R E S P O N S I B L E I N V E S T M E N T F O R A S U S T A I N A B L E E C O N O M Y SHAREHOLDER ENGAGEMENT ACTIVITY REPORT Q2/11 April 1 - June 30, 2011
SHAREHOLDER ENGAGEMENT AT A GLANCE
contents Shareholder Engagement Highlights 3 Activity Snapshot 4 Environmental 5 Social 6 Corporate Governance 8 Company Progress Summary 9 2 SHAREHOLDER ENGAGEMENT ACTIVITY REPORT
Shareholder Engagement Highlights This report outlines SHARE s shareholder engagement activities for the second quarter of 2011. SHARE conducts focused and constructive shareholder engagement dialogues with public corporations on behalf of institutional shareholders. The goal of our program is to work with clients to improve the environmental, social and governance (ESG) performance of the companies in their investment portfolios. For more information on SHARE s Shareholder Engagement Services, please visit http://www.share.ca/engagement/. This quarter, SHARE engaged with a total of 20 companies on seven issues: sustainable forestry, climate risk disclosure, hydraulic fracturing, toxic chemicals, precarious employment in the real estate sector, human rights and executive compensation (say on pay). SHARE and the Ivey Foundation continued to encourage companies to adopt paper procurement policies that support sustainable forestry practices. SHARE communicated with TELUS Corporation and Yellow Media Inc. to inquire about their progress in developing procurement policies for paper products. We also sent a letter to Quebecor Inc. to commend the company on its adoption of a robust paper policy at TVA Publications,one of Quebecor s subsidiaries, and to request the opportunity to provide investor feedback on the plan of action that Quebecor will develop to implement the new policy. Regarding SHARE s efforts to improve climate risk disclosure, we wrote to Shaw Communications to acknowledge the company s plan to provide information on greenhouse gas emissions and climate strategy to the Carbon Disclosure Project (CDP) in late 2011 or early 2012. We also received a letter from Power Corporation indicating that it is still considering whether it is appropriate for the company to respond to the CDP surveys. We continued our dialogue with Encana Corporation on the company s risk mitigation efforts in its shale gas extraction operations across North America, focusing on the risks associated with hydraulic fracturing. This quarter, Encana reported to a group of international investors (in response to a joint investor letter coordinated by SHARE) that it has developed a risk-based product assessment and management program to mitigate risks associated with the fluids used in its hydraulic fracturing operations. Encana also informed investors that it has joined a voluntary initiative established by two U.S. agencies in 2010 to improve corporate disclosure of ingredients of fluids used in hydraulic fracturing operations across the U.S. In the area of human rights, SHARE continued its ongoing dialogue with Goldcorp Inc. and attended the company s Annual General Meeting (AGM) on May 18, 2011 to listen to the company s business strategy and to observe its interaction with protesters, community members and other stakeholders. SHARE received responses this quarter from SNC-Lavalin Group Inc. and Suncor Energy Inc. regarding their current practices and procedures to ensure the safety and protection of the company s employees and contractors in Libya. Both companies provided further details about evacuation strategies and plans for guaranteeing the safety and security of their employees. Research in Motion Ltd. confirmed that it will provide shareholders with an advisory vote on executive compensation at its 2012 annual shareholders meeting. Algonquin Power & Utilities Corp. indicated that the Meritas Funds shareholder proposal requesting an advisory vote on executive compensation will be included on the ballot at the company s 2012 shareholder meeting. SHAREHOLDER ENGAGEMENT ACTIVITY REPORT 3
Activity Snapshot Environment Companies 7 Sustainable Forestry Climate Risk Disclosure Hydraulic Fracturing Toxic Chemicals Quebecor Inc., TELUS Corporation, Yellow Media Inc. Power Corporation of Canada, Shaw Communications Inc. Encana Corporation Shoppers Drug Mart Corporation Social Companies 11 Precarious Employment in Property Sector Human Rights Bank of Montreal, Bank of Nova Scotia, Brookfield Properties Corporation, Canadian Imperial Bank of Commerce, Morguard Corporation, Royal Bank of Canada, Toronto-Dominion Bank Goldcorp Inc.,Nexen Inc., SNC-Lavalin Group Inc., Suncor Energy Inc. Corporate Governance Companies 2 Advisory Vote on Executive Compensation Algonquin Power & Utilities Corp., Research in Motion Total Number of Companies 20 4 SHAREHOLDER ENGAGEMENT ACTIVITY REPORT
