Three ESG veterans on their top investible megatrends

There's a growing body evidence that paying heed to the social or environmental impact of investments need not come at the expense of returns.

A report released by Amundi last month found that between 2014 to 2017 responsible investing was a source of outperformance in the eurozone and North America.

With that in mind, we present five ideas from environmental, social and governance focused professional investors on themes and stocks which could prove rewarding in more than just the financial sense.

Climate change

Jon Forster

Investment manager, Impax Environmental Markets

Climate change is here and there is mounting evidence that it is getting worse. Simple mitigation is already proven to be insufficient, adaptation is also needed. 

This requires investment in infrastructure and new solutions, particularly around clean-up operations and efficiencies. For instance, there is a need to strengthen energy grids (two energy companies in Florida, FPL and Duke Energy say that they have spent $3 billion and $2.4 billion respectively since 2006 improving infrastructure).

Droughts and floods becoming more commonplace necessitates investment in water infrastructure and the industrial damage typically accompanying extreme weather events are assessed by specialist consultants with clean-up undertaken by specialist hazardous waste companies.

The industrial Internet of Things

Jon Forster

Investment manager, Impax Environmental Markets

The industrial internet of things (IIOT) represents a multi-trillion-dollar opportunity. It is driven by improved connectivity, memory and processing that is enabling cheaper analysis of industrial data.

This is unlocking significant efficiency gains all along the value chain, from design to predictive maintenance, and as a theme it is just getting started: ‘conclusions’ and value to date are the result of less than 5% of extracted data.

Software companies are just beginning to get in on the act and offer an attractive (for this sector) subscription model.

Specialty chemicals: Lanxess

Hugh Cuthbert

Fund manager, SVM All Europe SRI fund

The company has sought to continuously increase the percentage of its procurement spend placed with Together for Sustainability (TfS) audited suppliers.

TfS is a chemical industry-wide initiative designed to improve sustainability in the global supply chain. Lanxess had increased the proportion of suppliers audited from 60% to 70% - and intends to increase this further.

The group has also set itself clear, challenging yet achievable targets for improving environmental performance, for example it’s seeking to reduce the emission of both CO2 and volatile organic compounds by 25% by the end of 2025.



Telecoms: Orange

Hugh Cuthbert

Fund manager, SVM All Europe SRI fund

This is a company active in a number of African nations where human rights records are poor. The company has assured us that improvements will be made in the coming months.

We are also pushing for sustainability targets to be incorporated into management remuneration packages to support the commitments they are making toward corporate social responsibility.

Orange continues to address the price war in its domestic market by focusing on the quality end of the market, allowing the more financially stressed competition to fight their own peculiar set of battles.

This has enabled the company to turn the corner as far as EBITDA growth is concerned while at the same time making some reasonably definitive statements about the potential for dividends in the coming years. French consolidation remains something of a free, but in our view likely, option.

Quantative analysis: Burberry and 3i

Nicolas Jamet

Senior quantitative analyst, RAM Active Investments

Our approach is fully systematic and relies on four pillars: governance, transparency, climate and diversity.

Our governance pillar favours names with healthy corporate structure and processes, such as Toronto-Dominion Bank. Our transparency model currently highly ranks BCE Inc et Sanofi, which provides investors with detailed ESG activity and clear financial statements.

On industry-adjusted diversity, Burberry Group and Land Securities Group score high. Finally, our Climate impact model favours low impact firms such as 3i Group.