NOTICE OF EXEMPT SOLICITATION
NAME OF REGISTRANT: Caterpillar Inc.
NAME OF PERSON RELYING ON EXEMPTION: General
Board of Pension and Health Benefits of The United Methodist Church, Incorporated in Illinois d/b/a Wespath Benefits and Investments
ADDRESS OF PERSON RELYING ON EXEMPTION: 1901
Chestnut Ave, Glenview, IL 60025
| To: | Caterpillar Inc. Shareholders |
| Subject: | 2022 Proxy Statement—Item No. 6: Report on Activities
in Conflict-Affected and
High-risk Areas |
| Contact: | Jake Barnett, Director of Sustainable Investment Stewardship, Wespath Benefits and Investments, jbarnett@wespath.org |
Written materials are submitted pursuant to Rule 14a-6(g)(1) promulgated under
the Securities Exchange Act of 1934.
Wespath Benefits and Investments urge shareholders to vote FOR
Proxy Item No. 6, Report on Activities in Conflict-Affected Areas. The proposal will
be voted on at the June 8, 2022 Annual Meeting of Caterpillar, Inc. (“Company”).
Resolved
Shareholders
request that Caterpillar assess and report to shareholders, at reasonable expense and excluding proprietary information, on the company’s
approach to mitigating the risks associated with business activities in conflict-affected and high-risk areas (CAHRA) as called for by
the UN Guiding Principles on Business and Human Rights (UNGPs).
As long-term shareholders
in Caterpillar, filers of this resolution are requesting additional transparency into the Company’s approach to mitigating risks
associated with CAHRA.1 We find the current disclosure insufficient for shareholders
to consider and identify salient issues that may result in material legal, reputational and financial risks to the Company. This includes
the ability of shareholders to examine the adequacy of human rights-related risk mitigation measures implemented by the Company.
_____________________________
1 OECD, “OECD Due Diligence Guidance for Responsible Supply Chains
of Minerals from Conflict-Affected and High-Risk Areas: Second Edition,” OECD Publishing, March 20, 2013, http://dx.doi.org/10.1787/9789264185050-en
(accessed April 18, 2022).
Company Response Inadequate
The Company is exposed to heightened material risks—legal,2
reputational3 and financial4—based on its operations in CAHRA. The Company’s operations in CAHRA present
human rights risks and financial risks that manifest through the usage of its equipment and/or supply chain relationships with states
and state-affiliated companies violating international humanitarian law (IHL) and international human rights law (IHRL) (e.g., Belarus,5
China (Xinjiang Uyghur Autonomous Region [XUAR]),6 Occupied Palestinian Territories (OPT),7,8 Russia,9
Western Sahara10), sanctioned regimes (e.g., Iran,11 Sudan,12 Syria13), and companies involved
in conflict financing (e.g., in Myanmar14).
_____________________________
2 Victoria
Riello and Larissa
Furtwengler, “Corporate Criminal Liability for International Crimes: France and Sweden
are Poised to Take Historic Steps Forward,” Just Security, September 6, 2021, https://www.justsecurity.org/78097/corporate-criminal-liability-for-human-rights-violations-france-and-sweden-are-poised-to-take-historic-steps-forward/
(accessed April 18, 2022).
3 Money Control, “Adani
Ports falls 2% after Nordic fund KLP divests from Myanmar project over links to military,” Money Control, June 23, 2021,
https://www.moneycontrol.com/news/business/stocks/adani-ports-falls-2-after-nordic-fund-klp-divests-myanmar-project-over-links-to-military-7075281.html
(accessed April 18, 2022).
4 Che Pan, “Huawei
says US sanctions cause US$30 billion annual loss in its smartphone business,” South China Morning Post, September 24, 2021,
https://www.scmp.com/tech/tech-war/article/3150036/huawei-says-us-sanctions-cause-us30-billion-loss-its-handset-revenue
(accessed April 18, 2022).
