Chain Reactions

Folgers Faces a Supply Chain Wake-Up Call

"The best part of waking up is Folgers in your cup" goes the advertising jingle, but Folgers executives are facing a wake-up call of their own from shareholders questioning the company's supply chain sustainability practices. Or to be more accurate, questioning whether the company even has a sustainability program in place.

As we reported earlier, activist shareholders are becoming very insistent that companies fully disclose their green initiatives, typically in corporate social responsibility (CSR) reports. The percentage of shareholder resolutions that have won at least 30% shareholder support (a significant threshold for boards of directors) has grown from 3% in 2005 to 27% in 2010. Investors are demanding the same level of detail from CSRs as they've come to expect from annual financial reports.

That leads us to Folgers. When Smucker's, the food company conglomerate that owns Folgers and numerous other major brands, released its 2011 CSR recently here>, some shareholders concluded the company left much to be desired when it comes to actually spelling out its specific climate-related activities, particularly as it applies to Folgers and the offshore cultivation of coffee. As a result, shareholders enlisted the aid of two investment advisory firms, Trillium Asset Management and Calvert Investment Management, to convince Folgers it needs to disclose more details about its global supply chain.

The shareholder effort plans to ask Smuckers to provide a report with six months that will describe exactly how the company plans to manage the social and environmental risks and opportunities related to the coffee supply chain.

"We are concerned about maintaining the financial success of Smucker's coffee business in the face of climate change and addressing the social and environmental impacts of its supply chain," says Jonas Kron, Trillium's deputy director of environmental, social and governance research and advocacy. "This shareholder proposal will hopefully improve communication on these important issues between the Smucker's board and shareholders."

For instance, the shareholders are seeking that Smuckers disclose exactly how it will address temperature changes, changes in rainfall patterns, and its responsibility for its impact on the coffee-farming families in its supply chain. The shareholders are concerned specifically that three major competitors in the coffee marketplace Nestl, Kraft Foods, and Sara Lee have been more forthcoming in their CSR reporting, and have made public commitments to sourcing coffee with an eye toward sustainability.

"Now is the time for Smucker's to step up to its financial and ethical responsibilities through full disclosure of climate change risks and its commitments to supporting a more sustainable coffee supply chain that meets the needs of all stakeholders," notes Rebecca Henson, a sustainability analyst with Calvert. "Any major company with significant coffee and other crop exposure needs to demonstrate that it can manage the reality of a changing climate."

Given that these demands for full disclosure are coming from their own investors, one can imagine Folgers executives will be burning the midnight oil, and brewing plenty of coffee, in an effort to extensively amend their CSR. Let this serve as a lesson to all other major brand managers: If you don't provide the green in your annual reports, your shareholders are going to see red.

TAGS: Supply Chain
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