Smucker's Choice: Make Money or be Eaten for Lunch

“Climate change is like the Internet – It arrives one year, it gets bigger every year, it never goes away and you have to learn to make money of it or you will be eaten for lunch.”

- Paul Dickinson, co-founder and executive chairman, The Carbon Disclosure Project (CDP)

Although the business world provides growing evidence to support Paul Dickinson’s sharp observation, some companies still don’t buy it. Strangely, the company we’re discussing today doesn’t seem to believe it, but at the same time is reporting to the Carbon Disclosure Project. Please meet J.M. Smucker, mostly known for producing Smucker's brand jams and syrups. The company also owns the Folgers, Dunkin' Donuts, Millstone and Kava brands of coffee.

Last week Smucker's held its annual shareholder meeting. Among the proposals that shareholders found on their proxy card was proposal no. 5 submitted by Calvert Investment Management and Trillium Asset Management. This resolution requests that the Board of Directors will provide within six months 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. The proponents recommend including in the report a concise discussion of how Smucker's will address temperature changes, changes in rainfall patterns, and the company’s responsibility for its impact on coffee farming families in its supply chain.

Why are Calvert and Trillium so worried about the climate change impacts on Smucker's coffee business? It’s very simple, they explain in the proposal: First, coffee accounts for 40% of SJM’s net sales and 48.6% of profit, and second, the coffee industry is particularly susceptible to climate change related impacts. Makes sense, right? Well, Smucker's begs to differ.

The board of directors’ response to the shareholder proposal was as followed:

“The Board unanimously recommends that shareholders vote AGAINST the Shareholder Proposal… The Company has published a corporate responsibility report that includes, among other matters, a discussion of how the Company will manage the social and environmental risks and opportunities associated with the Company’s coffee business and supply chain...the Company believes that adoption of the Shareholder Proposal is unnecessary, duplicative, and inappropriate.”

Basically, the company is saying it provides the requested information on its CSR report. If you read the Sumcker’s CSR report you will find one page on coffee with general and incomplete information on the company’s plans, such as: “We have set goals to substantially increase the purchase of certified green coffee over the next five years. We will achieve these goals by working with organizations such as Fair Trade USA, Rainforest Alliance, and Utz certified. We will also continue to foster strong, direct relationships with the exporter community to understand their sustainability efforts.” What are these goals? How will the purchase of certified green coffee reduce risks and create opportunities? You can only guess.

It’s not that Smucker doesn’t know how to evaluate and address risks. Just read the part on financial risks on the company’s 2011 K-10 (page 31) and you’ll immediately understand they have all the required expertise. My guestimation is that the problem lies with the company’s approach to climate change.

On the same K-10, the company writes: “While scientific consensus on the existence, potential causes, or likely outcomes of global climate change has not yet been reached, researchers continue to aggressively explore this issue.” I can only assume that the person who wrote it is not familiar with the IPCC reports and other endless evidence of scientific consensus on the impacts of global warming.

Yet, the company doesn’t ignore the possible risks of climate change, writing on the same K-10: “In the event that climate change may have a negative effect on agricultural productivity, the Company may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for its products, such as green coffee, peanuts, corn sweeteners, edible oils, sugar, wheat, milk, cocoa, and various fruits and vegetables.”

Trillium and Calvert provided a long list of evidence to support their proposal showing climate change effects are already happening, resulting in significant yield reduction and price hikes. They also showed how competitors like Sara Lee or Kraft are seriously addressing climate change impacts and provide extensive details on their plans.

The proponents’ case was strong enough to convince 30% of the Yes/No voters at the meeting to support their proposal. This is a good result considering that the 2011 average support in such resolutions was 22%. I asked Rebecca Henson of Calvert for her comment on the vote. “We interpret this result as being a strong indication that Smucker shareholders share our concern about the company's current quality of disclose around climate change and coffee. We are optimistic that this resolution process has sufficiently indicated to the company that its investors are indeed concerned about the issues we have raised. We are hopeful that the company will act on this signal appropriately and responsibly,” she said.

Marc Gunther wrote once that Smucker's is in many ways an old-fashioned company, so it has been slow to pay attention to environmental sustainability. I hope they will pay attention to their shareholders’ concerns, if they don’t want to see their coffee business eaten for lunch.

Image credit: datenhamster.org, Flickr Creative Commons

Raz Godelnik is the co-founder and CEO of Eco-Libris, a green company working to green up the book industry in the digital age. He is also an adjunct professor in the University of Delaware’s Alfred Lerner College of Business and Economics.