Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited

 
Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited
Ecclesiastical Investment Management Limited

Amity Insight
Digital Planet:
Big Data, Small World

                                               This is for professional advisers only. This material is not
                                                suitable for retail investors who should not rely upon it.
Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited
Welcome to the world                                       Digital data and
of Big Data                                                Big Data defined
By Thomas Fitzgerald, Investment Analyst,                  In computing, the term data refers to information (i.e. text,
Ecclesiastical Investment Management Limited               images and sounds) that has been translated into a form that
                                                           can be stored and processed by a digital device, for the purpose
The first of this two-part Amity Insight, examined         of electronic transmission, presentation and analysis.
the rapid way in which digital technology has become
embedded within our everyday lives, transforming
the way in which we create, communicate, buy, share
and search for information. The piece highlighted how
the proliferation of digital devices and the convergence
of communication and information technologies have
re-shaped existing industries and established new                         Unstructured Data
ones in the process. In Part II, we address the main                      The body of an email
by-product of a digitally driven world; the vast amount               Comments on social networks
of digital data that is being generated by individuals              Untagged audio, video and images
and organisations.

Thanks to smartphones, the videos we stream on
our tablets, the smart meters within our home and
the networked sensors implemented in automobiles
and industrial machinery, digital data is now universal.
This Insight explores how digital data has evolved from
traditional datasets into what has become known
as ‘Big Data’. We also examine the implications for
companies, individuals and policymakers as data is
increasingly used commercially to analyse human
behaviours. As responsible investors, we also ask
what are the emerging ethical challenges in this
Brave New World?
                                                                                                            Data

                                                                               Semi-Structured Data
                                                                               GPS tracking information
                                                                                   XML (Webpages)
Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited
Why is data important?
n    Structured Data: Organised in a highly manageable and                                           ersonal Data is the new oil
                                                                                                    P
     mechanised form, residing in fixed fields such as a relational
     database e.g. data within an Excel spreadsheet or indexed
                                                                                                    of the internet and the new
     fields within an email such as date, time, sender, recipient                                   currency of the digital world
     and subject.                                                                                   M. Kuneva, European Consumer Commissioner

n    Semi-Structured Data: A hybrid of structured and
     unstructured data as it does not conform to the formal
                                                                                               Digital data has always been an amalgamation of
     structure of data models associated with databases and
                                                                                               information and communication technology, but as the
     other forms of data tables, but contains tags and other
                                                                                               digital revolution has unfolded, technological innovations
     markers to enforce hierarchies of records and fields within
                                                                                               have generated new forms and greater volumes of data.
     the data. Examples include tracking information from GPS
                                                                                               This in turn has led to data being promoted from an
     systems and XML (a file extension format used to create
                                                                                               ancillary position in business operations and market
     and share information over the web).
                                                                                               transactions, to become an economic resource and
n    Unstructured Data: In contrast, unstructured data                                         a tradable commodity in its own right. Increasingly,
     is raw and unorganised, meaning that it does not reside                                   enterprises and government organisations are viewing
     in a traditional database, which makes it more difficult for                              data as a source of significant value in terns of providing
     computer systems to interpret. Examples include free-form                                 insights and predictive capabilities.
     text such as the body of an email, comments on social
                                                                                               Companies are utilising Big Data to build a competitive
     networks and text within e-books and online articles
                                                                                               advantage in their business models, in order to understand
     as well as untagged audio, images and video data.
                                                                                               the needs of consumers, more effectively target them
Big Data refers to streams of digital data that encompass                                      and deliver goods and services in a more efficient manner2.
all the domains detailed above. The emergence of this key                                      In other areas, governments and research institutions
theme in recent years reflects the continually evolving nature                                 are mining vast datasets in order to solve complex
of data management technology in capturing, aggregating,                                       behavioural, societal and public policy problems3.
storing and analysing vast amounts of data, in conjunction
with the rising demand for analytical insight1.

                                  Structured Data
                           Indexed fields (dates & times)
                             Data within spreadsheets
                             Enterprise systems (CRM)

                                                                                               The current Big Data market size of
                                                                                               $12.6 billion is forecast to grow to
                                                                                               $32 billion by 20174.

