ESG Comms is on the money (hopefully)

Annabelle LevinsESGLeave a Comment

Last year the ESG Comms ‘putting our money where our mouth is’ fund was established, with each team member selecting a stock or index fund to invest in. The aim being to try our hands at sustainable investment and experience a bit of what our clients go through every day. 

Based on last year’s returns, it seems that we should have stuck to comms work, and let our clients do the investing: our fund lost 6.65% of its initial value. 

Whilst the majority of investments appeared to gain, a particular highlight being Invesco’s S&P 500 ESG ETF which grew by 19.55%, the performance of stocks like Else Nutrition brought the rest of the fund down. It seems the world wasn’t quite ready for vegan baby food.

Nevertheless, buoyed by the enthusiasm of several new joiners to ESG Comms, we are hoping for better results in 2022. Despite the poor performance of individual companies last year compared to funds last year… and only three team members chose to go with this strategy: including one’s from WHEB, the Ishares MSCI USA ESG select ETF and Aviva’s Natural Capital Transition Global Equity Fund were chosen. The latter invests in companies providing solutions that reduce the harm caused by human activities to nature. 

ESG team members choosing to invest in individual stocks tended to use two benchmarks to justify their investment decisions:  sustainability measures, created by external stakeholders to measure the quantifiable ESG standards of the company; and the projected net growth. 

It has long been accepted that water is one of the safest investments imaginable, with water companies having a monopoly on an essential service, ensuring a consistently high and predictable cash flow. With this in mind, Xylem, a global water solutions company which seeks to harness the power of water as both a power source and resource to sustain life. Xylem received an ‘A-score’ in CDP’s Water Security Report and Climate Change Report and are forecast to grow 18.18% per year, making it a credible fund for ESG Comms.

Having observed the stratospheric growth Tesla experienced in recent years, we wanted a slice of the pie.  Enter, Albemarle, a global producer of lithium, bromine and catalyst solutions, primarily positioned in the energy, electronics and transportation industries. Its diversity of operations meant that it was a safer bet than purely investing in an electric vehicle sector, which remains a relatively volatile industry. Whilst the company is committed to Responsible Care, the US chemical industry’s award-winning performance initiative designed to improve health, environmental and security performances, it could definitely do more regarding its ESG agenda. Having said this, with the potential for the company to positively contribute towards fighting climate change, it was not against the core themes of our fund.

DS Smith, a UK-based sustainable packaging company, was chosen as the demand for sustainable packaging and recycling solutions continues to grow, particularly as the reliance on e-commerce is a trend that’s here to stay. The company has relatively good scores from CDP the TPI tool and has also committed to a science-based target. Whilst it is not expected to yield huge returns, DS Smith was adjudged to be a relatively ‘safe bet’. 

Arguably the jewel in ESG fund’s theoretical crown is DSM, who have evolved from ‘Dutch State Mines’, to a purpose-led science company specialising in health, nutrition and bioscience solutions. Half of its management board bonuses are linked to environmental and social targets, incentivising ESG to be placed at the forefront of the company’s approach. Amongst top-rated measures from MSCI, FTSE4Good and Sustainalytics, DSM was assessed to be of an ‘A’ standard by CDP on their climate change and water security standards. Pair this with a 100% share price rise in the past three years, DSM is an ethical-investor’s dream… Let’s hope it’s not too good to be true!

Whilst we cannot profess to be experts in investing, we truly believe that businesses have a key role to play in our global transition to a greener economy. For now we are happy helping money-management companies communicate with laymen like us, but revisit this space next year and we might have changed our tune! 

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