EC HH Ethics In Stock Picking

A truly interesting contradiction is developing in stock markets around the world. A number of major corporate executives are calling for businesses to be judged by something other than the net present value of their future earnings or other conventional business/investment metrics. This comes under the heading of ESG, which stands for environmental, social and corporate governance. The idea is measuring how good businesses are in ethics, for society, as well as for future profits.

The problem mostly lies in the agenda surrounding whoever sets up the ESG screen and the number of screens that exist. Here is how Akane Otani of The Wall Street Journal described it on February 10, 2020, in an article titled Big Technology Stocks Dominate ESG Funds: “The data point to one of the biggest frustrations critics have about the world of socially conscious investing: There is no industry-wide rulebook to determine what should go into ESG funds.”

What stirred this subject up was the announcement on February 4, 2020, that Merck (MRK) was going to spin out a public company made up of a number of their profitable medicines. The purpose is to focus the parent company on a narrower group of cures mostly related to their dominance in cancer research and immuno-oncology. Merck said they wanted to improve their focus on their work surrounding medicines like Keytruda, which treats lung cancer.

In an explanation of this move in The Wall Street Journal, writer Charley Grant focused on the riskiness and represented the Wall Street research analyst community well. The stock fell sharply in reaction. If your relative has a cancer other than lung, do you consider what Merck is doing as risky? Why in a supposedly ESG world would focusing in on expanding the number of curable cancers be anything other than great news? Keytruda is already a massive blockbuster for treating lung cancer and it is the prayer of cancer patients and families that the success will spread to the other four major cancers. What could be better for society?

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Disclosure: This article contains information and opinions based on data obtained from reliable sources, which is current as of the publication date, and does not constitute a recommendation ...

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