American Water Works Company, Inc. – Racial Justice Audit (2022)

Outcome: Pending

To combat systemic racism, corporations should recognize and remedy industry- and company-specific barriers to everyone’s full inclusion in societal and economic participation. Racial gaps cost the U.S. economy an estimated $16 trillion over the past twenty years. (1) Closing the Black- and Hispanic-white wealth gaps could add 4-6% to American GDP by 2028. (2)

One year after many companies made commitments to racial justice, the practical outcomes remain unclear. Fifty corporate pledges totaling $49.5 billion were characterized by a 2021 analysis as falling short of addressing systemic racism. (3) Shareholders lack independent assessments that racial equity strategies are impactful, address appropriate topics, and unlock growth.  

Addressing racism and its economic costs demands more than reliance on internal action and assessment. Audits engage companies in a process that internal actions may not replicate, unlocking value and uncovering blind spots that companies may have to their policies and practices. Company leaders are not diversity, equity, and inclusion experts and lack objectivity. Crucially, a racial justice audit examines the external impact a company has on minority communities.

Given companies across sectors are embroiled in race-related controversies, any company without a third-party audit and plan for improvement of internal and external racial impacts could be at risk. (4) Companies like Facebook, Starbucks, and Blackrock have committed to such audits, and guidelines have been developed by practitioners. (5)

American Water is currently implicated in an environmental justice controversy in Marina, California, where a third of the residents are low-income and many speak limited English. (6) Though withdrawn and being reworked, the company’s proposal for a desalination plant in Marina would not supply any of the treated water to the town while dispossessing it of an open community space. However, the company continues to appeal legal rulings despite California Coastal Commission recommendations to deny permitting, in part due to environmental injustice. Additionally, the company lacks executive racial diversity with zero minority officers and does not release EEO-1 data, though it has begun reporting diversity metrics and set undisclosed goals. Shareholders are concerned there may be gaps in how the company approaches environmental justice in other projects and in internal inclusion, and believe that a racial justice audit may help the company identify and close potential gaps. 

Resolved: Shareholders urge the board of directors to oversee a third-party audit (within a reasonable time and at a reasonable cost) which assesses and produces recommendations for improving the racial impacts of its policies, practices, products, and services, above and beyond legal and regulatory matters. Input from stakeholders, including civil rights organizations, employees, and customers, should be considered in determining the specific matters to be assessed. A report on the audit, prepared at reasonable cost and omitting confidential/proprietary information, should be published on the company’s website.

(1) https://ir.citi.com/NvIUklHPilz14Hwd3oxqZBLMn1_XPqo5FrxsZD0x6hhil84ZxaxEuJUWmak51UHvYk75VKeHCMI%3D

(2) https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-economic-impact-of-closing-the-racial-wealth-gap

(3) https://philanthropynewsdigest.org/news/corporate-pledges-for-racial-justice-fall-short-analysis-finds

(4) https://www.nytimes.com/2020/06/06/business/corporate-america-has-failed-black-america.html

(5) https://www.proxypreview.org/2021/contributor-articles-blog/racial-justice-audits-holding-companies-accountable-for-their-role-in-system-racism

https://www.bloomberg.com/news/articles/2021-08-05/how-aclu-veteran-laura-murphy-audited-facebook-s-race-problem?sref=cdlcj118

(6) https://www.latimes.com/california/story/2020-09-15/cal-am-desalination-coastal-commission-marina-california

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