Is technology a sustainable investment?
by Liz Rees, Impact Analyst, The Big Exchange
How we live and work is increasingly affected by advances in technology. This was highlighted during lockdown, with online shopping, cloud computing services and digital communications all in demand at a time when the global economy was deep in recession.
It’s an influence that investors can’t ignore either. Information technology is now the biggest sector in the MSCI World Index (making up 22% at 30/6/21). 1 Furthermore, an elite group of companies known as the tech titans, namely Apple, Amazon, Facebook, Alphabet (parent of Google), and Tesla dominate the top 10 stocks.1
It seems likely that innovation will continue to disrupt almost every industry and, in our view, could present a multi-decade growth opportunity for investors. But are tech companies having a positive impact on the world? Clearly no two are the same and, when a business has global reach and complex supply chains, there will nearly always be positives and negatives to weigh up.
At The Big Exchange we believe in maximum transparency, by showing all a fund’s holdings, to help you decide what is acceptable to you. The fund managers carefully research the sustainability and impact of a company’s activities, alongside a financial assessment of its earnings prospects and valuation, to decide if it meets their investment criteria. We show any controversies we think you should be aware of on the fund details page.
Microsoft is one of the longer established tech titans and has an ambitious sustainability strategy, which includes investing $1bn in its own Climate Innovation Fund.2 Strong cash generation from Microsoft Office products has been used to develop high growth areas such as cloud computing and the Internet of Things (IoT). The mission is to improve productivity and efficiency in business and education, although there is some exposure to gaming and defence contracts. The shares are held by Pictet Global Thematic Opportunities, AB US Thematic, and Stewart Investor Worldwide Leaders Sustainability funds.
A more controversial stock is Amazon; on one hand it has been accused of having poor working conditions and following industry practice of destroying surplus stock, whilst on the other it has clear sustainability targets, such as net zero carbon emissions by 2040, and uses renewable electricity to power its data centres, electric vehicles, and recycled packaging. In a less clear-cut case like this, it comes down to whether you perceive them as the ‘big bad wolf’ destroying the High Street or consider that having purchases delivered direct to your door is a more sustainable way of shopping. Nordea Global Stars Equity Fund holds both Amazon and Microsoft.
Chips with everything
It is not only the tech titans that offer exposure to disruptive technology; there are opportunities across a range of industries, from renewable power to transport and fintech (online platforms). Many more companies supply essential materials, equipment, components, and support services to those on the front line.
One of the most important technology enablers is semiconductors which have been around a long time so we may not associate them with cutting edge technology. However, these tiny components, known as chips, which store memory are getting smaller and more powerful all the time and are found in the devices we use every day.
Semiconductors play a key role in communications, healthcare, transport, and clean energy as well as being at the heart of artificial intelligence, smart manufacturing and 5G technologies. The disruptive effect of companies like Tesla or Apple would not be possible without semiconductors and their impact on society is far reaching. As a result, the semiconductor industry is forecast to grow 19.7% in 2021 and 8.8% in 2022.3
Taiwan Semi-conductor Manufacturing Company (TSMC) is the world’s largest independent semiconductor foundry business, fabricating the designs of other companies. Production is energy intensive, but TSMC has led the industry in adopting renewable power sources and considering the cost of carbon emissions when building new facilities. The company is held by several funds on The Big Exchange, including Alquity Future World, Stewart Investors Asia Pacific Leaders, and ASI Multi- Asset Climate Solutions.
Samsung Electronics, better known for its consumer products, is a memory chip manufacturer and its DRAM (dynamic random-access memory) products are used for data storage. This stock is held by Nordea Global Stars and Pictet Global Thematic Opportunities funds. Its affiliate Samsung SDI makes batteries and energy storage systems, as well as cutting-edge materials used in semiconductors. ASI Global Impact and UBAM Positive Impact Funds invest in this company.
ASML is a designer of lithography machines which play a critical role in the manufacturing of semiconductors, increasing their power and lowering costs. Lithography uses light to print tiny patterns on silicon and the next generation of machines will use extreme ultraviolet light (EUV) which can make chips even smaller. ASML sells to TSMC and Samsung and is a holding in ASI Europe ex-UK Ethical Equity and Pictet Global Environmental Opportunities funds.
All in all, we believe there are plenty of attractive investment opportunities for sustainable funds to take advantage of the digital transformation (the shift online) of society. This has been dubbed the fourth industrial revolution and, we believe it aligns closely with the green revolution that is also underway.
Any reference to funds or companies does not constitute investment advice so you will need to decide if an investment is suitable for you. If you are not comfortable with making investment decisions, you should contact a financial adviser.
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