As investors become more interested in making a positive impact on the world, new areas are opening up for them to make money at the same time, according to Impax Asset Management Group Plc.
In a new whitepaper, "Investing in Resource Optimization Stocks," Impax Asset Management Group, a wealth manager for sustainable investing, and Pax World Investments, which manages sustainable investments, say investing in funds and companies that have grown up around the need to preserve and protect resources can help protect portfolios as well.
For instance, investors are becoming more determined to address climate change by divesting themselves of fossil fuels, and investing in energy efficiency and renewable energy. Investors also should consider companies that produce energy-efficient products, such as high-efficiency air conditioners that will be needed by manufacturers, says David Richardson, managing director, global head of marketing and client services for Impax Asset Management Group.
Investments in companies producing pollution-control devices and hazardous waste management systems will be advantageous to portfolios as polluting industries decline, the whitepaper says.
As droughts are becoming more severe, investment in companies that provide civil engineering, water treatment, and related services in the water sector may provide returns, the report says. Companies that provide flood prevention infrastructure and environmental monitoring systems are set to benefit from efforts to mitigate the impact of extreme weather.
“Investors should not just divest their portfolios of investments they consider harmful. It is more complicated than that,” Richardson says. “Climate change is a driver of impact investing, and the affects of the weather create investment opportunities.”
Investing in these resource optimization fields takes sustainable investing a step further and provides hedges for portfolios, says Richardson.
The resource optimization universe, as defined by the Financial Times Stock Exchange (FTSE), currently includes 1,500 stocks and has a growth potential over the next three to five years of 6.1 percent annually, says the report.
While investment opportunities are changing, the number of investors interesting in putting their money to work for good also is increasing, according to Anna Snider, head of global equity and impact investing due diligence at Merrill Lynch Wealth Management.
While institutional investors, who were the first to incorporate impact investing criteria into their mandates, still account for the largest share of assets, more individuals are demanding that money managers consider such factors, and they want more than just screening out ‘sin’ stocks, she says.