Four environmental stocks to watch in 2023
Rahul Bhushan
Managing Director, Europe at ARK Invest (Co-Founder of Rize ETF) | Thematic and Sustainable Investing Strategist | Author | Angel Investor | Father of two ????????
For impact investors, one of the big challenges is to identify and qualify companies that are providing genuine solutions to our climate and environmental problems.
The wranglings that went on during our most recent COP27 symposium in Egypt make it clear there are no longer any “easy fixes” for the challenges we face.
Global warming is creating rising sea levels, shifting rainfall patterns, increased heatwaves and droughts as well as catastrophic wildfires and floods. But there are many other problems –?largely manmade – that are also working to undermine our planetary boundaries, from land and soil degradation to freshwater depletion and the unabated and continued destruction of protected habitats, ecosystems and biodiversity. And those in turn are compounded by huge social issues such as pollution, food insecurity and unequal access to health and education.
For investors keen to channel their money into companies that are focused on discovering and delivering solutions to help build a more sustainable economy, a valuable starting point is the EU Taxonomy for Sustainable Activities, published in 2020 and designed to help provide a green roadmap for the EU.
The EU Taxonomy covers six broad environmental objectives from climate change mitigation and adaptation, water, pollution control, biodiversity and the circular economy.
Leading change through targeted investment
Of course, every business brings negative consequences of some sort as well as positive ones, so the concept of ‘net positive environmental impact’ is a helpful one. To that end, Rize ETF has devised an impact assessment methodology in partnership with Sustainable Market Strategies, a leading sustainability research firm based in Montreal, Canada, to help methodically score companies that claim to be leading the charge in the global green transition by the extent to which they are actually leading the charge in the global green transition. The methodology casts a net across the whole spectrum of environmental subsectors and selects the Top 100 companies in terms of net positive environment impact.
As such, there’s a real cross-sectoral focus to identify the highest scorers. One good example is Swedish heat pump player?Nibe Industrier, a specialist in innovative ways to reduce carbon emissions from buildings.
The built environment accounts for around 40% of total CO2?emissions worldwide, so this is a huge market – and it’s further exacerbated by the energy disruption caused by geopolitical crises such as the Ukraine war.[1]?It is estimated that worldwide the market is worth about $USD 100 billion, with an expected annual growth rate of 5-10% in the coming decade.[2]
Nibe Industrier, as one of the industry leaders, has a cutting-edge role to play. In developed countries, the company’s focus is on refurbishing existing buildings to get them towards Net Zero. In developing nations, it’s focus is on introducing high-efficiency technologies such as heat pumps and geothermal solutions to new buildings.
领英推荐
On another tack entirely is?SCA, another Swedish company and the largest private forest owner in Europe, with 2.6 million hectares of land under its management. SCA’s assets are land and the timber harvested from land, but it has earned its place among the highest-scoring companies for net positive environmental impact through its commitment to biodiversity.[3]
This includes setting aside 400,000 hectares of the most sensitive habitats – such as swampy areas rich in flower, insect and bird life – in order to promote biodiversity within the forest as a whole.[4]?A further 10% of the remaining forest earmarked for harvesting was also voluntarily set aside to ‘re-wild’ in 2020.[5]
In a world with limited natural resources, the concept of the circular economy – recycling and reusing materials rather than disposing of them as waste – has become a critical one.
Belgian business?Umicore?is right at the forefront of this movement. The company operated as a conventional mining company for many decades but reinvented itself around 20 years ago. Today, around 60% of its revenue comes from the recovery of minerals and precious metals underpinning the shift to a cleaner, electrically powered world.[6]
In business terms, Umicore has a powerful global competitive advantage. It runs some of the world’s most sophisticated recycling facilities, covering around 30 valuable metals including electronic scrap, batteries, fuel cells and catalysts.[7]
Its environmental case is equally compelling. Mineral and metal recycling not only helps us minimise the amount of waste sent to landfills but also reduces our reliance on extractive industries, which typically operate in countries where geopolitical risk may be high and environmental regulation may be low.
A topic that has been neglected for a long time: water
Water sustainability and protection is another crucial aspect in our fight to clean up the planet.?Kurita?is a major Japanese business that helps its clients in numerous water-intensive sectors from agriculture and heavy industry to healthcare and food and drink. The company helps its clients reduce the negative externalities of their business activities by enabling them to recycle water, reduce waste and improve the efficiency of boilers and cooling equipment.
Water has been one of the most underfunded areas of the green transition but that is set to change. Water sustainability is going to be one of the key areas of focus in the years ahead, and that is likely to raise its the company's profile.
References