Dirty Big Secrets

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Hi there,

Investors may be in need of some self-care Saturday after digesting the headlines and market volatility this week. Analysts are advising caution and making grim predictions about the economy, which is at a critical juncture due to the war in Europe and rising inflation. It’s natural to worry about your money at times like these, especially with the dreaded word “recession” coming up, but sometimes less is more. Experts say young people investing for the long term are better off staying invested regardless of the ups and downs. Timing the market is extremely hard and historical data shows you can lose out on big gains if you pull out and sit on the sidelines.

Since we’re quickly approaching the final week of Women’s History Month, we want to refocus our attention on the glass ceiling in corporate America, those smashing it, and why there is a case for all investors to support them.

Many investors prioritize gender diversity because it’s a social cause important to them, but there are financial reasons all investors should care about it. The data says that companies that hired women as CEOs and CFOs got a boost in profitability, produced better than average stock returns, and had more female directors on the board. McKinsey reports women-led businesses outperformed their peers by 10%. Women in decision-making positions can also help retain and attract the best employees by bringing their unique insights to workplace policies. Considering the potential impact, some say increasing women in leadership roles should be an economic imperative.

There’s been progress in the last decade, including a push to get more women on boards, but we have a long way to go. Despite holding nearly half of all American jobs (excluding farms) and earning more college degrees than men, women are still woefully absent in leadership positions. In 2021, only 31 (6.2%) of S&P 500 CEOs and 41 (8.2%) of Fortune 500 CEOs were women; they held 31% of all S&P 500 board seats as of December. The New York Times famously drove the point home with a shocking and darkly funny statistic in 2015: fewer large companies were run by women than by men named John.

And sorry, Kim K, work ethic has little to do with it. Women have been systematically kept from climbing the corporate ladder, either directly due to bias, a lack of support and connections, and harassment in the workplace—or indirectly through inconsistent and expensive childcare and limits on paid family leave. A study of over 400 companies in North America revealed a “broken rung”: for every 100 men promoted to manager, only 86 women are promoted.

If you’re looking to invest in companies that care about their women employees and hire and promote them, make sure to check out our deep dive on diversity, equity, and inclusion (DEI) and our guide to gender lens investing.

News you can use

• Exchange-traded funds focused on agricultural products (here’s a list) are soaring once again as the war continues and we enter a global food crisis. Russia and Ukraine are major exporters of farm goods (Russia is the #1 producer of wheat and Ukraine is #5), and since the invasion, wheat prices have increased by 21%, barley by 33%, and some fertilizers by 40%, per the New York Times.
  
• The electric version of Ford’s iconic F-150 pickup truck can go up to 320 miles on a single charge, more than engineers expected. This is known as the range of an EV, and it was confirmed this week with EPA tests. Rival trucks from Rivian and Hummer have EPA-confirmed ranges of 314 miles and 329 miles, respectively, but Tesla is aiming for 500+ miles. The number of EV options in the US is expected to double this year, with 14 new SUVs, a van, and four pickups.
  
• This National Single Parent Day saw the launch of a new dating app. Match Group, which is also behind Tinder, Match, OkCupid, and Hinge, says Stir is aimed at the 20 million single parents in the U.S. and comes with a new “me time” feature to help them coordinate schedules and find time for dates.
• Booking.com made a commitment to get cleaner with its first Climate Action Plan published this week. The online travel company is aiming to reach near-zero emissions for its own operations by 2030 and net-zero emissions by 2040. It plans to get its plan validated by the Science Based Targets initiative (SBTi) — see how what you learned in last week’s edition comes in handy — this year.

Companies have to spill their “dirty” secrets soon

“What is your carbon footprint and how will you cope as the planet heats up?”

Those are the two burning (sorry) questions investors have for publicly traded companies, and regulators plan on getting them the answers. On Monday, the Securities and Exchange Commission (SEC), the federal body tasked with protecting investors and regulating financial markets, proposed its first-ever rule to make climate-related disclosures mandatory. The agency will take comments on it for 60 days before finalizing.

We can’t emphasize enough what a truly watershed moment this is for sustainable investing. The regulations are more sweeping and thorough than many investors and activists dared to hope for, but they’re likely to face legal challenges. A product of several months of work, the proposed rule is over 500 pages long. So unless you enjoy some exceptionally heavy reading in bed or on the toilet, we’re here to break it down for you.

