Food retailer Kroger joins Dow Jones Sustainability Index, for the conscientious investor

30 Sep

The Dow Jones Sustainability Index (DJSI) will see a new addition to its lineup of ethically tested, high market cap global companies, as US firm Kroger joins the roster. Retail food chain Kroger, which produces its own food line and also operates 7326 ‘fine jewelry’ stores, announced its inaugural listing on 27 September.

Kroger’s president and CEO Rodney McMullen declared: “Inclusion in the Dow Jones Sustainability Index is an important mile marker and a sign of real progress for Kroger.” He continued modestly, “While we take great pride in the strides we have made to reduce our impact on the environment and to operate as good stewards in our communities, we have more work to do. We intend to continue pursuing our long-term sustainability goals with enthusiasm and determination.”

Firms like Kroger are assessed by the DJSI’s partner RabecoSAM, which questions a pool of 2500 of the largest world companies, based on free-float market cap, on several criteria. In 2013, a total of 1,831 were rated, with 818 completing questionnaires and 1,013 assessed exclusively using public information.

The first criterion is environmental, for which the assessment is based on the CDP framework, with the firm submitting figures on its greenhouse gas emissions, energy use, risks to its supply chain, and measures it is taking to remedy these. It is also assessed on its water usage and possible deforestation impact.

The CDP is a non-governmental body which collects information on the global corporate environmental footprint to “harness market forces to drive change.” The weight of its membership – at last count 81% of the top global 500 make detailed reports to it – means it enables cities and government to gain “awareness of where to make strategic changes in order to save money.”

As part of its submission, Kroger described how it was making progress towards the Environmental Protection Agency’s Zero Waste threshold of 90% in all its retail locations: to reach its goal, it said, it would increase the ‘diversion rate’ to 65% for all stores by the end of 2013, and to 70% by the end of 2015.

As part of its current 58% diversion rate, Kroger utilises processes like converting its waste to biogas through anaerobic digestion. At the Ralphs/Food4 Less distribution centre, it processes around 150 tons of food waste daily, which will offset more than 20% of the energy demand for the 650,000 square foot Ralphs/Food4 Less distribution centre, and reduce the net distance of truck trips by over 500,000 miles a year.

The other DJSI criteria incorporate stakeholder engagement, i.e. the extent of local or employee ownership and involvement; product stewardship; operational eco-efficiency, for which there are two possible denominators to standardize the environmental data provided, revenues and production volume. And finally, recent addition Financial Stability and Systemic Risk.

The evaluators explain, “The new criterion aims to measure both the ex-ante level of complexity, using the Financial Stability Board, (FSB) framework as a proxy and the ex-post receipt of state aid, still outstanding to date.”

Kroger takes a leading role in grassroots community work, as a founding partner of Feeding America, a nationwide outreach programme for those in food poverty. In 2012, it worked with over 80 local food banks to donate the equivalent of 200million meals. As regards product stewardship, it claims its implementation of a refrigerant management plan and improved fleet productivity has led to a 4.8% reduction in its overall carbon footprint.

Weighting the index – what kind of a punch does the USA pack?

DJSI evaluators take 600 or 800 of the largest companies in the distinct regions of the USA, North America, Europe, the Eurozone, Emerging Markets, and Asia-Pacific. Korea and Australia are treated as individual entities. The various geographical sets form separate funds as well as being aggregated for the DJSI World, ex-US and World Developed Composite indexes. The team selects the top 10 or 20% firms from reach region in terms of sustainability, and groups them into industry categories, appointing an industry leader for each one.

Nestle leads the ‘Food, Beverage and Tobacco’ group. Since recovering from the scandal surrounding its campaign to promote powdered milk as a breast feeding substitute several years ago, it has gone from strength to strength. Woolworths is fighting back from Australia, leading the ‘Food & Staples Retailing’ Group. French telecoms giant Alcatel-Laurent heads the ‘Technology Hardware & Equipment’ Group, and Switzerland’s Roche tops the ‘Pharmaceuticals Biotechnology & Life Sciences’ Group. Citigroup, headquartered in the US, was considered the most ethical among ‘Diversified Financials’.

Putting aside comparative virtuosity scores of the global heavyweights, it is interesting to see that the DJSI outperformed the Dow Jones today (27 Sep), at the start of trading at 9.34am GMT-4. While the Dow was down 157.41 (-1.03%), the DJSI World Developed Composite Index was -0.99%, and the North America Composite -0.50%.

Moving away from the ‘broad-market’ indexes to the DJSI Blue-Chips which select only the most profitable companies, the World ex-US 80 were up 0.16%; while the Japan 40 was up an impressive 0.36% and Asia Pacific had climbed 0.26%, as smart money continues to flow towards these highly liquid markets.

Most significantly, the NA ex call Index, a subindex which excludes gambling, tobacco, armaments and firearms, and adult entertainment (there are additional either/or options for these last two sectors), had fallen just -0.40% compared to the NA Composite’s -0.50%. An enduring testimony to the benefits of being a conscientious investor?

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