Facebook: Time for Scotland's public bodies to question shareholdings in the social media giant – Martyn McLaughlin

If you are one of the hundreds of thousands of local government employees across Scotland, would you be willing to see your pension pot swell in the knowledge that its funds are being invested in firms whose work is not conducive to the public good?

This question occupied my thoughts last week as I researched a story into how public pension funds throughout the country have holdings worth tens of millions of pounds in Spotify, the music streaming service condemned for spreading harmful Covid misinformation via Joe Rogan, its star podcaster and all-round contrarian.

Until now, the debate around what constitutes ethical pension fund investing has focused on the likes of tobacco firms, oil companies, and those involved in the arms trade. But in the digital age, I fear the parameters of the discussion around socially responsible investments are too narrow to reflect reality.

Spotify and other titans of big tech have been lambasted for their reluctance to crack down on misinformation on their platforms. Such responsibilities should be shouldered by those in charge of corporate governance first and foremost, but in the absence of any proactive preventative measures or meaningful regulation, what influence can investors wield?

The truth is that only a tiny minority of workers and pensioners who are members of local government funds in Scotland will know where their money is going, but in the course of writing my story, I realised that their holdings in Spotify are just the tip of the tech iceberg.

For example, Strathclyde Pension Fund, one of the largest schemes in the UK, let alone Scotland, has holdings of around £62.9 million in Meta Platforms Inc – the trading name used on the Nasdaq stock market by Facebook’s parent entity.

Given the social media giant has been roundly condemned for its ruinous influence on democratic discourse because of its failure to protect personal data, as in the Cambridge Analytica case, and the way in which it has amplified extremist content and anti-vaccination diatribes, it does not seem unreasonable to question whether it constitutes a fitting investment for a public pension fund.

Local government pension funds across Scotland have holdings in Facebook worth nearly £120m (Picture: Dominic Lipinski/PA Wire)

For its part, the Strathclyde fund recognises the importance of environmental, social, and corporate governance (ESG) issues in its holdings, but it is up to the fund managers – in Strathclyde’s case, Baillie Gifford – to engage with the companies they invest in on vexatious matters.

There is a clear tension in this arrangement. An asset manager’s primary concern is to minimise risk and maximise returns. If that strategy happens to dovetail with the values of the public bodies which make up its employees and society at large, then all the better. However, the two do not always align, and the very concept of ethical investing is more nuanced than its various buzzwords would have you think.

In any case, Strathclyde is not the only local government pension fund in Scotland to have run up against this issue, with its managers deciding that the risk of investing in Facebook is one worth taking.

The North East Pension Fund has holdings worth £31.3m in the firm, followed by Fife with £11.5m, Tayside with £10.4m, Highland with £6.2m, and Lothian, which has £2.6m worth of Facebook stock. In total, that is nearly £125m held in a company already regarded by many as a so-called ‘sin stock’ thanks to the various scandals which have engulfed it.

This is not just about Facebook or Spotify. Scottish pension funds have holdings in various other digital and tech firms that have been embroiled in controversies.

The Tayside fund, to give just one example, has a near £1m stake in Twitter – another high-profile conduit for misinformation – while four of the funds have holdings worth more than £19m in the video game publishers Ubisoft and Activision Blizzard, both of which have been dogged by sexual harassment controversies and allegations of toxic workplace cultures.

There is a debate to be had about whether these kinds of investments fall foul of the commitments made by funds to invest in ESG-friendly companies. Unfortunately, the transparency necessary for such a dialogue is all too often non-existent. While some of the funds disclose their holdings, I had to rely on freedom of information disclosures to find out the extent of the Facebook stock held by others.

Only once that is remedied can a proper conversation take place about what investments are acceptable. Some fund employees may be content with strategies which disinvest from fossil fuel companies, some may wish to draw the line at alcohol or gambling firms. I would argue that such conversations need to go further, and ask whether local government funds should be throwing money at companies which profit from hatred and conspiracy theories.

The investment community is slowly realising the level of risk inherent in its investments in big tech, and in some cases, taking action. In November, after the Facebook whistleblower, Frances Haugen, laid bare the company’s internal practices, a public pension fund in Ohio filed a lawsuit accusing it of purposely misleading the public about the negative effects of its platform and the algorithms underpinning it.

The Church of England, meanwhile, is reviewing its own policies around investing in big tech, a decision taken due to the “heightened relevance” of issues such as data privacy and storage, surveillance, transparency, and human autonomy.

This is a forward-thinking approach. For all the convenience and engagement provided by products like Facebook and Instagram which form the framework of our digital infrastructure, their societal impact is, in many ways, alarming.

It is surely time that Scotland’s local government pension funds ask searching questions about their considerable holdings in the world’s tech behemoths. This is not just about good governance or minimising risk, it is about recognising that their responsibilities extend to a broader constituency than their members.

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