Unsung ESG Heroes - Progress

Digital connectivity is shaping the society of the future. The internet has made life more convenient, allowed global communication without borders, facilitated working from home, reduced paper use, and helped both to educate and raise awareness. More and more financial transactions are made online, a trend that’s likely to continue. E-commerce penetration in the UK is forecast by Statista to reach 38% in the UK by 2025¹ , demonstrating the significant growth potential still to come.

The growth of the ‘internet of things’ and artificial intelligence is helping to raise awareness of safety and security for digital capabilities. In an industrial setting, automation can enable predictive maintenance in factories and efficient supply chain management, both of which deliver sustainability benefits. It can also help to improve energy management in all sectors, increase energy efficiency, and promote the adoption of many low-emission technologies. Fortune Business Insights predicts an average growth of 9.8% in the global industrial automation market from 2021 to 2029² .

The COVID-19 pandemic has forced companies to rethink their digital strategy and has made investment in digital transformation mission critical. Companies are giving renewed consideration to things like:

• moving to a digital infrastructure, such as cloud technology;
• app and website development
• solutions through superior data capabilities.

All these changes can increase productivity, lower costs, and aid revenue generation while improving customer experience and speed to market. IDC forecasts that cloud infrastructure spending will exceed $100 billion in 2023³  growing at more than 20% per year and Gartner expects digital business consulting business services to grow at a five-year CAGR of 10.8%, reaching $118 billion in 2024⁴ .

Companies keeping us safe in a digital world is another interesting potential growth opportunity. Increased connectivity in society is leaving the world open to damaging large-scale cyberattacks and mass incidents of data theft, and the World Economic Forum cited cybersecurity in their top 10 most likely risks in 2023⁵ . Breaches can result in reputational damage, loss of earnings, and fines from regulators if not properly handled. Given this, global security spending will reach $219 billion this year and grow to nearly $300 billion in 2026, according to the IDC⁶ .

Focusing on companies helping to bring about change

Digitalisation, automation, and cybersecurity are some of the powerful dynamics that drive the ‘Progress’ theme we use in our AXA IM Sustainable range of funds that invest in companies shaping our future for the better.

The companies we highlight here are held across the range. They are companies that we believe could benefit from the powerful tailwinds highlighted above, but they also go that extra mile to provide a positive impact on society. We consider them to be among the ‘Unsung Heroes’ of sustainable investment.

Digital identity verification – GBG

GBG is a global expert in digital location, identity verification, and fraud software. It utilises a layered approach to power identity data and document verification across a range of sectors, notably financial services, to accurately prove a consumer is who they say they are and mitigate the ever-increasing threat of identity fraud.

In an increasingly digital world, GBG conducts over 500 million identity fraud checks per year to help ensure no consumers are left behind in a world where proving and trusting digital identities is central to how we live, work, and socialise.  Many of its products and solutions have inherent societal benefits such as ensuring that age-restricted products and services are not offered to children, as well as providing data tools to police forces to assist in crime prevention and detection.

GBG helps to support greater financial inclusion through the use of real-time identification via non-documentary methods. This is important especially given the number of individuals who are virtually invisible to the financial system.

In addition to this, GBG invested $3 million into Credolabs, a company using AI to help institutions make lending decisions for applicants without depending on traditional credit bureau data. Their services also have helped vulnerable citizens receive essential deliveries during the pandemic and charities to reach donors.

Data centres – Ciena

Ciena is a manufacturer of fibre optic and routing communications equipment, with number one or two market share position across many of its optical markets. Alongside voice communications, a critical use for its equipment is the fast and reliable transmission of data, over greater and greater distances.

A key end-market for Ciena is the data centre space.  With the increase in the amount of data being created, there is an ever-increasing need for faster transfer speeds, greater data processing capacity and greater storage requirements. This requires more and more data centres and within them, greater server capacity but also greater energy requirements to power them. Ciena’s high-speed fibre optics equipment is a key enabler for rapidly transferring data, with some interesting outcomes as a result.

Historically, data centres have needed to be positioned close to the regions creating and using that data to limit the latency (time delay) between sending and receiving information; the technology hub of Silicon Valley in the United States, for example, would typically be served by local data centres. However, with ever-faster data transfer speeds available, data centre campuses can now be located much further away, in areas where land is readily available (and cheap).

One such data centre is Switch’s ‘The Core’, a data centre campus based outside Las Vegas, Nevada over 600km away from Silicon Valley. The land in Nevada is affordable as there is little competition from office/industrial or residential users. Arid, sunny desert areas like Nevada are also ideal for large scale solar farms - since 2016, Switch has powered 100% of its data centre energy requirements from renewable energy sources⁷ . Thus Switch’s massive data centre hub allows its customers to run servers on a highly energy-efficient basis supporting businesses based in Silicon Valley and beyond, enabled by communications equipment made by the likes of Ciena.

Manufacturing automation – Omron

Omron is a Japanese company with expertise in industrial automation, electronics, and medical equipment. We see it as a key holding based on its proprietary technologies in programmable logic controllers (PLC). PLCs are the building blocks for automating manufacturing production processes, and Omron aims to provide customers with a complete solution to improve manufacturing productivity through automation.

Automating production processes, as well as improving productivity, can enable companies to include energy efficiency as well as worker safety across their production lines. Additionally, use of ‘cobots’ – a type of robot that works cooperatively with a human in a shared space – helps to increase diversity in roles typically seen as male dominated. An example we have seen of this in action is in Brunswick, a US marine engine builder, who talked to us about how they have been able to increase diversity in their labour force because of the reduced need to manually lift heavy engine parts as a result of using cobots.

Omron works with its clients to co-develop unique systems using PLCs combined with inhouse software and automation components. This essentially creates a one-stop shop for clients who need to improve their production throughput. Omron recently mentioned in a meeting with us that it has gained 600 new customers globally in the last two years, which bodes well for its future order book.

The company has also recently bought a majority stake in a data analytics business, JMDC. We believe that this will enhance the after-sales proposition for Omron in the future and creates new business opportunities within its existing client base. By providing real time analysis of production line output, and monitoring potential faults in real time, customers can maximise the potential of the manufacturing lines while addressing any potential safety faults before they materialise.

It is every company’s responsibility to help drive change and help achieve a better future for our planet and our objective is to encourage and help guide them on their journey.

Capital at risk. The value of investments, and any income from them, can fall as well as rise and investors may not get back the amount originally invested.