Four ways to invest in the Build Back Better initiative

According to Tribe Impact Capital, half of the World Economic Forum’s ‘Top 10 Risks’ for the coming decade are environmental issues. The company say that, by exceeding nature’s capacity to support us, we now face the twin threats of climate change and an unprecedented decline in biodiversity. What we all need to do now, is support the effort to build back better, with investment in sustainable companies being the ultimate form of advocacy.  

Circularity

According to Tribe, there are four key themes that need to be championed in order to bolster planetary resilience. The first of these is based on the term ‘circularity’, or the ‘circular economy’, which focuses on repairing and refurbishing products, reusing and recycling ‘end-of-life’ materials and diverting organic waste from landfill in favour of composting.

By reducing the demand for new materials to enter our consumption cycle, and by returning nutrients (or simply value) back to the earth, circular practices such as these can help natural systems to recover from overexploitation, and regenerate, so that they can produce new resources. As stated by Tribe:

“The circularity transition will be enabled by increasing modularisation within products, as well as a shift away from asset ownership towards product-as-a-service business models.”

“[…] Circular investment opportunities exist within multiple industries. Some include the reclamation and recycling of plastic, metal, paper and food waste, the production of recycled-content and recyclable materials for use in packaging, construction and textiles, and the provision of refurbishment or repair services.”

While there are thousands of companies now actively recycling and composting, there is one that currently sticks out to me. Connected Energy recently received £350k in investment from the government-managed Low Carbon Investment Fund 2, to bolster its projects. The company focuses on repurposing electric vehicle batteries and turning them into grid-scale power storage systems, used to store power from renewable sources, to smooth out fluctuations in supply. Their upcoming project will be a 12MW grid power system.

A second company to consider is Covanta Holdings (NYSE:CVA) –  a Group specialising in helping communities manage their waste and turn waste into energy. Aiming to protect natural assets and generate renewable energy, Covanta’s sites across the world convert around 20 million tonnes of waste into energy every year.

Pollution Control

The second, and well-documented, way to build back better is by companies reducing their pollutants, which contaminate air, land and water. Pollutants don’t just contribute to the greenhouse effect, but can be toxic for marine and terrestrial ecosystems, with The Lancet stating that exposure to contaminated air, water and soil resulted in 16% of all global premature deaths in 2015. Tribe stated that:

“As investors seeking solutions, we look for companies that offer waste treatment services, environmental remediation and clean-up services and pollution testing services. Other investment opportunities include utilities that provide sewerage services, and pollution control technologies like catalytic converters and scrubber systems which help eliminate harmful air pollution from industrial processes and transportation.”

For me, there are two key routes for investors to pursue, in order to support companies reducing pollution: those finding low-pollution alternatives, and those getting rid of pollution.

Fitting into the first category is Meridian Energy Limited (NZE:MEL), which is a Rainbow Tick certified, New Zealand-based energy company, currently acting as one of the country’s largest energy companies, and providing power from 100% renewable sources.

Another noteworthy project is Polymateria’s Biotransformation tech, which, with a £15 million investment from Impact Investors, Plant First Partners, will enable tough plastics to decompose into non-harmful wax-like substances. 

Preservation of nature’s capital

Building on the principles already discussed, Tribe Impact Capital says that that in order to build back better, investment is needed to protect frontline biodiversity, and to help social-ecological systems regain resilience.

Examples of investment sectors involved in these processes include sustainable forestry and agriculture. On the forestry front, some companies use timber while planting a surplus of trees in place of what is taken, while others plant trees in addition to their other business practices.

In agriculture, regenerative and organic agribusiness can assist in the reuptake of greater biodiversity, while the Netherlands’ innovative and efficient greenhouse agriculture sector uses land and water efficiently, and thus uses a lot less land than most mainstream agribusinesses. According to Tribe, when done right:

“These activities help to regenerate degraded land, support biodiversity and draw carbon down into trees and soils. In the interests of ecological resilience, these kinds of activities should be conducted with an understanding of local ecological conditions; they should prioritise sustainable land management practices and should involve a diversity of tree and crop species, including those which are adapted to withstand different pests and to tolerate climatic changes like droughts and flooding. In the case of forestry, the end product should be intended to provide long-term carbon sequestration, for example in the construction industry as opposed to the biomass industry.”

While Dutch agriculture may be the model that more countries should try to adopt, investors should take an interest in B-Corps such as Ecosia – a search engine currently using its profits to plant trees – and BioCarbon Engineering, a company which uses specialized drone technology to reforest remote landscapes.

Expanding clean water resources

Finally, Tribe thinks that to build back better, we need to invest in sustainably-managed, safe and affordable water. At present, water risks include over-abstraction, pollution and climatic changes, which are all adding pressure to the fight to alleviate water scarcity. To combat these risks, investment in upgrading and extending global wastewater treatment and distribution infrastructure is key, as well as tech which facilitates greater water efficiency and reuse. As said by Tribe:

“In addition to sustainable water utilities, technologies like closed-loop water systems for industrial cooling, micro-irrigation technologies to reduce agricultural water use and water-efficient bathroom and kitchen appliances are all investible solutions.”

Two companies operating in this field include Xylem (NYSE:XYL), a company focused on the design, manufacture and service of engineered solutions for water and wastewater applications, and Suez Environnement S.A. (EPA:SEV), who provide water management, recycling and waste recovery, water treatment, and consulting services, across four European business segments.

The build back better path

With many companies now undertaking measures to implement sustainability criteria into their business models, it would seem that the build back better mantra has taken hold. Indeed, with the ECB and Bank of England declaring that environmental risk will now be factored into their bond-buying and QE programmes, a cultural shift is certainly underway.

However, companies adhering to limited ESG criteria, and pledging to change their practices, are very different from sustainability in actuality. The best way to pressure large corporations to change the way they do business, is to invest in the companies currently leading the way. Investors really do vote with their feet, and the greater the number that invest in sustainable alternatives (such as the ones listed), the better the chance we’ll have to build back better, and change the behaviour of high-carbon blue chips.