Andrew Behar is the CEO of As You Sow and the author of The Shareholder Action Guide. He is also a member of the board of US Social Investing Forum (US SIF) and is a member of the UN Sustainable Stock Exchange Green Finance Advisory Group. In this interview, Motley Fool analysts Maria Gallagher and John Rotonti chat with Behar about sustainability, corporate responsibility, and ESG investing.
The Motley Fool: Can you please tell our readers about As You Sow? What is your mission, your vision, and what do you do?
Andrew Behar: As You Sow is a nonprofit organization that since 1992 has been a leader in moving corporations to become more responsible on a broad range of environmental, social, and governance (ESG) issues. Our theory of change states that corporate power has become the most dominant force on the planet, and to achieve our vision of a safe, just, and sustainable world for all, we MUST engage corporations to be part of the solution by shifting their policies and practices to reduce risk. As You Sow is effective in creating change because corporations have a legal duty to their shareholders. We use this legal standing to advocate as shareholders for the benefit of all stakeholders including employees, customers, communities where the company operates, ecosystems, the planet, and of course shareholders. We believe that this stakeholder-centric vision of capitalism in fact optimizes benefit for the company and shareholders. As You Sow believes that this is one of the most powerful paths for creating positive, lasting changes to achieve a safe, just, and sustainable world for all.
The Motley Fool: As CEO of As You Sow, what are your priorities, and where do you focus your time and attention?
Behar: Primarily I focus on empowering my amazing staff of issue experts to figure out how best to achieve our vision of a safe, just, and sustainable world for all. Humanity has all the tools to do this, and we also have case studies showing how to do this. We can power the planet without any destructive fossil fuels; we can grow enough food using regenerative agriculture without poisoning ourselves and our families with toxic pesticides; we do not need single-use plastics that are destroying the ocean and whose only real purpose is propping up an obsolete oil and gas industry; we can pay people a living wage; and we can operate businesses without slavery and forced labor. We can do all of this sustainably while reducing risks to corporations and incentivizing executive management. I spend a lot of time thinking about overarching systems and how all of this is interconnected -- looking for leverage points to find a glide path to the new paradigm.
The Motley Fool: Can you mention some of the specific initiatives your work focuses on with regards to the environment, consumer protection, and human rights?
Behar: As You Sow has six main program areas with multiple initiatives under each. Danielle Fugere, our president and chief counsel, oversees these programs. Let's start with Energy. The Energy Program team is led by Lila Holzman and focuses on climate change, hydraulic fracturing, fugitive methane, the conversion of utilities from coal to renewables, and now we are getting involved in the expansion of the petrochemical industry that is building new plants to process fracked gas into plastic feedstocks.
If you are following the entire oil and gas manufacturing chain, then the Waste and Ocean Plastics team led by Conrad MacKerron takes over from there at the petrochemical plants. In fact, we just had a major win a few months ago regarding these plastic pellets when we compelled ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and Philips 66 (NYSE:PSX) to agree to disclose spills of the pellets also known as nurdles. Believe it or not, nurdle spills are common, and companies have never publicly reported them -- imagine if Exxon never mentioned the Exxon Valdez oil spill or BP (NYSE:BP) was not required to tell the world about the Deepwater Horizon disaster. We filed shareholder resolutions, and after several meetings and a bunch of press on the issue, the three companies agreed to public disclosure. The waste team is working on a major plastic scorecard due out toward the end of 2019 -- this will be the sixth report we have researched and published on the issue of plastic waste starting back in 2006 with a report on plastic bottles and aluminum can recycling by the beverage industry.