1.   McKinsey Global Institute, Big Data: The Next Frontier for Innovation, Competition   3.   Klobucher, Derek, 2013, Big Data Opens Governments And Fosters Innovation,
     and Productivity, June 2011, p.1                                                          Forbes, February 2013, http://www.forbes.com/sites/sap/2013/02/13/
2.   Morgan Stanley, Monetizing Any Data, Morgan Stanley Research, September 2012              big-data-opens-governments-and-fosters-innovation/
                                                                                          4.   International Data Corporation

                                                                                                                                             Amity Insight January 2015     3
Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited
The explosion in data generation
The growth of structured and unstructured data is rapidly accelerating, with the International Data Corporation (IDC) estimating
that annual digital data generation will reach 44,000 exabytes (or 44 trillion gigabytes) by 2020. If we were to store this data on
iPads and stack these face down on top of one another, the queue would stretch from the Earth’s surface to the Moon 6.6 times5.
This surge in data generation is predominantly derived from the rapid increase in semi-structured and unstructured data that is
being created. At present, an estimated 90% of all data is either semi-structured or unstructured6.

        Annual Digital Data Creation, Replication and Consumption

                                        50,000                                                                                                         44,000
    Replicated and Consumed
      Digital Data Created,

      (Exabytes Annually)

                                        40,000

                                        30,000

                                        20,000
                                                                                                                            7,910
                                        10,000
                                                                 130                              1,227
                                               0
                                                                2005                               2010                     2015E                      2020E

The drivers of digital data growth
Three key drivers at the centre of the massive growth in digital data being generated and stored:

1. Increasing digitalisation
                                                                                                          This driver refers to the dramatic expansion of new technologies,
        Global Connected Devices by Type                                                                  sensors and physical objects with digital processing and
                                                                                                          transmission capabilities. The growth of digital devices that are
                                                                                                          connected to the internet, capable of collecting and transmitting
                                   25                                                                     greater amounts of data, is forecast to grow at a compounded
                                                                                                          annual rate of 11% from 2013 through to the end of 20187. One
    Number of Devices (Billions)

                                   20                                                                     of the fastest growing elements of the digital world is machine-
                                                                                                          to-machine connectivity (or the Internet of Things – see our
                                   15
                                                                                                          January 2015 SRI Expert Brief), which refers to the rapid
                                   10                                                                     expansion of physical objects that have been digitalised, with
                                                                                                          internet connection capabilities that enable these objects to
                                    5
                                                                                                          feed additional data into the system. In the case of
                                    0                                                                     smartphones, tablets and laptops, these digital technologies
                                        2013       2014E      2015E      2016E       2017E      2018E     have the propensity to connect to online networks and services
                                         Machine to Machine            Smartphones                        where the data generated is predominantly unstructured.
                                         Non-Smartphones               TV                         PCs

                                         Tablets                       Other Portable Devices

4       Amity Insight January 2015
Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited
2. Ubiquitous connectivity
                                                                                                              There is not only a greater number of avenues in which an
          Global Internet Protocol Traffic                                                                    individual or an object can create digital data, but through
          (Petabytes per Month)                                                                               technologies such as wi-fi, Bluetooth and GPS as well as
                                                                                                              upgrades and greater penetration in mobile and broadband
                                                                                                              networks, the velocity in which this data is generated has
                                               140,000                                                        dramatically increased. Enhanced and continuous connectivity
                                                                                                              through these innovations has fuelled a rapid increase in data
     Global IP Traffic (Petabytes per Month)

                                               120,000                                                        traffic, with a large proportion of digital technologies now capable
                                                                                                              of transmitting data in real-time. As a result, annual data traffic
                                               100,000
                                                                                                              over both fixed and mobile network connections increased
                                               80,000                                                         fivefold between 2009 and 2013, and Cisco estimates that over
                                                                                                              the next five years, data traffic will grow at a compound annual
                                               60,000                                                         growth rate of 21% and this is heavily skewed in favour
                                                40,000
                                                                                                              of the consumer8.

