ESG stocks have become very popular over the past few years. This comes as investors are increasingly concerned about the environmental, social, and governance aspects of the companies they put their money behind. Thus, many companies have seized the opportunity to project the best possible image, to increase demand for their shares.
The environmental portion of that trifecta has become especially important, with many firms opting to project greener images. Naturally, some of these firms exaggerated the truth regarding their efforts as environmental champions.
High-profile scandals ensued, with companies like Volkswagen (VWAGY:OTCMKTS) being caught committing outright fraud. The companies listed below may not have acted as egregiously. However, these are companies that will likely face increasing scrutiny as the pendulum swings toward true sustainability long-term.
Hennes Mauritz (HNNMY)
Hennes Mauritz (OTCMKTS:HNNMY) isn’t likely to mean anything to readers at first blush. It isn’t a household name to be sure. But it’ll become more apparent when I tell you that Hennes Mauritz is better known as H&M.
H&M is one of a group of clothing retailers broadly referred to as fast fashion brands. There are several reasons to avoid these companies and their stocks, if greenwashing and ESG is among your primary concerns.
For one, fast fashion brands are known to make lower-quality clothing that doesn’t last long. It’s cheaper, but at a cost to the environment. The short lifespan of this clothing means that the textiles turn into waste much quicker. Hennes Mauritz doesn’t necessarily advertise its fast fashion as environmentally friendly. But it did market a ‘green’ line of clothing under the name ‘conscious’ at one point. The catch is that those are simply marketing buzzwords, lacking legal definitions.
Even if H&M and other fast fashion brands don’t actively market their green initiatives, they will likely face increased scrutiny, due to the speed at which their garments become trash.
I’ll be clear: I generally favor Coca-Cola (NYSE:KO) stock as an investment. The company’s ability to maintain a steady share price throughout all stages of the business cycle is advantageous to long-term investors. Additionally, KO stock is an outstanding option for investors seeking income, considering the company’s dividend growth profile historically. Those factors make Coca-Cola a buy in this age of volatility and recession concerns.
However, at the same time, I have to admit that Coca-Cola isn’t an environmentally-friendly company. Unsurprisingly, Coca-Cola’s plastic bottles used in its wide swath of products creates a tremendous amount of plastic waste globally. Thus, it might not be surprising to discover that Coca-Cola has been named the worst plastic polluter for the fifth straight year in 2022.
Coca-Cola is focused on making its plastic packaging more recyclable. Currently, 90% of its packaging is recyclable, with a goal of 100% by 2025. But only 61% of the bottles and cans it put into the market in 2021 were reused or collected for recycling. Thus, 39% of that packaging immediately became waste. And of that 61% that gets recycled, how much was actually reused?
Starbucks (NASDAQ:SBUX) stock faces many of the same ESG issues that plague Coca-Cola. Both companies create massive amounts of waste, while being highly-successful beverage companies.
In 2018, Starbucks banned single-use plastic straws in favor of straw-less lids. The lid used more plastic but was recyclable, unlike the straws. Predictably, consumers pointed out that those lids wouldn’t necessarily be recycled. Thus, environmental advocates claimed Starbucks was making the problem worse by failing to consider the decision thoroughly.
More recently, Starbucks committed to eliminating PFAS from its U.S. packaging in 2022 and internationally by 2023. PFAS chemicals do not break down in the environment, and have been linked to several health problems.
Ultimately, eliminating PFAS chemicals from packaging is a good thing. Starbucks is doing the right thing. But it still creates significant amounts of plastic waste and paper, too. Its paper cups are only recyclable in 4 U.S. cities due to their plastic lining. That’s not good for the environment, or for investors looking to hone in on Starbucks as an ESG option.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.