With a significant shift in investor interests to companies with strong ESG initiatives, Maxim Manturov, Head of Investment Advice at Freedom Finance Europe, explores two sustainable stocks investors should watch for.
Over the past two years, a significant number of investors have been shifting their focus to companies that are associated with strong ESG (environmental, social, and governance) initiatives. Between changing global conditions and changing consumer interests, sustainability has become an important factor in today’s business strategy.
Drawing up detailed plans to improve sustainability doesn’t just help a company achieve its altruistic goals; it also increases shareholder confidence. Investors cannot judge a company’s sustainability if they do not understand its strategy.
The world’s attention is increasingly focused on climate change. One of the key drivers of global warming is the increase in greenhouse gas emissions, with the livestock industry being one of the main culprits. The industry’s total emissions are on par with all modes of transport (cars, ships, planes) and account for 14.5% of all greenhouse gases emitted by humanity.
As the intensity of the fight against climate change increases, so does the potential and popularity of companies who aim to reduce or offset the harmful effects of human activity. Analysts have praised the producers of meat substitute products and are upbeat about its prospects for the next ten years. Bloomberg suggested that the global plant protein market will grow to £123bn by 2030. Sales of plant-based meat and fish alternatives could account for 5% of the total meat and fish market as early as 2030.
Meat replacement companies likely to go public in 2022
1. Impossible Foods is developing the latest generation of alternative (artificial) meats and plant-based cheeses. The company carefully selects specific proteins and biologically significant elements from greens, seeds, and grains. Through these efforts and combinations, meat and dairy alternatives are faithfully produced.
The Californian based company’s main aim is to combine the pleasure of food with the safety of that same food for both human health and the environment by eliminating animals from the production chain. Impossible Foods has raised a total of £1.6 billion in funding, with the last round of investment coming in November 2021, when Mirae Asset Global Investments invested £381.7 million in the project.
2. Huel specialises in complete plant-based food substitutes in the form of powders, drinks, snacks, and more. The Hertfordshire-based company has expanded internationally, including in continental Europe, the US, and Japan. The company has an estimated market capitalisation of £1 billion.
The company has reportedly appointed Goldman Sachs and JP Morgan as its advisers for a possible IPO in London in 2022. Investment banks are also advising a potential sale of Huel, although an IPO is considered the preferred option. In July 2020, Heul achieved a turnover of £71.6 million, which was almost 30% higher than the previous financial year of £50.2 million.
Strategies to follow for a portfolio based on green investments
1. Select only companies with sound financials and multiples. Just because sustainability stocks have tremendous potential does not mean that every company in this sector will become profitable.
2. Choose companies from different parts of the sector such as recycling, electric vehicles, meat substitutes, and alternative energy.
3. Do not invest more than 15% of your investment in a single company, as companies in this sector are subject to higher risks than traditional blue-chip companies.
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