Impact investing and technology often come “hand in hand.”
A growing number of innovative technologies ranging from clean energy to healthcare offer investment opportunities that make positive social and environmental impacts. Additionally, many tech companies have stepped up their sustainability strategies, bringing more public attention to these issues. And new technologies such as artificial intelligence could help impact investing grow substantially.
Innovative Technologies Create a Positive Impact
Companies are utilizing the internet, robotics, and other new technologies to produce impactful solutions such as developing clean energy sources, improving healthcare, and increasing struggling farmers’ productivity.
Take agriculture: with smart farming technology, smallholder farmers—who produce 80% of the food in developing countries—can use images from satellites or drones, combined with sensors in the soil, to measure factors like temperature and nutrient level and monitor crop growth in real time. Other new digital platforms not only provide weather forecasts and advice, but also let farmers sell to large companies.
Tech advances are also driving significant improvements in healthcare delivery. For example, companies developing digital therapeutics and connected health services use technology to augment or even replace drugs. GlaxoSmithKline, for one, is working with digital therapeutics company Propeller Health, which uses sensors to monitor and improve inhaler use by patients with respiratory illnesses. The goal is to understand how the technology can boost medication adherence.
Investment in new renewable energy from 2010 to the end of 2019 could total $2.6 trillion. Fueled in part by increasing urgency and decreasing costs, the technology-driven energy transition is happening across the developed and developing world. For example, the US market for energy storage, a crucial piece of the renewable energy puzzle, grew almost 45% in 2018. Meanwhile, India is using incentives and mandates to bring more electric vehicles to its streets.
Tech Companies Tap Sustainability and Corporate Responsibility
With the help of internal initiatives, tech companies have shined a spotlight on sustainability issues.
Apple is a case in point. The tech giant recently announced that it has nearly doubled its number of suppliers committed to running their Apple production using clean energy. A year ago, the company also announced that all of its global facilities are powered by 100% renewable energy. Business Insider details several other examples:
- Microsoft recycles over 26.5 million pounds of unused tech equipment annually.
- Intel recently announced that it would restore all of its global water use by 2025.
- Adobe has committed to use 100% renewable energy by 2035.
At the same time, one could argue that some environmental, social, and governance (ESG) efforts are also about repairing damaged reputations. Uber released its latest diversity report in July 2019, which included an analysis of the company’s US workforce by race, ethnicity, and gender, linking several top executives’ compensation to meeting diversity and inclusion goals for 2022. The ridesharing company was the focus of sexual harassment allegations only two years prior. With the tech industry under scrutiny for inequitable employment practices, corporations such as Facebook, Apple, and Microsoft started releasing diversity reports in 2014.
Digital Technologies Help Impact Investing Scale
Investment tech is also likely to contribute to the overall growth and effectiveness of the impact investing sector, considering the power of data analytics, made possible by artificial intelligence (AI).
For example, some ESG investment managers are following the lead of hedge funds by using AI to analyze large amounts of ESG data. This analysis is particularly important because ESG data can be difficult to compare due to unstandardized reporting requirements. Startups are also helping to move the needle. Using new computational social science developed at MIT, Distilled Impact analyzes public information to measure ESG data.
In another vein, so-called robo-advisors—automated investment platforms—might make sustainable investing more accessible to mainstream retail investors. These platforms include new services focused on impact investing, as well as older ones that offer both new and traditional options.
While impact investing and technology may go hand in hand, these technologies have their limitations. Some robo-advisors directly targeting retail investors have had difficulty attracting customers. For example, in August 2019, retail impact investing platform Swell ceased operations. And when it comes to data, investors need to move beyond the numbers. Take the matter of regulatory risk: “[R]egulation can cause existential risk . . . and that’s where the analysts have to talk to management and talk to competitors, lawmakers, and lawyers,” Sudhir Roc-Sennett, head of thought leadership and ESG at the Vontobel Quality Growth Fund, told the Financial Times. “You need humans to search for red flags.”