Trillium’s Jonas Kron Interviewed by Bloomberg TV Regarding Impact of a Potential Water Shortage

To mark the United Nation’s 2012 World Water Day, Jonas Kron, Vice President of Trillium Asset Management, was interviewed on Bloomberg Television’s “InBusiness With Margaret Brennan”.

Producing enough food to feed the world’s rapidly growing population will require the international community to ensure the sustainable use of the world’s most critical finite resource, water.

Trillium has been engaging companies and encouraging them to develop both short term and long term strategies to significantly reduce their fresh water usage.

Jonas talked about the potential impacts that a water supply shortage could have on a company’s agricultural supply chain.

You can see the interview here.

Sysco – Climate Change Related Water Risk

RESOLVED

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.

SUPPORTING STATEMENT

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.

Chevron – Global Environmental Standards Report

WHEREAS

The Chevron Business and Ethics Code places the highest priority on the safety of its staff, community members and the environment where it operates. Corporate Policy 530 “commits Chevron to comply with the spirit and letter of all environmental, health and safety laws and regulations, regardless of the degree of enforcement.”

Our company operates in 180 countries, including Africa, Asia and Latin America nations where environmental regimes may be less protective of human health and the environment than in other countries where Chevron operates.

CEO David O’Reilly has recognized the importance of our company’s relationships with oil producing nations in Africa and Latin America. (International Petroleum Finance, 03/09/05, “Chevron Chief Believes the Surplus is Over.”)

Notwithstanding Chevron’s efforts to comply with environmental laws and regulations in developing countries, our company has repeatedly been cited for practices that allegedly have caused environmental damage and harmed the health and welfare of local communities.

• Chevron is on trial in Ecuador for widespread contamination of Amazonian land and water resources in the 1970s. (“Ecuador Keeps Up Oil Cleanup Fight Against Chevron,” Los Angeles Times, 11/17/08)

• A court-appointed expert in the Ecuadorian litigation has recommended that Chevron be held liable for up to $27.3 billion in damages. This amount includes $18.9 billion for environmental remediation and compensation to local people, and $8.3 billion in unjust enrichment penalties. (Technical Summary Report, Engineer Richard Cabrera, Expert for the Court of Nueva Loja- November, 2008)

• Chevron is accused of polluting land and water resources in its ongoing operations in the Niger Delta. According to observers, these persistent environmental problems have fueled civil unrest, protests against our company and a related lawsuit alleging Chevron’s complicity in security forces’ killing of two protestors. (“Chevron Faces Suit Over Nigerian Violence,” San Francisco Chronicle, 10/26/08)
• Unocal’s pipeline operations in Burma contributed to the deforestation of the last primary tropical rainforest on mainland Asia, a recognized ‘biodiversity hot spot.’ (“Unocal-Total Oil Pipeline in Burma Threatens Indigenous People, Animals,” Environmental News Network, 4/27/02)

Chevron’s Environmental, Health and Safety Fines and Settlements have increased from $3.99 million in 2003 to $14.06 million in 2007, according to the company’s latest Corporate Responsibility Report.

Chevron’s three strategic priorities for environmental performance are: “Defining world-class standards, measuring and communicating performance and demonstrating continual performance improvement,” toward the goal of being  “recognized and admired everywhere for having a record of environmental excellence.”

RESOLVED

The shareholders request that the Board prepare a report by November 2008, prepared at reasonable cost and omitting proprietary information, on the policies and procedures that guide Chevron’s assessment of host country laws and regulations with respect to their adequacy to protect human health, the environment and our company’s reputation.

SUPPORTING STATEMENT

We believe that Chevron’s record to date demonstrates a gap between its international environmental aspirations and its performance, which would be narrowed by a commitment to apply the highest environmental standards wherever the company operates. The requested report would play a role in illuminating and addressing the factors accounting for this gap.

Business and Water Scarcity: The Reports Are In

Benjamin Franklin wrote, “When the well is dry, we learn the worth of water.” Residents of cities around the world are learning that lesson right now. Atlanta risks running out of drinking water before the end of the year if a severe drought holds and the city doesn’t take dramatic steps to curb consumption or find new water supplies. On the other side of the globe, some Chinese cities must now dig wells 600 feet deep to find clean drinking water in regions where aquifers were eight feet below the surface just a few decades ago. Millions of residents of Mumbai and Delhi – even those who are comfortably middle class – must wake up at 3 a.m. to turn on their taps in order to capture water that’s only available for a few hours a day.

If every cloud has a silver lining (though not enough raindrops), the growing crisis of global water scarcity is finally raising awareness of the need for every sector of society to do more to address the issue. A few years ago, Trillium Asset Management Corporation (“Trillium”) commissioned leading experts on global water trends at the Pacific Institute to develop one of the first studies to look specifically at how water scarcity threatens business and what companies should do to alleviate the crisis. Now there’s a growing body of additional studies and research focusing on corporate activity in this area.

