It is true that social media companies have given huge return to investors. But is it time to think beyond just profit or return on Capital? Should investors demand more on how this companies manages its content? This is where ESG and impact investing can stretch its muscles. However, there are few obstacles in the way. And one in particular, incentive.
It is hard to shift investors from profit. Ultimately, every investor is participating in the market to accomplish a mission and that mission is to grow its seed capital via buy and sell. It is difficult to shift this mindset to more socially conscious path, at least in the beginning.
For example, a company is making fat margins with solid future growth potential, and a prudent investor would stick with purchasing that company’s stock even if there is 10-1 in gender complexion of its employees. The only thing that could change his mind is if the general consensus among other investors on such fact is bad for the company’s future. However, once that consensus is reached, no matter how profitable a company can be, its stock would never pick up pace since investors are avoiding it until the company takes a series look at its problem.
In our hypothetical company, there could be two outcomes. After extensive research, the gender inequality is merely due to the less interest from the potential employees, i.e only 1 in 10 job applicants are in that particular gender. The other outcome is that it will find deficiencies that can be corrected. But each outcome require same starting point, action from the management. And that is the ultimate goal of ESG and impact investing.
As more investors and individuals recognize the benefits of ESG and impact investing, the more action managements of such companies would take. Ultimately, it forces the management and the shareholders to take action based on what investor want to see on socially and environmental manners.
With ever growing presence of social media companies, it is up to the investor to demand improvements on how these companies manage its content. These companies are not just impacting few groups anymore, they are presenting an easy to use platform to groups with selfish agendas that are not for the betterment of generation and the future. They are so big that it is hard to deny their impact on the shape of our society. And as part of this future, it is important for each of us to demand better from these giants.
