There is nowhere for companies to hide and politicians should be wary

Note: I do not have inside information for the reasons and motivations behind a company’s motivations in the wake of the US Capital riots. This article contains my own observations, opinions, and analysis.

Figuring out the difference between what is morally right or wrong is highly subjective. It’s often discussed through the lens of religion or philosophy and often analyzed against the US Constitution. The struggle of morality is becoming a risk by which markets and investors are measuring companies. Things are moving near morality for investors as this risk could align to corporate and customer values or to a real financial or legal risk to the company.

In Financial Services, this movement is called ESG (Environmental, Social Justice, and Corporate Governance). Created in the mid-2000s, ESG helps companies understand their risk through the lens of those three factors. For example, LEGO leveraging plant-based plastics in their products aligns well with managing their environmental risk.

ESG has received a lot of attention in 2020, as companies who have shown they understand this risk have outperformed the markets by about 3% under the volatility of COVID. This increase has generated interest from Institutional, Private, and even Retail Investors.

This means is that there is nowhere for companies to hide their sins (or their customers) as Social Justice in one of the pillars of ESG. As a result, there was a flurry of decisions by companies this week after the events at the US Capitol, although many companies likely also understand the seriousness of what has happened.

Over the past several years (even before 2016), we’ve seen campaigns of disinformation and fear come from the most extreme conservative voices that bled into the mainstream. Certainly, social media, ambitious politicians, and non-ESG focused companies have played a part in providing distribution of the messaging, but the eco-system of suppliers, big tech, payments companies, and more surrounded and enabled the marketers of hate.

Consider the opposite of the LEGO example. On the flip side, I’ve seen a local shooting range post about, but not directly call for, violence with wording and images like ‘civil war’, ‘come take it’, and other hateful rhetoric. They aligned to far right values to sell more guns.

It’s worth noting that since the riots, they have taken down posts about scheduling a bus and their plans to go down. This happened shortly after one customer said they could never shop there again.

Starting within days of the US Capitol riot, companies stepped up to manage and sever their involvement and alignment to fringe groups. The late timing is certainly up for debate but not covered here. Whether these companies know it or not, they were aligning to ESG principles and mitigating their risk.

For example, starting the day after the riots, flight attendants’ unions were calling to stop transporting Trump supporters who were at the Capitol due to their raucous behavior on the flights out. We’ve seen videos of Trump supporters being removed from planes or being reprimanded for their behavior by pilots.

Let’s look at this through the lens of ESG. Airlines need to keep their flight attendants and passengers safe. Since 9/11, airlines and the government have taken disruption very seriously. Behavior by Trump supporters on the flights into DC and in the US Capitol proves that they are a risk. If there was an incident on a plane due to their behavior, people would hold the airline accountable.

The airlines are mitigating their reputational and financial risk.

What Amazon, Apple, and Google are doing is quite similar (again, a little late). Amazon pulled Parler from their AWS cloud and both Google and Apple have pulled it from their app stores. Parler had been conservatives’ “Twitter-equivalent” after Twitter started putting warning labels on disinformation, and let’s be clear, it was disinformation and blatant lying. Still, the rhetoric on Parler culminated in the riot we saw at the Capitol.

Before moving on, it’s worth reviewing just what exactly what kind of conduct we’re talking about; real threats of violence and not some redirected theoretical argument of a company’s influence over free speech.

Amazon’s move may help them avoid risk in the future. They have terms of service that the calls for violence on Parler were directly going against. Imagine a cloud provider openly hosting calls for violence and hatred. In this ‘new’ world of ESG, their revenue would quickly dwindle as companies pulled out of their cloud and investors redirected funds elsewhere. Of course, this needs to be measured against a potential consumer boycott of their retail business by conservatives, but I believe Amazon has made their decision, and that time will bear out it was the correct one.

Conservatives fail to reconcile two points that are preventing them from seeing this. First, they don’t understand their role in normalizing the extreme. Through their own rhetoric and political ambitions, they have aligned themselves to the fringes of their party, effectively normalizing the fringe movement. Second, they are ignoring reality and the law. After numerous failed legal challenges across the country and direct (yet failed) attempted influence by the President to the states, anyone aligned to questioning the electoral college votes has inextricably linked themselves to the movement and is now at risk.

The companies that have now de-legitimized conservative voices did it because there is no longer a line between conservative and extremist. For conservatives, it’s going to get worse before it gets better.

ESG investing isn’t only about risk, but it’s about the movement of money. As of this writing, several high-profile companies, like Microsoft, JPMC, and Facebook, have ‘paused’ their political contributions. Others, like Dow Chemical, have said they will never contribute again to anyone who opposed the validation of the vote. Hallmark is even looking for a refund of their political donations. Stripe has said it will stop processing payments to Trump’s campaign.

This is the perhaps the final stage (besides arrests) of the fury and backlash against conservatives. Money is now being redirected away from conservatives and their priorities.

Could the next step be a world where companies are measured by their political contributions or affiliations? Absolutely. If that bucket tips over, conservatives will have a big problem on their hands to separate themselves from the extreme because the momentum behind ESG is strong.

No one can attempt to overthrow the government, even with a misguided consideration to ‘harmless’ rhetoric, and get away with it under the guise of unity. Real unity would come from the condemnation of these acts, and we’re seeing the markets choose their side.

Companies understand this as there is now nowhere to hide from the markets now, and the politicians are next.