Can Elon Musk muzzle tech ESG?

Greetings from California, where I arrived late last week to take part in the Real Time with Bill Maher television show in Los Angeles. To my delight — and surprise — the HBO show (which featured Yuval Noah Harari, the author of Sapiens, and Quentin Tarantino, the film-maker) included an unplanned debate on climate change.

Maher was downbeat on the issue, arguing that humans in general (and millennials in particular) are unable to collaborate to prevent catastrophic change. I took a more upbeat stance — while Harari adopted the middle ground, lamenting the innate selfishness of the human animal, while also celebrating our species’ capacity to innovate. (Sadly, Tarantino did not wade in.)

Either way, the fact that Maher raised the topic shows the degree to which it is on the public mind. So is another issue that was raised by Maher and which sustainability investors should watch: the wider societal impact of social media.

The environmental, social and governance world has not paid too much attention to this in the past. But it is grabbing more attention with Elon Musk’s $44bn acquisition of Twitter, and the Kanye West outbursts that have panicked his corporate partners. So take a look at our story below on a new venture capital-backed initiative to introduce “responsible innovation” in tech. And for another thought-provoking tale, read about the conundrum around defining what is (or is not) truly responsible forestry today. (Gillian Tett)

Revolting tech?

There is (almost) nothing that highlights the tensions and trade-offs between the “E” and “S” in ESG as the debate around tech stocks; particularly following Musk’s purchase of Twitter. Tech giants often feature prominently in ESG investment baskets because many have slashed their carbon footprints in recent years. Companies such as Apple, Microsoft and Google, say, have built data centres that draw electricity from renewable sources. And even Amazon has (belatedly) joined the crusade by developing a delivery fleet based on electric vehicles. Hooray.

But the “S” aspect of tech is a problem. Most tech companies are trying to create a more diverse workforce these days (after employee protests), and are using the internet to promote laudable development initiatives, such as female education. But the sector has been slow to acknowledge — let alone fix — the harm sometimes done to society by social media and other internet innovations. And the cost of unfettered innovation could soon rise as technologies such as artificial intelligence take hold — as Harari explained on Maher’s show.

So can investors use their muscle to counter this? Not easily: fund managers have had scant leverage in recent years, because capital was abundant. Employee protests often seemed more effective, since talent has been scarce. And Musk, for his part, has been scathing of ESG in the past — and keen to muzzle it.

But a consortium of investment funds and venture capital groups called Responsible Innovation Labs is now trying to step up the pressure for change. This group — which sprang to life earlier this year and now features several dozen members, such as General Catalyst, Oxford University Endowment, Generation Investment Management and Hall Capital — has created a five-point charter that urges tech to raise its standards.

In a report released this week, the group writes that “we are at a critical juncture in society where technology plays an outsized role in our lives . . . The decisions companies, founders, and investors make today will have broad, long-lasting implications on society — for better or for worse. The era of business focusing solely on growth at all costs is over.”

There is strong support in the tech world for better standards, according to 224 tech executives, 240 tech employees and 810 people from the “informed public” surveyed by Responsible Innovation. Eighty per cent of respondents like the “responsible innovation” charter, 72 per cent think this should be a priority for tech executives — and “60 per cent think that tech companies have failed to deliver this so far”.

No surprise there, perhaps. But what is more noteworthy is that 76 per cent of respondents think that tech executives’ pay should depend on how responsible they have (or have not) been and 63 per cent want to hold investors in tech companies accountable on these issues. More striking still, 56 per cent of tech executives apparently think their own staff are forcing change — but only 14 per cent of those staff agree. Hmm.

It remains to be seen whether this coalition, which is due to hold its first big summit in two weeks, will actually lead to change. Three years ago the New Zealand Superannuation Fund started a campaign with other funds, in the wake of the Christchurch shootings, to force social media companies to remove dangerous material from their sites. This sparked a wider debate — but has not fixed the problem. However, the fact that Silicon Valley VCs (and others) are even trying to campaign for higher social standards is notable, and it could carry more impact if tech sector valuations keep falling, political dysfunction keeps rising, and Musk’s recent takeover of Twitter turns sour. ESG investors should take note. (Gillian Tett)

Seeing the purist wood for the trees

If you’re the sort of person who likes to inspect the paper and cardboard packaging your stuff comes in, you’ll be familiar with the looping green tree logo of the Forest Stewardship Council.

The FSC was set up in 1993 to offer a certification system to steer consumers and businesses towards sustainably managed forestry operations, and away from those that wreaked havoc on ecosystems. It soon imposed a clear red line: any new destruction of indigenous forest — that is, if it took place after 1994 — would result in expulsion from the initiative.

But that rule has now been dropped. At this month’s FSC general assembly in Indonesia, the body’s members voted to push the cut-off date back by more than two-and-a-half decades. The door has now been opened to certification of companies that have destroyed natural ecosystems as recently as 2020.

When I asked FSC director-general Kim Carstensen about the change, he said it was a sensible move to raise standards across the paper industry by bringing more companies into the initiative. “We’ve kept people out of our system,” he said. “But it would be better if we could actually enable the people who want to do it to provide remedy for the damage that they have done, and thereby then earn the right to get into our system.”

The FSC’s decision has brought a nervous response from some of its participants, including among community groups. Nicholas Mujah Ason, general secretary of the Sarawak Dayak Iban Association, which represents indigenous people in Indonesia’s Sarawak island, told me that he was worried it could enable “greenwashing” by companies that had been devastating the ancestral territories of his community. “We don’t have rights over our land anymore,” said Mujah, who is also a member of the FSC Indigenous Peoples Committee. “These are rampant activities in our state.”

Full-throated condemnation of the shift has come from the Rainforest Action Network campaign group. Gemma Tillack, its forest policy director, told me that the relaxation of standards has called the FSC’s credibility into question. “It’s been the most credible standard in the sector,” she said. “And this decision to change it — to, in essence, endorse conversion that’s occurred between 1994 and 2020 — it’s a massive decision.”

Both Mujah and Tillack told me that a huge amount now depends on the outcome of another new initiative approved at this month’s meeting: to draw up rules for how companies will need to atone for past environmental and social damage.

Carstensen says that a draft of that “remedy framework” will be out in the next couple of months, and that he expects it to be rigorous enough to drive serious action by companies with problematic track records that could now come into the fold. “All we’ve been able up till now has been to kick these companies out,” he told me.

Readers may spot a parallel with our recent story about the loosening of rules by Mark Carney’s Glasgow Financial Alliance for Net Zero, as it seeks to hang on to restless members. For corporate sustainability initiatives, striking the balance between tough standards and wide participation is proving an agonisingly difficult task. (Simon Mundy)

Smart read

The recent saga around anti-Semitic remarks by Kanye West is mesmerisingly awful — and highlights the challenge that companies now face over social issues and reputation. As the FT’s Alex Barker reports, this issue is not entirely new; but the reputational hit is arguably more challenging to manage than ever.