When you think of Smucker’s, jelly and jams typically come to mind, but they are just the tip of the iceberg. The J.M. Smucker Company is actually a leading distributor of Folgers and Dunkin’ Donuts coffee brands (who knew?), with coffee accounting for 40% of the company’s net sales and nearly half of its profits. […]

When you think of Smucker’s, jelly and jams typically come to mind, but they are just the tip of the iceberg. The J.M. Smucker Company is actually a leading distributor of Folgers and Dunkin’ Donuts coffee brands (who knew?), with coffee accounting for 40% of the company’s net sales and nearly half of its profits. That’s a whole lot of coffee, considering that the company sells and manufactures many other widely-used household brands like Crisco, Jif, and Pillsbury.

Coffee crops are highly sensitive to weather and temperature fluctuations making it particularly vulnerable to climate change. This past year the cost of coffee skyrocketed following increased demand and poor harvests in high-producing countries like Colombia and Brazil.   In 2010 the Securities and Exchange Commission (SEC) adopted new guidance for publicly traded companies, requiring companies to disclose climate change risks, such as physical risks to a company’s assets and supply chains. 

Disclosing these risks will create much needed transparency to help investors understand how companies’ supply chains, and the communities that support them, could be impacted by increasingly extreme weather and other likely results of climate change.

This disclosure is essential because community risks are business risks.  As climate change increasingly threatens coffee harvests, the impacts are being felt first and worst in the communities where coffee farming is a way of life.  But those threats echo all the way up the supply chain.  Understanding these risks, and ensuring that companies like Smucker’s are adequately managing the anticipated hazards, is critical to investors and farmers alike.

Reporting in response to the SEC guidance has generally been weak, and Smucker’s is no exception. Very few companies have increased their reporting on material climate risk save for a few sentences added to their annual sustainability reports. This is a bad sign for shareholders who are already feeling the impacts of climate-related risks on their investments.

For example, record high food and commodity prices this year, owing at least in part to increased temperatures and lower crop yields, have led to social unrest in some countries where companies do business and to financial instability in companies unable to pass higher costs onto consumers. Consumers too have felt the pressure, since May 2010, Smucker’s has jacked up prices 34% just to try to stay a step ahead of the commodities market.  Smucker’s competitors are responding by making public commitments to sustainability that will help their bottom line.

Already jittery investors are starting to perk up. Two socially responsible investment firms, Trillium Asset Management and Calvert Investment Management, Inc., have filed a shareholder resolution requesting that the Board of Directors provide a report to stockholders describing how the company will manage the social and environmental risks and opportunities connected to the company’s coffee business and supply chain. Shareholders will have a chance to vote for this proposal at tomorrow’s annual meeting at Smucker’s headquarters in Ohio.

Smucker’s has tried to block the resolution and are nervous that disclosing the risks could rattle investors.  But if the resolution passes, Smucker’s will be on-the-hook to conduct a detailed risk assessment of climate change on their coffee supply chain and publicly disclose the findings.

Public disclosure of risks is the first step towards ensuring communities in Smucker’s supply chain are adequately protected from impending climate risks such as floods, droughts and extreme weather events.    It is critical that small-scale farmers gain access to adequate resources to prepare for and respond to these threats. Not only will such resources will protect communities, they will surely benefit global companies who rely on a stable supply of high-quality coffee beans.

Government policies in support of small farmers are critical to their long term productivity, but this must go hand-in-hand with sound, sustainable corporate practice. This resolution will help multi-national corporations such as Smucker’s to wake up and smell the coffee. As they say, “with a name like Smucker’s, it’s got to be good”. We agree.