Climate-conscientious stock-picking that's evolved past volatile solar and wind.
Ticker Tape Editor Rachel Koning Beals talks with Donna Anderson, Vice President and Corporate Governance Specialist at T. Rowe Price, about public companies increasingly including climate considerations in their operating plans. The Ticker Tape also asked what investors might look for if applying an environmental-minded approach to their portfolio, and Anderson shares the “green” themes she’s got her eye on.
Ticker Tape: There likely will always be a place for solar, wind and some of these more deliberate environmental themes for interested investors. But there are many shades of green in investing, such as comparing energy use across big industrial firms. What are some guiding principles about incorporating an environmental sensibility in an otherwise diverse portfolio?
Donna Anderson: Increasingly investors integrate environmental considerations in their broad research process, not as a separate category or after thought. In fact, to treat it as such introduces an unnecessary level of risk. You have to look for environmental management in unexpected places. And, importantly, there are differences around the globe. North American expectations for corporate energy efficiency or water use, and transparency in reporting these activities, are typically weaker than among international peers.
Ticker Tape: How can investors distinguish environmental leaders from the rest of the pack?
Donna Anderson: The information is out there. Many public companies will take the extra effort to disclose and promote the socially responsible programs, policies, and issues they deem important. And, increasingly, there are global programs and indices that green-minded companies want to be a part of. For instance, you might check if a stock you’re researching is a signatory in The Carbon Disclosure Project, which breaks down participants into its Carbon Disclosure Leadership Index (CDLI) and Carbon Performance Leadership Index (CPLI).
DON’T STOP at solar companies. Environmental leadership can be found in practically every sector. For example:
Source: Donna Anderson, T. Rowe Price
Tracking indices that screen stocks for social considerations, including environmental factors, can be an efficient way to keep tabs on the “greenest” companies. MSCI Global Equity Indices, for instance, has a designated category called its Environmental, Social & Governance (ESG) Indexes. The firm drills down to include a series called MSCI ESG Environmental Indices, which includes companies that span pollution prevention to water use to clean technology, and include developed and emerging markets, plus large-cap, mid-cap, and small-cap companies.
I also think it’s important to hold different sectors to appropriate expectations. A good example of this is how growth (which is good for investors) can be punished if you’re looking at simple environmental screens. For instance, within the airline industry, which is a carbon-intensive business, those few companies that are growing well are scored the lowest by some green ratings services. A company’s emissions should be considered within the appropriate relative context, e.g. per mile, per employee, per building, per square foot, etc.
Ticker Tape: What themes are top of mind?
Donna Anderson: I find the home-improvement market interesting because from basic materials like insulation and flooring to appliances, manufacturers are making more efficient products. And, to me, a housing market recovery signals strong interest in fixing up the housing stock we already have, making it more efficient.
That said, battery technology and efficiency evolves all the time [Editor’s Note: At press time, news reports covered the discovery of batteries that can store bacteria-generated energy] and light-emitting diode (LED) replacement cycles that look to remain in demand as conventional bulbs disappear.
I find logistics to be an evergreen theme, including state-of-the-art technology in trucking fleets that eliminates empty runs and helps firms get just the right amount of trucks on the road at the right time and in the right locations. There’s a similar move in the container ship industry, advanced tracking and communications, that helps assure maximum efficiency, i.e. fewer empty containers and reduced waits for containers.
And, then, there’s the not-so-pretty but vital waste management and recycling area. It’s here to stay. And we’re not just talking about landfills, but some interesting initiatives in waste-to-energy.
For environmental news stories that may help influence your portfolio choices, check out the Market News page at tdameritrade.com. Just search by keyword "green".
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