In recent years - sustainable and impact investing - are shifting the focus towards investing, with the goal of not only generating financial returns but also gaining positive social and or environmental impacts. Let's discuss what is sustainable investing and impact investing and their importance and then highlight 3 companies that shine: ICL Group, NextEra Energy, and Republic Services

Sustainable Investing: Doing Well by Doing Good

Sustainable investing refers to investing in companies that prioritize environmental, social, and governance (ESG) principles. Companies aim to integrate these principles into their core business strategy, while simultaneously providing investors with strong financial returns.

Investing sustainably represents a long-term, forward-thinking approach, focusing on companies that are prepared for future challenges and market shifts related to sustainability.

Impact Investing: Investing for Change

While similar to sustainable investing, impact investing takes the concept one step further. Impact investors actively seek to place capital in businesses, funds, and other ventures that aim to generate specific beneficial social or environmental effects, in addition to financial returns. These investments can be in sectors like renewable energy, sustainable agriculture, microfinance, and or affordable housing, and the impacts are often measurable and reported.

The UN Sustainability Goals and Their Role in Investment Decisions

The United Nations Sustainable Development Goals (UN SDGs) are a universal set of goals, targets, and indicators that UN member states use to frame their policies. They address critical global challenges, including poverty, inequality, climate change, and environmental degradation.

Investors can use the UN SDGs as a framework to assess the sustainability and impact potential of their investments. Companies that align their operations with these goals demonstrate a strong commitment to sustainability and societal impact, often making them attractive to both sustainable and impact investors.

The Win-Win of Sustainable and Impact Investing

From an investor's perspective, investing in sustainability is a win-win proposition. Companies focused on sustainability are innovative, resilient, and well-prepared for future environmental and social changes, making them potentially sound long-term investments.

Companies that embed sustainability into their operations benefit from enhanced brand reputation, improved customer and employee satisfaction, and often better financial performance. Such companies stay ahead of regulatory changes and are better equipped to mitigate risk.

Here are some examples of what makes a company Sustainable:

#1 Emphasis on Recycling or Regeneration

 An environmentally conscious company prioritizes recycling or regenerating natural resources. They strive to promote sustainability by utilizing our planet's resources judiciously.

Evaluate a company's operating procedures and production methods. If they leverage renewable power sources like solar, wind, or geothermal, they're likely an eco-friendly company. Companies focused on waste management and renewable energy often fall into this category.

#2 Promotion of Equitable Trade

Environmentally responsible companies also consider other essential aspects like human rights, worker welfare, and local community enhancement.

When selecting a company, ensure they promote fair trade practices, possibly through empowering jobs, sustainable incomes, and community welfare. These companies should aim to effect positive changes and improve local communities.

#3 Safety and Wellbeing

An environmentally reliable company will prioritize safety for employees, the environment, and consumers. Safety should also extend to the production process, with the company providing secure working environments for its workforce. They should manufacture products that meet stringent quality standards.

#4 Social Good

Every environmentally trustworthy company should aim to foster social good, enhancing local community livelihoods while also securing profits for its investors. If a company can generate profits while upholding social and environmental responsibilities, it qualifies as a good investment choice!

#5 Providing Sustainable solutions to the world's greatest challenges

Beyond their corporate operations, it’s about companies whose solutions/products are sustainable and positively impact our world. Innovative companies that offer sustainable solutions such as alternative proteins, sustainable fertilizers, green energy, and such, fall under this category. They are impacting our world at the most basic levels, they work to meet the needs of humanity, such as feeding our world and working to prevent world hunger. Below we have uncovered 3 companies that shine!

3 Companies that Shine: ICL, NEE, RSG

#1 ICL Group:

Stock Symbol: (NYSE: ICL)

ICL Group is s global specialty minerals company and one of the largest fertilizer manufacturers in the world. ICL focuses on creating sustainable solutions to some of the world's greatest challenges. This includes developing innovative fertilizers to increase crop yields while decreasing environmental impact, and recycling industrial by-products into useful resources, which aligns with several UN SDGs, highlighting their dedication to global sustainability. ICL's influence extends far beyond traditional agriculture, as they have made significant contributions to fields such as Foodtech, Agtech, and Industrial Solutions., Their extensive global presence is supported by over 24 R&D centers ensuring a constant drive for sustainable innovation.

