How we live our lives and how we choose to invest our savings have typically been worlds apart. Happily, it has recently become possible to bring these two elements much closer together. There’s a growing number of listed companies that are working hard to understand their place in the world beyond simply generating profit.
Business leaders have a better chance of building strong foundations for equity returns when they understand that they can only deliver sustainable profits in the long term by respecting the environment in which they operate and the people their organisations affect. Positive impact as an investment strategy builds on this growing corporate self-awareness by championing companies that provide fixes to problems that will cost the planet more dearly in the future if left unattended.
Excitingly, opportunities to make such an impact are not limited to the well-known areas of green energy, but instead cover a broad spectrum of industries, including healthcare equipment, safety certification, education, infrastructure and agriculture. This breadth of opportunity gives impact funds an evergreen quality, making them an ideal building block for any long-term investor.
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The leader in LED lighting
We often find attractive opportunities in established companies that are culturally pivoting towards the beneficial outcomes generated by their products. One example is Signify (Amsterdam: LIGHT) – the lighting giant spun out of Philips in 2016. The company combines industry leadership in the global shift to LED lighting with a corporate strategy focused on net-zero carbon emissions, zero waste to landfill and a portion of employees’ pay related to sustainability targets. This refreshed corporate culture has already generated impressive financial results, with the company developing an ability to surprise the market positively. While no longer as attractively valued as it was, Signify still offers a decent 3% dividend yield.
Greener ventilation
Another company enjoying rejuvenation by combining strong leadership with a deep focus on sustainability is Trane Technologies (NYSE: TT), which was spun out of Ingersoll Rand last year. Trane focuses on ventilation and refrigeration systems, which represent a combined 25% of global greenhouse-gas emissions. With the US government’s focus on better ventilation in public buildings, it’s seeing strong demand for its products. Trane now partly bases compensation of its 2,300 top executives on sustainability indicators. It has set a target of saving its customers a gigaton of carbon dioxide by 2030 through the use of its products.
Muck to brass
Recycling is a growing source of value for investors as a circular approach to natural resources displaces our traditionally linear model. This opportunity extends far beyond civic refuse processing. One example is Befesa (Frankfurt: BFSA). Its business is focused on the industrial recycling of hazardous waste generated in steel and aluminium manufacturing. Befesa’s process diverts toxic material entering landfill and its end products can be used in place of virgin ingredients in cement, ceramics and insulation. With a 50% market share in Europe and Asia, it is well set to dominate this area of industrial-waste processing.
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