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What Is "Sustainable Investment" And The Activist Game Plan

Interview With Heidi Welsh Of Sustainable Investments Institute

What is the Sustainable Investments Institute – and what, exactly, does it do?

“We are a non-profit research service – sort of a reincarnation of the old IRRC - researching a wide variety of social and environmental issues – primarily those that arise from proxy

statements, and, in particular, from shareholder proposals. We also do some research on social and environmental issues that arise outside of the proxy season and the proxy-proposal space.”

Where does your funding come from?

“We are funded by the subscribers to our research – which include many of the largest endowed college and university funds, and many of the largest public pension funds. We do not take any positions or make any recommendations to subscribers. We are strictly a research organization.”

What, exactly, does the term “Sustainable Investments” mean? One would think that every investor wants to have only ‘sustainable investments”… no?

“It is sort of a ‘broad umbrella’ - and yes, everyone is basically in favor of having “sustainable investments in sustainable companies” so our research encompasses a broad array of social and environmental issues: The common thread is that most of these issues are not easy to quantify, but that most analysts can see that they can have very broad impacts on the corporate bottom line. And many analysts and investors see such issues as a “proxy” for having good management practices in general…and for the care with which managements identify and manage all of the company’s risks. The other common thread is that these are issues that are addressed in many proxy statements and that are often the

subject of shareholder proposals.”

What do you see as the key issues – and the key flashpoints as we look toward the 2015 Annual Meeting Season?

“Political issues – specifically, calls for more disclosure on political spending and lobbying activities – will be the numberone issue in 2015. What will also be important in 2015 is what

does not come to a vote. Roughly half of all the proposals calling for more disclosure will be settled without a vote this season.”

What about the purely political spending and lobbying proposals? It seems to me that many companies still dig in their heels here.

“Yes, only about 25% of them are being settled currently. But there seems to be a remarkable uptake lately. And for sure, there is much more board oversight and supervision of these issues than ever before – and agreement that these issues can pose risks if not properly managed. There is another interesting interplay here because of ties between political spending and lobbying and the energy issue – and the fact that we are dumping too much carbon into the air, and need solutions.”

What are your thoughts about the “Millennials” – who seem to be very keenly interested in social and environmental issues?

Young people are worried about social and environmental issues. We have been seeing high demand for information and advice on how to operate in “conflicted” areas of the world. And it does seem that if companies want to attract the “best and brightest” – both as employees and as customers – they need to address these issues proactively.”

Any advice you’d give readers?

“Stonewalling investors is never a good idea. Shareholder questions and shareholder proposals should be perceived as opportunities to engage and to learn and to improve – and as part of an ‘overall engagement process’ with stakeholders – which is, by far, the easiest way to address such issues.”

Anything else on the horizon?

“Another set of big “crossover issues” to watch closely in 2015 revolves around the 75 “Proxy Access Proposals” that are out there, which specifically target companies with low say-on-pay approval numbers, that are high-carbon emitters and that have low board-diversity.”

Q: Have you ever seen the interview we did with Ed Durkin of the Carpenters Union a few years ago? He referred to Proxy Access as “A lot of very smart people talking about a very stupid thing.” His main point is that with majority voting (even if it’s not in the company Charter) low vote-getters will become victims of a “nuclear option” that basically takes them out, creates immediate vacancies – and greatly increases the leverage of activist investors… without all the proxyaccess rigmarole. Any thoughts here?

“Yes, I think we will see more ‘nuclear actions’ like this, going forward.”