Why is the ESG of Internet giants not good?

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Text｜Zero Carbon Wind and Cloud, Author｜Da Wei, Editor｜Hua Feng

As a kind of normative non-financial information, ESG has become an important indicator for the government, enterprises, investors, financial institutions and other stakeholders to implement sustainable development strategies.

There are many ESG rating agencies, but MSCI is currently the most authoritative and widely used. The full English name of MSCI is Morgan Stanley Capital International, which refers to the global index compiled by Morgan Stanley Capital International, and is also an index that most global stock fund managers rely on.

In June 2018, A-shares were officially included in the MSCI Emerging Markets Index and the MSCI ACWI Global Index, and Chinese listed companies are also facing global institutional investors' comprehensive consideration of ESG risk and opportunity management.

As more and more investors incorporate ESG into their assessment and investment strategies, more listed companies are actively disclosing ESG-related information. In the early days, ESG was mainly concentrated in energy, finance, and manufacturing. In recent years, major Internet companies have also embraced ESG. According to statistics, since 2021, leading Internet companies such as Tencent, Alibaba, JD.com, Pinduoduo, NetEase, and Baidu have all disclosed independent ESG reports.

In August this year, Alibaba Group also released its ESG report for the first time. Zhang Yong, chairman and CEO of Alibaba, said in his opening speech: "ESG shows corporate responsibility and social connectivity."

However, Shi Shuo, Ph.D. in Economics and post-doctoral fellow at Fudan Development Research Institute, said that, based on the ratings of multiple institutions, from an industry perspective, the domestic financial industry is leading the way, and the energy and engineering construction and real estate industries are rapidly transforming according to ESG standards. It's a shame that Internet companies.

He said, "In the United States, Apple, Netflix and Amazon have become the leading forces in the global ESG field, but the ESG performance of Chinese Internet companies does not seem to be enough to form a new pattern at home."

Internet companies have grown savagely for 20 years, and have penetrated into all aspects of society. Many super companies with a market value of trillions have emerged. Why can't they carry the domestic ESG banner?

good news not bad news

MSCI's ESG ratings for companies are as high as "AAA" and as low as "CCC". According to ESG rating data released by MSCI and others, Chinese companies with high ratings and A or above include Mengniu, Industrial Bank, Fosun, Haier Zhijia, Midea, Huawei, BYD, and Vanke. The highest-rated domestic Internet company is Meituan, which was rated AA in 2019. The rest are in B or even the lowest CCC.

This rating, at most, can only be averaged in the entire industry.

However, judging from the ESG reports released by the big manufacturers, it seems that they have done "very good" and have a very high sense of social responsibility.

For example, in terms of green development "E", Tencent claims to achieve 100% green power and full carbon neutrality in its own operations and supply chain by 2030; Alibaba proposed the concept of "Scope 3+", promising to achieve 100% green power in its own operations and supply chain Outside the chain, by 2035, it will drive a cumulative ecological carbon reduction of 1.5 billion tons; JD.com has built the industry's first "zero carbon" logistics park and increased the number of new energy logistics vehicles to 20,000; Baidu continues to explore autonomous driving and intelligent The carbon reduction path of transportation and other businesses currently reduces carbon by more than 20,000 tons at 176 smart traffic lights...

In response to corporate governance "G", Baidu has established a data management committee, which is responsible for making decisions about important matters in the company's data management, formulating data management-related system specifications, publishing data management standards, and reviewing relevant use behaviors in daily operations, etc.; regards the courier brother as a brother The JD.com has made every effort to promote high-quality employment, investing 1.4 billion and 100 million respectively to create a "housing plan" and a "relief fund" to protect employees; Tencent, which practices "science and technology for good", provides audio and video, live broadcast, and social media other than games. All products have launched a "teenage model" to provide more content suitable for growth to the youth group.

In the social responsibility topic "S", "donation" and "poverty alleviation" are the keywords with the highest frequency. For large Internet companies with a lot of money, this may be the easiest way to expose their brands.

Tencent spent 50 billion yuan last year to invest in the “Special Plan for Common Wealth”; NetEase Youdao focuses on helping the disadvantaged in rural areas to fight the epidemic and disaster relief; JD. Resources to create 1,000 Kuaishou agricultural technicians; Meituan donated to build multi-functional playgrounds for rural children; Mi Noodles Charity Month launched 10 million donations to double love. In addition, social responsibility also includes topics such as rural revitalization, poverty eradication, education equity, and gender equality.

Looking through the ESG reports of many major manufacturers, we will find that they are more like "CSR reports" -- the common problem is that only management policies and results are disclosed, and specific implementation methods and standards are rarely described. Self-promotion. In addition, it is reported that good news is not reported, and some sensitive information is usually not disclosed selectively, which is against the principle of ESG assessment effectiveness.

For the reasons outlined above, ESG rating agencies are seeking additional ESG disclosures to complement possible deficiencies in corporate ESG reporting disclosures. Almost all international rating agencies including MSCI ESG Ratings, S&P CSA Assessments, FTSE Russell (FTSE) ESG Ratings, Thomson Reuters and others are seeking ESG alternative data to reduce their reliance on corporate disclosures.

