Shareholders bring CSR to the boardroom

Photo credit: Agamitsudo

What’s driving big companies’ corporate social responsibility efforts?

Increasingly it’s shareholders, according to a new report from Ernst & Young. The auditing and consulting firm estimates that shareholder resolutions targeting environmental and social issues could account for half of all resolutions in 2011.

That number has been steadily on the rise, as has the support for such resolutions when they’re voted upon. In 2010, investors’ calls for environmental and social changes – including labor practices, greenhouse gas emissions and political contributions – were the most common type of shareholder resolution, as more investors grasp how corporations' environmental and social efforts can impact their bottom line.

“Increased awareness among investors and regulators of the reputational and financial risks associated with CSR and environmental sustainability places more pressure on companies to identify and manage these issues,” Steve Starbuck, of Ernst & Young’s climate change and sustainability services, said in a statement.

For example, earlier this year investors filed shareholder resolutions with nine oil and gas companies, including ExxonMobil and Chevron, calling for the corporations to disclose their plans for dealing with the environmental and regulatory risks associated with natural gas fracking, according to the Investor Network on Climate Risk.

Why do shareholder resolutions matter? Initially, they can shape the conversations in corporate boardrooms, which is critical in and of itself. But once such resolutions start gathering a critical mass of support, they can have real clout.

For most boards, that critical level of support is 30 percent. In 2005, less that 3 percent of environmental and social resolutions reached that level of support. In 2010, more than 25 percent of CSR resolutions did, according to Ernst & Young.

Despite growing demands from shareholders, there’s a lack of understanding among many corporate boards of how to tackle such concerns. At a minimum, the report recommends companies should come up with a strategy for addressing shareholder demands, including:

• Increasing social and environmental disclosure through robust sustainability reporting.
• Making sure directors have expertise relevant to environmental and social concerns.
• Using measures that account for environmental performance as well as financial performance.

Find the full report here.