Is Dupont a Sustainable Investment?

How Companies Transform or Get Transformed

April 28, 2015

Few companies have been through as many changes as Dupont over the years. As a result, they are worthy of a closer examination as regards sustainability in a number of ways, perhaps especially:

1)  What a company has to go through to really change themselves once they recognize they need to change

2)  How the view of activist shareholders can affect a business

Dupont is a company that has been through a lot.

Their sustainability approach is unsurpassed in many ways. Witness this statement that they feature prominently at their website:

"Sustainability is at the core of what we do - from reducing our operational footprint and creating market-facing sustainable solutions, to addressing the global challenges of the future. As the global population continues to grow, we face unprecedented challenges in sustainably addressing some of the world's toughest problems. Feeding the world, decreasing our dependence on fossil fuels, and protecting people and the environment are all critical issues that require long-term thinking and science-driven innovation. However, we recognize that we can't do this alone. Around the world, we are working with academia, governments, other companies and non-governmental organizations to deliver scientific innovations that lead to long-term, viable, sustainable solutions along our value chains."

They publish one of the most detailed Sustainability Reports filled with ambitious goals, statements from the C-Suite and the fact that they met their targets two years early is also impressive.

Most don't realize that Dupont is no longer a chemicals company. They are now primarily focused on science-based solutions.

Their longer transition goes way back.

Now a 214-year old company, Dupont has its roots in weapons manufacturing going back well before the Civil War, even before the War of 1812. But it was in the late 1990's that the company saw the sustainability trends coming and tried to figure out how to transform.

As we detailed in our case study for the UN Global Compact's Value Driver Model work, in 1998, then Chairman Chad Holliday was already driving the company to be more environmentally efficient, but asked

"We are doing a good job of doing less bad, how do we go about doing more good?"

With that came divestiture of Conoco, their petroleum business, in 1999 and a move towards more energy efficiency and greater focus on sustainability-advantaged revenue, which over the last few years, had become half the business and growing at over 5 times the rate of the company's overall  revenue.

Development and successful management to risk metrics specific to the business also helped drive Dupont's success financially. As an example of this success, Dupont has dramatically outperformed oil companies such as Conoco since that spinoff, even given that sector's strong run in the 2000's.  Over the last two years, Dupont is up over 38% while Conoco is up just under 12%.

Which brings us to our second point. Here is a company transforming itself from plastics, oil and chemicals to becoming a scientific solutions provider. Yet that isn't enough for some shareholders.

Nelson Peltz of Trian has stepped in as an activist investor looking to improve the company's productivity and seeks board positions and to have the company split up even further.

In our case study above, we saw 6 Billion dollars of energy and resource efficiency savings from 1990 through 2011 and in fact the company only tracked the first year of savings of their initiatives so the total dollar saving figures are in actuality higher.

With sustainability trends such as resource constraints, fresh water, and food shortages deemed likely, Dupont's present strategies may well uniquely position the company going forward on the back of its very long-term success as a transformational business.

Which makes it even more surprising that ISS the Proxy firm has backed the activists in this case. These are corporate raiders who do not have the long-term interest of the company in mind. The vote on board members is scheduled for May 13, and the company did go up on the news, but a larger question now exists on who is best positioned to ensure companies do what is best for the long term while also helping ensure solid short-term returns are achieved?

Apple and many of its shareholders such as CalPERS pushed back hard on Carl Icahn, who remains a large shareholder, and who sees the company becoming the first worth $1 Trillion. Apple is long an example of a company we have seen as a key sustainable investing play. Dupont is similar.  

When will activists step up and insist that companies do the right thing both for the long term while also paying off now. Apple is doing that, so has Dupont. A portfolio of companies such as these would seem to position investors well, providing solutions and services that people want now and will need tomorrow.

Update (5/18/2015):  Peltz and Trian were recently rebuffed in their efforts to install further change at the company. Investors will certainly continue to watch Dupont to make sure their plans are well considered and sustainable.  Given their ongoing transformation and having come through this experience, they may well be even better positioned now for a future where sustainability increasingly drives potential financial success.