Wespath Files Shareholder Resolution Asking Caterpillar to Address Human Rights Risks

   By Chirag Acharya
   Analyst, Sustainable Investment Stewardship
 
   June 6, 2022

Shareholder engagement is a core tenet of Wespath's sustainable investment program. When engaging the companies in which we invest, we leverage our influence as a large institutional investor to promote action we believe will accelerate the transition to a sustainable global economy, thereby improving corporate value that will enhance investment returns.

One critical element of our efforts to influence the transition is to identify and manage potential human rights risks across our investments, specifically in Conflict-Affected and High-Risk Areas (CAHRA). CAHRA are areas of the world experiencing armed conflict, instability, widespread violence, or other risks that can harm its people. Companies that operate in these areas face heightened legal, regulatory, and reputational risk that can manifest in material financial risk for investors.

Wespath has a long history of engaging with Caterpillar (CAT)—a leading manufacturer of construction and mining equipment that conducts business across the globe—on human rights risks resulting from its operations. While in the past we had seen steady progress in CAT's commitment to acknowledge and mitigate human rights risks, months of recent attempts of engagement with CAT on its activities in CAHRA have not produced satisfactory results. Hence, shareholders will vote on a Wespath-filed resolution at CAT's June 8 annual shareholder meeting regarding human rights risk concerns related to CAT's business operations.

Our most recent concerns stem from documented use of CAT's equipment and/or its supply chain relationships in violation of international humanitarian law and international human rights law—despite CAT's Human Rights Policy and Slavery and Human Trafficking Statement—in CAHRA areas such as Belarus, China, Myanmar, the Occupied Palestinian Territories, and Western Sahara. As a long-term investor in CAT, the company's lack of adequate disclosure on management of these risks threatens its reputation and prevents investors from discerning associated legal and regulatory risks which may negatively impact the company's financial performance.

Once informed of these violations, Wespath initiated multiple attempts to engage CAT regarding their activities in CAHRA. CAT maintains that its existing disclosures are sufficient and declined our invitation to engage in dialogue with Wespath and other concerned investors. Accordingly, we decided to file a shareholder resolution asking CAT to provide a report on its business activities in CAHRA.

Shareholder resolutions are proposals submitted by one or more shareholders, and subject to vote by all shareholders through proxy voting at a company's annual meeting. Shareholder resolutions focus broader investor attention on an issue that can influence positive change to company policies and business practices. Wespath pursues resolutions only after other forms of engagement such as letter writing and direct engagement with company management has failed to result in progress towards achieving a specified engagement objective intended to mitigate a material financial risk to the company.

Along with the shareholder resolution, Wespath filed an "exempt solicitation" with the Securities and Exchange Commission, which illustrates our rationale and encourages investors to vote in favor of the resolution.

Shareholders will vote on this resolution at CAT's June 8 annual shareholder meeting. If you are interested in learning more, we encourage you to read the resolution on pages 58-59 in Caterpillar's proxy statement and Wespath's exempt solicitation.

Wespath is not able to vote your proxy, and neither this communication nor the exempt solicitation is intended as a solicitation of your proxy.