Amazon Opts for Its People's Health Over EPS

To me this is the Heart and Soul of what the ESG and Impact Investing movements are all about - putting corporate citizenship and humanity over short-term profits as an investment in mutually beneficial futures. NY Times Dealbook's team led by Andrew Ross Sorkin in Connecticut and Michael J. de la Merced and Jason Karaian in London did a nice report on this move as follows.

From Dealbook:

""Amazon’s profitless future -

"The service we provide has never been more critical,” Jeff Bezos said yesterday when announcing Amazon’s latest financial results. Indeed, the e-commerce giant reported a whopping $75.5 billion in revenue in the first quarter, up 26 percent from the same time a year ago.But profit fell faster than expected, as costs spiked to meet increased demand from homebound consumers. Mr. Bezos said that pandemic-related expenses would consume all of the company’s profit in the current quarter — and that it was part of a deliberate strategy: “If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on Covid-related expenses getting products to customers and keeping employees safe.”

It’s a return to form, in a way, to when Amazon spent all of its cash to build market share instead of generating big profits. In the 20 years through 2016, Amazon made a cumulative net profit of around $5 billion — less than what it made in the past two quarters.? With so much attention focused on Amazon during the pandemic, not least when it comes to the safety of its warehouse workers, choosing not to turn a huge profit could be seen as a shrewd move.''" - End of Dealbook article.

I wrote a previous article here on Linked-In about corporate citizenship and transparency and lack thereof among the FAANGs. Amazon was the only one of the five that filed a complete CSR report at that time. I believe I saw that Apple has just filed one for the ifrst time. In contrast, Facebook and Netflix have resisted shareholder resolution promoting diversity on the board and cooperating with sustainability report requests. Google's issues with diversity, hostile workplace environments and lack of transparency and CSR reporting have been well documented in the newspapers.

In my independent Ratings, I consider Amazon a top quintile social pillar and second quintile governance conpany despite some past controversies. Apple is rated at the top quintile for governance and right at the median for social practices. The other three FAANG companies are all bottom tier companies for S and G.

Without going into metrics and scoring, I want to make clear that my system produces results considerably different from those of MSCI, Bloomberg/Sustainalytics and Refinitv despite the fact that we all support the same basic principles. As those familiar with this space know well, pillar and overall ESG ratings also vary greatly among these three majors and other data providers. Ine source of agreement - all 5 FAANGs rate in the first or second quintile environmentally relative to their peers.

I've noted on the past that while most retail ESG-conscious investors in the US are most concerned about the E, investment results on that pillar have been less connected with future five year profitability and future five-year total returns that governance. Of course, all such results are time dependent and thus far only some have been statistically significant at the 95% confidence level. No one knows how stable these findings are going into the future.

Long-term thinking is what this is all about. To me, this is highly reflected by a company's culture which is what is represented by combined S and G ratings. I also believe - but have no research to back this up - that the best cultures will be more focused on best environmental practices by incurring current expenses to prepare for the long-term rather than cost-cutting to make quarterly earnings look best. This is precisely what Amazon is doing. I implore their detractors in the ESG world, mostly based on their negative impact of traditional retailers, take note.

Disclosure: I have no investment positions or professional relationships in Amazon or any of the other FAANG stocks beyond the index vehicles I own.