Damian Cottier dives into why and how ASX investors can use ESG principles to their advantage, and offers up three examples in Telix Pharmaceuticals (ASX: TLX), Alpha HPA Ltd (ASX: A4n) and Calix Ltd (ASX: CXL).
Now more than ever we need to discard the shibboleth that sustainable investing compromises investment returns. Indeed, there is mounting evidence that asset managers who pay genuine heed to ESG principles will outperform, with investors increasingly attracted to stocks boasting these credentials.
It’s not just institutions.
Wholesale and retail investors are not only becoming more cognisant about ESG but are being more sophisticated in how they choose to invest based on these principles.
It means they are actively seeking out companies that are genuinely trying to operate sustainably, are contributing positively to their communities, are promoting diversity, and treating their employees equitably.
Certainly, it’s far more sophisticated than simply avoiding “sinful” stocks such as cigarettes, gaming, and oil, especially when you consider there is no definitive index stipulating whether companies are being ESG compliant as opposed to claiming they are.
It means investors must be prepared to do the homework themselves when investing in individual stocks or have faith that their fund manager is doing so.
At the Perennial Better Future Trust, we have focussed on building an authentic ESG investment process by developing a proprietary scoring system that rates companies on their ESG contribution, and how they are positively shaping a better future for their employees, shareholders, and the wider community.
Typically, these companies are in industries such as healthcare, education, renewable energy, and low carbon technologies that we believe will generate strong and consistent returns from being in sectors that are the wave of the future.
None of this means that investment fundamentals such as cash flow, gearing, balance sheet or capital management can be or are ignored.
What it does mean is that companies can tick the traditional investment markers and adhere to ESG principles. Those are the stocks that we forensically analyse to see if they are an investment opportunity for the Perennial Better Future Trust, with three examples being:
Telix Pharmaceuticals Ltd (ASX: TLX)
Telix Pharmaceuticals (ASX: TLX) had a series of positive news. The global sales of its Illucix product for the imaging of prostate cancer continue to exceed market expectations, with the initial sales outcomes suggest there is significant demand for the product and urologists are seeing patient benefits from the technology.
Telix has also announced the completion of patient recruitment for the company’s Phase III renal (kidney) cancer imaging study.
Telix’s product, which aims to distinguish between benign and malignant renal lesions, had previously received “Breakthrough Designation” from the U.S. Food and Drug Administration (FDA). Current imaging cannot reliably make this distinction, leading to invasive biopsy procedures that are not always necessary as up to 80% are not malignant.
Alpha HPA Ltd (ASX: A4N)
Alpha HPA Ltd (ASX: A4N) specialises in low-cost, low-carbon, high-purity alumina. These ingredients have applications mostly across lithium-ion batteries, semiconductors, and LED lights, all critical to decarbonisation.
Earlier in the year Alpha HPA announced it reached an agreement with Austrian-based global industrial company Ebner Industrieofenbau Gmbh, to enable Alpha to produce synthetic sapphire glass which is a downstream product of the company’s high-purity alumina (“HPA”) production process.
This agreement will result in the production of value-added product in Australia at the company’s Gladstone, Queensland production facility using Ebner’s low-energy technology and Alpha’s high-purity alumina (“HPA”).
Alpha’s production process results in HPA which has around 70% lower total emissions compared to incumbent processes.
Calix Ltd (ASX: CXL)
Calix Ltd (ASX: CXL) has been a key contributor over the last few years. It is an industrial solutions company dedicated to solving global sustainability challenges, including:
- Calix’s LEILAC technology assists in CO 2 mitigation in the global lime and cement industry which is responsible for ~9% of global emissions. Partners include Heidelberg Materials AG (ETR: HEI), Cemex SAB de CV ADR (NYSE: CX) and Adbri Ltd (ASX: ABC).
- Joint Venture with Pilbara Minerals Ltd (ASX: PLS) for more efficient and less carbon intensive processing of lithium ore.
- Adapting the core LEILAC technology for other applications with support from government agencies globally including Zero Emissions Steel, sustainable marine and aviation fuels and zero emissions shipping.