Drops of Awareness, but a Drought of Action

Increasingly, warnings about the global water crisis are coming not just from environmental groups and community advocates, but from traditional business organizations. Giant insurance broker Marsh Inc. has created a new think tank called the Marsh Center for Risk Insights, which found in a September 2007 survey of executives at 100 of the Fortune 1000 companies: “Nearly half (47 percent) of the executives interviewed say access to water is critical or very important to the day-to-day operations of their company. Forty-one percent say if they were faced with a severe water shortage it would cause a complete or partial shutdown of their business. Amazingly, only 17 percent have taken any steps to prepare for reduced access to water.” (Note that word “amazingly.” The Marsh report puts these results under the heading “Water Denial.” That’s unusually strong language from an organization of staid insurance executives and risk experts.) Neal McGarity, Senior Vice President Corporate Communications for Marsh, told SocialFunds.com: “The global demand for water is increasing. The point is that companies need to plan now for the impact of water shortages on their business operations.”

The Marsh study found that companies’ water-related costs are climbing, as manufacturers increasingly have to treat their output water as well as the water they use as inputs to their production processes. Nor is this an issue limited to companies in industries with particularly high water consumption. Marsh found that “Even non-water-intensive businesses are being affected as suppliers pass on their own water-related costs.”

Another report released this summer fleshes out how companies are reporting on water risks. With financial support from foundations and a small contribution from Trillium and the Interfaith Center on Corporate Responsibility, researchers at the Pacific Institute analyzed coverage of water issues in the corporate social responsibility reports of 139 of the largest companies across 11 water-intensive industry sectors. It identified some areas of progress, finding “The vast majority of companies in water-intensive industries now report water information as standard practice. The few companies not reporting in these sectors are the exception, not the norm.” However, they also found many gaps in information they’d hoped to find in the reports they read. Among the elements they identified as missing:

• Information on companies’ water-related risks is not widely reported. Only one in five mentioned water risks and challenges or describes programs to assess water risks.
• Quantitative water-related targets are not commonly published. Only 30 percent of the reports provided quantitative targets, and even these often did not cover all the indicators reported by the company.
• Supply chain issues are often overlooked. Only 10 percent of reports mentioned supply chain considerations involving water management. None reported on the actual water use or wastewater data of their suppliers.

A Wellspring of Solutions

The Pacific Institute and others aren’t just criticizing companies for not doing more. They are offering tools and frameworks to help them better manage water risks. The Pacific Institute partnered with Business for Social Responsibility (BSR) to issue a joint report recommending ways companies can begin to think strategically about decreasing their own water use and impacts, and about partnering with others to protect and restore wetlands and other ecosystems that safeguard water resources and biological diversity. (The report, titled At the Crest of a Wave: A Proactive Approach to Corporate Water Strategy, is available online at http://www.pacinst.org/reports/crest_of_a_wave/crest_of_a_wave.pdf.) The study warns that given current global freshwater trends, “The challenge for businesses will be ensuring access to needed water within more competitive contexts while coordinating with, rather than being in conflict with, local community water priorities.” The report notes there aren’t simple ways to achieve this, but recommends businesses adopt a “multifaceted approach that combines efficiency and conservation measures, innovation at the process and product level, and investments in natural systems that replenish and purify water long into the future.”

While the Pacific Institute-BSR report lays out a framework for companies to develop a comprehensive water sustainability strategy, the Global Environmental Management Initiative (GEMI) recently released a tool intended to help individual factory and facility managers translate their company’s water strategies into action on the ground. Connecting the Drops Towards Creative Water Strategies: A Water Sustainability Planner (http://www.gemi.org/waterplanner/index.htm) contains three modules that help site managers conduct water risk assessments that look at: (1) their facility’s specific water needs in comparison to the availability of water in the region, (2) operational impact on available water resources, and, (3) case studies on reducing water use and impacts.

Another tool that seems to offer great promise at bridging both a corporate-wide global perspective and a facility-specific component needed for is the World Business Council for Sustainable Development’s new Global Water Tool (http//:www.wbcsd.org/web/watertool.htm). The WBCSD launched the tool this summer amid the hydro-hoopla of World Water Week in Stockholm, an annual Mardis Gras of sorts for hydrologists and water policymakers. The Global Water Tool allows companies to plot the location of each of their facilities, offices, and even key sourcing areas onto a global computer map overlaid with water scarcity data. That map can then help companies identify and prioritize areas of current water risk and future risk based on projected water scarcity trends. The tool also provides a framework to compile facilities’ water use and discharges to help companies monitor their water consumption and efficiency rates at both a facility and corporate level. The tool was developed by the giant environmental and engineering firm CH2M HILL with input from more than 20 companies across industry sectors. Significant corporate water users like PepsiCo have already begun to use it.

Eager to see these reports translate into positive change in the corporate sector rather than just sitting on the shelf, Trillium so we’ve organized a series of conference calls to share their findings with socially responsible investment firms and shareholder advocates. We’ve also reached out to a dozen or so companies in our holdings that we think could contribute the most to a more sustainable water future to better understand what they are doing to manage their impacts and to share these findings with them. We expect these efforts and others like them are the front end of a wave that will continue to crest in the years ahead.