Innovation for sustainability

Innovation and technology play a fundamental role in fostering progress, and in many instances, it can be steered towards building an economy that thrives within our planet’s environmental and social boundaries.

In this theme, we focus on technological innovation.Technology can help to overcome many challenges and accompany us towards a more sustainable economy, but the right balance between benefits and downsides can only be achieved through a conscious commitment to an innovation that has common good at its core, and attention to how technology is produced and used.

Recent decades have been marked by exceptional technological progress and innovation, most notably in the field of digital and ICT technologies. Yet it is essential to remain vigilant of the adverse effects technology itself can generate both for society and the environment and to work at solutions to prevent and mitigate such negative effects.

Our investment focus

Transition through technology

We select companies providing innovative products and services that are instrumental for the transition to the economy we envision. Within this theme, we mainly look at companies in industries such as electronic devices and components, machinery, semiconductors and software and IT services. While selecting companies, we also pay attention to potential negative effects of tech products and services (see also Big Tech and the Minimum standards section).

Our investment focus runs along three lines.

Over the past decades, energy demand has constantly been on the rise, but so has the number of solutions for making tech products less energy and resource intensive:

Companies prioritising energy efficiency and other forms of sustainability in their innovation efforts, for example producers of LED and OLED-based technologies as well as ‘smart meter’ producers.
Computerised simulation software can be used to virtually model, simulate and test sustainable innovations. Virtual testing accelerates innovation and compared to real-world testing it also has clear environmental benefits, as physical processes or prototypes are no longer needed.
Cloud-based software and solutions also provide opportunities and tools for remote collaboration, help reducing operational as well as energy inefficiencies and increase access to computing power, to name a few.
Some tech companies actively incorporate circularity principles that contribute to limiting e-waste and lengthen products’ lifespan, or that invest in recovering raw materials, reducing the need for new mining activities (something that is also in line with our Circular Economy theme).

Increased digitalisation also calls for higher standards in cybersecurity and privacy protection, as well as attention to unintended effects of technology use:

Good quality services in cybersecurity and privacy protection are essential for strong democracies and for upholding key human rights, such as the right to privacy.
Technology can also offer strong tools for increased safety at work and in traffic, and for improving processes and tools in healthcare.
Some companies provide solutions or display a strong commitment to prevent and mitigate some of the negative effects of technology itself on individuals (what is sometimes called “humane technology”), for example mitigating negative effects of products on children’s as well as adults’ cognitive capacity and mental health, and on society at large, such as technologies and services for fact checking.

This category includes companies offering products and services that have broad application and are instrumental for sustainable transitions in different industries. Some examples:

Hardware solutions such as semiconductors and other components and products that are used for example for solar cells and electric vehicles.
Services facilitating the adoption of useful technologies by companies, e.g. dedicated advisory services.
Open-source technologies enabling innovation through reduced entrance costs for businesses, among others.
Responsible data management is important in a world in which data is collected at an increasing pace. Solutions ensuring that information is of good quality, accessible for practical use and that it effectively contributes to knowledge building and informed decision making, are therefore essential.

Why we do not invest in Big Tech

When thinking about technology, tech giants such as Google (Alphabet), Amazon, Apple, Facebook and Microsoft inevitably (and rightly) come to mind, and with them a constellation of similar companies, such as Alibaba, Samsung and Tencent. They are amongst the most valued public corporations in the world and have the economic and technical capacity to drive innovation in a broad variety of fields.

Their products and services allow billions of people to access and use technology in their daily lives and work. At the same time, however, their business models and strategies are a matter of concern for us on several levels, for example because:

Business models are based on massive collection and processing of client data (data-driven business model), raising concerns in relation to privacy and mass surveillance, as well as freedom of speech and censorship.
Products are often deliberately designed and assembled in ways that do not allow for an easy substitution of single parts and components, or that artificially alter products’ lifespan. In addition, companies do not provide the necessary tools and information to fix their products, hindering consumers’ so-called “right to repair” and leading to increased consumption. Furthermore, and where relevant, required software updates also contribute to negatively affect products’ performance, contributing to accelerated obsolescence.
Product and service use may stimulate attention deficiencies. While technology has made information increasingly accessible, users attention remains a limited resource. These companies compete among each other for consumers’ attention and are incentivised to engage users into spending more time on apps and websites. This has proven detrimental effects, not only on individuals’ attention span and quality of attention, but also on the quality of sleep, as well as affecting the emotional sphere (e.g., increased levels of anxiety) and changing brain functions (weaker control functions, poorer memory). In addition, there is still limited knowledge on how these practices affect younger brains.

