Smucker’s Coffee Empire Percolates Need for Social and Environmental Risk Assessment

August 16, 2011

When you think of Smucker’s, jelly and jams typically come to mind. But those commodities 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 percent 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 them 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 guidelines for publicly traded companies, requiring them 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.

Disclosure is essential because community risks are business risks. As climate change increasingly threatens coffee harvests, communities where coffee farming is a way of life are hardest hit, though problems 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.

Company reporting in response to 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.

Record high food and commodity prices this year, owed at least in part to increased temperatures and lower crop yields, have led to social unrest in some countries, and companies doing business there have also been affected by higher costs which they are unable to pass onto customers. Still, since May of 2010, Smucker’s has jacked up prices by 34 percent in an attempt 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 is nervous that disclosing the risks could rattle investors. But if the resolution passes, Smucker’s will be held accountable for detailed risk assessment of climate change on their coffee supply chain, and obligated to 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 protect communities, but they will also surely benefit global companies that rely on a stable supply of high-quality coffee beans.

Government policies in support of small farmers are critical to long term productivity, but corporate transparency must contribute to sound, sustainable practices. An approved resolution on Wednesday could help multi-national corporations, such as Smucker’s, to wake up and smell the coffee. As its slogan states, “with a name like Smucker’s, it’s got to be good.” I agree.

Heather Coleman is a senior policy advisor on climate change at Oxfam America and sits on the board of the US Climate Action Network. She holds a Masters of Environmental Management from the Yale School of Forestry and previously worked on regional and state climate-related initiatives at Environment Northeast and the Clean Air Association of the Northeast States (NESCAUM). You can read more from her on Oxfam’s Politics of Poverty blog. Read more >

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Jennifer @ Raisin Questions
August 16, 2011
Thanks for this informative article. I'm a fan of the new SEC reporting requirements regarding environmental impact.
Jen Markus
August 16, 2011
Dunkin' Donuts is silently one of the nation's larger supporters of Fair Trade Certified coffee (without making a single halo claim in the interest of marketing), so although Smucker's may be in the defensive over said claims, there seems to be more to the story than meets the eye here. Fair Trade USA in Oakland can provide more accurate numbers than I can, but Dunkin' has been a major reason why coffee growers in developing nations have been able to sustain their livelihoods and feed their own families in recent years. Many of Smucker's beverage brands are also heavy supporters of organic agriculture, so the company has in fact played a major role toward sustainability over decades. While your line of thinking clearly demonizes big business, I question whether you're choosing the right enemy. Some larger companies out there do in fact strive to do good for the planet and its people.