When it comes to ESG, environmental risk typically gets most of the attention. But the social risks of TMT companies could matter even more to investors in the long run.
Companies are working hard on environmental, social, and governance (ESG) issues: It’s the right thing to do; it can act as a core growth driver; and it’s also increasingly important to investors.
Funds invested according to ESG guidelines have doubled in 2021, growing three times faster than non-ESG assets.1 They are predicted to grow to US$53 trillion by 2025, or almost 40% of all investments globally.2 But investors are focusing more on environmental considerations than social: According to a 2020 survey of CFA Institute members, more were taking environmental risk into account for investment analysis or decisions than social, and that percentage was rising faster compared to a similar survey in 2017.3
There are many groups that provide ESG risk scores for investors, and one is S&P Global. Its 2019 ESG Risk Atlas and industry report cards shows that the TMT industry should focus on social risks even more than on environmental risks. Although the Risk Atlas is from 2019, industry-level risks have not altered materially since then. Governance tends to be company specific, not industry-wide, so S&P Global only does industry scoring on the first two parts of ESG.4 Four TMT subsectors were scored by S&P (see figure). The figure also shows six other industries for context.5
S&P Global’s environmental risks include greenhouse gas emissions; sensitivity to extreme weather events; sensitivity to water scarcity; waste, pollution, and toxicity; and land use and biodiversity.
TMT companies have improved their environmental risks recently. Hyperscale cloud companies are focusing on decarbonization, chip companies are designing semiconductor fabs that are more energy efficient and use less water, tech devices at the end of their lives are increasingly being recycled, and media companies are reducing the carbon footprint of video streaming. The industries’ efforts around reducing environmental risks are paying off: A 2021 academic study on the sector showed that tech and telecom companies are much more efficient in their power use than is generally believed.6
They have more to do, but given the relative size of social scores, TMT companies should think about how to do even better on social risks too. Their social risks include human capital management, changing consumer or user preference, demographic changes, safety management, and social cohesion.
According to S&P Global, social factors present a host of risks for TMT industry subsectors.
Deloitte’s Technology, Media & Telecommunications (TMT) industry practice brings together one of the world’s largest group of specialists respected for helping shape many of the world’s most recognized TMT brands—and helping those brands thrive in a digital world.