The novel coronavirus pandemic has shaken the world. A lot of 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” in regards to restoring and reshaping the economy going forward. Some social advocates put a clever spin on that idea and coined build back fairer instead. With that in mind, fair trade stocks may prosper in coming years as the world charts a new course in the 2020s.
So how should investors look at this trend? Fair trade stocks aren’t that well-defined yet. It’s still an emerging category within the investing framework. Until recently, many other metrics tended to top fairness in terms of investment analysis. For analyzing fair trade, there’s obviously the component of treating farmers and other such laborers well. Also, minimizing environmental harm through things such as green energy and water conservation should merit applause.
With that in mind, an investor looking for fair trade stocks could go through the MSCI’s environmental, social and governance (ESG) database and find high-scoring stocks. To get started, here are seven such fair trade stocks that have high ESG scores. Each excels in ethical inventory sourcing, labor and environmental practices:
- McCormick (NYSE:MKC)
- Diageo (NYSE:DEO)
- Starbucks (NASDAQ:SBUX)
- Home Depot (NYSE:HD)
- Hormel Foods (NYSE:HRL)
- Nestle (OTCMKTS:NSRGY)
- Xylem (NYSE:XYL)
Fair Trade Stocks: McCormick (MKC)
MSCI ESG Rating: A
McCormick is the global leader in spices and seasonings. It has also developed a leading flavor solutions division that provides sauces, condiments and flavor blends to many leading U.S. restaurants.
In the course of doing business, McCormick sources spices and raw materials from many remote corners of the world. The company, for example, saw 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 leading grower of vanilla. Naturally, McCormick has had to cultivate stable mutually beneficial relationships with farmers and local governments to ensure steady access to its goods.
To that end, McCormick invests heavily in social development in numerous countries. The company has built schools in Madagascar, provides fresh drinking water in India and has nurtured new farming operations in Indonesia, among other efforts. More generally, McCormick offers bonuses directly to farmers for its Rainforest-Alliance certified products. This helps participants earn a livable wage while giving consumers the confidence in knowing the spices they buy don’t destroy pristine ecosystems.
Furthermore, MSCI judges these efforts to be a success. McCormick is ahead of its food peers in aggregate ESG rating. And MSCI particularly lauds McCormick for its efforts in sustainable and equitable raw material sourcing along with its exemplary supply chain labor standards.
MSCI ESG Rating: AAA
That’s right, Diageo is one of the rare few companies with a perfect triple-AAA ESG rating. This might seem ironic at first glance. Diageo, after all produces beer and hard spirits. These can have negative social consequences when consumed in excess. And many socially conscious investors shun tobacco stocks altogether due to the societal ramifications.
Regardless, Diageo has made the best of its hand. While the company earns top marks across the board, it’s excellent in reducing water usage and its low-carbon footprint particularly stand out. A brewing company goes through a ton of water in the course of operations; however, Diageo has done its part to make this as ecologically sustainable as possible.
Diageo does all this while also treating its shareholders well. In fact, it has increased its annual dividend every year since it was formed in the late 1990s.
Fair Trade Stocks: Starbucks (SBUX)
MSCI ESG Rating: BBB
Starbucks is not perfect on an ESG basis. In fact, MSCI has noted significant deficiencies with some areas of Starbucks’ operations. However, as far as fair trade stocks go, 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 such as Guatemala and Kenya.
Nowadays, Starbucks is on a mission, in partnership with Conservation International, to make coffee the first fully sustainable agricultural crop. As it stands today, Starbucks has helped better the lives of one million people in coffee-producing communities, along with investing more than $100 million in programs for farmers and coffee communities.
Starbucks’ critics love to blast the company for charging high prices. That’s not entirely unfounded, to be certain. However, Starbucks does make sure that some of that value ends up making it to the farmers and families that grow that coffee. Investors seeking to own fair trade stocks should definitely keep Starbucks in mind.
Home Depot (HD)
MSCI ESG Rating: AA
Unlike Starbucks, Home Depot has a nearly spotless ESG rating. It lagged only in labor relations, while leading in three categories. Of particular importance here, Home Depot leads the way in low carbon footprint.
A home supply company could easily cause a ton of emissions. The stores are huge, and most of the products are heavy. Keeping the stores warm 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 rooftop solar on 47 of its stores, with another 45 stores on the way. The company purchases wind power to operate many dozens of its stores. And it has installed fuel cells at hundreds more to reduce emissions compared to traditional power methods.
In these sorts of ways, Home Depot is doing its part to allow consumers to build back better as the housing boom takes shape in 2021.
Fair Trade Stocks: Hormel Foods (HRL)
MSCI ESG Rating: AA
Hormel joins Home Depot in the prestigious double-AA tier of ESG ratings. I say “joins” because Hormel is a new entrant. MSCI just upgraded the firm’s ESG rating from ‘A’ to ‘AA’ in March 2021.
It’d be easy to think of a pork-centered meat and packaged foods company as an environmental hazard. However, Hormel has actually invested a ton of money and effort in cleaning up its footprint. Its achievements are most notable in water usage, where it has reduced its consumption by hundreds of millions of gallons per year and exceeded its own long-term water usage reduction objectives by 82%.
At the same time, Hormel has quietly pivoted into much more health-conscious products. While 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 so on. These newer products help make more responsible and diverse food choices available to meet the sensibilities of millennials and other younger consumers.
MSCI ESG Rating: AA
Nestle is a top-tier international producer of packaged foods, infant formula, bottled water and more. The company has taken some flack from environmentalists, particularly due to packaging for bottled water.
However, beyond the controversy, Nestle is actually one of the leaders in the consumer products space as far as social good goes. Nestle ranked first out of 22 food companies in the latest Access to Nutrition Index, while coming in second out of 40 in Ceres’ analysis of packaged food company’s water management policies.
Nestle does all that while also delivering compelling returns for its shareholders. It has long made a habit of increasing its dividend every year. Meanwhile, the share price has also grown six-fold over the past twenty years. That said, Nestle’s stock price has been flat since last summer, offering an opportunity to buy a quality company at a reasonable price in an otherwise frothy market.
Fair Trade Stocks: Xylem (XYL)
MSCI ESG Rating: AAA
Xylem may not be a household name for most investors. However, it dominates its niche in water infrastructure. For things such as wastewater treatment, clean water delivery and industrial and agricultural water usage, Xylem makes the necessary products.
That in and of itself helps lead to a fairer and more equitable world. In particular, Xylem does business in more than 150 countries — that is to say, almost the entire planet. So Xylem is on the ground in many of the world’s most vulnerable locations, helping to finally make clean reliable water resources available. The company is an all-around good corporate citizen as well, thus securing a rare AAA ESG rating from MSCI.
Since Xylem was spun-off into an independent company in 2011, its shares have nearly quintupled. This once again shows that companies can do good and do good for shareholders at the same time.
On the date of publication, Ian Bezek held long positions in HRL, DEO and MKC stock.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.