JM Smucker has bowed to investor pressure to assess and improve its climate risk disclosure and sustainability efforts, but more work still needs to be done, investors said.

Investors Calvert Investment Management and Trillium Asset Management withdrew a shareholder resolution after the Ohio-based food and beverage company agreed to take certain steps to ensure the sustainability of its coffee business, which represents about 40% of its net sales and almost half of its profit.

Smucker set a goal for sustainably-certified coffee purchases to reach 10% of its total retail purchases by 2016, buying an increasing portion of its coffee from UTZ-certified suppliers and continuing purchases under the Rainforest Alliance and Fairtrade labels.

The company agreed to a partnership with the Hanns R. Neumann Stiftung Foundation to develop climate change adaptation strategies to improve the farming conditions, yields and incomes of small-scale coffee farming families.

Smucker also established a partnership with World Coffee Research to develop hybrid varieties that are more resistant to disease and tolerant of bad weather, and that can grow at a wider range of altitudes.

“What we saw in their sustainability report was really encouraging, which showed that pressure on these companies can really show results,” said Heather Coleman, senior policy advisor, climate change for NGO Oxfam America, which wrote a letter in support of the Calvert/Trillium resolution.

Smucker had not really taken action to improve its climate risk disclosure, despite 30% of shareholders supporting last year’s resolution filed by Calvert and Trillium asking the company to disclose the climate-related risks to its Folgers Coffee and other brands, she said. That 30% mark is considered a critical threshold in capturing the attention of corporate board members.

“We’re just glad to see some progress,” said Rebecca Henson, senior sustainability analyst for Calvert, which has assets under management valued at more than $12 billion. “We do see these as first steps.”

In the long-term, the investors would like to see more details on and expansion of that 10% goal, she added.

Generally, coffee companies have done a fair amount of voluntary reporting through the Carbon Disclosure Project, but they need to build on disclosures included in reports to the US Securities and Exchange Commission (SEC), which issued guidance in 2010 that companies should evaluate the physical impacts of climate change on their businesses.

Coffee is particularly susceptible to climate-related risks, such as temperature variability and weather extremes, and coffee farmers often lack the resources to support their families in the face of increased unpredictability in crop yields, according to Oxfam.

“I think overall through the industry there needs to be more comprehensive reporting through 10-Ks,” the annual reports filed to the SEC, Coleman said.

The extreme drought conditions in parts of the US this year could help raise awareness among companies of the impacts of climate risks, with the US corn and soy crops heavily affected and wheat crops also substantially impacted, investors said.

“Companies are not blind to what is happening in those commodity markets,” Coleman said. “I think a lot of these commodities do have that ripple effect.”

“We have an uphill battle sometimes communicating the risks of climate change,” Henson said. “The droughts this year and other extreme weather just make climate change more real. That can only help us in our communication of these risks to the companies. No one wants to see companies or the country struggling in this way, but it does help us make our case.”

The investors were able to utilise the shareholder resolution process to get Smucker’s attention, but companies often have very different reactions to shareholder requests for increased disclosure and action to address climate risks, she said.

In 2010, Calvert started the process of filing a resolution with Expedia on climate change risks, but officials at the travel company quickly engaged in a substantive dialogue that gave the investors comfort to abandon the resolution process, Henson said.

However, Calvert continues to pursue shareholder resolutions with online retailer Amazon.com, which has thus far resisted requests to report on climate risks, which is critical as its data centres are intense energy consumers and it has not disclosed environmental information on its high-selling Kindle reader, Henson said. The latest resolution received 21% of the vote and Calvert will likely file again with them next year.

“That’s an example of a company where attempts to develop a dialogue have not been successful,” she said.

Smucker and Amazon did not respond to requests for comment.

By Gloria Gonzalez
Environmental Finance