Investment ideas for Earth Day and Beyond

By Dominic Rowles, Lead ESG analyst, Hargreaves Lansdown

Every year, on April 22nd, people around the world celebrate Earth Day. It’s a way to mark 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 biodiversity loss are threatening 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. Yet these issues are often intertwined. Earth Day could be a great time to make sure your portfolio can weather environmental challenges, and benefit from environmental opportunities, in the year ahead.

Two companies with sustainability at their core
1) Kingfisher
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 cut its scope 1 and 2 emissions by about a quarter thanks to a shift towards renewable electricity and alternative fuel sources for its delivery fleet.

The company is also committed to reduce its scope 3 emissions, which are those generated by its products once they’ve left the shop floor. Dealing with these indirect emissions is more challenging but offers a much greater impact. The group is planning to slash these emissions by 40% before the end of 2026. This aim is supported by Kingfisher’s commitment to growing the proportion of its revenue that comes from Sustainable Home Products.

Another key initiative for the company is to become ‘forest positive’ by the end of 2026. That means creating more forests than they use. The group’s committed to sourcing wood and paper products responsibly and partnered with the Rainforest Alliance to support communities impacted by deforestation.

2) AkzoNobel
It might seem counterintuitive to profile a chemicals company when discussing comprehensive sustainability programmes. But Dutch chemical firm AkzoNobel’s strong commitment to making positive changes is worth a mention. The group’s energy intensive operations and controversial product portfolio mean its move to offer cleaner, greener options will have a big impact on the planet.

The group is on track to meet its decarbonisation targets, with an aim to cut scope 1 and 2 emissions by 25% by 2025. As of 2021, it had already trimmed emissions by 21% thanks to efficiency improvements and the integration of renewable energy. The company’s also been building out its product portfolio to include sustainable options and as of 2021, 39% of revenue came from these offerings.

Akzo’s main environmental issue, and perhaps opportunity, is the hazardous chemicals it uses. They can contribute to heath issues and the process to make and dispose of them can pollute the air and water.  For its most hazardous chemicals, Akzo’s committed to using substitutes where possible. The group’s sustainable product portfolio helps to address this, with sustainable products including those that improve health and wellbeing as well as those that trim emissions or reduce waste. This is a growing part of the business, and management aims to generate over half of revenue from these offerings by 2030.

Funds to help make the world a better place
1) FP WHEB Sustainability
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 & beverage producers. It’s developed a range of products that help to reduce, and in some cases eliminate, the use of water. Its products also help deliver energy and cost efficiencies, alongside improved performance, compared to standard alternatives.

The positive impact that each investment has is measured, so it’s possible to calculate the environmental and social benefits that your investment creates. For example, owning £10,000 of the fund throughout 2021 was associated with:

• Generating 4MWh of renewable energy
• Avoiding three tons of carbon dioxide emissions
• Treating 190,000 litres of wastewater for reuse
• Providing a day of tertiary education
• Helping three people receive healthcare treatment and saving £2,500 of costs through more efficient healthcare systems

2) CT Responsible Global Equity
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 to be damaging or unsustainable, such as those involved in fossil fuels, alcohol, gambling, pornography, weapons, and tobacco. The fund also avoids fossil fuel companies and those in breach of animal welfare, human rights and labour standards.

They ‘invest’ in companies that make a positive contribution to the environment and/or society in one of seven sustainability themes, which include energy transition, resource efficiency and sustainable cities. Current investments include Smurfit Kappa. The group is leading the shift from plastic to paper-based packaging, which is mostly renewably sourced, designed to be recycled and naturally biodegradable if littered.

The team also ‘engages’ with the companies they invest in with the aim to reduce risk, enhance long-term performance and encourage environmental, social and governance-related improvements.