Research & Insights

Facebook ESG Analysis: Part 2

by Nomtha Ngumbela

“If you’re not paying for the product, you are the product”

Social Media companies like Facebook rely on a phenomenon known as the ‘network effect’ to gain popularity and ultimately increase their profitability. How this works is the value of a platform or product increases as more people join it. Forbes states that a network effect is any situation where every new user joining a service provides benefit to all the users already there, and even more so, gets back value from the existing users.  The important piece in the above definition by Forbes is the that the service provides benefit and value to users which speaks directly to the global society Facebook operates in. 

In Part 2 of the Facebook ESG series ECM investigates four areas where the social platform plays a critical role in society and whether the platform has provided benefit in the case of:

• Political and Civil Participation
• Dissemination of Information
• Mental Health
• Community and Business interaction

After analysis of each of these factors, we once again put Facebook through the ECM ESG framework and provide analysis on where we believe the company currently stands.

Political and Civil Participation

The availability of information and the ability to do factchecking at the click of a button should, intuitively, increase engagement of citizens on important issues such as politics, social-economic causes and the ever-growing concern for the environment, thereby strengthening our social capital and encouraging greater understanding across social lines and values. As more communication technologies emerge, the strengthening of the democratic process was imagined by thought leaders like Dalton, Norris and Hay in various papers. The Question ECM asks in this section is this “Has social media strengthened democracies by making the actions and words of politicians more diverse and transparent?” The answer we believe, is yes. 

Traditionally, politicians spoke to the electorate via the media. Growing a political base required door-to-door engagement or, if the media outlets liked you, politicians were given more screen time thereby increasing their chances or notoriety. Nowadays however, campaigns and voter bases are started online where candidates are actively bypassing the media and going directly to individuals through social media platforms like Twitter, TikTok and Facebook. Candidates can use these networks to move their message quicker, engage with citizens directly and offer the opportunity to answer topical questions at a more rapid rate.

Likewise, citizens can check the authenticity of what potential candidates and current politicians are saying more rapidly. The views on important issues are quickly shared, debated and archived. Think for example about the story of immigrant children being held in detention centers in America and how quickly the news flow become viral on social media. The outrage of citizens quickly converted into organized petitions and calls to political representatives which encouraged local and national governments to be more transparent and act rapidly as constituents requested answers from the people they had put in power. Social Media has expanded the potential for civil discourse.

Dissemination of Information

Facebook states they are giving people more direct control over what they see but what does that actually mean?

Ultimately the Facebook algorithm is one of the most important factors in deciding what individuals see on their news feed. In 2016, the algorithm grew in sophistication, prioritising content by how long users spent on the article, post or advertisement. As individuals interact or react more with a post, the higher priority similar posts are given. This is done to maximise a user’s time spent on Facebook by utilising AI software that analyses thousands of data points to accurately predict what you, the user, is interested in.

Beyond the technicalities, what does this mean from a social perspective? Well, traditionally news sources consisted of newspapers, radios, and television. Now it is estimated that 62% of American adults get their news from social networking sites. The obvious consequence here is heightened responsibility on Facebook to deliver news that is fair, accurate and unbiased and to ensure that consumers are making informed and reliable decisions. But how can this be possible if a company’s intention is to make money through increased view participation and not accurate or fair news reporting?

Facebook has rightly been criticized for its proliferation of fake news and information, often allowing the stories to gain traction and increased engagement before they are taken down. Societies have thus become increasingly polarised with regards to politics, religious beliefs and attitudes towards what is ‘right’ and ‘wrong.

Where reported news is seen as objective reporting of facts and statements, fake news inevitably manipulates societies’ perception of reality and promotes further social conflict and undermines the foundational value systems democracies are seen to be built on. Fake news creators and hackers drive revenue through clicks as well as selling their product or services based on false information that has gone viral. However, incentives for fake news are not always monetary, from a political standpoint the ability to discredit rivals during an election in an effort to sway voters and public opinion has advanced remarkedly through false viral videos and articles that are often left undetected or unsurveiled long enough to become believable facts. For example, the top 20 fake election stories in 2016 generated more clicks and engagements than the top 20 real ones! 

In response to this, Facebook has added new features and increased security to curb the spread of false information. Tools released by the website include:

1. Click-Gap, an algorithm which provides a signal for articles and web pages that may be disproportionately popular on the Facebook platform compared to other websites on the broader web.
2. Third party fact checking on stories that are highly shared or have gone viral
3. Related post listing that appear alongside the popular article as a means of verification of its authenticity
4. Added a ‘page information’ feature that provides further information about the origins of the post and its authors.