The waste team works on all aspects of postconsumer packaging waste with a major focus on the ocean plastic problem. We recently convinced Dunkin' (NASDAQ:DNKN) to stop using one billion Styrofoam cups each year, same for McDonald's (NYSE:MCD) -- no Styrofoam in their global operations, chalk up another billion cups that will not be produced every year. We were involved with many partners to get Starbucks (NASDAQ:SBUX) to stop using 3 billion plastic straws every year; we brought the shareholder resolution to the floor of the Starbucks annual meeting earlier this year. We also compelled Unilever (NYSE:UN), Proctor & Gamble (NYSE:PG), Pepsi (NASDAQ:PEP), and Colgate-Palmolive (NYSE:CL) to phase out all nonrecyclable packaging. We work directly with dozens of major brands, helping them figure this out, including Kroger (NYSE:KR), Safeway, Amazon-owned Whole Foods (NASDAQ:AMZN), all of the fast-food companies, and major food manufacturers. In the past few years, there has also been a groundswell of public support to save the oceans and stop the spread of plastic pollution. This dynamic of connecting customers and shareholders has proved to be very effective. Basically, everyone is on board except the oil and gas industry that is committed to expanding plastic production five-fold in the next decade. They see it as existential, as ramping up plastics is the only way their business can survive. If you do the economic projection analysis, it's pretty clear that demand for fossil fuels used in transport has no future, as we see commitments by China and India to ban the internal combustion engine in a few years; so they are willing to sacrifice the world's oceans to keep extracting oil and gas.
Our Environmental Health Program is known internally as "Make Food Safe To Eat." We focus on a few specific issues including getting antibiotics out of meat; in the past three years, KFC, which is owned by Yum! Brands (NYSE:YUM), Burger King, which is owned by Restaurant Brands International (NYSE:QSR), Wendy's (NASDAQ:WEN), and McDonald's all agreed to switch to poultry raised without medically important antibiotics based on our efforts and those of our partners and allies. Because Tyson (NYSE:TSN), Perdue, and Sanderson Farms (NASDAQ:SAFM) then had no market for their products, they all followed suit and switched. This is the power of supply chains. Families eating fast-food chicken nuggets became fearful of superbugs that were a result of antibiotic overuse; shareholders (As You Sow) saw the risk to the company's bottom line and raised the issue; the companies responded with new policies and practices to maintain their market share; their supply chain responded to them. The only losers are the superbugs. The Ehealth team also files notices under California's Safe Drinking Water and Toxic Enforcement Act of 1986 with companies that have carcinogens and reproductive toxicants in their products. We have filed thousands of these cases that have led to labeling and reformulation of protein powders, seaweed snacks, nail polish, children's jewelry, portable school classrooms, fresh fish, herbal supplements, earbuds, and hundreds of more products that you see on your store's shelves.
Another program area led by Rosanna Landis Weaver focuses on egregious CEO pay. We publish a report every February called The 100 Most Overpaid CEOs of the S&P 500. What is remarkable is the inverse correlation between pay and competence. Each year we compare the S&P with and without the companies with the top 10 most overpaid CEOs. And each year we see that if you want to outperform, you should underweight the companies that overpay. But it goes much deeper than that; we see pay ratios showing that it would take an average worker 1,000 years to earn what the CEO earns in one. The income inequality issue festers in every part of the economic system and is a problem that needs to be addressed.
Our Social program focuses on slavery in supply chain and historically has been doing a deep dive on the cotton and mineral industries. Through our project called The Responsible Sourcing Network, we brought together a multistakeholder group to help write the Dodd-Frank 1502 rules on reporting the use of conflict minerals (tin, tantalum, tungsten, and gold). We publish a report annually on corporate disclosure of conflict mineral use. We have also led the fight to outlaw child slavery in the cotton fields of Uzbekistan and have over 300 global apparel brands that have signed a pledge to not use slavery or forced labor in their supply chains. We have just completed a pilot of a program called YESS (Yarn Ethically and Sustainably Sourced) that trains and audits spinners in Bangladesh and India, teaching and certifying them to reject cotton that has been harvested with forced labor.
We recently have been working on gender equality, and last week, we sent an investor statement to 3,000 companies signed by 99 investors with $1.61 trillion in assets to send a clear message that gender equality and diversity are material issues that must be publically disclosed. We are now beginning direct engagement with the laggard companies across multiple business sectors.
To round all of this off, we have created a suite of tools called Invest Your Values that empower all investors of mutual funds and ETFs to align their investing with their values. Currently, the $8.4 trillion in 401(k) plans are invested blindly. Very few people, if any, know what companies are held within their mutual funds. Our tools show you exactly which fossil fuels, coal-fired utilities, palm oil producers, banks that fund climate destruction, cluster munitions, nuclear weapons, assault rifles, tobacco, private prisons, and companies with poor disclosure and practices on gender equality, to name a few, are held in your retirement account. This suite of tools empowers people to move their money to capitalize on a future that they believe in.
