Digital planet poses challenges to society but offers ‘extraordinary potential’

In the first of a two-part Amity Insight research paper by Ecclesiastical Investment Management Limited (‘EIM’) titled ‘Digital Planet: A brave new world for business’ (November 2014), the seismic technological change the world is undergoing in transitioning from analogue to digital and the implications for business and society are examined. While this revolution is throwing up issues with global impact it also offers extraordinary potential.

The 16-page paper by Thomas Fitzgerald, an EIM investment research analyst in London, points out that as recently as 2000 around 75% of the world’s technological information was in analogue form but by 2007 had witnessed a “near complete shift” with 94% preserved in a digital format.

As well as examining the catalysts for the digital revolution and its impacts on several sectors and companies that have been digital pioneers (e.g. Vodafone and Wolters Kluwer) and “digital duds” who failed to adapt such as HMV and Hibu that entered administration in 2013, the paper looks at the challenges and opportunities raised by the adoption of digital technology within an Environmental, Social and Corporate Governance (ESG) framework.

Highlighting the sheer proliferation, pace and increased openness of communication devices the Cisco Visual Networking Index has predicted that the number of mobile-connected devices would have exceeded global population by the end of 2014 due to multi-SIM ownership. Indeed, mobile phone subscriptions globally are now estimated to exceed 6.5 billion. And, beyond 2014 robotics for domestic use, digestible sensors, artificial intelligence and virtual reality applications will increasingly come into play.

Neville White, EIM’s Head of SRI Policy & Research, commenting says: “While the digital planet will undoubtedly empower and transform millions of lives for the better…it also raises some profound challenges that are new and evolving. Cybercrime, security and the blurring of private versus public are exercising considerable attention. The environmental consequence of the huge uptick in energy needs required by data centres and video streaming is still to be addressed in terms of its impact on climate change.”

On human rights challenges, White says. “Internet repression and Government snooping - especially in an age of terror - raise control concerns for users and libertarians alike.” Nevertheless, he adds that “as responsible investors we are positive about the extraordinary potential of the ‘digital planet’ for individuals and society.”

In identifying investment opportunities via the digital value chain, EIM will “engage with companies on the major risks, and seek to understand how these can be managed in difficult and challenging environments.” Supporting this approach the firm has over twenty years of experience of socially responsible investing (SRI) and maintains a comprehensive in-house SRI research function.

The EIM team is focused on seeking out companies with business models that are leading the way or transitioning to the digital economy. Finding the pioneers and those companies adapting their businesses will be of “equal importance” as avoiding the duds, the report notes.

Fitzgerald adds: “We believe that companies involved in building the digital infrastructure of the future will be in strong positions as further technological innovations lead to acceleration in the digital revolution.” Companies held in EIM’s Amity Fund range include Cisco, Ericsson, Intel and Sage.

This paper is being followed by part two (‘Digital Planet: Big data - small world’) in January 2015 that will examine the winners and losers in the space and the ethical dilemmas.

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