Facebook’s Fall: Why Considering ESG is Important in the Investing Process
August 3, 2018 By Sage Advisory
Long before Facebook revealed that 87 million users’ data may have been breached (April 2018), and even before it was revealed that Ted Cruz’s presidential campaign retrieved Facebook users’ data without their permission (December 2015), Facebook had a Sustainalytics Controversy Score of 3 (on a 1-5 scale) because of data privacy issues. While Facebook’s stock has had some jolts and recoveries, which is typical in the days surrounding company “incidents,” it was, until very recently, up by triple digits since mid-2014. Until the stock fell 19% last week, it might have been difficult to make a case against investing in Facebook given the stock’s ascent. To be sure, those who made bets against Facebook have seen a pay-off.
Facebook’s Stock Price
Source: Yahoo Finance
For as long as it’s been controversial, the company has been screened out of Sage’s Environmental, Social, and Governance (ESG) security selection process because of its controversy score alone; we don’t invest in companies with a controversy score higher than 3 (Facebook’s current Controversy Score is 4). The consideration of Controversy Scores is just one factor Sage considers when analyzing securities through our ESG Framework. We also analyze each E, S, and G factor, as well as impact and impact intensity. We believe companies that have high standards for ESG – in Facebook’s case, there’s a lack of Social integrity – build sustainable business models and create sound investment opportunities. That being said, Facebook could be an opportunity worth looking at if it’s valuation becomes attractive, and it has a positive controversy outlook. As of now, it has neither.
Sage ESG Investment Approach
Source: Sage Advisory
Facebook Controversy Outlook
Source: Sustainalytics
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