                                                20,000

                                                    0
                                                          2009                                        2018E
                                                                        Business         Consumer

3. L
    ower data storage costs and computing advancements
                                                                                                              There has been a stark divergence in trends between data
          Average Selling Price Declines,                                                                     storage costs and computing capabilities over the course of the
          CAGR (%) 2006-2012                                                                                  digital era. In the past 50 years, the cost of digital data storage
                                                                                                              has been reduced by approximately half every two years, while
                                                                                                              storage density (the quantity of information that can be stored in
                                                                           Storage          IP Core Routers   a given space) has increased 50 million fold9. The declining cost
                                                         Servers        (per Terabyte)         (per Port)     of data management and storage infrastructure is a result of the
                                        0%                                                                    commoditisation of hardware and technological innovations such
                            -5%                                                                               as cloud-based infrastructure, which removes the immediate
             -10%                                                                                             requirement for physical hardware. Simultaneously we have seen
               -15%                                                                                           dramatic advancements in compression technologies and
         -20%                                                                                                 analytical software, which enable companies to manage the
           -25%                                                                                               rapid growth in data volume more efficiently without increasing
        -30%                                                                                                  spend on storage at the same rate, while using analytical tools
                                                               Average Selling Price CAGR (%)                 that are more suited to their aims.

5.        EMC, The Digital Universe of Opportunities, April 2014. Comparison based on iPad                    8.   Cisco, Cisco Visual Networking Index: Forecast and Methodology, 2013-2018,
          Air 128 GB model                                                                                         June 10th 2014 http://www.cisco.com/c/en/us/solutions/collateral/service-
6.        Cisco, 2013, Big Data: Not Just Big, But Different – Part 2, Cisco IT Insights Series,                   provider/ip-ngn-ip-next-generation-network/white_paper_c11-481360.html
          April 2014 http://www.cisco.com/web/about/ciscoitatwork/enterprise-networks/                        9.   Mayer-Schönberger, Viktor, Delete: The Virtue of Forgetting in the Digital Age,
          docs/i-bd-04212014-not-just-big-different.pdf                                                            Princeton University Press, July 2005, p.63
7.        Cisco Visual Networking Index, 2014, Cisco VNI Forecast: It’s not just about big
          numbers, Cisco, June 2014, https://blogs.cisco.com/news/cisco-visual-networking-
          index-vni-global-ip-traffic-and-service-adoption-forecast-update-2013-2018/

                                                                                                                                                                     Amity Insight January 2015      5
Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited
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  6   Amity Insight January 2015
Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited
Big Data
   in practice                                                      Finance
   A variety of technologies and analytical techniques              As global financial infrastructures become more complex
   are being deployed by organisations in every sector              and illegal activities such as money laundering grow more
   in order to capture value from these vast new datasets.          sophisticated, Big Data has become a strategic imperative
   This has resulted in a rapidly expanding market for Big          for financial institutions in detecting criminal activities and
   Data technology and services – a market which the                complying with an increasingly rigorous regulatory environment.
   International Data Corporation (IDC) forecasts to grow           Real-time geo-location technology paired with historic consumer
   from its current level of $12.6 billion to $32.4 billion         transactions allows a bank to detect anomalies in financial
   by 201711. To demonstrate how Big Data practices                 activity which may point to credit card theft. Big Data can also
   are already creating value across the global economy,            be a source of incremental revenue opportunities for these
   we highlight industries that have already experienced            firms, as insurance providers have already shown, by using data
   a material impact.                                               on consumer behaviour to suitably price and target insurance
                                                                    products at specific consumers.

Utilities                                                               Big Data example: Visa and MasterCard

The use of Big Data analytics is predicted to have a dramatic
shift within the utilities sector, with companies being able to
track, visualise and predict both supply and demand. GTM
Research estimates that the annual expenditure on data
analytics by global utility companies will grow from $700 million       Credit card companies are harnessing Big Data analytics
in 2012 to $3.8 billion in 202012.                                      to combat fraud and create new revenue opportunities.