When advocacy groups and consumers initially called for Facebook to improve its algorithms and

fact checking procedures, the company’s approach was to label the platform as non-partisan and impartial. Their neutrality has unfortunately led to millions of clicks and engagements of false narratives that have driven deeper divides in society, misinformation and potential decisions made based on fallacious information.

From an ESG perspective, Facebook’s slow response has materially altered their Societal score in a negative manner.

The Role Social Media plays in Mental Health

“Communicating online can benefit both learning and psychosocial development but can also cause negative psychosocial and interpersonal effects.”-Reynol Junco

In 2017, the American Psychological Association conducted a survey that asked each generation whether they were concerned about the negative effects of social media on their physical and mental well-being. Survey responses indicated that 22% of Baby Boomers (age range between 56-74 years) strongly or somewhat agreed with the statement versus 48% of Millennials (age range between 24-39 years). In fact, as the study moved to younger, more impressionable generations the percentage of concern of social media’s role in mental health increases significantly.

A social media behaviour analysis in 2019 stated that users daily time spent on social media platforms had increased on a year to year basis to 2 hours and 16 minutes. This average does vary considerably across regions with lowest usage recorded in Japan of just 36 minutes every day compared to the likes of South Africa where the average time spent per day is 2 hours and 48 minutes or over 17 hours a week!

Anything we do this often will inevitably have lasting effects on individuals.

In her TEDx talk, digital marketer Bailey Parnell highlighted several challenges faced by social media users which included:

1. Comparing each other with people’s ‘highlight reels’à Users post their most interesting content on social media, often situations that are ‘out of the ordinary’ such as overseas holidays or promotions. When others see this ‘highlight reel’ and compare it to their normal lives a sense of inadequacy settles.
2. Social Currency à Social Media users attribute engagement with their content such as ‘likes’ ‘comments’ and reactions to their personal value. This has inevitably created a new economy- the ‘economy of attention’. Ultimately changing our sense of identity and qualifying self-worth.
3. Online Harassment à 40% of online adults have personally experienced some form of online harassment and a staggering 73% have witnessed it. Minority groups are being targeted at even higher rates.

The unintended consequences of social media can be seen in university students (which include age groups with the biggest social media usage rates) where the top three diagnosis are stress, anxiety and depression. It is estimated that individuals will spend 1 year and 7 months of their life utilizing Facebook and a further 8 months on sister company, Instagram. As a company, one may argue that Facebook does not hold any obligation to limit the use of its platform as this interferes with individual consumer autonomy. However, ECM considers the social demographics of the platform’s users, which does warrant a level of strategic intervention by the company to, at the very least, make the environment healthier for all users especially young, impressionable ones.

Community and Business: Interaction

Facebook’s mission statement asserts that the platform’s purpose is to build community and bring the world closer together. The company not only wants friends and family to engage each other and stay connected, their mission is also to enable users to discover what is going on in the world around them and to share in what interests and matters to each user.

Though the social media universe is vast, one cannot forget that the services offered by Facebook were amongst the first to be so deeply interconnected and interactive while also offering free access for all users. No questions asked. The level of accessibility Facebook created on the platform combined with an interface that is user-friendly and constantly adapting to the needs of users has been a benefit to the interconnectedness of society. The only requirement for users is a smart device (which retails for a little as R399 for a cellular phone) and internet connection. With those two instruments, Facebook users have access to a global community of over 2 billion people– no other platform has this type of reach!

Communication is essential to both relationships and the success of commercial activity provided by businesses. From a community point of view, Facebook has provided the added advantage of connecting like-minded people from across the globe for over a decade. From the promotion of cultures in language learning groups, to the sharing of hobbies and providing platforms for new students, parents and immigrant communities, Facebook allows users to discover groups and events as well as organize communities to come together.  

From a business perspective, the addition of features such as video conferencing and job postings is yet another additional benefit that fosters collaboration and maximises community’s ability to interact effectively at low costs. The Facebook for Business feature boasts phenomenal statistics with more than 80 million small business globally stated that they utilise business as of 2020. Facebook facilitates a number of options for businesses in order to achiever their goals be it increased brand exposure, reaching a global audience, increasing traffic to websites or lead generation.