In other words, no matter how "beautified" voluntary disclosure is, it does not mean that the ESG ratings of Internet giants will be as high as the report says.

The score is "lag", rooted in "G"

On the surface, the Internet giants are impeccable in terms of social contribution, technological innovation, employee treatment, etc., and they absolutely stand at the top of the pyramid. Why are there low scores of B-level or even CCC-level?

Perhaps, we can find out from the ESG rating system.

The core of ESG rating is a systematic evaluation indicator system. Judging from the MSCI rating system that is currently used more frequently, the ESG indicator framework can be divided into four layers:

The first layer has three dimensions: environment (E), society (S) and corporate governance (G);

The second layer, several topics under the E, S, and G dimensions;

The third layer, key topics corresponding to several themes;

The fourth layer is the evaluation indicators of each key issue.

In the MSCI ESG rating, the rating is divided into industries, and the comparison is done among peers. The rating result reflects the relative position of the rated company's ESG in the industry, and there is no cross-industry comparison.

Taking Internet social platform companies as an example, there are Tencent, Sina, and Baidu in China, and Facebook, Twitter, Snapchat, and Yandex in foreign countries. Then, in the MSCI evaluation system, these companies will be put together for three-dimensional comparison. The e-commerce platform Alibaba will compare with JD.com and Amazon. Even the Internet companies we generally think may belong to different industries - for example, Xiaomi belongs to the technical hardware, storage and peripheral industries, and its targets are hardware companies such as Fujitsu, Cisco, HP, Lenovo, and Samsung Electronics, and will not compete with Tencent and NetEase. , Alibaba to compare.

The themes and key issues used to carry out ESG ratings in different industries are different. These themes and key issues are closely related to the main business. Therefore, in the evaluation, the weight is higher.

Across different types of sub-sectors, MSCI assigns each key issue a "high," "medium," or "low" impact level, as well as a "short-term," "medium," and "long-term" impact time.

In the key issues involving the main business, if there is a dispute, it indicates that there is a structural problem in the company's risk management ability, which will greatly reduce the score. Typical controversial incidents include gas leaks, related actions by regulators, multiple health or safety fines for the same facility, multiple allegations of anti-competitive behavior for the same product line, multiple community protests over the location of the same company Wait.

Therefore, although the various donations and charities of the Internet giants are flourishing, they are not as good as the deduction effect of a negative business news.

In 2019, Facebook was removed from the S&P 500 ESG Index due to a data breach. In that year, Facebook scored 82 points for the environment, 22 points for society, and 6 points for governance. Although Facebook scored 82 points for the environment, this factor only accounted for 21% of the ESG comprehensive score system of Internet social platforms due to the small impact of Internet social enterprises on the environment. More influential are social and governance, with 27% and 52%, respectively.

In China, the negative case has appeared in Meituan.

In September 2020, an article by People magazine titled "Takeaway Rider, Trapped in the System" became a hot spot of attention. The article pointed out that driven by the algorithm and data of the food delivery platform system, the delivery time of food delivery riders has been greatly shortened, and in order to avoid bad reviews and maintain income, the riders have to choose to go backwards, run red lights, etc., and squeeze themselves to the greatest extent. of physical and mental health. In an instant, all the blame was directed at Meituan, which triggered a strong public opinion, and finally made Meituan pay the price.

In that year, the incident caused its MSCI ESG rating to drop from AA to A. The ESG score compiled by Bloomberg was only a pitiful 30.2 points, ranking 295th, and ranking directly on the Hong Kong Stock Exchange.

It is obvious to all that the big Internet companies are "not bad for money". Whether it is in the capital market or the workplace, the big Internet companies are all flocking to them. However, in terms of corporate governance (G), the governance level of Internet giants has always been questioned by many parties.

Among the big Internet companies, 996, big and small weeks, the 35-year-old watershed, and the elimination of the last position are common phenomena, driving other industries to start involution, resulting in the emergence of an "anxious" society. And at Google, programmers over the age of 45 are very common.

The wave of layoffs in Internet companies at the beginning of this year has spread the chill to everyone, and everyone is in danger. The layoffs of hundreds or even thousands of people have also triggered interviews and warnings from the human resources department.

In the Internet ESG rating, corporate governance (G) issues are far more weighted than environmental weights (E). Therefore, the low ESG score of domestic Internet companies is not wrong.

Spending money can create a "responsible" corporate image, but it cannot change a company's corporate governance capabilities. To a certain extent, the ESG reports of major Internet companies are more like a well-planned "show", with dazzling data and beautiful wording, but they cannot cover up the dissatisfaction of employees and users with the company and the lack of social responsibility.

Corporate governance, data privacy and security, human resources, business ethics, etc., are not only key issues for Internet companies, but also business fundamentals. The big manufacturers who feel that the ratings are low should think about whether the key issues that really involve the main business have been done well enough in their beautiful ESG reports, and whether they have exported "real" value to the society?