The Motley Fool: Please tell us about toxic chocolate.
Behar: We began testing cacao after our research team read some academic papers on lead and cadmium in chocolate. This led to our testing hundreds and hundreds of chocolate bars and filing notices with the manufacturers. Over the course of about four years, we reached a settlement, and the industry has agreed to fund a scientific study to figure out where the contaminations are coming from and ultimately find a solution. It has been a long, hard path, and we are only six months into the two-year study but we are hopeful that there are feasible solutions, as the chocolate industry wants to solve this as much as we do.
The Motley Fool: How do you share your work with the world? Is it primarily through the research and reports that you publish? Do you also rank funds based on their ESG profile?
Behar: We publish about five reports every year and generally do a webinar and press outreach when we release them. This year we have two new ones coming up, one on pesticides in the food system and one on ocean plastics. We share the work through traditional and online press as well as social media. Our process is that we generally start with deep research and then we reach out to companies directly to talk about our findings. Sometimes they are very grateful and agree to fix the issue in a reasonable time period. Sometimes they are reluctant, and so we need to escalate to filing a shareholder resolution. At that point, the issue is public, as it is filed with the SEC, so we may do some press interviews and blogging around it. If the company does not want to work with us and it is going to go to a vote at the annual meeting, we step up the public outreach, as we want all shareholders to know about it and support us with their vote. After the annual meeting, we speak to the company again and often find a mutually agreed solution, or we keep talking, and the longer it goes on the more company shareholders, employees, and customers hear about it, which creates negative brand associations. Eventually, the company sees that we are advocating to help them with a risk or problem that they may not have identified, and so we come to an agreement.
An example of this is the Monster Beverage (NASDAQ:MNST) resolution we filed in 2018 on slavery in supply chains. Monster received a zero (dead last) on the Know the Chain scorecard. We contacted them, and they told us it was not a top issue for them. This escalated to a shareholder resolution, and we got quite a bit of press around it as we approached the annual general meeting (AGM). Their suppliers like Coca-Cola (NYSE:KO) and many customers (we brought them a petition with over 21,000 signatures) were not happy. We refiled for the next year, but within 10 months of the annual meeting, they had audited 80% of their suppliers and built a training platform and trained 170 staffers, so we withdrew the resolution and put out a press release about how Monster had a total turnaround, and other companies that say they can't address this issue now have a case study showing them how to do it.
The Motley Fool: What is shareholder advocacy, and how do you use it as a tool for change?
Behar: Shareholders have legal standing with corporations in which they own shares and may bring a proposal to their company management about how to reduce risk and be a better company. This is a tool that we use to help corporations see risk that they might not otherwise see. A recent example is the case of gender equality; any company that does not see this coming is pretty blind, as this issue defines a culture -- to attract and retain the best and brightest employees, companies must have a well-thought-out and -implemented, publicly disclosed gender equality plan.
The Motley Fool: What is a shareholder resolution, and can you briefly discuss some of the successful outcomes that resulted from your corporate engagement efforts?
Behar: A shareholder resolution is a 500-word proposal submitted by a shareholder or a shareholder's authorized representative to a company's management. The shareholder must own at least $2,000 worth of stock for at least one year prior to the filing deadline, which is generally six months prior to the annual general meeting.
Successful outcomes -- there are many listed above. One thing to note is that people who work in this space are extremely tenacious, and we see ourselves and the companies we work with as on the path. Some of these adjustments to corporate policy and practice take years and years. Also, many people do not understand the nature of the votes. These resolutions are for the most part nonbinding, which means that even with a 100% vote, the company has no legal obligation to make a change. That said, we have seen major shifts with 6% votes, and we have also seen failed resolutions with a majority or even at 99%.
