good faith dialogue with Domini and Appleseed on the development, implementation and public reporting of Avon’s new policy commitments, including discussion of time-bound commitments with clear goals, and the inclusion of human rights standards.
Friends of the Earth, Domini Social Investments and Trillium Asset Management praised Lowe’s (NYSE: LOW) for making a commitment to eliminate neonicotinoid pesticides — a leading contributor to global bee declines — from its stores.
After input from suppliers, NGOs, investors and other key stakeholders, the company announced it will phase out neonicotinoids (“neonics”) as suitable alternatives become available, redouble existing integrated pest management practices for suppliers and provide additional material educating customers about pollinator health.
“We commend Lowe’s for taking a leadership position on this critical issue,” said Adam Kanzer, Managing Director and Director of Corporate Engagement at Domini Social Investments. “Sales of neonic-containing products may be exacerbating a critical systemic risk – alarming declines in honeybees and wild pollinators that support our food systems. As investors and as human beings, we all depend upon pollinators. We believe Lowe’s actions will help protect an irreplaceable resource.”
“We are pleased Lowe’s is listening to consumer concerns and to the growing body of science telling us we need to move away from bee-toxic pesticides by taking steps to be part of the solution to the bee crisis,” said Lisa Archer, Food & Technology Program Director at Friends of the Earth. “Bees are canaries in the coalmine for our food system and everyone, including the business community, must act fast to protect them.”
“Lowe’s public commitment will better position the company to meet the demands of an increasingly environmentally-conscious consumer base. And, it sends an important market signal that restricting the use of bee-harming pesticides is essential to tackling bee declines,” said Susan Baker, Vice President, Trillium Asset Management. “We applaud the company’s positive steps on this issue.”
Friends of the Earth Campaign
This announcement follows a two-year campaign led by Friends of the Earth and allies* to urge Lowe’s and other garden retailers to stop selling plants treated with neonicotinoids and remove neonic pesticides from their shelves. More than one million people signed petitions and thousands of activists delivered letters directly to Lowe’s stores in cities across the U.S. and Canada asking for this change.
A study released by Friends of the Earth and Pesticide Research Institute, Gardeners Beware 2014, showed that 51 percent of garden plants purchased at Lowe’s, Home Depot (NYSE: HD), and Walmart (NYSE: WMT) in 18 cities in the United States and Canada contained neonicotinoid pesticides at levels that could harm or even kill bees. In the past year, more than twenty nurseries, landscaping companies and retailers—including Home Depot, Whole Foods (NASDAQ: WFM) and BJ’s Wholesale Club have taken steps to eliminate bee-killing pesticides from their stores. The UK’s top garden retailers including Homebase, B&Q and Wickes, have also stopped selling neonicotinoids.
Investor Engagement on Pollinator Declines
Investors, in collaboration with the Investor Environmental Health Network, began engaging home improvement retailers and food companies in their portfolios about the environmental risks of neonics in 2013, the year Domini and Trillium opened conversations with Lowe’s about the topic.
While Domini and Trillium had constructive dialogue with Lowe’s, the investors chose to submit a shareholder proposal in November to stress the urgency of the issue. The proposal, submitted by the Domini Social Equity Fund (Ticker: DSEFX) and by Trillium Asset Management, on behalf of Ellen Webster, asked the company’s Board of Directors to conduct a risk assessment of its environmental protection policies and practices to determine whether continued sales of neonicotinoid-containing products are in the best interests of Lowe’s, its consumers and its shareholders.
The investors withdrew the shareholder proposal in response to new commitments which will help the company provide its customers with products that promote healthy gardens and reduce risks to pollinators and other beneficial organisms.
- A time-bound phase out of neonicotinoid (“neonics”) containing products in shelf products and plants, to be completed by the Spring of 2019, as suitable alternatives become available. For nurseries, Lowe’s will phase-out neonics for bee-attractive plants, and plants where regulatory requirements do not require the application of neonics (certain states require the application of neonics on certain plants and nursery material). Lowe’s plans to implement this phase-out as soon as is practicable.
