Sysco – Climate Change Related Water Risk (2011)
Outcome: Successfully Withdrawn. The company agreed to participate in the Carbon Disclosure Project, the Carbon Disclosure Project Water Survey, and to fully develop its sustainability strategy to include areas such as water scarcity and sustainable agriculture.
Shareholders request that by April 2012, the Board of Directors provide a report to shareholders (at reasonable cost and excluding confidential and proprietary information) on how Sysco is assessing water risk to its agricultural supply chain and action it intends to take to mitigate the impact on long-term shareholder value.
Water management is an emerging strategic business issue. The Securities and Exchange Commission states in its 2010 “Guidance Regarding Disclosure Related to Climate Change”, that climate change and water may challenge companies “dependent on suppliers that are impacted by climate change, such as companies that purchase agricultural products from farms adversely affected by droughts or floods.” http://www.sec.gov/rules/interp/2010/33-9106.pdf
Our company acknowledges the business risk of climate change and water shortages in section 1A of its 2010 Annual Report. However, additional information on its efforts to mitigate the risk of water management is limited to a brief mention in its 2010 Sustainability Report, where Sysco states that in 2009 it began tracking irrigation water used in its integrated pest management program (a relatively small proportion of its agricultural supply chain).
The United States Department of Agriculture (USDA) reported in 2009 that “No matter the region, weather and climate factors such as temperature, precipitation, CO2 concentrations, and water availability directly impact the health and well-being of plants, pasture, rangeland, and livestock.” Specifically, climate change affects average temperatures and temperature extremes; timing and geographical patterns of precipitation; snowmelt, runoff, evaporation, and soil moisture; the frequency of disturbances, such as drought, insect and disease outbreaks, severe storms, and forest fires; atmospheric composition and air quality; and patterns of human settlement and land use change, which directly impact crop yields and meat production. http://www.usda.gov/img/content/EffectsofClimateChangeonUSEcosystem.pdf
A JPMorgan Global Equity Research report on water entitled “Watching Water – A Guide to Evaluating Corporate Risks in a Thirsty World” states that an inadequate supply of water in a food company’s agricultural supply chain presents several serious risks. Specifically it argues, “water-related disruptions in the agricultural supply chain may have a dramatic impact on the industry’s economic performance.”
Sysco was invited to participate in both Carbon Disclosure Project (CDP) and its companion survey, CDP Water Disclosure. CDP is an independent not-for-profit organization that holds the largest database of primary corporate climate change information in the world. The company has declined to participate in either survey, even though 95% and 65% (respectively) of companies in the same sector responded.
Leading food companies such as Unilever, General Mills, and Sodexo evaluate their agricultural supply chain and incorporate water scarcity and climate risks into their sustainability strategy and business planning. For investors in corporations with extensive agricultural supply chains, information about their exposure to and management of water risk is essential to the evaluative process. We believe the adoption of a sound water risk management plan will offer Sysco competitive advantage and enhance opportunities for long-term sustainability for the company and its shareholders.