ICL's dedication to sustainability doesn't just make it an ethical choice for investors; it also makes it a smart one.

#2 NextEra Energy

Stock Symbol: (NYSE: NEE)

NEE specializes in harnessing wind and solar energy across North America. The company has successfully powered 5 million households, making it one of the top green energy companies for investment.

Beyond renewable energy, they also engage in physical contracts, trading activities, and marketing. Their primary income source is distributing gas and electricity to Florida residents.

#3 Republic Services

Stock Symbol: (NYSE: RSG)

Republic Services (RSG) specializes in waste management and recycling. As the second-largest waste management company in the United States, its mission is to produce renewable energy through recycling.

The company focuses on non-hazardous domestic waste, considering itself a champion for environmental care. They currently serve 14 million customers across the United States.

Conclusion

Sustainable and impact investing is reshaping the investment landscape, creating a world where investing is not just about monetary gain but also positive societal change. By prioritizing companies like ICL Group, which place sustainability at the heart of their operations, investors can drive change while securing their financial future.

What is your group’s history with responsible investing?

For more than 30 years, the SRI Wealth Management Group has helped clients to achieve their financial objectives while driving positive social and environmental impact. We are one of the leading financial adviser teams in the country exclusively focused on sustainable, responsible and impact investing (SRI). Our clients want to receive top-quality investment advice and believe their investments are an extension of their mission. We guide our clients through financial uncertainty and can help them to concurrently meet their long-term financial goals while making investments that are in alignment with their organisation’s or personal values.

Our mission is to advance social equity and environmental sustainability using capital markets. While legal or government policy seek to make a change, too often such means can be slowed down by political gridlock. Investors can often have a swifter impact on companies and their behaviour. How often have we seen market valuations be negatively impacted by environmental fines, product recalls or poor management decisions?  We have also seen that companies that have strong labour practices, mitigate environmental risk and pay attention to good corporate governance are quickly rewarded in the financial markets.

Today we consult on approximately $3 billion of assets, all of which are ESG integrated and focused on sustainable investments. In addition to our scale, we have over 30 years of experience in responsible investing starting in 1984, well before responsible investing started to pick up mainstream attention. We have been at the forefront of important social equity and environmental movements: apartheid, LGBTQ+ rights, divesting from fossil fuels and reinvesting in the clean energy economy and racial / gender equity. Along the way, my partner Tom Van Dyck and I have been recognised with top industry awards, including the Financial Times Top 400 Financial Adviser award in 2019, the Forbes/SHOOK Best in State Wealth Adviser award in 2020 and 2021, and with awards from Working Mothers in 2019 and 2020.[1]

The second myth we hear frequently is that responsible investing does not allow for a diversified portfolio. This is completely incorrect!

The responsible investing field has a lot of different terminology and there are a variety of ways to invest for impact. How would you help clarify this for potential investors and what is your group’s approach?

True! As responsible investing has grown and evolved, we as an industry have not done ourselves any favours with respect to jargon! Here is how The SRI Group thinks about it: Sustainable, responsible and impact (SRI) investing incorporates qualitative environmental, social and governance (ESG) factors into investment analyses alongside traditional, quantitative factors to evaluate risks and opportunities that impact an investment’s intrinsic value. ESG factors help identify longer-term risks that eventually turn into financial issues and is a more complete way of investing focused on double bottom line outcomes. Investors should be focused on these longer-term ESG risks as a way to identify good management teams, opportunities and risks. It is a process that can be applied in all asset classes throughout a portfolio. Anyone can focus on quarterly results but as investors, we need to look for other trends that can influence a company’s financial results, such as how companies treat their employees - do they treat them as assets or costs? Studies have shown that employers that treat their employees well can retain and attract talent, leading to less job turnover. This is a very disruptive process in any company, which can lead to a big drain on productivity and therefore financial results. As another example, management teams who are not thinking about the risks and opportunities posed by climate change to their business model can be missing a huge opportunity (or a huge potential problem!).

