Sustainable stocks continue to get a bad rap from investors.
The standard argument against sustainable investing is that it’s not profitable, even when done correctly using all the appropriate screens to exclude companies not adhering to the stringent criteria for sustainable stocks.
What are these criteria? It helps first to identify what sustainable investing is and isn’t.
“Sustainable investing refers to a range of strategies in which investors include environmental, social and corporate governance (ESG) criteria in investment decisions and investor advocacy,” states the U.S. Sustainable Investment Forum (SIF) website.
According to SIF, there are $8.4 trillion in assets under management (AUM) in the U.S. using sustainable investing strategies. That’s 13% of all the total AUM under professional management.
The leading ESG criteria for institutional investors are climate change/carbon emissions, military/weapons, anti-corruption, fossil fuel divestment and tobacco.
For a change of pace, I’m selecting my three sustainable stocks from the holdings of a Canadian mutual fund — the IA Clarington Inhance Global Equity SRI Class — sub-advised by portfolio managers at Vancity Investment Management, the investing subsidiary of Vancity, Canada’s largest community credit union.
Source: Postmodern Studio / Shutterstock.com
You might be thinking, how can a luxury goods maker be a sustainable investment?
Profitability and meeting ESG criteria don’t have to be mutually exclusive. The Vancity fund managers use a three-pronged approach to their stock selection. It includes ESG screening (negative and positive), fundamental financial analysis and shareholder engagement.
We can debate LVMH’s commitment to the letters E, S and G in ESG until the cows come home. It’s a very subjective discussion.
However, when it comes to social, “the percentage of women in key positions at LVMH [grew] from 23% to 45% between 2007 and 2022,” Bloomberg reported earlier this year. Even better, 65% of its executives and managers are women.
Down 22% in the last six months, I’m sure many ESG funds have dumped LVMH and other luxury stocks. However, as of October 31, the IA Clarington Inhance Global Equity SRI Class had not.
LVMH is one of my favorite companies because of its focus. It knows what it is and isn’t. To heck with the cynics and skeptics.
Costco (NASDAQ:COST) is the 17th-largest holding with a weight of 2.4%.
Anyone following Costco’s business knows it cares about more than making money. Charlie Munger just died at 99. Warren Buffett’s sidekick dutifully served on its Costco board since 1997. He loved the business.
“I love everything about Costco,” Munger said during The Daily Journal’s annual shareholder meeting earlier this year. He said, “I’m a total addict, and I’m never going to sell a share.”
I suspect “everything” included its commitment to the company’s mission statement “to continually provide our members with quality goods and services at the lowest possible prices.”
As for the 15 United Nations Sustainable Development Goals (SDGs), the company has committed to the ones that most closely align with its business. The three that stick out for me are responsible consumption and production, clean water and sanitation and reduced inequalities.
However, one of its three guiding principles tells you all you need to know about the company’s approach to sustainability.
“For Costco to thrive, the world must thrive — we are committed to doing our part.”
It doesn’t get much simpler than that.
I’m like Munger; I love everything about the business.
Source: JHVEPhoto / Shutterstock.com
Autodesk (NASDAQ:ADSK) is the 23rd-largest holding with a weight of 1.9%.
Autodesk provides cloud-based and desktop software products that help companies design and make things. Businesses using its products include architecture, engineering, construction, media, entertainment and manufacturing.
Autodesk’s backstory is an interesting one, dating back to 1977. Arizona State grad Mike Riddle had a penchant for computers and started designing a graphic program called Interact while working on an accounting system at the Frank Lloyd Wright Foundation. Their design expertise allowed him to tweak Interact enough to be used for actual architectural work.
Fast forward to 1982, Riddle and more than a dozen others started a partnership called Marin Software Partners with Marinchip Systems founder John Walker and his partner Dan Drake. The 18 partners went to work focusing on 15 programs, including Interact, whose name was changed to MicroCAD, and finally, AutoCAD in August 1982.
Today, AutoCAD remains a significant revenue generator for the company. In Q3 2023, AutoCAD had revenue of $372 million, accounting for 26% overall. Its biggest revenue by product family is architecture, engineering and construction (AEC), with $675 million, or 48% overall.
From a sustainability standpoint, Autodesk believes its software products help construction-related businesses save time, energy and costs while reducing waste and carbon emissions.
What’s not to like?
On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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