Inquiring Shareholders Want to Know

Many companies have their annual meeting of shareholders at this time of year. Amongst them is a company I happen to have a little bit of stock in, Aqua America. Aqua America provides (tap) water services to about 2,500,000 customers (including me) in about 13 states. Many township and governments provide water services to their citizens as a public good (ie, the Philadelphia Water Department). Other townships, like mine, have contracted out or sold their water services to private companies like Aqua America. In many cases, this was due to the massive capital investment needed to upgrade the water pipes and associated infrastructure. This is especially important in the Philadelphia area. Providing drinkable water sourced from the Schuylkill and Delaware Rivers (and others) is really nothing short of a miracle, so all the Philadelphia area water companies deserve a shout out for that.

I found a very interesting shareholder proposal in this year’s Aqua America annual meeting packet. The Calvert Social Index Fund has put out a proposal to require the company to produce a sustainability report that will describe “corporate strategies to sustainably manage water use” …and detail how the company (Aqua America) will address greenhouse gas emissions, energy use, waste management, and employee and community relations. And, the report should contain the company’s definition of sustainability and include a company-wide review of company policies, practices, and metrics related to long-term social and environmental sustainability. One of the reasons Calvert gives for their proposal is that 80% of the Global Fortune 250 companies release corporate responsibility data, an increase from 64% in 2005.

Aqua America’s Board of Directors recommends that I vote NO on this proposal. They feel that the very nature of their business keeps the water infrastructure sustainable. I’ll grant them that. I am always seeing someone from Aqua America fixing water pipes somewhere. They also mention the fact that they have to go before varied state utilities commissions and “recover” the rates customers pay to support the capital investments required to keep the water pipes in good shape. They feel that a) the costs of the sustainability report would not be recoverable and b) no state utility commission is requiring it anyways.

As more people focus on water issues, the state utility commissions just might start asking questions about a given utility’s sustainability practices. I am not in regulatory affairs per se, but I would think that having an answer in advance to a question that could easily be asked is better then scrambling around after the fact. It is certainly possible that state utility commissions, (like the World Bank) will start attaching environmental criteria to their rate case reviews.

The company also notes that the guidelines Calvert recommends are lengthy, complex, and in places unclear. However, there is nothing saying Aqua couldn’t define and implement sustainability in its own way. Aqua is also concerned about how much it would cost to produce such a report. They also wonder how much good will actually come out of it. These are valide concerns per se. On the other hand, there are certainly companies out there that have discovered significant operating costs savings by adopting sustainability practices—if they are open to it.

After reading all this, I’ve decided to vote my 50 shares FOR the Calvert proposal. There are approximately 135 million shares outstanding, so I am not expecting my shares to tip the balance; but I think it is important that management know that some people really care about this.

Addendum

I am voting AGAINST management on the sustainability proposal. However, I am voting FOR management when I buy more stock. Part of sustainability is economic sustainability and profitability. Aqua America has raised their divided for the past 10 years by over 5% year to year. Further, their stock price held essentially even in 2008 (ok, it lost 2%, vs. 40% for the rest of the stock market). So on one hand, I am not thrilled about rate increases, but the investor piece of me is happy. Sometimes sustainability creates divergent interests—even in the same person.

Drywall Wetwall

I have been reading with some alarm the news reports about the defective drywall from China. Since I am in the middle of a construction project in my house that involves a good amount of new drywall, this is a matter of potentially great concern to me. All I know about drywall is what I see in the drywall aisle at Home Depot. I’ve renamed this aisle “Drywall Alley”. When I was in Drywall Alley, I imagined how much rock was quarried to produce it. I decided to learn just how non-environmentally friendly my new drywall is. I was afraid of the answer, but I needed to know. Part of the journey to sustainability is knowing how far you have to go to get to the goal.

I got a very pleasant surprise when I went to the drywall company’s website: http://www.nationalgypsum.com. The front page had an unexpected link to a “sustainable products” pdf. This pdf talks about where the gypsum board was manufactured, providing some transparency to the process. I am pleased to report that there was nothing manufactured in China (thus, no sulphur additives). There was also a “green practices” link. My curiosity got the better of me. I had to look. Who ever heard of sustainable/ green drywall, anyways?

Assuming the company’s claims are to be believed (never a 100% solution), there are actually some nifty sustainable aspects to drywall manufacture such as: the face paper comes from recycled product (diverted from landfills); the dust created by the manufacturing process is itself re-used. Various solvents are recycled and byproduct gypsum is recycled from the debris of coal-fired power plants.

The most surprising snippet on the green practices page was a link to a “Construction Materials Recycling Association”. I never knew such construction debris could be recycled. Their website http://www.cdrecycling.org talks about recycling shingles, asphalt, concrete, and drywall. They even have a drywallrecycling.org site that lists some drywall recyclers. My neighbor told me there is even a place in Southampton, PA (within a half hour of my house) that also recycles construction materials. This might be worth a road trip.

Wow. I hope this is all true. Maybe my drywall has some environmentally redeeming characteristics after all. I like the fact that my ultimate drywall supplier, National Gypsum, makes a big deal of being a “green manufacturer.” I like the fact that I might be actually be able to recycle some of the old drywall. If National Gypsum’s claims are true, and I can indeed recycle some of the old stuff, I’ll be a happy sustainable drywall aficionado indeed.