SHARE joins Boreal Business Forum to represent institutional investor interests in Boreal forest conservation agreement SHARE has joined the Boreal Business Forum (BBF) of the Canadian Boreal Forest Agreement (CBFA), a major conservation agreement signed in May 2010 by the Forest Products Association of Canada (FPAC), the twentyone FPAC member companies, and nine environmental organizations. The Forum is made up of representatives of institutional investors and large forest products consumers, including publishers and printing companies, tissue paper manufacturers and forest products retailers. The main purpose of the BBF is to monitor progress in the implementation of the CBFA by reviewing independent progress reports to be produced under the agreement, and to respond to questions from marketplace participants. The Forum held its first official meeting in Montreal on May 24-25, 2011. For more information, see: http:// www.share.ca/news/sharejoins-boreal-business-forum-torepresent-institutional-investorinterests-in-cbfa/ Environment Sustainable Forest Management This quarter, we sent a letter to Quebecor Inc. on behalf of the Ivey Foundation to commend the company on its adoption of a robust paper policy at TVA Publications, one of Quebecor s subsidiaries. We expressed our appreciation for the policy s stated preference for wood fibre certified to the superior social and environmental standards of the Forest Stewardship Council (FSC), TVA s commitment to work with all of its suppliers to make sure their forest products do not originate from illegally harvested forests, TVA s stated preference for papers with high post-consumer recycled fibre content and commitment to working with suppliers to expand the availability of recycled paper, and an explicit commitment to establish performance indicators and timelines to facilitate the policy s implementation and measure progress over time. In our past exchanges with Quebecor, we had highlighted all of these elements as essential components of a robust paper policy. We also asked for the opportunity to provide investor feedback on the plan of action that Quebecor will develop for the TVA Policy, which will include performance indicators and timelines on the various commitments contained in the policy and a commitment to periodic public reporting. We also communicated with TELUS Corporation and Yellow Media Inc. on behalf of the Ivey Foundation to inquire about their progress in developing procurement policies for paper products. Our letter to TELUS asked about the company s achievements in the area of sustainable paper procurement since 2009, when it last reported on this issue to its shareholders, and TELUS s future plans to report on progress achieved in this area. Our inquiry to Yellow Media Inc. focused on the company s progress in developing a sustainable procurement policy as part of EcoInitiatives, a 12-step environmental program adopted by the Yellow Pages Group in 2009. We asked whether Yellow Media will adopt a procurement policy specifically for paper, as indicated in previous communications with SHARE, and start reporting on progress in implementing the EcoInitiatives program so as to keep shareholders informed about its environmental efforts. Climate Risk Disclosure Last quarter, letters were sent to 23 companies in our clients portfolios requesting information regarding company plans to disclose management of climate-related risks and opportunities by responding to the CDP questionnaire or via their annual or other public reports. This quarter, we received a response from Power Corporation of Canada indicating that it is still considering whether it is appropriate for the company to respond to the CDP surveys. The company stated that it recognizes the importance of the risks and opportunities associated with climate change in a carbon-constrained economy. However, it also noted that, as a holdings company, it considers its direct environmental impact to be minor. SHARE also sent a letter to Shaw Communications Inc. to acknowledge the company s plan to provide information on greenhouse gas emissions and climate strategy to the CDP in late 2011 or early 2012. We indicated our expectation that Shaw will answer the CDP 2012 questionnaire, which will be distributed to companies in early February. Hydraulic Fracturing This quarter, we received a response from Encana Corporation to a joint investor letter we sent on behalf of our clients and several large institutional investors in North America and Europe to inquire about the company s risk mitigation efforts in its shale SHAREHOLDER ENGAGEMENT ACTIVITY REPORT 5
SHARE Report: Responsible Contracting and Procurement in Canada s Commercial Real Estate Sector Recently, SHARE released the report: Cleaning Up: An Assessment of Responsible Contracting and Procurement in Canada s Commercial Real Estate Sector. It assesses and compares nine commercial real estate companies and five major office property tenants on their efforts to develop responsible contracting and procurement policies applicable throughout their property service supply chains. The analysis uses the administrative requirements and principles contained in the Responsible Property Services Code (the Code ) as the primary benchmarks for evaluation. The report s findings illustrate that several companies have begun to incorporate the principles of responsible contracting into corporate policies and procedures. However, the report also reveals that the majority of company policies still do not go beyond the minimum legally mandated labour standards. Largely absent from the policies evaluated are commitments to responsible