Shareholder Engagement Update: 3Q17

We know how critical the investor voice is to create change. And that change is not only good for investors, it is good for companies, people, and the environment. We seek a win-win.


Proxy Impact

As we wrap our spring 2017 activism season, we would like to share some highlights. It was a productive season as we exercised the power of our clients’ share ownership on everything from fake news to climate change. As ever, our collective impact came in varying forms, from company commitments to changing the public conversation.

Fake News

This season we filed a first-of-its-kind shareholder proposal at Facebook and Google asking the companies to report on how fake news and hate speech are impacting our society and their business.

The fake news controversy in the US threatens to undermine a core tenet of our democracy—an informed electorate. And for companies like Facebook and Google, whose platforms are manipulated to propagate misinformation, fake news threatens to undermine the trust of their user base and their advertising revenue.

2/3 of adults now get their news through Facebook’s platform and it is clear the company controls the conversation—a conversation that is being muddied. Pew reports 64% of US adults say fabricated news stories cause a great deal of confusion about the basic facts of current issues and events—confusion that cuts across political lines.

Facebook is therefore highly vulnerable, as fake news promoters spam their way to visibility through strategically gaming the company’s algorithms and publishing platform. At Google, major advertisers have suspended advertising on the company’s AdSense platform for fear of being associated with objectionable content. One prominent Wall Street firm estimates Google lost $750 million in advertising revenue for this very reason.

Both companies responded to our proposals in varying degrees, by tweaking their algorithms, publishing more information on their websites, and paying lip service to the issue. But as neither addressed the full scope of public policy and free speech risks, we put the proposals to a vote. This problem will not be solved overnight, and the greatest challenge is how to address fake news and hate speech without curbing freedom of expression for billions of users.

At Facebook’s annual meeting, after presenting our proposal, nearly 2/3 of the conversation between shareholders and management was dominated by fake news and hate speech. So while management opposed our proposal, they clearly heard our concerns. Three weeks later, Mark Zuckerberg changed the mission of Facebook: From “to make the world more open and connected” to “give people the power to build community and bring the world closer together.” It’s a start.

Gender Pay Equity

2017 marked the year we shifted our attention from gender equity in the tech sector to the financial sector—essentially taking what worked in Silicon Valley and bringing it to Wall Street. This was not without its challenges. The Big Banks dug their heels into a culture of opacity and opposed our proposals to disclose and close the pay gaps at their companies. As a result, the six shareholder proposals we filed all went to a vote of shareholders at the annual meetings of Citibank, Wells Fargo, JP Morgan, Bank of America, American Express, and Mastercard. But while we view the companies’ reluctance as disappointing, it is not surprising.  Change takes time. Lucky for us, logic, public pressure, and regulatory risk are on our side.

For one, women executives leave careers in finance more than in any other industry. This is not only bad for women, it’s bad for business. And while we all know that attracting and retaining top talent, including women, should be a first-order priority, Wall Street continues to boast one of the highest pay and leadership gaps in the country. To remedy this, Big Banks must address root causes, including the gender gap.

Second, intransigence among U.S. banks to deal with equal pay puts them behind the curve globally. The Bank of England, Virgin Money, and Schroders have taken the industry lead by publishing their gender pay gaps. And by April 2018, all large U.K. companies will be required to publish their pay gaps. It is simply a matter of time before others follow suit.

Third, Google stands as an example of why not to rely on a “trust us” approach. Despite the fact our gender pay proposal has been put in front of the company 2 years running, Google has not addressed the issue. It is now under investigation by the Department of Labor for “extreme” gender pay disparity.

Real change—a complete U-turn in how the biggest banks approach gender pay equity—must overcome a business culture entrenched in an antiquated value system. So, the shareholder activism undergirding this effort will require additional time, multiple engagements, and tougher public pressure. In June, Bloomberg Businessweek highlighted the issue in a cover story featuring our work. The same week we published an op-ed in American Banker calling out Wall Street’s inertia. We hope this attention will inspire action.

We have also begun to expand our engagement to the consumer sector, filing proposals at Starbucks, Nike, and Costco. In April, Starbucks took the lead and published its gender pay gap.

Carbon Asset Risk

May 31st marked a watershed moment for Exxon. For the first time in the company’s history, a majority (61%!) of investors voted for a shareholder proposal asking the company to disclose its carbon asset risk—that is, the risk that two thirds of all fossil fuel reserves could be stranded, unburnable and devalued in the low-carbon future necessary to avoid catastrophic climate change.

As you may recall, Arjuna first filed this proposal in 2013, and withdrew it in exchange for an agreement that Exxon would report out on the risk. And while Exxon did publish the 30-page negotiated report, they flat out denied the risk. But since that first filing, some of the largest institutions have taken up the charge—from the Bank of England, to Vanguard and Blackrock. And while Exxon simply responded they would “reconsider” the proposal, the fundamental shift in investor support will not go away any time soon.

