As big tech and media companies face growing concern about the power of their businesses, more questions about environmental, social and governance (ESG) issues are likely to be raised. Social and governance issues deserve greater attention amid increasing regulatory scrutiny of industry giants.
ESG issues are attracting greater investor interest across industries today. Tech companies have a pretty good reputation in terms of the environment. Most don’t consume huge amounts of natural resources. And their products and services support technological advances that help give people better access to information, while fostering economic growth.
But many tech companies face social and governance risks that shouldn’t be ignored. Mounting political pressure to regulate technology and media giants should compel investors to ask what these companies are doing to manage exposure. Recent reports in the New York Times and Wall Street Journal suggest that regulators will be widening the scope of their enquiries into big tech companies beyond antitrust law. Investors should watch out for lesser-known potential ESG hazards by asking these three questions:
Is Antitrust the Right Battle?
The regulation of big technology companies, like Alphabet Inc. (Google’s parent company) and Facebook, is widely perceived to be a US antitrust problem. Antitrust laws are statutes developed by the government to protect consumers from predatory business practices by large, dominant companies. However, the US antitrust actions may face challenges because Alphabet and Facebook aren’t doing damage to consumers, in our view.
But we think additional regulatory questions will be asked. For example, Google-owned YouTube has 2 billion monthly unique users globally, and the Facebook ecosystem (Facebook + Instagram + WhatsApp + Messenger) has amassed 2.2 billion daily users. The sheer scale of users allows both companies to benefit from a powerful network effect. At the same time, this has created unintended social implications.
Content distribution is a case in point. Facebook and Google’s dominance over content distribution could clash with a long-standing US tradition to protect the plurality of opinions. Even today, the Federal Communications Commission enforces strict ownership restrictions over traditional media outlets, such as national and local TV stations, to ensure that no single entity has too much influence over the “media voices” in a given market. There are also rules in place to prevent the merger of national broadcast networks, such as CBS and NBC. Given the massive scale of their audiences, YouTube and Facebook far exceed the reach of mainstream networks. What’s more, in the US, traditional news and advertisement publishers are obligated to verify the authenticity of information in their publications, or face exposure to liability.
Google and Facebook don’t face such liability today. Since they say they aren’t publishers, they aren’t responsible for editorial content. Both companies consider their technologies to be platforms that connect users and publishers in an “open internet” environment. That’s why Mark Zuckerberg recently said at a roundtable discussion when talking about the spread of misinformation, “I don’t believe that our platform should take [content] down.”