Sustainable Portfolio Management – Annual Report 2022

Connectivity: A solution for marginalisation?

22 April 2022

Unless otherwise stated, companies referenced in this report were companies held by the Sustainable Total Return Strategy as of 31 December 2021 and may no longer form part of our portfolios. Reference to specific companies in this report is not an opinion as to their present or future value and should not be considered investment advice or a personal recommendation.

The past two years have outlined the importance of connectivity and the digital infrastructure that supports it. In the modern world, being connected is no longer a choice, but a necessity, with inequality increasing between those who are connected and those who are not. Improved connectivity increases opportunity, drives innovation, and productivity, and provides access to critical services. That is why the United Nations (UN) Secretary-General’s Roadmap for Digital Cooperation calls for universal connectivity by 20301.

Connectivity has the great potential to accelerate human progress, bridge the digital divide, and develop knowledge societies. However, there is much work to be done since:

  • Almost half of the world’s population2 currently does not have access to the internet
  • In two out of every three countries, more men use the internet than women, and this gender gap has been growing rather than narrowing3
  • In 2019, close to 87% of individuals in developed countries used the internet, compared with only 19% in the least developed countries3
  • In 19 of the least developed countries, the price of 5GB of fixed broadband is more than 20% of monthly gross national income per capita3
  • Countries report that 93% of the world’s population live within physical reach of mobile broadband or internet services3, yet an estimated 3.7 billion people remain without access2

In Bill and Melinda Gates’ 2019 Annual Letter, Melinda states that “connectivity is a solution for marginalisation”4. Across the world, phones can now act as banks, providing a crucial lifeline for escaping poverty for the millions who remain unbanked. With a click, small farmers can access information to support them in determining how much they can charge for their crops. Those living in rural or hard-to-reach geographies can access healthcare, such as a heart examination using a medical tablet in rural Cameroon, or having blood delivered by drones in Rwanda.  

Connectivity is especially critical for women in the developing world, a group that remains one of the most marginalised in the world, historically left behind by global development priorities. Access to a connected mobile phone can provide a woman in the developing world with financial independence through mobile banking, online educational resources to improve employability, or access to contraceptives through telemedicine. This connectivity promotes societal inclusion, helping to lift her out of poverty, with benefits rippling throughout the community via the so-called girl effect.

The fundamental key to delivering universal connectivity – and thereby addressing a number of the UN’s Sustainable Development Goals (SDGs) –  is reliable digital infrastructure.

No poverty
  • Internet access provides free online educational resources and job portals that can reduce the costs and information asymmetries normally associated with finding a job.
  • Earnings are estimated to increase between 3% and 10% through acquiring digital skills, according to the CEBR5.
  • Shopping online can allow for price comparison and is on average 13% cheaper than shopping in-store6.
Good health and well-being
  • Real-time monitoring of patients’ health metrics can reduce costs, save time, and support improved diagnostics
  • Telemedicine makes it easier for marginalised groups, including the disabled, the elderly, and those who live in rural, hard-to-reach geographies, to access healthcare services.
Quality education
  • Mobile technology enables students and teachers to access learning materials, school curricula, tests, and online courses, and certifications in underserved and remote areas.
  • The far-cheaper overhead costs associated with online learning tools make learning more accessible for everyone, everywhere.
Gender equality
  • According to the UN, around one third of married women in developing countries have no control over household spending on major purchases, and approximately one in 10 are not consulted about how their own earnings are spent7. Increasing digital financial inclusion for women would help make them more independent and better able to take care of themselves and their families.
  • Access to the internet can encourage more women to work from home and start their own business. Given the positive correlation between work flexibility and employment rates among mothers, digital platforms increase labour participation rates amongst women and reduce the gender wage gap8.
Clean water and sanitation
  • Digital infrastructure (through the internet of things, or IoT) can provide tools to efficiently manage and monitor water consumption.
  • Smart water infrastructure, such as SCADA systems, can improve drainage or water supply plans, leakage detection services and network performance.
Affordable and clean energy
  • Smart grids and smart logistics can promote energy efficiency by reducing energy consumption and transportation.
  • According to research by McKinsey, IoT technology can also collect useful information for generator companies that could help them reduce costs and achieve more energy efficiency9.
Decent work and economic growth
  • Since technological investment increases the quality of capital and the skills of the average worker, the development of ICT and IoT can boost productivity, innovation, and growth.
  • Frontier Economics estimated in 2018 that a 10% increase in machine-to-machine connections would generate an increase in GDP of $2.26 trillion in the US between 2018 and 203210.
Sustainable cities and communities
  • In combination, IoT and mobile big data can be used to inform the planning of transport to improve air quality. The datasets generated can be used to create real-time city-wide air quality, alerting and prediction models. This, in turn, can help deliver socio-economic benefits in terms of improved quality of life, reduced healthcare costs and working days lost to illness, thereby helping to lessen the negative environmental impact of cities.
Climate action
  • ICT systems can help monitor emissions from factories, producing real-time data on energy consumption and reducing energy consumption by buildings.
  • According to the World Economic Forum, digital technologies including 5G, IoT and artificial intelligence can help reduce global carbon emissions by up to 15%11.
  • 5G technology can help speed the transition to electric and driverless vehicles, which could reduce GHG emissions.

American Tower (a North American equity holding, as of April 2022) is on a mission to supply wireless connectivity to the world. The company has one of the largest portfolios of cellular broadcast towers globally, with more than 220,000 connection sites spread across the globe, from India to Brazil, to Ghana to Columbia, and across the US12. Every day, millions of people access the infinite resources of the internet through equipment hosted on American Tower communication sites.

Cellular towers, and the connectivity they facilitate, have made it possible for developing countries to bypass the traditional path to prosperity paved by developed nations, and to catapult their development agendas. For example, the mobile revolution, spearheaded by the likes of Apple, put phones in the hands of millions, thereby allowing developing nations to leapfrog the landline infrastructure stage of their development.

Key investment risks

ESG data risk: Some positions within the strategy may not have an ESG rating due to the nature of their asset class (e.g. government bonds, gold, hedging derivatives). Should a position not be covered by MSCI (or an equivalent provider) due to lack of coverage, the Portfolio Manager will determine the position’s equivalent rating.

Market risk: The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called “systematic risk”, cannot be eliminated through diversification, though it can be hedged against. Sources of market risk include major natural disasters, recessions, political turmoil and geopolitical tension.

Liquidity risk: The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimise a loss.

Derivatives exposure: The use of these instruments can, under certain circumstances, increase the volatility and risk profile of the strategy beyond that expected of a strategy that only invests in equities. The strategy may also be exposed to the risk that the company issuing the derivative may not honour their obligations which could lead to losses arising.

Currency risk: An investor will be exposed to currency fluctuations between their domestic currency, a fund’s holding currency, and the local currency of an investment.

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Inflation: Inflation will reduce the real value of your investments in the future.

Taxation and tax relief: Levels of taxation and tax relief are subject to change.

Returns are not guaranteed: Past performance is not an indication of future performance. The value of investments, and any income, can fall as well as rise, so you could get back less than you invested. Neither capital nor income is guaranteed.

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