Investing in Mercy March 2017

Transcription

1 Investing in Mercy March 2017 In this issue The continuing drama of drug pricing Growing food waste problem impacts environment, those in need Cooperative breathes new life into manufactured home community 2017 Proxy Preview highlights continued emphasis on ESG issues The continuing drama of drug pricing 1

2 Rising drug prices are under increased public scrutiny, with each new drug pricing scenario pushing the debate in new directions. Both Republicans and Democrats are considering whether laws need to be changed. Drug companies tell shareholders that extremely high prices are outliers and do not represent the industry as a whole. But consensus continues to be that if the industry does not improve its self policing, legislative and policy changes may be on the horizon. Because of lack of progress in dialogues, the Interfaith Center on Corporate Responsibility (ICCR) Domestic Health Group, of which Mercy Investment Services is an active member, filed shareholder proposals asking 11 pharmaceutical companies to: 1) disclose the rates of price increases year to year of their top selling branded prescription drugs between 2010 and 2016; 2) disclose the rationale and criteria used for these price increases; and 3) assess the legislative, regulatory, reputational and financial risks they represent for the company. Ten of the 11 companies filed no action requests with the Securities and Exchange Commission (SEC). ICCR shareholders argued that, although proposals dealing with pricing of products normally are matters of ordinary business, in this case the proposals raise significant public policy issues and thus should be included. The SEC ruled in the companies favor, excluding the proposals from the companies proxy statements. This decision disappointed shareholders who continue to believe that the future success of pharmaceutical companies depends on serving long term consumer health needs. Shareholders are already discussing how to tweak the resolution language for next year to withstand SEC scrutiny. However, shareholders made progress through multiple dialogues with the companies, and the resolutions communicated the importance shareholders place on this issue. Only one company agreed to disclose all that shareholders asked. The other companies told investors that they are developing policies that will provide more transparency to consumers, regulators, and investors about how they price their drugs. Many are releasing information about their average annual list and net price increases. A number of companies pledged to limit their average price increases to single digits each year. Companies Mercy leads including Eli Lilly and Amgen sought input on their proposed policies. Analysts and reporters have been quick to report on this progress but also to note what is not being disclosed under these new agreements. The pricing information covers only aggregate pricing and is not a deeper breakdown of individual drug prices, which is needed to determine value of individual drugs and their pricing power for the company. Companies offer little insight into how drug prices are initially determined. And the public is left with the question of whether a limit of less than a 10% annual increase is acceptable at a time when other cost of living and salaries hover nearer to 2% to 3%. Part of shareholders strategy this year included encouraging partners to file with these pharmaceutical companies on lobbying and governance issues, both of which profoundly impact pricing decisions. For example, investors and Johnson & Johnson successfully agreed on improved trade association disclosure, including payments by dollar range and percentage of dues that is utilized for lobbying as well as disclosure of processes used to 2

3 impact trade associations when the company does not align with the association on an issue. Several publications have highlighted shareholdersʹ ongoing efforts with pharmaceutical companies. Click on the links below to read some of the articles. Wall Street Journal International Business Times Fierce Pharma Growing food waste problem impacts environment, those in need It may not cross your mind when you clean out your refrigerator or the server clears the plates from your table at a restaurant, but approximately one third of all food grown globally is wasted somewhere in the food chain, either on the farm, in transit, or in stores, restaurants or homes. Food waste is a huge economic loss, which the Food and Agriculture Organization estimates at $940 billion annually. Just as importantly, it represents a significant environmental problem: one third of agricultural water use goes into growing food that is then wasted; wasted food is grown on cropland that is equivalent in size to China; and wasted food decaying in landfills generates eight percent of annual greenhouse gas emissions, third only to China and the United States. Most importantly, it is a loss of a much needed resource; in a world where one in nine people are undernourished, losing more than one billion tons of food each year is simply wrong. As businesses are beginning to understand the importance of minimizing food waste, local and national governments are starting to develop policies and programs to reduce it. Bottom line benefits to minimizing food waste include optimizing food or raw material purchases (since more of what is purchased is consumed or used in a sellable product), 3

4 lowering waste collection and management costs, reducing waste collection and landfill fees, and adding revenue as more food is sold than wasted. A recent report from a business/government/ngo coalition, Champions 12.3, looked at financial cost and benefit data for food loss and waste reduction at about 1,200 business sites for more than 700 companies in 17 countries ranging from Australia, China, and Vietnam to Ireland, the United Kingdom, and the United States. Companies represented all parts of food production, from manufacturing to food service and retail. The report found that, on average, a company received $14 in benefits for every dollar spent on waste reduction. In recent years, investors have begun to talk to food and beverage companies, food service companies, and retailers about ways to manage their food waste. For example, Mercy Investment Services discussed it with McDonalds and Yum! Brands in the past year. This year, Mercy Investmentsʹ first resolution on the issue led to dialogue with Costco about its policies and plans to better manage food waste in its supply chain and warehouses, as well as a commitment to further dialogue on the issue. Costco has a number of current and pilot programs to reduce and manage food waste that are now discussed on its website. Follow the progress of this and other Mercy Investment Services shareholder resolutions online. Cooperative breathes new life into manufactured home community When the longtime homeowners of Bob s Mobile Home Park in northern New Hampshire, most with low and/or fixed incomes, learned that the park was being auctioned off, they were uncertain about their future. Investor owned manufactured home communities like theirs could be subject to the possibility of excessive rent hikes, poor maintenance, or park closures. The 18 families, with the support of New Hampshire Community Loan Fund, organized quickly to find a solution. Within 10 days, the residents had formed Deer Estates Cooperative, Inc. and collectively purchased the park from the owners, becoming the 113th resident owned community in New Hampshire. Within a year, the community elected directors and made major infrastructure improvements to the property. 4

5 The Sisters of Mercy were the first investors in the New Hampshire Community Loan Fund. Since 1984, the organization has assisted with nearly 120 manufactured home park purchases and assisted communities in managing themselves as cooperative corporations. The New Hampshire Community Loan Fund is one of more than 60 organizations around the world helped by a Mercy Partnership Fund loan. Read more about their efforts and the work of Mercy Partnership Fund Proxy Preview highlights continued emphasis on ESG issues As the shareholder filing season draws to a close and company annual meetings begin, As You Sow released its Proxy Preview 2017, which looks at trends in shareholder resolutions and the environmental, social and governance issues they address. The report shows that shareholders are on track to file more resolutions on environmental and social issues than in Environmental issues such as climate change continue to lead the way; at the same time, more proposals than ever are asking for board diversity. The report also notes that more companies have challenged resolutions than in previous years, in an effort to prevent shareholders from voting on the issue. Mercy Investment Servicesʹ shareholder advocacy staff has a strong voice in the report, providing analysis on issues including drug pricing, sustainability reporting, and human rights. You can download the report at no charge online. Shareholder advocacy news Impact investing news communications@mercyinvestments.org Mercy Investment Services 2039 North Geyer Road, Saint Louis, MO