Sustainable stocks continue to have a bad reputation among investors.
The standard argument against sustainable investing is that it is not profitable, even if it is done correctly and all appropriate filters are used to exclude companies that do not adhere to the strict criteria for sustainable stocks.
What are these criteria? It helps to first find out what sustainable investing is and what is not.
“Sustainable investing refers to a range of strategies in which investors incorporate environmental, social and governance considerations (IT G) criteria for investment decisions and investor interests,” explains the US Sustainable Investment Forum (SIF) website.
According to SIF, $8.4 trillion in assets are managed in the U.S. using sustainable investment strategies. That's 13% of total AUM under professional management.
The key ESG criteria for institutional investors are climate change/carbon emissions, military/weapons, anti-corruption, fossil fuel divestment and tobacco.
For a change, I'm choosing my three sustainable stocks from the holdings of a Canadian investment fund – the IA Clarington Inhance Global Equity SRI Class – Sub-advised by portfolio managers at Vancity Investment Management, the investing subsidiary of vanityCanada's largest municipal credit union.
LVMH (LVMH)
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LVMH (OTCMKTS:LVMUY) is the investment fund's eighth largest holding with a weighting of 2.8%.
You may be wondering: How can a luxury goods manufacturer be a sustainable investment?
Profitability and meeting ESG criteria do not have to be mutually exclusive. Vancity fund managers take a three-pronged approach to stock selection. It includes ESG screening (negative and positive), fundamental financial analysis and shareholder engagement.
We can debate LVMH's commitment to the letters E, S and G in ESG until the cows come home. It's a very subjective discussion.
However, when it comes to social, “the proportion of women in key positions at LVMH [grew] from 23% to 45% between 2007 and 2022,” Bloomberg reported earlier this year. Even better: 65% of executives and managers are women.
I'm sure many ESG funds have sold off LVMH and other luxury stocks after they fell 22% in the last six months. However, as of October 31, this was not the case for SRI Class IA Clarington Inhance Global Equity.
LVMH is one of my favorite companies because of its focus. It knows what it is and what it isn't. To hell with the cynics and skeptics.
Costco (COST)
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Costco (NASDAQ:COST) is the 17th largest holding with a weighting of 2.4%.
Anyone who follows Costco's business knows that it's about more than just making money. Charlie Munger just died at the age of 99. Warren Buffett's pal had dutifully served on the Costco board since 1997. He loved the business.
“I love everything about Costco,” Munger said during the Daily Journal’s annual shareholder meeting earlier this year. He said, “I'm totally addicted and will never sell a stock.”
I suspect that “everything” included a commitment to the company’s mission statement of “continuously providing our members with high-quality goods and services at the lowest possible prices.”
When it comes to the 15 United Nations Sustainable Development Goals (SDGs), the company is committed to those that most closely align with its business. The three that stand out to me are responsible consumption and production, clean water and sanitation, and reduced inequalities.
However, one of the three guiding principles tells you everything you need to know about the company's approach to sustainability.
“For Costco to thrive, the world must thrive – we are committed to doing our part.”
It doesn't get much easier than that.
I'm like Munger; I love everything about the store.
Autodesk (ADSK)
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Autodesk (NASDAQ:ADSC) is the 23rd largest holding with a weighting of 1.9%.
Autodesk offers cloud-based and desktop software products that help companies design and make things. Companies that use its products include architecture, engineering, construction, media, entertainment and manufacturing.
Autodesk's backstory is interesting, dating back to 1977. Arizona State graduate Mike Riddle had a love for computers and began developing a graphics program called Interact while working on an accounting system at the Frank Lloyd Wright Foundation. Their design expertise allowed him to optimize Interact to the point where it could be used for actual architectural work.
In 1982, Riddle and more than a dozen others formed a partnership called Marin Software Partners with Marinchip Systems founder John Walker and his partner Dan Drake. The 18 partners got to work, focusing on 15 programs, including Interact, whose name was changed to MicroCAD in August 1982, and finally AutoCAD.
Even today, AutoCAD is still a significant source of revenue for the company. In the third quarter of 2023, AutoCAD generated revenue of $372 million, representing a 26% increase in total revenue. The largest revenue by product family is Architecture, Engineering and Construction (AEC) at $675 million, or 48% overall.
From a sustainability perspective, Autodesk believes its software products help construction companies save time, energy and costs while reducing waste and carbon emissions.
What's not to like?
At the time of publication, Will Ashworth did not hold, directly or indirectly, any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com's publication policies.
Will Ashworth has been writing about investing full-time since 2008. Publications in which he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in the United States and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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