Shareholder Resolutions

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Company: Costco
Subject: Toxic Chemicals in Products
Year: 2008
Sector: Retail Multi-Line
Lead Filer: Boston Common Asset Management
Outcome: Withdrawn for dialogue; company developing sustainability strategy

Public awareness of hazards from toxic chemicals in products has grown dramatically because of high profile recalls of popular children’s toys contaminated with lead and pet food contaminated with an industrial chemical.

Costco has itself been impacted by these issues, and has, for instance, published recall notices for its Kirkland Signature Dog Food and RC2 Corporation Thomas the Tank Engine products sold in Costco stores.

Product recalls and other “toxic lockouts” of products from the marketplace reflect growing regulatory concern about a wide range of toxic chemicals, especially those that pose a hazard to fetuses, young children, pregnant women, and other particularly vulnerable populations. Chemicals of concern include lead found in polyvinyl chloride and jewelry, phthalates found in cosmetics and added to polyvinyl chloride, brominated flame retardants, and PFOA used to produce stain and grease resistant coatings for carpets, cookware and food packaging.

Some Costco stores face more stringent product safety rules than others. Stores in Europe must comply with the European Union cosmetics directive, European Union Reduction of Hazardous Substances Directive, and European Union phthalates directive, which restrict or ban use of toxic chemicals (including chemicals that cause cancer, mutations, and reproductive toxicity) from children’s products, cosmetics, and electronics. California (where Costco has approximately 100 stores representing more than 25% of its US locations) and other states are beginning to follow Europe’s lead on restriction of chemicals in products. For instance, a new California law requires increased ingredient disclosure for cosmetics. The State of Washington, where Costco is headquartered and where it has more than 20 stores, recently banned the sale of mattresses containing the deca form of brominated flame retardant.

Some Costco competitors are not waiting for regulatory mandates to ensure safer materials. Competitor Wal-Mart has established a preferred substances policy whose goal is to provide products to its customers “where all chemical ingredients are preferred for Mother, Child and the Environment.” Wal-Mart requires its computer and television suppliers to comply with the European Union’s Hazardous Substances Directive throughout the company. Wal-Mart and other retailers and manufacturers are demanding alternatives to PFOA-based products or packaging. Wal-Mart has developed a packaging scorecard for suppliers and buyers that discourages use of PVC packaging and says it is developing a broader scorecard to distinguish preferred from less preferred chemicals. Wal-Mart expects reputational benefits and cost savings from these many measures.

Resolved: Shareholders request that the Board publish a report to shareholders on Costco policies on product safety, at reasonable expense and omitting proprietary information, by December 2008. This report should list product categories sold in Costco stores which contain substances affected by the public health concerns described above, and discuss any new initiatives or actions, aside from regulatory compliance, that management is taking to respond to this public policy challenge.

Supporting Statement: The proponents believe the potential new initiatives in the report could include new research, communications, guidelines, consumer education or changes in policies.