Shareholders Target Toxics

AT ITS ANNUAL shareholder meeting this week, DuPont faces a resolution urging its board of directors to issue a report evaluating the feasibility of phasing out perfluorooctanoic acid (PFOA) from all of the firm's products. Meanwhile, Dow Chemical is facing a resolution at its upcoming shareholder event calling for an analysis of the impact of its products on asthma.

These are two of 17 shareholder resolutions related to chemicals and toxic substances coming up in the current annual meeting season at companies ranging from the drugstore chain CVS to the toy manufacturer Hasbro. The list has grown from three such resolutions only two years ago, according to a new report, "Fiduciary Guide to Toxic Chemical Risk," published by the Investor Environmental Health Network.

IEHN is a year-old group of investment management organizations with $22 billion in collective assets under management. Citing recent legal battles, sales bans, and damaged reputations arising from toxic materials in cosmetics, toys, and other products, the report outlines actions shareholders can take to gain more information about the potential liabilities of companies in which they own stock.

But the group says its objective goes beyond portfolio management counseling. "The point isn't simply to file a shareholder resolution," says coauthor Tim Little, executive director of the Rose Foundation for Communities & the Environment. "The point is to use the process to open up a dialogue with a company that leads to an improvement that is good for the environment, for health, and good for the bottom line."

The process has yielded results, according to the IEHN report, which details steps taken by Whole Foods; Wal-Mart; ConAgra; Becton, Dickinson; and Johnson & Johnson following challenges from shareholders last year. These range from J&J's agreement to open a dialogue with the multistakeholder initiative Campaign for Safe Cosmetics to Whole Foods's announcement that it would stop selling baby bottles and other products that contain substances linked to hormone disruption (see page 32).

Perhaps the most significant move is Wal-Mart's new "preferred substance" policy, under which the firm has named the first three of 20 products it plans to eliminate: nonylphenol ethoxylate, a surfactant used in some cleaning products, and propoxur and permethrin, household pesticides.

Shareholder resolutions in and of themselves are unlikely to have a direct impact on chemical companies or their stock prices in the near future, according to Andrew Brengle, senior research analyst at KLD Research & Analytics, an investment research firm that is not affiliated with IEHN. But shareholder activity can't be discounted either, he says.

"The shareholder advocate's goal is to put these things on the company's radar screen and to work with the company over time to push change," Brengle says. "Usually it's incremental change." An exception, according to Brengle, is when shareholder resolutions align with high-profile product liability cases comparable to the recent PFOA travails of DuPont and other manufacturers.

DuPont declined to be interviewed for this story. It recommended that shareholders vote against the proposal to phase out the ubiquitous environmental contaminant PFOA, noting that it has voluntarily committed to a 95% reduction in the chemical from its facilities and products. The company also states that it has patented a manufacturing process that removes more than 97% of trace levels of PFOA and that it is committed to eliminating the need to make, buy, or use PFOA by 2015.

Still, Little sees momentum from the shareholder resolution process at work. He notes that last year DuPont faced a similar PFOA proposal that received a 27% favorable vote. "That is considered a huge vote in these types of things," Little says. "It will be interesting to see if more shareholders will become alerted to this and whether there continues to be a groundswell for DuPont to phase out PFOA as quickly as possible."

IEHN LINKS its report to a broader groundswell of public concern spurred in part by coverage of industrial chemical toxicity in the popular press. Given the heightened media profile, Little says, companies will need to become better communicators of risk.

"The problem is that a lot of companies don't give out very specific information about environmental liabilities until after the fact, until the spill has happened, the losses incurred," he says.

Industry sources, including stock analysts who declined to comment on the record, indicate that there is less interest on the part of individual investors than on the part of nongovernmental organizations (NGOs) associated with environmental and health issues.

"That's a familiar response," Brengle says. "Sure, there are traditional NGOs involved, pushing from the outside. And whatever you think of their tactics, we do use their information. But shareholder advocates are investors and do have a concern for the larger public and investing world. They try to bridge the supposed gap there."

IEHN Director Richard A. Liroff agrees. "If you look at Wal-Mart's experience at building its sustainability networks and the extensive outreach they've done to stakeholders, you see the wisdom of companies paying attention to NGOs and other stakeholders who are influenced by what companies are doing."

And what companies like Wal-Mart are doing will likely have a big influence on their suppliers. Liroff claims that Wal-Mart is putting its preferred substance policy on equal footing with its tough policies on pricing and supply-chain management. "It is not a do-gooder thing they are doing on the side," he says. "It's an intrinsic part of their core strategy."