By Andrew Hill, CFA
Sustainability has been a buzzword in recent years as more people understand the importance of minimizing our impact on the environment.
Sustainable investing also is growing in popularity. The term generally refers to the consideration of environmental, social and governance factors when investing, in addition to the traditional investment goal focused on growing value.
Many investment firms, including Andrew Hill Investment Advisors, are recommending that clients consider sustainability as a key component of their overall investment strategy. Companies with an environmental focus are well-positioned for solid growth in the coming years.
Below are three examples of sustainability concepts that are emerging in investment portfolios:
Reduce, Reuse and Recycle
- Environment: Many businesses and households have become avid recyclers, keeping items like electronics, paper, plastics and glass out of landfills. They also are purchasing items made from recycled products and supporting companies that prioritize the environment.
- Investing: There is a tremendous economic opportunity in using old, used or surplus products as raw materials, a practice that helps avoid environmental damage caused by mining while also reducing overall costs and waste. For example, my firm holds an investment position in TREX, the leader in composite decking made from sawdust and plastic bags, and two steel companies, Nucor and Schnitzer Steel, that use recycled metals as their raw materials instead of mining for iron ore. All three companies enjoy profitability that exceeds industry averages, which suggests that recycling offers an economic advantage over companies that mine raw materials.
- Environment: COVID-19 created economic opportunities for businesses that promote healthy indoor air quality. For instance, air conditioning contractors can install ultraviolet (UV) lighting in air filtration systems to prevent further spread of the coronavirus, as well as combatting mold, mildew and other contaminants. The result is a cleaner, healthier environment to work and live.
- Investing: Our firm was an early investor in Carrier Corp., a leading global manufacturer and distributor of heating, ventilating and air conditioning systems with an increased focus on clean air. Social responsibility helped drive the initial investment, but the opportunity grew as Carrier emerged as a leading provider of clean indoor air.
Electric Vehicles and Solar Energy
- Environment: Automotive technology has continued to make strides as manufacturers introduce hybrid and all-electric vehicles. The recent Colonial Pipeline hack, which created widespread fuel shortages throughout the Southeast, may influence car-buying trends for years to come. National media and politicians have increasingly emphasized electric vehicles and renewable energy as a means of reducing greenhouse gases. It’s also an effective strategy to offset the rising cases of lung cancer among non-smokers.
- Investing: Tesla sales doubled from 2018 to 2020. Meanwhile, Tesla’s newly redesigned solar roof and battery storage are emerging business lines that complement its car division. In client portfolios, Tesla was a core holding until earlier this year, when our firm harvested significant profits. We also reduced our position in NextEra Energy, the parent company of Florida Power & Light, as it may soon need to compete with more solar installations.
While the ultimate goal for any investor is to enjoy financial growth, sustainable investing is a concept that can offer both financial and environmental benefits. As more Americans integrate sustainability practices into their lifestyles, investors have an opportunity to experience positive returns while having a positive, long-term impact on society, environment and the performance of a business.