Narrow-Moat General Mills Is Making Progress on Its ESG Initiatives; Shares Fairly Valued

At its second annual investor meeting focused on environmental, social, and governance (ESG) issues, narrow-moat General Mills discussed its progress toward its ESG goals, which are focused on four issues imperative to its business: regenerating the planet, protecting its people, strengthening the communities in which it operates, and improving food security. While these initiatives should undoubtedly benefit society, as investors, we must address how they should impact valuation. Despite the required costs, we view these efforts as crucial for the long-term health of the business and a prudent use of company resources. General Mills relies heavily on agricultural commodities, and its investments in regenerative agriculture (which improves soil health, reduces erosion, and slows global warming) should help ensure it has access to affordable ingredients for years to come. Further, many of its initiatives should result in cost savings, such as optimizing logistics, reducing packaging, switching to renewable energy, and moving to zero waste. We expect other required investments to be offset with savings identified via its holistic margin management program and strategic revenue management.