April 22 is Earth Day – a day to reflect on the environmental successes to date and the challenges ahead. It could be a good time to check whether your portfolio is ready to meet the environmental challenges we face in the coming decades.
Dominic Rowles, lead ESG analyst at Hargreaves Lansdown, comments:
“Each year, people around the world celebrate Earth Day on April 22. It’s a way to highlight the achievements of the environmental movement and highlight the work that still needs to be done to preserve the planet for future generations.
Environmental issues such as climate change, deforestation, water scarcity, pollution and loss of biodiversity threaten the health and well-being of our planet, its ecosystems and its inhabitants.
This puzzle of environmental issues is one of the greatest challenges we face this decade. However, these issues are often intertwined. Earth Day could be a great time to make sure your portfolio can weather environmental challenges and take advantage of environmental opportunities for the year ahead.
Two companies where sustainability is central
Last summer, B&Q parent Kingfisher announced plans to accelerate its net-zero strategy and bring its scope 1 and 2 emissions to net-zero by 2040. Last year, the group managed to reduce its scope 1 and 2 emissions by about a quarter thanks to a shift to renewable electricity and alternative fuel sources for its supply fleet.
The company is also committed to reducing its scope 3 emissions, the emissions generated by its products once they leave the factory floor. Dealing with these indirect emissions is more challenging, but offers a much greater impact. The group plans to reduce these emissions by 40% before the end of 2026. This goal is supported by Kingfisher’s commitment to increase the share of its revenue that comes from sustainable home products.
Another key initiative of the company is to become “forest positive” by the end of 2026. This means that more forests are created than are used. The group is committed to responsible sourcing of wood and paper products and partners with the Rainforest Alliance to support communities affected by deforestation.
2) Akzo Nobel
It may seem counterintuitive to profile a chemical company when discussing comprehensive sustainability programs. But the strong commitment of the Dutch chemical company AkzoNobel to making positive changes is worth mentioning. The group’s energy-intensive operations and controversial product portfolio mean that the move to offer cleaner, greener options will have a major impact on the planet.
The group is on track to meet its decarbonization targets, aiming to reduce scope 1 and 2 emissions by 25% by 2025. By 2021, it had already reduced emissions by 21% thanks to efficiency improvements and the integration of renewable energy. The company has also expanded its product portfolio to include sustainable options and as of 2021, 39% of sales came from these offerings.
Akzo’s main environmental problem, and perhaps an opportunity, is the hazardous chemicals it uses. They can contribute to health problems and the process of making and removing them can pollute the air and water. For the most hazardous chemicals, Akzo is committed to using substitute chemicals where possible. The group’s sustainable product portfolio helps address this, with sustainable products, including products that improve health and well-being, as well as products that reduce emissions or reduce waste. This is a growing part of the business and management aims to generate more than half of its revenue from this offering by 2030.
Funds to make the world a better place
1) FP WHEB Durability
The team behind the FP WHEB Sustainability fund invests in companies that make a positive difference to the environment and society.
Current investments include Ecolab, a company that sells cleaning products and services to restaurants, hotels, hospitals, and food and beverage manufacturers. It has developed a range of products that help reduce and in some cases eliminate water use. The products also help deliver energy and cost savings as well as improved performance compared to standard alternatives.
The positive impact each investment has is measured, so it is possible to calculate the environmental and social benefits your investment brings. For example, holding £10,000 of the fund during 2021 was associated with:
Generate 4 MWh of renewable energy Avoid three tonnes of carbon dioxide emissions Treat 190,000 liters of wastewater for reuse Provide a day of tertiary education Help three people get medical treatment and save £2,500 in costs through more efficient healthcare systems
2) CT Responsible Global Equities
The CT Responsible Global Equity fund is managed by Jamie Jenkins and Nick Henderson, two seasoned global equity investors. They invest in high-quality companies with a strong commitment to sustainability.
There are three main elements to the fund’s investment process: avoid, invest and improve.
The managers “avoid” companies with business practices they consider harmful or unsustainable, such as those involved in fossil fuels, alcohol, gambling, pornography, weapons and tobacco. The fund also avoids fossil fuel companies and companies that violate animal welfare, human rights and labor standards.
They ‘invest’ in companies that make a positive contribution to the environment and/or society in one of the seven sustainability themes, including energy transition, resource efficiency and sustainable cities. Current investments include Smurfit Kappa. The group is leading the shift from plastic to paper packaging, which comes largely from renewable resources, is designed to be recycled and biodegrades naturally when disposed of.
The team also engages with the companies they invest in with the aim of reducing risk, improving long-term performance and encouraging environmental, social and governance improvements.”