7 fair trade stocks to buy if you want to #BuildBackFairer
The novel coronavirus pandemic has rocked the world. Many old economic and cultural practices seem increasingly difficult to defend after seeing the world in quarantine for a year. President Biden campaigned on the slogan “build back better” when it comes to restoring and overhauling the economy going forward. Some social rights activists have given this idea a clever twist and invented rebuild fairer instead of. With this in mind, fair trade actions could flourish in the years to come as the world charts a new course in the 2020s.
So how should investors view this trend? Fair trade actions are not yet well defined. It is still an emerging category in the context of investment. Until recently, many other measures tended to be fairer in terms of investment analysis. To analyze fair trade, there is obviously the component of treating farmers and other workers well. Also, minimizing environmental damage through things like green energy and water conservation deserves applause.
With that in mind, an investor looking for fair trade stocks could consult MSCI’s Environmental, Social and Governance (ESG) database and find high-scoring stocks. To start, here are seven of those fair trade stocks that have high ESG scores. Each one excels in ethical sourcing of inventory, labor and environmental practices:
- McCormick (NYSE:MKC)
- Diageo (NYSE:DEO)
- Starbucks (NASDAQ:SBUX)
- Home deposit (NYSE:HD)
- Hormel Foods (NYSE:HRL)
- Nestle (OTCMKTS:NSRGY)
- Xylem (NYSE:XYL)
Fair Actions: McCormick (MKC)
MSCI ESG Rating: A
McCormick is the world leader in spices and seasonings. It has also developed a leading flavor solutions division that supplies sauces, condiments and flavor blends to many major US restaurants.
As part of its business operations, McCormick sources spices and raw materials from many remote corners of the world. The company, for example, experienced a sharp decline in profitability many years ago due to an extreme shortage of vanilla beans due to political unrest in Madagascar, which is the largest producer of vanilla. Naturally, McCormick had to cultivate stable and mutually beneficial relationships with farmers and local governments to ensure constant access to his products.
To this end, McCormick is investing heavily in social development in numerous countries. The company has built schools in Madagascar, provides clean water in India, and developed new farms in Indonesia, among other efforts. More generally, McCormick offers bonuses directly to farmers for its Rainforest-Alliance certified products. This helps participants earn a living wage while giving consumers the confidence that the spices they buy are not destroying pristine ecosystems.
In addition, MSCI considers these efforts to be successful. McCormick is ahead of its peers in the food industry in terms of overall ESG rating. And MSCI particularly commends McCormick for his efforts in sourcing sustainable and fair raw materials as well as his exemplary labor standards in the supply chain.
MSCI ESG rating: AAA
That’s right, Diageo is one of the few companies to have a perfect triple AAA ESG rating. It may seem ironic at first glance. Diageo, after all, produces beer and hard liquor. These can have negative social consequences when consumed in excess. And many socially conscious investors avoid tobacco stocks altogether because of the societal ramifications.
Either way, Diageo did his best. Although the company achieves top marks in all areas, it is excellent at reducing water consumption and its low carbon footprint particularly stands out. A brewing company passes through a ton of water in the course of its operations; however, Diageo has done its part to make it as environmentally sustainable as possible.
Diageo does all of this while treating its shareholders well. In fact, it has increased its annual dividend every year since its inception in the late 1990s.
Fair Stocks: Starbucks (SBUX)
MSCI ESG Rating: BBB
Starbucks is not perfect on an ESG basis. In fact, MSCI has noted significant deficiencies in some areas of Starbucks’ operations. However, when it comes to fair trade actions, Starbucks is one of the pioneers. Long before fair trade became a household word, Starbucks had taken the initiative to set up programs to buy coffee directly from farmers in places like Guatemala and Kenya.
Today, Starbucks is on a mission, in partnership with Conservation International, to make coffee the first fully sustainable agricultural crop. Currently, Starbucks has helped improve the lives of a million people in coffee-growing communities, while investing more than $ 100 million in programs for farmers and coffee communities.
