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Ceradyne Sustainability Report 2012

We believe that sustainability reporting on environmental, social and governance (ESG) business practices makes a company more responsive to the global business environment, an environment with finite natural resources, evolving legislation, and increasing public expectations of corporate behavior. Reporting also helps companies better integrate and gain strategic value from their existing corporate social responsibility efforts, improve company-wide communications, and publicize innovative practices. 
Increasingly, companies are identifying sustainability factors relevant to their business and addressing them strategically through sustainability programs and reports. According to a 2011 KPMG report (Corporate Sustainability: A Progress Report), 62% of companies surveyed (378 global companies) have sustainability strategies in place. According to the Global Reporting Initiative (GRI), in 2010, 1,863 organizations prepared sustainability reports, a 23% increase from the year prior. 
Evidence linking sustainability consideration and value creation is now being seen. An October, 2010 report from Thomson Reuters (ESG and Earnings Performance) concluded that, “U.S. companies with stronger ESG scores consistently beat earnings estimates more frequently than those with lower scores.” A July 2011 white paper by RCM (Sustainability: opportunity or opportunity cost) opined that, “Investors could have added 1.6 percent a year over just less than five years to their investment returns by allocating to portfolios that invest in companies with above-average ESG ratings.” And according to an October 4, 2011 report from Goldman Sachs (Why ESG Matters), “Firms with leading ESG scores tend to generate higher and more durable returns on capital than sector peers.” 
According to Ceradyne’s 2010 Form 10-K, the Company acknowledges that it faces a variety of ESG-related risks that could materially affect its financial condition and operating results, including regulatory, financial, and environmental risk. On page 33 of this report, it states that the Company is “subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials …” and that “[f]ines and other punishments imposed on us for environmental violations and expenses we incur to remedy or comply with environmental regulations … would decrease our cash reserves and could harm our profitability.” However, the report does not discuss how these risks will be addressed. 
Ceradyne has not provided adequate disclosure, whether in public filings, on its website, or through a report, that discusses the Company’s response to ESG-related issues. Without this disclosure, shareholders, investors and analysts cannot ascertain whether Ceradyne is properly managing its ESG exposure, and this could adversely affect the value of our Company. 
Shareholders request that the Board of Directors issue a sustainability report describing the company’s short- and long-term responses to ESG-related issues. The requested sustainability report should include a company-wide review of the policies, practices, and metrics related to ESG performance. The report should be prepared at reasonable cost, omitting proprietary information, and made available to shareholders by December 31, 2012.