5 Business & Human Rights Resource
Centre, “Belarusian activists urge companies engaged with Belarus Government to take immediate action in response to ongoing human
rights violations, incl. company responses,” Business & Human Rights Resource Centre, May 31, 2021, https://www.business-humanrights.org/en/latest-news/belarusian-diaspora-urges-companies-engaged-with-belarus-govt-to-take-immediate-action-in-response-to-ongoing-human-rights-violations-incl-company-responses/
(accessed April 18, 2022).
6 Bethany Allen-Ebrahimian, “Exclusive:
Caterpillar sourced clothes from Xinjiang factory involved in coercive labor,” Axios, June 30, 2020, https://www.axios.com/caterpillar-xinjiang-uighur-labor-a6ec73df-b75e-4aea-ae76-cc8182ad6a3c.html
(accessed April 18, 2022).
7 Sarah Leah Whitson, “Human
Rights Watch Letter to Caterpillar, Inc.,” Human Rights Watch, October 28, 2004,
https://www.hrw.org/news/2004/10/28/human-rights-watch-letter-caterpillar-inc
(accessed April 18, 2022).
8 Amnesty International, “Israel
& Occupied Palestinian Territories Report,” Amnesty International, 2021, https://www.amnesty.org/en/location/middle-east-and-north-africa/israel-and-occupied-palestinian-territories/report-israel-and-occupied-palestinian-territories/
(accessed April 18, 2022).
9 Joe Deaux, “Caterpillar
Quietly Uses Russia as Shipping Route After Pullback,” Bloomberg, March 15, 2022, https://www.bloomberg.com/news/articles/2022-03-15/caterpillar-still-ships-through-russia-after-halting-production#:~:text=Caterpillar%20Inc.%20continues%20to%20use,already%2Dfragile%20global%20supply%20chains.
(accessed on April 18, 2022).
10 Western Sahara Resource Watch,
“Caterpillar trucks carry conflict minerals,” Western Sahara Resource Watch, May 7, 2020, https://wsrw.org/en/archive/4380
(accessed April 18, 2022).
11 Matt Buedel, “Caterpillar
raid resurrects U.S. sanctions questions,” Journal Star, April 3, 2017, https://www.pjstar.com/story/business/2017/04/03/caterpillar-raid-resurrects-u-s/21597323007/
(accessed April 18, 2022).
12 Ibid.
13 Ibid.
14 Therese Sjöström
Jaekel, “Still Overlooked: Communities affected by jade mining operations in Myanmar,
and the responsibilities of companies providing machinery,” Swedwatch, June 10, 2020,
https://swedwatch.org/wp-content/uploads/2020/06/97_Myanmar_200610_uppslag_NY.pdf
(accessed April 18, 2022).
In the Statement of
Opposition to our resolution, Proposal 6, Caterpillar states in their proxy statement that they believe
they are providing adequate disclosure related to human rights risk:
In addition to our
Code of Conduct, Caterpillar has adopted a Supplier Code of Conduct and a Human Rights Policy that is informed by and incorporates many
elements of internationally recognized human rights standards, including the Universal Declaration of Human Rights. Implementation of
this policy includes an ongoing assessment of the impact our operations have on human rights, due diligence, performance tracking, mechanisms
to report grievances and remediation processes. [. . .] Caterpillar will assess and escalate human rights issues and concerns regarding
our business activity within the informed context of law, policy and our Code of Conduct, and when doing so, we will act in accordance
with our Values in Action.
The Company also states that its Human Rights Policy is informed by the UNGPs, the
authoritative set of standards on companies’ responsibility to respect human rights. However, the UNGPs call on businesses to conduct
enhanced due diligence measures in conflict-affected areas because of the heightened risk for gross and widespread human rights abuses
when engaging in business activity in CAHRA. The Company has not provided sufficient evidence to investors that demonstrates it is conducting
this due diligence in a manner that aligns with the UNGPs principle of transparency.
