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Corporate Engagement, Sustainable Investment Profiles

Banking on Engagement

In many important ways, Minneapolis-based U.S. Bancorp is a socially and environmentally exemplary company: its significant financing of solar projects and low-income housing, its rapid progress against increasingly ambitious greenhouse gas reduction targets, and its major financial commitments to combat racial inequities after the murder of George Floyd. For us, these examples and others have continually reinforced our decision to remain shareholders of U.S. Bancorp for nearly 10 years.

But like every company, U.S. Bancorp is not perfect. Three years ago, we were dismayed to find evidence that primary subsidiary U.S. Bank was among several national banks making loans to at least one gun manufacturer. After further research, we determined based on 2016 filings that U.S. Bancorp was indeed party to a major loan to Vista Outdoor, which at the time manufactured firearms for sale as hunting weapons.

Unfortunately our initial outreach to US Bank, requesting disclosure of the company’s loan exposure to gun manufacturers, went unanswered. Subsequent follow up did produce a limited response, but fell short of the level of dialogue we typically seek when we as shareholders have specific concerns about corporate practices. In the meantime, Vista Outdoor sold its gun business, while continuing to manufacture and sell ammunition. But despite our continued outreach to US Bancorp, we did not feel we were getting closer to answers to our concerns.

In 2021, we decided to leverage our ownership stake to file a shareholder proposal, asking U.S. Bancorp to adopt a comprehensive human rights policy. Our proposal specifically called for a policy with a high level of detail, one that would clearly specify US Bancorp’s approach to risky industries such as firearms, private prisons, and fossil fuels. (Noting that in 2019, U.S. Bancorp said it would no longer finance private prisons.)

The response from U.S. Bancorp to the proposal we filed was gratifying. The company quickly engaged with us and listened to our concerns. By December, our contacts had shared not only a clear Statement on Human Rights, but also a detailed Environmental and Social Risk Policy Statement, specifically disclosing the bank’s approach to lending and business relationships in high-risk industries. The approach is graded into different categories of risk, and includes detailed information on internal due diligence procedures. These documents were soon published on the company’s website, in exchange for the withdrawal of our proposal (whose aims U.S. Bancorp had substantially met).

As is often the case with the shareholder proposal process, in which the SEC stipulates that shareholders may not attempt to manage the “ordinary business” of companies, our most specific goal—disclosure of the bank’s overall exposure to gun manufacturers—has yet to be met. But with the lines of dialogue now open and a strong precedent for cooperation and compromise, we are optimistic that our continued engagement with U.S. Bancorp will ultimately produce a transparent accounting of the bank’s loan exposure to these high-risk industries, so we as investors can track its progress in moving beyond environmentally and socially deleterious business relationships.