Digital assets, such as data centres, use vast amounts of energy. But should this be a cause for concern for managers, both in the infrastructure and real estate space, that are under ever greater pressure to reduce the carbon footprints of their physical assets? And can these assets have a positive social impact too?
At an Earth Day climate summit in April, US president Joe Biden addressed a virtual audience of more than 40 world leaders, pledging to slash US greenhouse gas emissions by 50-52 percent by 2030. The European climate law has set a target to reduce net emissions by 55 percent by the end of 2030, with a target of net-zero emissions by 2050.
Investors too accept that climate risk is an investment risk – a recent PGIM survey found that 58 percent of global investors are actively incorporating climate change commitments into their investment processes. So, a tipping point has been reached with many investors and managers turning their backs on investments that are not ESG-friendly.
Glenmont Partners, acquired by Nuveen earlier this year, is one of Europe’s leading fund managers specialising in clean energy investment. Its CEO, Joost Bergsma, says: “Shareholders are increasingly looking across the entire value chain of the renewable sector. For example, how materials are sourced responsibly to support the development of EV and battery technologies. This will be a key ESG theme for 2021 and beyond.”
Digital infrastructure is of particular importance as technological advances can go a long way in the drive towards net zero and energy efficiency – more efficient data usage means less energy required.
Such sustainability considerations were important factors in the decision by the Columbia Threadneedle European Sustainable Infrastructure Fund to invest in Lefdal, a Norwegian data centre in May 2020. The data centre is located in an underground mine in Norway and utilises cold sea water from a nearby fjord for cooling and renewable energy to power its operations, showing that these assets can have a clean footprint.
Many high-profile companies are also integrating sustainability factors into the business decisions they are making about their digital infrastructure – and shareholders can have a huge influence on how firms source the energy used. Google, for instance, has matched 100 percent of the energy consumed in its data centres through renewable energy purchases since 2017.
And Microsoft, which has said it will be carbon negative by 2030, currently uses 60 percent of power for its data centres from renewable sources. The tech company has set a goal to achieve 100 percent by 2025 from sources such as wind and solar, revealed Brian Janous, Microsoft’s general manager of data centre energy and sustainability, at Morgan Stanley’s annual Sustainable Futures Summit in June 2020. In Microsoft’s Q1 2020 CIO Survey, 17 percent of chief information officers said that a data centre’s use of renewable energy was a major or determining factor in their decision when choosing a provider, which it noted was “not an insignificant percentage”.
Investing in digital infrastructure can also make a positive social impact. The World Economic Forum estimates that the combined global value of digital transformation to society and industry will exceed $100 trillion by 2025.
The ‘S’ factor
The United Nations’ Sustainable Development Goals note that investment in technology can have important social and development outcomes in developing countries. Internet access and reliable telecommunications can improve access to education and better employment opportunities, thus lifting those most in need out of poverty.
A fact not lost on Partners Group, which has jointly established a telecommunications infrastructure platform, Unity Digital Infrastructure, in the Philippines. The global investment manager will acquire a joint lead equity stake alongside Aboitiz InfraCapital of the Aboitiz Group, a large Philippine conglomerate.
“ESG is firmly embedded throughout our investment process and during due diligence we rigorously review an asset’s ability to have positive stakeholder impact,” says Carmela Mondino, the firm’s head of ESG & Sustainability.
Unity will build and operate telecommunications towers in the Philippines, and there is a strong demand for these assets, with the volume of data traffic in the country forecast to grow at a 45 percent compound annual growth rate until 2025.
“For Unity Digital, our due diligence confirmed that the platform’s core service of building towers positively contributes to several UN Sustainable Development Goals. This includes providing universal and affordable access to the internet (SDG 9.c) and building resilient infrastructure to support economic development (SDG 9),” Mondino adds.
“Ultimately, Unity Digital will improve network coverage for local communities in the Philippines at a time when connectivity has become increasingly important for enabling work, trade, education and access to healthcare.”
There is a real drive underway to ensure that connectivity and broadband-for-all is rolled out to local communities. In June 2020, Infrastructure Investor highlighted the launch of a new impact fund by Morris Clark and Otise Ellis, two former senior executives at Marathon Oil and JPMorgan Private Bank, that aims to address the digital divide in the US by investing in broadband in underserved rural and urban areas.
And Katherine Davidson, portfolio manager, global and international equities at Schroders, has been working with Safaricom, a Kenya-based telecoms business credited with pioneering a mobile-based payment system called M-Pesa, which has allowed people to make secure cashless transactions by SMS instantly, even if they do not have a bank account.
Safaricom has an “attractive record of growth and popularity”, says Davidson. “Africa is a young market [77 percent of Africans are younger than 35], so we expect businesses and services based on connectivity to boom. In the same way we monitor financial performance, we track the social benefits a business generates. Safaricom commissioned KPMG to quantify its wider societal impact and found that the ‘true value’ of its business was 10 times its profits and more than 6 percent of Kenyan GDP. This was driven by direct and indirect job creation, infrastructure and investments.
“We are looking for businesses that are going to succeed in the long term. And we believe that firms like Safaricom with a purpose beyond profit will be more durable, which could mean lower risks for investors. It should also mean that they’re better able to deliver value to all their stakeholders, including but not limited to their investors.”