Trillium’s 2012 Corporate Engagement Highlights

Susan Baker, Vice President, Trillium Asset Management

Over the course of 2012, Trillium engaged with over two dozen major U.S. and foreign corporations to address a wide range of concerns, including climate change, sustainable agriculture and fisheries, Indigenous rights and environmental justice, political spending, labor and human rights, diversity and non-discrimination, and a free and open Internet. Below are a few important highlights.

Climate Change and Sustainable Agriculture

Trillium’s shareholder proposal at J.M. Smucker on the sustainability of its coffee supply chain received 30% support. We re-filed the proposal, focusing on the well-being of coffee-farming families and a sustainability strategy. We were very pleased that the company responded favorably, addressing our concerns and committing to:

• Certified coffee purchases representing 10% of its total retail purchases by 2016,

• A partnership with the Hanns R. Neumann Stiftung Foundation to focus on agronomy training, organizational development, and climate change adaptation strategies to improve farming conditions, yields, and small-scale coffee-farming family incomes,

• A partnership with World Coffee Research to develop hybrid varieties using classic breeding techniques.

In recognition of these commitments we withdrew the proposal.

Heinz* agreed to disclose its efforts to track and manage the deforestation risk commodities in its global supply chain, leading us to withdraw our sustainable forestry proposal. Global demand for agricultural commodities is the primary driver of deforestation, as land is cleared to extract timber and use it to produce beef, soy, palm oil, and biofuels. In a September follow-up call with the company, we were given a preview of its progress and it announced that the company will issue its first “Forest Footprint” report this fall. The company noted that while there is still work to do, the use of the Forest Footprint Disclosure request document helped the company determine deforestation risk at several levels within its supply chain.

In response to our engagement with Costco on sustainable fisheries issues, the company updated its seafood sustainability policy in August. Costco also announced that it has depleted all inventories of “red list” species, and is moving closer to requiring all of its farmed-salmon suppliers to adhere to the Salmon Aquaculture Dialogue standards—a set of standards developed by a multi-stakeholder group of non-governmental organizations, academics, and representatives from Indigenous communities.

Indigenous Rights and Environmental Justice

We continue to oppose the proposed Pebble Mine in Bristol Bay, Alaska, which would create an enormous open-pit mine in a critical salmon habitat. Most recently, we asked Target to send a letter to the Environmental Protection Agency (EPA) discussing the importance of Bristol Bay salmon to its business. We were extremely pleased that our engagement with Target led the $680 billion Food Marketing Institute to send a letter to the EPA explaining that “Bristol Bay is a one-of-a-kind fishery that is important not only to the ecology of the region but also to fulfilling the goal of long-term sustainable seafood sourcing.”

Political Spending

We withdrew shareholder proposals at Halliburton*, Chubb, and State Street Bank* after the three companies agreed to make major improvements in political expenditure disclosures that include disclosures of trade association payments for political spending.

Labor and Human Rights

In August, the Securities and Exchange Commission (SEC) released its final rules requiring companies to report on their use of “conflict minerals” originating in the Democratic Republic of Congo. In response, the U.S. Chamber of Commerce and allies filed a lawsuit in September seeking to set aside in whole or in part the final rule. In a sign-on letter, Trillium joined investor partners to support the rule and urged the SEC to wage a vigorous defense. At press time the suit is pending.

During the two years leading up to this rulemaking, a multi-stakeholder group—in which Trillium played an active role—came together to file four separate comment letters, meet with SEC Commissioners and staff, and participate on a panel at the SEC’s Roundtable on Conflict Minerals. On balance, we believe the new rules will advance responsible sourcing, weaken revenue sources for armed groups in the Democratic Republic of Congo, and better protect investor interests. In an August letter, Trillium, investor, and non-governmental partners, as well as Microsoft, Hewlett-Packard, Ford*, General Electric* and Advanced Micro Devices*—all early adopters of the anticipated rules—joined in publicly commending the SEC for issuing a final rule.

In light of ongoing concerns with Apple suppliers, we have redoubled our focus on how Apple is addressing working conditions and labor rights in its supply chain. We met with company representatives in person in April and October and are having ongoing dialogues to discuss specific steps to measurably improve working conditions and labor rights.

Diversity and Nondiscrimination

This past fall, we have had several successful engagements with companies asking them to include protections for sexual orientation and gender identity in their non-discrimination policies and codes of conduct. Following dialogue with Trillium, W.W. Grainger and Reinsurance Group of America have agreed to explicitly prohibit discrimination on the basis of gender identity and expression, ensuring a respectful and supportive work environment for all employees. We submitted a proposal at Sealed Air that led to their agreement to add both sexual orientation and gender identity protections to their equal opportunity policy. We are also engaging with Amgen on how they can best provide an equal and inclusive workplace. These engagements are especially pertinent as federal law does not currently provide adequate and fair protections and state and local laws remain inconsistent.

Looking ahead to 2013

In 2013, Trillium will be opening a new line of engagements on natural gas fugitive methane emissions, which represent one of the most rapidly growing sources of anthropogenic methane emissions in the U.S., contributing 20% of short-term global warming impact at Spectra, Range Resources, and Oneok. We are also raising too-big-too-fail and systemic risk concerns at Citigroup, where we are asking the company to look at ways to restructure. Also in the financial services area, we are pressing Fifth Third and Wells Fargo to respond to criticism of their payday lending products. With respect to another emerging issue, Internet privacy, we have filed shareholder proposals at Apple and eBay asking the companies to improve oversight of this growing risk. Finally, we are taking up the problem of the lack of gender diversity on corporate boards with shareholder proposals at Superior Energy Services, Zimmer, and Hartford Financial. These are just a few of our upcoming advocacy efforts. We look forward to having a substantive impact on the environmental and social performance of many companies in the year to come.

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*In addition to engaging with our core portfolio companies, Trillium also conducts advocacy on selected companies (identified with an “*”) that are not in our core portfolios but are held as legacy positions in client portfolios. These are companies that may not meet our minimum social and environmental criteria, but that we still seek to improve.

The views expressed are those of the authors as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the authors on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is for informational purposes and should not be construed as a research report.