The Ethical Investor: This week’s grilling shows social media’s a game changer for ESG reputation

Coles and Woolworths took big hits over pricing tactics in an illuminating demonstration on the power of social media. Here's why companies should take notice.  

Social media is vital for managing a company’s ESG reputation. Picture via Getty 

• The previous week it was Macquarie, then Australia's supermarkets were in the news for the wrong reasons

• Coles and Woolworths are in hot water with the ACCC over alleged misleading pricing 

• Once again, social media is proven vital for managing company reputations 

What a couple of weeks it was for ethical investors, with scandals popping up left and right.

First it was Macquarie Bank (ASX:MQG), which found itself in one after agreeing to pay nearly US$80 million to the US SEC to settle accusations of inflating the value of thousands of investments. 

Macquarie's US unit was accused by the SEC of misrepresenting the performance of around 4900 mortgage-backed securities from 2017 to 2021 by inflating their values without proper justification. 

The company allegedly dumped these securities to some of its US clients, including a mutual fund, leaving those clients to deal with the losses.

More eyebrows were then raised last week after Australia’s competition regulator, the ACCC, announced it was taking legal action against Coles (ASX:COL) and Woolworths (ASX:WOW), accusing them of misleading shoppers with false discount claims.

We’ve commenced separate proceedings in the Federal Court against Woolworths and Coles for allegedly breaching the Australian Consumer Law by misleading consumers through discount pricing claims on hundreds of common supermarket products. https://t.co/dEklDWdMhx pic.twitter.com/G5T1ZQ7oHc

— ACCC (@acccgovau) September 22, 2024

The issue was brought to light by consumers who took to social media platforms including X, Reddit, and TikTok to share their experiences, resulting in a wave of complaints about pricing practices that many felt were dishonest. 

For instance, one Reddit user noticed a pattern with Woolworths pricing its Pepsi Max cans. 

The user claimed that the cans had been marked up from a promotional price of $24 to $35 for about two weeks, before dropping back to $26. 

This user pointed out that while the supermarket claimed there were significant discounts, the actual price had gone up from the original price:

Woolworths raising then lowering prices
byu/SirCorseHock inaustralia

Consumers noted other similar issues, such as the cost of Sakata Rice Crackers, with prices allegedly being raised before being “discounted” again.

In another instance,  a user on X said consumers were being taken for a ride by Coles:

So these Twisties WERE $3.50. Now they WERE $5.50 down to special discount $4. @Coles really thinks we're idiots. Disclaimer: I'm not a Twisties fanatic , only using this as an example pic.twitter.com/IsPBxkXtF4

— Scrumpy (@dezmac_au) March 13, 2023

The ACCC said that as part of the investigation, it had tracked these consumer reports and social media discussions for several months.

And after thorough investigation, the ACCC concluded that these pricing tactics were deceptive and that the discounts were essentially nonexistent.

Coles and Woolworths will now be appearing in the Federal Court to answer these allegations, which will involve over 250 products.

The ACCC has applauded the social media sleuths for highlighting the alleged misleading practices.

“We tracked social media and saw on X, Reddit and TikTok that hundreds of consumers were reporting prices that they did not consider were genuine; and we followed that up with our own in-depth investigations powers,” said ACCC chair, Cass-Gottlieb.

Social media has changed the ESG game

Reputation has become a crucial aspect of every company, especially in today’s world where social media can rapidly amplify negative news, as well as positive ones.

For ethical investors, social media is indeed a powerful tool for companies to showcase its ESG initiatives.

A recent study conducted by Innovate UK found that social media impacts shareholder reactions to ESG risks.

By analysing 114 million tweets on Twitter (now called X) of companies in the S&P 100 from 2016 to 2022, the study reveals that spikes in negative conversations about ESG issues can lead to significant drops in stock return.

A seperate recent study by a Melbourne-based researcher has also uncovered the significant impact of social media on the share prices of companies listed on the ASX.

Maria Prokofieva, a senior lecturer in accounting and finance at Victoria University, analysed more than 3500 ASX announcements and found that companies engaging effectively on social media tended to see positive effects on their stock prices.

However, Prokofieva also warned that social media could be a double-edged sword. 

Companies that failed to engage on social media risked being overshadowed by critics, potentially leading to declines in their share prices. 

She pointed to cases such as David Jones and Whitehaven Coal, which suffered significant drops after facing negative campaigns on social media back in 2012 and 2013.

In response to these challenges, the ASX has now required all listed companies to monitor social media for credible rumours and potential leaks about their businesses.

Prokofieva concluded that maintaining an active social media presence was no longer optional for companies; it was essential for safeguarding their market position.

The crux of Prokofieva's findings highlights a key issue: individual investors  lack the time and resources to keep track of every company and its announcements.

So companies that proactively reach out to investors via social media (or even specialised platforms such as Stockhead) can attract more attention and boost their market value.

ASX's warning to companies

Meanwhile in July this year, the ASX released guidance for listed mining companies, saying that social media should NOT be used as a platform for disclosing market-sensitive information.

The ASX has made it clear that any such information must first be announced through official market channels.

It also said that when posting on social media,  mining companies needed to ensure they complied with all ASX and JORC Code requirements, just as they would for any public report. 

This meant avoiding the sharing of sensitive information, including exploration results or financial data, until it had been properly disclosed through the official market announcements platform.

If a company did need to share information based on visual estimates or observations, it had to meet all regulatory requirements and clearly communicate the necessary disclaimers.

This is to ensure that investors aren’t misled by incomplete or unofficial information.

Originally published as The Ethical Investor: This week’s grilling shows social media’s a game changer for ESG reputation