Integrating ESG into the investment analysis to reduce risk and identify opportunities is just one of several sustainable investing strategies clients can employ to minimise the negative impact on society or to pursue positive outcomes. Another strategy clients use is applying positive and negative screening to the portfolio (i.e. including or excluding certain sectors). Most of our clients are fully divested from fossil fuels - including both the reserves and the rest of the supply chain. We help clients pursue impact investing in companies mitigating climate change and working to transition to the clean energy economy. We also identify impact investment opportunities in community investing and gender / racial equity investing which clients can target alongside financial returns. All asset classes offer opportunities for these targeted initiatives, but the private capital and fixed income asset classes are both popular avenues through which clients invest for very specific outcomes. Shareholder activism is also a popular strategy with clients. This can involve proxy voting or engaging in dialogue with management teams and can be very effective at initiating change. For example, in recent years, shareholders have targeted large oil & gas companies to force them to develop plans to deal with climate change impacts to the environment. We have also seen a large increase in resolutions to increase companies’ disclosure of employee compensation so that gender and racial equity pay gaps are more transparent. You can’t improve what you can’t measure!

What do you want people to know about responsible investing?

 There are a few myths out there about responsible investing, which are worth debunking. Myth #1 is you will sacrifice returns to invest responsibly. The data demonstrates this has not been true historically. The MSCI KLD 400 Index is a responsible version of the S&P 500 and is the longest-running responsible investing index that has been live since 1990. Since its inception, the MSCI KLD 400 Index has outperformed the S&P 500 on an absolute and a risk-adjusted basis. As the field has grown, there have been more and more studies showing responsible investing can offer competitive returns. Morningstar recently analysed companies with high Morningstar ESG ratings in the Large Cap Blend US Equity Fund and ETF category and compared their trailing 3, 5 and 10-year performance as of 31 January 2021 to companies in the same category with low Morningstar ESG ratings. They found that ESG leaders out-performed the ESG laggards on an absolute and a risk-adjusted basis in each of the 3, 5 and 10-year trailing time frames. In our view, this is one of the best ways to invest and we have seen how investing with ESG factors has brought value and appreciation to client portfolios over the years[2].

The second myth we hear frequently is that responsible investing does not allow for a diversified portfolio. This is completely incorrect! ESG investing refers to a process and therefore we can apply that process across all asset classes, geographies, market capitalisations, and industries. We work with our clients to understand their long-term risk and return objectives as well as their near-term liquidity needs so that we are able to construct a tailored allocation to invest given their objectives. Our clients are invested across industries such as retail, healthcare, technology, industrials, etc. They do not tend to invest in oil & gas companies though. We can use environmental, social and governance factors as a part of the investment analysis for companies in any sector and in all asset classes.

The third myth is that ESG investing runs afoul of fiduciary obligations. Several organisations have stated the importance of ESG in satisfying fiduciary duty because ESG investing considers the whole picture of both quantitative and qualitative factors. As an example, the CFA Institute, a global association of investment professionals that offers the respected Chartered Financial Analyst (CFA) designation, said “integrating ESG factors can – and should – be seen as simply being a more complete approach to investing.”

What are the challenges you see with the growth of responsible investing recently?

20 years ago, the options around responsible investing were few and far between. Today, it seems like every financial institution is now offering some sort of responsible investing product because they see a market opportunity. Clients have more options than ever when selecting a responsible investing product, which is a positive development. However, just because the title of an investment product states it is responsible does not necessarily deem it so. For example, we have come across funds that state they are proactively investing in climate change initiatives, only to find several oil & gas companies in the fund. With so many options and choices, we see clients often get confused. Therefore, it is important for clients to work with an experienced investment adviser who has fully researched the investment, including the portfolio management firm and its professionals, the underlying holdings of the funds, and whether or not the investment satisfies a client’s financial goals and values. With so many options today, it pays to find a skilled and experienced financial adviser who can help you navigate through the ever-changing landscape.

Who is ESG investing appropriate for?

We see some demographics, such as women and millennials, as particularly strong in adopting ESG investing, but ultimately, we view it as being appropriate for all institutions and individuals when implemented thoughtfully throughout all asset classes in a diversified portfolio.

