End of Week Notes
How Facebook is helping bring down liberal democracy
Plus more on the SEC
Should sustainable investors hold Facebook? Our colleagues at Sustainalytics would say, do so at your own risk. They evaluate Facebook as having High ESG Risk in both absolute terms and relative to its peers, owing to various data privacy & security, product governance, and business ethics issues.
If ESG ratings sometimes seem to be too abstract for you, give this piece from The Atlantic a read. It’s not really about Facebook but about the massive disinformation campaign that’s underway to reelect Donald Trump that Facebook is helping make possible. It’s the most chilling thing I’ve read in a long time. And after you read it, let me know if you’d be a proud owner of Facebook stock.
Disinformation, writes author McKay Coppins, is being used systematically as a strategy by autocratic leaders in democratic systems around the world, including here in the U.S. Rather than trying to shut down dissent, which used to be the go-to move for autocrats but one hard to achieve in open societies, illiberal leaders “have learned to harness the democratizing power of social media for their own purposes — jamming the signals, sowing confusion.”
The impact, indeed, is mass confusion, even about basic facts. After subjecting himself to the disinformation bubble of right-wing politics, Coppins writes:
I was surprised by the effect it had on me. I’d assumed that my skepticism and media literacy would inoculate me against such distortions. But I soon found myself reflexively questioning every headline. It wasn’t that I believed Trump and his boosters were telling the truth. It was that, in this state of heightened suspicion, truth itself — about Ukraine, impeachment, or anything else — felt more and more difficult to locate.
Enter Facebook:
After the Cambridge Analytica scandal broke, Facebook was excoriated for its mishandling of user data and complicity in the viral spread of fake news. Mark Zuckerberg promised to do better, and rolled out a flurry of reforms. But then, last fall, he handed a major victory to lying politicians: Candidates, he said, would be allowed to continue running false ads on Facebook. (Commercial advertisers, by contrast, are subject to fact-checking.) In a speech at Georgetown University, the CEO argued that his company shouldn’t be responsible for arbitrating political speech, and that because political ads already receive so much scrutiny, candidates who choose to lie will be held accountable by journalists and watchdogs.
Facebook has launched a so-called library of every political ad it publishes. But, Cobbins checked it out and found thousands of Trump ads to sift through. Anyway, if I’ve already been precisely micro-targeted to receive a false and misleading ad, why would I ever wade into Facebook’s political ad archive?
Cobbins sums up the threat to liberal democracy:
Pro-Trump forces are poised to wage what could be the most extensive disinformation campaign in U.S. history. Whether or not it succeeds in reelecting the president, the wreckage it leaves behind could be irreparable.
It can be more comfortable to talk about sustainability issues solely in terms of material financial risk. Indeed, Sustainalytics thinks Facebook faces significant material ESG risks due to these issues. But I wonder: If Facebook and other social-media platforms become the necessary tools for autocrats to establish and maintain their power in illiberal democracies, then social media’s license to operate is likely to be protected by them at all costs.
But thinking about Facebook’s societal impact, what at first seemed positive and benign has turned into something dark and sinister. To say the least, I’m disappointed every time I see Facebook in ESG portfolios.
To the Big Three: Thanks A LOT for your support with the SEC
(I never know if sarcasm comes through in print.) The comment period for responses to the SEC’s attempts to curtail the costly scourge of shareholder proposals and the evil guidance of proxy advisors ended on Feb. 3rd.
Nothing from Vanguard.
Nothing from State Street. Except for this tone-deaf comment made by its head of engagement to Reuters:
I don’t feel like I need to have a position on an issue that’s not impacting us.
But I had higher hopes for BlackRock after all the sound and fury surrounding CEO Larry Fink’s January letters to CEOs and clients. You know, the ones about sustainability being at the center of everything it does and the claim that it will use its proxy votes more often against companies that are slow to disclose climate and other sustainability-related risks to shareholders.
Indeed, BlackRock filed a lengthy comment letter on the last day.
Read it yourself if you want, but here’s a summary:
Dear SEC:
We don’t have a clear position on either of these issues.
Sincerely,
BlackRock
So disappointing for BlackRock and State Street to not take a position on rules that would negatively impact the shareholder engagement ecosystem in which they participate and claim to value.
Among the few large asset managers who did weigh in were Neuberger Berman and T. Rowe Price, which I noted last week. Add MFS to that list. All three took clear positions in opposition to the SEC proposals. Good for them.
Additional links to comment letters:
Thomas DiNapoli, Comptroller, State of New York
US SIF: The Forum for Sustainable and Responsible Investment
Nell Minow, ValueEdge Advisors
SEC Commissioners in heated debate about climate-risk disclosure
I’m taking a wild guess here, but I have my doubts that this SEC, with its 3–2 Trumpian majority, will require standardized disclosure related to climate risk as it considers amendments to modernize Reg. S-K.
But here is an informative piece on the internal debate going on, pitting new Commissoner Alison Lee, a Democratic appointee who favors increased climate disclosure, against Chair Jay Clayton and Commissioner Hester Peirce, both Republicans, who oppose it.
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