Situation
Walmart is a strong investment grade issuer that has defensive properties because it operates in the consumer non-cyclical sector. It benefits from excellent geographic diversification, low leverage, strong cash flow generation and ample liquidity. We hold this in both our equity and fixed income portfolios. However, Walmart is flagged for both environmental and social concerns. Environmental challenges include water use and water scarcity, waste and greenhouse gas emissions from its operations and supply chain. It has also faced challenges around human rights in its supply chain and labour standards violations and controversies.
Activity
To address such a diverse range of concerns in a single large global issuer, we tackled it from several angles. We deployed our proprietary engagement tracking tool to establish priorities and different engagement channels to achieve specific goals. Greenhouse gas reduction – In 2021, we exercised our voting rights to support a shareholder resolution relating to the use of refrigerants in the issuer’s operations. Our aim was to encourage action on environmental issues; specifically, on emissions reductions.
In 2022, we wanted to develop our engagement and increase the pressure on this issuer. Given the Walmart’s scale and investor base, we decided to seek a collaborative route to escalate our engagement on climate issues to amplify our voice. Therefore, we joined the CA100+ engagement workstream. We have since been leveraging our participation to dedicate special attention to themes such as scope 3 emissions, the issuer’s carbon reduction collaboration with its global value chain, CA100+ Benchmark Performance, and land use and deforestation. We have provided commentary on agendas and invested in understanding the priorities of this mature and long-running collaborative engagement.
We also sought to begin a bilateral engagement with the company to increase the pressure on it on specific environmental concerns including waste, energy management and the environmental impacts of its supply chain. We leveraged the CA100+ work and our own proprietary research to reinforce and escalate our views. This resulted in an introductory written exchange with Walmart.
Social issues – Using our bilateral engagement workstream, we also sought to raise concerns with the company around labour practices and social issues in its supply chain.
During 2022, we supported another shareholder resolution calling for a report on its animal welfare policies and practices, in the food supply chain, in support of this activity.
Outcome
This is an example of our prioritisation and engagement framework identifying issuers for engagement and our proprietary engagement tracking tool being used to refine the issues that we raise.
Through the CA100+ engagement, we consider we have created a more tailored, granular, and impactful conversation around climate topics, which are crucial to the issuer’s performance as well as our own transition to net zero. By joining a collaborative engagement our voice will be added to those advocating for faster progress. Joining this engagement also allowed a more granular analysis of the issuer’s data than we would have been able to generate ourselves, given resource constraints.
Our bilateral engagement with the issuer has already led to some of our disclosure requests being satisfied. The issuer also demonstrated a positive approach towards further collaboration, which we aim to build on in the coming years, when we hope to be able to discuss more specific milestones and targets.