So here are a few more stories. One involved genetically modified organisms (GMOs) that was filed with Abbott Laboratories (NYSE:ABT). Basically, we felt that it would be a huge market advantage for Abbott to offer non-GMO Similac infant formula in the U.S. We knew that Abbott could manufacture it, as they sold it in the EU, where GMO labeling is required and no parent would buy formula with a big GMO warning label. They said that it was not possible to produce. We filed resolutions over three years; brought them over 75,000 signatures of parents who wanted to buy non-GMO Similac if it was made available; ran studies on GMO labeling. Finally (after a 6.2% vote), they agreed, and it has become one of their best-selling products -- in fact, there are five types, including for tender tummies, available. Abbott has a monopoly on the market and has benefited from sales and positive brand association.
Another example is the resolution we filed with Dunkin' about the use of nanomaterial in their donuts. We found nano titanium dioxide in the white powdered sugar on Dunkin' donuts. Some background -- nanomaterials are so small that they can pass through the blood-brain barrier and have never been tested or shown to be safe in humans. We know that they cause brain edemas in rats. But here in the U.S., we do not believe in the precautionary principle like they do in the EU, which requires that chemicals put into food be tested for safety. So we asked Dunkin' about this. They did not want to discuss it, so we released our lab data and a video about it to the press and filed a shareholder resolution that got an 18% vote. This attracted a great deal of attention, and in dialogue they said that they did not realize it was in their products and asked their supplier, who also denied knowledge of it. Long story short, we withdrew the second-year resolution because they switched to powdered sugar that was 100% sugar, published a no-nano policy, and became an industry leader. We shared this with many other food manufacturers, and many adopted the policy and questioned their suppliers, which led to suppliers stopping the proliferation of an untested additive.
The Motley Fool: Does As You Sow ever partner with large institutional investors to push for change at corporations? If so, would you mind giving an example?
Behar: As You Sow always partners with all investors including large institutional ones. We are UNPRI members, and most of our resolutions align with the Principles of Responsible Investing -- so we start with the assumption that $70 trillion in assets under management (AUM) will vote with us. Of course, to be realistic, many investors at the PRI are not really actively engaged on these issues. First, a great deal of the AUM are held by companies like BlackRock (NYSE:BLK), Vanguard, and State Street (NYSE:STT) (call it $20 trillion), companies that basically talk a good game on sustainability but are deeply conflicted and so rarely vote. In fact, the only time that they voted on a climate resolution was Exxon in 2017, and it earned a 62% majority, but they lacked the stamina to follow through when Exxon delivered a defective report, and none would hold the board accountable.
We also work closely with the Interfaith Center on Corporate Responsibility (ICCR) and all of the faith-based investors particularly on social issues and climate change. Generally, they vote for our resolutions, as we have very close alignment. We are also CERES members and coordinate on climate change and water. The CA 100+ (Climate Action 100+) has $34 trillion in AUM, and for the most part, they vote with our climate resolutions, although it's often hard to get them to vote as a block, especially when we file resolutions that push the envelope. Beyond that, we call the major shareholders of companies that we file with. We publish exempt solicitations and publish them on EDGAR, and we reach out through the press to "get out the vote."
The Motley Fool: What is your message for the small retail investor that may not think he/she owns enough shares of a company to advocate for change?
Behar: In a word: VOTE! It really matters. About 30% of all shares are held by individuals, and if everyone voted, we could help companies avoid risk and be more profitable. At a minimum, if your financial advisor is voting for you, have them switch to ISS-SRI; they pretty much recommend a YES vote on progressive resolutions, whereas regular ISS, for the most part, votes with management. So one phone call to switch can be very significant. If you are still getting loads of paper ballots, then ask your advisor to send them by email. It's very easy to click on an email and vote. Also, every March, we publish Proxy Preview with partners Proxy Impact and Sustainable Investments Institute that explains all of the upcoming resolutions.
The Motley Fool: What environmental, social, or governance (ESG) risk concerns As You Sow the most, and what are you trying to do about it?
Behar: The big picture is shifting the dominant interpretation of capitalism, which states that corporations exist only for the benefit of shareholder returns, to a stakeholder-centric view that states that employees, customers, and communities where they operate are equally important. We believe that in fact, when all of these stakeholders are taken into consideration, it will reduce corporate risk and optimize for shareholder returns as well as preserve a livable planet.
The Motley Fool: What is Fossil Free Funds?
