Wellington Management

How impact investors can narrow the digital divide

By Paul Skinner, Investment Director at Wellington Management

While digital connectivity is increasingly a given in the developed world, many communities in developing countries still lack reliable access to the digital economy. As a team, we believe impact investors can help to close this gap through investing in companies and issuers that perform well against both financial and impact criteria.

Why reducing the digital divide matters The COVID-19 pandemic has underscored the importance of digital connectivity for remote work, education and financial services. In our view, digital access can improve social inclusion, reduce structural inequality and provide opportunities for economic empowerment. Conversely, without increased access to reliable digital services, people and businesses in less developed countries could fall further behind as the global digital economy becomes more embedded. Key facts to consider:

In 2022, internet usage in high-income countries reached 92%, compared to 26% in low-income countries.¹

An estimated 60% of global GDP relied on digital communication technologies in 2022.²

Despite the acceleration of digitalisation during the pandemic, 2.7 billion people are still offline, of which an estimated 74% live in low-income countries.³

How we think about impact investing Wellington’s impact investment teams invest globally across three broad impact categories — Life essentials, Human empowerment and Environment — which we then divide into 11 impact themes. Addressing the digital divide is a theme within our Human empowerment category. We target innovative solutions across sectors, asset classes and market capitalisation that meet our thresholds for materiality, additionality and measurability. That is, companies or issuers must generate most of their revenue from products and services related to at least one of our impact themes; the impact they generate must have a low prospect of being achieved by other means; and we must be able to track and measure the impact. In parallel, our fundamental analysis seeks to identify those investments with the most attractive long-term return potential. In 2022, as part of our digital theme, we made investments in companies that increase access to digital communications and strengthen connectivity for underserved markets. The example on the right illustrates how we combine the Impact Management Project’s five dimensions of impact — which allow us to measure the what, who, how much, contribution and risks associated with our impact investments⁴ — with a qualitative assessment and explicit engagement focus.

Addressing the digital divide: a case study

India-based Bharti Airtel provides mobile telecommunications and digital services to customers across India, Southeast Asia and Africa. We believe the expansion of the company’s high-speed broadband services, particularly for rural populations, enables access to better education and health care, advances social inclusion and supports economic empowerment.

The five dimensions of impact^{5 "}

What? Reduced the digital divide in emerging markets
Who? Provided 491 million customers with digital access in 2022
How much? Served 24% of the global population and 95% of India’s population in 2022
Contribution? Conducted India’s first 5G trial in the 700 MHz band on the outskirts of Kolkata in 2022
Risk? Execution: balancing connectivity at scale with speed and affordability⁶

¹“Measuring digital development: Facts and figures 2022,” International Telecommunication Union (ITU).

² “A digital silver bullet for the world: digitalization,” World Economic Forum.

³ “Our shared digital future: Building an inclusive, trustworthy and sustainable digital society,” World Economic Forum, December 2018.

⁴ “Impact Management Norms,” Impact Frontiers.

⁵Unless otherwise stated, data quoted in this section is sourced from “Customer obsessed, future ready,” Integrated Report and Annual Financial Statements, 2021 – 2022, Bharti Airtel Limited.

⁶ “Measuring digital development: Facts and Figures 2022,” International Telecommunication Union (ITU).

⁷ “Internet surge slows, leaving 2.7 billion people offline in 2022,” ITU, 16 September 2022

Important Information

This material and its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase, shares or other securities. Investing involves risk and an investment may lose value. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed are those of the author(s), are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. The case study is presented for illustrative purposes only, it should not be assumed that any client is invested in the (or similar) example, nor should it be assumed that an investment in the example has been or will be profitable. The case study should not be interpreted as a recommendation or advice.

Qualitative assessment

Internet usage levels in the low-income countries where Bharti Airtel operates continue to lag far behind those in high-income ones.⁷ Given the inadequacy of the fixed-broadband infrastructure in India, we think Bharti Airtel can play a significant role in expanding reliable access. Its large presence in low-income, rural areas demonstrates the company’s commitment to delivering affordable high-speed connectivity to those communities. Currently, our core key performance indicators cannot capture this commitment fully, nor is it easy to achieve, given challenges such as slow internet speeds and insufficient digital skills. Nonetheless, we believe Bharti Airtel’s positive impact continues to improve the lives of millions of previously underserved Indian consumers.

Engagement priorities

Our long-term engagement priorities include, but are not limited to, gaining a better understanding of the company’s low-carbon transition plan, which entails powering its data centres and mobile phone towers with renewable energy and clean battery technology.

Find out more about our approach to impact investing: Impact investing | Wellington UK Intermediary

We target innovative solutions across sectors, asset classes and market capitalisation that meet our thresholds for materiality, additionality and measurability.

- Paul Skinner, Investment Director