The S&P 500 ESG Index (SPXESUP) tracks companies that meet certain thresholds for environmental, social, and governance (ESG) standards. The idea is that companies with solid track records in ESG can produce strong returns for investors in the long term while also doing good for the world at large. The Motley Fool has an ESG investing framework that interested investors can check out, for instance.

Facebook (META 0.49%) just got kicked out of the S&P 500 ESG Index following a rebalancing. The stock previously had a 2.5% weight in the index.

Mark Zuckerberg on stage

Facebook CEO Mark Zuckerberg. Image source: Facebook.

Why Facebook got kicked out

The main issue that led to Facebook getting dropped is, unsurprisingly, the company's handling of user data and its never-ending string of privacy scandals. Just this week, The Wall Street Journal reported that internal emails suggest CEO Mark Zuckerberg was fully aware of the social networking juggernaut's woefully insufficient privacy practices -- and did nothing to address them. The Federal Trade Commission is currently investigating Facebook's privacy practices, and the company is bracing to get slapped with a record $3 billion to $5 billion fine.

S&P Dow Jones' global head of ESG, Reid Steadman, explained the decision in a blog post outlining the index's methodology. The S&P 500 ESG Index is fairly broad; all constituents of the S&P 500 are considered for inclusion except some specific industries like tobacco producers and companies that make controversial weapons. There are currently 292 constituents, with Microsoft, Apple, and Amazon being the three top constituents by index weight, in that order.

S&P Dow Jones calculates ESG scores for companies, and then the highest-scoring companies may get included "with the aim of getting as close as possible to a market capitalization threshold of 75% within each industry group," according to Steadman.

Flunking on S and G

Facebook's ESG score, which is measured on a scale of 0 to 100, came in at just 21. The company's ESG score has been steadily declining in recent years, after hitting 71 back in 2015.

Chart showing Facebook ESG score over time

Image source: S&P Dow Jones.

The ESG score can also be broken down into sub-scores for each area that each carry different weighting. Facebook scores just fine on the environmental front but does horrendously in the social and governance departments.

Chart showing ESG sub-scores

Image source: S&P Dow Jones.

"The specific issues resulting in these scores had to do with various privacy concerns, including a lack of transparency as to why Facebook collects and shares certain user information," Steadman writes. Steadman points to several of the most prominent scandals, including "allowing more than 150 companies access to more users' personal data than it had disclosed, misuse of personal information (e.g., Cambridge Analytica) and hacking of almost 50 million accounts."

"These events have created uncertainty about Facebook's diligence regarding privacy protection, and the effectiveness of the company risk management processes and how the company enforces them," the ESG chief writes. "These issues caused the company to lag behind its peers in terms of ESG performance."

It's worth noting that S&P Dow Jones' ESG score, sub-scores, and historical trends differ meaningfully from other rankings like Sustainalytics, which show Facebook improving its overall ESG score, as well as its environmental and social sub-scores, over time, according to Yahoo! Finance.

Is Facebook good for the world?

In terms of governance, it should come as no surprise that Facebook flunked there. Facebook has an atrocious corporate governance structure due to His Zuckness' absolute authority over every aspect of the company. Zuckerberg single-handedly wields majority voting power, allowing him to easily quash any dissent among shareholders that overwhelmingly want Facebook to recapitalize its stock to eliminate supervoting Class B shares.

Facebook has been struggling with the existential question of whether or not it's good for the world, even going as far as to poll users regarding that exact sentiment in early 2018. It appears that S&P Dow Jones thinks the answer to that question is "no."