Starbucks critics love to criticize the company for charging high prices. It is not entirely unfounded, that is for sure. However, Starbucks is ensuring that some of that value gets to the farmers and families who grow this coffee. Investors looking to own fair trade stocks should definitely keep Starbucks in mind.
Home deposit (HD)
MSCI ESG rating: AA
Unlike Starbucks, Home Depot has an almost impeccable ESG rating. She only lagged in labor relations, while leading in three categories. Of particular importance here, Home Depot is leading the way when it comes to low carbon footprint.
A home supply business could easily cause a ton of emissions. The stores are huge and most of the products are heavy. Keeping stores hot or cold uses a ton of energy. Meanwhile, trucking around all the inventory could burn a ton of gasoline.
Fortunately, Home Depot has taken an active role in reducing its impact on nature. To that end, by the end of 2019, it had already built solar roofs on 47 of its stores, and 45 more stores are on the way. The company buys wind power to operate several dozen of its stores. And it installed hundreds more fuel cells to reduce emissions compared to traditional electrical methods.
In this way, The Home Depot is doing its part to empower consumers to rebuild better as the housing boom takes shape in 2021.
Fair Actions: Hormel Foods (HRL)
MSCI ESG rating: AA
Hormel joins Home Depot in the prestigious double AA level of ESG ratings. I say “joined” because Hormel is a new entrant. MSCI has just raised the company’s ESG rating from âAâ to âAAâ in March 2021.
It would be easy to think of a pork meat and packaged food business as an environmental hazard. However, Hormel actually invested a ton of money and effort into cleaning up his footprint. Its accomplishments are most notable in water use, where it has reduced its consumption by hundreds of millions of gallons per year and exceeded its own long-term water consumption reduction targets by 82%.
At the same time, Hormel has quietly turned to products that are much more health conscious. Although the company is known for its namesake SPAM pork product, it is now the leader in organic and naturally raised meats, nut butter, plant-based meat products, guacamole, and more. These new products help make more responsible and diverse food choices available to meet the sensibilities of millennials and other younger consumers.
MSCI ESG rating: AA
NestlÃ© is a leading international producer of packaged food, infant formula, bottled water and more. The company has been criticized by environmentalists, especially because of the packaging of bottled water.
However, beyond the controversy, NestlÃ© is actually one of the leaders in the consumer products space when it comes to social good goes. NestlÃ© ranked first out of 22 food companies in the latest Access to Nutrition Index, while also ranking second out of 40 in Ceres ‘analysis of packaged food companies’ water management policies.
NestlÃ© does all of this while delivering attractive returns to its shareholders. It has a long tradition of increasing its dividend every year. At the same time, the share price has also increased six-fold over the past twenty years. That said, the NestlÃ© share price has been stable since last summer, offering the opportunity to buy a quality company at a reasonable price in an otherwise sparkling market.
Fair Stocks: Xylem (XYL)
MSCI ESG rating: AAA
Xylem may not be a household name for most investors. However, it dominates its niche in hydraulic infrastructure. For things such as wastewater treatment, drinking water supply, and industrial and agricultural water use, Xylem manufactures the necessary products.
This in itself contributes to a fairer and more equitable world. In particular, Xylem operates in more than 150 countries, that is to say almost the entire planet. Thus, Xylem is present on the ground in many of the most vulnerable places in the world, finally helping to provide clean and reliable water resources. The company is also a good corporate citizen, earning a rare ESG AAA rating from MSCI.
From Xylem was split into an independent company in 2011, its shares almost quintupled. This shows once again that companies can do good and good for shareholders at the same time.
At the date of publication, Ian Bezek tenuous long positions in HRL, DEO and MKC stocks.
Ian Bezek has written over 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a junior analyst for Kerrisdale Capital, a $ 300 million New York-based hedge fund. You can reach him on Twitter at @irbezek.