Three environmental stocks for sustainable growth

Professional investor Stephen Freeman picks three companies working on answers to critical environmental questions that should attractive and lasting returns.

A professional investor tells us where he'd put his money. This week: Stephen Freedman of Pictet Asset Management highlights three favourites.

The companies working on answers to critical environmental questions offer the prospect of attractive and lasting returns. They will benefit from rising demand for their products and services, thanks to an increasingly supportive political backdrop, consumer awareness and technological advances. Financial markets tend to underestimate the secular growth potential these drivers produce.

Our Global Environmental Opportunities strategy invests in a broad array of businesses driven by these trends. They include firms active in pollution control; water supply and technology; renewable energy; waste management and recycling; sustainable agriculture and forestry; and the dematerialised economy. The latter encompasses companies that enable manufacturers to lower their consumption of raw materials while maintaining their output.

Finding sustainable stocks

But it's important to find companies that are not only heavily involved in generating environmental solutions, but also have a sustainable ecological footprint. These ones, we believe, will be in business for the long term.

To identify them we have pioneered the implementation of the "planetary boundaries" approach in our investment process. This scientific framework determines nine critical dimensions of environmental sustainability, including climate change, the loss of biodiversity and the depletion of fresh water.

Because a company's impact on the environment isn't limited to its own operations, but also includes the ecological footprint of its suppliers and of its products after sale, we make a full life-cycle analysis (LCA) of its business model from cradle to grave. We only invest in firms that operate within safe LCA parameters compatible with planetary boundaries. This allows us to combine sustainability for the environment with sustainable growth for our investments.

Winning ways in waste management

Veolia Environnement (Paris: VIE) is a French-based, but globally active utility company that focuses on water and waste management. The company has a well-diversified customer base across municipalities and industrial companies. Its business strategy, which includes a strong focus on cities, allows it to benefit from urbanisation. It is also offering solutions to the problem of increasing water stress, particularly in emerging economies. Veolia has grown solidly in recent years following a significant restructuring aimed at improving cost efficiency.

Equinix (Nasdaq: EQIX) is a US real estate investment trust (Reit) that owns and operates data centres. Equinix helps firms to shift from often inefficient in-house servers to cloud computing. The company is at the leading edge of making data centres both more energy-efficient and more reliant on renewable sources. It is in the premium segment of the sector. Equinix is targeting revenue growth in the 8%-10% range over the next four years and appears set to deliver towards the higher end of that range this year.

Denmark-based Orsted (Copenhagen: ORSTED) is the top developer and operator of offshore wind farms. Having sold off its oil and gas business, it is experiencing solid growth thanks to increasing demand for, and cost-efficiency of, renewables.

Recommended

Share tips of the week – 9 December
Share tips

Share tips of the week – 9 December

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
9 Dec 2022
The investment trusts and funds to buy for 2023
Funds

The investment trusts and funds to buy for 2023

With 2023 rapidly approaching, Rupert Hargreaves looks at some of the top investment trusts and funds to buy for the new year, with the help of AJ Bel…
8 Dec 2022
Scottish Mortgage managers reassure investors about its recent poor performance
Investment trusts

Scottish Mortgage managers reassure investors about its recent poor performance

After a spectacular couple of decades, the Scottish Mortgage Investment Trust has fallen by 40% this year. As its managers address shareholder concern…
5 Dec 2022
7 sin stocks to buy yielding up to 8%!
Share tips

7 sin stocks to buy yielding up to 8%!

Sin stocks don’t have the best reputation, but when it comes to investment returns, they’re certainly worth a closer look.
2 Dec 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
The pros and cons of smart meters – should you switch?
Personal finance

The pros and cons of smart meters – should you switch?

A smart meter can help you keep tabs on your energy usage, but is it better than a regular meter? We take a look at smart meters vs regular meters.
2 Dec 2022