Digital divide *|* Education & job training *|* Financial inclusion *|* Safety & security
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INTERNET ACCESS: Developed countries – 86.6%; developing countries – 47%.1
A 10% increase in mobile broadband adoption may correlate with up to a 2.8% increase in GDP.2
Over the last two years, we have seen a step change in the global transition toward a digital economy, underscoring the urgent need to bridge the digital divide. Lack of internet access can hinder social inclusion and economic empowerment, making everything from education to career building to attaining financial services more difficult and compounding structural inequality. We are concerned that people and businesses without access to reliable digital services, particularly those in less-developed countries, could fall further behind as the global digital economy becomes more embedded.
By investing in our impact strategies, you can help narrow the digital divide and ensure fair and equitable connectivity for those who may need it most.
By investing in our impact strategies, you can help narrow the digital divide.
In 2021, we put your equity investments to work in companies increasing access to digital communications and building the necessary infrastructure to establish connectivity for underserved markets.
These companies included a Taiwanese firm designing, developing, manufacturing, and distributing chips for wireless communications and handheld mobile devices. This company increases the availability of low-cost handsets for individuals who would otherwise lack digital connectivity. Recognizing the need to support small businesses in a digital world, we have also invested in a company enabling entrepreneurs to establish an online presence. Additionally, we see a gender gap, which we help address with our continued investment in a Bangladeshi company providing women with opportunities to sell data and digital-voice services in rural areas. We have also maintained exposure to a South African company providing communication services and infrastructure to support digital access across Africa.
In fixed income, we purchased the inaugural sustainable-hybrid bond in the global telecommunications sector, issued by a European provider focused on improving digital connectivity in an environmentally and socially sustainable manner. Bond proceeds will be used to further the energy efficiency and reliability of the issuer’s network infrastructure and expand internet access to underserved rural areas, helping to bridge the digital connectivity gap.
We believe the companies and issuers we invest in are helping to democratize internet access through durable, scalable business models, improving the lives of underserved populations around the world.
1 International Telecommunications Union, 2020. 2 Harald Edquist, et al., “How Important are Mobile Broadband Networks for Global Economic Development?,” Imperial College Business School, May 2017.
PORTFOLIO INVESTMENT SPOTLIGHT EQUITY
IMPACT THEORY OF CHANGE
Investments in GoDaddy help provide small businesses and individuals with products and services to name their venture; build a website; establish and manage online marketing; and use branded email. By helping companies establish an online presence, GoDaddy economically benefits small businesses, entrepreneurs, and society.
FIVE DIMENSIONS OF IMPACT
WHAT
Economic value added from small business owners gaining an online presence
US$10.1 billion
WHO
Total number of customers
21.2 million
HOW MUCH
Domain names under management Proportion of global registered domain names held by GoDaddy
>84 million 23%
CONTRIBUTION
Median increase in company revenue from having a website (GoDaddy 2019 Entrepreneur Survey)
47%
RISK
Execution: Data security and customer privacy
Moderate significance/ low probability
UN SDG ALIGNMENT Decent Work and Economic Growth
TARGET 8.3 Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services
NEGATIVE IMPACTS Data privacy and security risks
SCALE Moderate
MITIGATION EFFORTS Sufficient WILLINGNESS TO ENGAGE Moderate
QUALITATIVE ASSESSMENT
GoDaddy gained fewer net new customers in 2021 (587,000) vs 2017 (2.6 million). Nevertheless, we still see GoDaddy as an important enabler for small businesses, and we are impressed with the company’s effort to increase innovation and develop a relevant product offering that empowers small companies and entrepreneurs. Does not meet expectations
ENGAGEMENT PRIORITIES
We have spoken with management about the inclusive entrepreneurship aspect of GoDaddy's ESG program. In addition to its base suite of products, GoDaddy provides direct grants, tools, and resources to underserved communities. We look forward to engaging further on progress and outcomes linked to this initiative.
Portfolio spotlight examples are based on non-performance-based criteria. For information on how we selected the portfolio spotlight examples, please see the important disclosures section. Portfolio spotlight examples are for illustrative purposes only, are not representative of all investments made by the portfolio, and should not be interpreted as specific security recommendations or advice. It should not be assumed that an investment in the examples have been or will be profitable. Actual holdings vary for each client, and there is no guarantee that a particular client's account will hold the examples presented. Key Performance Indicator data is based on issuer or company reporting, press releases and websites, proxy data, and Wellington analysis. While data is believed to be reliable, no assurance is being provided as to its accuracy or completeness. Wellington determines the UN SDG goals and targets that, in our view, each portfolio company or issuer is aligned with. Language for the goals and targets has been abbreviated, but not otherwise altered, from UN.org.
PORTFOLIO INVESTMENT SPOTLIGHT FIXED INCOME
Investments in Millicom International provide digital and connectivity services in communities in Latin America and Africa. These services can create a platform for customers to access the digital economy and to enhance their earnings potential and quality of life.
Productivity gains and lives improved from better access to digital technology
Aspirational
People connected to digital and communication services
>12.4 million homes
Number of countries with Millicom operations
13
Number of rural Panamanians receiving mobile and digital coverage for the first time
400,000
Execution: Company fails to maintain network quality over time
Moderate risk/ low probability
UN SDG ALIGNMENT Industry, Innovation, and Infrastructure
TARGET 9c Significantly increase access to information and communications technology and strive to provide universal and affordable access to the Internet in least developed countries by 2020
NEGATIVE IMPACTS Increased exposure of vulnerable populations to cybercrime
SCALE Broad
MITIGATION EFFORTS Sufficient
Millicom International has continued to expand its network capacity and boost its customer base, increasing customer relationships by over 10% in 2021. We believe it has made a meaningful contribution to increasing digital access. Meets expectations
We have engaged on the effect of pandemic-related lockdowns (which disproportionately affected low-income customers) on its business and the subsequent stabilization in activity.
Next theme: Education & job training >
Each grade a child completes may raise earning potential as an adult by 9%. For girls and women, the long-term boost may be as much as 20%.1
Even before the pandemic, 258 million children did not attend school.2
The need to shift to online learning where possible continues to impact children’s’ ability to learn in 2021. According to UNICEF, over the last two years, 147 million schoolchildren missed more than half of their in-class instruction.3
We believe innovations in remote-access education, especially for low-income countries and communities, will remain in high demand as many countries continue to emerge from the pandemic. Done affordably and in conjunction with other connectivity solutions, online learning and job-training services have the potential to close the education gap and help lift children and adults out of poverty.
By investing in impact approaches, you help supply capital to innovative educational companies and issuers whose work may help reinforce these financial outcomes along with societal benefits.
Our equity strategy continued to invest in a Brazilian higher education group providing access to quality, postsecondary education to underserved students.
In 2021, our equity strategy continued to invest in a Brazilian higher education group providing access to quality, postsecondary education to underserved students. Sensitive to the difficulties its customer base faces, this company’s price increases have not kept pace with inflation, distinguishing it from many peers.
We remain invested in a US-based freelancing company that helps workers who have difficulty working on-site, accessing regular-hour jobs, or sustaining employment. We maintained our exposure to an Australian company that matches employers with job seekers and offers online training. We also invested in a company that promotes language learning, particularly English. We recognize there can be an income gap between English and non-English speakers in many countries. The company makes language learning affordable and accessible, particularly for students across emerging markets.
Within the fixed income portfolio, we invested in bonds issued by a leading provider of student transport services in North America. Many low-income families do not own a vehicle, leaving children to rely on buses to get to school safely, rendering this issuer's services crucial to lower-income communities. The issuer is transitioning from diesel to electric bus fleets, with support from municipalities. We also added bonds issued by a provider of education, fitness, and skills-based community programs in New York State and at several US universities.
