One way to get the attention of a company is to knock $90 billion off its market value. That’s 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’s stock from their portfolios.
As the giant of “surveillance capitalism,” 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’s 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 “sustainable” way to do business. Last week’s market pressure on Facebook from “sustainability funds” 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 “environmental, social, and governance,” 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 “impact investors” 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.