(July 22): The press has rarely been under attack as it is today. Hong Kong’s new national security legislation has chilled reporting in a territory that was long a beacon of free speech. Russia’s harassment of current and former journalists has this month alone included detentions, searches and a conviction. Meanwhile, in the US, where press freedoms are guaranteed by the constitution, President Donald Trump regularly refers to critical media as “enemies of the people.”
This is bad news for investors as well as journalists. Fund managers need cheap, unfettered access to information to thrive in the long term. Yet big money rarely wades in to defend free media.
Consider how dark the picture has become over the past decade. At the end of 2019, there were 248 journalists in jail, not far off double the number a decade earlier.
Far more pervasive are everyday pressures: the squeeze on media owners, the rise of state-owned, government-friendly outlets and efforts to silence opposition voices with laws intended to protect official secrets, or to prevent the spread of fake news. Prime Minister Viktor Orban in Hungary used the coronavirus emergency to tighten already extensive controls. I have written before on the Philippines, where the country’s largest media company, often accused by President Rodrigo Duterte of bias, was denied an extension of its broadcast franchise earlier this month. In Malaysia, an election win for the opposition in 2018 was supposed to herald a new era of freedoms, yet the editor of the country’s best-known online outlet faces a potential jail term in a contempt case related to reader comments.
Financial troubles aren’t helping. Research published by the Pew Research Center in April showed newsroom employment at U.S. newspapers halved between 2008 and 2019. Overall journalist numbers dropped by nearly a quarter. And that’s hardly improved during the pandemic, when the BBC, Britain’s Guardian, Australia’s ABC and many others have shed employees.
As with climate, or broader environmental, social and governance concerns, there's a clear moral case for investors to take an interest, and avoid the sovereign bonds of countries with poor records on free speech, or shares in state-owned entities. After all, many already shun weapon manufacturers, tobacco or gambling stocks.
Self-interest speaks even louder. At a basic level, press freedom is positively correlated with good levels of development. Research carried out by Sciences Po in Paris and published by Unesco in 2008 established that link. It did find outliers with high gross domestic product per capita and limited media liberties — Singapore, for one — but no country had a free press and low wealth.
There’s more. Unrestrained reporting dramatically reduces the price of information, levelling the playing field for investors. More questions are asked and more corruption is uncovered. In repressive systems, it’s not only about those who are hounded, but about others who become silent. U.S. energy giant Enron couldn’t stop the 2001 Fortune article that began its unravelling, any more than German payments processor Wirecard AG was able to silence questions on its accounts.
Without that persistent interrogation, risks rise and so does the cost of borrowing. A study by the University of Notre Dame and the University of Illinois at Chicago, tracking counties where the number of newspapers dropped to two or less between 1996 and 2015, found bond yields rose as much as 11 basis points.
Finally, there is practical evidence that media coverage makes it more likely bad corporate decisions will be reversed. Not only do board members have more cover to question decisions, but regulators are pressed to act. A 2008 study on media and corporate governance in Russia observed that a single additional article in the Financial Times or the Wall Street Journal increased the probability of reversing a corporate governance violation by five percentage points. And the effect is present both in countries with bad courts, and in countries with good ones, where the press amplifies existing mechanisms to effect change.
Divesting from problematic spots isn’t always realistic, given how widespread limitations are: For almost 90% of the world's population, the media is partially or fully restricted. It's also harder to build a global consensus than, say, over environmental causes. Engagement can be difficult. That doesn’t mean it is impossible, or that it isn’t worth trying, given the outsize benefits for investors, companies and wider society.
In some democracies, like the US, there is room to speak out more forcefully. In countries with significant refinancing needs, buyers of stocks and sovereign bonds have clout, as seen over the issue of Amazon deforestation.
In others, like China, it will be harder. Dictating to sovereign governments is unpalatable for either funds or companies investing directly, but both can argue that certain policies, like restricting the press, impede their ability to work and to continue to invest. That is certainly true in Hong Kong, as in the Philippines, Malaysia and Russia. Investors can even press behind closed doors. But they can ill-afford to remain silent, while also eagerly flying the flag for diversity and ESG.
For years, fund managers, investment banks and large corporates have defended their work in some of the world’s least liberal countries, say Saudi Arabia, by arguing that the direction of travel indicates progress. That won’t work with press freedom, where the only movement in recent years appears to be in reverse.