4 Environmental Stocks To Watch In 2023
EU Taxonomy – a valuable starting point for impact investors
For impact investors, one of the big challenges is to identify and qualify companies that are providing genuine solutions to our climate and environmental problems.
The wranglings that went on during our most recent COP27 symposium in Egypt make it clear there are no longer any “easy fixes” for the challenges we face.
Global warming is creating rising sea levels, shifting rainfall patterns, increased heatwaves and droughts as well as catastrophic wildfires and floods. But there are many other problems – largely manmade – that are also working to undermine our planetary boundaries, from land and soil degradation to freshwater depletion and the unabated and continued destruction of protected habitats, ecosystems and biodiversity. And those in turn are compounded by huge social issues such as pollution, food insecurity and unequal access to health and education.
For investors keen to channel their money into companies that are focused on discovering and delivering solutions to help build a more sustainable economy, a valuable starting point is the EU Taxonomy for Sustainable Activities (“EU Taxonomy”), published in 2020 and designed to help provide a green roadmap.
The EU Taxonomy covers six broad environmental objectives from climate change mitigation and adaptation, water, pollution control, biodiversity and the circular economy.
Leading change through targeted investment
Of course, every business brings negative consequences of some sort as well as positive ones, so the concept of ‘net positive impact’ is a helpful one. To that end, Rize ETF have devised a methodology in partnership with leading ESG thematic research firm called Sustainable Market Strategies (“SMS”) in Montreal, Canada, where COP15 is currently taking place, to select and assess companies leading the charge in the global green transition. The methodology seeks to cast the net across the whole spectrum of categories defined under the EU Taxonomy with a view to select the top 100 companies in terms of net positive impact.
As such, there’s a real cross-sectoral focus to identify the highest scorers. One good example is the Swedish heat pump specialist Nibe Industrier, a specialist in innovative ways to reduce carbon emissions from buildings.
The built environment accounts for around 40% of total CO2 emissions worldwide, so this is a huge market – and it’s further exacerbated by the energy disruption caused by geopolitical crises such as the Ukraine war. SMS estimates that worldwide the market is worth about $USD 100 billion, with an expected annual growth rate of 5-10% in the coming decade.
Nibe Industrier, as one of the industry leaders, has a cutting-edge role to play. In developed countries, the company’s focus is on refurbishing existing buildings to get them towards net zero. In developing nations, it’s focus is on introducing high-efficiency technologies such as heat pumps and geothermal solutions to new buildings.
On another tack entirely is SCA, another Swedish company and the largest private forest owner in Europe, with 2.6 million hectares of land under its management. SCA’s assets are land and the timber harvested from land, but it has earned its place among the highest-scoring companies for net environmental impact through its commitment to biodiversity.
These include setting aside 400,000 hectares of the most sensitive habitats – such as swampy areas rich in flower, insect and bird life – in order to promote biodiversity within the forest as a whole. A further 10% of the remaining forest earmarked for harvesting was also voluntarily set aside to ‘re-wild’ in 2020.
In a world with limited natural resources, the concept of the circular economy – recycling and reusing materials rather than disposing of them as waste – has become a critical one.
Belgian business Umicore is right at the forefront of this movement. The company operated as a conventional mining company for many decades but reinvented itself around 20 years ago. Today, around 60% of its revenue is generated through recovery of minerals and precious metals underpinning the shift to a cleaner, electrically powered world.
In business terms, Umicore has a powerful global competitive advantage. It runs some of the world’s most sophisticated recycling facilities, covering around 30 valuable metals including electronic scrap, batteries, fuel cells and catalysts.
Its environmental case is equally compelling. Mineral and metal recycling not only helps us minimise the amount of waste sent to landfills but also reduces our reliance on extractive industries, which typically operate in countries where geopolitical risk may be high and environmental regulation may be low.
A topic that has been neglected for a long time is catching up: water
Water sustainability and protection is another crucial aspect in our fight to clean up the planet. Kurita is a major Japanese business that helps its clients in numerous water-intensive sectors from agriculture and heavy industry to healthcare and food and drink. The company helps its clients reduce the negative externalities of their business activities by enabling them to recycle water, reduce waste and improve the efficiency of boilers and cooling equipment.
Water has been one of the most underfunded areas in the green transition but that is set to change. Water sustainability is going to be one of the areas of focus in an upcoming global sustainability conference, and that is likely to raise its profile and investment profile.
Clearly, as pressure mounts on global leaders, industries and consumers to start taking more meaningful action, these and other such leading businesses are set to play an increasingly central role in our fight to protect our climate and environment.
LIFE: Rize Environmental Impact 100 UCITS ETF
 UN, “Building sector emissions hit record high, but low-carbon pandemic recovery can help transform sector – UN report”, December 2020. Available at: https://www.unep.org/news-and-stories/press-release/building-sector-emissions-hit-record-high-low-carbon-pandemic
 ENERGYminute, “4-Year Change in Capital Spending: Global Energy Investments”, May 2022. Available at: https://energyminute.ca/single/infographics/1847/5-year-change-in-capital-spending-global-energy-investments
 SCA, “Our forest”, 2022. Available at: https://www.sca.com/en/about-us/our-forest/
 SCA, “Sustainability: A key player”, 2022. Available at: https://www.sca.com/en/about-us/sustainability/
 SMS, “SMS Environmental Impact Opportunities Thematic Classification”, 2022. Available at: https://rizeetf.com/wp-content/uploads/2021/07/SMS-Environmental-Impact-Opportunities-Thematic-Classification.pdf
 Umicore, “Catering for the growing need for advanced materials to help tackle societal challenges”, 2022. Available at: https://www.umicore.com/en/about/strategy/growing-need-for-advanced-materials/