Nevertheless, these risks were not necessarily sufficient to warrant exclusion from many ESG-focused investment strategies.
He cited a report published by The New York Times in July that covered a lawsuit filed by the State of California Department of Fair Employment and Housing Against Activision. The lawsuit alleges that the company was a “breeding ground” for “sexual harassment and discrimination,” with executives not only failing to address the issues, but also attempting to hide them.
Chen said the Activision episode raises important concerns about ESG analysis, both in terms of ethical standards and risk management. These include questions about whether allegations of corporate wrongdoing are enough to warrant a change in investment strategy, and how many employees should come forward before the company’s social or governance rankings are affected.
Chen cited a November 16 Wall Street Journal report alleging that Activision CEO Bobby Kotick had known about company-wide sexual misconduct and harassment issues for years. Weeks before the scandal erupted, the business said it would postpone the release of two games scheduled to be released this year, which Chen suggested was due to high voluntary staff turnover and low employee morale. As of the end of 2021, ATVI shares are down 28%, compared to a 27% increase in the S&P 500.
The Activision case, Chen said, is a double-edged sword for ESG. The company’s sinking stock, along with the possibility that it will take years to recover, should stress investors to the risks of poor ESG performance. But it also illustrates the inherent subjectivity of some ESG data, and how companies’ messages can paint over their actions for too long.