Perspective

The investor's dilemma: do sustainable funds need a digital detox?


Netflix documentary The Social Dilemma makes for uncomfortable viewing for users of social media channels such as Facebook, Instagram, Snapchat, YouTube or Twitter.

i.e. pretty much all of us.

And as a sustainability specialist who invests (at the time of writing) in Alphabet , the parent company of Google and YouTube, I find the issues covered extra troubling.

What’s The Social Dilemma about?

The documentary consists mostly of interviews with “witnesses”, tech industry insiders who have grown increasingly uneasy over the impact of their creations, interspersed with the story of a fictional family battling the ills of social media.

As we are all well aware by now – and if you aren’t, go watch the documentary –  these tech companies make most of their money by selling advertising space to other companies. As they say: “if it’s free, you are the product”. Their services are free to use, but they are not philanthropic endeavours and need to make money.

Unless you take issue with the basic principle of capitalism, the debate is over how these companies make their money and the unintended consequences of them getting very, very good at it.

Why might sustainable portfolios need a digital detox? I see two main issues: addiction and polarisation.

My concerns: addiction and polarisation

1. Opiate of the masses: addiction

The platforms increase their value to advertisers by maximising user engagement: the more time you spend on their sites, the more adverts they can place. And the more they learn about you, the more they’re able to refine their targeting further and earn more.

As the insiders explain, the services have been designed to create a “dopamine-driven feedback loop”. Dopamine, the “feel good” chemical linked to addictive behaviour, is released through positive social interactions and validation from our peers. Social media delivers social stimuli like a slot machine: irregularly-timed rewards in the form of likes and other notifications.

The aim is to stop you from putting down your device, and it works remarkably well. Many of us are literally addicted to our tech. One study in the US suggested the average person touches their phone more than 2,600 times per day.

It’s affecting the quality of our sleep and has even been linked to a higher risk of road traffic accidents. The pressure for validation and unrealistic examples displayed on social media have also been blamed for rising incidences of depression, eating disorders and suicide – especially for young people.

2. Rules of engagement: polarisation

This leads to the second problem.

Engagement will be higher if the platform serves you content that you will find, er, engaging: this could be stuff you’ve previously shown an interest in or that “people like you” click on.

This is naturally going to be content that chimes with your existing view of the world, and the algorithms work so well that we are less likely to see content that opposes our existing view of the world. This isn’t malicious: it’s designed to provide the results that are most relevant to you. But it can lead to confirmation bias.

We all tend to seek out sources and company that agree with the views we already hold. People of different political persuasions will buy different newspapers or watch different TV channels, where the columnists and anchors represent their views. Technology has ramped this up to the nth degree. This matters for society.

There have been numerous studies suggesting that political polarisation has intensified since the 1990s, especially in the US.

Social media isn’t the only reason but it’s plausibly a significant contributor. Heading into the US election, Pew Research found that 90% of registered voters on both sides said a victory by the opposing candidate would lead to “lasting harm” to the US.

Democracy relies on the premise that everyone’s voice carries equal weight, but when political adversaries become mortal enemies this breaks down.

Stretching these concerns to their logical conclusion, you could say tech firms can be blamed for hate speech and even political violence. I am inclined to think this is an overly simplistic view. The complexities of geopolitical and social schisms cannot be pinned on a single factor.

But what is certainly true is that social media has provided a platform for damaging content and enabled, and potentially encouraged, it to spread further and wider than previously possible.

Can tech companies still be a force for good?

There are two sides to this story and it’s easy to get caught up in the melodrama of tech-bashing.

If you could wave a wand and rid the world of big tech, would you do it? There’s no way I would.

Especially in the last 12 months, life without the services of these companies would have been almost unimaginable, and certainly poorer.

Thanks to YouTube, I can join a live fitness class from my front room. Thanks to WhatsApp, I can meet my friends’ new babies on video calls. I am using Google Maps to plan cycling routes and discover more green spaces in my area, and Microsoft Teams and Skype to keep in touch with colleagues. We can connect with greater ease than ever before, enabling collaboration across the world.

We take a lot of these positives for granted now.

There are also benefits for wider society. Tech companies have played an important role in driving price deflation in consumer goods, promoting innovation and lowering barriers to entry for small businesses.

