7 min read

Is this the Green life? Is this just Fantasy?

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Thanks for opening this email! This is the 33rd edition of FWIW and we are happy that you have joined us this week. The most clicked story from last week’s edition was “Corrections triggers and bears, oh my!” and the resource that is getting the most clicks this month is “How to Research ESG Stocks and Funds”.

It’s the season of love, sports, and interest rate hikes as inflation reaches a 40-year high. Athletes are performing spectacular feats in Beijing, and millions of Americans are expected to gather around the TV on Sunday for Super Bowl LVI. The commercials, halftime show, and snacks are all big parts of football’s biggest night, and there’s another phenomenon that may soon join that list — online sports betting.

Ever since a federal ban was lifted in 2018, placing wagers on sports has exploded in popularity, and it’s mainly because 18 states allow you to do it on an app on your phone. Analyst projections vary, but there is a consensus that the US online sports betting market is already large, and growing into the $30-50 billion range rapidly. No wonder DraftKings was one of the hottest SPACs in 2020... However, since it’s now possible to bet on every play during every game with a few taps (we are still waiting for reports of bets around Bing Dwen Dwen sightings), public health advocates worry about a potential gambling addiction crisis. There’s also concern about match-fixing.

Even if gambling isn’t your cup of tea and sports stats bore you to tears, the evolution of this industry, and any negative impact or regulations that follow, may be relevant to you, the values-aligned investor because it’s possible you already own a part of it.

Here’s how.

Gambling companies, like the ones with casinos in Vegas, have traditionally been part of the “sin stocks” category, and it’s common for broad ESG funds to avoid them. But online gambling can turn up in portfolios in unexpected ways. Media giant Fox has started its own betting app and others could follow. Major platform DraftKings is held in 86 ETFs, including some focused on growth, technology, millennials, and low-carbon tech. Notably it’s a part of three of Cathie Wood’s ARK Funds products, including the flagship ARK Innovation ETF. It’s also in the Vanguard Growth ETF, Invesco NASDAQ Next Gen 100 ETF, Invesco NASDAQ Internet ETF, and MSCI ACWI Low Carbon Target ETF.

For those who want to avoid finding these stocks in their ETFs, it can feel like picking the salty small fish, tropical fruit, or Mexican chilis no one wants off their Super Bowl pizza. (Don’t @ us, but we’re team pineapple on pizza over here.)

News you can use

Graphic of newspaper with magnifying glass

And speaking of sports and fitness… Peloton stock is on an endorphin-releasing climb ride this week after announcing that their CEO is stepping down and that they are cutting 2,800 jobs. The fitness tech firm is being forced to get leaner amid orders slowing down and activist investor pressure.
Revenues in the cloud infrastructure market reached $178 billion last year, up from $129 billion in 2020. As data centers grow more crucial to how we work, play, and socialize, market leaders like Amazon, Microsoft, and Google are under pressure to use renewable energy to power them. Read our take on green clouds here.
Apple is making history at the Oscars this year. CODA, an indie comedic drama it acquired for $25 million in January, is the first film led by a predominantly deaf cast to get a Best Picture nomination. The feature’s Troy Kotsur is also the first deaf male actor to land a nomination.
California’s civil rights agency is suing Tesla after it received hundreds of complaints from factory workers about racial harassment and discrimination. The EV maker’s Fremont plant has been the subject of several lawsuits, including a sexual harassment case late last year.
The global herd of “unicorns” – private companies worth at least $1 billion – crossed 1,000 for the first time this month, so maybe not so rare anymore. Public debuts on the US stock market have slowed down this year due to volatility, and the performance of recent IPOs and post-merger SPACs haven’t been all rainbows, especially for EVs.

The Gray-Zone of Greenwashing

Coined in the 80s by an activist rolling his eyes at “save our planet” signs above hotel towels, “greenwashing” has emerged as a useful term to raise awareness about false or deceptive advertising about a product’s natural qualities and environmental impact.

As consumers, we’re learning to be savvy and scrutinize products in green packaging covered with leaf graphics and other eco-friendly signifiers. 100% vegan and natural? Gentle and clean? That’s our cue to take a magnifying glass to the ingredient list and do some more research on those claims.

But greenwashing also affects sustainable investors, since it can make a business appear like a responsible steward of the environment and shift the focus away from any harmful activities.

For example, beverage manufacturers can talk about developing sustainable packaging while remaining major plastic polluters. Plant-based meat makers may claim to help the planet while keeping quiet on their emissions. Ridesharing platforms can say they’re helping the environment by reducing the number of cars on the road, even while reportedly increasing the number of miles driven. Banks’ massive lending to the fossil fuel industry is a major turn-off to certain investors while they may, at the same time, promise to make all-important loans to sustainable initiatives, blunting some of the criticism.

It’s easy to define, but greenwashing can be hard to detect.

Here at FWIW, we are all about progress and have yet to find a perfect company — so it is important not to throw out the proverbial baby with the polluted bathwater. There are many good actors taking significant steps forward and many sustainability focused investors look to support companies when they step up on these key issues and not wait for perfection. JUST Capital has examples of companies setting climate targets the right way. Tools like the CDP, rankings, or expert analysis like Carbon Market Watch’s new report can help separate the good from the okay and the just bad. It’s important to ask questions like, do they measure total greenhouse emissions across operations? And, do they have a clear target and a roadmap to reach it not too far in the future?

As for funds, ask to what extent ESG factors are being used in selecting holdings. As You Sow’s Fossil Free Funds can analyze the fund’s footprint and ETF.com’s stock finder can help you check whether a stock you want to avoid is included.

Moreover, climate activists are expected to go to court and regulators are stepping up their game. The SEC has created the Climate and ESG Task Force to investigate greenwashing and is looking to make climate-related disclosures mandatory. The FTC may give its Green Guides some teeth when it reviews it this year. Tech startups are developing ways, including AI, to rate carbon offsets and detect greenwashing. Help is on the way.

Your (super)power as an investor

When you see a company acting in a way you don’t approve of, either because it hurts long-term value or it doesn’t align with your values, you have three options: sell, engage, or ignore. Selling in such a situation is a simple way to practice socially responsible investing. But you can also use your shares to push for change. Unfortunately, most shareholders don’t exercise this right.

How does it work? All public companies have to hold annual general meetings where shareholders can vote on important decisions. Since most can’t physically attend these meetings, they have to vote in advance through a representative, aka voting by proxy. Ahead of the meeting, companies share a document about their financial performance (annual report) and a proxy statement. This includes the meeting agenda, director bios, shareholder proposals, and a voting instruction form for your broker/bank that tells them how to vote on your behalf.

What about mutual funds and ETFs? If you own stocks through funds, the asset manager (BlackRock, Vanguard, State Street, etc.) votes on your behalf and you can pressure them to use their large market power to vote in line with your values… or move your money to an ETF or mutual fund that does.

What are we voting on? The most impactful matter shareholders get to decide is the election/re-election of the members of the board. They also have to weigh in on compensation for top executives, and although the company doesn’t have to accept a rejection, it usually does. Management also has a choice whether or not to accept outcomes from votes on proposals submitted by shareholders. These are called non-binding shareholder resolutions.

Do these proposals even matter? From July 2017 to December 2019, 94% percent of ESG shareholder proposals that received over 50% support were fully implemented, according to BlackRock. For ESG proposals that received 30-50% support, close to half (49%) were fully met.