The way in which we live and operate has changed substantially over the last seven months. In response to the COVID-19 pandemic, governments across the world have implemented social distancing and shelter in place measures, triggering unprecedented economic and social dislocation. Yet the impact of the pandemic has not been uniform and many organisations and cohorts of the population have been quick to adapt to a world of “OFA” (operate from anywhere). The common denominator in areas of economic and social resilience is disruptive innovation.
During the global health pandemic, disruptive innovation has provided a means for humanity to not only survive but also thrive, with technologies such as cloud computing, digital payments and e-commerce all features of the digital economy. And while this is not a new concept, it has clearly been accelerated during the current pandemic, forming a key part of the building blocks that will enable us to transition to a sustainable economy.
Cloud Platforms Have Become Mission Critical
Salesforce (EdenTree Investment Management holding) CFO Mark Hawkins recently articulated this well at a recent investor conference, stating that we have seen “10 years’ worth humanity being digitally enabled in the last six months”, and the figures tell the same story. For the three months ended September 2020, the company reported revenue growth of approximately 30% on a year-over-year basis, eclipsing consensus expectations by the largest magnitude in eight years. Organisations from all sectors, including education and health care are turning to platforms such as Salesforce, some for the very first time, to ensure that their operations remain functional and their employees and customers remain safe. This is also important from a sustainability perspective because Salesforce is a significant enabler in improved resource efficiency. Salesforce’s cloud platform enables a higher utilisation of servers, delivering powerful technology to thousands of organisations with one set of shared infrastructure. As a result, a transaction on the Salesforce platform is on average 95% more carbon efficient than when processed on premise by a customer1.
Similarly, at Microsoft (EdenTree Investment Management holding), the company has experienced unprecedented levels of demand for its cloud and productivity platforms during the pandemic. In the three months ended June 2020, the company’s cloud computing business ‘Azure’ reported revenue growth of approximately 50% on a year-over-year basis, while ‘Teams’ (its collaboration software) users generated more than 5 billion meeting minutes in a single day during the quarter. Microsoft is also significant enabler of improved resource efficiency as Microsoft Cloud services are between 72% and 98% more carbon efficient than traditional on-premise enterprise data centres2.
In our view, companies that enable greater levels of productivity and utilise the planet’s natural resources in a more efficient manner will succeed over the long term. We therefore consider disruptive innovation and sustainability to go hand-in-hand, empowering people and organisations to live, operate and succeed effectively without the need for an excessive carbon footprint. If any good has come out of this pandemic thus far, it is that it has served to reinforce the idea that society is able to lead lower carbon lives effectively.
5G Deployments Accelerating
The COVID-19 pandemic has also proved to be an inflection point for the deployment of faster communication technology. Lockdown and social distancing measures have placed great strains on existing infrastructure and there is now a global demand for higher speed and capacity, where many are hoping 5G networks can support. This is also reflective of the greater need for digital transformation. Cisco’s 2020 Small Business Maturity Study found that the pandemic has accelerated digitalisation efforts for nearly 70% of small and medium-sized enterprises, and 72% of respondents believe digitalisation will help them develop resilience against similar crises3. This shows a promising pick up of 5G when it comes to how connectivity will play a vital role in the digital evolution. Consequently, Nokia (EdenTree Investment Management holding) recently announced that it had signed 17 new 5G commercial agreements in the third quarter of the year, its largest quarterly figure to date. With these wins, the vendor has reached 100 commercial 5G deals with individual customers and a total of 160 commercial 5G engagements. From a sustainability perspective, the accelerated implementation of 5G technology is significant as we believe that the technology will become the digital nervous system for “smart living”, reducing the resources required in everything from manufacturing, to transportation networks, through to the collection and processing of waste. Net-net we believe that the productivity improvements brought about by 5G integration to be revolutionary.
We are living in through period of exceptional change that is characterised by the digitalisation of everything and the simultaneous transition to a low carbon economy. The COVID-19 pandemic has highlighted, and in some cases accelerated these structural shifts that (in our view) will continue long after crisis. We therefore see a strong positive correlation between sustainable development, innovation and long-term value creation. At EdenTree Investment Management, our investment framework seeks to invest in companies that positively impact the planet and society, while at the same time ensuring that we remain on the right side of disruptive forces that impact business models, sectors and global economies more broadly.