How to spot sustainability leaders
As an investor, you can choose between thousands of companies. But how can you identify which ones support the environment, society, and good governance? Silvia Terrano explains how her team distinguish truly sustainable companies from the rest.
“When it comes to reducing carbon emissions or producing renewable energy, all sorts of innovations are suddenly possible that you couldn’t have imagined even five years ago,” says Silvia Terrano. She cites the example of an insulation panel manufacturer she’s currently screening. “Europe could cut its energy consumption by roughly 35% through better insulation. However, the fossil-fuel-based foam insulation products that dominate the market are not recyclable. We’re currently examining a company that has developed the technologies to retrieve plastic from the ocean and to ensure its materials can be re-used when their life cycle is over.”
Silvia and her team devote much of their time to identifying sustainable companies for clients to invest in. But what, in her view, does sustainable actually mean? “Sustainable investing is built on an understanding that the company’s strategy and targets are informed by factors such as the environment, society, and corporate governance,” Silvia explains. Her team places an additional focus on innovation. “For us, a sustainable leader is a company that has a forward-looking approach. It’s not a company that wants to sit on a cash cow, but an organisation producing goods and services that will be useful for the next generation.”
She explains that the team isn’t just looking for established environmental, social and governance (ESG) champions, but also for companies that are pursuing a sustainable agenda. “The insulation panel manufacturer is currently around 50% sustainable, but it’s showing an upward trend,” she says. “Almost no companies, except perhaps those who are producing wind turbines or solar panels, are 100% environmentally sustainable. The key is to identify companies that are moving in the right direction.”
Five-step approach
To pinpoint companies that are displaying innovation and have future generations in mind, Silvia and her colleagues analyse them along five dimensions: