STYLE="font: 10pt Times New Roman, Times, Serif">
NAME OF REGISTRANT:
Builders FirstSource,
Inc.
NAME OF PERSON RELYING ON EXEMPTION:
Green
Century Equity Fund
ADDRESS OF PERSON RELYING ON EXEMPTION:
114 State Street, Suite 200, Boston, MA 02109
Written materials are submitted
pursuant to Rule 14a-6(g)(1) promulgated under the Securities Exchange Act of 1934. Submission is not required of this filer under
the terms of the Rule but is made voluntarily in the interest of public disclosure and consideration of these important issues.
Shareholder Proposal No. 4 on Builders FirstSource,
Inc.’s 2022 Proxy Statement:
Adopt Greenhouse Gas Emissions Reduction Targets
Builders FirstSource, Inc. Symbol: BLDR
Filed by: Green Century Equity Fund
Green Century Capital Management, Inc., the investment
advisor to the Green Century Equity Fund, seeks your support for the climate-related proposal filed at
Builders FirstSource Inc.
(hereby referred to as “the Company”) in the 2022 proxy statement asking the Company to adopt short, medium, and long-term
science-based greenhouse gas emissions reduction targets, inclusive of emissions from its full value chain, in order to achieve net-zero
emissions by 2050 or sooner and to effectuate appropriate emissions reductions prior to 2030. The Proponent believes taking such action
would serve the long-term interests of the Company by mitigating potential supply chain and operational risks and while addressing shareholder
concerns.
Resolved:
Shareholders request that Builders
FirstSource adopt short, medium, and long-term science-based greenhouse gas emissions reduction targets, inclusive of emissions from its
full value chain, in order to achieve net-zero emissions by 2050 or sooner and to effectuate appropriate emissions reductions prior to
2030.
Supporting Statement:
In assessing targets,
proponents recommend, at management’s discretion:
· | Consideration of approaches used by advisory groups such as the Science Based Targets initiative; |
· | Adopting emissions reduction targets inclusive of all GHG Protocol-defined sources of Scope 3 emissions—including from deforestation and forest degradation—that align with limiting temperature increases to 1.5° Celsius; |
· | Within the Company’s operations, setting goals for renewable energy sourcing, energy efficiency improvements, and transitioning to zero emissions vehicles. |
RATIONALE FOR A “YES” VOTE
1. | Supply chain risk – Physical risks caused by climate may impact the health of forests from which Builders FirstSource obtains its wood. Additional pressures caused by deforestation and primary forest degradation may impact lumber and sheet lumber supply and have a substantive financial or strategic impact on the Company. |
2. | Operational risk – Increasing frequency and strength of severe weather events associated with climate change may disrupt in-store sales, manufacturing of building materials, and on-site construction activities leading to decreased revenue. |
3. | Failure to meet investor expectations for climate risk mitigation – Investors are expecting companies to set targets for mitigating climate risk, such as setting science-based greenhouse gas emission reduction targets aligned with achieving net-zero emissions by 2050 and limiting warming to 1.5 degrees Celsius. |
This is not a solicitation
of authority to vote your proxy. Please DO NOT send us your proxy card; Green Century Equity Fund is not able to vote your proxies, nor
does this communication contemplate such an event. Green Century Equity Fund urges shareholders to vote for Proposal No. 4 following the
instruction provided on the management’s proxy mailing.
INTRODUCTION
In 2018, the Intergovernmental Panel on Climate
Change (IPCC) advised that greenhouse gas emissions must be reduced 45% by 2030 and reach net zero by 2050 to limit warming to 1.5°
Celsius, prevent the worst consequences of climate change and meet the goals of the Paris Agreement.
1
A more recent IPCC
report
2
finds that climate change will likely lead to “widespread, pervasive impacts to ecosystems” that can
be increasingly attributed to human causes.
3
The report further states, with high confidence, that “economic damages
from climate change have been detected in climate-exposed sectors” making specific reference to impacts on forestry.
4
Timber
and wood products are among the leading drivers of deforestation
5
and forest degradation
.
6
Deforestation and forest degradation are responsible for approximately 15 percent of global greenhouse gas emissions and are the second
leading cause of global warming, second only to the burning of fossil fuels
.
7
Greenhouse
gas emissions from Builders FirstSource’s operations and upstream and downstream sources, contribute to a warming climate which
is leading to increasingly severe weather in many parts of the United States and Canada
.
8
By failing to reduce its own emissions, the Company may be elevating its own supply chain and operational risks. In furtherance of reducing
its risk, Builders FirstSource could play a more active role in protecting the forests from which its sources its wood products. However,
the Company has not yet seized the opportunity to mitigate its climate risk, implement strong forest stewardship policies, or reduce its
emissions with the scope, rigor and urgency that climate experts say is needed.
9
Builders FirstSource does not account for supply
chain risk from deforestation or forest degradation. Quantifying its forest-related emissions would help the Company better understand
its risks.
Builders FirstSource derives a significant amount
of its profit from selling lumber and lumber sheet goods. In 2021, lumber and lumber sheet goods represented 42.3% of Company’s
total net
sales
10
and in 2020 the figure was 36%.
11
A changing
climate has the potential to significantly disrupt the Company’s lumber supply chain because, according to the US Environmental
Protection Agency, “a changing climate may worsen many of the threats to forests, such as pest outbreaks, fires, human development,
and drought” as well as cause “extreme precipitation and flooding.”
12
Despite this, the Company has not quantified emissions
resulting from timber harvesting or overall forest management, nor has it acknowledged in its 10-K that climate change may threaten the
forests from which it sources lumber.
13
Builders FirstSource could proactively manage this risk by implementing a no deforestation/forest
degradation policy, which would signal to suppliers that maintaining healthy and resilient forests is a priority for the Company.
Lowe’s, a Builders FirstSource competitor,
discloses that physical risks from increased ecosystem vulnerability may impact timber supply and have a substantive financial or strategic
impact on the business, noting that the probability of experiencing these impacts is “more likely than not,” and that potential
revenue losses could range between at 180 to 220 million dollars.
14
Builders FirstSource’s current strategy
of managing its wood product supply chain risk through third party certification of sustainable forest management practices may not be
adequate to mitigate its risk. The Company notes in its 202110-K that approximately 90% of its purchased wood was certified as sustainably-sourced
by the Sustainable Forestry Initiative (SFI) and that it “prioritize[s] sourcing Sustainable Forestry Initiative (“SFI”)
certified wood.”
15
However, SFI certification is increasingly considered
an insufficient safeguard to ensure sustainability, particularly in at-risk geographies. A recent assessment of the SFI by the Natural
Resources Defense Council entitled “SFI Offers Greenwashing of Unsustainable Logging” notes that the organization’s
standards, updated as recently as 2022, fail to protect primary forests (i.e. forests that have never been logged), and points out that
the “SFI Certified Sourcing” label covers wood products from logging operations without any SFI-certifications (or stronger
certifications) to bear the SFI logo, as long as certain vague requirements are met.
16
This means Builders FirstSource may
be sourcing wood products associated with deforestation or forest degradation.
A more credible certification label is offered
by the Forest Stewardship Council (FSC), which was created in the 1990s by environmental groups, human rights organizations, and forestry
companies.
17
The FSC is a certification system that is widely accepted by leading environmental organizations
18,19,20,21
and provides a robust approach to enhancing forest management in areas such as Canada where Builders FirstSource sources a
portion of its lumber and lumber products. Additionally, research from the non-profit, Ecotrust, and the University of Washington has
found that FSC certified forests stored 30% more carbon on average than other managed forests.
22
A more meaningful wood sourcing approach would include a commitment
to end wood sourcing from primary forests, and to source only FSC-certified lumber from geographies at risk while moving towards heightened
FSC certification for all sourced lumber.
Risks associated with climate change may negatively impact Builder
FirstSource’s operations.
In its 10-K, Builders FirstSource appropriately
identifies the threat of climate change as an operational risk. The Company states that “increasing frequency and strength of severe
weather events associated with climate change may disrupt in-store sales, manufacturing of building materials and on-site construction
activities leading to decreased revenue.”
23
Given the breadth of the Company’s geographic
footprint, with more than 550 locations
24
in more than 40 states,
25
Builders FirstSource stores and construction
services may be vulnerable to a range of severe weather events. In 2021, regions across the United States, including many areas in which
Builders FirstSource operates,
26
experienced weather extremes. For example, the South was threatened by an above-normal hurricane
season – the sixth in a row.
27
California experienced the second largest wildfire in its history;
28
an
ice storm in Texas left millions without power;
29
and high temperatures in areas of the Pacific Northwest shattered modern
history records.
30
Builders FirstSource rightly states that climate change could “impact our financial condition, operating
results and cash flows,” but it has not yet taken comprehensive steps to lessen its own contributions to the growing impacts of
climate change.
31
Builders FirstSource’s indeterminate timeline for quantifying
and disclosing its Scope 1, 2, and 3 emissions and setting science-based targets risks failing to meet investor expectations.
Large
asset managers have increasingly focused on how investee companies are addressing climate risk, including how they account for their full
value chain’s greenhouse gas emissions and whether they have adopted plans to significantly reduce emissions. In their most recent
proxy voting guidelines, top Builders FirstSource investors, BlackRock,
32
Fidelity
,
33
and Vanguard,
34
quite clearly expect that issuers will publish reports aligned with
the Task Force on Climate-related Financial Disclosures in order to facilitate “disclosing strategy, risk management, governance,
metrics, and targets”.
35
In his 2022
letter to CEOs, BlackRock CEO Larry Fink, stated that “we are asking [investee] companies to set short-, medium-, and long-term
targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the long-term economic interests
of your shareholders.”
36
Builders
FirstSource acknowledges in its management statement that it has yet to calculate its Scope 1 and Scope 2 emissions, i.e., the emissions
under its direct control and emissions related to its purchased energy, respectively.
37
However, the Company’s concedes
that it will not even have its own emissions quantified until sometime in 2023, and its Scope 3 emissions, which are inclusive of sources
ranging from transportation and distribution to purchased goods and services (e.g. lumber), will be delivered in the “near term”,
but no deadline is provided.
38
Nearly 3,000 companies have already engaged with
the Science Based Targets initiative (SBTi), which is a partnership between CDP, the UN Global Compact, the World Resources Institute
(WRI), and the World Wide Fund for Nature (WWF) that works with companies to set ambitious climate goals aligned with the Paris Agreement.
39
Approximately half of the companies working with the SBTi have already announced their science-based greenhouse gas emissions reduction
targets and the other half will announce targets within the next two years.
40
Among these companies is Builders FirstSource’s
competitor, Lowe’s.
41,42
While setting
a science-based target is the overarching goal called for in the proposal, the proposal also requests that the Company set sub-goals by
adopting metrics, targets, and deadlines for sourcing renewable energy, increasing the energy efficiency of its operations, and procuring
zero emission vehicles. Builders FirstSource could join the 60 percent of its Fortune 500 peers
43
that have already set at
least one target related to greenhouse gas emission reductions, energy efficiency, renewable energy sourcing, and/or net-zero emissions.
44
CONCLUSION
While Builders FirstSource has begun to incorporate
more sustainability into its operations, it has much work yet to do. This proposal provides shareholders the opportunity to weigh in on
how climate change, an issue of broad societal impact, creates risk to Builders FirstSource and its shareholders.
More fully accounting for its climate change risk
throughout its value chain, including risk due to deforestation and forest degradation, may better prepare the Company to effectively
manage these multiple material risks. Additionally, setting science-based targets would signal to investors that the Company is serious
about reducing the emissions from its full value chain.
Shareholders are urged to vote FOR the proposal asking Builders
FirstSource to adopt science-based targets for its full value and account for emissions and risks associated with its supply chain.
For questions regarding this proposal, please contact Andrea Ranger,
Green Century Capital Management, aranger@greencentury.com
.
This is not a solicitation
of authority to vote your proxy. Please DO NOT send us your proxy card; Green Century Equity Fund is not able to vote your proxies, nor
does this communication contemplate such an event. Green Century Equity Fund urges shareholders to vote for Item No. 4 following the instruction
provided on the management’s proxy mailing.
_____________________________
1
https://www.ipcc.ch/2018/10/08/summary-for-policymakers-of-ipcc-special-report-on-global-warming-of-1-5c-approved-by-governments/
2
https://www.ipcc.ch/report/ar6/wg2/downloads/report/IPCC_AR6_WGII_FinalDraft_FullReport.pdf
3
https://www.ipcc.ch/report/ar6/wg2/downloads/report/IPCC_AR6_WGII_SummaryForPolicymakers.pdf
;
Page 13.
4
Ibid.
5
https://ourworldindata.org/what-are-drivers-deforestation
6
https://www.forestcarbonpartnership.org/sites/fcp/files/DriversOfDeforestation.pdf_N_S.pdf
.
Page 9.
7
https://www.forestcarbonpartnership.org/what-redd
8
https://www.ipcc.ch/site/assets/uploads/2018/03/SREX-Chap3_FINAL-1.pdf
.
Pages 134, 137, 138, 142, 170.
9
https://www.sec.gov/Archives/edgar/data/1316835/000119312522127678/d650787ddef14a.htm
10
https://www.sec.gov/ix?doc=/Archives/edgar/data/1316835/000156459022007980/bldr-10k_20211231.htm
#ITEM_1A_RISK_FACTORS
11
https://www.sec.gov/ix?doc=/Archives/edgar/data/0001316835/000156459021009308/bldr-10k_20201231.htm
;
Page 12.
12
https://19january2017snapshot.epa.gov/climate-impacts/climate-impacts-forests_.html
13
https://www.sec.gov/ix?doc=/Archives/edgar/data/0001316835/000156459022007980/bldr-10k_20211231.htm
14
https://corporate.lowes.com/our-responsibilities/corporate-responsibility-reports-policies/lowes-wood-policy
15
https://investors.bldr.com/static-files/aa4eadb2-12b2-4383-891e-4f8f812e3905
16
https://www.nrdc.org/experts/courtenay-lewis/sfi-offers-more-greenwashing-unsustainable-logging-0
17
https://www.nrdc.org/sites/default/files/thousand-cuts-wood-sourcing-canadas-boreal-report.pdf.
Page 10.
18
https://www.nrdc.org/sites/default/files/thousand-cuts-wood-sourcing-canadas-boreal-report.pdf
19
https://www.sierraclub.org/forests/forest-certification-green-building
20
https://www.worldwildlife.org/stories/want-to-help-save-the-world-s-forests-look-for-the-fsc-logo-when-you-shop
21
https://davidsuzuki.org/project/boreal-forest/
22
https://www.mdpi.com/1999-4907/9/8/447/htm. Section
3.3.
23
https://www.sec.gov/ix?doc=/Archives/edgar/data/0001316835/000156459022007980/bldr-10k_20211231.htm
24
https://bldrtn.com/history/#:~:text=Publicly%20traded%20on%20the%20NYSE,both%20acquisitions%20and%20internal%20investment.
25
https://www.bldr.com/location/all-locations
26
https://bldrtn.com/history/#:~:text=Publicly%20traded%20on%20the%20NYSE,both%20acquisitions%20and%20internal%20investment.
27
https://www.noaa.gov/news-release/active-2021-atlantic-hurricane-season-officially-ends
28
https://www.ncei.noaa.gov/access/monitoring/monthly-report/national/202113
29
https://www.reuters.com/article/us-usa-weather-texas/cold-snap-leaves-one-dead-over-4-million-without-power-in-texas-idUSKBN2AF0OK
30
https://compuweather.com/unprecedented-heat-wave-shatters-records-in-the-pacific-northwest/
31
https://www.sec.gov/ix?doc=/Archives/edgar/data/0001316835/000156459022007980/bldr-10k_20211231.htm
32
https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter
33
https://eumultisiteprod-live-b03cec4375574452b61bdc4e94e331e7-16cd684.s3-eu-west-1.amazonaws.com/filer_public/85/bf/85bf98f6-27b6-4ff8-8e73-52a6838f575b/fidelity_voting_policy_2021_v17.pdf
.
Pages 40, 41.
34
https://corporate.vanguard.com/content/dam/corp/advocate/investment-stewardship/pdf/perspectives-and-commentary/ISCLRG_062020.pdf
35
Ibid.
36
https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter
37
https://www.sec.gov/Archives/edgar/data/0001316835/000119312522127678/d650787ddef14a.htm
38
https://www.sec.gov/Archives/edgar/data/0001316835/000119312522127678/d650787ddef14a.htm
39
https://sciencebasedtargets.org/about-us#:~:text=The%20Science%20Based%20Targets%20initiative%20(SBTi)%3A,with%20the%20latest%20climate%20science.
40
Ibid.
41
https://www.comparably.com/companies/builders-firstsource/competitors
42
https://sciencebasedtargets.org/companies-taking-action/
43
https://fortune.com/company/builders-firstsource/fortune500/#:~:text=RANK350&text=Formed%20in%201998%2C%20Builders%20FirstSource,and%20services%20in%20the%20U.S.
44
https://wwfint.awsassets.panda.org/downloads/power_forward_4_0.pdf
.
Pg 3.
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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