🌌 Reshaped #1
Digital age failures, ESG investing, entrepreneurial Stoicism, AI-related intellectual debt and much more.
Welcome to the first issue of Reshaped, a newsletter for those who do not want to miss a thing about the huge transformations of our time.
This week, I will dive into some relevant tech news and comment on the presence of Big Tech in ESG funds. I also reviewed three extremely interesting articles in the permanent section called Alternative perspectives. Finally, I will leave you with some other reading recommendations.
New to Reshaped? Sign up here!
News on tech innovation
🛑 A federal judge has ordered Microsoft to cease all work on the $10 billion cloud-computing JEDI contract for the Pentagon (The New York Times).
🌎 Despite years of investment in foreign markets, Amazon still struggles to expand at a global level, overcoming competitors and regulatory hurdles (Quartz).
📊 Google has completed a $2.6 billion acquisition of big-data analytics firm Looker (VentureBeat). The integration of this tool with the G Suite can shock the sector.
📞 A pilot project in Arizona will allow Uber users to book a ride via phone call (Engadget).
💊 Alibaba launched a new platform to increase access to medical supplies in Chinese communities hit by the coronavirus (Business Insider).
🏠 A new Apple patent has the potential to bring smart house applications to a new level (Digital Trends).
🤖 MIT has revealed a new artificial skin for robots that provides a sense of touch and place (TechCrunch).
🔎 In an AI-driven society, privacy legislation cannot avoid regulating the treatment of algorithmic decision-making (Brookings).
🌱 ESG investing and Big Tech
ESG funds are gaining momentum, as Bloomberg reports. If the creation of these funds has been the first, fundamental step towards responsible investing, closing the gap with the S&P 500 is a natural second one. Investors do not perceive anymore they are giving up returns or weakening their portfolios, a sign that the once existing trade-off between traditional and ESG investing makes no sense nowadays. The following graph, taken from the already mentioned Bloomberg article, compares the returns of the major ESG funds with the total return of the S&P 500.
In a recent episode of the WSJ Tech News Briefing podcast (Big Tech Dominates ESG Funds), Kateri Jochum and Akane Otani raise the question of the large presence of Big Tech in ESG funds. Microsoft, Apple, Alphabet, Cisco, Visa, Mastercard, Amazon, Facebook, Adobe and many other tech giants make the list. According to Bloomberg, the rationale behind this is that technology and financial service companies have low emissions. However, even if some of them have high ESG ratings, sustainability is not the main focus of these corporations.
First, Akane Otani highlights that ESG goals still lack a clear and actionable definition that everyone agrees on. Usually, environmental issues represent the greatest concern, to the detriment of society and governance factors. For this reason, companies that have a bad reputation for working conditions (Amazon) or data management (Facebook) still can be included in ESG funds as their carbon footprint is relatively low. Second, she argues that, by including tech companies, ESG funds are more mainstream and can attract a greater number of investors. Limiting those funds to more ESG-specific companies would probably reduce their attractiveness to a niche of investors.
However, the presence of Big Tech in those funds should not be seen as inconsistency of sustainability investing. The purpose of those funds is to apply environmental, social and governance lenses to traditional investing. In other words, fund managers first identify high-potential stocks in line with their investing strategy and then make their final choice depending on the ESG rating of the companies. Sustainability is seen as a factor that affects the performance of the company in the long run. Caring about the environment avoids dangerous litigations and improves efficiency. Offering adequate working conditions and promoting human rights improve loyalty and brand reputation. Board diversity and transparency are fundamental differentiation factors for listed corporations.
Put it simply, the aim of ESG investing is not about changing the financial system. Still, it can have positive effects on our economy and make investors aware that sustainability is not a limit to profitability. General-purpose corporations have incentives in adopting virtuous policies, which is the first step towards sustainability-oriented business model innovation. If the positive trend of ESG funds will continue, they may become a true impact investing instrument. Until then, the presence of Big Tech within those funds cannot be a surprise.
Alternative perspectives
📱 In the January issue of The Atlantic, Derek Thompson focuses on the unkept promise of the digital age (Where’s My Flying Car?, p. 9). Far from representing an era of economic growth and diffused innovation, the author thinks it has consolidated tech monopolies and improved regional inequalities while concentrating talent and resources in a relatively unproductive economic sector.
The tech sector’s innovations have made a handful of people quite rich, but it has failed to create enough middle-class jobs to offset the decline of the country’s manufacturing base, or to help solve the country’s most pressing problems: deteriorating infrastructure, climate change, low growth, rising economic inequality.
🤔 In the January issue of Mother Jones, Jacob Rosenberg analyzes the diffusion of Stoicism in the Silicon Valley (The Grueling Class, p. 55). As reframed by Ryan Holiday to fit the tech entrepreneurship mindset, modern Stoicism provides a set of guidelines to live better in a productivity-centered era and a weak yet credible justification for the status-quo, despite its inequalities.
All of us pick and choose from the notions floating through the culture to justify ourselves and create a personal narrative. But the ideas that powerful people use to exonerate themselves become, with the help of translators like Holiday, a kind of common sense for the rest of us. In an era of massive inequality, it was only a matter of time before someone found a way to rebrand the oligarchs’ retreat from their social obligations as timeless, hard-edged virtue.
📈 In the February 10 issue of The New Yorker, John Cassidy (Steady State, p.24) explores the rationale behind new economic thinking that is not based on growth imperatives. After an interesting review of the literature, the author provides four suggestions for public decision-makers: meet the Paris Agreement commitments, invest in energy efficiency, reform the labor market through work sharing and universal basic income, and limit consumerism.
If major industrialized economies were to cut back their consumption and reorganize along more communal lines, who would buy all the components and gadgets and clothes that developing countries […] produce? What would happen to the economies of African countries […], which have seen rapid G.D.P. growth in recent years, as they, too, have started to join the world economy? Degrowthers have yet to provide a convincing answer to these questions.
Other readings
💼 According to The Wall Street Journal, one of the reasons why only a few women become CEOs is because few of them have responsibilities for the bottom line. The roles with the greatest percentage of women, such as HR and marketing, do not easily lead to CEO positions.
🧫 Bloomberg reports on the global economic impact of Coronavirus.
💻 In an article from last summer, The New Yorker explores the hidden costs of automated thinking: the wide application of machine learning algorithms without any theoretical background increases our intellectual debt, defined as the human lack of knowledge of how and why artificial intelligence works.
🎯 The Atlantic has a strong opinion on management consultants and their impact on the U.S. middle class.
🎓 A New York Times article based on a new report by the Center for an Urban Future highlights how the scarcity of prepared and experienced tech workers in New York has made it necessary to imagine new training and recruiting methods that enable young generations to access tech jobs.
👓 Vox reports that Silicon Valley might have underestimated Bernie Sanders and its willingness to break up Big Tech while increasing taxes for the richest people.
🌾 According to The New York Times, robots are making their way in agriculture. It is a good sign: the global agrifood innovation ecosystem urgently needs more upstream investments and innovative solutions.
🗻 A new research paper from the McKinsey Global Institute (Climate Risk and Response. Physical Hazards and Socioeconomic Impacts) links the physical effects of climate change with expected socioeconomic consequences. A long, interesting read.
💳 A new report from Business Insider analyzes how Big Tech companies compete in financial services. The following SWOT analysis is taken from the linked report summary.
Thanks for reading.
Please give me any feedback about this issue. If you enjoyed reading it, like and share Reshaped with potentially interested people.
Have a good weekend!
Federico