contracting, prevailing or fair wages and freedom of association. For the full report visit: http://www. share.ca/files/cleaning_up_report. pdf. gas extraction operations across North America. Encana reported that it has developed a risk-based product assessment and management program to mitigate risks associated with the fluids used in its hydraulic fracturing operations ( frac fluids ), and information about the program will be available on Encana s website in July 2011. Additionally, Encana indicated that it has joined a voluntary public registry of frac fluid ingredients created by two US agencies (the Groundwater Protection Council and the Interstate Oil and Gas Compact Commission) to improve corporate disclosure around frac fluids. Encana stated it will disclose frac fluid ingredients used in its US operations on or after January 1, 2011 through the voluntary public registry. Toxic Chemicals Our dialogue with Shoppers Drug Mart Corporation continued this quarter concerning risks associated with toxic chemicals. We sent a letter to Shoppers to acknowledge its public disclosure of corporate efforts to reduce two types of toxics, PVCs and phthalates, from its brand name products and packaging, as requested by SHARE on behalf of our investor clients. Shoppers 2010 annual report describes the company s ongoing efforts to reduce PVCs and phthalates from its private label packaging and products, including overall objectives, examples of efforts being undertaken under both initiatives, and progress achieved to date. It also expresses Shoppers commitment to set objectives, targets and metrics for these efforts in early 2011, and to continue to report to its shareholders on progress achieved in future annual reports. SHARE expects Shoppers will provide additional information on the implementation of the PVCs and phthalates initiatives in its 2012 annual report, including on the objectives, targets and metrics adopted in 2011 for both initiatives. Social Precarious Employment and Responsible Real Estate This quarter, SHARE distributed individual company assessments to the companies that were evaluated in SHARE s public report on responsible contracting and procurement in Canada s commercial real estate sector. Among the fourteen companies that were evaluated, seven are publicly traded: Bank of Montreal, Bank of Nova Scotia, Brookfield Properties Corporation, CIBC, Morguard Corporation, Royal Bank of Canada and Toronto-Dominion Bank. The individual performance assessments provided each company with an overall score and ranking based on scores in six rating categories that were drawn from the administrative requirements and principles contained in the Responsible Property Services Code. The companies were given a three-week period to provide supplemental information for consideration in their assessment. Two companies, the Bank of Nova Scotia and the Royal Bank of Canada, chose to submit additional information for consideration in the companies assessments. CIBC was the only company that received a score of 0 in all of the six rating categories, due to its failure to provide SHARE with relevant policy information and the lack of publicly available information on the company s website or in its Corporate Social Responsibility Report regarding procurement policies and practices that address labour standards. 6 SHAREHOLDER ENGAGEMENT ACTIVITY REPORT
UN launches first global partnership to advance rights of indigenous peoples The first global UN inter-agency initiative to promote and protect the rights of indigenous peoples was launched in May 2011 on the occasion of the 10th Session of the United Nations Permanent Forum on Indigenous Issues. The initiative, called the United Nations- Indigenous Peoples Partnership (UNIPP), is a commitment to the UN Declaration on the Rights of Indigenous Peoples, and calls for its full realization through the mobilization of financial cooperation and technical assistance. The newly launched UNIPP will help address these problems and other social, economic and political issues by working with governments and indigenous peoples organizations through various means including training, promotion of dialogue, the establishment of consultative processes, legislative review and reform, as well as conflict prevention. UNIPP brings together the experience and expertise of the International Labour Organization (ILO), the UN Development Programme (UNDP), the UN Office of the High Commissioner for Human Rights (OHCHR) and the UN Children s Fund (UNICEF). Human Rights In the area of Human Rights, SHARE continued its ongoing dialogue with Goldcorp Inc. and attended the company s Annual General Meeting (AGM) on May 18, 2011 in Vancouver BC. A shareholder proposal was presented, which called upon the company to: 1) halt all land acquisitions, exploration activities, mine expansion projects, or conversion of exploration to exploitation licenses, until it complies with international law, 2) require that the Human Rights Assessment of the Marlin Mine be made easily available on Goldcorp s main website; 3) announce its commitment to voluntarily implement recommendations of international human rights bodies; and 4) voluntarily suspend operations at the Marlin mine in accordance with the recommendations of the Inter-American Commission on Human Rights. Goldcorp presented a statement outlining company achievements, as well as a discussion around the HRA of the Marlin Mine, and made the case for voting against the proposal. 