In recent years, big tech has also been leading the charge on environmental standards and emission reduction, with Microsoft pledging to become the first company to become “lifetime carbon neutral” by 2050.

I see two important routes to mitigate the negative impact of technology: regulation and education.

On regulation, the environment is becoming increasingly hostile. Europe has already taken gradual steps to curtail the powers of big tech and I believe the change in administration in the US will usher in more regulatory activity.

The challenge for regulators is that these are very hard business models to regulate. But we have reached the point where something must be done, even if it is imperfect.

There are some sensible measures that could be taken; for example, enhancing users’ rights over their data (as in Europe), and making it possible to “port” your friends and messages to a new social network as you can your mobile phone number when you move to a new operator.

Splitting up companies to increase competition could also be an option; it certainly seems unlikely that any of the tech giants will be able to acquire as freely going forward.

More transparency on internal algorithms, policies and use of data would help reduce allegations of bias and abuses of power.

I also expect the pressure on tech companies to police content on their platforms will increase as the line between social and traditional media becomes increasingly blurry.

This responsibility could be enshrined in law.

This risks undermining the capital-light, highly-scalable business model that makes tech so attractive to investors. These businesses are becoming increasingly labour-intensive, not just in terms of the number of staff needed  (Facebook already has more than 15,000 in the US), but the salaries required to attract people to the job of content moderation.

Education is even more important in my view. 

The best approach is probably the same as with other sources of potential harm like drugs and drink – talking openly and honestly about the risks.

I even think there is a case to be made for putting “internet hygiene” on the school syllabus.

The better all of us, and especially young people, understand the techniques the platforms are using, the more we can protect ourselves.

Why I’m still invested in Alphabet

My team and I demand high standards of business ethics and fair treatment of stakeholders from all the holdings in our sustainable strategies.

Yet no company is perfect, and in every instance the challenge is to weigh up the positives and negatives. We can then engage with companies to help tip the scales further towards the positive.

I do believe there is a difference between Alphabet, parent company of Google and YouTube, and the pure social media platforms. Its primary product is search, where it has invested heavily, and this adds huge value to our day-to-day lives. Consumers continue to vote with their feet because Google has the best algorithm.

Regulators, especially in Europe, require Alphabet to make advertising more transparent and not give priority to their own services, which has prevented the most egregious abuses of power. Meanwhile, the company’s other services – Android, Mail, Maps, Meet – are more utilities than activities so I don’t feel addiction is as much of an issue.

Alphabet is also one of the best when it comes to providing user access to data and transparency about how it is used.

The more problematic area is YouTube, which is more akin to the social media platforms in that it hosts user-generated content and has the same incentive to polarise people – though the evidence for this is mixed.

Encouragingly, YouTube changed its algorithm last year sovideos that have been borderline cases for deletion are now less likely to be recommended.

YouTube is also experimenting with a “freemium” model (YouTube plus) which could be expanded to reduce the influence of advertising, and to fund greater resource for content moderation.

All that said, we spend a lot of time monitoring and debating Alphabet’s conduct and culture, watching for red flags that might suggest the company’s business ethics are deteriorating.

We scrutinise every story and follow employee portals such as Glassdoor and employee blogs. To date, we have been impressed by the unusually open culture at Alphabet, which can lead to ugly headlines but also ensures debate and challenges to leadership.

But we recognise that this can be difficult to maintain witha company of this size. That’s why we’ll continue to scrutinise and engage with the company to check if our conviction is maintained or more needs to be done.

For us, Alphabet’s activity currently makes it a force for good, but we remain ever-alert to any shift in direction.

Do sustainable funds need a digital detox?

The Social Dilemma paints tech companies as villains destroying the very fabric of society. 

This makes for compelling viewing, but the reality is more nuanced. I agree that the psychological effects of social media can be detrimental, with business models that feed on addiction and polarisation.

But this doesn’t mean that tech companies – and their products – are all toxic. As with many things, social media can be beneficial and enjoyable if consumed in moderation.

There’s certainly more that could be done in terms of regulation and education, but we can’t just rely on top-down solutions. At the end of the day, there’s a role for sustainable investors to play in holding these companies to account and encouraging positive change where possible.

A digital detox is too extreme and unrealistic. But a regular digital check-up could be just what the doctor ordered.

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