If you have clients who are worried about the environment, there are several ways to tailor their investments to meet those concerns.
At a minimum, environmentally sensitive investors want to make sure they aren’t encouraging the use of fossil fuels.
This goal can be achieved fairly easily. You simply eliminate from consideration all stocks, bonds and other securities of companies involved in extracting, transporting or distributing products made from oil, natural gas, coal or uranium, or that generate power from these sources.
That strategy may satisfy some of your clients, but there may be others who want to make a more active, positive contribution to a cleaner environment. For those clients, there are many publicly traded companies that are actively involved in the fight to produce a cleaner environment.
About 200 of the almost 1,700 companies in the MSCI world index, a commonly used benchmark for global equities, are considered to be environmentally friendly firms. Many of these firms produce renewable energy or provide technology to increase energy efficiency. There also are companies that offer water or waste management or are involved in public transportation and hybrid or electric cars.
In addition, there are companies that are actively reducing their carbon footprint. For example, Redmond, Wash.-based Microsoft Corp. has internal policies relating to carbon pricing.
“Each of Microsoft’s business units needs to track emissions and lower them,” says Andrew Simpson, senior portfolio manager with Vancity Investment Management Ltd. in Vancouver and manager of IA Clarington Inhance Global Equity SRI Class fund.
Simpson points out that technology companies are big energy users and that many also focus on using renewable power.
The IA fund, Simpson says, “looks for established companies that we believe are suitable for investors for retirement; have good levels of profitability and growth potential; and have the potential to succeed in a world of evolving environmental risk, increasing social expectations and changing shareholder demand.”
The IA fund is only one of the fossil-free mutual funds available. Some funds in this space focus narrowly on environment-friendly stocks; others pick from a broad universe of stocks, excluding only those that clearly are damaging to the environment.
“We only invest in companies [offering] products and services that address the issues of pollution and resource scarcity,” says Greg Payne, vice president of portfolio management at Greenchip Financial Corp. in Toronto and manager of Greenchip Global Equity Fund.
The mandate of another fund, Genus High Impact Fund, requires that the combined revenue of the companies in the fund’s portfolio must be at least 50% derived from environmentally positive activities, says Wayne Wachell, CEO and chief investment officer at Genus Capital Management Inc. in Vancouver. Genus offers four other fossil-free funds with broader mandates.
BMO Fossil Free Fund, which was launched this past April, also permits a broad universe of potential investments. It holds 1,200 to 1,300 of the stocks in the MSCI world index, says Greg Gipson, vice president and head of portfolio management, quantamental equities, with BMO Asset Management Inc. in Toronto.
Stocks considered to be leaders in efforts to improve the environment include:
– Alstom SA. This France-based company is a leader in rail-based mass transportation. Payne says the company has orders for the next five years, expanding margins and a clean balance sheet, and is attractively priced.
– Boralex Inc. This company, also based in France, buys wind and solar turbines, installs them, then sells the electricity under long-term contracts.
– Brookfield Renewable Partners LP. Simpson particularly likes this Toronto-based company’s exposure to Brazil. Gipson also favours the stock.
– Descartes Systems Group Inc. Wachell likes this Waterloo Ont.-based company, which provides global logistics software to help companies ship their products more efficiently.
– Gamesa Corporación Technológica SA. This relatively small Spain-based company makes wind turbines and constructs “wind farms.”
– Hannon Armstrong Sustainable Infrastructure Capital Inc. This Annapolis, Md.-based company provides debt and equity financing for “sustainable” projects, which the firm defines as “positively impacting the environment while being neutral or reducing greenhouse-gas emissions.”
– Infineon Technologies AG. This Germany-based company is one of the largest manufacturers of semiconductors used in automobiles, including hybrids and electric cars, and in power generation.
– Innergex Renewable Energy Inc. This Longueuil, Que.-based company owns and operates 29 hydroelectric facilities, 13 wind farms and one solar farm, mostly in Canada, but also in the U.S. and France.
– KSB AG. This Germany-based multinational produces highly energy-efficient water pumps and valves for cooling in power plants and other industrial processes. Payne says KSB has a “great” balance sheet.
– Pattern Energy Group Inc. This San Francisco-based company is a leader in renewable energy, says Simpson. Pattern installs and runs wind and solar power systems around the world.
– Schneider Electric SE. This is a France-based multinational company favoured by Simpson. Schneider provides technology, software and services to help companies automate their operations to reduce costs and environmental impact.
– Toyota Motor Corp. The IA Inhance fund holds shares in this Japan-based firm because it is a leader in manufacturing hybrid cars, which use only about half as much fossil fuel as regular cars do.
– Vestas Wind Systems A/S. All four portfolio managers mentioned that this Denmark-based company is the world’s largest company that manufactures, sells, installs and services wind turbines.
© 2016 Investment Executive. All rights reserved.