Updated: Jan 2
Since 2019, Netflix has released yearly ESG reports (about their efforts regarding the company’s Environmental, Social, and Governance efforts) in order to give their investors as well as other stakeholders information about their broader impact on society. For the report, the company focuses on what is material to their business and industry using the Sustainability Accounting Standards Board (SASB) framework as a benchmark. However, as PwC (one of the Big Four accounting firms) points out, “ESG isn’t about box ticking. It’s about coming together to solve important problems and make a difference.”
Before we analyze Netflix’s ESG program, we first need to establish what it is. First and foremost, it’s a framework through which investors can analyze a company’s environmental, social, and governance behavior and impact within a set of standards. Although the concept, the applicability, and the actual validity and impact of an ESG program (framework) are still topics of inflamed discussions on financial markets and departments of justice all around the globe, ESG has become the newest trend in business.
Generally, when discussing companies and industries, there is a defined notion of what each area’s criteria consist of. The environmental criteria consider how a company safeguards the environment, present and future, including policies addressing climate change, for example. The social criteria examine relationships with internal and external stakeholders and how a company’s operations dialogue with the communities where it operates. Lastly, governance criteria deal with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Environmental and Governance criteria are effective at forcing private entities to act in the interest of the greater good because markets and legislators have devoted significant time and efforts to create and enforce policies that award progress and punish misconduct associated with them. By looking through the optics of investment funds, there are extensive lists of funds that will only invest in companies that directly promote environmental responsibility—the so-called “green funds”—and/or that have strict compliance guidelines. By looking through a more legal lens, there are a number of policies, laws, and regulations that aim to determine how companies act, like the FCPA (Foreign Corrupt Practices Act, 1977) and NASDAQ Listing Rule (compliance, audit and governance) and the Paris Agreement and the G20 Sustainable Finance Working Group (environment).
The social pillar on the other hand, is often the object of most uncertainty and least regulation, partly because of issues regarding how to quantify the metrics but also given the sensibility of social matters. While there are regulations in place right now, like NASDAQ Diversity Rules and Equal Pay and antidiscrimination laws, these do very little in actually establishing proactive actions for companies; they’re mainly focused on how a company manages relationships with its core people (employees, suppliers, customers). While these actions are important, their reach is limited and often corrective rather than preventive, which does the bare minimum to incentivize companies to actually develop plans that aid in fixing social issues within the communities where the company operates —in the world, but mainly within the communities where the company operates.
The entertainment industry showcases this disparity between the three ESG pillars better than most; there’s a significant push to adjust the social aspects within the industry, many times with the sole focus of responding to a Public Relations crisis, while disregarding the very real impact their product has on society. To better exemplify the issue at hand, we can resort to a quick analysis of Netflix’s ESG program and the recent criticism the company has been receiving for the misrepresentation (and mistreatment) of marginalized communities.
In Netflix’s 2021 Environmental, Social, and Governance Report, the company spoke highly of its efforts into diversifying its workforce. According to the report, in 2021 women made up 51.7% of their global workforce, up from 48.7% in 2020. Similarly, half of the company’s US workforce (50.5%) is made up of people from one or more historically excluded ethnic and/or racial backgrounds, including Asian, Black, Hispanic or Latino/a/x, Middle Eastern or North African, Native American, and Pacific Islander, up from 46.8% in 2020. Considering the senior leadership positions in the US, Netflix reports 45% are women and 22.7% are US leaders from one or more historically excluded ethnic and/or racial backgrounds. The report, which is based on Netflix’s global workforce, and race and ethnicity categories are based on U.S. reporting requirements, which does not provide data on LGBTQIA+ workforce representation.
Additionally, the company mentions the “Netflix Fund for Creative Equity” in an effort to translate their commitment towards society. According to the company, the fund is a “dedicated effort to help build new opportunities for underrepresented communities within entertainment (...) [Netflix] will support external organizations committed to creating equitable opportunities in the TV and film industries, as well as bespoke Netflix programs that help us to identify, train and provide job placement for up-and-coming talent globally.” The Creative Equity Fund is committing $100M dollars over a five year period. Lastly, the company mentions the NAACP Image Awards and the GLAAD Media Awards and the leading number of nominations granted to Netflix’s many films and series for its diverse products in 2021.
However, at the same time, Netflix has been receiving waves of backlash over the content that’s being renewed and, mainly, what’s being canceled. In February of 2022, a month after releasing its ESG report and reiterating the company’s commitment towards inclusion, Netflix announced an additional four specials of Dave Chappelle’s comedy show, despite the harsh critics received by the first special, “The Closer,” and its bigotry against transgender people, which were promptly dismissed by the company’s Co-CEO Ted Sarandos. It’s worth highlighting that even the employees, which the company takes great pride in showcasing for its diversity, walked out of a company office building in Los Angeles to protest the stand-up special, in what The New York Times called “one of the most visible signs of worker unrest in the history of the streaming service.”
While the company recognizes that “for decades, historically underrepresented communities have been either defined by a single story or worse, entirely absent from our screens,” Netflix has been leading the debate on the mistreatment, through cancelation, of LGBTQIA+ content and characters generally, and sapphic original content and characters in particular, and this position is not unjustified. Over the past few years, the list of sapphic-centered series canceled by Netflix has piled up with shows such as First Kill, Teenage Bounty Hunters and I Am Not Okay With This, and critically acclaimed Sense 8 and, the latest victim, Warrior Nun. The discrepancy between the commitment pledged on their ESG report and their business decisions can best be explained by a quote from Collider:
“Netflix reaches viewers from all walks of life. For some LGBTQ people especially those who are closeted or don't have access to a local community — representation in film and television is all they have to feel seen and understood. For others, onscreen representation normalizes their identity to friends, family, co-workers, and their community, or even to themselves if they struggle with internalized homophobia.
By canceling several sapphic-led shows in a short time span, those behind some of the most wealthy companies in the world are telling queer women that what they gain from those stories is less important than saving money or upholding brand identity. It's not surprising that profit is king, but that doesn't mean people don't have the right to be upset about a system that inevitably ends up prioritizing the blandest, palatable, majority-led stories while occasionally giving the scraps to those who are desperate to have a seat at the table.”
We can conclude then that the entertainment industry is well positioned to pioneer proactive actions that develop their ESG programs’ social pillars beyond the walls of individual corporate headquarters. According to PwC, companies such as Netflix have the power to foreground the lived experiences of others [marginalized communities] and broaden social perspectives by delivering diverse and inclusive content that reflects, represents, and celebrates the community. In summary, while ESG's social pillar is far from standardization in the industry, the possibilities are endless, especially for those willing to pioneer the movement.
Much like the recent greenwashing investigations that have been holding companies accountable for overstating their commitment [green credits] in a bid to sell more products, maybe it’s time we start doing the same thing for their social commitments. While the topic is still under discussion by markets and regulators, we must hold companies, like Netflix, accountable when they parade their commitment “to helping build a legacy of inclusion in the industry” to their investors and stakeholders and subsequently continue to perpetuate a media culture that oppresses historically marginalized communities without any evidence of swift and intentional intervention and actions towards meaningful changes.