RBC Wealth Management recently issued a client study about responsible investing. We learned that more than 60% of clients are interested in increasing the share of ESG investing in their portfolio. While that is an impressive number, the share of women interested in increasing ESG in their portfolio was even higher at 74%! Millennials are also a leading demographic in adopting ESG investing, according to a 2019 report by Cerulli Edge. I think younger people understand it intuitively because they understand the confluence of the environment, economic growth and social justice issues. To them, investing is not just “OK, we’re going to make a ton of money and let’s forget about everything else.” You can’t let externalities fly off all the products and services that you use, or there will be big problems down the road.

While women and millennials get a lot of the attention, adoption has in fact been quite broad. The US Forum for Sustainable and Responsible Investment recently issued its 2020 Report on Sustainable and Impact Investing Trends showing responsible investing in the US growing 42% in just two years, from $12 trillion in 2018 to $17 trillion in 2020. This means that one out of every three dollars in the US is invested with some sort of responsible investing strategy. Our clients include people of all ages, genders, and professions as well as foundations and non-profits. People of all demographics buy certain products because of their values. We vote because of our values. Why shouldn’t we invest our savings—our number one financial asset—based on our values?

*value as of 3/31/2021

Due diligence processes do not assure a profit or protect against loss. Like any type of investing, ESG investing involves risks, including possible loss of principal.

Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.

RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.

[1] The Financial Times 400 Top Financial Advisers is an independent listing produced annually by the Financial Times. The FT 400 is based on data gathered from advisers, broker-dealer home offices, regulatory disclosures, and the FT’s research. The listing reflects each adviser’s status in six primary areas: assets under management (AUM), asset growth, compliance record, experience, credentials and online accessibility. The financial adviser does not pay a fee to be considered for or to receive this award. This award does not evaluate the quality of services provided to clients. This is not indicative of this financial adviser’s future performance.

Source: Forbes.com. Forbes Best-in-State Wealth Advisers ranking was developed by SHOOK Research and is based on in-person and telephone due diligence meetings to evaluate each adviser qualitatively, which is a major component of a ranking algorithm that includes: client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary, and advisers rarely have audited performance reports. Rankings are based on the opinions of SHOOK Research, LLC and not indicative of future performance or representative of any one client’s experience. Neither Forbes nor SHOOK Research receive compensation in exchange for placement on the ranking. This award does not evaluate the quality of services provided to clients and is not indicative of this adviser’s future performance. The financial adviser does not pay a fee to be considered for or to receive this award. For more information: www.SHOOKresearch.com.

[2] Past performance is no guarantee of future results. It is not possible to invest directly in an index.

Over Q1 2020, out of 206 sustainable equity funds and ETF in the US tracked by Morningstar, 44% were in the top quartile in terms of performance, 70% in the top two and only 11% in the bottom quartile. The performance was good with assets in European sustainable funds down 10.6% in Q1 20 vs. a 16.2% decline in the overall European fund universe. Evidently, ESG and sustainable fund providers (yes even those who ask to be forgiven for investing in fossil fuels until very recently) have aggressively promoted this success. As for stocks, the S&P Sustainable index outperformed overall S&P by 0.9% over the last 3 months in $ terms, clearly benefiting the defensive qualities of such assets in a period of market turmoil.

Yet, the really striking data is to be found elsewhere.

Since inception in September 2007 until end of February 2020, the MSCI ACWI ESG leaders index (largely used in the market as a benchmark) returned 5.24% vs. 4.48% in the broad market. The interesting point here is that this data does not encapsulate March 2020 when sustainable and ESG funds did even better.

We have seen the interest in sustainable investment clearly within our own activity too, during our recent crowdfunding campaign, we secured 300% beyond our target - that being pre-launch and during a global pandemic.

Over Q1 2020, out of 206 sustainable equity funds and ETF in the US tracked by Morningstar, 44% were in the top quartile in terms of performance, 70% in the top two and only 11% in the bottom quartile.

Let’s take a deep dive and see whether outperformance is a happy coincidence or evidence of a long-term trend, to try to anticipate what the future may hold. Our conclusion is not only that sustainable investment is turning mainstream but that it has the basis for a sustained out-performance in the medium-term, irrespective of views on the environmental crisis.

Why the strength of sustainable investment in the recent storm was rationale, not emotional

There are 5 objective reasons why sustainable investment was a recent winner:

1. Sustainable and ESG investment funds nearly always have low exposure to commodities, in particular, Oil & Gas stocks, which were the worst hit during the market crash. So, as a result, sustainable investments were likely to outperform only by virtue of not being commodity exposed.
2. Most sustainable and ESG funds entered the crisis with long healthcare and tech positions. Those were the two sectors that out-performed, which in turn compounded in performance terms the benefit of low exposure to commodities.

I would argue that these two points are pretty uncontroversial.

3. There is a correlation between the quality of management and the sustainability of the business model of companies. Typically, we see that companies whose management has for a long time prepared to pivot towards a more sustainable model ended up with a more resilient business model. This, in turn, protected them to an extent against a collapse of their markets. There is a growing body of academic studies showing a positive correlation between ESG factors and a Company’s Financial Performance (CFP). More than 9 out of 10 companies show this positive correlation according to a recent Harvard research piece. By virtue of linking ESG and CFP, it is possible to establish materiality which is a key factor in our view.
4. It could also be argued that investors anticipated future political developments, with many countries putting the environment at the centre of their recovery programmes. Investors take a risk there but a limited one: calls to base future economic growth on cheap oil and gas have been muted. Investors were very rational in particular in light of the evidence provided by the CBI that clean investment accounted for 1/3 of the economic recovery in the UK post the 2008-10 financial crash. In the next few years, investment opportunities in electric mobility and energy efficiency, to take two examples, could provide a drive towards economic recovery in two key sectors.
5. The collapse of commodity prices, in particular oil, could have been a very negative development making pollution cheaper than in the recent past. Yet again, investors took a very rational view: with oil demand likely never to fully recover from the current crisis (“peak oil”), returns in the Oil and Gas industry are likely to collapse. A few years ago, E&P would yield 25%+ returns, with Brent price below $30/bbl, returns of renewables will at least match those of fossil fuel. Investors have anticipated the move.

What about the medium to long-term?

The future is very positive sustainable investment. Let’s take our five-point format and see the rational arguments for sustainable vs. “traditional” investment in the next decade:

1. Those long-term reasons driving investors mentioned above, in particular, the link between ESG targets and financial performance will not disappear.
2. It is anticipated that billions if not trillions of investment money will leave fossil fuel/ polluting industries and be redeployed towards sustainable investment. This will simply happen because investors want it. It is worth having in mind that, if $2.6trn of investment were moved towards clean energy by 2035 to meet the COP 21 climate change targets, this would imply that c10% of the money invested in pension funds in the western world would leave polluting investments and be redeployed towards cleaner options. A simple demand and supply equation that can only help the relative valuations of sustainable assets. Already $30bn of investment moved towards sustainable investment in 2018, a 30% rise vs. 2016. In the first four months of 2020, in the thick of the C-19 crisis, according to Morningstar $35bn found their way into the European sustainable fund universe, a 50% rise vs. the same period last year. At the same time, the outflow for the overall European fund universe was $170bn.
3. We argue above that more money will be thrown in by Governments, but to an extent, this money is not necessary: wind and solar + storage are now competitive with coal and gas. After years of investments, hydrogen and storage are becoming competitive too. These technologies will amplify the trend towards clean/sustainable solutions not being a moral choice any longer but being the obvious choice based on an objective risk/reward analysis. Which fund manager would want to be invested in a heavily polluting asset when a clean asset delivering the same level of returns is accessible? The risk analysis frameworks are changing quickly for fund managers: clean energy is a way to reduce risks now, not just to diversify.
4. As more and more evidence of the growing environmental crisis emerges, regulations will continue to get tougher with polluters and encouraging sustainable solutions. I see the current US administration as an aberration, not a showstopper. Those who look at the US in detail know that clean energy is progressing quickly.
5. We are making progress so that the definitions around sustainable investment and ESG are becoming clear and investors have frameworks. The EU taxonomy together with the UN SDGs is a solid base fund that fund managers can refer to. In turn, investors can more easily compare fund structures and performance. The situation is far from ideal, but it is so much better than a couple of years ago. Thanks to this growing culture amongst investors, to dig deeper, the most egregious greenwashing will gradually disappear.

