In 19th Century Britain, the closer you were to a railway station, the more likely it was that you would see growth in population and secondary and tertiary employment1. Economic growth relies on infrastructure (roads, bridges, ports, railways) to enable trade. Proximity to infrastructure is a key determinant of the economic prospects of a particular location/population as it enables them to participate in trade flows. Even today, a 10 per cent reduction in bus travel time is associated with a 0.1 – 0.3 per cent increase in higher value employment in urban areas2.

However, the economic benefits of physical infrastructure have been accompanied by negative environmental impacts, such as visual, air and noise pollution and biodiversity loss.

Today we are aware of the balance between positive and negative impacts of physical infrastructure projects, as well as their high initial development costs.

This consideration typically results in project delays and can often curtail their scope. For example, it has been clear for more than three decades that the A303, a major link-road between London and the South West of England, needed to be widened near the UNESCO World Heritage site of Stonehenge, where the road narrows to a single carriage way creating a notorious bottleneck. Yet despite the Government approving a road tunnel scheme that would improve traffic flow, its economic/ecological benefit continues to be debated and the estimated £1.6 billion budget continues to rise3.

Digital impact

In recent decades, digital networks have delivered many of the benefits of physical infrastructure in terms of linking people to markets and have enjoyed rapid global growth due to a much lower environmental footprint, less need for planning permission and lower upfront investment costs. The global reach of the internet has enabled access to “digital trade routes” beyond the reach of physical infrastructure, creating the opportunity of economic growth for communities previously excluded from meaningful trade.

Opportunities through the lens

Impax’s Sustainability Lens, our proprietary tool to explore the opportunities and risks across equity markets from the transition to a more sustainable economy, has highlighted Digital Infrastructure as a key opportunity for inclusive economic growth with a light touch on the natural environment.

For example:

Payment processors: In less developed markets payment processors are offering access to finance for the under-banked. In more developed markets mobile, online and social technologies are making it easier for consumers to access information and seek new services that can support multi-channel commerce (online, on-mobile and in-store for instance). In turn, the data created provides valuable insights with implications for commerce (loyalty programmes, advertising, stock management), for governments (ability to increase tax receipts), banking (transaction clearing and administrative efficiencies) and policing (fraud prevention).

Enterprise technology: The use of technology to more effectively manage the corporate work-place and enhance productivity has been something of a revolution over the last two decades. There is huge potential to increase productivity in adjacent opportunities, such as factory environments and the construction sector where connectivity is enabling new data analytics for operational needs.

Cloud computing, through shared centralised data centres, is far more energy efficient than on-site servers. Anyone can now access and scale-up their data processing, which has the potential to significantly increase creativity and productivity in the economy.

Semi-conductors: These provide some of the building blocks of the “Internet of Things”, which is driving productivity improvements, improving resource efficiency and enabling predictive maintenance to prevent accidents.

Assessing sustainability risks

Of course, no industry is devoid of social and environmental risk and the Impax Sustainability Lens highlights a few significant challenges to growth in some areas of Digital Infrastructure. These include anti-trust, taxation and data privacy as well as emerging health concerns over the effect of excessive ‘screen time’ by individuals, particularly children and vulnerable members of society. Regulation and efforts at self-regulation are inevitably occurring and we expect the pace of this to increase.

Taking these risks into account early in our prioritisation of investment ideas for the Impax Global Opportunities Strategy has enabled our managers to avoid problems now emerging in household name internet service providers and social media platforms, whilst profiting from the continued expansion of the digital highway which supports sustainable economic growth.

Source data

1 Railways and growth: evidence from nineteenth century England and Wales. Eduard Alvarez, Dan Bogarty, Max Satchell, Leigh Shaw-Taylor, and Xuesheng You
2 Econometric analysis of the link between public transport accessibility and employment, Daniel Johnson, Marco Ercolani, Peter Mackie
3 The Telegraph newspaper 11 September 2019 and Yahoo! News 20 May 2019

David Winborne

Senior Portfolio Manager

David is co-manager of the Global Opportunities, Leaders and US Environmental Leaders strategies. He has global research responsibility and specialises in Energy Efficiency and Pollution Control environmental markets sub-sectors. David researches stocks globally with a focus on the Technology and Telecommunications sectors.

David joined Impax in 2015 from the in-house asset management team at Tesco Pension Investment where he had joint responsibility for the successful development, launch and management of a new global equities investment platform for Tesco’s pension fund. Prior to this David was a fund manager at Sarasin & Partners, where he was responsible for the firm’s Asia-Pacific equity fund and for contributing investment recommendations to Sarasin’s flagship thematic Global Equity fund.

After graduating from the University of Bath, David began his career at Insight Investment on the Global Equities graduate scheme in 2003 as a global equity analyst.

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