As an impact investor, you don’t only need to find suitable companies that meet your moral standards. You also need to avoid the companies that have been found to break your definition of “good.” While there are lots of companies with high ESG scores, there are still more than a few that aren’t good for impact investors.
Companies with low ESG scores are those that take little to no effort when it comes to ESG-related projects. It could also be a company with a string of controversies trailing behind its name.
Companies are usually rated with their current steps with regard to ESG projects. They’re also given higher scores if they have better plans for the future. ESG ratings vary from person to person and from firm to firm but we all have an idea of what’s considered as generally good.
If you’re an impact investor, then you definitely want to avoid supporting some of these companies.
While tough, it’s not completely impossible for mining and oil companies to achieve a good ESG rating. Due to the nature of their work, most of these companies suffer from the environmental aspect of ESG. This is what Transocean – a multinational oil mining company, suffers from right now.
The brand has a significantly low score because of potential faults in oil spills located in Brazil and the Gulf of Mexico. Additionally, the company doesn’t have any clear plans when it comes to adapting alternative energy practices which can lower its environmental impact in the future. Transocean also fails to disclose its water intensity impact practices.
Aside from that, Transocean also suffers from a poor social score rating. This is because of regulatory investigations related to their negative social impacts. There’s also no female director on the board of Transocean which raises diversity and gender equality concerns.
Skechers is a leading brand when it comes to sports and lifestyle apparel. Its consistent stream of quality products that cater to various demographics helps the company achieve high financial scores on an annual basis. However, there are a few pressing issues that are related to Skechers.
While the company does a good job when it comes to maintaining sustainable practices, Skechers does suffer from social and governance problems.
It has a low social score because the company has combined its CEO and chair positions. The company also refuses to undergo a non-independent audit committee. Skechers is yet to provide any clear plans on how they plan on solving these matters.
Skechers also has a low social score because of regulatory investigations into its Shape-Ups line of shoes. It also has no female directors and it lacks a formal policy for reporting its campaign contributions as well.
No other streaming platform out there is as big as Netflix. As the undisputed king of streaming, there are people who are expecting a lot from Netflix when it comes to their ESG efforts but alas, the company is far from being an ideal impact investing choice because of a few problematic controversies.
Over the last couple of years, Netflix has been under fire for numerous problems with its content. For instance, people didn’t like how Netflix depicted suicide and depression in the show, Thirteen Reasons Why. The controversies behind Netflix go above and beyond the content that they deliver though.
Netflix has also been under scrutiny for various governance-related issues such as insider trading, tax avoidance, and even employee poaching. Aside from the fact that there is more competition for Netflix right now, its lack of ESG-related projects might be a good enough reason to avoid this for impact investing.
Chesapeake Energy (NASDAQ:CHK)
Chesapeake Energy Corporation is a US-based exploration and production company. The company was able to produce around 463,000 barrels of oil in 2021. As expected, the brand suffers from a few environment-related concerns which make it a bad choice for impact investors.
In that regard, the brand has a low environmental score because of its CO2, Water, and Waste disclosure practices. It’s significantly worse than most of its competitors which is a big penalty on the ESG rating. Additionally, Chesapeake Energy is also yet to implement any alternative energy plans for the future.
The brand has a low governance score as well. It’s because of its overboard directors and its constant ignoring of shareholder proposals. The company has also been put under the limelight because it has the ability to remove directors without probable cause. These are just a small sampling of how it fails in governance.
It may have been one of the prominent names during the pandemic but Pfizer hasn’t performed exactly well over the last couple of years. It’s most likely because of the company’s significantly low ESG scores which make it a tough choice for many people who are avoiding brands that could be considered controversial.
The governance score of Pfizer suffers for many reasons. The most pressing of which is that it has an unusually high CEO compensation. It also significantly votes against pay practices, discretionary incentive pay, and much more. Pfizer also ignores shareholder proposals which is a big mistake.
Pfizer’s social score also suffers because of regulatory investigations into certain drugs. Companies dealing in drugs aren’t always safe choices for impact investors because they are usually prone to serious social problems which could drag down their stock prices.
The pharmaceuticals giant might be a prominent name especially during the pandemic but outside of that, it’s still a bad choice especially for impact investors.
Oracle was seen as the third-largest technology company in 2020 by market capitalization. The company has performed significantly well even to this day which is tough in such a competitive industry. Sadly, Oracle’s great financial performance is often outshined by its poor ESG rating/
The brand has a significantly low score when it comes to social aspects. It has been criticized for its failure to endorse international labor recommendations, as well as for numerous workplace safety violations. Oracle has said before that they are taking steps to solve these matters but no exact plan has been detailed yet.
