ESG investors have careful criteria for what makes a sustainable stock, but many could be missing out on opportunities as the sustainable case for some firms is not always obvious, according to Georgina Laird, senior responsible investment associate at Aegon Asset Management.
Laird says that investors need to look for those underappreciated companies that have a meaningful positive impact, whether through their product or their practices, even if that impact is not entirely apparent on the surface.
“Often a company’s role in creating a sustainable future is not clear at first glance, but a closer look shows its products are a key enabler of the transition,” says Laird. “Similarly, a company may not have the most world-changing products, but its practices – the ‘how’ it does things – are having a considerable positive impact on society.
One of the areas that her team continues to focus on is innovative and disruptive growth, which they believe is integral to addressing many of the sustainability challenges we face today. Although this disruption can take various forms, it is often linked to the pace of technological growth, which Laird believes requires strong innovation right through the value chain.
She says, “Technology is increasingly a vital enabler of many positive impact solutions. It can provide the essential components and infrastructure underpinning the green transition, meaning it can have both positive direct and indirect impact, the latter coming when products are used in downstream applications.”
Below, Laird outlines three companies of varying market caps which demonstrate this level of innovation and impact, but which investors with sustainability in mind may not have considered ‘sustainable’.
Oxford Nanopore*
“The rapidly evolving field of gene sequencing through a company such as Oxford Nanopore is a strong example of a sustainability stock that might not appear ‘ESG’ at first glance.
“Advances in gene sequencing over the past couple of decades have made sequencing faster, cheaper and more efficient, in turn making it more accessible for a wide variety of end uses. It now has applications as diverse as healthcare, agriculture or even forensics, with benefits to many areas of sustainability from food production to biodiversity.
“Oxford Nanopore is a key enabler in this area. The company makes a novel generation of DNA/RNA sequencing technology that is changing the way we live and work. They have designed a unique gene sequencing lab that is compact enough to fit in a suitcase. That suitcase can travel to the fields in Africa or rivers in Asia and help to test the environment in real time, directly informing actions to address biodiversity challenges. Scientists can now carry a (relatively) inexpensive lab in their backpack.”
Nvidia*
“Nvidia is front of mind for many investors right now, but perhaps not for reasons of sustainability. Despite this, there are many reasons why the firm should be piquing the interest of sustainable investors, too.
“As a leader in AI and accelerated computation, Nvidia perhaps best epitomises the convergence of healthcare and semiconductor technology. Its healthcare platform began by powering medical devices but has since broadened into simulation genomic analysis, and the overall business mix of medical devices and AI simulation has now shifted from 80/20 to 50/50.
“For example, Oxford Nanopore has combined its technology with Nvidia to deliver the fastest ever human gene sequencing sample in just five hours. This is a great example of first and second order impact working together.
“AI spending within healthcare is growing at a rapid pace, given the exponential growth in data and the increasing computational demand for AI. Nvidia believes that an inflection point will be reached this year as the cost of genomic analysis declines drastically, enabling an acceleration of drug discovery and much more beyond this.”
Dynatrace*
“Modern-day IT applications are often run across millions of devices simultaneously, in different cloud environments and via different operating systems. Effective monitoring of such multi-faceted architectures provides a significant challenge to IT professionals; the sheer volume of data generated by modern applications can be overwhelming when it comes to separating ‘signal’ from ‘noise’.
“Dynatrace’s product is designed to help engineers automate much of this complexity and provide them with a clear picture of their application’s performance landscape. The platform utilises artificial intelligence at its core and advanced automation to provide answers, not just data, about the performance of applications, the underlying hybrid cloud infrastructure, and the experience of customers’ users.
“Dynatrace has recently launched a Carbon Impact app which can deliver real-time insights into the carbon footprint of an organisations’ hybrid and multicloud ecosystem. The app translates utilisation metrics including CPU, memory, disk, and network input / output into their CO2 equivalent, and automatically identifies opportunities to reduce carbon emission.
“While some cloud providers already offer tools to measure carbon emissions from the use of their services, these do not support multicloud environments or account for the footprint of on-premises services. Dynatrace’s Carbon Impact app allows for a holistic approach to the management and reduction of carbon emissions – especially pertinent for businesses now that we have incoming regulatory mandates requiring stronger climate-related company disclosures such as the ISSB sustainability-related disclosures, and those being proposed by the SEC in the US and the European Parliament.”
*Stocks are held across a number of Aegon AM’s equity strategies.
Past performance does not predict future returns. Outcomes, including the payment of income, are not guaranteed.
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