Where we could turn to be too optimistic

However rosy this scenario may appear, I can identify three risks that may at least partly derail it. Firstly, traditional polluting industries have benefited over the years from heavy levels of subsidies from governments because they are large job providers. Oil gets $380bn of subsidies a year worldwide, nearly 3 times as much as clean energy (yes, shocking). It will be politically difficult for governments to cut those industries adrift too quickly.

Additionally, while the number of funds claiming to be sustainable is growing exponentially, the number of assets to invest in remains limited. Anyone wishing to invest in zero-carbon power generation in Europe will likely end up investing in Orsted. It is a fantastic company, but it trades on very high multiples (>30x 2021E).

To diversify their portfolio, investors have to consider investing in companies like Enel or Iberdrola who have reduced their emissions drastically but are not zero emitters. This simple example shows the type of dilemma investors will face until they have more assets to invest in that fit tight criteria.

Finally, if big Oil decides to re-direct their investment towards clean energy, they risk overpaying for assets and in turn affecting the value of such assets.

Overall, it’s clear that the positive arguments towards sustainable investment are much more powerful and, having turned mainstream, will be a strong source of performance for investors in the future for decades to come.

For more information, please visit Clim8 Invest's website here.

Ethex, the UK’s first not-for-profit platform for positive investors, was named as the winner of the Sustainable Finance category of the Sustainable City Awards 2014-15, in a gala awards ceremony held at London’s Mansion House on 23 March, 2015.

Ethex has created a marketplace in which anyone can browse, choose, compare and invest in a range of positive investments and build their own positive investment portfolio in social and environmental businesses and at the same time fully understand the risks they are taking. Since its launch in 2013, Ethex has enabled over £13.5 million (€18.5 million) of investment in this way.

Judging the awards were Rishi Madlani, Director of Sustainable Energy at RBS; Rodney Schwartz, CEO of ClearlySo; and Lindsay Smart, Head of UK and US Markets at Vigeo, together with the Chairman of the Policy and Resources Committee of the City of London, Mark Boleat, who chaired the panel.

The Sustainable Finance award represents a collaboration between the UK Sustainable Investment and Finance Association (UKSIF) and the City of London. The category focuses on innovation in the sustainable investment and finance industry, advancing sustainability through financial services with demonstrated positive impact.

Lisa Stonestreet, Programme Director at UKSIF, said: “UKSIF is proud of our long-standing partnership with the Sustainable City Awards. UKSIF members and others continue to do outstanding work in the field of sustainable finance, ensuring that the UK remains a world leader in this area. It is a pleasure to acknowledge and reward those who have had a particular impact over the past year.”

The global sustainable investment market has grown substantially in both absolute and relative terms, according to The Global Sustainable Investment Review 2014, a report released by the Global Sustainable Investment Alliance (GSIA).

The report reveals that global sustainable investing assets have risen 61%, from $13.3 trillion (€12 trillion) at the outset of 2012 to $21.4 trillion (€19.3 trillion) at the start of 2014. As a result, the assets employing sustainable investing strategies have risen from 21.5% to 30.2% of the professionally management assets across the regions covered.

The Global Sustainable Investment Review 2014 is a collaboration between members of the Global Sustainable Investment Alliance and the Japan Social Investment Forum.

This is the second report to collate the results from the market studies by regional sustainable investment forums from Europe, the US, Canada, Australia, Asia (ex Japan) and Japan after the inaugural 2012 review was published in early 2013.

The report found that the most common sustainable investing strategy used globally is negative/exclusionary screening, affecting US$ 14.4 trillion (€13 trillion) in assets. ESG integration, the systematic and explicit inclusion by investment managers of ESG factors into traditional financial analysis, is the second most prominent strategy in asset terms, affecting US$12.9 trillion (€11.6 trillion). Corporate engagement and shareholder actions, the use of shareholder power to influence corporate behaviour, including through communicating with senior management and filing shareholder proposals, is the third most prominent strategy, affecting US$7 trillion (€6.3 trillion).