Recently, Innovest Strategic Value Advisors released a report assessing the environmental and social performance of 27 companies in the global food and drug retail industry. As many other Innovest sector reports have found, companies with best environmental practice outperformed environmental laggards in terms of financial indicators as well. Two months ago, Innovest released a report researched in tandem with this one that found financial outperformance by companies in the food products industry with environmental best practice.

Over the last three years ending June 2003, global food and drug retail companies with above-average environmental ratings from Innovest financially outperformed companies with below-average ratings as a group by approximately 22.3 percent. Innovest’s EcoValue’21 analytical platform assesses environmental performance on 60 indicators, including energy and waste management as well as proactive involvement organic foods and avoidance of genetically modified organisms (GMOs). Innovest’s Intangible Value Asset (IVA) tool assesses social performance on 80 indicators, including labor relations, commitment to fair trade, and use of minority and female suppliers.

Topping the list of EcoValue’21 rankings were UK-based J. Sainsbury’s (ticker: SBRX.L) and Boots plc (BOOT.L), which both earned the highest rating of AAA (which loosely corresponds to bond ratings that run from AAA through CCC). The report enumerates specific ways in which Sainsbury’s exemplary environmental performance translates into financial savings.

“In 2001/2, Sainsbury cut energy costs by $2.5 million; reduced CO2 emissions by 8,000 tons; saved 1,200 tons of packaging equivalent to over $3.7 million; increased recycling initiatives resulting in savings of $207,000 for landfill tax; and saved $13.5 million due to improvements in transport efficiency,” wrote Isabel Pilkington, an analyst at Innovest and the lead author of the new report. “[US subsidiary] Shaws is working to obtain 10 percent of its energy from renewable sources by 2010.”

“You can’t find better environmental reporting than J. Sainsbury,” added Marc Brammer, a senior analyst with Innovest who co-authored the report.

Sainsbury and Boots also earned IVA social ratings of AAA, placing second and third after Finland-based Kesko (KESK). Wild Oats (OATS), which also received an AAA rating, ranked fourth in IVA ratings. The US-based company earned an AA EcoValue’21 rating. Wild Oats’ primary US competitor, Whole Foods (WFMI), earned BBB ratings for both EcoValue’21 and IVA.

Both Wild Oats and Whole Foods have been involved in labor disputes over unionization. The disputes affected their IVA ratings.

“Whole Foods had a number of labor issues–they’re very anti-union–but also we had lack of disclosure from Whole Foods as well,” Ms. Pilkington told

In at least some cases, Whole Foods lack of disclosure translates to simply not measuring certain performance metrics. For example, Whole Foods states that it recycles and attempts to reduce waste, but it was unable to disclose any statistics or cost benefits. In contrast, Wild Oats was “one of the few companies in this sector to respond to requests from investor representatives to disclose details of employee turnover,” the report states.

However, Mr. Brammer pointed out that the global food retail sector performed particularly well in both environmental and social arenas. Wild Oats and Whole Foods’ performance would have placed them at the top of many other sectors.

“There are ways in which both Wild Oats and Whole Foods are leaders, even though in some cases they may not be at the very top,” Mr. Brammer told

“The US Department of Agriculture (USDA) estimates that in the last decade, US organic food retail sales have increased 23 percent annually, five-times faster than food sales in general,” the report states. “Currently, Whole Foods is the world’s largest retailer of natural and organic foods, and given the rapid growth of organic food relative to the food sector, is clearly well positioned to benefit from such growth.”

While the EcoValue’21 platform maintains a long track record of this kind of comparison between environmental and financial performance, its history of tracking social issues runs shorter, and it has only recently begun to compare social and financial performance. Mr. Brammer disclosed Innovest’s plans to combine its EcoValue’21 and IVA ratings into a single methodology.

“I think there’s enough correlation between the environmental and social indicators to make that fusion–the market is asking for something that will encapsulate all of those factors in a single score,” said Mr. Brammer. “We’ll still be to decouple the two.”

As an analyst, I would expect to see outperformance because the social factors that we’re looking at relate in so many ways to profitability,” concluded Mr. Brammer.