Our aim with this theme is to target companies and issuers that are facilitating access to quality education and job training, and, in doing so, improve the quality of lives of their students.
1 “Returns to Investment in Education: A Decennial Review of the Global Literature,” The World Bank, 2018. 2 Global Partnership for Education and UNESCO Factsheet, September 2019. 3 “Are children really learning? Exploring foundational skills in the midst of a learning crisis,” UNICEF, March, 2022.
Investments in Upwork provide a marketplace for businesses to hire freelancers for specific projects, granting those freelancers economic opportunities to pursue meaningful and flexible work.
Increased economic opportunity for freelancers
Estimated number of remote knowledge workers worldwide Number of active clients using freelancers via Upwork
225 million >771,000
Income generated by platform users
US$3.55 billion
Number of freelancers who received one-on-one coaching Number of freelancers who obtained skills certifications via Upwork
2,400 2,500
Execution: Cybersecurity and data privacy
TARGET 8.5 Achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value
NEGATIVE IMPACTS Increased complexity in taxes for freelancers
SCALE Narrow
WILLINGNESS TO ENGAGE High
We believe Upwork's platform can continue to grow as remote work and the role of temporary staff evolve. We are comfortable with the company's performance and are monitoring the rapidly changing landscape as pandemic pressures abate. Meets expectations
ENGAGEMENT PRIORITIES We have engaged to discuss how Upwork can increase disclosure on the social impact of its business. We offered detailed feedback on its latest ESG and impact reporting, which provided useful data on how the company is creating economic opportunity. We were encouraged by the development of innovative products designed to empower freelancers to build new income streams.
Investments in Drexel University provide quality higher education to students and can increase socioeconomic mobility for graduates.
Improved long-term earnings potential and well-being through access to higher education
Number of students
23,217
Proportion of Drexel graduates working or in continued higher education Wage premium for Drexel graduates
94.7% 12%
Value of full-tuition scholarships awarded to low-income Philadelphia students annually
US$13 million
Alignment: Potentially high cost of attendance for students
Moderate risk/ medium probability
UN SDG ALIGNMENT Quality Education
TARGET 4.3 By 2030, ensure equal access for all women and men to affordable and quality technical, vocational, and tertiary education, including university
NEGATIVE IMPACTS Environmental impact of operations and supply chain
Drexel ranked in the top 3% of US universities for lifetime earnings in 2020. We believe students can use skills gained during their studies to yield tangible benefits. Meets expectations
ENGAGEMENT PRIORITIES Long-term engagement priorities include, but are not limited to, trends in student outcomes as operations normalize post pandemic, as well as the use of technology to optimize student enrollment, retention, and success.
Next theme: Financial inclusion >
Small businesses employ 50% of workers worldwide.1
Creating financial identities for the unbanked could increase GDP per capita by 6% in poorer countries.2
Improving financial inclusion and bridging the digital divide are closely linked, particularly in emerging markets. The ability to access financial services, credit, and other forms of capital is critical for individuals and small businesses, the world's economic engines. Yet, as the World Bank notes, 31% of the world remains unbanked. Technology can help close the financial-inclusion gap. Today, 69% of people worldwide own a mobile device,3 a key tool for accessing financial products and services. We believe investments in companies that expand access to financial (and digital) services can enable financial stability and help sustain economic development.
Your impact investments can improve lives and strengthen communities by enabling access to cash and credit for populations that have traditionally been excluded.
In 2021, investments in our portfolios included payment services, financing and insurance providers, and platforms that enable entrepreneurship. In the equity portfolio, one of our holdings included a company in Puerto Rico providing essential financial services, including lending to small- and medium-sized local businesses and subprime consumers. Puerto Rico has a large low-income population that endured years of economic recession and a string of natural disasters. Access to financial services helps facilitate community recovery and growth.