Facebook Marketplace is another example of an additional feature that is creating accessibility for buyers and sellers, with over 18 million new items posted for sale in the US during the month of May in 2019. The company also noted that the global figure for the number of people who visit buy and sell groups each month had risen to over 550 million! Recall, this is a feature that was introduced in late 2017 and is averaging a monthly growth of 77% and 18 million items posted for sale a month in comparison to Craigslist which was founded in 1995 which has  about 80 million monthly ads and 800 million monthly visitors.  

Conclusion

Analysing the societal benefits or detriments brought by a company is a difficult consideration when performing an ESG investigation as a large amount of subjectivity is required, given that much of what is being evaluated cannot be quantified.  Ultimately, the evaluator is attempting to ensure that the presence of a company and the policies it has in place promote inclusivity, social cohesion, diversity, and a business model that advances and protects the fabric of society.

Upon evaluating Facebook on the ECM ESG Score Card, the company produced an average score in this regard. We provide context for this below highlighting each of the four areas previously discussed:

1. Political and Civil Participation

If the reader recalls, ECM asked the following question at the beginning of our investigation into Facebook’s role in political and civil participation: “Has social media strengthened democracies by making the actions and words of politicians more diverse and transparent?”

ECM believes that the increased use of the app by members of society and participation by companies, politicians and individuals of influence has forced civil servants as well as big and small corporations to be more transparent and accountable to the constituents and customers they serve.  One cannot take for granted the ability to hold individuals of influence accountable and demand change and answers with a click of a button on a mobile phone.

As such, ECM believes that overall, from a Societal point of view, Facebook does provide an added benefit to communities by creating access to politicians regardless of demographics such as incomes, which often meant the most vulnerable in society had the least opportunity to communicate with politicians, head of states and the very individuals making decisions which could alter the livelihoods of many.

2. Dissemination of Information

ECM believes that the company does hold immense responsibility to protect consumers from the false narratives being shared, and the online harassment that is currently being experienced. It is not enough for Facebook to take the role of neutral participant when the health of its consumers is at stake. The question in this section was the following: “Is Facebook doing a reasonable amount of work to regulate the information being released to the public? Ensuring timely response to inaccurate and false information above all?” ECM believes that given the sheer scale of the company and the resources available to introduce advanced technology which could combat dissemination of false information more rapidly, Facebook is not reacting as quickly as it could. The result has been the proliferation of incorrect information which has further divided individuals across racial, religious and political lines. Facebook is being used by terrorist organisations as a means of communication via Groups, as well as the distribution of disturbing content on a global scale.

ECM views the steps being taken by Facebook to increase regulations and safeguards against false narratives as a positive step however, the challenge again in Facebook’s case is their slow-moving response. For these reasons, the company was penalised in the scoring.

3. Mental Health

As the third most visited website overall according to Data Report, with users spending an average of 11 minutes and 44 seconds per visit, with at least 51% of surveyed users stating they make several visits a day, ECM believes Facebook has a responsibility to protect the content produced and shared on its application as well as to provide safeguards against excessive use.

One of the key factors that was considered in this section is that Facebook does not operate in a microcosm. That is, if Facebook were to limit usage of users (young users in particular) the attention given to Facebook would be diverted to other platforms such as TikTok, Youtube and online gaming. There is a definite need for a collaborative effort from social media provides to offer increased safeguard against excessive use of platforms which regrettably lead to the aggravation of mental health disorders. ECM acknowledges this. However, as the largest social media platform with a family of applications which include Instagram and Whatsapp, Facebook’s responsibility to placing safeguards in place cannot be disputed. For this reason, the company’s Societal score is penalised.

4. Community and Business interaction

Facebook has afforded society with a platform for communication across global lines at no cost. As the platform has become more lucrative management has not restricted user accessibility or created financial divisions by adding ‘paid-in-app’ features which would ultimately advantage one set of users while putting the other set at a noticeable disadvantage.

This is clearly a positive enabler for society and business alike. ECM credits Facebook’s movement to provide small businesses, in particular, a free and accessible platform to communicate with customers, provide immediate feedback and also market products and updates timeously.  For this reason, the company scored favourably for community and business empowerment and facilitation. 

Facebook offers both benefits and risks to society. The sheer size of its reach and influence places a greater onus of responsibility than would otherwise be the case. Effectus’ scoring metric has produced an average outcome for the company which we believe is a fair representation of their Societal contribution. ECM cannot see a company like Facebook as purely a profit-making vehicle given its scale and influence in creating such a powerful interconnected public platform.

In the third and final installment, ECM investigates Facebook, the Environmental citizen. This dimension of Facebook is by far the businesses most promising, proactive and least controversial contribution to the ESG conversation and should definitely not be missed.