Corporate Social Responsibility, commonly referred to as CSR, is the new “new thing” in business circles. I must confess that I have been somewhat skeptical about this trend as I have worried that it has been nothing more than a corporate feel good exercise that quickly gets filed in the drawer or forgotten. While I am sure that this may be true for some companies, I must tell you that I have seen the good that an effective CSR policy can do when it is fully embedded into a corporate culture.
As you probably know, Nestle is one of our Long Term Investments. Nestle has been a wonderful investment for us consistently generating excellent returns on invested capital while growing its revenue and earnings and raising its dividends. In my judgment, Nestle also embodies best in class CSR practices. This company has coined the phrase “Creating Shared Value” to describe its vision for effective CSR. As the company articulates it, “In order to create long term value for our business and stakeholders, we need to create value for our customers and society”
Nestle is getting recognized for its CSR efforts with KPMG recently awarding Nestle status as one of the world’s top ten companies reporting on Corporate Social Responsibility. KPMG is not alone in its praise for Nestle. The company was also named the leading Food products company in the Dow Jones Sustainability Index and it achieved the maximum score for the second year running in the CDP Climate Disclosure Leadership Index and the CDP Performance Leadership Index. The company has also garnered recognition from many other organizations for its CSR practices.
In September I attended the annual Nestle Analyst meeting at its corporate headquarters in Vevey, Switzerland. While there primarily to hear from senior management about its strategic and operating plans for the next several years, I was also able to learn more about its efforts to create shared value. Most of Nestle’s CSR activity is focused around nutrition, water and rural development. To give you a sense of this, let me share some statistics regarding efforts to encourage responsible farming and production practices in its Nescafe coffee business:
- Nestle will spend $350 million Swiss Francs this decade on responsible farming and production practices.
- Nestle has distributed 16 million coffee plantlets in the last decade to coffee farmers in 10 countries at no charge and with no contractual obligation to sell coffee to the company.
- Nestle will distribute 220 million high-yield, disease resistant trees to farmers by 2020.
- Nestle agronomists currently teach 10,000 farmers per year new coffee farming techniques and post harvest practices.
- Nestle will source 180,000 tonnes of green coffee directly from 170,000 farmers in 2015.
- Nestle will significantly reduce energy use in its coffee roasting facilities by 2020 mainly through the use of coffee grounds as fuel.
- About 55% of Nescafe coffee is manufactured in factories in coffee growing countries allowing local workers to acquire new skills and higher incomes.
- Nestle is on track to reduce its water use by 30% per tonne of coffee produced by 2020.
To put this simply, responsible farming leads to better incomes for farmers while ensuring the availability of high quality coffee for Nescafe consumers which will drive shareholder returns over the long term. Similarly, responsible production can help the environment by reducing the use of water and fossil fuels while also providing good employment opportunities at higher overall profit margins for Nestle and its shareholders.
Is Nestle perfect in all of its CSR efforts? Even the company would admit that it has missed the mark at times and that there is much that it can do to improve. However, I do believe that by embracing its vision of creating shared value, Nestle does a much better job than most companies at benefiting both shareholders and society. I am a skeptic about CSR no longer. During the holiday season it is natural to reflect on what can be done to make the world a better place. I invite you to visit Nestle’s website at www.nestle.com to learn more about its efforts to create shared value. It is a classic “win-win” for both shareholders and society.
“Above the Fray” is a regular blog written by Jeffrey Stacey, Chairman and CEO of Stacey Muirhead Capital Management Ltd., which discusses items of interest related to investing, finance and business. This is not a solicitation.