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Shaping a More Ethical Future for a Digital World

As responsible stewards of client capital, we must encourage corporations to set clear guidelines for appropriate data use.

Contributors

Director of Stewardship
Sr. Portfolio Manager
Research Analyst
Executive Managing Director

on

February 2022

As digitalization continues to rapidly permeate all aspects of the global economy and society, the investment risks associated with potential mishandling of data are too great to ignore. As forward-looking investors in leading innovative global growth businesses, we recognize the opportunity to guide corporations to set clear guidelines for appropriate data use. To this end, we are proud to be a part of a new effort to create a stewardship path for investors to shape the future of an ethical digital economy.

Over the past year, Sands Capital has collaborated with other like-minded asset managers to launch Investors for a Sustainable Digital Economy (ISDE), a network of institutional investment managers and asset owners seeking to engage with and steward companies through digital governance best practices. The group recently released its inaugural report, “Considerations of Data Use for Global Investors in a Digital Age,” which extensively reviews research across data use, as well as emerging best practices within this critical area, distilling systematic causes and effects related to data-use practices within corporations. It also underscores material investment-related issues, offering strategies that can improve corporate data use practices. The report then examines case studies of risks arising from incidents of data mishandling, and it consolidates best practices in a practical toolkit for deployment. It clarifies how investors can play a meaningful role in stewarding their portfolio companies to optimize long-term outcomes with respect to benefits and harms associated with data use.

We chose to embark on this project at a transformative time in our history. The world is rapidly shifting from an industrial society to one of technology-driven innovation. However, the environmental, social, and governance practices that were created for an industrial society have not evolved as rapidly. Our businesses need help in navigating the societal challenges created by the rapid digitalization. These challenges are the costs or side effects of commercial activities not fully captured by the traditional financial metrics of the services involved and include a variety of issues from data breaches to carbon emission, to excessive or harmful use by minors. With increasing societal awareness of these issues, sustainable growth over the long term requires a business to adapt as the preferences of customers evolve and the expectations of employees, regulators, governments, and public opinion/society change on material issues related to the business.

While the topics are wide-ranging and complex, in this report we have chosen to focus on data use, which is of critical importance to many of our businesses across industries. Many of our companies rely on data to help optimize and improve all facets of their business. Data-driven platforms are helping firms cut costs and optimize efficiencies. Data use is critical to improving the customization and personalization of services from healthcare to banking as it enables pattern recognition, fault detection, and behavioral prediction. Policies and regulations governing the use of data are slowly emerging alongside the intensifying scrutiny from the media, activists, and the public. Against this backdrop, investors need to focus on current and evolving data use practices and the intended and unintended consequences for the companies in which they invest.

In the report, we endeavor to look at data use from an investor’s point of view and assess its implications for their portfolio companies. Furthermore, we reinforce the role investors should play as stewards of capital in securing a sustainable future for businesses, investors, and broader stakeholders. The report is a stepping stone toward building a systematic framework through which ISDE members can meaningfully engage with their portfolio companies regarding tech ethics. Through ISDE, we are calling on the investment community to address the pressing need for ethical digital governance, at an inflection point for digitalization.

Other ISDE members from asset management firms include Baillie Gifford and Zouk Capital, as well as institutional asset owners, including the Church Commissioners for England and Ethos Foundation.

Disclosures:

The ISDE Report is an example of the type of fundamental research Sands Capital conducts and as such contains the opinions and comments of Sands Capital, other investors, as well as raw data, at points in time. Additional or subsequent information may cause Sands Capital’s views to change. This report is not a complete analysis of all material facts and therefore is not a sufficient basis alone on which to base an investment decision. This material may include summaries and references to research notes, emails, conference calls and meetings, and there is no guarantee or representation that this information is complete, current or accurate. Views and opinions expressed herein may be those of individuals and may differ from the views and opinions expressed by Sands Capital. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy and is not a complete summary or statement of all available data. This report is for informational purposes only. This material is provided as a sample of some of Sands Capital’s research and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security. This material may contain forward-looking statements, which are subject to uncertainty and contingencies outside of Sands Capital’s control. Readers should not place undue reliance upon these forward-looking statements. There is no guarantee that Sands Capital will meet its stated goals. The information contained in this report is intended solely for the recipient and may not be further reproduced or disseminated by the recipient to any third party. By accepting this document, you agree to be bound by the foregoing limitations.

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