CEOs across the board try to give their firms a boost by increasing revenue and cutting costs. Our focus is on finding stocks across sectors with underlying environmental business advantages. That can lead us to holdings that might surprise you.

CEOs of public companies face pressure from a wide variety of stakeholders to improve their environmental profiles: megaphone-wielding shareholders, procurement managers seeking to “green” their supply chain, as well as concerned customers and employees.

However, we have observed that the most powerful force driving companies to reduce environmental impact is not stakeholder activism but self-interest: Many sustainability initiatives create competitive advantages and lift financial performance.

Our success hinges on identifying companies that directly benefit from their environmental advantages. This sometimes leads us to invest off the beaten path of companies widely associated with sustainability.

Hospital Green

When you think of “green” companies, health care probably doesn’t come to mind. But health care CEOs worry about energy use in their buildings, disposal of medical waste, and water consumption for sanitizing equipment, operating rooms and linens. These problems create opportunities, and some of our investments provide solutions. For example, Stericycle safely disposes of medical waste, while Cerner provides information technology to reduce redundant tests and unnecessary readmissions.

A less obvious solution provider is Middleby, which produces resource-efficient food-preparation equipment for hospitals, restaurants and other institutions. One of Middleby’s innovations is a waterless steamer, which can save hundreds of thousands of gallons of water and close to $1,700 in costs per year at an average-size hospital. Thanks to this and other innovations, including energy-efficient pizza ovens, Middleby has grown its annual earnings at twice the pace of its competitors.

Thumbs Up

Facebook early this decade embarked on a plan to slash energy expenditures by installing low-power servers and streamlining data centers. Its savings over three years: $2 billion, which represents about 15% of operating income within that time frame. The costcutting partly stems from the redesign of data centers from the ground up, with custom-built servers, power supplies, server racks and battery backup systems. The end result—a new data center in Prineville, Ore.—uses 38% less energy and costs 24% less to operate than Facebook’s older facilities.

Skipping the Bricks

Visa has embarked on a project of “financial inclusion’’ by providing savings, credit and payment services via mobile phones to people in emerging markets with little or no access to banks. The company is leveraging the fact that among the world’s 2.5 billion people who are “underbanked,” an estimated 1.7 billion of them have access to mobile phones.

Visa is working with the government of Rwanda to link banks in a global system accessible with mobile phones. The program would yield savings by reducing the need for constructing bank branches and by enabling the government to make entitlement payments electronically.

Sustainability strategies are not listed in financial statements or captured by standard metrics. Yet by finding companies with environmental business advantages, we believe we can help clients find compelling investment opportunities for the coming decades.

 

Please download The Advisory to read other articles in this issue including:

Demystifying Sustainable Investing
By Mike Hankin, President and CEO

For many investors, the topic of sustainable investing is a jungle of jargon and vague terms. When you cut through the confusion, though, you find that sustainable investing strategies have matured and improved, and now form the core of an increasing number of investors’ portfolios.

When considering whether to incorporate their values into their portfolios, investors often find themselves at a loss as they try to sort through a dizzying array of SRI, ESG and other acronym-laden choices available to them. Mike Hankin, Brown Advisory President and CEO, describes the firm’s commitment to cutting through the noise to get at what matters most to clients: performance, advice and service.

Starting Points
By Dune Thorne, Head of Boston Office; Alice Paik, Head of Strategic Advisory

Even investors with strongly held convictions sometimes avoid raising with their advisors the idea of syncing their investment portfolios with their ideals. Yet by focusing on sustainability, a family or institution can achieve clarity of purpose and commit to a long-term plan—two requirements of successful investing.

An Expanding Toolkit
By Erika Pagel, Portfolio Manager, and James Stierhoff, Associate Analyst

The boom in sustainable strategies has made it far easier than even five years ago to construct a sustainable portfolio across asset classes—from stocks to fixed income to compelling private equity alternatives.

The views expressed are those of the authors and Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future performance. In addition, these views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients or other clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is intended solely for our clients and prospective clients and is for informational purposes only. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.