Behar: Fossil Free Funds is the first of our Invest Your Values suite of financial transparency tools. It empowers any shareholder to enter a mutual fund name or ticker and see exactly what companies you hold that are oil and gas, fossil-fired utilities, pipelines, or oil-field services. Basically total transparency. Even in so-called Fossil Free Funds from State Street, we see 35 fossil fuel companies. We have learned to not believe a fund's name and to be very cautious about how we read the prospectus. We update the tools once a month and provide financial performance as well as aggregate carbon footprints for each fund so you can compare apples to apples.
The Motley Fool: What is Deforestation Free Funds?
Behar: Similar to Fossil Free Funds but focused on companies that produce palm oil, the banks that fund them, and the companies with palm oil in their snack food products. We partner with Friends of the Earth and Rainforest Action Network on this site.
The Motley Fool: What is the Carbon Clean 200?
Behar: CarbonClean200 is a thought exercise that we collaborate on with Corporate Knights. It came about three years ago when we kept hearing people say that there were no good cleantech companies to invest in. So we created a simple rubric and did the analysis of all global companies with greater than $1 billion revenues, excluded non-SRI-compliant ones, then put them in order by revenue from green/clean energy. We update it every six months, and the next one is due out August 15th. It is remarkable to see the shift as the clean energy future is actually the present. These are the companies that will be on the S&P500 when Exxon, Chevron, and Halliburton (NYSE:HAL) fall off because they did not transition their business plan in time.
The Motley Fool: Please tell us about your Gender Equality Funds.
Behar: This is the most recently launched of the Invest our Values tools. We collaborated with Equileap, a data provider out of Amsterdam that gathers 19 key performance indicators of gender equality. This is way beyond just women on the board. It looks at policies and practices throughout the company, equal pay, sexual harassment, retaliation, maternity leave, training, recruitment, etc. We aggregate 12 of these data points on 4,000 companies sorted by mutual fund holdings and display the score. It's remarkable to see that, for example. the mutual fund that is owned by most government employees in the Thrift Savings Plan scores a 3 out of 100 on this tool. I predict that we will see this wave of gender-lens investing turn into a tsunami of capital flowing to companies highly ranked on this issue.
The Motley Fool: What is the business case for ESG? In other words, what effect have you found that ESG has on corporate profitability? Can you think of an example in which a company improved its ESG profile, and that led to higher profits?
Behar: I can't think of one where it has not. Better management cares about risk, and ESG is focused on risk. Environmental risk; if you dump in the commons, it will come back to bite you with penalties for violations, bad brand association, and potentially toxic exposure by your workforce. Social; gender equality, diversity, and slavery in a supply chain define a company's culture. To attract and retain the best and the brightest, these are required. And Governance is critical for trust and long-term relationships. Without good governance there is no oversight. ESG should be called "basic good business."
The Motley Fool: Can you please tell us about As You Sow's 100 Most Overpaid CEOs list? How do you determine if a CEO is overpaid, and do you have any research showing how those companies have performed over time?
Rosanna Landis Weaver: [Note: This response is written by Rosanna Landis Weaver, lead author of the CEO Report.]
This is a project we began six years ago. One of our goals was to see how shareholders were using what was then a fairly new right: the opportunity to vote on CEO pay.
We've used a few methodologies but have settled on two ranking methodologies to identify overpaid CEOs. The first is the regression that computes excess CEO pay assuming relative to total shareholder return (TSR). HIP Investor runs this regression for us. The second-ranking identified the companies where the most shares were voted against the CEO pay package. These two rankings were weighted 2:1, with the regression analysis being the majority.
After we'd done a few years of these reports, we decided to check how our first list had performed subsequently. We found then that the 10 companies we identified as having the most overpaid CEOs, in aggregate, underperformed the S&P 500 index by an incredible 10.5 percentage points. Last year, these 10 firms again, in aggregate, dramatically underperformed the S&P 500 index, this time by an embarrassing 15.6 percentage points. In analyzing almost four years of returns for these 10 companies, we find that they lag the S&P 500 by 14.3 percentage points, posting an overall loss in value of over 11%.
The Motley Fool: Please tell us about your book, The Shareholder Action Guide. Why did you write it, and what is the main message you are trying to get across?
