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On the stock exchanges, there are shares of companies whose activities can be beneficial to the environment in one way or another. In addition, there are companies that do not work directly or indirectly in the environmental field, but try to reduce the harm to nature from their activities.
I will tell you which companies’ stocks you can pay attention to. Some of them are listed on Russian exchanges and are available through the Tinkoff Investments app as well as other Russian brokers.
Please note that this is not an investment recommendation. Where to invest your money is up to you. When choosing stocks, it is worth considering not only how a company affects the environment, but also how promising its business and stocks are. And of course, don’t forget about diversification, as investing in one company is too risky.
Companies that can directly or indirectly be beneficial to the environment can be divided into several groups based on the area of activity.
Alternative energy. This is perhaps the broadest category. It includes companies that develop and produce solar panels and electronics for them, wind turbines, and so on.
Alternative ways of obtaining energy may be more expensive than traditional ones, but they reduce carbon dioxide emissions, operate on renewable sources, and have some other advantages.
First Solar produces thin-film solar modules. It is one of the industry leaders. SolarEdge Technologies develops solutions that make solar energy more efficient, and Sunrun sells, installs, and services solar batteries.
Ormat Technologies company specializes in geothermal power. Vesta Wind Systems manufactures and installs wind turbines, while NextEra Energy produces a large volume of solar and wind energy.
Water purification. Water is an important resource that is polluted by industry and urban sewage. Therefore, water purification to make it suitable for drinking and not harmful to ecosystems is a fairly promising niche.
A good example of a public company in this field is Ecolab, which produces wastewater treatment and filtration systems and helps clients use less water. We have a detailed overview of this company.
Collection, processing, reducing the amount of waste. Waste management allows us to reduce pollution of nature, and part of the garbage can be recycled, which also saves non-renewable resources.
One example of companies operating in this field is American Waste Management, which collects garbage and recycles it. Republic Services does roughly the same thing, while Danimer Scientific’s biopolymers allow for making plastic that will decompose without polluting the environment.
There is also Covanta, a company that generates energy from waste. However, it was acquired by another company and since the end of 2021, its shares are not traded on the New York Stock Exchange.
Other directions. There are other spheres that can be indirectly attributed to those caring about the environment. This includes, for example, the development and production of electric vehicles, which companies like Tesla, Rivian, and others are engaged in. However, there are serious questions about the harm that electric car batteries can cause to nature. But there are also companies that recycle them, such as Li-Cycle Holdings.
One can also mention companies related to building energy efficiency, such as Acuity Brands and Kingspan Group. Beyond Meat, which produces artificial meat, can also be considered eco-friendly.
Stock funds. You don’t have to buy individual company stocks, but invest your money in a stock exchange fund that consists of various stocks. This will reduce the risk: the fund is less dependent on one company’s problems.
The iShares Global Clean Energy (ICLN) fund is suitable for those who believe in the prospects of alternative energy. It contains stocks of approximately 80 companies from at least 15 countries. There are also funds dedicated solely to solar energy, wind energy, and so on.
What is ESG and how to invest in it
A company can operate in a traditional industry and not address environmental issues, but still not harm the environment significantly or strive to reduce such harm. If the company also tries not to act to the detriment of society and improves management quality, it will be classified as ESG.
The problem is that there are no widely accepted clear criteria for classifying a company as ESG. Different ratings have their own methods, which is why the evaluation of the same organization in different ratings may vary.
So, in the above-mentioned article, we gave an example of the Belgian company Solvay, which discharged chemical waste into the sea and still received the highest ESG rating from MSCI. However, Sustainalytics gave the company an average rating. Such situations do not increase trust in the ESG idea. In addition, environmental impact is only part of ESG. Much attention is paid to how the company affects society.
On the other hand, if you rely on ESG rankings, you can invest in a large number of companies from various sectors and industries, while excluding at least some of the companies harmful to the environment. The advantage of this is that it will provide a more diversified portfolio than if you rely solely on alternative energy, waste management, and so on.
Investing in companies with high ESG ratings can be done using appropriate exchange-traded funds.
There are many ESG funds traded on exchanges. Large technology companies often appear in them because they do not directly harm the environment and usually tend to take care of their employees.
The most “dirty” oil and gas and some mining companies are usually not included in ESG funds. And companies directly related to ecology do not always fall into them. This may be due to the relatively small size of many such companies and the increased investment risk in them. On the other hand, thematic funds like those dedicated to solar energy can be part of ESG.
An example of an ESG fund available to qualified investors or clients of foreign brokers is iShares MSCI KLD 400 Social (DSI). The fund excludes stocks of companies involved in oil, gas, and coal mining, as well as nuclear energy. The fund’s largest holdings include Microsoft, Alphabet (Google), Tesla, and Nvidia stocks. The IT sector accounts for 33% of the fund.
Summary
If you want to invest in companies whose activities help reduce damage to nature, it’s worth paying attention to alternative energy, water purification, and waste recycling. In these industries, there are companies whose shares can be bought on Russian stock exchanges, and there are various stock funds of similar companies available on foreign stock exchanges.
Another option is to focus on high positions in ESG ratings. These are companies that do little harm to the environment and society, and also strive to be transparent and effectively manage their resources.
However, it happens that the company ratings in different rankings differ, and ESG funds give greater weight to large IT companies and less to small companies directly related to the environment. It can be said that ESG investments are a compromise between traditional passive investments in the broad stock market and the desire to choose companies that do not harm the environment too much.
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