Investing for the Environment: Part Three
Most of us will agree that climate change is happening, and that we must take action to protect our home. What you may not know, is that your investments are some of the best tools that you have to fight climate change. Author and Environmentalist, Paul Hawken said, “Wrong is an addictive, repetitive story; Right is where the movement is.” We know what no longer works both for the world, and also for our investments. Companies that are not sustainable in the long-term will ultimately cease to exist. There is an opportunity both as concerned individuals and as investors to right this course. This third post in the series for investing for the environment includes a few ways that you can begin to invest sustainably.
Step Three: Invest in Sustainable Companies
In the first series we discussed how to stop funding climate change, the next step is to invest in sustainable companies. Sustainability is broad and it can include different impact themes. It also differs when comparing different sized companies and companies operating in different industries. For now, we are going to look at companies that are leading the way in becoming more sustainable.
For example, the Parnassus Core Equity Fund invests in US large-cap companies with long-term competitive advantages and relevancy, quality management teams, and positive performance on ESG criteria. Companies with more than 10% of revenue derived from the following are excluded: alcohol, gambling, nuclear power, tobacco, and weapons. The fund also avoids investing in companies engaged in the extraction, exploration, production or refining of fossil fuels.
The fund invests in common large-cap names like Alphabet and Microsoft. It is what is known as a best-in-class fund, meaning it chooses the most sustainable companies from their peer groups. What I like about Parnassus, is that they share the ESG profiles of the companies they invest in. When I was looking at the fund, I wondered why it is currently invested in Mondelez. The ESG Profiles stated that Parnassus liked that “Mondelez has committed to responsibly sourcing 100% of its cocoa and maintains deforestation commitments. The company has greenhouse gas emission goals, as well as a goal to achieve 100% recyclable packaging. Mondelez also reports its climate and water assessments to the Climate Disclosure Project.” However, Parnassus is paying attention to the following “Mondelez is behind in its commitment to improve the nutrition of its key brands and well-being brand portfolio. The company’s greenhouse gas emissions reduction goals do not include scope 3 emissions, and Mondelez could improve disclosure about its global workforce.” I was also happy to find that Mondelez has been supporting the fight to end hunger, making affordable health drinks fortified with vitamins and minerals available to children, and partnering with Save the Children. It has also signed the European code of conduct on responsible food business and marketing practices that is part of the European Green Deal and the 'Farm to Fork' strategy that should lead to a climate-neutral food chain by 2050. Unfortunately, Mondelez is the biggest contributor to ocean plastics, so I personally would not want to hold Mondelez unless it was being used for engagement.
Remember that impact is a spectrum and to some, companies like the ones mentioned above might not be sustainable enough. In which case, you there are investments like Trillium’s Sustainable Opportunities Fund. It is a high-conviction, sustainability-themed strategy that invests in companies positioned to thrive as we transition to a more sustainable economy. The strategy uses a thematic approach to identify companies addressing sustainability challenges in three areas: climate solutions, economic empowerment, and healthy living. This fund is different than Parnassus, in that it invests in smaller companies as well as larger companies. This changes the universe of companies that a fund would consider investing in. The Sustainable Opportunities strategy avoids investing in companies with material involvement in: private prisons, agricultural biotechnology, nuclear power, weapons, and fossil fuels. Compared to its benchmark (The S&P 1500) it is 65% less carbon intensive.
Investing sustainability doesn’t mean one thing-it varies by size, industry, and theme. In the coming posts you will see how you can support sustainable bonds and projects, as well as invest in high impact solutions. “Every product and service is sold on the promise of a better future. The purpose of business is to deliver on the promise, and profit is the reward for doing so.”- Patrick Dixon
GIVE’s is a community that makes sustainable investing accessible to all through online courses, consulting, and its book, GIVE: How to Manage Your Money and Make a Difference. You can find more information online at www.give.how.
This shall not constitute an offer to buy, sell, or solicit securities. All information provided herein is for informational purposes only and should not be relied upon to make an investment decision and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision.