Rethinking PepsiCo's Responsibility

Shares of PepsiCo (NYSE: PEP  ) have been in my Prosocial Portfolio -- which focuses on socially responsible investing -- since February 2011. However, the consumer giant has recently fallen a bit from my good graces, given its decision to throw in to defeat California's Prop 37, which would have required labeling for products including genetically modified, or "GM," ingredients.

In Tuesday's election, California voters narrowly defeated the proposition. However, let's just say some big wallets opened up to block the idea that American consumers should be informed about the presence of GM ingredients in food. And GM ingredients are commonly in our food: 70% of processed foods here in the U.S. contain GM ingredients, given the fact that corn and soybeans are commonly genetically modified.

It's no surprise that companies like Monsanto (NYSE: MON  ) and DuPont (NYSE: DD  ) spent big-time to challenge the labeling advocates. (Monsanto spent a whopping $8.1 million.) These companies develop and sell the seeds engineered to grow crops that are resistant to certain pests, increase yields, and even resist harsh environmental conditions like droughts.

About 80 big-pocketed corporate opponents poured $46 million into efforts to block any such labeling; the proposition's supporters had a mere $7.3 million on hand. However, bear in mind that even though Prop 37 was defeated, this was no landslide, even though opponents outspent their foes by a 5-to-1 ratio; 53% of California's voters voted against it, and 47% voted in favor of GM labeling.

Notably, companies like Whole Foods Market (Nasdaq: WFM  ) and Hain Celestial (Nasdaq: HAIN  ) supported the spirit of Prop 37: the consumer's right to know. Both businesses -- which are heavily concentrated in organic and natural goods -- are negative on GM ingredients in the first place. (Both stocks are also included in my Prosocial Portfolio.)

PepsiCo, on the other hand, joined rival Coca-Cola (NYSE: KO  ) in kicking in funds to defeat Prop 37. This besmirches Pepsi'Cos more noble sustainability efforts.

For example, PepsiCo uses copious amounts of water in its operations, but it's working hard to ensure it conserves and sometimes even replenishes water in stressed regions. The company has cited specific goals, vowing to improve water-use efficiency by 20% per unit of production by 2015, compared to the 2006 baseline. PepsiCo's been working to embed water conservation in its operations, too.

Interesting -- and water-saving -- operational improvements include water-related use of its Resource Conservation (ReCon) tool, which has helped it identify 2.2 billion liters of water savings, with a cost-saving opportunity of $2.7 million, to boot.

Along those lines, Forbes contributor Rahim Kanani recently detailed why PepsiCo is actually ahead of the curve in its water stewardship efforts.

When it comes to GM ingredients, though, many foods, including sodas, are chock-full of the stuff. Take the common use of sweetener high-fructose corn syrup. Although companies like PepsiCo and Coca-Cola are trying to engineer their formulas to rely on other sweeteners, they've got their hands full trying to deliver alternative sweeteners that are also cheap. These companies are not only beset by the GM food activists, but also by health advocates who point to additives like high-fructose corn syrup for Americans' increasing poundage.

Meanwhile, as much as labeling isn't the same as a regulation to reformulate products, companies claim not only that GM ingredients are safe, but that labeling would be onerous and expensive, and that they'd have to pass on costs to consumers.

I wish PepsiCo had simply stayed neutral on the issue. The ongoing debates on the science and safety of GM ingredients aside, it doesn't look responsible or even fair to try to block information that many people simply want disclosed. This newest development makes me question Pepsi'Cos social responsibility, and part of me wonders if it deserves to be jettisoned from the Prosocial Portfolio. Let me know what you think in the comments box below.

It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this brand-new premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. We're also providing a full year of regular analyst updates to go with it, so make sure to claim your copy today by clicking here.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 08, 2012, at 7:46 PM, SuntanIronMan wrote:

    Playing a little devil's advocate:

    Requiring the labeling or not, those GM ingredients are still in their products. And Pepsi never mentioned those GM ingredients on their labels before the defeat of this measure. Nothing has materially changed here; just maintaining of the status quo. If this is bad now, why wasn't it bad before? And if it was bad before, why was PepsiCo in your socially responsible portfolio to begin with?

    I mean, they sell sugar water and salty chips. And whey they aren't selling sugar water, they are selling sugar-substitute water.

  • Report this Comment On November 08, 2012, at 9:30 PM, Nomadder wrote:

    I think the idea isn't the mere lack of disclosure so much as was the active move against it.

    PepsiCo went from passively benefitting from a lack of regulation, to actively pursuing its continuance.

    The difference is larger than you might think.

    Most companies aren't going to do anything to hurt their bottom line if they don't have to, even if it is the socially responsible thing to do. There has to be some percieved benefit. Most companies see no benefit in transparent, honest, relationships with their consumers. Fine, business as usual.

    That being said, not every company will work to keep consumer-centric laws from being passed. That is an entirely different animal, and a disturbing signal about where a company is willing to expend it's time, energy, and money.

  • Report this Comment On November 09, 2012, at 9:33 AM, Gsraschella wrote:

    As a volunteer for the yes on 37 campaign since before signature garhering began, I think it's important to point out that we did NOT have the support of Whole Foods and they DO quietly carry thousands of non-labeled GMO ingredients, despite their reputation for the opposite. Its sad, really. In fact, many of us thought their support might have been a game changer considering we had almost half the vote with very little money and exposure. They declined to support the campaign for GMO labeling and it's important that the public realizes that.

  • Report this Comment On November 10, 2012, at 9:33 AM, blesto wrote:

    @Gsraschella,

    Technically, Whole Foods did show "Token" support two days before the election, with a miniscule $25,000. According to Cornicopia;

    http://www.cornucopia.org/wp-content/uploads/2012/11/prop37-...

    I guess so they can say they did support it.

  • Report this Comment On November 12, 2012, at 8:04 AM, TMFLomax wrote:

    Hi everybody,

    I ran across this in regard to Whole Foods, which was interesting:

    http://www.calwatchdog.com/2012/10/30/whole-foods-suffers-se...

    My impression has been that Whole Foods has always been very pro-labeling of things like GM and country of origin, etc., seeking transparency, but I think there may be more complexities (and potential unintended consequences) than may be obvious at first look. Still, to my way of thinking the consumer's right to know is the most important issue here, and the opponents putting millions against the proposition doesn't make me feel so great about their motives.

    Best,

    Alyce

  • Report this Comment On November 30, 2012, at 5:08 AM, thidmark wrote:

    Rubbish

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