In a fast-changing world the companies that will survive and thrive are those that make the world a more sustainable place. We look for businesses that improve people’s quality of life through medical, technological or educational advances; drive improvements in the efficiency with which we use increasingly scarce resources; or help build a more stable, resilient and prosperous economy.
We want investors to be able to generate strong returns while benefiting society. This can be done by identifying long-term transformations such as technological and medical advances and investing in companies exposed to powerful trends.
Smurfit Kappa: cutting waste in paper and packaging
Smurfit Kappa (LSE: SKG) is one such business. Paper and packaging companies are at the centre of the waste debate and we see strong financial and environmental opportunities for those that can operate sustainably. Three-quarters of the fibres that Smurfit Kappa uses are from recycled sources and the remaining 25% come directly from its own plantations and third-party suppliers. We see value in Smurfit Kappa’s responsible resource management, operational efficiency and products that help to reduce waste, use fewer resources as well as increase recyclability, reusability and degradability. CEO Anthony Smurfit has said that consumers are increasingly demanding sustainable packaging and with its expertise in paper-based packaging, the company is ideally positioned to take advantage of this mega-trend.
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Software might not be the first sector you think of when mulling sustainable stocks. But Autodesk (Nasdaq: ADSK) offers an opportunity. It brings technology to the construction sector, which had previously relied on paper and sketches. Its software reduces errors in construction, saving time and vital resources, and makes the overall construction industry more efficient.
Autodesk has fared well in spite of fears that demand for its technology is vulnerable to a slowing global economy and construction market. While the construction industry remains cyclical, the secular nature of the growth in technology adoption should ensure strong compound growth over many years to come.
A healthy outlook for IQVIA
Finally, I’d point to IQVIA (NYSE: IQV), which has a market value of $30bn. In the UK we spend 9% of GDP on healthcare; in the US the figure is 18%. This spending is expected to grow by 6% a year for the next decade, so we know there is a need for innovation in this sector. This can easily be demonstrated by looking at drug trials. For a pharmaceutical company aiming to distribute a new drug, creating it is just the start of the story. Trials are compulsory and there are usually at least three phases.
Costs can run to $400m per phase, with the expense even greater when trials run over; they are also difficult to recruit for. IQVIA has data on prescriptions, the software to design, plan and monitor drug trials and allows companies to run these important events in a more effective manner. It’s a sustainable company because it enables better patient outcomes via innovation, but it’s also a firm with good revenue growth, good management, and good business fundamentals. There is plenty of upside for this stock.
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