Behar: The main message of The Shareholder Action Guide is that the owners of all corporations, whether directly by holding stock or through a mutual fund, have the power to shape policy and practices to create a safe, just, and sustainable world for all. We have the power; we just need to realize it and learn how to use it. Through the book, I tell stories of shareholder advocates' work over the past 40 years and make the idea of being an empowered shareholder easy to understand.
The Motley Fool: Can you give us an example of a company that you admire for its strong ESG profile?
Behar: Certainly. The top tier includes Patagonia for being totally conscious on all aspects of their business; Interface Carpets (NASDAQ:TILE) has the Ray Anderson legacy of being transformational; CVS Health (NYSE:CVS) took a brave position on tobacco and has seen this transform all other aspects of their business -- although the recent opioid data is troubling; Tesla (NASDAQ:TSLA) for the product and innovations, although they could do a better job on social issues with employees and disclosure.
The Motley Fool: What is next for As You Sow?
Behar: The recent and ongoing destruction of federal government regulations has given much more importance to corporate policy. We are seeing companies realizing that these regulations were actually to their benefit. For example, 17 automakers sent a letter to the Trump administration asking that CAFE (Corporate Average Fuel Economy) standards not be removed, as it could destroy their businesses. They want to compete in China and the rest of the world and will simply not be able to, plus the abrupt change disrupted a decade of product planning. This is happening broadly, as climate change is disrupting supply chains, destroying infrastructure, and making "normal business" a thing of the past. Insurance companies no longer know what a 100-year flood means, as they are happening every three.
We see our role in helping bring companies together to self-regulate for their self-benefit. This is an ideal role for shareholder advocates, as we care deeply about the companies we own and know that they must be part of the solution.
The Motley Fool: Where do you see ESG investing going over the next 5 or 10 years?
Behar: In 10 years, I hope to see a total reversal of today, where "Value-Destruction Investing" is a small fringe group and ESG is the norm. Right now, according to US SIF, ESG is 25% of all invested dollars. Why would anyone invest in a company with substandard management that does not want to avoid risk and optimize for a safe, just, and sustainable world?
The Motley Fool: Is there anything that investors should be aware of as they start to learn more about ESG investing and as ESG investing grows in size? In other words, are there any pitfalls to ESG?
Behar: Be careful of ESG-washing. Many companies hold up their UN Sustainable Development Goal and say "We are all good," when in fact they are not. About a year ago I was at an event, and it was random seating for the opening dinner and they plunked me in a chair at a big round table of 10 people. I turned to my right and say hello to the CSR (corporate social responsibility) director of Monsanto (NYSE: MON), (we had just published a report called "Roundup Revealed" about the poisoning of the food system by pre-harvest glyphosate). I turn to my left, the senior VP from Philip Morris (NYSE:PM). The woman from Monsanto was so proud about how they had adopted SDG goal 2, Zero Hunger. The gentleman from Philip Morris was equality excited about their SDG commitments. What can I say? Monsanto more than any other company I can think of has toxified the food system and destroyed precious soil, abused seed sovereignty, and generally was as far from working on zero hunger as a company could get. The SDGs have no reporting structure for companies, they have no audits or any way to stop a company from claiming one as their own. We had a similar issue when Chevron gave themselves an award for SDG 13, Climate Action.
Also, be careful about self-dealing and conflict of interest. The whole business world was aflutter when BlackRock CEO Larry Fink called on company executives to think hard not just about how it could deliver financial performance but also how it could serve a social purpose. "Without a sense of purpose, no company, either public or private, can achieve its full potential," said Fink. Nice words, but actions speak louder. When year after year, BlackRock failed to vote on multiple climate resolutions with big-oil and coal-fired utilities asking for a plan to enable the planet and the company to survive, a clearer picture emerges -- one that will not be pleasant for the investors in Fink's index funds when the economy crumbles under the weight of climate catastrophe.
The Motley Fool: Is there anything else you'd like us to know about As You Sow?
Behar: Just one note about how incredible my team is. The staff, fellows, interns, advisors, and our board are dedicated to our vision and interact seamlessly with many other organizations of like-minded, optimistic people. It is truly inspiring. Every day, we take a hard look at the world, list the challenges, figure out our strategies, and know that together we can make a safe, just, and sustainable world for all.
Check out these additional interviews on ESG by The Motley Fool: