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Jonathan Mzengeza. I’m the senior analyst and portfolio manager for all the technology mandates at CIBC Asset Management.
We have been using our firm’s environmental, social and governance frameworks to evaluate some of the stocks that we put into our funds. In technology, we particularly look at social and governance as being the top two, with environmental coming really close to those. In terms of social, we looked at companies that tried to maintain their payroll, were supportive of the employees in a very difficult time. We looked at how they were able to foster a good work environment, being that a lot of people were working in circumstances that they hadn’t even thought were possible.
In terms of governance, we looked at companies that were focused on maintaining a good ownership structure of decision-making, that have maintained a way that management is held accountable for certain decisions that they’ve made, in a way that shareholders can have a direct line of sight or direct talk with management over issues that they have on this.
In terms of environmental issues, I think that the biggest thing is around climate change and climate initiatives. If you look across a lot of the mega-cap technology companies, particularly the ones that provide cloud services, such as Microsoft, Amazon and Google, all three of these companies have very stringent rules around their carbon footprint, very strict rules around their carbon neutrality and trying to take out all the carbon that they put out into the environment. And the other thing is that they do have very aggressive goals on being carbon neutral and maintaining that carbon neutrality over the long term and using sustainable energy to power their large data centres. So, these are kind of the ways that we look at the ESG for technology companies during this pandemic.
For 2021, I think the main risks that people should be cognizant of are the significant regulatory pressure that I think is going to be on mega-cap tech companies and that is going to intensify. We think that if you look at what has happened in 2020, a lot of these firms have been hit with lawsuits. Google, for example, has been hit by several antitrust lawsuits over its search and search ad business. Facebook has been hit with lawsuits focused on its previous acquisitions of WhatsApp and Instagram, which regulators conceive as increased market power. And Apple is facing a lot of lawsuits over the Capstone business and the fees it charges for its app sales. And all three of these companies are also facing possible fines and penalties from the European Union of up to 10% of annual revenue if they fail to follow ever more stringent antitrust obligations that they’re being forced to follow.
So, we think that, in 2021, these regulatory risks and pressures are going to significantly increase, and be cognizant of the fact that a lot of these companies have to take this into account in terms of their social and governance of how they do their businesses. So, it’s a very big risk.
Other firms that are at risk of this, I think, Amazon would be one in terms of their marketplace business. Outside of that, I would say any company that focused on collecting user data or using user data. So, any company focused on internet advertising, I think those firms would be at risk in terms of leveraging that user data. So, that’s something that is very top of mind for us in terms of regulatory risk for 2021.