Responsible technology: How can companies and investors drive digital inclusion and economic growth?
- 20 January 2023 (7 min read)
Key points
- Access to digital services and solutions is an important part of an inclusive, sustainable and resilient economy
- Data suggests that most information, communication and technology companies are still lagging in their digital inclusion initiatives
- Investors can direct capital towards companies and governments that are addressing issues including access, quality, skills and affordability
The ‘connectivity canyon’ between those who have access to digital technology and those who do not can have a significant impact across education, employment, healthcare and more – deepening social inequalities and holding back economic growth. We believe there is a relationship between digital inclusion and sustainable, resilient economies and that supporting improvements to digital technologies and accessibility can benefit society as a whole while creating potential opportunities for investors.
Greater access to digital services and solutions is an important aspect of the United Nations Sustainable Development Goals (UN SDGs) – a set of inter-linked targets designed to be a blueprint for peace and prosperity for people and the planet. We see several ways in which governments and companies – notably from the Information, Communication and Technology (ICT) sector – can help achieve digital inclusion. Investors can also play a role, by directing capital towards companies and governments that are addressing the issues.
Studies suggest there are four fundamental components of digital inclusion:1
- Access: Whether an individual has access to or uses digital technology, like the internet
- Quality of access: Even if two people have access to or use digital technology, the quality of their access/use may be very different
- Digital skills: Digital technology use requires literacy to be able to participate, categorised as basic, intermediate and advanced skills
- Affordability: Digital technology use can be very expensive relative to household income
These translate into concrete actions:
- Increasing access to digital technology in emerging and developing countries and rural areas, as well as bridging the gender digital divide
- Improving the quality of broadband and mobile network in areas where it is the most needed
- Supporting at least basic digital skills development
- Contributing to affordable access to digital technology
The International Telecommunication Union (ITU), the UN agency for information and communication technologies, stresses the need to develop basic digital skills and to improve quality of access to achieve meaningful connectivity. For example, in Africa almost 30% of the rural population cannot access the internet.2
It has also found a gender parity issue – globally, 62% of men were using the internet in 2020 compared to 57% of women, but in the least developed countries, only 19% of women used the internet, 12 percentage points (ppt) lower than for men.3
Positive societal and economic impact
The UN SDGs highlight challenges that can be addressed by responsible investors across the broad themes of ending poverty, protecting the planet and prosperity for all. Digital inclusion contributes to a range of SDGs (see below). Therefore, we believe that financing companies and governments that are committed to improving digital inclusion may help deliver positive societal impact as an investor.
- UmV2aXNpdGluZyBkaWdpdGFsIGluY2x1c2lvbjogQSBzdXJ2ZXkgb2YgdGhlb3J5LCBtZWFzdXJlbWVudCBhbmQgcmVjZW50IHJlc2VhcmNoLCBNYXR0aGV3IFNoYXJwLCBHbG9iYWwgRGV2ZWxvcG1lbnQgSW5zdGl0dXRlLCBVbml2ZXJzaXR5IG9mIE1hbmNoZXN0ZXIgYW5kIEJsYXZhdG5payBTY2hvb2wgb2YgR292ZXJubWVudCAmYW1wOyBDZW50cmUgZm9yIHRoZSBTdHVkeSBvZiBBZnJpY2FuIEVjb25vbWllcywgVW5pdmVyc2l0eSBvZiBPeGZvcmQg
- TWVhc3VyaW5nIGRpZ2l0YWwgZGV2ZWxvcG1lbnQgLSBGYWN0cyBhbmQgZmlndXJlcyAyMDIxIChpdHUuaW50KQ==
- TWVhc3VyaW5nIGRpZ2l0YWwgZGV2ZWxvcG1lbnQgLSBGYWN0cyBhbmQgZmlndXJlcyAyMDIxIChpdHUuaW50KQ==
But the benefits of digital inclusion are not only about sustainable development and positive societal impact. Studies have shown that an increase in mobile network, internet and fixed broadband penetration can lead to GDP growth – with an even more significant impact in low- and middle-income countries.4 5
- RWNvbm9taWMgSW1wYWN0cyBvZiBCcm9hZGJhbmQsIENocmlzdGluZSBaaGVuLVdlaSBRaWFuZyBhbmQgQ2FybG8gTS4gUm9zc290dG8gd2l0aCBLYW9ydSBLaW11cmEsJm5ic3A7IEluZm9ybWF0aW9uIGFuZCBDb21tdW5pY2F0aW9ucyBmb3IgRGV2ZWxvcG1lbnQsIFdvcmxkIEJhbmssIDIwMDk=
- RG9lcyBicm9hZGJhbmQgSW50ZXJuZXQgYWNjZXNzIGFjdHVhbGx5IHNwdXIgZWNvbm9taWMgZ3Jvd3RoPywgQ29saW4gU2NvdHQsIDIwMTI=
The International Monetary Fund also demonstrates that digital financial inclusion is correlated to GDP growth – an increase in digital financial inclusion in payments from the 25th percentile to the 75th percentile is associated with an increase in average economic growth of up to 2.2ppt. 6
Studies in developing countries have also demonstrated significant positive effects of digital inclusion in labour markets, democracy, education, financial inclusion, poverty reduction, public service delivery and health. 7 And there is a clear correlation between healthy, educated, prosperous communities and economic growth.
