Why Facebook must 鈥榣ike鈥� ethical investors
After news broke of Facebook鈥檚 misuse of personal data, social capitalists on Wall Street helped bring down the stock price of this 鈥榮urveillance capitalist.鈥� Ethical investing is rewriting rules for what are 鈥榞ood鈥� profits.
After news broke of Facebook鈥檚 misuse of personal data, social capitalists on Wall Street helped bring down the stock price of this 鈥榮urveillance capitalist.鈥� Ethical investing is rewriting rules for what are 鈥榞ood鈥� profits.
One way to get the attention of a company is to knock $90 billion off its market value. That鈥檚 what investors did to Facebook last week after news broke that the social network had allowed the misuse of personal data from millions of users. Among those that fled the stock, many equity firms that specialize in ethical investing, such as BetaShares, dropped the company鈥檚 stock from their portfolios.
As the giant of 鈥渟urveillance capitalism,鈥� Facebook had met its match with another giant force: social capitalism.
Of course, Facebook is also under scrutiny on other fronts for its breaches of privacy. From Congress to the European Union to the Federal Trade Commission, Facebook must answer for breaking the trust of its more than 2 billion consumers. And millions of Facebook users have weighed whether to delete or deactivate their accounts.
But tougher regulation of big data collectors such as Facebook may be far off. And consumer boycotts can be fleeting. That is not the case with many of today鈥檚 investors who put their money where their conscience is. They expect long-term profits based on whether a company is operating under select social and environmental criteria, such as privacy standards, reduced carbon footprint, and gender fairness on corporate boards.
In fact, meeting such criteria is considered a 鈥渟ustainable鈥� way to do business. Last week鈥檚 market pressure on Facebook from 鈥渟ustainability funds鈥� probably pushed chief executive officer Mark Zuckerberg to speed up plans to simplify privacy controls and better safeguard the governance of personal data. Facebook users will be able to more easily choose not to reveal certain traits, such as a love of cats or dislike of guns, that can mark them for advertisers, foreign hackers, or political campaigns.
Not all investors agree on the criteria for sustainability, often called 鈥渆nvironmental, social, and governance,鈥� or ESG. Should a company, for example, be punished for creating a genetically modified crop seed that can prevent famine but might alter natural crops?
Still, ethical investing is now a looming presence over companies. And many 鈥渋mpact investors鈥� are beating the market in profits. They are also challenging the idea that companies must be predatory and exploitative to earn money. Facebook may be learning that lesson very fast.