Silicon Valley tycoons aren’t likely to be losing sleep over the statement issued by G20 leaders this week urging social media companies to actively and more effectively counter extremism on their platforms – but we believe they should be paying close attention, and so should fund managers.
It’s another example of the close lens now being applied to the business practices of online platforms, which in many respects have enjoyed a long honeymoon from scrutiny when it comes to social responsibility.
In this case it was the Christchurch mosque shootings in March that focussed government and media attention on the inability or unwillingness of platforms to remove evidently abhorrent extremist material from their feeds. You could call it a Cambridge Analytica moment, harking back to the privacy scandal so outrageous it shook the public, and the regulators, from their previous apparent complacency around data protections.
The G20 communique demonstrates that governments are prepared to take action to counter the spread of extremist content, as many have done to protect their citizens’ privacy, most notably through the European Union’s General Data Protection Regulation (GDPR).
Regulatory and reputational risk in social media
Australia has already passed legislation requiring platforms to remove violent material such as that distributed in the wake of the Christchurch attacks, with severe penalties attached, including fines of up 10 per cent of a company’s annual turnover and prison sentences for executives. Whilst the effectiveness of these laws remains to be tested, we contend that further implementation of regimes such as this poses significant regulatory risk for social media companies and their investors.
In a similar fashion, changing attitudes towards privacy looms as both a potential threat and opportunity for the tech giants. Companies who are able to leverage existing goodwill and capitalise on greater consumer demand for privacy protection, have the potential to disrupt existing players in industries such as personal finance with little more than a streamlined product offering and superior data protection.
For those whose reputation around privacy has steered to the other end of the spectrum, there are a host of possible complications in store, both in direct relation to privacy (ref. X) and the consequential effects of that reputation on other areas of regulatory impact, including recent calls from political leaders for trust-busting legislation to break up the big online platforms.
Ethically investing in online platforms
The pressure on the social media giants to change their practices around privacy and extreme content isn’t just coming from governments and consumers – investors who prioritise social and ethical concerns when it comes to choosing where to place their money are also increasingly upping the ante.
The day after the Christchurch shootings in March 2019, a number of superannuation and investment funds, led by the New Zealand Super Fund, announced a global engagement agenda to call for greater controls to prevent the live streaming and distribution of objectionable content on social media. AMP Capital is part of this group and the Responsible Investment Leader (RIL) funds support its efforts.
Likewise, RIL funds who invest in publicly listed social media companies have been engaging with these companies to advocate for appropriate data ethics and security practices, in alignment with the funds’ responsible investment philosophy.
If the recent push-back against Amazon’s proposed relocation to Brooklyn showed us anything, it’s that tech platforms are no longer being given the free reign they once enjoyed. As technology increasingly permeates our everyday lives, the novelty of the services they provide has given way to hard-headed questions relating to their societal impacts.
The way in which the large platforms respond to these challenges will help determine the future attitudes of consumers and regulators, and investors should consider keeping a keen eye to developments in this space. For those funds which have adopted an investment strategy that prioritises returns under set social and governance criteria the impetus may be even greater, and as Christchurch and Cambridge Analytica have demonstrated, the catalyst for action can come quickly and with remarkable urgency.
Subscribe to 'Sustainable Investment Insights' below to receive my latest articles straight to your inboxKristen Le Mesurier, Portfolio Manager
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