Since acquiring Folgers from Procter and Gamble in 2008, Smucker’s has balked at providing meaningful sustainability reporting. Pressure from corporate investors prompted a first-ever corporate sustainability report. The single page on coffee was disconcertingly deficient in details. The Smucker’s opposed a second shareholder proposal to produce a sustainability report specific to coffee.
Only a tiny fraction — half a percent — of the coffee purchased by Smucker’s is certified Fair Trade or organic.
J. M. Smucker’s, the jam and jelly folks, now owns some of the best-known coffee brands in the world. In 2008, Smucker’s took over Proctor & Gamble’s (P&G) coffee division — Folgers and Millstone coffee brands and Dunkin Donuts retail distribution. When it took over P&G’s coffees (in a cleverly constructed piece of corporate tax avoidance) Smucker’s became one of the corporate Big Four coffee companies. Even prior to their recent acquisition of Café Bustelo, Café Pilon, and other brands from Rowland Coffee Roasters, coffee made up 44% of Smucker’s product sales.
P&G did not score high grades in corporate responsibility among its peers. So I have been waiting to find out if Smucker’s would be more transparent about coffee sourcing than P&G, and do more to promote sustainability in their coffee supply chain. Looks like I’ll have to keep waiting.
First CSR report – vague and lacking details
In 2010, large investors Trillium Asset Management and Calvert Investments put forth a shareholder proposal requesting that Smucker’s prepare a sustainability report. The previous year, Smucker’s sustainability reporting efforts amounted to a single page in their annual report, described later by Trillium and Calvert as “grossly inadequate.”
When Smucker’s pledged to begin substantive and meaningful annual sustainability reporting, the proposal was withdrawn. In the ensuing months, Trillium and Calvert met several times with Smucker’s. The company provided no details on what would be included in the promised first report, which was released in late July, and the company denied Trillium and Calvert’s request to review it prior to publication. When it was released, the CSR (PDF) had only one page is devoted to green coffee sustainability. It says very little. Smucker’s describes their two areas of focus:
1. “We have set goals to substantially increase the purchase of certified green coffee over the next five years.”
They provide no specific goals, no timeline, no roadmap or strategy. The other members of the Big Four at least provide actual numbers, however modest they may be (see my posts on the latest from Kraft, Sara Lee, and Nestlé). Smucker’s coffees span nearly 75 varieties and flavors. A mere four are Fair Trade certified, with three (formerly five) of those also certified organic. In 2007, one was Rainforest Alliance certified, but that was discontinued. As of 2009, Smucker’s purchased the smallest amount of certified coffee — 0.05% of their 280,000 metric tons — of any of the major coffee companies.
2. “Our plan’s second area of focus supports Technoserve…” Smucker’s commits to five more years of support.
Most of the rest of the page describes the work Technoserve performs relating to coffee. These are not specific partnerships with Smucker’s, which is one of many donors to the organization. While technically true, it is misleading for them to say “Our coffee brands’ commitment to Technoserve began nearly 10 years ago.” P&G was a donor, pledging $150,000 a year for ten years starting in 2002. Smucker’s has only donated the last two years, since they became owner of the P&G coffee brands, honoring P&G’s previous commitment.
For some perspective, their $150,000 (tax-deductible, I assume) annual donation is less than 0.03% of Smucker’s profit from their U.S. Retail Coffee segment alone. Presumably, their continuation for the next five years will be at or near the same level.
Board fights 2011 Shareholder Proposal for coffee sustainability report
Based on their unsatisfactory discussions with Smucker’s, Trillium and Calvert anticipated that the CSR might not meet expectations. When it was evident the CSR would probably not be released prior to the deadline for filing proposals for the 2011 annual meeting, Trillium and Calvert filed another shareholder proposal in March.
This request was more specific. It pointed out that coffee represents a large percentage of Smucker’s profits (48%) and net sales (40%). The request emphasized the risk of climate change to the coffee supply chain. This was entirely appropriate. Last year the U.S. Securities and Exchange Commission (SEC) issued a guidance document outlining instances when corporations may be required, under existing rules, to disclose to investors business risks to due to climate change.
The entire text is of the proposal here. The bottom line was that
“…within six months of the 2011 annual meeting, the Board of Directors provide a report to shareholders … describing how the company will manage the social and environmental risks and opportunities connected to the company’s coffee business and supply chain. We recommend the Board include in the report a concise discussion of how it will address temperature changes, changes in rainfall patterns, and the company’s responsibility for its impact on the coffee farming families in its supply chain.”
Upon receipt of this proposal, the Smucker’s board petitioned the SEC (PDF) to allow them to exclude the proposal from the proxy materials, in part because a CSR would be forthcoming. The SEC denied their request, stating “it does not appear that Smucker’s public disclosures compare favorably with the guidelines of the proposal.”
In their letter to shareholders, the Smucker’s Board unanimously recommended that shareholders vote against this proposal, stating that they felt the forthcoming CSR was adequate. In contrast, Trillium and Calvert’s letter to shareholders (PDF), recommending a “yes” vote, called the CSR “a significant disappointment.”
Results of the voting on the sustainability proposal
At the annual meeting on August 17, roughly 20% of shareholders voted in favor of the proposal. Combined with the 13% abstaining, a third of Smucker’s shareholders did not agree with the company position. This is actually a strong showing for a first-time environmental proxy issue. Given that the CSR was published less than three weeks prior to the meeting, many shareholders probably did not even get a chance to read and digest it.
Shareholder proposals are not legally binding, but used to send a message to corporate boards that their investors want change.
Smucker’s is a company that manufactures and markets agricultural-based products. Coffee makes up a huge portion of their business. Should their coffee division continue to grow at the rate of the last few years (in 2011, coffee profit increased 11% over 2010), aided by the Rowland brands, Smucker’s could find itself primarily a coffee company. Their supply chain is clearly vulnerable to the impacts of climate change. Further, since companies are required to disclose information that influence investment decisions, and the SEC has indicated climate change is a risk factor that must be considered, Smucker’s may eventually need to get off the dime.
As noted, Smucker’s main competitors, Kraft, Nestlé, and Sara Lee, each have well-defined, very public sustainability initiatives (however miserly they may be relative to the size of their overall businesses). Smucker’s lags far behind them, and that is really saying something. Perhaps the only good news is that they have nowhere to go but up.
To take a look at the report and financials yourself, download these PDF documents, which should also be linked at their web site: