What charities need to consider before investing in the FAANGs

Facebook, Apple, Amazon, Netflix and Google-Alphabet have experienced incredible growth in recent years, but on which side of the ethical fence do they sit? And what should charities consider before investing in them?

Since the Global Financial Crisis, the world has enjoyed one of the longest bull markets in history fuelled in part by the incredible growth stories of the ‘FAANGs’ (Facebook, Apple, Amazon, Netflix and Google-Alphabet). Concurrently, charities have become increasingly sophisticated in how they seek to promote positive business practices in order to align their investment policies with their mission through Socially Responsible Investing (SRI). Many ask: on which side of our ethical fence do these technology giants fall?

Twenty years ago, if someone mentioned FAANGs it would conjure images of Halloween costume teeth, not today’s technology behemoths – two of which (Apple and Amazon) were the first $1 trillion companies in terms of market cap. Equally, in the traditional sense, poor SRI conjures industrial images of smouldering smoke stacks and heaving landfills. While it is easy to imagine those cheap plastic teeth clogging the local landfill from 1 November how might the FAANGs be ethically questionable overall?

For starters, SRI is not just about saving the environment; it is also about companies behaving and operating responsibly. This includes preserving the health and well-being of staff, the community in which it operates, and its users. With these in mind, what are some of the concerns that may affect charities’ decisions to invest?

In the case of Facebook, praised for democratising communication and connecting the world through its availability in 100+ languages, some question the social media giant’s contribution to mental health issues (user addiction and cyber bullying, for example) and privacy concerns over data mining and misuse. The company has failed to produce stronger Environmental Social and Governance (ESG) policies around these concerns and their overall business ethics appear weak. Many charities who want portfolios screened for code of conduct and avoidance of harm would question if investing in Facebook is something they would ‘like.’

Equally, Apple, best known for cutting edge handheld technology and its loyal user following, have attempted to make inroads against accusations of negative environmental impact, largely due to obsolescence (your ancient swirl dial iPod is in a landfill somewhere!), by developing stronger policies around recycling and the sourcing of conflict minerals. However it still has questionable practices around supply chain, especially in its Chinese manufacturing plants where there have been accusations of excessive working hours, child labour, health risks and unpaid wages. Such headlines would undoubtedly give a child abuse or workers’ rights charity pause for thought.

Amazon rounds out the big three. The company is infamous for poor labour relations and inadequate working conditions and its aggressive tax avoidance recently raised the Archbishop of Canterbury’s ire; he denigrated these failures as an abuse on the benefits system which must then support workers who do not receive a living wage. For those charities fighting to end working poverty and promote the ethical treatment of staff as well as health and well-being in the workplace investing in Amazon could represent a significant divergence from mission.

Ultimately the substantial financial growth in the FAANGs, and the good works that this growth can fund, is incentive enough for many investors to reconsider their shortcomings.

Additionally, some charities who invest take the view that it is better to influence from the inside whereas disinvestment does not encourage change. Both arguments have merit. However, as charities increasingly recognise the financial disincentives caused by reputational damage and unaligned investment policies, one must ask where is the tipping point?

Caroline Jarvis Gee is the Charity Business Development Manager at EdenTree Investment Management, the sponsors of this content.