When looking to invest more sustainably, it can be hard to know which funds and stocks to choose. Some companies might focus on reducing waste or plastics, lowering their carbon footprint, or promoting workers' rights. But what about the companies trying to improve their entire sector?
Catherine Stanley, manager of the BMO Responsible UK Income and BMO Responsible UK Equity funds, says responsible investing is about reducing risk while also improving outcomes over the longer-term. She wants companies with the usual attractive features - a high quality business, strong management - but beyond that, she wants responsible businesses looking to improve their industry. So, too, does David Harrison, manager of Rathbone Greenbank Global Sustainability. He says companies shoulde be able to “walk the walk” when it comes to sustainability.
So what are some of the stocks that fit the bill? Here are five stocks managers rate as responsible investments:
Recycling: Tomra Systems (TOM)
One of Harrison’s favourite stocks is Tomra, a Norwegian recycling and plastics sorting company which produces, sells, and services automated recycling systems. This includes data administration systems and the manufacturing of reverse vending machines to collect empty beverage containers. It serves the Norwegian market where 90% of all beverage containers are recycled, as well as customers elsewhere in Europe and North America.
Harrison says: “We believe Tomra enjoys sustainable competitive advantages, given its significant investment in developing new technologies and proven ability to deliver benefits in recycling schemes. Tomra actively works with governments and large consumer companies to promote a more circular approach to plastics and is a member of the Ellen Macarthur foundation.”
Plastic Pipes: Advanced Drainage Systems (WMS)
Harrison also likes US Advanced Drainage Systems, which is engaged in designing, manufacturing and marketing thermoplastic corrugated pipes (strong plastic pipes that are resistant to gases and chemicals) and water management products. It uses recycled plastic building materials and products are used in commercial and residential applications such as storm water drains.
“Recycled plastics are increasingly used to replace other materials in building projects as they offer key advantages to customers," says Harrison. "Advanced Drainage enjoys significant scale advantages versus its competitors and has a strong heritage of investment and development of new products. The company is the second largest recycler of plastics in North America and actively works with local governments to promote the use of recycled materials.”
Healthcare: Biogen (BIIB)
Michael Li, co-manager of American Century Advanced Medical Impact, likes US drug and biotechnology company Biogen, a wide-moat value stock which has a Morningstar Rating of 3 Stars. It focuses on neurology and the commercial success of its multiple sclerosis treatments has enabled the company to invest in researching potential treatments for Alzheimer’s and other debilitating diseases like stroke and Parkinson’s.
Li believes its strong product suite and overall research pipeline means it has the potential to grow sustainably for an extended period while doing a great social good. He says: “We believe the company is consistent with several social impact goals, including improved access to medicines and health care services in both developed and emerging markets, and new solutions that lead to lowering the cost of health care.”
Recruitment: FDM (FDM)
One of Stanley’s favourite small-cap stocks is FDM, which recruits, trains and places graduates, ex-forces personnel and returners to work after a career break. It offers a technology training course and a two-year consultancy placement with various blue-chip companies. Diversity, inclusion and social mobility are core to the business, as it aims to offer opportunities to those who struggle in a competitive job market.
She says a strong balance sheet served the firm well during the pandemic and over the past 18 months, FDM has made no redundancies, taken no furlough cash, and has supported jobseekers through periods of no work. She adds: “Even in its most mature market of the UK, it’s still only accounts for a very small part of its customers’ technology and recruitment. It has already expanded its model into other markets, such as the US and Europe, and there’s plenty more to go for over the years.”
Infrastructure: RPS Group (RPS)
Another BMO GAM favourite is infrastructure consultancy RPS, which has operations in the UK, US, Australia and Europe. It is addressing areas of environmental impact, resource conservation, planning and safety. Stanley explains that while it for many years has had green credentials, it has evolved its business further recently, in order to address changing client needs. For example, its energy division has positioned itself as a net zero carbon consultant.
“The company has been significantly impacted by Covid, not least because travel restrictions has meant it has not been possible to go to client sites. However, it is now recovering and looks well-positioned as clients become increasingly environmentally aware,” Stanley says.
