Socially Responsible Investing? It's Complicated
It takes a lot of time to do the research to make sure a company is compatible with your values.
Shortly after it came to light that data analysis firm Cambridge Analytica collected information from tens of millions of Facebook users without their permission—and that Facebook wasn’t doing much to police such breaches—I decided it was time to sell my 100 shares in the social media company. When I bought the stock a couple of years ago, I liked the growth prospects for the company. And I had experienced firsthand the positive power of the platform. Even my 87-year-old mother has an account, which she uses to keep up with her friends and grandchildren.
But the revelations that Facebook management had been lax in protecting users’ data in the pursuit of profits rubbed me the wrong way. When I told my wife I had sold the shares (they were in my IRA, not a joint account), she asked: “Did you delete your Facebook account, too?”
No, I did not, and therein lies a problem with socially responsible investing (now often called ESG investing, for “environmental, social and corporate governance”). It takes an enormous amount of time to do the research to make sure a company is compatible with your values, and even then you may not be privy to the dark underbelly of a company’s management practices until revelations come to light much later. And then there’s the consistency factor: If I’m taking a stand against Facebook’s corporate practices, shouldn’t I also go all-in as a consumer and delete my account?
We take a look at Facebook and five other stocks that have recently been buffeted by controversy, pointing out that bad news sometimes creates a rare buying opportunity for a good company. We offer our take on whether to buy, sell or hold shares. But we don’t give our own opinion on the ethics of the companies embroiled in the controversies—the social responsibility factor. Kiplinger believes that our mission is to evaluate investments based on performance and prospects. It’s your call whether an investment conflicts with your values.
Social investing made easier. I like to invest in the stocks of companies whose products or services I use and admire, and I stay away from tobacco and big oil stocks. But a deeper dig into my holdings uncovers inconsistencies. For example, I own shares of a natural gas producer, and although I was appalled by the actions of Wells Fargo, I indirectly invest in the bank via my Berkshire Hathaway B shares, and I still have a checking account with Wells. Plus, I own Vanguard 500 Index fund in my 401(k), which by definition invests in Facebook—not to mention tobacco and oil stocks.
As I said, it’s complicated. When you’re researching a stock, the ESG ratings from Sustainalytics can be a big help. The company sells sustainability research to investor clients, and its ratings are now available on Yahoo Finance. Sustainalytics evaluates how well companies manage environmental, social and governance issues and compares the ratings with those of their peers.
If you invest in funds, you could let a pro decide for you. That can be tricky, too, because many ESG funds paint social ills with a broad brush and ban investments (in, say, gambling and guns) that may not bother you. One fund firm that takes a balanced, nuanced approach and earns excellent returns is Parnassus. (Parnassus Mid Cap is a member of the Kiplinger 25, the list of our favorite no-load mutual funds.)
Meanwhile, Kiplinger has a “buy” recommendation on Facebook. In late April, the company launched a massive “Here Together” ad campaign that promises that things will be different. I hope so.