CONTENTS EdEvidence Newsletter

December 2007

Largest Proxy Voting Advisory Service Expands Support for Corporate Action on Toxic Chemicals in Products

Institutional Shareholder Services (ISS), the largest proxy advisory service in the United States, has updated its proxy voting guidelines, broadening its support for shareholder resolutions that request corporate reviews regarding toxic chemicals. Expanding to encompass toxic chemicals and product safety risks in corporate supply chains, the guidelines signal increased investor concern about the impact on companies of toxic chemicals in products they produce and use.

In its November 19 update, ISS observes that long-term institutional investors "may face significant risk exposure at companies that fail to properly manage product safety in their supply chain." Accordingly, both manufacturers and retailers "should provide disclosure that enables shareholders to evaluate how the companies are managing toxic chemicals and product safety risks in their supply chain."

ISS declares that it will recommend a vote for shareholder proposals that request a company to report on its policies, procedures, oversight mechanisms, and/or product safety in its supply chain, unless the company:

  • already provides similar information through existing reports or policies such as a supplier code of conduct;
  • has formally committed to implementation of toxic materials/product safety and supply chain monitoring and reporting based on industry norms within a specific time frame; and
  • the company has not been involved in recent significant controversies or violations.

ISS issued its initial recommendations on toxic chemicals two years ago, anticipating increased numbers of shareholder resolutions introduced by members of the Investor Environmental Health Network. These original guidelines indicated that ISS would generally support resolutions requesting corporate policy disclosures; would recommend against resolutions requiring a company to reformulate its products within a specific timeframe; and would decide recommendations case-by-case on resolutions asking companies to evaluate the potential financial and legal risks associated with using certain chemicals.

In the 2006-2007 proxy season, ISS recommended votes in favor of resolutions at DuPont concerning the chemical PFOA, at Bed, Bath, and Beyond concerning safer cosmetics and the chemicals PFOA and PVC (polyvinyl chloride), and at Hasbro requesting a sustainability report and referencing PVC. These resolutions received the highest votes among all toxic chemical resolutions introduced by shareholders that went to a vote-45% at Hasbro, and 22% at DuPont and Bed, Bath, and Beyond. Other resolutions, on which ISS recommended "against" based on its prior guidelines, received fewer than 9% of shareholder votes.

ISS's evolving policies reflect growing awareness that it is not only the chemicals that companies put in air, water and landfills that matter, but the chemicals they put in their products to which both workers and consumers are exposed. The guidelines also quite explicitly recognize that safer chemicals and products are more than just a manufacturer concern; retailers need to step up to the plate to assure their customers and investors that they're not selling toxic products.