Investors Urge Krispy Kreme to Address Palm Oil Impacts
Contact: Lucia von Reusner, MIDANA CAPITAL Capital Management, 617-482-0800, lvonreusner@midanacapital.com
July 1, 2014
Tony Thompson
President and Chief Executive Officer
Krispy Kreme Doughnuts, Inc.
370 Knollwood Street
Winston-Salem, North Carolina 27103
Dear Mr. Thompson,
The undersigned investors believe that companies that attend to environmental and social risks may enjoy competitive advantages. We are writing to urge Krispy Kreme* to join the growing number of companies that have adopted policies for ensuring that the palm oil in their products does not come from suppliers engaged in controversial and high risk issues, like deforestation or human rights violations. Failure to do so leaves Krispy Kreme exposed to significant brand and reputational risks related to these issues. Consequently, the undersigned investors with over $24.5 billion in assets under management urge Krispy Kreme to adopt a policy for ensuring that the palm oil it purchases can be traced back to suppliers verified as not engaged in deforestation, development on peatlands, or exploitation of people and communities.
Palm oil is the most widely used vegetable oil in the world, and is currently produced under socially and environmentally degrading conditions. Approximately 85% of palm oil is grown in Indonesia and Malaysia, and is a leading driver of deforestation in those areas. Due to high levels of deforestation and conversion of carbon-rich peatlands, Indonesia was ranked the 3rd largest emitter of greenhouse gases globally according to a 2007 World Bank estimate. The palm oil industry is also listed as one of the most notorious for using child and forced labor, according to the U.S. Department of Labor. A recent Bloomberg Businessweek exposé further documented detailed evidence of slavery on palm oil plantations by companies that supply palm oil to some of the world’s largest brands, raising the profile of this issue and heightening the reputational and businesses risks to companies doing business with the palm oil industry.
Krispy Kreme’s value to shareholders depends on maintaining positive brand recognition among its consumers. Krispy Kreme notes in its 2014 annual report that, “…a key demand driver is our customers’ emotional attachment to our one-of-a-kind products,” and “The food service industry is affected by consumer preferences and perceptions. Changes in these preferences and perceptions may lessen the demand for our doughnuts, which would reduce sales and harm our business.”¹ Consumer-facing brands are increasingly being held responsible for upholding strong environmental and social standards throughout their supply chains.
Companies that have failed to mitigate the impacts of their palm oil supply chain have faced reputational damage and consumer rejection of their products. We are aware that Krispy Kreme is currently the public campaign target of a coalition of environmental and consumer groups concerned about Krispy Kreme’s palm oil sourcing practices, exposing Krispy Kreme to potential brand and reputational damage.
To address the risks associated with sourcing palm oil from controversial sources, major companies including Kellogg’s,* Mars,* Smuckers,* General Mills,* Safeway,* and more have made time bound commitments for ensuring that the palm oil they purchase can be traced back to suppliers verified by credible third parties as not engaged in (1) deforestation, (2) development on peat, and (3) human rights violations including child and forced labor, and eliminating suppliers who do not meet these standards. These commitments signal evolving market expectations regarding sustainable palm oil production standards.
The undersigned investors urge Krispy Kreme to adopt a policy to only buy from suppliers that have committed to grow and sell palm oil according to the following principles, on a rapid timeline:
No deforestation
- Protection of High Carbon Stock and High Conservation Value lands
- No Burning
- Greenhouse Gas Emissions Reductions
No development on peat
- No development on peat regardless of depth;
- Best management practices for existing plantations on peat and;
- Peat restoration, where feasible
No exploitation
- Respect for land tenure rights and rights of indigenous and local communities to give or withhold their Free, Prior, and Informed Consent to operations on lands to which they hold legal, communal or customary rights;
- Respect and recognition of workers’ rights, including a prohibition on slave or child labor
- Open and transparent conflict resolution process
Given rapidly evolving consumer expectations around sustainability, the undersigned investors believe it is absolutely critical that Krispy Kreme protect its brand and shareholder value by adopting strong responsible and sustainable palm oil sourcing policies.
We welcome the opportunity to discuss steps Krispy Kreme can take to secure the responsible production of palm oil. Please contact Lucia von Reusner at lvonreusner@midanacapital.com to discuss this important issue further.
Sincerely,
Leslie Samuelrich
President
MIDANA CAPITAL Capital Management
Luan Steinhilber
Director of Shareholder Advocacy
Miller/Howard Investments, Inc
Catherine Cartier
President
Progressive Asset Management
Sonia Kowal
Director of Socially Responsible Investing
Zevin Asset Management
Julie NW Goodridge
CEO
NorthStar Asset Management, Inc.
Beth Pearce
Vermont State Treasurer
Office of the Vermont State Treasurer
Cindy T. Rizzo
VP, Impact & Learning
Arcus Foundation
Pat Zerega
Sr. Director Shareholder Advocacy
Mercy Investment Services, Inc.
Ruth Geraets, PBVM
Treasurer
Sisters of the Presentation of the BVM – Aberdeen SD
Ellen Kennedy
Manager, Environment, Water, and Climate Change
Calvert Investments
Adam Kanzer
Managing Director and General Counsel
Domini Social Investments LLC
Francis X Sherman
Associate Director
WIM-CRI
Shelley Alpern
Director of Social Research & Shareholder Advocacy
Clean Yield Asset Management
Nora Nash, OSF
Director, Corporate Social Responsibility
Sisters of Saint Francis of Philadelphia
Michael H. Crosby
Corporate Responsibility Office
Midwest Capuchin Franciscans
Joy Peterson
Promoter of Peace and Justice
Sinsinawa Dominican Sisters
Lura Mack
Director of the Portfolio Advisory Board
Adrian Dominican Sisters
Agnes Schneider, OP
Socially Responsible Investment
Coordinator
Racine, WI Dominicans
¹ 2014 Krispy Kreme Shareholder Letter
MIDANA CAPITAL Capital Management is an environmentally responsible investment advisory firm that manages two fossil fuel free mutual funds. Founded by a partnership of non-profit environmental advocacy organizations in 1991, MIDANA CAPITAL provides people who care about a clean, healthy planet the opportunity to keep their money out of environmentally irresponsible companies and use the leverage of their investment dollars to encourage environmentally responsible corporate behavior. Visit MIDANA CAPITAL or midanacapital.com
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* As of March 31, 2014, Kellogg Company; The JM Smucker Company; General Mills, Inc.; and Safeway, Inc. comprised 0.26% and 0.00%; 0.00% and 1.24%; 0.53% and 0.01%; 0.15% and 0.00% of the MIDANA CAPITAL Equity Fund and the MIDANA CAPITAL Balanced Fund, respectively. Other securities mentioned were not held in the portfolios as of March 31, 2014. The holdings of the Midana Capital may change due to ongoing management of the Funds. References to specific investments should not be construed as a recommendation of a security by the Funds, their advisor, administrator, or distributor.
Stocks will fluctuate in response to factors that may affect a single company, industry, sector, or the market as a whole and may perform worse than the market. Bonds are subject to risks including interest rate, credit, and inflation. The Funds’ environmental criteria limit the investments available to the Funds compared to mutual funds that do not use environmental criteria
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This information has been prepared from sources believed to be reliable. The views expressed are as of the date of this writing and are those of the Advisor to the Funds, as well as the other signatories of this letter.
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