Sony

Systematic integration of ESG factors

Sony has transitioned from an old-world consumer electronics company into a consumer media ecosystem with leading positions in Gaming, Music, Film and Semis (image sensors), each with long-term growth tailwinds and material barriers to entry. Driving this transition has been the new(ish) CEO, under whom there have been significant changes relative to ‘old Sony’, including recurring revenue as high as 50% on some calculations, new incentives with a cash-flow KPI (which unsurprisingly has led to improved free cash generation), significantly improved disclosure and first-time large share buybacks (without employing debt).

Its ESG investor day last year encapsulated why we view it as a leader in most aspects under our 3 sustainability pillars of People, Innovation and the Environment (rated S1 under our sustainability tiering[1]). Examples of improvements in these areas include People – Improvements in diversity and inclusion to enable employees with disabilities to participate as important members in improving accuracy of AI functions. Innovation – June 2021, trial in Rome to address social issues faced in the city, such as traffic congestion and accidents, using smart cameras equipped with IMX500 (Sony’s intelligent vision sensor). Environment – Plan to reduce Sony’s environmental footprint to zero by 2050, eliminating plastic packaging materials for small-sized products by 2025[2]. Sony’s strong sustainability credentials are also reflected in the MSCI ESG AAA rating.

Although the share price has started to respond, up +41% in 2021, corporate shifts of the scale of Sony’s often take time to seep into the valuation and Sony’s does not currently reflect either the quality of the group’s businesses or the opportunity to create meaningful, long-term value through targeted capital allocation and further operational improvement. Above all, we think it misses the opportunities via collaborations within Sony’s ecosystem which, in a similar way to Walt Disney, make the whole worth more than the sum of its parts.

More encouraging still is the fact that the collaborations are in areas experiencing significant tailwinds. Examples range from collaboration between Sony’s semiconductor manufacturer and digital camera unit, to the leveraging of PlayStation gaming IP in film by Sony Pictures. As the world becomes more interested in the metaverse – what it is and who ‘wins’ – it’s hard to imagine many companies which are better positioned to succeed than Sony is today.

[1] Further information about our S-PVT process can be found on our website here.
[2] Further information about Sony’s ESG briefing in September 2021 can be found here.

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