When it comes to governance, Oracle suffers due to high CEO pay with no performance targets, entrenched board, and a lot more. As pressing as these issues may be, what’s good is that Oracle takes a lot of time and effort into ensuring that their environmental projects are always good and effective.
Walmart is a key player in the retail sector in the US. It gains a consistent stream of revenue through its store and when it comes to financial performance, Walmart is pretty tough to beat in the industry it’s in. However, Walmart’s good numbers do hide a few pressing matters that are worth looking into.
When it comes to its ESG rating, Walmart performs particularly low when it comes to its social score. It’s because of the fact that the brand has been involved in various controversies within the workplace.
Over the last couple of years, Walmart has been under fire for its use of sweatshops and its failure to endorse international labor policies. Outside of this, Walmart has been found to violate workplace safety standards, and it’s also fighting through numerous bribery cases.
Xerox is one of the bigger names on this list. Despite its massive contributions in the field of print and digital documents industry, Xerox has its fair share of criticisms and scandals that make it a bad pick for those that want to take the impact investing route. In terms of ESG, Xerox isn’t as impressive as it should be.
The company is a major offender when it comes to the social and governance aspects of ESG. The company has been rated as one of the worst places to work in 2019. Aside from poor working conditions, Xerox is guilty of declining job satisfaction as well making it the center of major criticisms.
Xerox is yet to address any of the issues that it’s facing which is why it’s not a good pick for those that want to consider impact investing.
EchoStar Corporation (NASDAQ:SATS)
EchoStar Corporation is a Colorado-based, worldwide provider of satellite communication and internet services. It provides these services via its Hughes Network Systems and EchoStar Satellite Services subsidiaries. As a global leader in the industry, people expect a lot from EchoStar, especially with regard to transparency.
EchoStar’s low ESG rating is often attributed to its disclosure of important data. Those include employee health and safety, carbon emissions, and many others. While this pressing matter doesn’t necessarily mean that EchoStar isn’t taking any ESG steps, it’s still questionable that they refuse to reveal such data.
It has recently volunteered to reduce its energy usage on set-top boxes. However, no exact plans have been revealed on how it will achieve this feat for now.
The Bank Of New York Mellon Corporation (NASDAQ:BK)
The Bank of New York Mellon, also called BNY Mellon is a US-based investment banking services provider that are headquartered in New York. It’s a very popular brand for investors looking to find brokers and such. However, the company itself is generally avoided due to its questionable ESG score.
BNY Mellon has a low governance score for many reasons. These include high CEO pay with no performance target, ignorance of shareholder proposals, inadequate audit committee, and a lot more. People have high expectations from BNY Mellon in this regard because they handle finance-related matters after all.
BNY Mellon also has a low social score because of financial crisis fallout investigations. It has also failed to endorse international labor policies, as well as numerous workplace safety violations. For now, the brand is yet to reveal any major steps they are taking to solve these matters.
Wells Fargo (NYSE:WFC)
Wells Fargo is a multinational financial service provider that operates mostly in the US. It’s one of the most prominent brands in the industry which is why a lot of investors add this to their portfolios. In reality, however, Wells Fargo suffers from quite a few internal problems which make it a bad choice for impact investors.
For starters, the company has a particularly low score when it comes to governance. It has been criticized for high CEO compensation without performance targets, overboarded directors, non-independent audits, and much more. Till now, the brand doesn’t have a clear plan on how it plans to resolve these matters.
It also has a low score in social factors. It has been criticized for discrimination against minority borrowers, anti-competitive behavior, failure to endorse international labor policies, and even numerous workplace safety violations. For such a large brand, people had hoped better for Wells Fargo in this regard.
Finding The Bad Companies
Before you do research into potential impact investments, make sure that you understand what your ESG criteria are first. The definition of good varies from person to person after all. For instance, some people might put more emphasis on supporting brands that support the environment well.
Bear in mind that companies are usually transparent about their ESG plans. If the company you are planning on supporting fails to show any good CSR or ESG plan, then it might be wise to look at other investment options instead of this. ESG plans might not be ideal short-term investments but they’re still good long-term.
Where Should You Invest Your Money?
It’s without a doubt that these brands are not really safe to invest your money in if you want to do impact investing. While they’re still good performers financially, ask yourself if it’s really worth risking your values for the sake of small returns. Also bear in mind that these companies are always at risk of severe downtrends if they make problematic decisions.
There are lots of highly rated ESG companies out there and with a little research, you can definitely find ones that are worth your investment. If you’re having trouble getting into impact investing, then you might want to consider going for broker services or robo-advisors instead.