Home Depot's Shareholders Should Oppose Board Leadership
One year after shareholders requested the company report on reducing its forest-sourcing risk, Home Depot has failed to address shareholder concerns.
One year ago, nearly two-thirds of Home Depot shareholders approved a proposal requesting that the company “issue a report assessing if and how it could increase the scale, pace, and rigor of its efforts to eliminate deforestation and the degradation of primary forests in its supply chains.” A year of continued unsustainable sourcing later, the Home Depot board of directors still has not responded to the majority-supported shareholder resolution, other than announcing their intent to respond by the end of their fiscal year (which is January 2024).
In response, NRDC and the Environmental Investigation Agency (EIA) are calling on shareholders to oppose Home Depot’s lead director, Gregory Brenneman, and its board chair and CEO, Ted Decker. In a letter to shareholders, NRDC and EIA are also recommending that shareholders request a special shareholder meeting to take place when the company releases its response to the shareholder proposal in order to give shareholders the opportunity determine whether the company has sufficiently addressed its deforestation and forest degradation risks.
Shareholders are right to be concerned about Home Depot’s impact on forests. The company has an insufficient wood sourcing policy dating back to 1999 that fails to prevent sourcing from some of the world’s most critical and at-risk forest regions, driving forest loss and degradation. The cost of these practices is devastating. Deforestation and forest degradation account for approximately 15 percent of global greenhouse gas emissions and contribute significantly to biodiversity loss. Some estimates suggest that ending global deforestation by 2025 is key to limiting global warming to 1.5 ℃, which is the threshold beyond which the impacts and costs of global warming become extremely severe.
Home Depot is implicated in the destruction of the irreplaceable boreal forest in Canada, which is the world’s largest primary forest and most carbon-dense terrestrial ecosystem. Yet each year the logging industry clearcuts more than a million acres of boreal forests, sometimes in violation of the rights of Indigenous communities. Wood from the Congo Basin, home to endangered gorillas and forest elephants, has made its way through supply chains rife with bribery and illicit activity into Home Depot stores. In Indonesia, a forest in Papua nicknamed the “Garden of Eden,” is under threat from illegal logging. Some of that wood was sold by Home Depot. All of this underscores the need for Home Depot to update its outdated policies to proactively mitigate risk.
That Home Depot’s board of directors failed to deliver a response within a year of such a clear investor-led signal is contrary to the accepted standards of responsible corporate governance. The company has announced only its intent to respond by the end of its 2023 fiscal year, which ends in January 2024. Home Depot’s lack of a timely response appears to violate many shareholders’ policies, including those of BlackRock and State Street, which say they may vote against or withhold votes from directors when corporate boards have not been responsive to shareholder proposals that receive majority or substantial support.
The Home Depot’s non-response is cast in a particularly stark light when compared to the actions of their main competitor, Lowe’s, in the same time frame. Lowe’s was subject to a similar shareholder proposal last year that the filing investor ultimately withdrew in exchange for Lowe’s issuing its own report outlining its plans to mitigate deforestation and forest degradation risks in its supply chain. While Lowe’s report had many shortcomings, it is notable that it was released at the end of 2022.
Failing to assess and mitigate deforestation and degradation in the company’s supply chain exposes the company to supply chain risks, reputational risks, financial risks and competitive risks. In addition, the company’s regulatory risk has increased in the past year because of a changing policy landscape that could affect The Home Depot. For example, the New York State Senate passed a bill this spring that would set a procurement standard prohibiting the state to purchase from companies fueling tropical deforestation and degradation. Similarly, Colorado’s governor issued an executive order last year to mitigate deforestation and degradation in its procurement. And, this year the EU passed a groundbreaking regulation prohibiting trade of forest commodities that contribute to deforestation and degradation.
Even The Home Depot itself acknowledges that failing to respond to shareholder concerns is contrary to the company’s values. In a display of hypocrisy, page 38 of the 2023 Proxy Statement states, “we believe that failing to be responsive to such a significant majority shareholder vote in the absence of a material change in circumstances would not align with our history of responsiveness to shareholder feedback, our values, or our corporate governance practices.” This statement referred to a different shareholder proposal that received fewer votes than the proposal to address deforestation and forest degradation.
The best action for shareholders to take is to Vote No on re-electing The Home Depot’s Board Chair and CEO, Edward P. Decker, and Lead Director Gregory D. Brenneman. Mr. Decker has been the company’s CEO and board chair since last year, while Mr. Brenneman has served on Home Depot’s board since 2000 (a length of tenure that in and of itself has drawn shareholder scrutiny with a resolution filed this year). Both men bear responsibility for guiding and overseeing the board’s response to the 2022 shareholder proposal, and therefore deserve to be held accountable.
Ultimately, the leaders of The Home Depot’s board of directors are responsible for neglecting to mitigate deforestation and degradation associated risks; to respond to their shareholders; and to make an effort to limit the company’s negative impact on the world’s forests, which are essential for protecting our climate, biodiversity, and people.
Allowing further delay demonstrates the company’s failure to take seriously the risks that investors so clearly indicated were important in last year’s shareholder vote, and sets a problematic precedent for corporations to ignore investor signals and sidestep accountability. And perhaps more importantly, it means more time where The Home Depot’s policies allow the company to fuel deforestation and forest degradation.
The Home Depot’s shareholders must underscore the clear message they sent last year that fueling deforestation and forest degradation is unacceptable by opposing the re-election of Mr. Decker and Mr. Brenneman at their annual shareholder meeting.