ESG, or environmental, social and governance-driven investing has been one of the hottest trends in investing over the past decade. Investors increasingly want to make money while also making the world a better place. And there’s nothing wrong with that.
However, sometimes companies use green imagery to gloss over less appealing parts of their businesses. It’s great when firms can prosper while also making a tangible positive impact in the world.
But management teams should never lose sight of the central reason why corporations exist — to make money for their shareholders. In the case of these three ESG stocks to sell today, positive social impact can’t disguise the fact that the underlying businesses have serious concerns.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) is a classic example of a company that rode its ESG positioning to garner goodwill with investors. BYND stock exploded out of the gate, with its shares topping $200/share following the company’s 2019 IPO.
On paper, Beyond Meat could offer significant environmental benefits compared to traditional meat burgers. However, there is some complexity there. Traditional livestock husbandry has much less of a negative impact on the environment than factory-farmed beef, for example. Some ESG analysts, such as Sustainalytics, have slammed alternative meat companies for being unclear about their emissions while promoting unsustainable monoculture crop farming, all the while using large quantities of water.
Regardless, a big marketing pitch around Beyond Meat stock in 2019 was that it could help slow the deforestation of the Amazon rainforest.
The issue is, however, that even if the environmental claims are true, consumers have to want to buy the product to make a difference in the world. So far, plant-based burgers simply haven’t taken off as advocates had expected. The high price of plant-based burgers has been a significant limiting factor. If poorer consumers can’t afford a product, that brings up questions over how much actual social good the company is providing.
In any case, we may not have to wonder about Beyond Meat’s impact too much longer. The company’s revenues are shrinking, operating losses are massive, and its balance sheet seems weak. A bankruptcy reorganization could eventually be in the cards unless something dramatic changes for Beyond Meat.
Vestas Wind Systems (VWDRY)
Vestas Wind Systems (OTCMKTS:VWDRY) is a leading wind industry firm. Hailing from Denmark, the company both designs wind turbines and offers related functions such as project development, servicing of wind facilities, sale of spare parts and so on.
On paper, wind seems like an inevitable solution. It’s a clean no-emissions solution that makes power from the breeze. What’s not to like?
Quite a bit, in fact. While wind has no emissions, it requires a ton of steel and other materials to build turbines. The actual process of building and installing a wind turbine has a significant impact, and it takes several years for a wind turbine to return its initial environmental cost before generating a return. That is an issue for turbines which, on average, only have a working life of 20 years. That can lead to problems with waste once they are deconstructed.
Wind has plenty of other problems. Turbines create a ton of noise pollution, which can irritate residents and crash land values in nearby areas. It is infamous for its role in decimating bird populations. And because wind is an intermittent power source, it either needs large battery back-ups (which have their own inherent environmental concerns) or wind has to be backed up by another generation source, such as a natural gas peaker plants.
There’s a role for wind as an incremental green power source. But it’s hardly a free lunch when considering its broader environmental impact.
Vestas shares peaked back in January 2021 due to excitement about the incoming Biden Administration. It’s been a different story since then. Wind industry subsidies have fallen short of expectations, and wind remains a challenging business without ample government handouts. Vestas is barely making money, and shares appear dramatically overvalued at nearly 50 times forward earnings.
Enviva (EVA)
Enviva (NYSE:EVA) is a company that produces and sells utility-grade wood pellets. In theory, this was supposed to serve as a greener alternative to carbon-based inputs such as coal for power plants.
In practice, wood does not appear to be either the greenest or most profitable alternative to existing power generation. Advocates touted forest biomass — essentially just burning wood — as a potential bridge fuel while the world deploys more long-term sustainable solutions. However, environmentalists worry the benefits of this biomass may be overstated.
In any case, Enviva’s business appears to have collapsed as its product didn’t find broad market adoption. EVA shares are down 99% over the past year. The company warned this week it may file for bankruptcy imminently as it missed a bond payment.
Some traders may be tempted to try and flip the stock for a quick profit amid its recent volatility. But the firm’s busted business model and perilous financial situation make this ESG stock a strong sell today.
On the date of publication, Ian Bezek did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.