The Takeaway
Data privacy, one of the key ESG risks Meta has faced, helps explain its miserable 2022 performance.
Meta has shifted from growth to value indexes, while ESG risk prevents the company’s inclusion in the Morningstar Sustainability Style Indexes.
ESG risk should remain part of the investment calculus for Meta going forward.
For long-term shareholders, Meta Platforms, previously Facebook, has been a stomach-churning investment. From its 2012 IPO to its peak in mid-2021, the share price rose tenfold. Then, its trajectory changed. In early 2022, changes to privacy settings in Apple's iOS operating system that undermined Meta's ability to target and measure advertising contributed were estimated to carry a financial impact of $10 billion. Meta's share price would shed 64% of its value over the course of 2022, bringing its 10-year return lower than the broad US equity market.
For sustainable investors, the issue with Apple was not unforeseen. Morningstar Sustainalytics assessed the company's risk on environmental, social, and governance (ESG) factors as high. Data privacy was enumerated as Meta’s top ESG risk.
Meta’s travails have had profound implications for index inclusion. A declining share price and slowing growth pushed Meta from the high-growth area of the equity style box to value. It went from the fourth largest constituent of the Morningstar US Large-Mid Cap Broad Growth Index in mid-2021 to the ninth largest constituent of the Morningstar US Large-Mid Cap Broad Value Index by year-end 2022. Meanwhile, the Morningstar Sustainability Style Indexes avoid Meta because of its ESG risk.
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