Trillion-dollar tech club including AAPL and AMZN needs better ESG
It’s difficult to imagine a 21st century society without the technological products produced by Alphabet, Amazon, Apple and Microsoft – all of which rank high among the world’s most successful businesses, with a combined market value of $8.55trn (£6.4trn, €7.5trn).
These companies have also been the long-term darlings of investors, thanks to their rock-solid profitability. But how do their environment, social and governance (ESG) credentials stack up in a world that is fast waking up to the reality and challenges of climate change? As the COP26 global climate summit held in Glasgow, UK, came to an end on Friday, the business world has been abuzz with debates on how fast companies must act to improve their ESG standards.
In view of the urgent issues and challenges of climate change, now is a good time to evaluate just how well some of these best-known tech companies are actually walking their ESG talk. In order to do that, we will refer to the ESG ratings system produced by MSCI – a leading benchmark for assessing a company’s ESG credentials.
Tech giants’ lacklustre ESG performance
The trillion-dollar tech club’s collective ESG profile is rather lacklustre relative to the success of their main businesses, going by the MSCI ESG Ratings data.
Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT) are lagging behind a majority of their peers mostly due to governance-related concerns, the ratings data show.
Microsoft, while highest-rated among the four in terms of its ESG performance, also has a weak corporate-behaviour rating and is an only average performer in terms of its carbon emissions-reductions targets.
An increasing number of global investors are now coming round to the view that incorporating ESG standards into portfolios need not mean a trade-off with their more traditional financial goals.
While ESG considerations will differ across industries, the MSCI ESG Ratings data takes this into consideration when evaluating a company. Their key issue framework outlines the different factors taken into consideration depending on the industry particular industry involved.
The ESG rankings – marked from AAA to CCC – are based on publicly available information. MSCI also details specific areas in which the company is a leader, within the average or a laggard in relation to their peers.
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Alphabet (GOOGL): ESG rating BBB (cut from AA in 2020)
The stock price of Alphabet – the parent company behind Google – has rallied more than 75% over the past 12 months, and has continued to remain in an upward trend after the company delivered impressive financial results for the third quarter.
Positives: During 2020, Alphabet issued $5.75bn in sustainability bonds, the largest-ever corporate green-debt offering. The firm has allocated funds to its commitment to remain 100% carbon-free, a target that was reached in 2017. The company has multiple global partnerships to source clean energy.
- A 2019 investigatve report by the Wall Street Journal, based on more than 100 interviews and the newspaper’s own testing of Google search results, suggested that the internet giant had interfered with search results due to pressure from governments, businesses and other groups.
Amazon (AMZN): BBB (upgraded from BB in 2019)
Amazon’s share price has risen by about 120% from the lows seen in March 2020, when the coronavirus outbreak roiled global markets, as its online retailing business boomed during the pandemic lockdowns.
Positives: Amazon has made a pledge to be net-zero in carbon emissions by 2040, and has also pledged to power its operations with 100% renewable energy by 2025. Amazon has a dedicated Climate Pledge Fund and has backed a number of clean-energy start-ups – the most recent being Rivian Automotive. The company has been working towards this target by making investments in solar energy, which are intended to power its operations.
Concerns: Amazon has come under criticism for the allegedly poor working conditions at its warehouses. The firm is currently in a legal battle with the New York Attorney General over workplace-safety issues. It has also faced protests from a workers’ union in Alabama over social and governance practices.
Apple (AAPL): BBB (downgraded from A in 2020)
Although Apple recently lost the top spot for world’s most-valued company to Microsoft, its stock price actually rose by about 25% between June and September this year. The maker of iPhones and iPads saw its most profitable quarter ever at the end of last year.
Positives: In April 2020, Apple’s corporate operations became carbon-neutral, and it has committed to a similar outcome by 2030 for its supply chain and products. The company has achived this by using sustainable materials and investments in renewable energy. Apple is the first US firm to back mandatory ESG disclosures proposed by the US Securities and Exchange Commission (SEC).
Concerns: Recent months have seen allegations of employment issues within the company, which are currently being investigated by the US Department of Labor. This has given rise to the so-called #appletoo movement on Twitter and other internet plaforms. Apple isn’t featured on Bloomberg’s Gender-Equality Index (GEI).
Microsoft (MSFT): AAA (unchanged since 2018)
After dominating the personal-computer software market for decades with its Windows operating systems and the Office suite, Microsoft has more recently positioned itself as one of the leaders in cloud computing with its Azure platform.
The software behemoth remains highly rated in its industry for ESG standards, which has perhaps contributed to its stock price gaining about 56% in the past 12 months. Its investors have also enjoyed a 0.75% dividend yield.
Positives: Microsoft has been consistently releasing sustainability reports outlining their ESG commitments, including their energy-efficiency targets. The company aims to be carbon-negative by 2030 – for this, it has partnered with multiple clean-energy suppliers, including Volt Energy, Invenergy and AEP Energy.
Concerns: Multiple public allegations of gender discrimination among the firm’s employees have surfaced since 2019, when the Quartz news website reported on a Microsoft internal email chain where many employees shared stories of discrimination and harassment. This has opened up questions about the company’s approach to diversity and inclusion. Microsoft does not appear on Bloomberg’s GEI.