Does investing in technology inevitably mean investing in Faangs – Facebook (Meta), Amazon, Apple, Netflix and Google (Alphabet)?
As a long-term investor with an equal focus on driving the change articulated in the UN Sustainable Development Goals alongside financial returns, technology presents an exciting investment theme.
Clean energy, computing, agricultural technology (agtech), medical technology (medtech), health technology (healthtech), educational technology (edtech), digital and mobile communication, science and conservation, blockchain and democracy – technology is everywhere.
From helping us connect with each other, to modelling our impact on the climate and ecosystem more broadly, technology has radically changed the way we engage as communities and with our environment.
See also: – Tech risks could turn the sector into a ‘sustainability disaster’
However, the current disruption to supply chains, rising levels of inflation and competition for scarce resources mean the road ahead for technology could be a bumpy one, especially given the popularity in its usage.
The fine line between supply and demand, already disrupted by Covid, which created pressures on the semi-conductor sector, is expected to be further disrupted by the war in Ukraine.
There’s also climate disruption to supply chain manufacture and distribution to consider, most notably physical risk to core infrastructure, as well as rising levels of drought and water stress.
Chip fabrication is water-intensive, relying on a large, steady and ultrapure water supply, used to rinse particles and chemicals from chip surfaces creating hazardous waste.
The less sustainable sides of tech
The tech industry has a heavy carbon footprint (across scopes 1, 2 and 3) and it also has human rights and health issues in its history (including both resource extraction and end use).
Tech also generates large volumes of electronic waste. Rates of e-waste reached a record high of 53.6 million metric tons in 2019. This was an increase of 21% in just five years and worked out at approximately 7.3 kilograms of e-waste per capita. Of this only 17.4% was properly collected and recycled.
The carbon footprint of the information, communication and technology (ICT) sector accounted for around 1.4% of overall global emissions between 2010 and 2015.
This included the electricity used by all equipment in the system during use but also all other parts of the life cycle, like the manufacturing of networks, data centres, phones, computers and other user equipment.
Furthermore, this figure includes the construction of ICT-related buildings and, for example, employee travel and transport. Shifts in electricity consumption to renewable energy are increasingly powerful and more efficient processors are increasing energy efficiency and playing a role in driving down the ICT sector’s overall footprint.
There is still a way to go, despite announcements from some of the world’s largest technology companies to drive carbon negativity into their business.
How to invest in clean tech
Taking education as an example, although investment may instinctively lean towards online learning platforms and software interventions for learning, investment opportunities also exist in the actual digital infrastructure that enables learning – internet, accessible hardware for those with disabilities, digital inclusion programmes – to name a few. This is a broader ecosystem approach to education.
This will inevitably mean taking into account a range of possible businesses from smaller-cap growth innovators to larger-cap value stocks with deep and broad outreach programmes and the digital infrastructure that enables many of the innovations to plug in to.
With this comes a range of considerations including who benefits from the education innovation/intervention (what’s the additionality); who is unintentionally unable to access that innovation and/or is intentionally priced out; what is the supply chain of both the innovation and infrastructure provider; and what are the material and dynamic issues that factor in here, as well as those within the business itself.
Throughout, it’s important to consider both the negative externalities alongside the positive and weighing up the weighting of both.
With its diverse range of applications, and potential related issues (externalities), investing in technology is complex. But with the right tools and engagement, it’s possible to do so sustainably.
The key is understanding what specific social, environmental and/or economic problem is being solved, and then identifying the digital interventions that help deliver that change.
This could involve taking a position in a Faang, it may not. Either way, the issues that are solved along the investment journey need to be managed in line with the issues that will be created.
A perfect industry doesn’t exist. Technology is essential in tackling inequality, redressing our ecosystem imbalances and improving our democracies, so engagement in the sector is essential.