Digital ethics are fundamental to ESG metrics, says Fidelity’s portfolio manager Sumant Wahi.
While traditional ESG metrics serve as a good initial filter, Wahi believes assessing a company’s digital ethics, including their approach to privacy, misinformation, online fraud and online welfare, offers investors a more “insightful” way to measure companies.
According to Wahi, misinformation spread on the internet has caused criminal violence, political disruption and a societal debate about the responsibilities of internet giants in policing content that appears on their websites. Facebook takes down 2.5 billion fake accounts every quarter and limits the ability of WhatsApp users to forward content to just five other chats.
Wahi says: “We applaud these efforts, which at least go a small way to make up for mistakes the company has made previously with regards to the propagation of fake news. Similarly, other social media companies are increasingly and actively focusing on the issue of propagation of misinformation. We see these as positive real efforts across the industry.”
Privacy has been identified as another key issue, with the amount of information that internet giants amass and know about their users becoming a focal point for regulators in recent years, with the introduction of the GDPR in 2016.
“This is a critical area of focus for us. We track not only companies’ policies around data privacy, but also what companies are doing to secure the data they already hold. We also closely monitor which companies are following the spirit of the law versus just the letter of the law on this issue. Data privacy is not just a core issue for companies that utilise user data for generating revenue but also for companies that store data for other purposes such as customer service and loyalty programmes,” says Wahi.
Online fraud has also gathered momentum in recent years, with the cost of cybercrime damage to the global economy now running into trillions of dollars.
Wahi warns that companies must ensure that their store front or digital platforms do not become a venue for online fraud, while at the same time, increasing their focus on protecting vulnerable and less net-savvy users from cybercrime.
According to Wahi, in addition to clear policies and practices investors should consider the extent to which a company’s chief security officer has access to the board and management.
Finally, online welfare has become one of the most crucial issues companies face in sustainability terms, according to Wahi, with the effects of digital technology and mass communication posing an increasingly significant risk to people’s mental health.
It follows statistics from Instagram which showed the social media platform removes around 10,000 posts a day relating to suicide and self-harm.
While Wahi admits it can be subjective, he says investors should continue to make inquiries and press management teams on online welfare policies.
Wahi adds: “History has shown that even in structural growth sectors like technology and the internet, a focus on ESG&D can create alpha for portfolios. Going forward, assessing the digital ethics of companies in our universe is going to be increasingly important to gauge how these firms will fare in light of future antitrust and regulatory issues.”
