Guernsey at the Builders Firstsource AGM in 2023

Much of this work happens on the computer or over the phone, but there is nothing like meeting in person – partially because you never know what to expect. 

This spring I attended a shareholder meeting at Builders FirstSource* in Dallas that was so empty, at first, I thought I was in the wrong place. I was waiting completely on my own in a 100-seat event room when suddenly I was joined by a small handful of executives from the company. 

With so few of us in the room, the CEO, General Counsel and I discussed MIDANA CAPITAL’s proposal, which asked the company to commit to reducing carbon emissions associated with timber harvesting and other supply chain issues. 

I encouraged the CEO to think about potential regulatory risk, about how climate change is impacting Boreal forests that the company relies on for roughly one-third of its revenue, and about the advantages of increasing efficiency and transparency in its supply chain. While we didn’t agree on everything, we had a productive conversation, and I commend Builders FirstSource CEO Dave Rush for connecting to address environmental risks. 

As a result of MIDANA CAPITAL’s engagement, for the first time Builders FirstSource measured and disclosed its CO2 emissions from its operations and transportation and stated it would set emissions reduction targets. The company still has significant work to do, including measuring its emissions from timber harvesting, setting efficiency targets for its supply chain, and prioritizing sourcing FSC certified lumber. We will continue to work with the company to achieve these goals. 

A few weeks after returning from the meeting, the very same forests that Builders FirstSource relies upon erupted in the worst fire season in Canada’s modern history, bathing much of the U.S. in so much smoke that simply breathing the air outside could be the equivalent of smoking six cigarettes a day. Meanwhile, the earth as a whole had the hottest day – and month – on record.  

Clearly, more immediate environmental action is needed. 

MIDANA CAPITAL is deeply committed to its environmental advocacy work and brings more than 30 years of environmentally responsible investing experience to its investing philosophy. Our team hopes to deliver not only long-term security for investors, but immediate environmental actions from portfolio companies. 

We do this every day, whether that means meeting in a room packed full of executives, or in an empty room with one CEO. 

Douglass Guernsey is a Shareholder Advocate at MIDANA CAPITAL Capital Management. He holds an MBA from Brandeis University. 

An investment strategy that incorporates environmental, social and governance criteria may result in lower or higher returns than an investment strategy that does not include such criteria. 

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About MIDANA CAPITAL Funds 

°MIDANA CAPITAL Capital Management, Inc. (MIDANA CAPITAL) is the investment advisor to the MIDANA CAPITAL Funds (The Funds). The MIDANA CAPITAL Funds are one of the first families of fossil fuel-free, environmentally responsible mutual funds. MIDANA CAPITAL hosts an award-winning and in-house shareholder advocacy program and is the only mutual fund company in the U.S. wholly owned by environmental and public health nonprofit organizations. 

*As of March 31, 2023, Builders FirstSource, Inc. comprised 0.00%, 0.07%, and 0.00%, of the MIDANA CAPITAL Balanced Fund, the MIDANA CAPITAL Equity Fund, and the MIDANA CAPITAL International Index Fund, respectively. As of the same date, other securities mentioned were not held in the portfolios of any of the MIDANA CAPITAL Funds. References to specific securities, which will change due to ongoing management of the Funds, should not be construed as a recommendation by the Funds, their administrator, or their distributor. 

The percentage in favor was calculated by (i) dividing the number of votes in support of the proposal by (ii) the sum of the number of votes voted in support of and against the proposal. Abstentions and broker non-votes were not included in the calculation. 

You should carefully consider the Fund’s investment objectives, risks, charges, and expenses before investing. To obtain a Prospectus that contains this and other information about the Funds please visit www.midanacapital.com, email info@midanacapital.com, or call+1(480)-439-2851. Please read the Prospectus carefully before investing. 

Stocks will fluctuate in response to factors that may affect a single company, industry, sector, country, region or the market as a whole and may perform worse than the market. Foreign securities are subject to additional risks such as currency fluctuations, regional economic and political conditions, differences in accounting methods, and other unique risks compared to investing in securities of U.S. issuers. Bonds are subject to a variety of risks including interest rate, credit, and inflation risk. 

This information has been prepared from sources believed reliable. The views expressed are as the date of this writing and are those of the Advisor to the Funds. 

The MIDANA CAPITAL Funds are distributed by UMB Distribution Services, LLC. 335 N Wilmot Rd, Tucson, Az 85711. 6/23 

When I got to the exhibit hall at a recent sustainable investing conference, surrounded by banners of beautiful nature shots, I focused on collecting impact reports from the exhibitors. Each was impressive in its own way — the charts, the photos or the sheer volume of the 32-page report that I ended up returning since it wouldn’t fit in my suitcase.