How investors can help
We believe that providing capital to companies and governments that aim to address digital inclusion is a way to potentially combine seeking financial outcomes with a positive societal impact. This could span sectors as diverse as financial services companies that are facilitating access to banking for underserved customers; telecommunications companies that connect homes in rural areas; and companies within the digital payments space that enable businesses to grow and entrepreneurs to flourish.
Responsible investors can also direct their capital towards companies and governments with good practices around digital inclusion. The World Benchmarking Alliance’s Digital Inclusion Benchmark (DIB) sets out good practice on material issues:
- Access and affordability: Setting up initiatives and having quantifiable objectives for universal and affordable access to digital technologies. This could mean targeting people and areas for which it is the most needed, or establishing discounted prices for low-income households
- Quality of access: Striving to deliver equal quality of access to digital technologies
- Digital skills: Establishing programmes to advance at least basic digital skills development
- Gender digital gap: Putting in place initiatives and programmes dedicated to resolving gender disparities, both in terms of improved access to digital technology and removing barriers that can keep women away from digital opportunities and careers.8
We conducted an analysis of companies’ scores in the 2021 DIB to understand how ICT firms deliver on these practices. We focused on the ‘access’ and ‘skills’ indicators of the DIB, as these take access, affordability, quality of access, gender and digital skills issues into consideration.9
- SXMgRGlnaXRhbCBGaW5hbmNpYWwgSW5jbHVzaW9uIFVubG9ja2luZyBHcm93dGg/IElNRiBXb3JraW5nIFBhcGVyLCBJbnRlcm5hdGlvbmFsIE1vbmV0YXJ5IEZ1bmQgMjAyMQ==
- UmV2aXNpdGluZyBkaWdpdGFsIGluY2x1c2lvbjogQSBzdXJ2ZXkgb2YgdGhlb3J5LCBtZWFzdXJlbWVudCBhbmQgcmVjZW50IHJlc2VhcmNoLCBNYXR0aGV3IFNoYXJwLCBHbG9iYWwgRGV2ZWxvcG1lbnQgSW5zdGl0dXRlLCBVbml2ZXJzaXR5IG9mIE1hbmNoZXN0ZXIgYW5kIEJsYXZhdG5payBTY2hvb2wgb2YgR292ZXJubWVudCAmYW1wOyBDZW50cmUgZm9yIHRoZSBTdHVkeSBvZiBBZnJpY2FuIEVjb25vbWllcywgVW5pdmVyc2l0eSBvZiBPeGZvcmQ=
- RGlnaXRhbCBJbmNsdXNpb24gQmVuY2htYXJrLCBXb3JsZCBCZW5jaG1hcmtpbmcgQWxsaWFuY2U=
- RGlnaXRhbCBJbmNsdXNpb24gQmVuY2htYXJrLCBNZXRob2RvbG9neSBSZXBvcnQsIFdvcmxkIEJlbmNobWFya2luZyBBbGxpYW5jZSwgQXByaWwgMjAyMA==
The data suggests that most ICT companies are still lagging in their digital inclusion initiatives, despite some improvements compared to data from previous years. There are clear issues where investors can challenge companies and ask them to better disclose and deliver around digital inclusion – for example only 53% of assessed companies had initiatives to enhance access to digital technology and digital initiatives dedicated to women and girls.
We believe that investors have a significant role to play in driving digital inclusion, with potential opportunities to direct more capital towards companies – or governments via the bond market – that are making strides in areas from infrastructure to education to digital banking services and more. Ultimately, a more connected, digital world should equate to more sustainable economic growth – potentially creating the scope for greater returns for investors as well as the prosperity sought by the United Nations SDGs.
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ.
In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.
© 2023 AXA Investment Managers. All rights reserved
Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.