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TOXIC NEGLECT: MUTUAL FUNDS OPPOSING SHAREHOLDER RESOLUTIONS ON CHEMICALS IN PRODUCTS IGNORE FINANCIAL RISKS TO SHAREHOLDERS
Turning a Blind Eye to Risk: Fidelity, American Funds, T Rowe Price, ING, Morgan Stanley, MassMutual; Some Encouraging Signs Seen at TIAA-CREF and ISS.
WASHINGTON, D.C.—February 28, 2008 – More than three out of four major mutual fund families in the United States – 40 out of 52 (or 77 percent) -- routinely oppose or abstain from voting on toxic chemical shareholder resolutions in 2006 and 2007, according to a major new report today from The Investor Environmental Health Network (IEHN) and The Rose Foundation for Communities and the Environment.
The IEHN/Rose report, Mutual Neglect: How the Largest Institutions in the Stock Market Ignore Health Problems and Financial Threats Stemming From Toxic Product Liabilities draws on data from a total of 64 families of mutual funds casting votes in 2006 and 2007 on shareholder resolutions. Only 195 votes were cast in favor and 1,752 were cast against shareholder resolutions addressing issues such as pesticides and asthma and toxic chemicals in children’s toys and cosmetics. Entire fund families such as ING (213 “no” votes), Morgan Stanley (90 “no” votes), and T Rowe Price (110 “no” votes) voted against ALL resolutions. Fidelity and American Funds also did not support any resolutions. Vanguard abstained 157 times, maintaining that “social policy issues” such as toxic chemicals in products are “ordinary business” best handled by company management.
Ironically, the report finds that funds of two financial companies that market both mutual funds and health insurance—John Hancock and MassMutual—did not support resolutions at Dow Chemical Company requesting an assessment of links between the company’s pesticide products and asthma. Morgan Stanley’s mutual funds also voted against this resolution, even though Morgan Stanley contributed $60 million to the Morgan Stanley Children’s Hospital in 2003, whose services include a facility to treat childhood asthma.
Tim Little, executive director, The Rose Foundation and a contributor to the report said: “Even as more and more evidence mounts of the danger posed to the public’s health and the wealth of shareholders by toxic chemicals in products, America’s largest fund families are continuing to turn a blind eye to the problem. The only problem for shareholders here is that denial is no investment strategy. When it comes to mutual funds investing in companies with toxic products, denial is inevitably going to be a prescription for financial disaster.”
Richard Liroff, executive director of IEHN, commented: “Mutual fund investors are really shareholder/consumers. Their investment gains may be offset by the costs they incur from chemicals in everyday products. So their return on investment may be lower or even negative, if one counts their health costs from exposures to chemicals in products made by their portfolio companies.”
According to the report, toxic chemicals in products can have a sizeable business impact of the sort that hurts the bottom lines of mutual funds and their shareholders.. Examples include recall costs, litigation expenses and a sharp stock price drop at Thomas the Tank Engine manufacturer RC2; reduced sales growth in beauty products at Procter & Gamble because of allegations in China of contaminated skin cream; litigation and civil penalty costs at DuPont over the PFOA used to manufacture Teflon coatings; and reputational damage at Wal-Mart and other retailers over recalled baby bibs and lunch boxes.
Encouraging Signs and Recommendations
Despite the predominately gloomy picture it paints, the report finds several reasons for hope.
- First, are revisions to TIAA-CREF’s proxy voting guidelines in 2007. The $430 billion fund family’s new proxy voting guidelines section on “Product Responsibility” declares that TIAA-CREF will generally support reasonable shareholder resolutions seeking disclosure of the safety and impact of company products on customers and communities. TIAA-CREF funds supported all toxic chemical resolutions at their portfolio companies in 2007.
- Second, are new proxy voting guidelines adopted by government employee pension funds in Connecticut, New York City, and Maryland that also address product stewardship issues.
- Third, are recent revisions to the proxy voting guidelines of Institutional Shareholder Services, the largest proxy voting advisory service in the United States, recognizing the need for companies to better address toxic chemicals in their supply chains.
The report makes 3 recommendations to the mutual fund industry:
- Adopt proxy voting guidelines similar to ISS or TIAA-CREF.
- Follow TIAA-CREF’s lead and survey their participants’ opinions on responsible investing, including shareholder activism.
- Fund trustees should explore issues of links between toxic chemicals and financial risk with their investment managers and consultants.
The report also urges investors in mutual funds to contact their funds’ investor services department to ask that funds adopt proxy voting guidelines addressing these issues
Many mutual funds seem to be ignoring the business case behind shareholder resolutions seeking to reduce toxics in consumer products. What’s worse, many mutual funds also seem to be voting against their shareholders’ health. Funds that continue to turn a tin ear towards toxics may find themselves losing market share in the very competitive mutual fund marketplace.
For the full report, go to http://iehn.org/publications.reports.mutualfunds.php on the Web.
IEHN’s analysis of mutual fund voting draws on a database of voting behavior of 1,400 funds in 64 mutual fund families compiled by Jackie Cook of Boardmap Research, Vancouver, Canada. This is an extensive but not exhaustive database of more than 8.5 million voting decisions by most of the largest funds from most of the largest U.S. fund groups over four years. The data and data summaries are available on-line at: http://www.fundvotes.com/IEHN/Toxics_FundVoteResults_2006-2007.xls.
About the Groups
The Investor Environmental Health Network (http://www.iehn.org) is a collaboration of investment managers encouraging companies to adopt “safer chemicals” policies for products, to enhance shareholder value. IEHN participants manage more than $41 billion in assets.
The Rose Foundation for Communities and the Environment has been recognized nationally for innovative shareholder advocacy campaigns and for its research into the correlation between corporate environmental and financial performance. Its petition to the U.S. Securities and Exchange Commission seeking more robust disclosure of environmental risk has been endorsed by institutional investors collectively representing more than $1 trillion in assets under management.
CONTACT: Patrick Mitchell at (703) 276-3266 or [email protected]