At Chevron, we filed a first-of-its-kind proposal this year asking the company to publish a transition plan on how the company will shift its portfolio to less carbon-intensive energy resources. And it garnered significant support! Nearly 1/3 of shareholders support a planned transparent approach.

In a similar vein, we refiled our proposal asking Exxon to shift from a business plan of growth in fossil fuels to one focused on profitability. We suggest the prudent use of investor capital would be, first, to reduce spending on the most carbon-intensive and expensive exploration projects and, second, to return more money to shareholders in the form of dividends. Our recommendation is, essentially, that they right-size their business for a carbon-constrained world.

And while vote thresholds will prevent us from bringing this proposal to a vote next year, the proposal has sparked an important intellectual argument that appears to have shaped global thinking on how best to right-size big oil.

Last spring, Chatham House, the 2nd most influential global think-tank, along with the editorial board at the Financial Times (commonly referred to as the “stockholders bible”) endorsed the very strategy Arjuna has been pressing for three years. Three days after our proposal went to a vote at Exxon’s annual meeting, the FT stated:

“Rather than investing in potentially stranded oil and gas projects, or gambling on new technologies that they do not fully understand, the oil companies would do better to continue returning money to shareholders through dividends and share buybacks.”

Methane Leakage & Storage

We filed the first methane leakage proposals on behalf of our clients beginning in 2012, and since that time, investor interest and action on this issue has exploded. Methane is a potent climate change contributor with 84 times the impact of CO2 over a 20-year timeline. The problem is that from the time a natural gas well is drilled until that gas is burned, methane leaks. And if more than 2.6% of the gas is lost, natural gas is worse than coal from a climate standpoint. Yet, methane leakage continues to be mismanaged and mis-measured.

In October 2015, we saw one of the largest reported leaks to date, as a well blowout at Aliso Canyon in LA County released over 100,000 tons of methane into the atmosphere. This blowout not only affected the 8,000 families who had to be relocated, it jeopardized California’s mitigation objectives under the state’s climate law. And while Aliso revealed major vulnerabilities in the maintenance and safety of natural gas storage facilities, it is not alone. Of the 400 storage facilities across the country, 80% face similar risks.

In response, we expanded our campaign to include storage risks. This was not without its challenges. Dominion, which holds the 3rd highest volume of natural gas in the country, attempted to block our proposal at the Securities and Exchange Commission. Fortunately, we persevered. And this year our methane proposals garnered double-digit votes at Dominion, Occidental Petroleum, and Berkshire Hathaway.

Lead Poisoning

Beginning in the fall we engaged Home Depot and Lowes, asking them to make customers aware of lead testing and lead-safe renovation practices. For while contaminated water in Flint, Michigan has dominated the headlines, lead paint in 35% of US homes remains the leading cause of toxic exposures. Early exposure to this “cumulative toxicant” has an outsized impact on children and can cause severe neurological problems, decrease IQ rates, and produce poor behavioral outcomes, aggression, ADHD, and autism.

Lead also carries a cost to society—increasing healthcare costs, special education costs, and crime rates, while reducing lifetime earnings and tax revenue. In the United States alone, the loss of economic productivity due to childhood lead exposure is estimated to be over $50 billion annually.

Despite these outsized impacts, in 2016 Home Depot paid a penalty to the EPA for lead safety violations by their contractors. And while those violations were due to professional mismanagement of lead debris and dust, it is important to note that substantial lead exposure occurs due to Do-It-Yourself (DIY) renovations. DIY customers are not subject to lead-safety regulation and may not understand the dangers.

We are happy to report that in March, we withdrew our proposal at Home Depot after they committed to a national lead safety awareness campaign, including in-store events and announcements, warnings printed on the paint sticks they hand to every paint customer, a social media awareness campaign, and customer safety messaging on their website. This campaign could prevent countless childhood exposures across the country. And while children and families stand to benefit, Home Depot will also benefit from a proactive approach to customer safety.

A Threat to Shareholder Rights

Of note, there is currently an attempt before Congress in the form of the CHOICE act, which seeks to limit the rights of shareholders. This bill has been promoted by the US Chamber of Commerce and The Business Roundtable to prevent all but the largest shareholders from filing shareholder proposals. To put that in perspective, the suggested threshold would restrict the rights of all but the Blackrocks and Vanguards of the world. We know how critical the investor voice is to create change. And that change is not only good for investors, it is good for companies, people, and the environment. We seek a win-win. Shareholder engagement has therefore been a critical leverage point for promoting good governance and ensuring a diversity of perspectives. We are working within our networks to fight this bill and will keep you posted.


Natasha Lamb, Director of Equity Research & Shareholder Engagement

The opinions expressed herein are those of Arjuna Capital, LLC (“Arjuna Capital”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. Arjuna Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.  This is not a recommendation to buy or sell a particular security. Arjuna Capital is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Arjuna Capital including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request. 


Ready to engage?

we'd love to chat


Contact Form
Your privacy is important to us. We never sell or share your information.
Find us on social media