Investing in the winners of the sustainability transition will not only be good for investors but will also help to make sure that change is sticky and sustainable.
The challenge is to identify the companies most likely to succeed. Even ideas that have a sound scientific basis can fail because there simply isn’t the infrastructure, momentum, or funding to get them up to scale. This is why we consider financial and strategic strength to be equally important in our decisions as a company’s environmental or social contribution.
Below are five companies making a significant contribution to the transition, based on sound business models and sustainable growth, within the key investment themes benefiting from the shift to a more sustainable economy.
John Deere – Biodiversity
Agriculture is the cause of 80% of deforestation and uses 50% of habitable land. With global food production set to increase by 50% to meet demand in 2050, there is growing recognition of the urgent need to preserve ecosystems to combat climate change, creating opportunities for companies that are driving innovation throughout the sector.
John Deere is at the forefront of this battle to make agriculture more efficient and sustainable. By leveraging modern technologies such as electric tractors, cameras, sensors, and artificial intelligence (AI) in soil analysis and crop treatment, the company is pioneering a new era in farming that not only increases productivity but also minimises environmental impact, contributing to a more resilient and sustainable global food supply chain.
As one of the largest companies in its field, John Deere has the scale to drive the use of modern technologies in agriculture and to profit from the greater adoption of precision agriculture and electric-powered, automated vehicles in the agriculture sector.
First Solar and Eaton – Decarbonising the energy sector
Decarbonising the energy sector will be vital to achieving net zero, requiring an estimated $5trn per year over the next 30 years. The International Energy Agency’s (IEA) World Energy Outlook 2023 net-zero emissions scenario relies on a tripling in global installed capacity of renewables by 2030.
Alongside the development of renewable energy sources, we see opportunities for companies providing the technology that helps incorporate renewable energy into the grid and facilitate balanced, efficient and secured distribution of clean energy.
Eaton is a US power management company offering a full range of solutions for electrification and renewable energy growth. The company is well positioned to benefit from the megatrends of electrification, electric vehicle infrastructure, energy efficiency, the internet of things, and grid resiliency. Eaton has a highly profitable business model with a history of high long-term sales growth and strong cashflow generation.
First Solar is a US-based manufacturer of thin-film cadmium telluride solar modules. These modules, based on thin-film technologies, have substantial benefits compared to the most common and installed PV technologies to date. The company is investing in operating efficiencies and product development to bring down the price of its technology, both driving and benefiting from, the uptake in solar energy.
Planet Fitness and Novo Nordisk – Social progress
On current trends, 51% of the global population could be overweight or obese by 2035, with the economic impact rising to around $4.3tn annually by 2035. Investing in the prevention and treatment of obesity helps protect people's health and provides an opportunity to benefit from governments seeking to reduce the cost to healthcare budgets.
Planet Fitness is a low-cost fitness gym chain based in the US. Member growth continues to show the appeal and resilience of its clubs, which now number around 2,400. We see a long runway for expansion domestically as well as in adjacent markets. Planet Fitness resonates particularly well with the young adult demographic, which also appears more health conscious than previous generations.
Novo Nordisk is a pharmaceuticals company specialising in therapies for people with diabetes. It has continued to invest in research and development over the years and has notably developed an effective treatment for obesity, GLP-1 class. Importantly, there are also promising assets in the pipeline around second and third stage obesity drugs as more convenient and customised treatments will become available in the future.
Making positive contributions to the planet and society relies on companies like this that can grow and maintain momentum. Similarly, companies that are making a measurable difference have the potential to benefit most from the growing demand from governments and consumers to protect the natural environment, reduce carbon emissions and promote a better life for everyone. In short, financial and non-financial objectives are not just compatible, but inevitably entwined – we need to find the companies able to deliver sustainable returns alongside supporting the transition to a more sustainable world.
Anna Väänänen is head of impact investing at AXA IM. The views expressed above should not be taken as investment advice.