                                                                        n   Fraud Detection: Traditional databases and analytical
   Big Data example: Suez Environnement                                     models studied as little as 2% of transaction data, while
                                                                            Big Data in conjunction with powerful algorithms and
                                                                            underlying hardware and software analyses all data,
                                                                            with systems now studying more than 500 aspects
                                                                            of a single transaction at once versus 40 in 200513
                                                                            – V
                                                                               isa estimates new analytical platforms have
                                                                              identified $2 billion in potential annual fraud
   Suez Environnement is a French-based utility company
                                                                              detection and mitigation activities
   which operates in the water treatment and waste
   management sectors.                                                  n   Revenue opportunities: MasterCard and Visa along
                                                                            with other credit card companies are mining data for
   n   The company has made ‘smart water’ one of its
                                                                            marketers, retailers and banks, selling anonymous
       priorities for its long-term strategy
                                                                            transaction data to aid with targeted advertising
   n   The company has installed 1.8 million smart meters                   – M
                                                                               asterCard revenue from ‘other’, the area that
       and is aiming for 2 million by the end of 2014                         includes the sale of data, grew 37% in Q3 2014
   n   Generated €350 million in revenues from ‘smart water’                  to $460 mn
       services in 2013
   n   Targeting 10% annual growth in ‘smart water’
                                                                    10. IBM, Mayer-Schonberger, Racicati, Google; Apple; Netflix
       per year through to 2016                                     11. IDC, New IDC Worldwide Big Data Technology and Services Forecast Shows Market
                                                                        Expected to Grow to $32.4 Billion in 2017, December 2013, http://www.idc.com/
                                                                        getdoc.jsp?containerId=prUS24542113
                                                                    12. http://www.greentechmedia.com/research/report/the-soft-grid-2013
                                                                    13. Rosenbush, Steve, 2013, Visa Says Big Data Identifies Billions of Dollars in Fraud,
                                                                        The Wall Street Journal, 11 March 2013, http://blogs.wsj.com/cio/2013/03/11/
                                                                        visa-says-big-data-identifies-billions-of-dollars-in-fraud

                                                                                                                         Amity Insight January 2015           7
Digital Planet: Big Data, Small World - Amity Insight Ecclesiastical Investment Management Limited
Healthcare
      Data in the healthcare sector is complex and highly fragmented. By digitally storing
      more patient information, opening data systems and increasing the use of connected
      ‘smart’ medical devices, which wirelessly transmit health information on a real-time
      basis, the healthcare sector stands to benefit through increased operational
      efficiencies, more timely emergency care and greater informational resource for
      research and development. McKinsey estimates that Big Data can help to unlock
      over $300 billion per annum in additional value for the US healthcare system14.

                                                                              $165bn
                                                                                     Clinical
                                                                              Transparency in clinical
                                                                                 data and clinical
                                                                                 decision support

                         $108bn                                                                                                  $5bn
                                                                                                                                Business Model
                                    R&D
                                                                                                                              Aggregation of patient
                          Personalised medicine,
                                                                                                                             records, online platforms
                            clinical trial design
                                                                                                                               and shared datasets

                                                                             $300bn
                                                                               in the potential annual
                                                                                 value to healthcare

                                          $9bn                                                                          $47bn
                                        Public Health                                                                      Accounts
                                   Public health surveillance                                                       Advanced fraud detection
                                    and response systems                                                            and performance-based
                                                                                                                          drug pricing

      Source: McKinsey Global

14.   McKinsey Global Institute, Big Data: The Next Frontier for Innovation, Competition and Productivity, June 2011, p.43
15.   Horizon Discovery, 2014, Corporate Overview, http://www.horizondiscovery.com/media/item/206
16.   McKinsey Global Institute, Big Data: The Next Frontier for Innovation, Competition and Productivity, June 2011, p.64
17.   Tesco, 2014, Annual Report and Financial Statements 2014, Tesco PLC, May 2014

8     Amity Insight January 2015
Retail
                                                                Big Data and related analytical processes could increase
                                                                sector-wide productivity and drive profitability higher, with the
                                                                McKinsey Global Institute estimating that US retailers could
                                                                increase operating margins by more than 60% by 202016.
                                                                The integration of information technology and vast data
                                                                resources presents the opportunity for retailers to create
                                                                value via more effective product promotion and greater
                                                                leverage of the supply chain.

Big Data example: Horizon Discovery                                Big Data example: Tesco

Established in 2007 and a publicly traded company                  Tesco is the world’s third largest supermarket group by
since March 2014, the Cambridge-based firm is                      revenue behind Wal-Mart and Carrefour and has long
engaged in genomics research and the development                   been recognised as a pioneer of using Big Data,
of personalised medicines15.                                       introducing its own loyalty scheme (Clubcard) in 1995.
n   Most diseases carry certain genetic variations, which          n   The Clubcard loyalty scheme has enabled Tesco
    pre-dispose individuals to the onset and progression               to amass a huge amount of data on shoppers
    of certain diseases as well as the clinical response to
                                                                       – T
                                                                          esco Clubcard has more than 16.5 million
    therapy. Rapid declines in the cost of DNA sequencing
                                                                         registered users17
    driven by innovations in technology and more cost-
                                                                       – E
                                                                          nables the company to target promotions such
    efficient methods of information storage have led to
                                                                         as money-off coupons at relevant customers
    the generation of vast amounts of data on the genetic
    drivers of disease                                                 – O
                                                                          ffers those it deems less risky based on shopping
                                                                         habits, discounts of up to 40% on insurance products
n   Horizon’s proprietary gene-editing platform GENESIS™,
    has enabled the company to develop an extensive                n   Energy management system connects all 2,700+ UK
    inventory of genetically defined cell-lines, which model           stores to data analysis facility in India
    anomalies found in human DNA that can cause disease                – A
                                                                          nalyst team tracks real-time data, monitoring categories
n   These can be used to predict the clinical outcomes of                such as lighting, refrigeration, heating and cooling
    medicines targeted at patient populations with a specific          – H
                                                                          alf-hourly reports on energy consumption allow
    genetic profile, allowing drug developers to implement               team to identify irregularities in consumption
    shorter, less costly and more targeted clinical trials             – H
                                                                          elped the group save £3.9 million on its energy bill
n   Personalised medicine offers the promise of early                    in 2012
    detection and diagnosis, more effective therapies              n   Predictive analytics driving reductions in wasted stock
    and minimised side effects
                                                                       – C
                                                                          ombining data from weather records with sales
                                                                         data, broken down by store and products
                                                                       – U
                                                                          ses data to predict future demand for product lines
                                                                         on a per store basis according to weather forecasts
                                                                       – S
                                                                          aving £100 m per year in supply chain costs since
                                                                         analytical programme was deployed

                                                                                                          Amity Insight January 2015   9
Big Data: Entering the ethical void
In Digital Planet we highlighted what we see as a suite of                                Companies will need to confront some
emerging ethical challenges faced by companies participating                              fundamental behavioural questions:
in the digital economy including:
                                                                                          n   Is offline existence now deemed to be identical to online?
n    Digital poverty
                                                                                          n   Who should control access to data?
n    Environmental impacts (emissions, conflict minerals,
     water, electronic waste)                                                             n   Who owns data, can its rights be transferred (and sold)
                                                                                              and what are the obligations of users?
n    Cyber security and crime
                                                                                          n   What is the impact for reputation when it (inevitably)
n    Human rights and freedom on the Net
                                                                                              goes wrong?
These are all visible challenges arising from the Big Data
                                                                                          At the heart of this ethical debate is the consumer. A lack
information revolution – with one overriding proviso; we are now
                                                                                          of regulation and possibly unscrupulous use weigh heavily
entering an ethical void. Kord Davis in his pioneering research
                                                                                          in the context of poor consumer awareness and low value placed
‘Ethics of Big Data: Balancing Risk and Innovation’ 18 makes
                                                                                          on personal data. For instance, most users of social media are
the point that “there isn’t yet an ethical framework or common
                                                                                          careless of their own privacy – and yet companies such as
vocabulary for having productive discussions around the ethical
                                                                                          Facebook have encountered reputational challenges when
use of Big Data”. Whilst the received wisdom is that Big Data
                                                                                          consumers withdraw consent over arbitrary changes to privacy
will put power in the hands of consumers in a transformative
                                                                                          settings. Big Data profiling may also lead to discrimination,
way, undoubtedly its use – or misuse – will skew outcomes
                                                                                          victimisation or ‘minority reporting’. Examples (that may attract
for some consumers and as personal data becomes increasingly
                                                                                          public consent – or not) include data mining to detect benefit
public, companies will face critical ‘ethical crunch points’.
                                                                                          fraud, insurance pricing based on health and lifestyle profiling,
Regulation has not yet begun to contend with this; many
                                                                                          security services using data to detect behavioural abnormalities
corporate-taken decisions will rely on in-house ethical Codes
                                                                                          in a controlled sample, or the targeting of consumers with highly
of Conduct. The Financial Times predicts that 25% of
                                                                                          personalised offers, effecting a skewing of consumer behaviour.
organisations will face corporate reputational challenges
                                                                                          At one extreme, social media analytics could be used to ‘identify’
by as early as 201619.
                                                                                          mass shootings profiling based on ‘crunching’ social media posts,
                                                                                          background profiling, and age, gender and location data19.

                                                                                          Without Kord’s ‘ethical framework’ customer segmentation
                                                                                          may lead to discriminatory outcomes based on age, gender
                                                                                          and lifestyle. Organisations will need to evaluate the value of
                                                                                          knowing something given the potential ethical pitfalls arising
18. Ethics of Big Data: Balancing Risk and Innovation (2012) Kord Davis O’Reilly Media    from a consequential course of action. Intent therefore becomes
    ISBN 978-1449311797
19. Financial Times: Confronting the privacy and ethical risks of Big Data 24 September
                                                                                          the precursor to data analytics – why do we need to know
    2013 www.ft.com                                                                       NOT what do we want to know? The jury is out as to whether
20. Various sources, but see ‘Mass murder, shooting sprees and rampage violence:
    research roundup September 2013 www.journalistsresource.org                           commercial imperatives will outweigh ethical due diligence.

10    Amity Insight January 2015
Big Data: Emerging ethical challenges

    Municipality/Government                                            Insurance Company            Embed

                                                                                                   Principles

                                                                                                     Code

       Administers Benefits                                     Assesses & Writes Risk
                                                                                            Big Data Code of Conduct
                                                                                                  Principles of
                                                                                                Appropriateness
                                                                                                 Ethical Checks
                                                                                                  and Balances
                                                                                               Legal Implications
                                                                    Customer Profiling
     Analyses Social Media                                                                      Reputational Risk
                                                                    Dieting, Smoking,
           for Fraud
                                                                   Health, Social Media    Intended Use Vs. Actual Use

Valuing data
The key to the future use of Big Data is appropriately valuing it.
This is still at a relatively early stage. We have shown several
examples of how data is being amassed and analysed by
companies – monetising this, against a backdrop of significant
ethical challenge, will be a key ongoing test. The surveillance
of consumers via profiling of social media and purchasing
habits is now routinely carried out in a largely unregulated way.
Companies, using highly sophisticated algorithms, can predict
and influence consumer behaviour, and so data has a value in
building brand and market share – Amazon’s ‘you may also like
these’ is a good example. However, the competition for data
and its sheer volume are driving down the market price for
personal information. Basic datasets (age, gender and location)
sell for as little as $0.0005 per person, whilst income and
buying habits are more valuable – but only marginally – at about
$0.001. The more detailed and intimate the dataset, the greater
the market value. For $0.26 per person, subscribers to
leadsplease.com can access specific health data including
medical conditions. However, for most individuals, the value
of all data is seldom worth more than $1 per person20.

20. Financial Times: How much is your personal data worth? June 2013

                                                                                                    Amity Insight January 2015   11
The Big Data value chain
The digitalisation of the physical world and the growing               Typically, these industries are very competitive and rife with
importance of Big Data practices across numerous end-                  technological disruption, therefore, we believe those companies
markets create a number of opportunities and challenges for            with substantial scale will be best positioned to monetise
investors. With the proliferation of digital data it is important      opportunities. This will allow for greater integration into the
that investors focus on which companies hold the potential             business models of end-users.
to create significant value from the data, rather than simply
the generation of data itself.

     Semiconductors                             Hardware                                     Networking
     n   Computing                              n   PCs                                      n   3G/4G spectrum
     n   Connectivity                           n   Tablets                                  n   Wi-fi
     n   Memory                                 n   Smartphones                              n   GPS
                                                n   Servers                                  n   Data centres

     Data Capture                               Software/Services                                 End-Users
     n   Search engines                         n   Structuring data                              n   Healthcare
     n   Social media                           n   Organising data                               n   Retail
     n   Cloud systems                          n   Cloud software                                n   Insurance
                                                                                                  n   Utilities

12   Amity Insight January 2015
Amity case study: Cisco Systems
                                 Founded in 1984 by                A strong sustainability champion
                                 two members of Stanford
                                                                   Cisco Systems has been reporting its material sustainability
                                 University’s computer support
                                                                   challenges for a decade. Its key focus has been access to
                                 staff, Cisco Systems has
                                                                   education and connected healthcare – both strong Amity
                                 become one of the world’s
                                                                   pillars for positive screening. Harnessing the power of
largest technology companies, with a market capitalisation
                                                                   network technology via its pioneering schools partnerships,
of over $132 billion and annual revenues of more than
                                                                   Cisco Systems has actively closed the skills gap in some
$47 billion, sourced from a well-diversified customer base
                                                                   of the most disadvantaged areas of the world, thereby
on both a geographical and end-market basis.
                                                                   improving career chances and changing the cycle of poverty
The company has a long-established leadership in Internet          and low achievement. Similarly, its collaborative approach to
Protocol-based networking equipment for data, voice                healthcare has seen the innovative pioneering of healthcare
and video and also provides related networking services.           outreach into rural regions and those devastated by natural
However, in recent years the company has faced a number            disasters. Cisco too, has strong environmental management
of considerable challenges, having lost 25% of its market          systems, achieving a 30% absolute reduction in Scope
value since 2007 in the face of an increasingly competitive        I and II GHG (greenhouse gas) emissions worldwide from
threat from Asian peers with lower cost structures, as well        a 2007 base line. The company has invested heavily in
as the emergence of disruptive technologies that could put         energy efficiency ($9.6 million in 2014) and renewable
pressure on future revenue growth and profitability.               energy as part of its pioneering Energy Ops Program,
                                                                   which is investing a total of $50 million over four years
Nevertheless, with substantial scale and a commanding market       in order to meet very challenging GHG reduction goals.
position in core product areas, we believe the company stands      The company is rolling out state-of-the-art low-energy
to be a key beneficiary of the rising network infrastructure       data centres that economise water and energy use,
investment that is required to support future growth in data       employ LED exterior lighting and Low-E-glass windowing.
and connectivity. This is augmented by a series of investments     Solar technology is helping deliver an estate that is at the
the company has made in recent years, providing new product        cutting edge of low-energy building design.
and service categories which help it defend its position against
disruptive technologies and broaden its portfolio offering to
customers, from infrastructure through to analytics.

                                                                                                         Amity Insight January 2015   13
View from the top
Over two successive Insights we have outlined
how our world is changing from analogue to digital.
We observed that at the heart of the digital economy
there will be corporate winners and losers – our job
as responsible investors is to understand where
opportunity lies, whilst being ever cognisant of
the evolving ethical landscape.

Data is at the heart of the digital economy – its amassing,
analysis, sale and use. We have shown how the pace of
technological innovation and the speed of data generation
are transforming our ability to understand – as never before
– predictive human behaviours. Much of this will be genuinely
useful – examples we have seen in healthcare and access to
education will transform the life chances of some of the world’s
most vulnerable people.

But much of this is taking place in an ethical void, where
regulation and legislation struggle to keep up. This places huge
responsibility on companies to make moral choices about the
use and sale of data – choices which as the FT suggests will
lead to more and more reputational issues.

Whilst our own view is fundamentally positive, we will, as
responsible investors, continue to ask companies demanding
questions about the control, ownership and use of data, pointing
out the rising risk to reputation and loss of consumer consent.

Neville White
Head of SRI Policy & Research

14   Amity Insight January 2015
Why Ecclesiastical?
n    he backing of an
    T                                      n    pride in our independent analysis.
                                               A                                           n    voidance of companies materially
                                                                                               A
    award-winning team                         We’re not afraid to adopt contrarian            involved in alcohol production,
                                               positions and are in favour of long-            gambling operations, pornographic
n    ver 20 years of experience of
    O
                                               term investment horizons                        and violent material, tobacco
    socially responsible investing (SRI)
                                                                                               production, testing animals for
                                           n    consideration of the preservation
                                               A
n    unds that are both positively
    F                                                                                          cosmetic or household products,
                                               of capital as our primary responsibility,
    and negatively screened                                                                    supporting oppressive regimes
                                               preferring absolute returns over
     stable investment team with
    A                                                                                          or strategic weapon production
n
                                               relative performance
    a wealth of experience spanning                                                        n    ctively seeking out companies with
                                                                                               A
                                           n    und Managers at Ecclesiastical
                                               F
    many years                                                                                 a record of involvement and good
                                               are unconstrained by rigid stock lists,
     comprehensive in-house
    A                                                                                          performance in terms of business
n
                                               permitting more flexibility to take
    SRI research function                                                                      practices, community relations,
                                               advantage of good-value opportunities
                                                                                               corporate governance, education,
n    n independent panel that reviews
    A                                          as they present themselves
                                                                                               environmental management,
    investment decisions                   n    ecision-making for the long term,
                                               D                                               healthcare, human rights, labour
n    robust socially responsible
    A                                          as frequent trading increases costs             relations and urban regeneration
    investment process                         and decreases returns

