Your ESG fund could be invested in Facebook
Facebook is aware of the real damage being propagated by its platforms and has ignored warnings from employees about the dangers, according to the Facebook Papers, a series of articles published by 17 US news outlets as of Friday.
Earlier this month, the Wall Street Journal reported that the platform is being used for sex trafficking, helps spread misinformation about vaccines, and harms the mental health of users, especially young users, between other allegations.
With such negative claims – which the company says are not true – some investors might be surprised to learn that Facebook is often owned by mutual funds that say they take environmental, social and governance factors into account, or ESG, when selecting investments.
It is included in the Vanguard ESG US Stock fund, for example, as well as the FlexShares STOXX US ESG Select Index Fund, among others.
The recent allegations, backed up by thousands of pages of internal Facebook documents, fall far short of what investors consider socially responsible, says Andrew Behar, CEO of As You Sow, a non-profit foundation that promotes social responsibility enterprises. A company that targets products aimed at minors despite its own research showing some teenage girls have committed suicide is not what many socially aware investors want their money to support, he says.
“I think Facebook violates all kinds of ESG definitions (…) regarding hate speech, voter fraud, criminal activity,” Behar said. “It really should be removed from an ESG fund.”
A Facebook representative told CNBC Make It its ESG section in its proxy statement in response to a request for comment for this article.
What does sustainable mean?
Sustainable investing, another way of referring to ESG, is increasingly popular, reaching record inflows in 2020. Investors, especially younger ones, want their money to go to companies that they believe they have a good track record of not contributing to climate change and treating their employees well.
But there is no agreed standard for measuring ESG factors. Fund companies create their own metrics to measure the sustainability of a business in different areas. Different funds with similar objectives often own different companies, depending on how the fund manager rates companies.
“ESG funds are often not ESG,” explains Behar. “They can define ESG however they want in their prospectus.”
Facebook could be included in an ESG fund because it performs relatively well in terms of environmental considerations, according to S&P Global. MSCI, one of the world’s largest index providers and ESG researcher, ranks Facebook as a leader in carbon emissions and an average for factors such as corporate governance and privacy and security. data. Fund managers could look at this and decide it’s acceptable to include.
Funds also need to perform well, otherwise no one would invest in them. This is why so many so-called sustainable funds are stored in FAANG companies – including Facebook, Apple, Amazon, Netflix, and Google (or Alphabet) – which are often among the top performing stocks in major indexes.
ESG supporters say companies can do good and perform well. In fact, the Biden administration recently argued that having a good ESG rating can lead to better performance over time.
But the inclusion of Facebook in ESG funds shows the conversation is complicated, says Behar. In 2019, the company was actually excluded from an index of tracking companies that follow socially responsible practices amid user privacy concerns. But others still include it.
Behar says he expects more sustainable funds to drop out of the company after the recent revelations. “I know the real ESG funds are ditching Facebook, I don’t know the fake ones,” he says. “It will be a test.”
The social media platform isn’t the only dubious company in ESG funds. Other big tech companies, for example, have their own patchy records on human rights, the environment and other issues, and yet are often included, Behar says.
And ESG funds are often more expensive to invest than a standard index fund due to the time and research fund managers devoted to selecting companies, which means individuals could pay more to invest in a lie, says Behar.
Ultimately, it’s up to individuals to research the funds they’re interested in and decide for themselves what they’re comfortable with. But even that is complicated for the average investor, says Behar. Typically, investors look for funds by researching their prospectus. But these only include the top 10 holdings of a fund. They can also check on a site like Morningstar.
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