- Redoubling pesticide management efforts and the addition of an application reduction plan with plant suppliers, including the collection and sharing of growers’ best practices around use of biological controls and integrated pest management (“IPM”) practices, and research into best alternatives. Nurseries will be required to disclose to Lowe’s the amount of pesticides used per acre, or a similar metric.
- Increased focus on consumer education initiatives including in-store distribution of EPA and Pollinator Partnership pesticide brochures and product tags which will highlight the health of bees and other pollinators.
- Funding of pollinator gardens through the company’s philanthropic and volunteer programs.
- Disclosure of these efforts in its 2014 Corporate Social Responsibility Report.
- Continued dialogue with Domini, Trillium and Friends of the Earth focused on implementation and public reporting of these commitments.
“Along with our allies, we will continue to work with Lowe’s and other retailers to move neonicotinoid pesticides off their shelves and out of garden plants as soon as possible to ensure bees can find save havens in our backyards and communities,” said Archer. “With a new spring planting season upon us, it’s important for gardeners to be aware that many plants in stores today still contain neonicotinoids. We look forward to the day shoppers can buy home garden plants without worrying about harming pollinators.”
Lowe’s announcement comes eight months after a meta-analysis of 1,121 peer-reviewed studies by the Task Force on Systemic Pesticides concluded neonicotinoids are a leading factor of bee declines and are harming birds, earthworms, butterflies and other wildlife. The Task Force called for immediate regulatory action.
In October, 2014, the Council on Environmental Quality issued guidance for federal facilities and federal lands which included acquiring seeds and plants from nurseries that do not treat these items with systemic insecticides.
On April 2, the EPA announced a moratorium on new or expanded uses of neonicotinoids while it evaluates the risks posed to pollinators. Last month, more than four million Americans signed petitions calling on the Obama administration to put forth strong protections for bees and other pollinators. The Pollinator Health Task Force, established by the White House this past June, is charged with improving pollinator health, and assessing the impacts of pesticides, including neonicotinoids, on pollinators.
In 1970, Milton Friedman wrote a famous essay for the New York Times Magazine, arguing that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
For many years, the Friedman point of view prevailed: the job of a corporation is to serve its shareholders. A portion of Friedman’s argument rested on a bit of rhetorical sleight of hand—the notion that a “free market” also means “freedom.” Here is how Friedman put it: “In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no values, no ‘social’ responsibilities in any sense other than the shared values and responsibilities of individuals.”
Perhaps that is how an “ideal” free market would function. Forty-five years after Friedman’s essay, however, we still remain very far from that ideal state. Consider these unsettling facts:
- Although illegal, slavery and forced labor persists in many forms around the world. Researchers estimate there may be as many as 36 million people in slavery today—more than at any other time in history.
- According to a two-year study conducted by Verite, forced labor in Malaysian electronics factories is widespread, impacting one in three migrant workers.
- Last spring, the Guardian reported that “large numbers of men bought and sold like animals and held against their will on fishing boats off Thailand” are integral to the production of shrimp sold in leading supermarkets around the world.
- Every year the government of Uzbekistan, one of the world’s largest exporters of cotton, forcibly mobilizes children as young as ten years old to harvest their crops.
Many corporations are now well aware of these facts, and enforce codes of conduct at factories and fields around the world through regular monitoring. Some collaborate with labor unions and human rights groups, and actively seek to find the root causes of these abuses. They are changing the definition of “good business.” But these changes did not come about through the influence of a magical invisible hand of the market. These transformations are largely the result of concerted engagement by investors and civil society organizations repeatedly raising concerns with corporations for decades.
Milton Friedman allowed for profitable socially responsible activities—this is just good business after all, not “social responsibility.” He failed to see, however, how far away we are from his ideal free market, and the critical need to convince companies to act more responsibly, even when it is in their long-term best interests to do so.
In 2010, Domini convinced Nucor to adopt strong policies to address forced labor and slavery in Brazil. Read the case study.
Learn more about Domini's approach to Human Rights