What is it and why now? Corporations face financial risks from global warming, and they also have an impact on the climate themselves. Right now, disclosures on these matters are confusing as there has been no standard for companies, investors, or regulators to measure progress and promises. Disclosures have also been scarce: last year, just 21% of the Russell 3000 index mentioned total greenhouse gas emissions in their annual reports, sustainability reports, or company websites, according to The Conference Board. The vast majority (70%) avoided discussing the risks of climate change in annual reports.

If the new rule is passed as it is written (and we are expecting adjustments before this becomes law), companies will have to report on several factors, including:

• Financial impact: The effects of climate change and the green transition on financial statements and estimates, strategy, business model, and outlook.
• Carbon footprint: Details on use of carbon offsets, direct emissions (Scope 1), indirect emissions from purchased energy (Scope 2), and, where important, emissions from suppliers and customers (Scope 3). Scope 1 and 2 data from large and medium-sized firms will have to be independently verified.
• Net zero targets: Those that have set climate targets must disclose them and report on progress they’ve made. (All these details will make it easier to know how credible net-zero pledges are. Read our explainer on this from last week.)

How will it help investors? The new rules will give investors comparable and consistent information to make smarter decisions for their portfolios and invest in line with their values. In short, this could be a big step to reduce the “greenwashing” that FWIW readers have been working so hard to avoid.

Until now, as FWIW readers know, there have been no standards when terms like “ESG” or “sustainable” were used. The new SEC rule turns that on its head, providing investors with better insights by holding companies who make sustainability claims to clear standards with distinct reporting requirements that must be validated by the company and requires outside verification. As this works through the comment and, likely, legal process, we will keep an eye on it and update you on the latest news. Once this new rule comes into play, we will update our resources, but in the meantime Unpacking the ESG Alphabet Soup and How to Research ESG Stocks and Funds are up to date on today’s rules and are standing by to help as you start your investing journey.

​​What’s a stock split?

There’s the splits that make tabloid news, the splits you used to be able to do in elementary school, and the splits that create financial headlines. Since mid-2020, tech giants Apple, Nvidia, and Tesla have all split their stocks, and Amazon and Alphabet have announced they will follow suit in June and July, respectively. So, what is a stock split and what should you know as an investor?

What is it? When a stock gets very expensive — as Tesla did in August 2020 when it neared $1,500 a pop — a company may decide to make it more accessible to investors. When they split the stock, each individual share gets divided into more shares and the stock price of each is lowered. The change is automatically reflected in investors’ accounts. Any stock dividends per share are also reduced proportionately.

Think of it as slicing a pizza into eight slices instead of four. It’s the same deliciousness, but more people can have a slice. The total value of your investment and your ownership percentage in the company remains the same before and after a stock split. If you owned $500 worth of Apple before a split, it’s the same after, you’ll just hold more individual shares. The split always has a fixed ratio, like 4-for-1 or 20-for-1. In Tesla’s case, it was a 5-for-one split, which means each shareholder received four more shares for every share they held. Sometimes companies do a “reverse stock split” when they want to increase the price, which leaves investors holding fewer shares than before.

How do stock prices react? Although the split simply changes the total number of outstanding shares and doesn’t affect the fundamentals of a company—or the actual value of your investment on the day of the split—investors tend to celebrate stock splits and push the price higher. One explanation is that the market believes more people will be comfortable buying the stock at a cheaper price. Other experts see it as a sign that the company believes their stock is well-positioned to continue rising. According to Bank of America data cited by CNBC, since 1980, stocks that have split on average climbed 25% over the next 12 months, versus 9% gains for the S&P 500. The Wall Street firm pointed to the most expensive S&P 500 stocks as potential stock split candidates, including home construction firm NVR and restaurant chain Chipotle ($4,902.29 and $1558.34 respectively at Tuesday’s close).

Can’t I just buy part of a share? It’s true that many brokerages, like Charles Schwab and Robinhood, now allow you to buy fractional shares in high-flying stocks. As a result, stock splits may have lost some of their relevance.

Before you go -

Even the SEC is getting into the gamification trend. Take a look (and test your knowledge) on the SEC’s investing quiz. Then, tell us how you did and where you were tripped up so we can take a deeper dive into some of the areas where you would like to learn more.

Congratulations, you’ve made it all the way through the 39th edition of FWIW! We hope you’ve learned something that will help you along your investing journey. If you would like to join the FWIW team, we are looking to expand. Take a look at our open positions.