An Indian company we owned shares in finances pre-owned commercial vehicles, enabling entrepreneurs to start businesses. We invested in an Indonesian company specializing in microfinance and an African financial services group offering low-cost insurance products to help cover end-of-life and funeral expenses, which can be financially devastating. The need for financial inclusion is not limited to emerging economies. In the US, we have identified a company that works primarily with lower-income borrowers. Extending credit that can be used for unexpected household expenses, medical bills, and debt consolidation can have a range of positive impacts. Notably, the company offers customers an educational program as part of the loan application, aimed at improving financial literacy and developing a monthly budget.
In the fixed income portfolio, we added bonds issued by a leading Latin American e-commerce platform for which small merchants contribute a significant portion of merchandise volume. As more retail activity is conducted online, this issuer’s contribution to financial inclusion should increase. We also invested in a provider of auto loans serving underserved populations, including immigrants. This issuer helps expand mobility and access to personal transportation.
We continue to see a multiplier effect from investments in financial inclusion, as these products and services can have positive, lasting effects at the societal level. Innovative, often transformational, business models in this theme are helping women gain financial independence, low-income families escape poverty, and small businesses boost the economies of which they are an essential part.
1 “Small and Medium Enterprises (SMEs) Finance,” The World Bank, 2020. 2 “Identifying the unbanked population could add $250 billion to global GDP,” Finextra, December 2019. 3 Findex database figures, The World Bank, April 2018.
Investments in Globe Life reduce financial barriers to life and health insurance for low-income individuals in the US through providing insurance with a low face amount.
Increased access to social safety nets for low-income individuals
Number of life insurance policyholders
4.4 million
Total number of policies in force
14.3 million
Average face amount of life insurance (as percentage of industry average), increasing affordability for customers
9%
Execution: Failure to maintain quality of product and coverage
High risk/ low probability
TARGET 8.10 Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance, and financial services for all
NEGATIVE IMPACTS Potential for predatory sales practices; stress/loss caused by disputed claims
WILLIGNESS TO ENGAGE Moderate
Globe Life continues to cater to a market that is underserved by most providers. We are happy with the steady increase in policies in force. Meets expectations
ENGAGEMENT PRIORITIES We would like to engage further on Globe Life's impact narrative, particularly around the socioeconomic characteristics of its customers and how differentiated it is from other life insurance providers in the market. While its impact disclosure has improved, we think there is potential for future evolution of the approach.
StoneCo offers a wide array of end-to-end cloud-based solutions for small- and medium-sized businesses in Brazil. It facilitates growth through enabling digital payments, providing an integrated e-commerce gateway, and allowing smarter financial management.
Economic and social empowerment from access to financial services
Total active payment clients Total subscribed software clients
1.76 million 199,700
Amount of money processed for small businesses
US$275.4 billion
Increased efficiencies for small businesses
Execution: Potential for cybersecurity breaches
TARGET 8.3 Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services
StoneCo reached 1.8 million payment clients in 2021 and continues to expand banking services for small businesses in Brazil. We are encouraged by progress in its core business and look forward to the relaunch of its credit product and advances in execution in 2022. Meets expectations
ENGAGEMENT PRIORITIES We have engaged with StoneCo on its efforts to actively improve the management capabilities of the small and medium businesses it serves. We also discussed board diversity, cybersecurity, and environmental initiatives such as the monitoring of energy consumption and waste in its operations.
Next theme: Safety & security >
Monetary losses from cybercrime top US$945 billion per year.1
In emerging markets, unsafe food costs US$100 billion annually.2
In a world driven by connectivity, cybersecurity is critical. Governments increasingly use digital platforms to convey and collect information related to taxes, benefits, and pension payments, while companies increasingly rely on web-based apps to run their businesses. While more efficient and accessible, these digital forms of communication and interaction are vulnerable to online fraud and data theft.
