Editor’s note: This column is part of InvestorPlace.com’s Ultimate Guide to ESG Investing.
With the rise of a new generation of investors, publicly traded companies no longer have the luxury of focusing on growth and profitability. Younger people are concerned about sustainability and promoting positive changes with their capital. Hence, in recent years, we have seen the popularity of ESG investing, or the support of organizations that champion constructive outcomes in environmental, social and governance matters.
At InvestorPlace, we’ve covered many companies that fall under the definition of ESG investing. However, it is also helpful to consider stocks that are on the opposite end of the spectrum. Indeed, when most people think about ESG, they immediately target oil companies. Certainly, some industries inherently run foul of the “E” portion of this acronym. But even in this case, some sector players promote superior practices.
More importantly, ESG investing “violations” do not always come from the usual suspects. For instance, boring companies can promote less-than-desirable governance. How so? A glaring example is executive compensation. If the big wigs of a corporation collect a hefty compensation package but the rest of the workers are left with very little, that could lead to poor morale. In turn, this may negatively impact stakeholder returns.
Further, sharp concerns about ESG investing can manifest in the sneakiest of ways. For instance, Americans today spend about six hours daily watching television. That opens up millions of people to substantial media influence. Therefore, businesses have an obligation to report truthful data, as well as promote content that is reflective of current mores.
Of course, some companies need coaxing that responsibility is good for the bottom line. Here are seven companies that are not quite making the cut regarding ESG investing:
- Sociedad Quimica y Minera de Chile (NYSE:SQM)
- Fox (NASDAQ:FOXA)
- Comcast (NASDAQ:CMCSA)
- Xerox (NYSE:XRX)
- Tencent (OTCMKTS:TCEHY)
- Nornickel (OTCMKTS:NILSY)
- The GEO Group (NYSE:GEO)
Sociedad Quimica y Minera de Chile (SQM)
As you know, electric vehicles have exploded into the mainstream recently, delivering some compelling stocks to buy. However, picking out the winners beyond Tesla (NASDAQ:TSLA) is a difficult ordeal. In the past, I’ve leaned readers toward considering the idea of lithium mining firms like Sociedad Quimica y Minera de Chile. Covering the one asset that all EV manufacturers need, SQM stock seems like a solid bet.
I’m not saying it isn’t, as I’m sticking with my bullishness toward the miner. However, if ESG investing is a prerequisite for your portfolio, you may want to look elsewhere. If I’m being completely honest, Sociedad Quimica has at one point violated all three components of this three-letter acronym.
Let’s start with the mundane. Within the past few years, Sociedad has fielded some questions regarding its accounting practices, which falls under the governance issue. More damaging from a PR perspective, though, is that lithium mining (or any kind of mining for that matter) isn’t exactly environmentally friendly. For example, soaring demand, which spiked up SQM stock, forced the underlying company to compete aggressively for scarce water resources.
Unfortunately, that competition puts SQM at odds with indigenous communities, which is a huge no-no from a social perspective. Also, it again runs counter to governance issues due to possibly unethical business practices.
Finally, SQM stock is the antithesis of ESG investing because it at least partially benefits from rabid Western consumerism. Yet indigenous communities suffer from it. Maybe it’s time to rethink the whole green concept with EVs?
To be fair, mining is mining, which won’t score high on environmentalism. Still, if you want to feel somewhat good about yourself, you may want to consider Kinross Gold (NYSE:KGC), which places a high priority on corporate social responsibility.
ESG Investing Losers: Fox (FOXA)
If you want to know what the antithesis of ESG investing is, simply tune into Fox News. One of the flagship assets of Fox Corporation, Fox News courted some controversy when a report revealed that watching only the conservative news channel makes you less informed than watching no news at all.
At the time, I didn’t understand. After watching its coverage during the novel coronavirus pandemic, I finally get it. Essentially, Fox News is President Donald Trump’s mouthpiece. The only problem is, I don’t even think Trump knows what he is going to say next, leading to some comically bad takes.
For instance, consider The Five co-host Greg Gutfeld’s perspective on Trump deliberately downplaying the coronavirus pandemic. Inexplicably, Gutfeld likens it to a doctor not panicking a patient when they see a spot on the patient’s X-ray. Well, doctors also have a responsibility to let the patient know what’s going on, not just leave them be.
You know, that would be unethical. And it seems such behavior has become par for the course at Fox News, which may impact FOXA stock.
Recently, Tucker Carlson sparked controversy when he welcomed Dr. Li-Meng Yan to his show, who claims that China manufactured the novel coronavirus in a lab. However, her claims have been widely discredited by mainstream peer review. Furthermore, Fox News keeps attempting to showcase the doctor, yet she brings no new evidence to the table.
It’s almost like Fox wants to start a race war within America, corralling the ignorant and naïve to stigmatize an already marginalized minority group. This is grossly irresponsible on all counts, making FOXA stock a huge violator of ESG investing principles.
While I’ve lost respect for Fox News due to their coronavirus coverage, I don’t want to give the impression that non-Fox channels are ESG investing saints. That would not be fair and balanced. So on this round, I’m going after Comcast, or what Trump refers to as “Concast.”
As you know, communities of color have been fighting for representation in media and entertainment for a long time. A few years ago, the hashtag #OscarsSoWhite sparked to life, calling out the lack of diversity in Hollywood. In response, some companies responded by showcasing more Black entertainers. Though a great step in the right direction, communities of color include more than just one demographic.
For instance, despite Asian Americans being the fastest growing population in America, it seems like their representation in media has declined. Well, your eyes aren’t deceiving you if you watch the Comcast-owned NBC. According to a 2019 report from the Asian Pacific American Media Coalition, NBC featured “only 12 recurring parts [for Asian American actors], down from 26.”
