Victory for Costco shareholders - and EIG - on climate!

 Heidi Monk

Sometimes shareholder engagement is incredibly rewarding, as when our engagement is welcomed and/or met by action. Sometimes shareholder engagement can be frustrating, as when untold hours of research and drafting and editing letters are met with little or no response. Our recent engagement with Costco was both.

In brief:

• In October EIG reached out to Costco with a number of concerns relating to the environment and the protection of decent working conditions. Costco responded quickly thanking EIG for the letter, noting that they would be updating their Sustainability Commitment shortly (now updated) and suggesting that this would respond to our concerns. It didn’t.

• So in January, when two shareholder proposals were presented at Costco’s annual meeting - one on carbon emissions reduction targets and one on racial justice and food equity - EIG made sure to vote and followed up with another letter detailing the reasons for our votes, as well as raising a few other concerns. Again, the response from Costco was quick and disappointing. This time though, disappointment turned to elation when we learnt that a precedent-setting 69.9% of shareholders had voted in favour of the proposal on emissions targets. We were excited to have been part of that effort.

The win: better carbon emission targets on the way

Costco’s Climate Action Plan currently reports on scopes 1 and 2 emissions but not scope 3, which are the indirect emissions deriving from a company’s supply chain and are more difficult to measure (see What are Scope 3 emissions). In October EIG asks Costco to: 1) report on scope 3 emissions; 2) commit to reaching a 50% reduction in carbon emissions by 2030; and 3) commit to reaching net zero in carbon emissions by 2050.

The shareholder proposal, which EIG votes FOR in January, speaks directly to these concerns. It requests that “Costco adopt short, medium, and long-term science-based greenhouse gas emissions reduction targets, inclusive of emissions from its full value chain, in order to achieve net-zero emissions by 2050 or sooner and to effectuate appropriate emissions reductions prior to 2030.”

And then the win…

Shareholder proposals very rarely pass, though this is gradually changing. Traditionally, the Board presents convincing reasons for rejecting them and shareholders very largely fall into line. It is therefore a great victory that this proposal passes with such a resounding majority (69.9%).

Improving the targets is a good first step; achieving net zero will require real commitment from Costco. We’ll be watching.

Other issues we raise with less success

Environment

1. Sustainability. EIG encourages Costco to set time-bound targets across the board, covering sustainable fish, food waste, reduction in plastic and prophylactic antibiotics, following a mediocre rating of 195 out of 330 companies in the Food and Agriculture sector in a report by the World Benchmarking Alliance.
2. Plastic pollution. EIG requests that Costco significantly increase its investments in reducing plastic use and prioritise making swift improvements in this area. Poor performance on plastic was noted in the above-mentioned report and also in an As You Sow report on plastic, which rated Costco one of the four food retailers with the lowest scores. 

 Decent work

1.      Health and Safety in the garment industry. Representatives of international garment retailers and two global trade unions announced their agreement on a new and more comprehensive set of safety measures for the garment industry in August 2021. EIG asks Costco to sign onto the Accord, in October 2021 and again in January 2021, following the 147 companies that have already done so. EIG also asks Costco to explain why it has not already signed the Accord.

2.      Fair labour practices.

• In October, EIG references the World Benchmarking Alliance’s report that gives Costco a mediocre rating (#156 out of 350) on “social inclusion”, and encourages Costco to commit to prohibiting child labour and forced labour in all its operations, pay workers a fair wage and take measures to ensure that its suppliers meet these same commitments.
• In January, EIG joins its voice to the Coalition to End Forced Labour in the Uyghur Region, calling on Costco to take credible steps outlined in the Call to Action released in July 2021. 

 Diversity, Equity and Inclusion 

1.      In January, finding Costco’s response reasonable, EIG votes ABSTAIN on a shareholder proposal requesting that “the Board of Directors prepare a report, at reasonable cost and omitting proprietary information, describing if, and how, Costco applies its Sustainability Commitment to its core food business to address the links between structural racism, nutrition insecurity, and health disparities. The report may include systems Costco has in place to address racial justice and food equity concerns through product development, marketing, and distribution.”

In our follow-up letter, we explain that, despite having voted to abstain, EIG agrees with the shareholder on the importance of racial equity in general and in relation to food insecurity in particular. EIG refers to Costco’s Report on Food Security and notes that Costco can do more in addressing food insecurity for BIPOC communities. We encourage Costco to target racialized communities in its free 2-day delivery services.

 Conclusion

When companies take a particular issue to heart, they are keen to discuss it (see for instance recent engagement with senior executives from Scotiabank on carbon emissions). The curt responses might suggest that Costco isn’t particularly focused on the concerns that we raised. However, we can still contribute to shifting agendas. Our engagement with Costco reminds us that we are part of a larger set of demands from shareholders for real improvements on Environmental, Social and Governance issues. And that collectively we can make a difference! A recent report by PwC notes that top Canadian companies fall short of growing shareholder expectations. We need to keep the pressure up. In a 2020 survey, EIG partners affirmed the importance of environmental, labour and antiracism factors. Despite lackluster responses from Costco, we will continue to reach out when concerns arise.

Learn more about our engagement with Costco on environmental issues, decent work and equity, diversity and inclusion on our website.

Pour en savoir plus sur notre engagement avec Costco sur les questions environnementales, le travail décent et l'équité, la diversité et l'inclusion, consultez notre site web.