Continuing with our series (part 1, part 2) about socially responsible investing, we move on to the consumer-related industries.
As a reminder, socially responsible investing means investing in companies that combine strong financial performance with positive social, environmental, and governance performance. Among the questions that need to be addressed when determining if a company qualifies as a socially responsible investment are (1) does the company respect human rights and workers? safety? (2) do the company?s activities have a negative impact on land, air or water? and (3) how is the company run, or more specifically, is there diversity…
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As a reminder, socially responsible investing means investing in companies that combine strong financial performance with positive social, environmental, and governance performance. Among the questions that need to be addressed when determining if a company qualifies as a socially responsible investment are (1) does the company respect human rights and workers’ safety? (2) do the company’s activities have a negative impact on land, air or water? and (3) how is the company run, or more specifically, is there diversity among the board of directors, independence and executive compensation that is reasonable?
Back in June, Sustainalytics, a global sustainability research firm, partnered with Maclean’s to release their list of Canada’s most socially responsible corporations. Considering that socially responsible investment assets increased 16% in 2012 and now represents 20% of assets under management in Canada, this list will definitely come in handy for many investors.
Let’s take a look at Canadian companies in consumer-related industries who make the grade and have proven to be socially responsible.
Molson Coors Brewing Company (TSX: TPX.a, NYSE: TAP)
According to Sustainalytics, Molson made the list for the following reasons:
- “The first major brewer in Canada to convert its brewing by-products, such as spent yeast and waste beer, into fuel-grade ethanol.
- Molson aluminum cans are made with a minimum 67 per cent recycled content (up from 42 per cent in 2007) while kegs are reﬁlled more than 200 times over their 25-year lifespan.”
Molson Coors has been a steady, strong performer. Over the last 7 years, pretax income has increased 96%, free cash flow has doubled, and dividends per share have doubled. Debt levels are high at this time, but the company has ample cash flow to help carry the load.
Tim Hortons Inc. (TSX: THI)
According to Sustainalytics, Tim Hortons made the list for the following reasons:
(1) “As part of its green building design, the company requires its Canadian millwork suppliers to use only wood certified by the Forest Stewardship Council in Canadian restaurants.
(2) By expanding recycling and waste-diversion programs at its distribution centres, it is currently diverting 80 per cent of its waste from landfill.
(3) Aims to have 17,000 economically disadvantaged children participate in Tim Horton Children’s Foundation camps and programs by the end of 2015.”
Tim Hortons has been very good to its shareholders. Since 2006, dividends have risen 271% to the current $1.04 per share. According to the company, their return on invested capital is 24%, well above the industry. The stock has increased 83% since the beginning of 2010.
Loblaw Companies Ltd (TSX: L)
According to Sustainalytics, Loblaw made the list for the following reasons:
(1) “Loblaw brand Scholarship Programme will grant 200 educational scholarships in 2013 to its employees, their family members and Loblaw’s customers.
(2) Set a 2013 target to source 100 per cent of its seafood from sustainable sources. Aims to obtain 100 per cent of its pork entirely from Canada.”
Loblaw has struggled in the past with inventory levels, redundancy, too many layers of management and a lack of accountability. In recent years, Loblaw was restructured and divided into discount (superstores and No Frills) and conventional stores (Loblaws, Fortino’s and Provigo). Going forward, sales growth is expected to be moderated by the competitive environment and generic drug deflation.
Rona Inc. (TSX: RON)
According to Sustainalytics, Rona made the list for the following reasons:
(1) Gives preference to forest product suppliers who develop economic links with indigenous communities and who demonstrate responsible management or protection of areas of traditional importance.
(2) Works with the International Life Cycle Chair, a research unit of Polytechnique Montréal, to assess environmental performance over a product’s entire lifetime, from extraction of primary resources to end-of-life management, including manufacturing, packaging and disposal.
Rona is losing market share and pretty much being squashed by the competition. In the last 6 quarters, earnings have come in below expectations, as Rona continues to lose market share to its competitors, Home Depot and Lowe’s. Furthermore, same store sales at Rona have turned negative.
Canadian Tire Corp. Ltd. (TSX: CTC.A)
According to Sustainalytics, Canadian Tire made the list for the following reasons:
(1) “Has a six-member social-responsibility board committee in place, accountable for balancing the company’s environmental and social performance with economic growth.
(2) Reducing greenhouse-gas emissions from its fleet by replacing trucks with more efficient models, increasing the use of long-combination vehicles and converting from road transportation to rail for certain routes.”
Canadian Tire went through a period where it was struggling with growth. Since then, they made a couple of acquisitions, Mark’s Work Warehouse and Forzani Group, which enabled them to diversify their portfolio of stores and products, and reach a new set of customers. In the latest quarter, EPS increased over 16% from a year ago and dividends per share are up 67% since 2007.
Gildan Activewear (TSX: GIL)
According to Sustainalytics, Gildan made the list for the following reasons:
(1) “Gildan requires its suppliers to sign a statement ensuring they do not procure cotton originating from Uzbekistan, where child and forced labour are routinely used.
(2) When conducting acquisitions in emerging markets, Gildan performs an extensive due-diligence process that includes an assessment of social and environmental risks.”
In the past, Gildan has struggled with rising cotton costs and this has hit the bottom line. More recently, Gildan is developing a consumer brand, Gildan Performance, which will bring premium pricing and higher margins.
The Bottom Line
For the socially conscious investor, companies that have been able to deliver strong financial performance on top of adopting a socially responsible culture are a great find. We have seen many examples here in consumer-related industries. Stay tuned, as we continue to uncover more socially responsible companies from different sectors.
This collection includes some of the best consumer oriented stocks that the Canadian market has to offer. To have a look at 3 of the best that our neighbors to the south can muster, click here now and we’ll send you our special FREE report “3 U.S. Stocks That Every Canadian Should Own”.
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Fool contributor Karen Thomas does not own shares in any of the companies mentioned above. The Motley Fool does not own shares in any of the companies mentioned above.