Lawsuit against Activision Blizzard raises questions about ESG scores

Head of investments weighs in on what missed signs of behind-the-scenes impropriety mean for ESG-focused managers

Lawsuit against Activision Blizzard raises questions about ESG scores

Activision Blizzard, a gaming company which Microsoft hopes to buy for $75 billion, is under fire for alleged gender discrimination and sexual harassment among its employees. And according to one ESG investing authority, it raises questions about investment managers’ ability to assess companies’ reputational risk.

In a recent article, Kuni Chen, Head of Investments and ESG for Seeds Investor, noted how ESG investment managers could have overlooked what many critics of environmental, social, and governance investments have correctly pointed out: the disconnect between Activision's public character and its behind-closed-doors activities.

In the piece published on, Kuni said Activision has a positive ESG score across the board, according to several data sources, with E- and G-related concerns scoring the highest. However, Activision ranked lowest on social issues, such as data privacy and human capital, which could be reflective of the company's business model or the gaming industry's famously harsh organizational culture.

Still, these risks were not necessarily high enough to warrant exclusion from many ESG-focused investing strategies.

He referred to a report published by The New York Times in July covering a lawsuit filed by the State of California Department of Fair Employment and Housing against Activision. The lawsuit alleged 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 conceal them.

The Activision episode raises significant concerns about ESG analysis, both in terms of ethical standards and risk management, Chen said. That includes questions on whether allegations of corporate wrongdoing are enough to warrant a change in investment strategy, and how many employees must come forward before a company's social or governance rankings are affected.

Chen also cited a Wall Street Journal report on Nov. 16 alleging that Activision CEO Bobby Kotick had been aware of the company's widespread sexual misconduct and harassment issues for years. Weeks before the scandal exploded, the business said it would postpone the release of two games it had planned to release this year, which Chen suggested was due to high voluntary staff turnover and low employee morale. As of year-end 2021, ATVI shares dropped 28%, compared to a 27% increase in the S&P 500.

The Activision affair, Chen said, is a double-edged sword for ESG. The company’s sinking stock, along with the likelihood that it will take years to recover, should emphasize the risks of poor ESG performance to investors. But it also illustrates the inherent subjectivity of some ESG data, and how companies’ messaging can paint over their actions until it’s too late.

“The current criticism around ESG is fair and important, right up until the all-or-nothing argument that ESG data must be fully standardized and quantifiable before it’s useful,” Chen said. “[S]ome data will forever remain subjective and unquantifiable; as an outside observer, even the best analyst can’t fully know what’s happening behind the curtain.

“Ironically, more human involvement—in the form of assessing subjective data beyond its face value—could be a vital part of the solution,” he added. “We also see the need to course-correct when the data—and our interpretation of it—gets it wrong.”