Case study by Constantina Bichta, Boston Common Asset Management
Boston Common Asset Management has had a long-term engagement with VF Corporation (VF Corp.) to adopt a global water strategy and assess water risks in VF Corp.’s supply chain. In 2013, several issues of concern were identified regarding VF Corp.’s approach to water risk management:
- 77% of VF Corp.’s manufacturing was outsourced from independent contractors.
- Cotton accounted for 68% of VF Corp. product sales, with leather accounting for 25% of sales in the same year. VF Corp.’s cotton comes from the US, India and China – countries known to face water scarcity risks. In leather tanneries, pollution from effluent was an issue of concern.
- VF Corp. provided limited disclosure on supply chain water management and risk assessment efforts. Subsidiaries such as Timberland were more advanced in reporting on water management initiatives, albeit at the subsidiary level.
In January 2013, Boston Common sent a letter to VF Corp. requesting information on the company’s position on water and pollution risk management. VF Corp. did not respond.
Boston Common therefore filed a shareholder proposal in November 2013 with the Church of the Brethren Benefit Trust and the Felician Sisters of North America on water risk and supply chain standards. The shareholder proposal won VF Corp.’s attention. On subsequent calls with VF Corp.’s General Counsel and Secretary, as well as the company’s sustainability team, the investor requests were discussed, including a commitment from the company to keep Boston Common and co-filers abreast of developments and progress related to VF Corp.’s water program.
Boston Common withdrew the resolution to acknowledge VF Corp.’s:
- preparation of its first Sustainability Report (published in 2015) referencing its work on water;
- commitment to undertake a water risk assessment in 2015 and plans to publish a water quality report in 2016, building on the experience gained from its carbon reduction management program;
- reporting on ongoing water activities at the facility level, such as measuring water quality and pollution discharges at VF-owned facilities, and auditing discharges at selected contracted facilities as part of VF Corp.’s global compliance program; and
- decision to join the Better Cotton Initiative (BCI), representing Boston Common’s interpretation of industry best practice.
In 2014, and in preparation of VF Corp.’s first Sustainability Report, Boston Common gave feedback on the company’s materiality assessment with an emphasis on water, product carbon footprint and human rights issues in the supply chain.
Boston Common joined the PRI Water Risks in Agricultural Supply Chains engagement in 2015, and elevated the dialogue with VF Corp. through the broader coalition of PRI investor signatories. During the PRI engagement, Boston Common and the investor group discussed with VF Corp. its progress in managing water risks in the supply chain, and what steps it was taking to engage with local stakeholders and external collaborators in water resource management.
After years of engagement led by Boston Common, the water dialogue has produced positive results:
- VF Corp. responded for the first time to CDP Water in 2015, reaching a milestone in publicly reporting its approach to assessing exposure to water risks through its supply chain.
- In 2015, VF Corp. conducted a company-wide water risk assessment with the World Resource Institute (WRI) and Deloitte to identify water-related risks in the supply chain. As the water risk assessment covered approximately 75% of the company operations, VF Corp. has set a new target to cover 100% of operations in the next water risk assessment review.
- VF Corp. has now partnered with WWF to develop a water strategy that addresses opportunities in VFowned manufacturing and supply chain operations for improving water use and impact.
Growing water risk resilience: An investor guide on agricultural supply chains
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Case study: Engagement