Global press freedom is under dramatic pressure. More journalists than ever were in jail last year and the number of media workers killed rose by a third compared to 2019, with Asia accounting for almost half of those killed.

With the global press crackdown comes a tougher business landscape for investors. Restricted information flows can mask political and regulatory issues as well as fraud and corruption risks, increasing the risks of doing business, especially in more volatile emerging markets where good quality information may already be scarce .​

Yet, at a time when environmental, social and governance investing is increasingly in the spotlight, press freedom is still low on most investors’ list of concerns.

“The suppression of human rights is surely catching up with any development story,” said Hasnain Malik, Dubai-based equity strategist for emerging markets at global research provider Tellimer.

“But the weather before that can make or break the careers of institutional fund managers.”

Nevertheless, some investors are finding these ethical issues increasingly difficult to ignore.

Opaque drama

Crackdowns on independent media not only limit political reporting, but also the flow of crucial financial analysis. The unfolding crisis at bad bank China Huarong Asset Management Co., in one of the world’s most restrictive media environments, shows just how messy things can get.

The troubled public debt manager is struggling to repay nearly $40 billion in debt – a pool large enough to hit the portfolios of nearly every investor exposed to China bonds. But information about what is arguably the country’s most serious systemic financial crisis is shockingly limited, and the opaque political drama is nearly impossible for outsiders to follow.

China has expelled dozens of foreign journalists over the past year by refusing to renew visas. With a rapidly shrinking pool of journalists capable of reporting on the ground, some investors rely only on rumors spread on social media such as WeChat. Concerns that bad faith actors could take advantage of the lack of transparency are on the rise.​

“Western media restrictions are surely putting global investors in China at a disadvantage,” said Brock Silvers, chief investment officer at Kaiyuan Capital in Hong Kong. “Few of Huarong’s investors have a deep understanding of the financial giant’s business, and its dollar bonds will only hold as long as government support is implied. Relying on a gray area naturally leads to greater volatility.

Anne Stevenson-Yang, research director at activist investor J Capital Research and expert on the world’s second-largest economy, agrees that a lack of transparency increases risks for investors.

“Can you blindly throw a dart and make money investing in China? This is what a very large number of Chinese citizens have done,” she said. “But can you lose money blindly doing this? Yeah.”

China is not alone in militarizing the granting of visas. Once-popular border markets such as Ethiopia and Myanmar have also imprisoned or expelled foreign and local journalists, making it almost impossible to know what is really happening on the ground. As a result, capital inflows from the United States and elsewhere came to a screeching halt.

(Bloomberg News Beijing bureau member Haze Fan was arrested by the Beijing National Security Bureau in December on suspicion of involvement in criminal activities that endanger national security. The Foreign Ministry has said in February that the matter was still under investigation.)

Some of the measures used by governments to intimidate media workers are making global headlines, such as the forced closure of pro-democracy newspaper Apple Daily in Hong Kong or the detention of a Belarusian opposition journalist after the government forced the commercial plane he was traveling on to divert to Minsk and ashore. But less sensational measures — like harassing journalists on the job or passing “fake news” laws that allow governments to censor their critics under the guise of restricting disinformation — can have an equally chilling effect.

In Turkey, the world’s most prolific jailer of journalists outside of China, two Bloomberg News reporters are currently facing two to five years in prison over allegations they tried to ‘undermine’ the economy in an August 2018 article on a currency shock. The pound had then lost more than 40% of its value against the dollar during months of tensions with the United States – a drop that Turkish authorities blamed on foreign speculators attacking the currency. Last year, the country’s banking regulator expanded the definition of manipulative trading to include the dissemination of “misleading or erroneous information” about financial assets through the media; Prosecutors in the journalists’ case have charged 36 people over social media comments deemed critical of the economy and banks.

Even in countries that tout their democratic credentials, working life has become more difficult for journalists. In the United States, an unprecedented number of journalists have been attacked, arrested or otherwise prevented from doing their job during the 2020 protests, and dozens more have been arrested so far this year. Brazil is just one of many countries in Latin America where pandemic response measures have limited the media’s ability to report freely and the public’s ability to access information.

And rights can be eroded at an alarming rate. In Hong Kong, once Asia’s freest place to live and do business, journalists now fear prosecution after China imposed a sweeping national security law. Officials have proposed restricting journalists’ access to the city’s corporate registry, a move the International Chamber of Commerce says will increase opportunities for “corruption, money laundering and fraud.” The Biden administration has also warned investors of the risks of doing business in Hong Kong as China exerts more control.

But even as Hong Kong and China crack down on press freedom, financial markets are booming. So far this year, Hong Kong’s IPOs are the largest since at least 2010. About 40% of the $28 billion that was invested in emerging market assets in June went to stocks and bonds Chinese, according to the Institute of International Finance and the Chinese government. bonds have become a staple of recommended portfolios at UBS Group AG and JPMorgan Chase & Co.

Checks and Balances

Some large institutional investors, however, are paying more attention to social issues. German insurer Allianz SE includes press freedom among 18 indicators in its ESG framework for emerging countries, noting its importance in maintaining “checks and balances” on governments. The French bank BNP Paribas SA also includes freedom of the press among its ESG criteria.

“ESG, to the extent that it matters and funds describe themselves as ESG-compliant, needs to incorporate sovereign-level metrics, not just corporate ones,” said Tellimer’s Malik.

But for now at least, most ESG efforts tend to focus on environmental rather than social considerations. Emissions are easier to measure and less subjective than free speech, and companies can be held more easily accountable.

There are reasons to see change coming. Ten years ago, issues such as climate impact, board diversity or workplace sexual harassment received little attention from investors. But younger, more socially conscious consumers have used social media to collectively force companies to consider these issues. And as the proportion of Gen Y and Z investors grows, the range of ethical issues companies are called upon to address grows.

Adding press freedom to the list can also benefit those looking for investments. When a newspaper closes, local government borrowing costs rise because reduced oversight makes investors less comfortable, according to a 2019 report in the Journal of Financial Economics.

Freedom of the press “is a very fundamental thing that needs to be in place before we can have meaningful ESG metrics,” said Perth Tolle, founder of Life + Liberty Indexes, which invests in countries based on third-party rankings of various freedoms. The Freedom 100 Emerging Markets ETF, which tracks the Tolle index, has no holdings in Turkey or China and has also reduced its position in Poland in recent years as concerns have grown over the erosion of the rule of law in the country. The benchmark MSCI Emerging Markets Index – which the Tolle Index has outperformed this year – has exposure to all three countries.

Most investors simply do not consider human rights concerns when it comes to allocating capital, Tolle added.

“The metrics are out there, the problem with Wall Street is they don’t make money off of them, and they don’t like it,” said Tolle, who was born in China and now lives in Texas. “In places that don’t have freedom of the press, do you think they will have freedom for stock or bond analysts?”

The issue of freedom of the press remains ignored by many companies and it is difficult to generalize about its impact on investors in different countries.

But the gradual erosion of rights should worry investors, says Jim O’Neill, the former chief economist at Goldman Sachs Group Inc. who coined the BRIC acronym for Brazil, Russia, India and China. .

“Investors and businesses should care a lot about freedom of the press, and editorial independence is something that should be cherished by everyone, including business people,” he said.

“The importance of authentic, credible and independent journalism is growing, in my view.”