Renaissance - Redefining Research

Technology plays a pivotal role in the transition towards a more sustainable world and is a deflationary force. In this Q&A, portfolio manager Richard Clode explores these themes and the investment opportunities.

"The critical mass and adoption acceleration that some tech platforms now have around the world, often in places that don't have very established healthcare or education systems, has meant that more people are able to access quality education and healthcare by leveraging the internet, the cloud and AI."

Q: How is technology helping to create a more sustainable world, which areas within the tech landscape are the best facilitators?

We very much see technology as the science of solving problems, and as a result, a key enabler towards a more sustainable world. We think there's a natural synergy for technology to provide solutions to these major environmental and social challenges, and as a consequence, this allows access to some of the largest growth markets out there. The technology sector is on the right side of that by providing the innovation, those exponential leaps that only technology can provide. No one thought that EVs (electric vehicles) would ever take off in a broad sense, and again, technology’s enabled EVs to be a real credible alternative to internal combustion engine cars and we're now finally seeing that inflection.

We look at the investment landscape and we very much feel that there's much more breadth to those opportunities, to those growth areas in technology than is currently being addressed in most sustainable investing today. Because it's not just renewables, it’s not just electric vehicles. We think about a wider sustainable transport revolution. So, we think about ride hailing, about autonomous driving because it's not just about the pollution and the carbon emissions, it's also about reducing the number of accidents and fatalities on the road.

Improved efficiency and productivity are also being made possible by technology. We need to reduce the use of scarce natural resources and we need low carbon infrastructure; we need smart cities to do that as well. So, we think there are many technologies that provide solutions to those environmental challenges, and more uniquely to social problems too.

Q: There are many examples to support the role of technology in providing remedies to environmental issues, but there may be a lack of recognition when it comes to social challenges. Can you elaborate on that?

The social side is a somewhat neglected area of the power of ‘technology doing good’. Access to quality healthcare, financial inclusion, digital democratisation (making tech accessible to more people), tech health and data security are exciting themes. There’s often a huge focus on the megacaps when we talk about technology, and there seems to be a lack of realisation of the good that many technology companies do around the world, across both developed and emerging markets.

Thinking of financial inclusion, that used to be very much reliant on the expansion of a physical bank branch into a second-tier town, then a third-tier town and then in some of the rural areas, which may well take 50 or 100 years. Now, it can be done with the swipe of a card or a download of an app. People that have never had any credit history, could never access credit to start a business or to get that initial loan or some risk capital to be able to start up a business or invest, we’ve seen this progress in China, India, and Latin America.

The critical mass and adoption acceleration that some tech platforms now have around the world, often in places that don't have very established healthcare or education systems, has meant that more people are able to access quality education and healthcare by leveraging the internet, the cloud and AI (artificial intelligence). The pandemic has forever changed the way we work and learn, making online learning, home schooling and telemedicine possible. We've seen a huge acceleration of these trends from the pandemic and near term the digital divide has only exacerbated the rising inequality we have witnessed globally. We believe longer term, the critical mass lockdowns provided to these more nascent technology platforms and the widespread government support to level up economies, will ultimately help reduce poverty and inequality.

Q: While tech is doing a lot of good, we also have the less desirable effects around individual privacy, data security and management. What’s your view around this and what role can investor engagement play?

The United Nations has updated the interpretation of human rights to embrace the digital world. What's very positive for us is the maturing of the technology sector in terms of responsibility, as we’ve seen in their interaction with regulators and governments. What's happened in the last ten years, particularly the scrutiny in the last five years, has meant that tech companies aren’t just disrupting an industry and then worrying about the aftermath and the implications of scaling to billions of users. Maybe the infrastructure or data security and privacy policies weren’t 100% right or they hadn't thought more thoroughly about every potential outcome or indirect consequence of the new technology, product or service. I think now there's much more of a realisation and impetus to think about these implications in advance because if not, the company is likely to be hauled in front of US Congress or the European Commission quickly.

We've witnessed a lot more proactive engagement from companies with governments, with regulators, with local authorities and cities, proof that tech companies are now very much working in partnership with these institutions to come up with solutions. An example of this is the allowing of autonomous vehicles and self-driving vehicles on US roads, albeit some states are much more proactive than others. These partnerships will hopefully lead to a more stringent framework of rules and regulations that also ‘protects tech companies from themselves’, by being on the right side of the authorities. We think a lot of the regulation we've seen in the Chinese internet sector is actually very positive and leverages much of the learnings that we've seen globally, particularly in the European Union with GDPR (General Data Protection Regulation).

Visit our website to find out more on the important factors investors should consider when investing in the tech sector, how tech innovation is inherently a deflationary force, and how technology is a truly broad sector, offering an opportunity set beyond the standard classifications of a tech company.