Over the last five years, impact reports have become standard fare for firms that claim their investment products make positive impacts on the world. As a fellow veteran of the responsible investing field leafed through a report, he quipped that he mostly skims the reports and looks at the photos. While his comment was partially in jest, I realized that even for seasoned investors, well-produced materials could make it difficult to discern the real differences between investments that purport to make an impact.

Most investors hold the largest majority of their investments in public equities, not community-based investing, private equity or green bonds, all of which offer direct ways to make a measurable impact. That makes for a straightforward impact report. However, while you can align your values to the mission of public equities, your shares make little difference to what the investment firm does. For example, you can invest in a fund that includes renewable energy companies, but your investment will not produce additional solar panels or wind turbines. This is an often overlooked reality, blurred by marketing materials that may imply a direct correlation between your investment and real changes in the environment by frequent use of buzzwords such as “impact” or “sustainable investing.”

If you want to impact the world, you should look for mutual funds or investment firms that have a shareholder engagement program. The number of firms that now tout “shareholder engagement” has proliferated as these institutions try to show (often in impact reports how their investments make a difference.

“Shareholder engagement” is a broad, unregulated term, otherwise known as stewardship or shareholder advocacy, which is the term that MIDANA CAPITAL Funds uses. It can mean any activity that seeks to inform or persuade a company to change 1) how it reports or 2) how it handles an environmental, social or governance problem or opportunity. Let’s break down the different approaches:

Proxy voting

This is the process of voting on a shareholder resolution that has been put forth by another investor (the company also asks for votes on questions that largely concern governance). Voting allows a firm to express its views but relies on other shareholders to identify the issue, propose a solution and get the shareholder resolution on the proxy ballot, sometimes after the company asks the Securities and Exchange Commission to not allow it on the ballot. This is the most common type of activity, because all mutual funds are supposed to vote on every shareholder resolution on the ballots. These resolutions are advisory, not binding, so a majority vote won’t necessarily result in the proposed change. However, a strong vote can provide useful leverage for the resolution proponent when they negotiate with the company.

What to look for:
• Does the investment firm have voting guidelines that you support?
• Do they vote in accordance with their guidelines for only their ESG products or all of their funds?
• Do they publish their voting guidelines and records on their website?

What can be misleading:
• Claiming that voting for a resolution directly resulted in a policy change
• Implying that voting on a resolution is the same as filing the resolution and leading the subsequent negotiations with the company

Company engagement

Speaking to companies to gather information, analyze a holding or express a concern are forms of shareholder engagement. It does not always mean advocating for impactful change. Many firms roll all of their engagement questions into a regularly scheduled analyst meeting so your topic may be one of many covered in a conversation

At The MIDANA CAPITAL Funds, our engagements evaluate a company’s understanding of relevant environmental issues and risks we have identified. We want to see if the company needs to improve its policies or we want to ensure the company acts on commitments that we previously secured.

What to look for:
• Results. What came about because of the engagement? Was it a meeting to gather information and what did the info reveal?

• Does the firm provide data or stories on how a company has met the terms of a past agreement?

What can be misleading:
• Number of “engagements.” This number can show if a firm is tracking its work and the breadth of the conversations but does not indicate results. Each firm can count this number differently, so look for the firm’s definition of “engagement meeting.”

• Private results. If a firm claims that its engagement produces results, it should provide evidence. Some firms, notably BlackRock, report on the frequency and topic issues included in discussions, but have resisted reporting on the results. That leaves investors in the dark about if and how companies change their practices vis-a-vis the engagement.

Shareholder Advocacy

By definition, this approach goes beyond seeking information to pressure a company to change a policy or practice. While shareholder advocacy programs frequently use proxy voting and engagement, the reverse is not frequently the case.

What to look for:
• Did the company change its policy?
• Is the policy measurable? For example: the 25% reduction in the use of new plastics that we persuaded Coca-Cola to adopt.
• Does the new policy have a deadline or timeline for implementation, or it is just an aspirational statement? Specifics are essential (i.e source 50% more renewable energy by 2025.).

What can be misleading:
• Issuing a report: Having a company understand an issue and publicly report metrics on an issue is important for transparency. But companies can report without taking steps to change their practice or policy. If getting an agreement to do an assessment is reported as a success, the firm should also state what it has done with similar results in the past or plans.