While some of these features also hold for smaller companies, they are particularly true and relevant for companies with a strong market position. We therefore also pay special attention to the winner-takes-all characteristics of big-tech companies: market dominance and power concentration are concerning aspects of these companies’ success, restricting competition and potentially hindering innovation, as argued in several antitrust investigations. As regulation is only slowly picking up with tech developments and related ethical concerns, this means that companies themselves are to a large extent setting their own boundaries on many of the above topics.

Our impact objectives

Resource efficiency, positive social impact, and enabling transition

To identify and select companies that contribute to this theme, we have established a set of core impact objectives. We individually look at each company and use both qualitative information and quantitative data to screen companies and monitor alignment with our theme specific impact objectives and SDGs.

We use impact indicators based on sources of revenue data to track companies’ contribution towards these objectives. We further substantiate our analysis by looking at companies’ product offering and relevant sustainability indicators as well as other qualitative evidence of sustainable practices as stated by companies’ policies and active programmes.

In some instances, contribution to impact objectives cannot be captured fully through revenue analysis, or data might simply not be completely available. This is the case of process-related impact, for example:

Waste reduction
Efforts to reduce greenhouse gas emissions
Upholding fair and transparent value chains
Use of hazardous chemicals
Efforts to incorporate considerations on individual wellbeing in relation to technology use

In such cases our analysts look at qualitative evidence of contribution to these objectives, for example in the form of policies and programmes, or active participation to relevant platforms. This allows to also tackle challenges that can be traced back to other relevant SDGs, in a more qualitative fashion.

Minimum standards

Do no harm

After screening companies for positive impact, the selection is further reinforced by the application of minimum standards, which are internally developed and regularly updated.

The main objective and rationale of minimum standards is ensuring that we do not invest in companies offering products or adopting behaviours that clash with our vision and beliefs, and that could hinder progress in any of the transitions.

Companies in this theme mostly belong to industries such as Electronics, Semiconductors, Machinery and Software and IT. For such companies, the main minimum standards applied are the following.

Technology often comes with intended and unintended consequences for human rights: data abuse, possible privacy or legal violations by governments, law enforcement agencies or others. We require tech and ICT companies to manage these potential human rights violations a priori, by developing precautionary policies and programs respecting and protecting human rights.

In general, we require companies to be aligned with the recommendations and standards defined by the UN Guiding Principles on Business and Human Rights and by relevant international organizations (e.g. OECD, ILO, IFC) and conventions (e.g. UN Universal Declaration of Human Rights, UN Global Compact). Our standards cover themes such as forced and child labour, right to collective bargaining, discrimination, land acquisition, and conflict minerals, among others.

For ICT, and Software and Services companies, distribution of and services to the pornography and gambling industry may be relevant. We have a strict policy regarding companies’ involvement in pornography, which is motivated by the potential negative and/or degrading portrayal of individuals in pornographic material. We are especially concerned about the spread of illegal pornographic material over the internet (especially child pornography) and the availability and easy exposure to minors.

Gambling with quick results can become addictive and this can lead to severe negative consequences for the addict, families and society. We do not invest in companies that have significant revenues (>5%) from gambling related activities.

Many innovative and ground-breaking technologies find their origin in the defence industry, or the space industry. The same technologies may still be applied or sold to these industries and used for arms and arms related products. For this reason, within this theme we carefully assess the clients of companies exposed to involvement in the arms industry, as well as the products they deliver.

Good corporate governance principles are important for all companies and are always assessed in the investment case. One of the aspects we assess in our minimum standards is excessive remuneration, a recurring aspect in the tech industry. In this regard, we exclude companies that do not demonstrate remuneration structures and practices that support long-term value creation.

