Dirty Laundry vs. Clean Investments

This article is part of ourRising Star Portfolio series.

Some of the most well-known retailers and brands may be creating a toxic relationship with consumers -- and the world. In late August, Greenpeace aired their dirty laundry for all to see.

I've got twofold interest in the findings: identifying and calling out companies that have garnered the criticism, and seeking out the ones that accept the criticism and respond by improving their actions. The latter could be solid contenders for my Rising Star portfolio.

Environmental organization Greenpeace's report, Dirty Laundry 2: Hung Out to Dry, built on a past report pointing out that apparel and shoes from many major clothing brands are manufactured using nonylphenol ethoxylates, or NPEs, which break down into toxic nonylphenol, which has hormone-disrupting properties and is hazardous even in small amounts.

Greenpeace outlines a multifaceted problem. First, these toxic chemicals are released into rivers by manufacturers in countries where their use isn't outlawed. Later, the chemicals spread even further, since those who buy the products become accessories to the toxic release. That's because the chemicals continue to spread via the laundry process, which releases the toxins into water treatment facilities even in countries where the parent compounds are banned.

Although each laundered article may release only a small amount of the toxins, Greenpeace pointed out that given the large amounts of clothing sold and then washed by consumers, total levels may be significant.

To draw its conclusions, Greenpeace randomly tested sample items from major companies like Abercrombie & Fitch (NYS: ANF) , H&M, Uniqlo, Adidas, Lacoste, Nike (NYS: NKE) , Gap (NYS: GPS) , Ralph Lauren (NYS: RL) , Puma, and PVH Corp.'s (NYS: PVH) Calvin Klein.

The results were pretty toxic. Out of a total 78 samples, 52 tested positive for NPEs. Abercrombie & Fitch garnered a perfect(ly toxic) 3-out-of-3 score. Half of Nike's 10 samples tested positive, while seven of nine (not a Trekkie reference) Puma samples contained NPEs. Gap looks relatively benign because neither of the two samples Greenpeace tested came out positive. (Greenpeace pointed out that overall, just because an article didn't test positive doesn't necessarily indicate the chemicals weren't used in production.)

Why the heck do I care, you ask?
I find these issues significant because I'm on the lookout for socially responsible companies for the real-money Rising Star portfolio I'm managing for Fool.com; I'm doing my best to block bad players. Companies that are willfully contributing to a more toxic world and aren't even making efforts to change their ways simply aren't contenders.

Greenpeace's reports on this issue have led some companies to vow to work toward a cleaner future. Nike has committed to zero NPEs by 2020. (Rival Puma has also done so.) Adidas and H&M have since committed to Greenpeace's Detox campaign.

However, Nike went a step further, pledging to champion the public's right to know by promising full transparency about chemical releases from suppliers' factories . (Speaking of suppliers' factories, in the 1990s Nike faced ample, vocal criticism about products manufactured in Chinese factories described as having sweatshop conditions. These criticisms have abated given better salaries and working conditions in China, as well as Nike's and other companies' implementation of better standards and inspections for those factories .)

Along these lines, Gap's got one thing going for it: corporate social responsibility. For example, 100% of its branded denim complies with a water quality program. Still, Gap doesn't make the grade for this portfolio because I don't believe its overall operations and competitive positioning are strong enough to generate decent growth for investors. I'm eyeing the best of both worlds -- positive social and investment returns.

On the other hand, Nike's getting more interesting all the time. Fool community member TripleEFocus1 recently suggested on my Rising Star discussion board that Nike could be a logical addition to a responsible portfolio given its sustainability efforts, which piqued my interest. I'm increasingly seeing very good reasons to push it high on my watchlist. After all, it's not only eyeing leadership in sustainability, it's already a strong business with a leadership brand.

Should I "just do it"? Let me know what you think of investing in Nike -- on a socially responsible level or a purely financial one -- in the comments box below.

  • Add Nike to My Watchlist.

  • Add Gap to My Watchlist.

At the time thisarticle was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Gap. Motley Fool newsletter services have recommended buying shares of Nike. Motley Fool newsletter services have recommended creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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