How do I avoid character encoding when using "FOR XML PATH"?

You can also do this:

-- BAD:
SELECT STUFF((SELECT N',' + y
FROM dbo.x 
FOR XML PATH(N'')),1, 1, N'');

-- GOOD:
SELECT STUFF((SELECT N',' + y
FROM dbo.x 
FOR XML PATH(N''), TYPE).value('(./text())[1]','varchar(max)'),1, 1, N'');

You just need to use the right options with FOR XML. Here's one approach that avoids encoding:

USE tempdb;
GO

CREATE TABLE dbo.x(y nvarchar(255));

INSERT dbo.x SELECT 'Sports & Recreation'
   UNION ALL SELECT 'x >= y'
   UNION ALL SELECT 'blat'
   UNION ALL SELECT '<hooah>';

-- BAD:
SELECT STUFF((SELECT N',' + y
  FROM dbo.x 
  FOR XML PATH(N'')),1, 1, N'');

-- GOOD:
SELECT STUFF((SELECT N',' + y
  FROM dbo.x 
  FOR XML PATH, 
  TYPE).value(N'./text()[1]', N'nvarchar(max)'), 1, 1, N'');

GO
DROP TABLE dbo.x;

If you are on a newer version of SQL Server (2017+), you can use STRING_AGG() and not worry about XML at all:

SELECT STRING_AGG(y, N',') FROM dbo.x;

db<>fiddle demonstrating all three.