You might want to think that you're investing in companies that have strong corporate governance. Corporate governance is the third leg of ESG investing, which stands for environmental, social and governance. It's a form of socially responsible investing that prioritizes financial returns as well as how the company treats the environment and its stakeholders.
ESG investments as a whole have seen an uptick, according to Morningstar. In the third quarter, the U.S. sustainable fund landscape saw $15.7 billion in net inflows, which is less than the $21.5 billion which was set in the first quarter of 2021. However, it's higher than the $9.8 billion from a year ago in Q3 of 2020.
If you're interested in a corporation's governance structure, what type of investor guidance should you use to research it and which stocks might you want to invest in? Let's find out.
What is Corporate Governance?
What is corporate governance, anyway? Corporate governance refers to the rules and processes in which a company uses to guide its corporate behavior with stakeholders in mind, such as shareholders, senior management executives, customers, the government and the community.
Since corporate governance should guide every arm of management, from the board of directors to the executief team to lower-level managers. Corporate governance outlines a company's integrity and trust with investors by creating a long-term investment opportunity for market participants. Each company website should outline corporate leadership and ethics guidelines along with committee charters and governance documents — bylaws, stock ownership guidelines and more.
Increasingly, shareholders want to see good corporate citizenship and corporate governance practices, which should be apparent in everyone who works at the company. Each company's website should give you a good idea of its corporate governance stance by evaluating board of director structure, independence (whether board members are independent of the company), skills and experience. You can also evaluate executive compensation and shareholder voting rights to determine how well a company performs in this area.
3 Best Corporate Governance Stocks
Which companies offer the best in corporate governance? Let's find out.
Alcoa Corp., headquartered in Pittsburgh, Pennsylvania, produces bauxite, alumina and aluminum products through bauxite mining operations which processes bauxite into alumina as well as smelting and casting operations to produce primary aluminum. The smelting operations produce molten primary aluminum, then formed by casting operations into either foundry ingot or into value-add ingot products like billet, rod and slab.
Alcoa expects all directors, officers and other employees to conduct business in compliance with a strict code of conduct and the company surveys compliance on an annual basis. The company carefully outlines the role of its board of directors and director responsibilities, including the core responsibilities to exercise business judgment and act in the best interests of the company and its stockholders.
Naturally, it's not enough to have just a strong corporate governance structure — the company must be profitable as well. In Q4 2021, Alcoa increased revenue to $3.3 billion, a 7% increase and its highest quarterly earnings result since 2018. The company generated $565 million in cash from operations and finished the quarter with a cash balance of $1.9 billion, including restricted cash of $110 million.
The company returned capital to stockholders through $150 million in share repurchases and paid the company’s first cash dividend of $19 million.
In 2021 overall, the company posted the highest annual net income of $429 million and earnings per share of $2.26 and generated revenue of $12.2 billion, an increase of 31% from 2020. The company improved its balance sheet by eliminating long term debt maturities until 2027 and reduced debt by the end of the year with total debt of $1.8 billion and net cash of $12 million.
Newmont Corp., headquartered in Greenwood Village, Colorado, is a gold producer in North America, South America, Nevada, Australia and Africa.
Newmont Corp's code of conduct publicly lays out the high standards of conduct expected of employees, officers and directors, as well as partners, vendors and contractors. Newmont is a founding member of the Partnering Against Corruption Initiative and adheres to a strict business integrity policy and standards designed to prevent corruption. It is one of the company's strongest ways to ensure Newmont’s employees follow the law worldwide.
Newmont has an independently operated, 24-hour hotline, called the Integrity Helpline, in which any stakeholder can report unsafe and unethical behavior.
In Q3 2021, Newmont produced 1.45 million attributable ounces of gold and 315,000 attributable gold equivalent ounces from co-products. The company generated $1.1 billion of cash from continuing operations and $735 million of free cash flow. It declared a Q3 dividend of $0.55 per share and completed $99 million of share repurchases from $1 billion buyback program.
Newmont ended Q3 with $4.6 billion of consolidated cash and $7.6 billion of liquidity. Supported by a clear strategic focus and proven operating model, the company continues to apply its disciplined approach to capital allocation.
Over the last four quarters, Newmont has steadily reinvested in operations while returning more than $2 billion to shareholders through dividends and share buybacks.
CBRE Group, Inc., headquartered in Dallas, Texas, provides commercial real estate and investment services through its advisory services, global workplace solutions and real estate investments segments, including property leasing, capital markets, property management, project management services and valuation services, contractually-based outsourcing services and global investment management services.
CBRE Group's corporate governance standards strengthen its board of directors oversight and serves the interests of shareholders, employees and other stakeholders for the long term.
CBRE’s Standards of Business Conduct was completely revised in 2021 so its workforce of more than 100,000 employees could read and understand it. The document emphasizes its RISE values: respect, integrity, service and excellence. Personnel and board members must both act ethically and adhere to standards of business conduct.
CBRE's advisory services segment rebounded strongly from Q3 2020 and Q3 2021 revenue growth was strong, exceeding Q3 2019 levels.
Capital markets activity and global property sales revenue exceeded posted United States increases, with revenue up 116%. International markets also saw strong increases versus last year’s third quarter, paced by Australia and the United Kingdom.
Consider Corporate Governance Before You Invest
You want to ensure good corporate governance because you want to make sure you're getting the most transparency and accountability out of your investment possible. Doing so allows you to avoid corporate scandals, fraud and other issues that crop up with corporate governance. You can also consider environmental and social aspects as well for the trifecta of best ESG stocks to invest in.
Before you consider Alcoa, you'll want to hear this.
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