In 2016, the Company signaled
progress in assessing human rights risk by conducting an impact assessment that identified nine salient human rights issues and by including
human rights-related questions in its Supplier Code of Conduct self-assessment process.15 However, the Company did not disclose
its findings related to those issues. It limited its description of salient issues to one-to-two sentences for each human rights issue
identified and elected not to disclose responses from its suppliers for questions related to human rights. Additionally, the Company did
not disclose these and other UNGP-aligned human rights due diligence (HRDD) measures in successive Company sustainability reports, indicating
a lack of current attention and practice, even as Caterpillar expands further into CAHRA.
Lack of Transparency
on Risk Mitigation in CAHRA Needs to be Better Addressed
In spite of the Company's
stated policies and practices referenced above, over the years numerous violations of IHL, IHRL, and the Code of Conduct involving the
Company’s equipment supplied by Caterpillar-licensed dealers have been brought to the Company’s attention by multilateral
institutions, civil society organizations and news organizations. The Company has not addressed these concerns or provided adequate transparency.
If the Company has implemented any responsive measures aligned with the Company’s Code of Conduct,16 they have not communicated
the appropriate remedies to shareholders. This lack of responsiveness to material stakeholder concerns
is quantified by the Company’s 40 percent response rate to the Business & Human Rights Resource Centre (BHRRC).17
The “Company Response Mechanism” process developed by BHRRC, a source of transparency for investors and other stakeholders,
is intended to elevate concerns from civil society to corporate attention, so a company can then address or clarify their position related
to these concerns. Example topics of inquiry include:
_____________________________
15 Caterpillar, “Supplier Code of Conduct,” https://www.caterpillar.com/en/company/working-together/suppliers/supplier-conduct.html
(accessed April 18, 2022).
16 Caterpillar, “Code of Conduct,” https://www.caterpillar.com/en/company/code-of-conduct.html
(accessed April 18, 2022).
17 Business & Human Rights Resource Centre, Caterpillar, 2022,
https://www.business-humanrights.org/en/companies/caterpillar/
(accessed April 18, 2022).
| ● | China (XUAR). It was reported in July 2020 that Summit Resource
International, the exclusive wholesaler for Caterpillar-branded men and women’s retail clothing, received “tens of thousands
of pounds” of Caterpillar Triton jackets and Trademark trousers from two Chinese garment companies involved in a governmental forced
labor program targeting the minority Uyghur community.18 While the Company’s Slavery and Human Trafficking Statement19
commits to assessing impacts across their supply chain from forced labor, and the Company’s Human Rights Policy20 states
they “do not condone and strive to eliminate all forms of forced labor,” the Company has yet to respond to these reports.
|
| ● | Myanmar: In 2018
and 2020, Swedwatch, an independent non-profit organization that
reports on business relations in developing countries, reported on the use of the Company’s machinery
in the jade mining industry in Kachin State. The Kachin state is the site of 90% of the world’s jade supply and has also been impacted
by an ongoing decades-long civil war. Swedwatch details the human rights risks associated with jade mining, which includes deaths from
landslides, loss of land and livelihoods, drug abuse, and commercial sexual abuse of women and girls. The
report also outlines the complicit role played by Myan Shwe Pyi Tractors Limited (MSP CAT), which describes itself as Myanmar’s
“premier Caterpillar dealership.” Swedwatch also provides details concerning MSP CAT’s ties to a U.S.-sanctioned narcotics
kingpin.21 The Company has yet to respond to these reports. |
| ● | OPT and Western Sahara: Based on IHL, occupying powers like Israel and Morocco may not appropriate
or destroy property, and/or exploit natural resources in occupied territories except in the case of military necessity or with the consent
of the occupied populations and for their exclusive benefit. By providing equipment to the Israel Defense Forces for the demolition of
Palestinian houses, villages, infrastructure and agricultural land,22 and to Moroccan state-owned Office
Chérifien des Phosphates (OCP Group) for the extraction of phosphate from Western Sahara, the Company may be at risk of
contributing to violations of IHL. In spite of decades-long engagement from investors and civil society concerning human rights risks
in the OPT and more recently concerning Western Sahara, the Company’s response has been limited to referencing its contract with
the U.S. government to provide D9 bulldozers to the Israeli government, without providing further details
on its equipment use. |
| · | Russian
Federation: The Company announced on March 9, 2022, its decision to suspend operations in its Russian manufacturing facilities. However,
according to news reports, the Company continues to use Russia as a supply chain route for parts and equipment related to construction,
mining, and oil and gas.9 An effective human rights policy and corresponding practices would allow investors to assess
the ways in which exposure to Russia through both manufacturing and commercial transit may contribute to Russia’s human rights-violating
behavior in Ukraine, including through financing (e.g., taxes, fees, revenue). Currently, the Company’s rationale for staying in
Russia does not make reference to potential human rights harms or the Company’s Human Rights
Policy. |
_____________________________
18 Bethany Allen-Ebrahimian , “Exclusive:
Caterpillar sourced clothes from Xinjiang factory involved in coercive labor,” Axios, June 30, 2020, https://www.axios.com/caterpillar-xinjiang-uighur-labor-a6ec73df-b75e-4aea-ae76-cc8182ad6a3c.html
(accessed on April 18, 2022).
