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.