GT Blog August 18, 2009

More on socially responsible companies and their investors

As pointed out in my previous entry there are three types of companies - value, growth and socially responsible. A value company can also be socially responsible, and a growth company can also be socially responsible.

We know that socially responsible can include, no forest clear cutting, no open pit mining, no child labour, no guns, no raping of small third world countries, and no toxic pond tailings. Optional candidates include the legal gaming companies and the producers of tobacco and alcohol products. Socially responsible companies are also sensitive to the issues of Free Trade and Fair Trade.

Free trade means buying and selling anything to anybody as long as you can make a buck. Fair trade takes into consideration the social damage of the exploitation of the exploitation of the weak. One example was the destruction of the Jamaican dairy industry which before the early 1990s was healthy, and growing. But when the Jamaican government opened up the dairy market to imports (free trade) in response to pressure from the World Bank - that changed overnight. Shiploads of cheap milk powder from Europe, produced and exported with the aid of massive EU subsidies, spelt disaster for Jamaica's dairy farmers

In my Banana Republic item I singled out Metro, Inc. (TSX-MUR.A) and Empire Company Limited (TSE-EMP.A), both engaged in food retailing to be socially irresponsible because they make no attempt to support fair trade bananas. Free trade workers work for the biggest fruit companies, receiving no benefits, no pension, no medical care, no guaranteed wage and no holidays. They are routinely sprayed with pesticides deemed illegal in North America for more than a generation.

Apparently Loblaw Companies Limited (TSX-L) is the only major food retailer supporting fair trade bananas.

There are three types of investors. Some will support socially responsible companies no matter what the loss in investment opportunity. Some will avoid socially irresponsible companies as long as there is an alternate choice and there are investors who simply could care less about anything except making a buck.

Let us now set up a hypothetical investment dilemma wherein an investor is concerned about the current over-extended equity markets. He or she now wishes to include some consumer staples stocks into the portfolio to reduce risk and volatility .

There are currently no exchange traded funds available so the investor must choose from the eleven stocks that make up the TSX Consumer Staples Index.

The table below lists the components sorted by their relative weekly price momentum as compared to the broader TSX Composite Index - we need to buy at least three components to retain some sector diversity

Note the bottom four - all food retailers - so what to do?

The supporter of socially responsible companies will select the top ranked Couhe-Tard and Saputo along with Loblaw. The avoider of socially irresponsible companies will seek out alternate choices - in this case Couhe-Tard, Saputo and Jean Coutu. The could-care-less make a buck investor will buy anything that is top ranked.

Observation - the group is currently an under-perform Vs. the broader TSX Composite - see below