Investing in tech for sustainability
- 27 March 2024 (5 min read)
The technology sector is powering a wealth of innovative solutions to environmental and social challenges. This creates opportunities for investors looking to build portfolios that make a material positive difference to the world while providing the potential for financial returns, argues Ashley Keet, portfolio manager at AXA Investment Managers.
As a powerful force for change, technology is being harnessed to create meaningful positive progress towards a more sustainable world. Technology has also been one of the most exciting sectors for investors in the last twenty years: it touches every aspect of our lives and as new technologies, such as AI, develop rapidly so does the growth potential of the sector expand.
This combination is creating significant opportunities for investors who are building portfolios that contribute to a more sustainable world while also aiming for financial returns.
Semiconductors changing gears to sustainable energy
Any investment strategy that includes a commitment to sustainable energy should be looking closely at the technology sector. Power semiconductors, for example, are critical at every point along the energy value chain, from power generation, to managing the flow of energy and delivering power more efficiently. The global power semiconductor market was valued at $49 billion in 2022 and is projected to reach $80 billion by 20321 as the demand for energy efficient devices and the adoption of electric vehicles, renewable energy systems, and smart grids continues to increase.
Improving the efficiency of electric vehicle power systems is key to increasing range and performance, and semiconductors are essential components for power management, control and energy conversion. This market is only set to expand, driven by growing global commitment to reducing reliance on fossil fuels and moves to improve local air quality through low-emission vehicles. The average electric vehicle already has twice as many semiconductors as an internal combustion equivalent, and this is expected to increase to three times as many by 2030. This makes the companies that produce these chips an attractive opportunity.
Infineon, for example, is the world leader in auto semiconductors. We believe that the company will be instrumental in accelerating the transition to electric vehicles by driving innovation in power management, charging infrastructure, battery management and automotive safety.
They are also an important provider of semiconductors for the energy conversion systems used in renewable energy generation, such as solar and wind power. Ensuring efficient and reliable energy from these intermittent sources contributes to the stability and effectiveness of renewable energy systems.
The internet of things can improve life in real time
‘The Internet of Things’ is a technological theme that has exciting implications for both environmental sustainability and social progress. It looks to a world where many of the devices we use from day-to-day are connected to the internet, allowing real-time performance analysis and control.
NXP Semiconductors provides the advanced sensor technologies, secure connectivity, and edge computing capabilities that enable real-time data collection, analysis, and management across several sectors. Their technologies support smart lighting, intelligent traffic management and efficient energy usage (for example, smart meters), contributing to sustainable and resilient urban environments.
They are also active in smart agriculture, where soil monitoring devices can help to protect biodiversity by reducing herbicide use and controlling water usage. More efficient farming also reduces the land area required for agriculture, which could lead to a fall in land degradation and deforestation – and potentially encourage reforestation – and a lower carbon footprint for the industry as a whole.
Within healthcare, NXP provides secure and scalable semiconductor solutions for medical devices, such as continuous glucose monitoring devices that help diabetics monitor blood sugar levels in real time without the need for physical tests. Connected medical devices enable the seamless and secure collection, transmission, and analysis of health data, empowering personalised healthcare and telemedicine applications.
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Super-powered chips behind the AI revolution
The likely impact of AI is a topic well-rehearsed in the media, but there is much more to it than ChatGPT and eye-popping AI-generated imagery. Accelerated computing and artificial intelligence are key enablers of innovation in everything from computer-assisted design and machine vision systems to healthcare research, with the potential to drive sustainability across a range of sectors.
But these advances aren’t possible without the powerful semiconductors that AI programmes rely on, and we see an opportunity to invest here.
The leading name in this sector at present is NVIDIA, a manufacturer of graphic processing units (GPUs). GPUs were developed to create the advanced graphics used in computer games but have become vital components of AI systems due to their ability to process thousands of operations a second. As a result, NVIDIA has developed specialised hardware and software widely used in AI training and inference tasks, such as the NVIDIA CUDA platform and the Tensor Core architecture.
NVIDIA’s technology is embedded in John Deere’s See and Spray technology, which captures images of crops and processes them in the cloud to enable more targeted application of herbicides. This can reduce herbicide use by up to two-thirds, offering both a positive impact on biodiversity and improved farmer profitability. NVIDIA chips are present in both the vision system and the data centre that processes imagery.
Another technology powered by NVIDIA chips is the BioNeMo Cloud Service for generative AI in drug discovery. BioNeMo enables researchers and developers to use generative AI models to rapidly generate the structure and function of proteins and biomolecules, accelerating the creation of new drug candidates.
None of this would be possible without continuous innovation in semiconductor manufacturing equipment and we are seeing potential further up the value chain. Applied Materials, for example, has the broadest technology portfolio and expertise in the industry. They allocate US$3bn a year to research and develop new solutions and are key contributors to the development of more energy efficient chips, the expanding Internet of Things and advances in artificial intelligence.
Software enabling productivity and sustainability
Advances in computing and artificial intelligence are boosting the development of sustainable software solutions by enabling faster processing, enhanced automation, and improved decision-making.
Design is one area where innovative software is being used to develop more sustainable products. A key development is the use of ‘digital twins’, which are virtual representations of a physical object or system that allows for the simulation and analysis of its behaviour and performance in real time, providing valuable insights for sustainable design and operational improvements.
Companies leading the market in this area include Bentley Systems, which offers design software that can be used to create digital twins of physical assets such as buildings and infrastructure. This technology improves decision-making, maintenance planning, and sustainable management of assets, ultimately leading to optimised performance and reduced environmental impact. For example, Bentley Systems can analyse how a bridge will respond to factors such as increased temperature, changing precipitation patterns, and extreme weather events that are associated with global warming. This allows for proactive planning and design to ensure that bridges are built to withstand the challenges posed by climate change.
In the healthcare sector, Dassault Systemes can create a digital twin of a patient’s heart or brain, personalised representations that are used to simulate and predict how the organs will behave under various conditions. Healthcare professionals are then able to analyse and optimise treatment strategies, such as surgical interventions, device implantations, or drug therapies.
Software also has the potential to boost productivity and efficiency in small businesses, with the social benefit of helping entrepreneurs make headway when they need the most help. Intuit Accounting Software, for example, can improve financial management, simplify tax compliance and provide business insights that can drive growth.
In other areas, software can improve a business’s overall sustainability. SAP's Sustainability Solutions can help a business to improve its environmental performance, transition to circular economy models, ensure transparency in their supply chains, accurately account for and report their carbon emissions, drive sustainable product innovation, and address social impact areas.
Technology offers a wealth of opportunities for investors looking to boost global sustainability. Companies that provide innovative solutions to help reduce our impact on biodiversity, promote social inclusion and help transition to cleaner energy also have the potential to generate attractive financial returns. In the long-term, this has the potential to be good news for both investors and the planet.
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