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Swiss ESG managers go forensic on Facebook

Swiss ESG managers go forensic on Facebook

Swiss investors are divided on whether to follow in Nordea's footsteps and freeze investments in social media giant Facebook following its serious data breach.

The Nordic investment giant announced it was 'quarantining' the social media company given the strong public backlash and overhanging threat of increased regulation.

Swiss investors approached by Citywire Switzerland said the decision to follow suit and either halt or even remove investments from Facebook was a decision which could not be taken lightly.

UBP’s head of responsible investment Victoria Leggett said the answer is not black and white. She added that determining a stock’s sustainability is more nuanced than it may seem.

‘A company can possess socially responsible characteristics and yet not be sustainable from an investment perspective,' Leggett told Citywire Switzerland.

'For an investment to be regarded as genuinely sustainable, it must clearly have a robust approach to ESG issues. Of equal importance is the company’s ability to illustrate conviction in its own operational sustainability.’

Leggett said some companies lend themselves easily to this criteria, such as those in growth industries and sectors which are focused on solving the world’s challenges, like climate change.

Closer focus

But tech companies require investors to read the fine print – and to read it extremely closely. In an emailed comment, Basellandschaftliche Kantonalbank (BLKB) said this may result in serious social and financial consequences.

‘Poor data security has a negative impact on reputation and consumer confidence. It may trigger legal action and therefore also may have a negative financial impact on a company,’ a spokesperson for the bank said.

‘It also creates external social costs, which, we believe, at some point will have to be internalised. These may also contribute to a negative financial impact on a company.’

For the likes of Candriam and sustainability research specialist oekom, quantifying the ESG abilities of a tech company do not end at data privacy.

A spokesperson for oekom said: ‘Rating consists of several factors, which are roughly 100 criteria.

'Look at Apple for instance: they have an impact with their product, and then you have to consider companies that work for Apple. The chip producers, smartphone producers, the whole life cycle.’

Too soon to divest

Unlike Nordea, Swiss investors aren’t pulling the plug on Facebook stocks just yet – at least, not without a guilty verdict.

‘The investment case for Facebook may be impaired, but this in itself is not sufficient to place it on our exclusion list,' said Leggett.

'At UBP, the exclusion list is permanent and names on this list are only added after much analysis, debate and consideration. Therefore we believe to add Facebook at this stage, before the market has sufficient clarity, would be impulsive and premature.'

If they are found to be at fault, Facebook could see their sustainability rating drop significantly, said oekom.

‘Data privacy is a serious thing. At the moment we treat it as a potential controversy, and as soon as this is proven, it will be a controversy.’

‘We will stay alert and whatever comes out as additional information will be taken into consideration. Based on that, it could lead to downgrading, and it has to be seen whether this is severe enough to affect its rating.’

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