Three stocks set for sustainable success

Professional investor Mark Denham of Carmignac highlights three of his favourite stocks that will allow investors to profit from the “renewables megatrend”.

The ability to navigate unpredictable environments while at the same time preparing for what the future holds is of paramount importance if a business is to be successful. Among the many opportunities that European equities offer investors, there are specific characteristics that we believe will determine the success of a business model, such as profitability and reinvestments for growth.

We exclude companies that do not adhere to principles consistent with sustainable and responsible investment, which helps us discover businesses that have the long term in mind. Moreover, there are attractive themes for investors to take into consideration at present, such as what we call the “renewables megatrend”.

Orsted: a tailwind from Denmark

Denmark’s Orsted (Copenhagen: ORSTED) is a leading provider of renewable energy, especially offshore wind. Support for renewable energy is expanding rapidly, not least because if we are to meet the Paris Agreement target for reducing the pace of the increase in global warming, we will need to have cleaner sources of energy, moving away from fossil fuels, with electricity growing its share of final demand.

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Wind and solar energy will therefore continue to be in the spotlight. Even during the Covid-19 pandemic, when demand for electricity fell by a fifth in the first quarter of 2020, the output from renewables was largely unaffected.

The International Renewable Energy Agency (IRENA), forecasts that renewables’ share of electricity in final energy consumption will increase from just 20% today to almost 50% by 2050. Additionally, renewable technologies are becoming increasingly efficient, driving down the average cost of the electricity they produce.

Schneider Electric: leading the energy-efficiency drive

Schneider Electric (Paris: SU) develops products and software that provide buildings with significant energy efficiency and sustainability benefits. It is the market leader in this type of offering. The company is also exposed to favourable long-term trends, such as electrification and digitisation.

Schneider has a wide range of offerings, from light switches and electrical sockets to software for energy management and industrial automation, but also scores well when it comes to protecting the environment. For example, the company is committed to sustainability within its own operations, with carbon-neutrality goals such as net-zero operational emissions by 2030 and a net-zero supply chain by 2050.

Sanofi : the turnaround story in French pharma

Sanofi (Paris: SAN) is a turnaround story based on new managers’ vision of the future. After years of underperformance compared with its peers, the company has significantly reduced the risk inherent in its diverse portfolio, with no major patent expirations before 2023.

Despite the crisis, the business remains largely undisrupted, with studies ongoing, 100% of manufacturing and supply sites operational, and no product shortages. By virtue of the nature of its business we believe it makes a positive contribution to society while also being committed to improving access to healthcare.

Mark Denham is head of European equities at Carmignac