                                                                                                           Amity Insight January 2015   15
Meet the team
                         Sue Round                                                                               Andrew Jackson
                         Director of Investments and                                                             UK Equity Growth Fund Manager
                         Amity UK Fund Manager                                                                   Andrew joined Ecclesiastical in 2003
                         Sue is the UK’s longest-serving retail SRI                                              and manages the UK Equity Growth Fund.
                         Fund Manager. With the benefit of extensive                                             His wealth of experience includes roles
                         experience, she has made the Amity UK Fund                                              at Canada Life and Lloyds Investment
                         one of the leaders in the increasingly important                                        Managers. Andrew is AAA-rated by Citywire.
                         socially responsible investment sector.

                         Robin Hepworth                                                                          Neville White
                         Chief Investment Officer, Amity International                                           Head of SRI Policy & Research
                         Fund Manager and co-manager of the Amity                                                Before joining Ecclesiastical in 2010, Neville
                         Sterling Bond Fund                                                                      was responsible for developing and managing
                         Robin has been with Ecclesiastical                                                      global corporate governance proxy voting with
                         for 27 years. He is recognised as one of                                                CCLA Investment Management. Prior to this,
                         Citywire’s top 10 Fund Managers of the past                                             he worked for the Church Commissioners,
                         decade and is also a Trustnet Alpha Manager,                                            latterly as Secretary to the Church of England’s
                         placing him in the top 10% of all UK unit trust                                         Ethical Investment Advisory Group.
                         and OEIC managers.

                         Chris Hiorns, CFA                                                                       Ketan Patel, CFA
                         Amity European Fund Manager and                                                         Senior Socially Responsible
                         co-manager of the Amity Sterling                                                        Investment Analyst
                         Bond Fund                                                                               Ketan began his career at JP Morgan in
                         Chris started working for Ecclesiastical in                                             1998. He moved to Clerical Medical (now
                         1996 and has been a CFA Charterholder                                                   Insight Investment) as an Equity Analyst.
                         since 2004.                                                                             Ketan has worked for Ecclesiastical for
                                                                                                                 ten years and is a CFA Charterholder.

                         Peter Cameron CFA                                                                       Thomas Fitzgerald
                         Assistant Fund Manager                                                                  Investment Analyst
                         Peter joined Ecclesiastical as an Assistant Fund                                        Thomas joined Ecclesiastical in 2011
                         Manager in 2014. Previously, he worked as an                                            after completing a BSc in Economics and
                         Equity Analyst within the Quant Solutions Team                                          Business Management at Oxford Brookes
                         at Aviva Investors. He also held positions within                                       University. He supports the fund management
                         SRI, performance and portfolio risk at Aviva.                                           team by providing detailed company research
                         He is a CFA Charterholder and has a BSc                                                 and analysis. Thomas is studying for the CFA.
                         in Mathematics and an MSc in Corporate
                         Governance & Ethics.

Please note that past performance is not a reliable indicator of future results and that the value of investments can fall as well as rise and you may get back less
than the amount invested. Source & Copyright: CITYWIRE, for the three years to 30 September 2014 based on risk-adjusted performance.

We pride ourselves on our support for IFAs. For more information, fund factsheets or how to invest, please contact us:

Phone                                 Fax                                  Email                                           Website
0845 604 4056                         020 7528 7365                        ifa@ecclesiastical.com                          www.ecclesiastical.com/ifa

You’ll find us on most platforms, including:

Ecclesiastical Investment Management Limited (EIM) Reg. No. 2519319. This company is registered in England at Beaufort House, Brunswick Road, Gloucester, GL1 1JZ, UK. EIM is
authorised and regulated by the Financial Conduct Authority and is a member of the Financial Ombudsman Service and the Investment Management Association.
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