Putting ESG to work: A case study in the telecoms sector
The global policy and regulatory environment is changing fast, pushing companies towards more sustainable practices and encouraging investors to change too. Environmental, social and governance (ESG) factors have become a fundamental route to assess corporate health. But as more companies seek to address ESG, how can investors make meaningful assessments about their relative progress?
At AXA IM we have more than 20 years’ experience of building responsible investment strategies1 and have set up detailed methods that inform and guide our fixed income managers.
In some areas that is straightforward: investments in energy companies require deep knowledge of how climate change and associated regulations will affect business models. But we also see ESG having powerful effects in sectors that at first glance do not lie on the front line.
This article will examine how AXA IM analysts handle certain ESG issues, challenges and opportunities in the telecommunications sector, and how their work can potentially bring value to investors.
Making ESG sector specific
Telecoms companies face the same problem as many others when it comes to ESG analysis – there is a huge range of potential inputs and criteria that make up the full picture, but harmonization of data across players, and how they report it, remains quite low. Our first step is to look top down at the fundamental drivers and specificities of the sector in question, and then to examine how those apply to key ESG issues.
One example of this in telecoms is in the exponential rise in connectivity needs and data traffic, that will be further exacerbated by the rollout of 5G. According to GSMA, the mobile communications industry association, the 5G era could result in a potential rise in traffic data of up to 1,000 times. Factoring in the infrastructure to cope with it, this could lead to the consumption of two to three times as much energy2 . According to France-based think tank The Shift Project and depending on different assumptions for traffic growth and energy efficiency, the digital industry could emit up to 5% to 6% of the world’s carbon emissions by 2025, or even more in certain scenarios.