Now, don’t misread this, because the overall narrative for CMCSA stock will not be affected by this circumstance. However, if you value ESG investing, Comcast falls apart on the social aspect. As another example, consider NBC’s Today morning show kicking out journalist Ann Curry for disgraced Matt Lauer. This action also speaks very poorly about governance, specifically gender equality.
For a better media company ESG-wise, you may want to look at Disney (NYSE:DIS). Obviously, Disney has its warts. However, the Magic Kingdom scores highly on holistic diversity, which is a big deal these days.
ESG Investing Losers: Xerox (XRX)
One of the mistakes people may make regarding ESG investing is they assume that companies that don’t generate outlandish controversies are safe bets. However, nothing could be further from the truth.
Indeed, organizations that are not on the front page may be more liable for shenanigans because the spotlight is away from them. And Xerox offers us a great example of this dynamic.
On the surface, you wouldn’t expect XRX stock to make any negative lists. Sure, the company may be boring and irrelevant. And if it were not for the dividend, XRX would be incredibly frustrating to own. But some indicators suggest that this technology firm could be in a much better position if it deployed better governance and social awareness.
In 2019, Money Inc ranked Xerox as one of the worst companies to work for. Reasons for this included job dissatisfaction, according to a Glassdoor survey. Also, only 36% of Xerox employees supported former Xerox CEO Ursula Burns. Now, the CEO approval rate is 54%, which is an improvement, but a significant letdown compared to other vibrant organizations.
I think it’s also telling that only 43% of Xerox employees would recommend a friend working there. Unfortunately, it appears the iconic firm is falling short of its governance protocols and social awareness. For a company to truly shine, it must raise employee morale. Otherwise, you’re just going to bleed talent.
For a tech firm that scores high on employee concerns, check out Microsoft (NASDAQ:MSFT). Coincidentally, Microsoft recovered from its rough patch several years ago to become one of the most powerful, relevant entities.
Although any organization can run foul of ESG investing principles, it’s always the salacious companies that garner the most attention. And let’s be real — this is why you’re reading this story! So, let’s get right to it with Chinese tech firm Tencent.
As you know, relations between the U.S. and China are hardly on the up and up. In early August, Trump issued an executive order to address the threat posed by WeChat, Tencent’s messaging, social media and electronic payment application. According to Trump’s executive order:
“Like TikTok, WeChat automatically captures vast swaths of information from its users. This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information. In addition, the application captures the personal and proprietary information of Chinese nationals visiting the United States, thereby allowing the Chinese Communist Party a mechanism for keeping tabs on Chinese citizens who may be enjoying the benefits of a free society for the first time in their lives.”
Despite the rancor in our politics, this is actually a factor that can help Trump’s reelection chances. According to the Pew Research Center, most Americans have very strong views about the importance of privacy. Depending on the long-term impact of this ugly situation, the executive order could pose serious problems for TCEHY stock.
From a social media perspective, it’s hard to find a great alternative. But from a payment processing angle, you may want to check out PayPal (NASDAQ:PYPL). The platform features high trust among its consumers, which appears to be the antithesis of TCEHY stock.
ESG Investing Losers: Nornickel (NILSY)
As I mentioned above, mining is an ugly business if you’re interested in ESG investing. No matter what, you’re using heavy equipment to exploit the earth’s natural resources. Therefore, until we start mining asteroids, this will always be a very problematic industry.
However, there are bad actors, and then there is Nornickel. Formerly known as Norilsk Nickel after the Russian city to which it provides the most jobs, a name change won’t do its reputation as one of the worst ESG investing violators any good. Indeed, the hits just keep on coming.
In one high-profile incident, the Daldykan river in the industrial city turned blood red. Initially, Nornickel denied involvement. However, The Guardian reported that the company admitted “heavy rain had caused a filtration dam to flood into the river. The incident suggested that, despite Norilsk Nickel’s efforts, environmental concerns are far from resolved in what has long been called Russia’s most polluted city.”
Likely, such incidents won’t impact the broader narrative for NILSY stock. What makes this name so compelling is that it is tied to substantial palladium and platinum production, precious metals that have both monetary value and strategic importance.
Still, as an ESG investing platform, NILSY stock is a mess. Sadly, it has a long history of pollution, as well as creating negative health impacts for Russian people. On all fronts, this is an acronym crook. However, it has the potential for significant upside, especially in this environment, which keeps shares in the game.
The GEO Group (GEO)
If Trump wins a second term, it’s possible that The GEO Group could see its market value increase. That right there should tell you all you need to know about its ESG investing cred.
According to GEO’s website, the company is a “global leader in evidence-based rehabilitation.” Do not be fooled by this corporate double-talk. Put very simply, GEO is a real estate investment trust that specializes in private prisons. In other words, the company makes money off prisoners.
We used to call that slavery. Now, it’s evidence-based rehabilitation. This is grade-A nonsense.
If you need me to explain why GEO stock ranks poorly among ESG investing candidates, you may just want to stick to watching Fox News. This is the kind of red pill that could end up frying your brain. More importantly, I don’t want to be held liable.
Admittedly, some folks can make the argument that prisoners under private penal institutions learn job skills. From there, the transition to free society should be easier. However, many people have a huge moral issue with profiteering from others’ mistakes. Yes, prisoners are paying their debt to society but that doesn’t mean they should pay directly to you.
Moreover, the social equity discussion that we’re having today makes GEO stock a completely tone-deaf investment. From an ESG perspective, this has got to rank as one of the worst of the worst. And no, there are no better alternatives. This industry is inherently toxic.
On the date of publication, Josh Enomoto held a long position in gold, palladium and platinum.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.