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Nov 24, 2021

Costco faces shareholder proposal on food equity

Measure seeks report on ‘links between structural racism, nutrition insecurity and health disparities’

Shareholders in Costco Wholesale Corporation appear set to vote on a proposal seeking disclosure on connections between structural racism and food equity.

Specifically, the proposal asks that the company’s board prepare a report describing: ‘[I]f, and how, Costco applies its sustainability commitment to its core food business to address the links between structural racism, nutrition insecurity and health disparities. The report may include systems Costco has in place to address racial justice and food equity concerns through product development, marketing and distribution.’

The SEC has rejected a request from the company for no-action relief if it excludes the proposal from its 2022 proxy statement. Costco has not yet filed its proxy statement and the proposal could be withdrawn if the proponent agrees to do so. The company’s 2021 AGM took place in January.

The American Baptist Home Mission Society, lead filer of the proposal, says in a letter to Costco that last December it wrote to the company seeking engagement on racial justice and food equity concerns but did not receive a written response.

The society writes in supporting materials with the proposal: ‘The Covid-19 pandemic amplified the impacts of structural racism and inequality in the food system, leading to higher rates of food insecurity and health disparities among communities of color. As the fifth-largest food retailer in the [US], Costco has an opportunity to use its leverage to advance racial justice and nutrition equity objectives through its core business.

‘While Costco’s sustainability commitment includes an ambition to ‘make a positive contribution to the health of the communities where we do business’ and Costco’s corporate philanthropy objectives include ‘economic development in communities of color’, it is not evident whether these same principles are applied to Costco’s food business model.’

According to the society, Costco publishes sustainability goals for its food products that address social and environmental impacts in its supply chain but the goals do not include explicit targets for increasing access to healthy food in the communities where it operates.

‘Investors lack information about the extent to which Costco is prioritizing healthy food products or addressing racial disparities in access to nutrition when it makes decisions about how to promote different grocery products and food court offerings in its warehouses,’ the society adds.

Costco requested that the SEC give it no-action relief to exclude the proposal from its proxy materials on the grounds of Rule 14a-8(i)(10) that the company has ‘substantially implemented’ it. The company states in its request that it has published on its website a report on food security that describes the actions Costco takes to enhance food security for people by improving access to ‘affordable and nutritious food and by its philanthropic efforts.’

According to Costco, the report includes data on its core food business regarding fresh produce and organic foods, including statistics on how the value of these foods compare with supermarkets, and highlights Costco’s participation in the federal benefit Supplemental Nutrition Assistance Program.

‘Rather than focus in the report on food security [for] each of [the] potential groups that may be at risk, either based on race or otherwise, Costco highlights how its healthy food offerings and philanthropic efforts overall help to reduce food insecurity for these populations,’ the company writes.

The SEC did not agree that Rule 14a-8(i)(10) provides a basis to exclude the proposal.

The society’s proposal comes in the wake of several votes this year on proposals seeking to have companies conduct racial equity audits. The SEC has not accepted arguments from companies seeking to exclude those racial equity audit proposals, and support for them has varied from percentages in the teens to more than 40 percent – a figure widely seen as significant, particularly for a first-time proposal.

The potential impact of such proposals was highlighted last month when Citigroup agreed to have a third party conduct a racial equity audit of the bank. The announcement came six months after a significant number of its shareholders – though not a majority – voted for such a step.

A request for comment from Costco was not returned immediately.

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...