Metaverse future must integrate ESG lessons of today

Despite an array of challenges from the “crypto winter” to Meta’s troubled metaverse shift, consumer demand for the promises of that metaverse is rising unabated. Bloomberg Intelligence previously projected that the metaverse market could reach $800 billion dollars as early as 2024.

As the growth of the “metaverse” – sometimes interchangeable with the term “virtual worlds” – becomes a core part of to the overall media ecosystem, companies in this space must understand and be accountable for the societal impacts of these emerging virtual worlds. A holistic ESG (environmental, societal and governance) strategy will be fundamental to building a sound metaverse business that by definition is in a constant state of change.

The “E” for environmental impacts of companies typically commands more focus today due to the very real and physical manifestations of climate change across the globe. The SEC proposed a rule that would, for the first time, require publicly traded companies to report annually on climate-related risks impacting their business. As media companies adopt newer technologies to deliver their products and services, they must acknowledge the focus on sustainability regulation and incorporate into their business plans the environmental risks and impacts of their media-adjacent issues such as crypto mining and the environmental footprint of their supply chains in the long run. 

The social imperative – new worlds, old challenges

Of even more immediate concern for media companies has been the social impact of their businesses. The content that that they create, distribute and monetize has extraordinary influence in shaping society well beyond the company’s four walls (and its remotest employee locations). Is there a casual conversation today that doesn’t involve a discussion of everyone’s favored – or despised – media content? And who hasn’t discovered something about or in media from their own tech-savvy children? The media industry is all too familiar with the highs of seeing its content create communities of interest and the lows of their failures  to provide an inclusive experience to consumers.

In traditional media, the content owner is in sole control of the content produced, whether a motion picture, TV series or console game, and then determines the where and how that content is distributed to the public.  But the metaverse facilitates control over content creation and distribution by independent content creators and even artificial intelligence tools, as well as interactive engagement among independent content creators. Media companies that own and operate virtual worlds need proactive policies and procedures in place to respond to uncontrolled content developments with unpredictable societal reactions and responses.

Gaming and social media helped pave the way for the metaverse’s interactive engagement, but have also been associated with a variety of mental health issues for consumers, such as depression, psychoses, paranoia and other forms of serious mental illnesses – a problem expected to be exacerbated under a decentralized environment like the metaverse. Researchers at the Center for Countering Digital Hate (CCHD) recorded activity on VRChat, a platform accessed through Meta’s Oculus headset, for over 12 hours and found an average of one “troubling incident” of various user conduct issues every seven minutes. There have been extensive reports of female avatars being subjected to inappropriate and unwelcome behavior in virtual environments. While these issues are not new to our society or to media companies, platform owners and moderators have yet to determine a foolproof way to manage and mitigate them in Web 2.0, the term used for the primarily interactive use of the internet that was made more accessible by the rise of social media. As we move to Web 3.0 with its more decentralized, localized control of content, we can expect a growth in the  both the frequency and complexity of these social issues, such that if they remain unchecked, they may result in greater social and reputational risks for companies than they do today.

Artificial intelligence brings to the metaverse the opportunity for organic changes in characters and branched narrative storylines which will further attract and retain metaverse user interest. Yet this facilitation of evolving content without the typical direct human intervention only heightens the risks already inherent today. Though we are not yet in the world of the movie “M3GAN,” a story about an AI-driven robot, the AI metaverse of today is already the purview of major financial investments and the involvement of at least one of the U.S.’s largest media companies. But if it’s difficult to enforce principles of basic community engagement and interaction for characters and storylines that are created by humans, maintaining control when such shifts are at the mercy of AI can only be more complex.

Despite these growing concerns, Web 3.0 remains an attractive world for Gen Z and Gen Alpha and therefore a major market for the media industry to grow into. For example, Roblox, the virtual games and online community frequented mostly by children, brought in nearly $2 billion in revenues in 2021 and is now, despite much market turbulences valued at $20 billion. This is almost 20% higher than Fox’s market cap and nearly 50% greater than that of Paramount Global.

To truly engage with this audience positively, metaverse creators must recognize the risks this space poses for long-term users by embedding tools and safety mechanisms that promote attention to user mental health as part of the overall experience. This includes proactively establishing and enforcing clear community guidelines that promote safe interactions and create accountability for wrongdoing. New models to encourage and incentivize respect and inclusivity by platform users are already gaining traction. For example, EA’s Positive Play model  focuses largely on incentivizing positive, inclusive behavior in its virtual worlds and enforcing violations of behavioral guidelines. Tencent is exploring the social value of games through the design of products that promote learning and guide user behavior through in-game scenarios. Such new approaches in incentivizing users to support  welcoming, safe spaces for all will certainly continue to grow. Similar tactics in enforcing community guidelines would also help combat the risk of unauthorized activity bringing increased attention from wary investors, regulators, and traumatized online users.

A holistic ESG strategy that accounts for long-term social trends can help businesses evolve and navigate peaks and valleys within its lifecycle. The decentralization of content creation in the metaverse also poses serious cybersecurity risks for the metaverse users, owners and operators. Dependencies implanted in lines of code can be missed by developers, and this lack of oversight increases security risks in the digital world.

Governance – it all starts with accountability

In terms of anticipating and managing ESG risks in the metaverse, robust governance is crucial but also poses a major challenge. There is a rare bipartisan agreement in the U.S. Congress that the current regulatory regime for the metaverse is inadequate to cope with the systemic changes wrought by big tech in privacy and content curation, but far less consensus about what specific changes should be adopted. The lack of an established legal framework or consequences could enhance the possibility of criminal or abusive actions in the metaverse.

Fortunately, companies can manage these risks early by embedding ESG into their enterprise management by following these steps.

• Create a positive, inclusive digital world for consumers. Actively engage executive leadership, management, and consumers early to help them better understand the world that metaverse developers and users envision. Conduct an ESG materiality assessment, using stakeholder interviews and surveys, which can help companies define their ESG priorities and take clear actions.
• Ensure your internal corporate values are reflected in consumer-facing products. Create an ESG policy and strategic roadmap, informed by a materiality assessment, which can help align personal and corporate values as a driver of talent recruitment, performance and retention.
• Create enterprise risk and scenario analyses to prepare for future litigation. Legal teams must monitor virtual world developments and incorporate lessons learned into their own operating models. Synthesizing ESG priorities from a materiality assessment into overall enterprise risk management can help developers and owners/operators to stay ahead of reputational risks. Publishing results of these exercises can demonstrate that a company is a responsible, transparent operator.
• Ensure adequate oversight through robust governance. Companies should design a concrete cross-organizational structure (like an ESG committee) that includes institutional leadership, including those with operational responsibility. This oversight team should monitor relevant regulatory developments and have the autonomy and resources to implement effective ESG policies and processes.
• Reiterate accountability through third-party assurance. Companies should leverage third-party vendors to authenticate data collection and reporting on ESG progress. This objective oversight will give stakeholders confidence in the operational integrity of ESG goals and execution, while ensuring their data will be protected and governance systems are in place to keep them safe.
• Leverage financial benefits from ESG-conscious programming through the design of the infrastructure for Web 3.0. The U.S. government is incentivizing greener, ESG-aware corporate actions which metaverse platforms can access for the benefit of developers and owner/operators. Companies should identify and monetize applicable tax benefits offered as part of the evolving ESG regulations to help sustain operations and motivate execution of ESG-conscious business goals.