ESG investing has really taken off in recent years. A study by OnePlanetCapital found that the environmental, social and governance-based investment market is set to double in 2021. So what is it?
ESG investing means keeping ethical considerations front of mind, this includes companies that actively seek to reduce their social and environmental impact. In some industries this is easier than in others.
I see no reason why the trend towards more ethical investing won’t continue – with a result being that shares with high environmental and social aspects, alongside businesses that are well governed, could do well going forward. For that reason, I’m keen to tap into the trend for ESG investments.
When it comes to investing direct in individual shares, over passively investing or choosing a fund, I’m thinking about adding the following shares.
Which investments meet high ESG standards?
My number one share for ESG investing would be Prudential (LSE: PRU). The FTSE 100-listed insurer is undergoing a quite radical restructure. Once finalised, it will give Prudential greater exposure to the faster growing Asian market. It’s due to de-merge the US business in the second quarter of 2021.
The company is a top holding for a number of top performing ESG funds, which gives me as an investor additional assurance that it’s both an ethical investment and that it could deliver strong future gains.
Being increasingly digital is expected to help bring down costs, which should help margins. This combination of growing margins and strong revenue growth, I think, could really boost the share price. That’s why, for me, when it comes to ESG investing, it’s a share I’ll be looking at closely.
But the risks are that Prudential is now increasingly reliant on insurance in Asia. Put another way, it’s now less diversified than it was a few years ago. A focus on growth in Asia may also mean the dividend is smaller than in years gone by, but higher growth may make up for that.
Another share for ESG investing
Another shares I’d look to add more of to my own portfolio is FTSE 100 pharmaceutical group, AstraZeneca (LSE: AZN). The group’s share price I think has been hit by the public spat with the EU over Covid-19 vaccines and now likely legal action on top.
Given it makes medicines, and has been providing Covid vaccines for no profit, I think AstraZeneca has strong ESG credentials.
However, its expertise is really in oncology, not vaccine development. That’s largely where the future blockbuster drugs will come from to help lower debt and it grow its dividend more strongly in future.
There’s always a risk drugs in the pipeline will fail. Recent years have seen a lot of drug development successes, however. Earlier this year AstraZeneca reported full-year revenue of $26.6bn, up 10% at constant exchange rates. Oncology was particularly strong, validating management’s strategy of focusing on this area.
I expect the furore over vaccine delivery will die down. Investors may then once again be willing to pay a high price to get access to AstraZeneca’s superb drug development pipeline.