Environmental damage	Climate change Scarce commodities Water scarcity
Social impact	Human rights Labour rights Conflict minerals Pornography Gambling Arms
Governance-related	Corporate governance, especially remuneration

We track controversies related to our minimum standards for all companies we invest in and engage with companies on material controversies that violate our minimum standards or that could lead to a breach of our minimum standards, e.g. following a merger.

Engagement

Positive change

Although all companies in our funds are selected based on their good sustainability performance, we always strive for improvement and we constantly exert our investor pressure to push for substantial results. Engagement is part of continuous monitoring of companies in our portfolio, and we see it as the way we can move forward together.

Given the continuous rise in the use and production of technology, we strongly believe that companies’ policies and practices are of the outmost importance to ensure a sustainable development of this field. In particular, data privacy, raw material sourcing and e-waste, as well as labour and other human rights in supply chain are topics on which we monitor and have regular conversations with companies in our portfolio.

Tech companies are notorious for high executive remuneration: while we apply minimum standards on this topic, which lead to the exclusion of many tech companies from our investment universe, since 2021 we are also actively engaging with companies in our portfolio on this theme, requesting additional information and providing recommendations for more sustainable remuneration packages.

We engage with portfolio companies to encourage the use of sustainability metrics in defining targets and incentives. With regard to human rights and technology, we recently signed an investor statement and follow developments related to facial recognition technologies.

Investment examples

Investing in sustainable technology

For Innovation for Sustainability, we invest in companies that are already well aligned with our vision (upper right), and in companies that display a clear commitment to move towards more sustainable practices, and that we deem suited for the challenge (upper left). We may also invest in smaller, innovative actors that can benefit the business ecosystem with their solutions (lower left).

Here we have selected three examples of companies we invest in, and placed them on the transition curve. Scroll down for more examples and an up-to-date list of our investments in this theme.

Although we do not exclude the big tech companies a priori, we currently do not invest in any of them or other large tech corporations. Indeed, while we recognise their contribution to technological progress and broader advancements, they often do not meet our minimum standards, for example in terms of involvement in arms-related businesses, human rights, or remuneration and other governance issues.

Murata is a Japanese company that designs and manufactures electronic materials and components that have wide application across industries. It is world leader in ceramic capacitors.
Its products are also used in medical devices and IT solutions focusing mostly on personal health data, and it supplies components to enable autonomous driving, among others.
By facilitating the production of more efficient and smaller components, higher conversion of power supply and more efficient batteries, its products indirectly foster energy savings.

NortonLifelock is a provider of consumer cyber safety solutions. It provides both the software that protects consumers against cyber threats (malware, phishing emails, viruses, etc.), as well as the tools to protect privacy in case a cyber threat materialises.
The company stands between the consumer and cyber criminals, and in so doing it safeguards the individual right to privacy as well as ensuring a safer digital ecosystem for the broader community.
NortonLifeLock operates four product lines: device security, identity theft protection, secure VPN connection, and home and family protection. These cyber security products enable innovation without compromising human safety and dignity.

Signify (formerly known as Philips Lighting) is a Dutch company that sells LED-based lights. Energy consumption of LED-based lights is much lower than conventional lighting, and products present a longer lifespan.
84% of its revenue is derived from sustainable products and services. These are defined as products, services and systems that outperform annually updated benchmarks on energy efficiency by 10% or more. Its technologies therefore contribute to increasing resource efficiency and sustainable energy use, in line with SDG7 ‘Affordable and Clean Energy’.
Signify also contributes to Circular Economy as it currently recycles up to 91% of its waste and targets to double its revenues from circular products, systems and services to 32% by 2025.
The company is a leader when it comes to embedding sustainability in the organisation: it became carbon neutral in 2020 and has set an agenda to double its positive impact on the planet and society by 2025.
Signify has also made efforts to translate its impact in monetary terms. It estimated that its environmental footprint (CO₂ emissions and non-recycled waste) brings EUR 38m in costs to society. At the same time, EUR 1.4b in value was created by avoiding CO2 emissions as a result of selling LED-based light.

Innovation for Sustainability Investments

Innovation for Sustainability