Facebook plunge highlights the value of ethical KiwiSaver investments

John Berry

18 April, 2023

3 Minute Read

“In 2022 it’s no longer OK for corporates to manufacture short-term profit by creating harm.”

It’s a very bad day if one of your investments suddenly dumps a quarter of its value. It’s made worse if this takes you by surprise because the company is considered large and steady as an investment.

That’s exactly what happened to Facebook (now called Meta Platforms) when about $350 billion was wiped off its market value on February 3. It has slid further, with its share price now a third lower than the end of January.

Facebook (Meta) is one of the 10 largest companies listed in the widely followed S&P500 stock index in the US. Its $900bn market value makes it more than three times larger than all 187 stocks listed on the main board of New Zealand’s stock exchange. By Kiwi standards, Facebook is massive.

This huge size is why Facebook is a top-10 holding for many index funds and even active managers globally. It’s widely held in KiwiSaver funds and some – like AMP, Fisher Funds, ASB and Kiwi Wealth – have reported it as one of their largest shareholdings in international companies.

Morningstar, the global investment research company, noted there was one class of funds that largely sidestepped Facebook’s share price plunge. These lucky funds, or rather well-constructed funds, are those that focus on sustainability.

For some time, sustainable funds have been responding to Facebook’s shortcomings. These have included high-profile failures across data privacy, misinformation, product addiction and livestreaming.

Instagram, which Facebook owns, has also had issues around impacts on teenage mental health.

Facebook’s controversies became very public last year when a former Facebook data scientist leaked internal papers and claimed the company put profits ahead of people's safety.

For investors with a sustainability lens measuring environmental, social and governance (ESG) risks, Facebook has been a low scorer for a long time and one to stay clear of.

Yet not every manager focusing on sustainable investing sees Facebook in the same light. Morningstar names Vanguard and Magellan as holding Facebook in international responsible investment share strategies.

This is a reminder that not all sustainable funds are the same, and they can adopt different approaches. The simplest steps for investing responsibly can be to avoid harmful industries like tobacco, controversial weapons, nuclear weapons and gambling. But these exclusion strategies would not avoid investing in Facebook.

Sustainable funds that exclude Facebook are more likely to have an active and positive investment approach focusing on environmental, social and governance issues, rather than simply exclusions of industries or revenue sources.

While the social issues are many and varied with Facebook, it also has governance issues. Through special share rights, its founder (Mark Zuckerberg) continues to control shareholder voting and board appointments, despite not owning anywhere near a controlling interest in the listed company. This structure is just not appropriate for what is ultimately a global news and media business.

Facebook is a perfect example of how it’s critical to analyse environmental, social and governance factors when investing. The $350bn plunge in Facebook’s value is huge, a loss which many ethical and sustainable investment managers avoided, not through guesswork, but through a broader risk analysis.

In 2022 it’s no longer OK for corporates to manufacture short-term profit by creating harm. Avoiding Facebook tells us what we already knew – ethical investing can indeed grow both individual wealth and collective wellbeing.

This commentary is general information only – it is always a good idea to seek professional financial advice for your personal circumstances. Disclosure: Pathfinder KiwiSaver has never been invested in Facebook shares.

-John Berry is co-founder and chief executive of ethical fund manager and KiwiSaver provider Pathfinder Asset Management.

John Berry

John is committed to making ethical investment accessible to all NZ investors. Before co-founding Pathfinder in 2009 John worked in law firms and investment banks in Auckland, London and Sydney. He has a BCom/LLB(Hons) from Auckland University and is a board member of Men’s Health Trust. In 2023 John was awarded as the Sustainable Business Networks Sustainability Superstar.