For ESG investors, many factors add up to why they may give Lyft and Uber a pass when it comes to adding new companies’ equities to their portfolios.
There has been plenty of buzz and headlines due to Lyft’s recent initial public offering, which will be dwarfed in size compared to Uber’s expected IPO later this year. Will these be the next stocks to go berserk, or will they become two more Silicon Valley-inspired unicorns? Regardless, Lyft and Uber are companies that many ESG (environmental, social and governance) investors would rather not touch. Visit Northern California, and you will see why.
If you have visited San Francisco lately, you’ve probably noticed the traffic can be insufferable at times—maybe all the time if you compare it to where you call home. Sure, the Bay Area keeps growing due to the lure of high-paying jobs, great weather and spectacular scenery, but all of that is difficult to savor if you are stuck in traffic. And no wonder why San Francisco’s congestion is horrible: With shared rides available from Uber and Lyft, why would you queue in line to take public transportation when, for just a smidge more, you can ride more comfortably in someone else’s car?
Last fall, a San Francisco government study concluded those convenient rides really are not so convenient after all when accounting for the extra time commuters were spending in traffic. The authors of the survey crunched the numbers and found that ridesharing companies (also known as transportation network companies, or TNCs) were accountable for a 51 percent increase in commuters’ time in 2016 when compared to 2010.
Meanwhile, a different report issued last year brought up another point: Contrary to these ridesharing companies’ claims that they are removing cars from the road, a study of major U.S. cities concluded the reality was that these passengers were giving up mass transit. Add the constant “deadheading” (the time Lyft and Uber drivers spent driving on roads without any passengers), and the result was more cars on the road, not less.
With all that extra traffic on city streets, one outcome, of course, is more air pollution. And even though Uber says it is playing in the sandbox by rolling out public transportation options on its app for residents living in the Denver area, some studies—including one led by the University of Kentucky—indicate that ridesharing companies are not a complement to mass transit, but more of a saboteur instead.
Some cities complain this trend can lead to a decrease in public transportation infrastructure. As Business Insider recently reported, fares keep increasing, while services are cut. As a result, delays rise.
All of these factors add up to why many ESG investors may give Lyft and Uber a pass when it comes to adding new companies’ equities to their portfolios. Green Century Funds is one such investor group that is taking a wait-and-see attitude.
“I wish there was this much excitement around new public transportation bonds,” said Green Century President Leslie Samuelrich in an emailed statement to TriplePundit. “It remains to be seen if ride-hailing companies, like Uber and Lyft, are going to help or hurt our efforts to reduce greenhouse gas emissions and address global climate change.”
The jury is still out, however. “The best-case scenario is that [Lyft and Uber] use their market leverage to help accelerate the transition to electric vehicles and make good on their promises to find ways to reduce vehicle miles traveled,” Samuelrich added. “The worst-case scenario is they siphon riders away from more environmentally-friendly options and divert much-needed revenue from public transportation, which remains the most environmentally-friendly option.”
A portfolio manager at the New Alternatives Fund minced no words about Lyft and Uber. “As far as I can tell, they’re actually putting more cars into the congested areas, and they’re pulling business out of the transit systems,” Murray Rosenblith told Reuters.
Of course, the larger challenge looming over these companies is that they have not yet turned a profit. Lyft’s stock price, which enjoyed a sugar high upon last week’s IPO, has since suffered a relative sugar crash. The debate rages on whether Lyft and Uber are a net positive for society and the environment, but for any investor, the fundamentals matter—which is why Levi’s, praised by many analysts for its brand reputation and steady cash flow (not to mention its social conscience), may be a more attractive option for the ESG investments crowd.
Image credit: ItsaWaB/Pixabay
Leon Kaye has written for TriplePundit since 2010, and became its Executive Editor in 2018. He's based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas. He's worked and lived in South Korea, the United Arab Emirates and Uruguay, and has traveled to over 70 countries. He's an alum of the University of Maryland, Baltimore County and the University of Southern California.