RESOLVED: Shareholders request that Caterpillar commission an independent third-party report, at reasonable expense and excluding proprietary information, assessing the effectiveness of the company’s due diligence process in determining if its operations or customers’ use of its products contribute to violations of its Code of Conduct (CoC) and Human Rights Policy (HRP).
WHEREAS: Caterpillar’s CoC commits the company to respecting human rights across global operations and its HRP is informed by the UN Guiding Principles on Business and Human Rights (UNGPs). 1 Caterpillar’s Slavery and Human Trafficking Statement indicates that slavery is “inconsistent with our Values and will not be tolerated at Caterpillar, or anywhere in our supply chain.” 2 However, investors lack transparency regarding Caterpillar’s compliance with its policies pursuant to the following:
Russian aggression risks: In September, President Putin ordered a ‘partial mobilization,’ requiring organizations in Russia to assist in the conscription of eligible employees and provide material support to the war effort. Caterpillar risks involvement in mobilization efforts through its subsidiaries and distributors, including Caterpillar Eurasia, Caterpillar Tosno, and Caterpillar Distribution, which employed over 2,350 staff and generated $800 million in revenue in 2021 and continue operations in Russia. Caterpillar continues to use Russia as a supply chain route; 3
Value chain risks: In 2020, Caterpillar’s exclusive wholesaler for branded retail clothing received multiple shipments from Chinese companies involved in that government’s forced labor program in Xinjiang. 4 Equipment purchased from Caterpillar and its authorized dealers has long been reported to be used in violations of international law in Myanmar, 5 Occupied Palestinian Territory; 6 7 and Western Sahara; 8
Legal/reputational risks: The U.S. Government is imposing sanctions and trade controls against Russia, 9 Myanmar, 10 and China. 11 The EU and its members are passing mandatory human rights due diligence (HRDD) laws, 12 and companies are being held liable for contributions to violations of international law. 13 Investors, representing $18 trillion in assets under management, view human rights and conflict as material risks, evidenced by public statements on Ukraine, 14 Myanmar, 15 and Xinjiang 16;
1 https://www.caterpillar.com/en/company/governance/political-engagement/human- rights.html
2 https://s7d2.scene7.com/is/content/Caterpillar/CM20210622-bd91e6d42a#:~:text=Slavery%20and%20Human%20Trafficking%20are,training%20on%20an%20annual%20basis
3 https://www.bnnbloomberg.ca/caterpillar-still-ships-through-russia-after-halting-production-1.1737953
4 https://www.axios.com/caterpillar-xinjiang-uighur-labor-a6ec73df-b75e-4aea-ae76-cc8182ad6a3c.html
5 https://swedwatch.org/wp-content/uploads/2020/06/97_Myanmar_200610_uppslag_NY.pdf
6 https://www.hrw.org/news/2004/10/28/human-rights-watch-letter-caterpillar-inc
7 https://www.amnesty.org/en/location/middle-east-and-north-africa/israel-and-occupied-palestinian-territories/report-israeland-occupied-palestinian-territories/
8 https://wsrw.org/en/archive/4380
9 https://www.state.gov/holding-russia-and-belarus-to-account/
10 https://www.state.gov/burma-sanctions/
11 https://www.state.gov/implementation-of-the-uyghur-forced-labor-prevention-act/
12 https://www.business-humanrights.org/en/big-issues/mandatory-due-diligence/
13 https://www.justsecurity.org/78097/corporate-criminal-liability-for-human-rights-violations-france-and-sweden-are-poisedto-take-historic-steps-forward/
14 https://media.businesshumanrights.org/media/documents/Investor_Statement_on_the_Crisis_in_Ukraine_16_May_2022.pdf
15 https://investorsforhumanrights.org/investor-statement-myanmar-human-rights-and-business-activities-supporting-militaryjunta
16 https://investorsforhumanrights.org/sites/default/files/attachments/202103/XUAR%20Investor%20Expectations%20Statement.pdf
Caterpillar and its customers’ activities in conflict-affected and high-risk areas (CAHRA) may result in heightened material risks through potential violations of Caterpillar’s CoC, HRP, and UNGPs. Should Caterpillar subsidiaries participate in the Russian mobilization, it may make the company complicit in war crimes. 17 The International Finance Corporation notes that companies in CAHRA “face business risks that are much greater than those in other emerging markets,” including destruction of physical capital, deaths, and supply-chain disruptions. 18
Caterpillar trails industry peers that have adopted measures to mitigate these risks, including John Deere’s human rights risk-based assessments, 19 Komatsu’s HRDD process, 20 and Volvo’s responsible sales policy. 21
To mitigate risks associated with operations and customers in CAHRA, companies undertake heightened HRDD.
SUPPORTING STATEMENT
Shareholders seek information, at board and management discretion, through a report that:
● Discusses how human rights risks in CAHRA are assessed and addressed; and
● Assesses whether additional policies are needed to avoid contributing to violations in CAHRA.
17 https://fortune.com/2022/10/13/russia-putin-foreign-owned-companies-conscription-campaign-sanctions-ukraine-warinternational-europe-popovych-freeman/
18 https://www.ifc.org/wps/wcm/connect/07cb32dd-d775-4577-9d5f-d254cc52b61a/201902-IFC-FCSStudy.pdf?MOD=AJPERES&CVID=mzeJewf
19 https://s22.q4cdn.com/253594569/files/doc_downloads/support/Support-of-Human-Rights-in-Our-BusinessPractices_2021.pdf
20 https://www.komatsu.jp/en/ir/library/annual/pdf/annual_06b.pdf
21 https://www.volvogroup.com/en/sustainability/social-responsibility/business-ethics/responsible-sales.html