AT&T, Bud Light, and Why ESG Matters to Every Investor

Every now and then, something we once believed was safe proves not to be.  While it’s not new news that lead is toxic to humans, it likely surprised a lot of investors when they found out that many legacy phone lines were made with lead… not just copper.  Furthermore, investors in AT&T, and frankly the rest of the telecommunications world, got an ugly surprise when the Wall Street Journal reported that many of these legacy lines are still in the ground, contaminating soil and drinking water.   The last several years have not been particularly kind to the old telecom bellwether. 

Mistakes of capital allocation, entirely too much reliance on debt, and a lack of innovation have made this company a material underperformer for years.  But this year has been particularly bad, and the stock, after the lead news, is now down close to 25% on the year.  For AT&T this represents a fresh 30-year low. Just imagine being a long-time investor and swallowing that last sentence.  

In a story more different than any could be, American super brand, Bud Light, and their parent company AB Inbev, have suffered massive losses in market share since April.  A bit like AT&T, Inbev has been struggling to maintain market share over the last several years as others innovated around them. 

But the real pain came when the company forgot about it’s current customer base in an effort to become more “welcoming” to what they saw as an underpenetrated demographic.  This story, of course has become the stuff of marketing legend, and what not to do.  We look forward to reading the Harvard case study when it comes out.  

As you’re reading this, you may be asking the question, “what besides a lack of innovation do these stories have to do with each other?”  The answer is, of course, that these companies had material ESG (environmental, social, and governance) risks.  The companies both misjudged those risks, and investors paid dearly for the consequences. 

When investing, whether or not an investment is thought of as an ESG compliant or not, the risks associated with each piece have the capacity to damage returns.  The phraseology may change over time, but the truth is, all investments have risk.  Investors and their intermediaries need to stay conscious of these factors over time, or risk material negative consequences. 

Sources: Reuters, Yahoo Finance