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Issue Brief: Product Safety and Impact
Introduction
Calvert believes consumers have a right to products and services that are safe, of high quality, and not harmful to them or to society at large. It is important to Calvert that companies manufacture and market their products and services in a responsible manner, while providing access to all consumers and avoiding offensive images. For these reasons, Calvert has avoided investing in companies significantly involved in alcohol, gambling, tobacco, and weapons.
Calvert's Approach
Calvert's product screens determine whether companies provide safe and healthy products of high quality. Calvert considers whether companies market products in a fair manner. Calvert analysts also weigh the effects of a company's products on public health, society, and animal welfare.
Calvert favors companies that comply with consumer protection and marketing laws, and that have good policies addressing product safety, quality, marketing, non-discrimination, and animal welfare. Calvert analysts assess compliance with federal regulations and examine each company's record of lawsuits in product-related areas. Calvert looks at each company's history of recalls and accidents, with special emphasis on the company's initial response to the safety problem. Calvert also reviews the long-term safety impact of products such as drugs, which can have health implications years after the consumer uses them. Calvert avoids companies that use demeaning or gratuitously violent advertising material, especially for products marketed to children.
Alcohol: Calvert screens against companies with significant involvement in the manufacture and distribution of alcoholic beverages. Although we recognize the growing public awareness of the need for moderation, Calvert nonetheless believes that alcohol contributes to a variety of economic and health problems that can put individuals at risk. Calvert avoids restaurants and retailers that generate 20 percent or more of annual revenues from alcohol sales or distribution.
Gambling: Calvert believes that gambling contributes to a variety of social problems and economic distortions. Calvert's gambling policy excludes from investment companies with direct gambling involvement. This includes equipment providers and operators of gaming establishments.
Tobacco: Based on many years of widely accepted medical evidence that smoking damages health, Calvert believes that tobacco products are inherently unsafe. Therefore, Calvert will not invest in companies involved in the tobacco industry, such as manufacturers and distributors of cigarettes, cigars, loose tobacco, chewing tobacco, and similar products.
Know What You Own®
Calvert's Know What You Own® screening tool for product issues includes securities drawn from a universe of the largest 1000 US companies. Companies may fail Calvert's product criteria because they:
- Have inadequate animal welfare policies and practices,
- Respond inadequately to reports of unsafe products,
- Engage in deceptive marketing practices or consumer fraud,
- Use offensive images in product labeling or marketing,
- Produce pornography,
- Produce or receive a significant amount of sales from alcohol,
- Produce gambling equipment,
- Have direct gambling involvement or receive revenues from gambling,
- Produce tobacco products,
- Are significantly involved in the design, manufacture, sales, or distribution of weapons,
- Produce weapons of mass destruction, or
- Produce nuclear weapons or critical components of nuclear weapons.
Criteria in Practice
Known for its high quality, reliability, performance and value and customer satisfaction, Interface is an innovative company whose leadership in providing sustainable commercial carpeting has changed the industry: Interface brought the concept of carpet tiles to this country, allowing the replacement of a portion of worn or stained carpet.
The company has a strong quality management system and more divisions that have received ISO 14001 Environmental Management System Standard than any other company in the commercial interiors industry. All new products use renewable materials that can be reclaimed, recycled and/or composted.
After twelve years of working on sustainability, in 2006 the company launched a consulting business to help educate other companies on the steps they can take towards sustainability, by making sustainability a core part of their business, rather than a sideline. Interface has also developed numerous partnerships, some of which directly impact the distribution and installation of their products.
In one instance, the company developed a partnership to keep carpet out of landfills and at the same time reach out to the community. The program works with clients to identify and assess surplus carpet which could be re-used in other settings such as community centers or nonprofits and kept out of landfills. One of the organizations involved employs the disadvantaged and homeless, who then install the Interface carpet for re-use.
Calvert does approve companies with some minimal alcohol sales. For example, the coffee chain Starbucks (SBUX), which emphasizes customer service and other positive product quality features, sells coffee liqueurs on the Internet and at various retail outlets. Although sales data from liqueurs are not available, the company has not made the sale of alcoholic beverages a core strategy for growth, and such sales appear to be well below the Calvert's 20 percent cut-off point for retail sales.
Advocacy
In addition to Calvert's research and advocacy with respect to product quality or safety, we put special emphasis on emerging product safety or impact issues. An area of particular concern involves the risks associated with toxic chemicals in consumer products. Calvert has been concerned for several years about the lack of protection for farm workers in the US in the agricultural supply chain. Many companies have codes of conduct or progressive policies for farm workers abroad, but none in place for those workers picking or packing in the US. The few codes of conduct that do exist generally stress environmental goals, but have not adequately addressed labor considerations. Calvert intends to be an active partner in developing a viable agricultural code of conduct that would address labor and migrant farm worker issues.
In 2006, Calvert joined the Investors Environmental Health Network (IEHN), which aims to reduce the use of toxic chemicals. Calvert will support IEHN as new issues and companies of concern arise. Calvert is especially concerned about agricultural pesticides, which have been shown to pose harm to farm workers and residents of surrounding communities. Although risks to consumers are much lower, the interaction of these chemicals is still poorly understood, particularly for children, infants, and fetuses. As part of the effort to promote the reduction of toxic chemicals, Calvert has contacted several companies to ask about supplier standards for Integrated Pest Management (IPM) agricultural techniques. IPM seeks to reduce the use of pesticides by employing some of the techniques of organic agriculture, while allowing suppliers a cheaper alternative to going completely organic.
Therefore, in the spring of 2006 Calvert wrote to food company Heinz (HNZ) to ask if the company requires suppliers to use IPM techniques. Heinz responded that it strives for no pesticide residues, and that it recommends that suppliers use as few pesticides as possible. This level of commitment to IPM is higher than average compared to the company's food industry peers, but it lacks transparency. By contrast, some European companies, such as Unilever, have taken stronger steps toward adopting IPM. In 2005, Unilever published a case study on the use of drip irrigation for growth of tomatoes in Brazil in which it reported a 30% reduction in water use, a reduction of fungicides up to 50%, and reduction of pesticides up to 25%. While offering technical assistance and seed money to farmers in transition, the company had converted almost 30% of its Brazilian tomato growers to drip irrigation by the end of 2004. Calvert applauds these innovative methods of reducing pesticide use.
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