Would you want to invest in a company if you knew that it was a major polluter? What about if it underpaid its workers, or didn't communicate transparently with its shareholders? For people who approach their investments strictly through an environmental, social, and governance (ESG) lens, the answer to these questions is a resounding "no."
Nonetheless, it's possible for companies with problematic elements to make products that have extremely positive social impacts. It's also possible to minimize or even eliminate ethically questionable activities. Where does that leave socially conscious investors regarding coronavirus vaccine leaders Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA), and AstraZeneca (NASDAQ:AZN)?
Environmental issues aren't roadblocks to investing in these stocks
One way that investors can gauge the worthiness of a stock for ESG investing is to look at its level of financial risk stemming from its environmental policies or lack thereof. According to Sustainalytics' ratings, Pfizer's overall exposure to ESG risk is high, as is Moderna's. Both are also higher than AstraZeneca, which is rated as medium-risk. This doesn't mean that these companies are polluters, but it does mean that they could suffer consequences if regulations, policies, or public opinion change.
Pfizer has set annual goals to reduce its greenhouse gas emissions, water consumption, and waste production, which lowers its exposure to risk. And it hasn't had any recent pollution scandals.
AstraZeneca goes further with its environmental policies, deriving 62% of its electricity use from sustainable sources. It also recycles 44% of its waste and has a plan to continue reducing its water utilization.
For its part, Moderna's environmental impact is limited because it doesn't have a massive global manufacturing base like the other two. Nonetheless, it has plans to stay green at its two facilities in Massachusetts.
So, while these three stocks may not win awards for prioritizing environmental sustainability, they're not fossil-fuel companies either.
Social issues could be thorny, depending on your outlook
There are a pair of issues with these stocks that may be red flags for some investors: animal testing and the use of cells derived from human sources.
Like nearly all pharmaceutical companies, Pfizer, Moderna, and AstraZeneca use animal models to test their drugs or vaccines in development for safety and efficacy before they are tested in human subjects. "Animal models" is science-speak for a handful of different laboratory creatures, including mice, rats, and sometimes monkeys. There are many rules that (hopefully) ensure that animal testing is performed ethically and only when necessary, but it's still a topic that can make people uncomfortable with investing in an industry.
Before using animal models, these vaccine developers use cell lines that are derived from human sources, which can conflict with some religious viewpoints. This has led to certain religious authorities explicitly saying that coronavirus vaccination is ethical to encourage members of the religions to consider getting vaccinated.
These two issues are inescapable for the comprehensive development and testing of life-saving medicines, but there's also the question of fair pricing of life-saving medicines.
On that note, AstraZeneca has committed to producing its coronavirus vaccine at cost during the pandemic. Additionally, it pledges not to profit from the vaccine's sale to developing countries even after the pandemic officially ends. While its shareholders may cringe at this choice, it's hard to argue that providing low-cost vaccines is anything other than a strong commitment to the public good.
You may need to be flexible when it comes to governance
In terms of their approach to ethical governance, the vaccine developers are a mixed bag. All three are suitably transparent with their investors, which is critical. Unfortunately, things get murkier when you look at how these companies intersect with politics.
ESG investors might be concerned about Pfizer and AstraZeneca's lobbying activities and massive monetary contributions to elected officials and political campaigns in the U.S. These donations ensure that issues like drug price regulation are handled in a way that favors their interests. In some cases, this means that the public doesn't get the regulations that would be the most beneficial for society.
Of course, these companies aren't alone, and their similarly sized competitors do exactly the same thing. You should decide for yourself whether lobbying is a dealbreaker for investment.
Don't be afraid to use your moral judgment
It's an added challenge to think about ESG issues when you're evaluating a stock, but it's a bonus to feel good about your portfolio's share of impact on the world. Using your moral values as your guide will help you hold onto your investments when the markets get rocky because you're more personally committed to the businesses. Further, ESG investing can actually increase your returns.
Personally, while I wouldn't pick these companies to include in a portfolio of ESG leaders, I also wouldn't hesitate to invest in them for ethical reasons. Making vaccines is a massive social good, and it's no secret that these companies make plenty of money in the process.