ESG: technology for good
4 minute watch
- For the team, environmental, social and governance (ESG) considerations are not only about responsible investing but also key to identifying opportunities and generating returns for clients.
- Technology companies are providing solutions to many key challenges facing the world today such as the ageing population and climate change – from artificial intelligence in hospitals to ride sharing, and electric or autonomous vehicles. ESG factors are crucial to the team’s decisions to invest in companies that can execute in line with these key solutions.
- Responsible behaviour is important to sustain and trust in new technologies that are very disruptive. Being proactive on ESG factors helps sustain the virtuous cycle for technology and the potential for delivering attractive returns to investors over the longer term.
Why is ESG important when investing in the tech sector?
ESG is an increasingly important aspect of how we invest in technology. And it’s not just about being responsible investors. It’s actually key to how we think about identifying opportunities and generating returns for clients.
When we think about some of the key challenges facing the world today we think about the ageing population, population growth, resource constraints and climate change and in addressing all of those the solutions often come from technology and many of the areas that we look at. From artificial intelligence that’s deployed in hospitals, at home and in workplaces, next generation infrastructure that’s inherently more energy efficient or the transport revolution; from ride sharing to electrification through to autonomous vehicles.
These are all technology solutions to some of these major challenges that we face. So ESG factors are crucial to our identification of the companies that can execute against these key solutions.
As an active manager how do you engage with companies on ESG?
As technology specialists we think we have a distinctive insight into how to look at ESG factors for the technology sector. For example, for governance, whilst in many sectors people equate governance issues with voting rights, we see it as much more than that. In technology, investors would have missed out on some of the great founder-led businesses like Amazon or Google over the years.*
We align ourselves with the long-term vision, often of founders, that are aligned to finding solutions in the longer term and not just short-term shareholder desires.
So governance has a different implication within technology. When we think about human capital, we think about the full supply chain; retaining the right talent within the business. In the environment, energy efficiency is core as technology is inherently very disruptive. So it’s important that companies, whether they think about privacy or whether they’re thinking about human rights that they take all of that into account with the solutions that they build.
Proactive engagement feeds the ‘technology flywheel’
We don’t just analyse these factors in a snapshot, we actually try and impact on them. We don’t consider ourselves just active investors. We consider ourselves to be proactive investors. We meet senior level management of our companies and discuss with them their approaches on all of these different types of ESG factors.
Companies’ management of these important factors are key to us establishing the culture at those companies. A culture of innovation is likely to see companies that can execute on long-term growth opportunities and not just try to benefit from short-term hype cycles.
Providing proactive engagement on ESG is very important because it’s one of the protective guards of the ‘technology flywheel.’ The ‘technology flywheel’ is built as technology takes share from the rest of the economy.
Technology equities have been outperforming for over ten years1. They have been growing earnings at a superior rate versus the rest of the economy, and in doing that they’ve generated superior cash flow and built up [the strength of] their balance sheets2, which in turn has [often] been reinvested into (research and development) R&D3. R&D investment goes into providing new technology solutions.
Proactive ESG engagement really helps to sustain the ‘technology flywheel’. Responsible behaviour is important to sustain and trust in new technologies that are very disruptive.
So being proactive on ESG factors we believe helps sustain this virtuous cycle for technology.