Due to its focus on organic and naturally produced food, Whole Foods Market (Nasdaq: WFM) might seem like a socially responsible investor's dream stock. Yet the upscale supermarket has not avoided its fair share of negative media attention and even a major boycott. So does this stock have a place in your socially responsible investing portfolio? Let's take a look.

Environmental
By supporting organic and natural food suppliers, as well as giving consumers access to these products, Whole Foods improves the sustainability of the agriculture industry and avoids supporting the environmental pitfalls of conventional agriculture. Such problems include pesticide use, pollution from concentrated animal feeding operations, and land degradation from expansive monoculture. These environmental issues are liabilities for competitors Safeway (NYSE: SWY) and Kroger (NYSE: KR), whose suppliers' costs could increase if regulations stiffen or shareholders exert more pressure. Whole Foods avoids these risks by stocking food from sustainable suppliers.

Unsurprisingly, Whole Foods has several other environmental initiatives beyond its general business model. The company joined the Marine Stewardship Council, a global nonprofit promoting sustainable fishing practices to preserve fish stocks, in 1999. Whole Foods began selling MSC-certified seafood in 2000, and continues to partner with MSC today. In 2006, it became the only Fortune 500 company to completely offset 100% of energy costs using wind power credits. Fittingly, Earth Day 2008 marked Whole Foods' elimination of plastic bags from its stores, switching to paper bags made from entirely recycled paper, and its signature large and colorful grocery bags composed mostly of recycled bottles. The business helped initiate a 2004 antitoxin lawsuit against salmon producers in order to require them to warn consumers about PCB contamination in salmon. Lastly, Whole Foods responded to a 2006 shareholder resolution by removing BPA-containing products from its shelves and began taking steps to report and remove products with other toxins.

However, many environmentalists, including author Michael Pollan, disapprove of Whole Foods' support of industrial organic agriculture, a segment these critics see as less sustainable than the "organic" title may make it seem. Additionally, much of this organic food depends on fossil-fuel-powered transportation, and may come from around the world, a perspective put forward by advocates of the local food movement. Some of Whole Foods' produce even comes from China, which raises health concerns for consumers. While Whole Foods proudly advertises its business with local producers, local businesses supply a smaller portion of their inventory than you would be led to believe by their advertising, as Michael Pollan discusses in a letter to John Mackey.

Social
Whole Foods launched its Whole Trade Guarantee in April 2007, an initiative emphasizing social responsibility and equitable compensation for producers from the developing world. Whole Foods justifies the program as a commitment to benefiting all stakeholders, music to the ears of the socially responsible investor. This program may reduce immediate profitability by paying foreign workers better wages, but this investment builds relationships, improves the company's reputation, and serves as a great example of Whole Foods' commitment to social responsibility.

Whole Foods gives back to communities through philanthropy as well. The company donates at least 5% of its profits annually. Additionally, 1% of sales from Whole Trade certified products go to the company's Whole Planet Foundation, which provides grants to microfinance institutions that help the self-employed poor. Co-CEO Walter Robb also runs the Whole Kids Foundation, an organization Whole Foods started to provide kids with healthy meals at school.

Whole Foods has received criticism for stifling local businesses, leading some to refer to Whole Foods as the "Wal-Mart of Health Food." All of Whole Foods' competitors, and any national chains, affect the market similarly, so this problem is not specific to Whole Foods.

Governance
The company's leadership has a clear mission that recognizes Whole Foods' success depends on the planet, the stores' communities, and their employees. The company's core values include "caring about our communities and our environment" as well as "promoting the health of our stakeholders" and "creating ongoing win-win partnerships with our suppliers." These statements demonstrate the company's pledge to benefit all parties invested in the company's success.

Co-CEO and founder John Mackey has been an incredible asset for the company. Since growing Whole Foods from a small natural foods store in Austin in 1980, Mackey has become an iconic businessman for his success with Whole Foods and devotion to a higher capitalist purpose through his organization, Conscious Capitalism. This organization advocates for a new version of capitalism that "holds the potential for enhancing corporate performance while simultaneously continuing to advance the quality of life for billions of people," a model he has strived for with Whole Foods. By building value for all stakeholders, not just because it is moral but because it builds a competitive advantage, Conscious Capitalists sound a whole lot like socially responsible investors. To learn more about Conscious Capitalism, watch Fool co-founder Tom Gardner's interview with John Mackey.

With other executives' pay shooting skyward, Whole Foods ensures that top employees do not receive inflated paychecks. The company uses a salary cap of sorts -- executive compensation is limited to 19 times that of the average employee.  For comparison, CEOs nationally make an average of 231 times the average worker. Admirably, Mackey reduced his own salary to $1 following subpar company performance in 2007, as announced in a letter to employees. Additionally, Mackey met governance activists' demands in 2009 when he stepped down from his role as chairman of the board (which he had occupied along with his post as CEO since 1978). The company has, however, opposed shareholders' attempts through resolutions to formally separate the two positions and guarantee the board's independence.

Mackey's personal political beliefs would ordinarily not enter into this conversation, but his libertarian leanings have, at times, proven to be a liability for the company. Mackey should be able to hold whatever political views he chooses, but these views should not interfere with the company's operations. His 2009 editorial in The Wall Street Journal criticized Obama's universal health care plan, claimed health care was not an inherent right and sparked a boycott by tens of thousands of consumers. He is also a climate change skeptic and worried the "hysteria about global warming" will lead to further regulation of business, a surprising stance for the co-CEO of a company with many environmental initiatives, and a position that could alienate consumers. Whole Foods would not exist without Mackey's vision and dedication, but at times his missteps have cost the company.

Whole Foods has also had some issues with employee relations. Mackey rejects the need for unions, and has opposed employees' attempts to unionize at several stores. He asserts that the company's above-average treatment of employees renders unions unnecessary. The company certainly has shown a commitment to employee satisfaction, as it receives fairly good reviews on Glassdoor and one of its core values is "supporting team member excellence and happiness." Still, Whole Foods', and Mackey's, opposition of employees' efforts to organize raises eyebrows.

The Bottom Line
With many environmental and social initiatives, as well as executives committed to long-term growth by supporting all stakeholders, Whole Foods Market certainly meets my criteria for a socially responsible investment. But will it make you money? That depends on whether it will be able to continue growing and outperforming competitors, including emergent rival The Fresh Market (Nasdaq: TFM). Consumers have shown a willingness to pay a premium for Whole Foods' sustainable products, but The Fresh Market is cheaper and growing faster (likely because it is far smaller). Still, Whole Foods retains a first-mover advantage in the organic grocery space and has a stronger brand. And with the company's plan to expand from 300 stores to 1,000, Whole Foods has plenty of room for growth, which is why I recently bought shares. Whole Foods looks like an excellent, straightforward choice for the socially responsible investor.

To learn more about socially responsible investing, check out any of the articles in this series:

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