The surprise companies you may not expect to find in a sustainable fund

0
Written by:
23/11/2018
Sustainable investing is a hot topic at the moment, with growing numbers of investors putting principles on a par with returns.

The amount of money held in ethical funds has more than trebled in the last 10 years to £16.7bn, with young people showing a particular interest in making a difference via their investments. Research suggests 85% of UK millennials are currently investing in ethical and socially responsible funds.

In addition, a third of non-investors say they would invest for the first time if they could do so ‘ethically’.

Traditional ethical funds typically exclude sectors with controversial business practices  – companies involved in unsavoury practices such as weapons and tobacco, for example.

However, nowadays sustainable funds tend to take a more pro-active approach.

Ben Johnson, collectives analyst at broker Charles Stanley, says: “Rather than just focusing on investments to avoid, they’re now actively seeking out companies which make a tangible positive contribution through the product or service they provide.”

Here, three fund managers who run sustainable strategies each share one stock you may be surprised to find in their fund.

Bank of America 

Louise Dudley, manager of the Hermes Global Equity ESG fund

With the dark days of the financial crisis now a distant memory and the Federal Reserve commencing QE [quantitative easing] unwinding, it is worth reflecting on Bank of America, which was almost brought to its knees in that period. It is a very different beast nowadays and encouragingly has, through its lead independent director, shown itself to be open to constructive dialogue with Hermes EOS, our in-house stewardship team.

Despite the progress we have seen, the company is still viewed by some as a “bad actor” from an ESG [environmental, social and governance] perspective. Here, we hope to share some of the insights we’ve seen and therefore the rationale or inclusion within our global equity funds.

The management team is fostering a culture of responsible growth, ensuring that the lessons from the financial crisis have been learned. Part of the responsible growth strategy relates to climate change, particularly low carbon financing. It is ahead of its target, which is encouraging. In addition, the bank continues to review its pay and ‘human capital management practices’ to ensure there are no meaningful flaws in them.

Bank of America is a long-standing holding. The ESG Dashboard, our proprietary company valuation tool, shows a company that has an ESG score greater than its peers, which is changing for the better.

Orange

Chris Hiorns, manager of the Amity European fund at EdenTree Investment Management

From our perspective as a responsible and sustainable investor, Orange is a company with a long-term goal to promote a digital society where everyone can benefit from technology. The company has also made good progress in reducing its environmental impact and has reached its greenhouse gas emission reduction target three years ahead of the deadline. Therefore, it has now committed to setting a more ambitious and science-based target in the next two years, which will align its business with the goal of the Paris Agreement.

On most valuation metrics, Orange trades at a discount to the wider telecoms sector. It has a strong market position in its home, French telecom market and in Spain where it has built out its own fibre offering, placing it in a strong position to compete with the incumbent operator, Telefonica. It is on a dividend yield of 5% and forward price earnings of around 13.

Kerry Group

Peter Michaelis, head of sustainable investment at Liontrust

As interest in leading a healthy lifestyle rises globally, we have identified companies providing “reformulation” services to make food healthier – stripping out the fats, sugars and salts while maintaining the taste.

These companies are benefiting from demand for healthier food as their customers, many of which are the big incumbent food producers, respond to changing consumer preferences. This move towards an improved diet is having a positive health impact, helping to reduce non-communicable diseases such as obesity and cardiovascular disease.

One of our key long-term holdings is Irish-based food technology company Kerry Group.

Kerry enables what it calls the ‘five Rs’: reduce, remove, replace, reinvent and reposition. Its “sensory scientists” work to reduce calories, remove artificial chemicals and replace them with natural alternatives. For example, in carbonated soft drinks, they’ve switched sugar for botanical extracts which has both a health benefit and gives them new flavours for consumers to enjoy.

Related Posts

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Your right to a refund if travel is affected by train strikes

There have been a wave of train strikes in the past six months, and the fresh round of walkouts take place tod...

Could you save money with a social broadband tariff?

Two-thirds of low-income households are unaware they could be saving on broadband, according to Uswitch.

How to help others and donate to food banks this winter

This winter is expected to be the most challenging yet for the food bank network as soaring costs push more pe...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week