Melissa Forbes

Gerald R. Ford School of Public Policy and Department of Sociology, University of Michigan

Ph.D. Candidate, Public Policy and Sociology

Sustainability and governance are very broad terms. At a minimum, sustainability encompasses a firm's long-term environmental, social and financial performance, while governance is an umbrella term for the processes and structures a company uses to address these sustainability dimensions. Historically, many companies viewed these three areas separately and managed them in isolated silos. This trend has been shifting dramatically over the past several years, however, as more firms have begun identifying connections between environmental and financial performance.

Institutional investors have been a driving force behind this change. A broad range of shareholders – including faith-based investors, public pension funds, foundations, unions and SRI firms – have united on climate change and other corporate governance issues tied to sustainability. Through organizations like Ceres' Investor Network on Climate Risk (INCR) and the Interfaith Center on Corporate Responsibility (ICCR), these investors are pushing U.S. firms to disclose their business risks to climate change and voluntarily adopt greenhouse gas emission (GHG) reduction targets in anticipation of government regulation of GHGs.

Some companies, including Ford, view these shareholders as a source of expertise and seek out their advice on complex environmental and social governance issues. To better understand this phenomenon, I conducted an academic case study on Ford's shareholder engagement with the Sisters of St. Dominic, an order of Dominican nuns in New Jersey. Together with other ICCR and INCR investors, the Sisters have been filing climate change resolutions at the company since 1991. In particular, Sister Patricia Daly, or "Sister Pat," is a well-known shareholder activist described by some at Ford – only half in jest – as part of the management team.

After two years of dialogue with the Sisters and the State of Connecticut Retirement Funds, the shareholders withdrew their climate change resolution after the Company agreed to publish its goal to reduce CO2 emissions from its products in this report. I interviewed Ford managers and the investors to study this relationship and its broader applications for good governance. Ford managers viewed the Sisters as long-term investors who want not just environmental sustainability for the planet but financial sustainability for the Company as well. The relationship between the Company and the nuns is one infused with trust. Both Ford and the Sisters said they are committed to the relationship they have built over nearly two decades.

The relationship goes both ways; Ford has also earned the trust of Sister Pat by demonstrating a willingness to share information with her and other responsible shareholders on issues of climate risk. The case demonstrated an attitude of openness toward shareholders and stakeholders at the Company, as well as an interest among managers in gaining exposure to outside perspectives on sustainability issues.

In Ford's case, responsible investors are viewed as trusted intermediaries who can lend legitimacy to a company's emerging business strategies and communicate information about new initiatives to other activist groups. Both the Company and responsible investors view continued engagement as a win-win situation as Ford moves forward with its sustainability strategies.