94.2% of shareholders voted against the proposal, including the voluntary suspension of the company s Marlin Mine. Last quarter, SHARE sent letters to Suncor Energy Inc. and SNC-Lavalin Group Inc. to inquire about corporate policies and procedures to ensure the safety and protection of company employees in Libya. This quarter, we received a response from SNC-Lavalin stating that it remains focused on the safety and security of its employees and that there are plans in place for evacuation and for guaranteeing the safety of all employees as required. In response to our request for further information regarding the number of employees still in Libya, the company indicated that it could not disclose this information or details about its evacuation plans for security reasons. Suncor Energy indicated that it continues to assume zero production in Libya, and that it is working intently to ensure that its Libyan employees are well protected. The company reported that it exercised its evacuation plan three times over the year as part of its due diligence, and updated its emergency plan for Libya following civil unrest in Tunisia. Suncor further reported that Libyan employees are not required to be at work, although some individuals continue to take on occasional duties only if and when they feel it is safe. As events in Libya continue to unfold, Suncor remains committed to upholding human rights and the responsible development of resources. Lastly, SHARE received a response from Nexen Inc. s Corporate Social Responsibility team as part of its Human Rights Engagement program. The company briefly highlighted current practices regarding the principle of Free, Prior and Informed Consent (FPIC), the Voluntary Principles for Security and Human Rights, the Extractive Industries Transparency Initiative (EITI) and training on security, human rights, Aboriginal cultural awareness and community engagement. SHAREHOLDER ENGAGEMENT ACTIVITY REPORT 7
Update: Say on Pay in Canada To date, 81 Canadian public issuers have adopted say on pay, approximately one-third of them in response to a shareholder proposal filed by Meritas Funds. Advisory shareholder votes on executive compensation are becoming a common item on the proxy ballots of large Canadian companies. Thus far in 2011, the shareholders of 50 companies have had their say on pay. Shareholder votes against pay policies and practices were lowest at First Quantum Minerals (0.33%) and The Toronto-Dominion Bank (0.34%). The most significant opposition on executive compensation was expressed by shareholders of Pan American Silver Corp. (24.1%) and Telus Corporation (19.5%). Corporate Governance Advisory Vote on Executive Compensation This quarter, we received notification from Research in Motion Ltd. that it will hold an advisory vote on executive compensation at its 2012 annual shareholders meeting. Algonquin Power & Utilities Corp. responded to SHARE s inquiry regarding the absence of the Meritas Funds say on pay proposal from the company ballot stating that the company mishandled the proposal and as a result it was not included on the ballot for the 2011 shareholder meeting. Algonquin indicated in the letter that the proposal would be included on the ballot for the 2012 shareholder meeting. 8 SHAREHOLDER ENGAGEMENT ACTIVITY REPORT
Company Progress Summary Company Topic Progress Algonquin Power & Utilities Corp. Advisory Vote on Compensation u Bank of Montreal Precarious Employment in Real Estate Sector u Bank of Nova Scotia Precarious Employment in Real Estate Sector u Brookfield Properties Precarious Employment in Real Estate Sector u Canadian Imperial Bank of Commerce (CIBC) Precarious Employment in Real Estate Sector q Encana Corporation Hydraulic Fracturing u Goldcorp Inc. Human Rights u Morguard Corporation Precarious Employment in Real Estate Sector u Nexen Inc. Human Rights u Power Corporation of Canada Climate Risk Disclosure q Quebecor Inc. Sustainable Forestry and Paper Procurement p Research In Motion Ltd. Advisory Vote on Compensation p Royal Bank of Canada Precarious Employment in Real Estate Sector u Shaw Communications Inc. Climate Risk Disclosure u Shoppers Drug Mart Corporation Toxic Chemicals u SNC-Lavalin Group Inc. Human Rights u Suncor Energy Inc. Human Rights p TELUS Corporation Sustainable Forestry and Paper Procurement 1 Toronto-Dominion Bank (TD) Sustainable Forestry and Paper Procurement u Yellow Media Inc. Sustainable Forestry and Paper Procurement 1 Total Companies: 20 p Positive u On Track/Neutral q Negative/ No Response 1 Response Pending SHAREHOLDER ENGAGEMENT ACTIVITY REPORT 9
The Shareholder Association for Research and Education (SHARE) is a Canadian leader in responsible investment services, research and education for institutional investors. We specialize in: Proxy Voting Shareholder Engagement Responsible Investment Pension Investment & Governance Education Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525