Covid-19 has accelerated the adoption of digital technologies while underscoring the importance of sustainability when weighing investment risks and return. Companies and industries that revolve around innovations and new technologies can make for both rewarding and unpredictable investments. So what should investors keep in mind when considering the themes of innovation and sustainability? The Asset spoke with Jasmine Duan, investment strategist at RBC Wealth Management Asia, who shares her thoughts on sustainable technology and the investment opportunities across sustainable technology sectors.
The Asset: Has the Covid-19 pandemic sharpened the focus on and the need for sustainable technology?
Jasmine Duan: Many sustainability issues, including carbon emissions, healthcare and poverty, have come to the fore since the outbreak of the pandemic. The importance of technology when it comes to addressing sustainability challenges has grown in the face of these issues, and Covid-19 may well be the tipping point.
Today, there is greater potential for technology to solve, rather than create, environmental issues. We refer to “SusTech” as a term that integrates sustainability and technology, a powerful combination to address sustainability issues and create value for companies, customers, society and investors. In our view, SusTech is centred on five key themes:
GreenTech – The use of environmentally friendly technology in production processes or supply chains, including clean energy production.
HealthTech – The application of knowledge and skills in the form of devices, medicines, vaccines, procedures and systems to solve health problems and improve the quality of life.
FinTech – New and innovative tech solutions that aim to improve and automate the delivery and use of financial services.
FoodTech/AgriTech – Food science technology and agricultural technology innovation in the food development process, from farm to plate.
Smart cities – Leveraging technology to improve the well-being of citizens.
These five themes illustrate innovative solutions that seek to future-proof the planet for generations to come.
Are you seeing interest from family offices in Asia in sustainable technology? If so, in which sectors?
Family offices are increasingly receptive to investing in sustainable technology. This comes as younger generations are more engaged and have greater influence over family decisions. Younger generations are very focused on sustainability and new technology in line with broad global trends, and it is more natural for them to think about incorporating these in their investment choices.
Family offices vary widely in their scale, structure, values and objectives. For example, some family offices may be passionate about reducing greenhouse gas emissions and investing in electric vehicle sectors, whereas others may be more interested in health and wellbeing, and thus invest more in healthcare-related technology companies.
Which technical innovations do you see as changing emerging Asia the most – foodtech, agritech, greentech or healthtech? And how can investors play that?
We think GreenTech is having a great impact on emerging Asia. For example, according to a Deloitte Insights report released in 2020, electric vehicle (EV) sales in 2030 are expected to account for 48% of domestic new car sales in China. And there is a much broader ecosystem around EVs, including batteries, parts, and semiconductors, which is itself also becoming an important sector.
Some GreenTech solutions, such as recycling robots, tackle waste management. These have become increasingly popular after China banned the import of plastic waste in 2018 following three decades of importing close to half of the world’s recyclable plastic waste.
This ban provided the impetus for innovations elsewhere in the world that can efficiently process this waste in place of China. For example, artificial intelligence robots are able to not only sort rubbish but also extract recyclable components from it, and assess their purity—valuable data to have in order to recycle these materials efficiently.
And which sustainable technology sectors should investors look to in the developed markets of Singapore, Hong Kong and Japan?
We see investment opportunities across the five sustainable technology sectors that we highlight, but Asia, with a number of metropolises, is leading the global race to create smart cities.
Smart cities can help reduce the detrimental impact of urbanization on the environment and improve the quality of urban life. These are cities in which infrastructure, utilities, services, homes, and more are connected via the Internet of Things and 5G, and use artificial intelligence technologies to optimize the flow of goods and people. This connectivity enables cities to optimize waste management and water consumption. It can also facilitate more efficient traffic flow to enhance public safety.
According to Grand View Research, the global smart cities market should exceed US$2.5 trillion by 2025, as governments work with private sector partners to provide digital solutions and create a complete urban digital ecosystem. Companies that provide technology solutions and services to the ecosystem could see great market opportunities.
Big data collection and analysis is considered as a major building block of a smart city. For example, one of the initiatives under Hong Kong’s Smart City Blueprint is the Multi-Functional Smart Lampposts Pilot Scheme. Since 2019, 50 smart lampposts have been installed to collect various types of real-time city data such as meteorological data, air quality data and traffic flow. The government plans to install some 400 smart lampposts in total to further support 5G mobile network implementation.
We think companies that can provide data collection, real-time data analysis and data storage services will likely secure long-term prospective business from smart city development. In addition, smart sensors are like the “eyes” of activities detection and data collection.
They will be used for a variety of scenarios, from tracking temperature to noise pollution, traffic congestion patterns, etc. It is also important to integrate data from different sensors and applications to build a smart sensor platform network. Companies who are at the forefront of these technologies will certainly benefit.
What are the risks of investing in the sustainable technology sector?
As technologies emerge that make the world more sustainable, companies at the forefront of developing technology solutions to sustainability issues could make compelling long-term investment opportunities, in our opinion.
However, companies and industries that revolve around innovations and new technologies can make for volatile investments. Investing in these themes can carry higher-than-average risk and should thus be viewed within the context of a well-diversified portfolio.
We believe that for investors who can withstand such a higher level of risk, the secular opportunities that emerge out of these themes should contribute to portfolio performance in the long term.
While ultra-high net worth investors may have a lot of sustainable investment choices, how can smaller retail investors invest in sustainable technology plays?
Currently, retail investors may invest in sustainable investments through sustainable funds and ETF products. Investors also can get exposure through individual stocks, but they may not have enough knowledge or time to conduct in-depth analysis of a company.
Funds and ETFs offer broad-based investment opportunities for retail clients. But when it comes to these products, we think it is very important to take a close look at the underlying to see if they are truly sustainable plays.
Choices for retail investors are increasing, but are still relatively limited compared to those of UHNW investors. We think there is a clear need to develop innovative, scalable products to cater for the growing base of retail investors.