We focus on solutions for the workplace, personal safety, and physical infrastructure that help protect human life and property from natural disasters. In 2021, climate-related events affected many regions, from extreme heat and massive wildfires in North America and around the Mediterranean basin, to severe flooding in China, Canada, and swaths of Western Europe.
We initiated a position in an engineering company specializing in climate-resiliency projects.
In 2021, the equity portfolio invested in a company whose technology helps customers prevent cyberattacks by providing greater visibility into organizations' vulnerabilities. We maintained a position in a vendor of cloud-based solutions. The company’s secure-email gateway (SEG) product protects against inbound threats like phishing, viruses, and spam, and secures outgoing email communications as well. This company has been particularly skillful in serving small- and medium-sized business markets.
We identified a manufacturer of impact-resistant glass designed to withstand high winds and rain. We initiated a position in an engineering firm specializing in climate-resiliency, including energy infrastructure, to help communities respond to natural disasters and adapt to growing climate risks.
In the fixed income portfolio, we invested in a provider of vulnerability management and security solutions, including incident detection and response, vulnerability risk management, and a security orchestration and automation response solution. The company serves customers in many industries and distributes products globally, empowering all businesses, including small businesses, to innovate more securely, which can translate into efficiency gains and faster growth.
We also invested in a global cloud-security company serving a range of industries, which we believe will be an impactful player in the transition to cloud-based digital operations.
While this remains our most recently added theme, we are excited about the ways in which we have been able to expand the scope of our research since its launch in 2019.
1 Malekos-Smith et al., “The Hidden Costs of Cybercrime,” McAfee and the Center for Strategic and International Studies. 2020. 2 “The Safe Food Imperative,” the World Bank and US Food and Drug Administration, 2018.
PGT's impact-resistant windows and doors provide buildings with structural integrity during severe adverse weather events, protecting life and property. Investments in PGT help offer protection from wind-driven projectiles and other debris during storms and hurricanes.
Increased resilience to extreme weather
Homes and buildings with PGT impact-resistant glass installed
Number of dealers/distributors Number of WinGuard products installed
Approximately 2,300 > 4 million
Revenue from impact-resistant products Number of impact failures reported
US$787 million 0
Alignment: Potential to exacerbate inequality in access to climate resilience due to high price point of some products
Moderate significance/ moderate probability
UN SDG ALIGNMENT Climate Action
TARGET 13.1 Strengthen resilience and adaptive capacity to climate‐related hazards and natural disasters in all countries
NEGATIVE IMPACTS Potential to exacerbate inequality in access to climate resilience due to higher price point of some of its products
PGT's revenue from impact-resistant products has continued to grow, and the company has actively worked to increase its reach by broadening its geographic distribution and sales footprint. Meets expectations
ENGAGEMENT PRIORITIES We have engaged with management on efforts to influence climate-adaptation policy and on expanding PGT's operational footprint. Efforts to broaden distribution to more coastal states facing higher risk of hurricanes should help PGT's products reach more customers who need to build resiliency. We also engaged on labor and staffing shortages, which have limited growth and depressed margins. We now expect PGT to be better able to meet consumer demand.
Investments in APX Group can help the issuer expand and strengthen its security offerings such as cameras, smart locks, burglary detectors, and smoke alarms, therefore improving customer safety.
Increased protection for customers against security breaches
Total subscribers
1.9 million
Daily interactions per user Average devices per home
11 15
Number of proprietary devices launched since 2010
15
Execution: Failure to protect customer information
UN SDG ALIGNMENT Peace, Justice, and Strong Institutions
TARGET 16.4 By 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime
The company has increased the number of subscribers by 9% year over year, while keeping attrition rates at a 14-quarter low, indicating customer satisfaction. We are happy with how the business is tracking as it relates to customer reach. Meets expectations
ENGAGEMENT PRIORITIES Long-term engagement priorities include, but are not limited to, growth opportunities in smart/connected home solutions including energy and home insurance.