19 Caterpillar, “Slavery and Human
Trafficking Statement,” https://s7d2.scene7.com/is/content/Caterpillar/CM20180625-31685-62307?&_ga=2.232520285.331326139.1648731615-1656191684.1645463976
(accessed on April 18, 2022).
20 Caterpillar, “Human Rights,” https://www.caterpillar.com/en/company/governance/political-engagement/human-rights.html
(Accessed on April 22, 2022).
21 Therese Sjöström, “Overlooked and Undermined: Communities
affected by jade mining operations in Myanmar, and the responsibilities of companies providing machinery,” Swedwatch, June
20, 2018, https://swedwatch.org/wp-content/uploads/2018/06/91_Myanmar_FINAL_uppslag_180618.pdf
(accessed on April 18, 2022).
22 Who Profits, “Caterpillar,” 2020, https://whoprofits.org/company/caterpillar/
(accessed on April 18, 2022).
The above practices demonstrate
that Caterpillar is lagging industry peers that have adopted policies and practices to help mitigate human rights risks. Notable examples
include John Deere’s human rights risk-based and supply chain sustainability assessments and employee training,23 Komatsu’s
human rights due diligence process,24 and Volvo’s responsible sales policy.25 All of these examples demonstrate
better transparency and governance related to IHL and IHRL in CAHRA when compared to Caterpillar’s current practices.
Additional transparency
and disclosure is critical information for investors as governments increasingly recognize the need for non-financial reporting on risk
exposure, as evidenced by the European Commission on corporate due diligence and the U.S. Securities and Exchange Commission’s Climate
and ESG Task Force in the Division of Enforcement. This heightened government attention to environmental, social and governance (ESG)
issues, and human rights specifically, raises risks for companies like Caterpillar that operate in CAHRA without providing strong disclosure
and transparency relating to their risk mitigation practices.
In closing, without a
report that analyzes the Company’s increased human rights risks, other material risks specific to operating in CAHRA, and the development
of policies and practices, investors cannot assess the Company’s alignment to the UNGPs and the extent to which the Company is exposed
to heightened legal, reputational and financial risks.
We therefore urge shareholders
to vote FOR Item 6.
For further information,
please contact Jake Barnett at jbarnett@wespath.org.
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CONTEMPLATE SUCH AN EVENT. TO VOTE YOUR PROXY, PLEASE FOLLOW THE INSTRUCTIONS ON YOUR PROXY CARD.
_____________________________
23 John Deere, “Support of Human Rights in
Our Business Practices,” John Deere, 2022, https://s22.q4cdn.com/253594569/files/doc_downloads/support/Support-of-Human-Rights-in-Our-Business-Practices_2021.pdf
(accessed April 18, 2022).
24 Komatsu, “Human Rights Policy,” Komatsu,
2022, https://www.komatsu.jp/en/ir/library/annual/pdf/annual_06b.pdf,
(accessed April 18, 2022).
25 Volvo, “Responsible Sales,” Volvo,
2022, https://www.volvogroup.com/en/sustainability/social-responsibility/business-ethics/responsible-sales.html
(accessed April 18, 2022).
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