Is ITC a value buy?

The world is a complicated place for companies. Commercial, social, ethical, environmental and governance issues intersect and intertwine in many different ways. Companies and investors often talk about “doing good” and making “ESG” goals a priority. Governments try to enforce doing good through measures like mandatory CSR (corporate social responsibility) allocations.

Our contention is that it is not easy to identify or measure how much good or bad is being done by a company. In most cases, there are many grey areas and most companies have a tough enough time surviving, complying with laws and regulations, and producing a profit, without voluntarily devoting man-hours to being the primary provider of benefits to society, an area in which they really don’t have core competence.

A company must strive to follow the laws of the land in letter and spirit, be a responsible member of the local communities in which it operates, and that’s it. It is the government’s job to design for and provide social, environmental and other system-level benefits to society.

As an investor too, there is no point in trying to parse out the complexities of global commercial interactions to come up with a list of “good companies” and “bad companies”.

There is an important exception to this view, and that is tobacco companies. These companies are allowed by governments to continue selling their substances despite overwhelming evidence that these products are deadly for consumers and are net destroyers of wealth due to the extremely high healthcare costs that are imposed on society as a result of the consumption of cigarettes. At Shepherd’s Hill, we exclude from our investment funnel, companies that derive a large portion of their revenue from tobacco.

Other than in such rare instances when it is clear that the company is doing harm through its very existence, we tend to go light on definitive judgments of the goodness of corporations in a complex world.

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