New Series: Sector Analysis for Sustainable Investing

How to Find Opportunities while Mitigating Risks in Each Sector

Tesla brand car
Jim Dyson/Getty Images News/Getty Images

With this article, we begin a new series on the opportunities and risks that either are emerging, or have already emerged, in each sector as pertains to sustainability.  We will look at environmental risks and opportunities, such as climate change and supply chain exposures, as well as social considerations, such as human rights violations among much else.

We will analyze one sector at a time starting in the next piece which will focus on the Automobile sector, looking at how sustainability has already been leading to value generation and improved financial performance as well as what challenges remain.

 Who can deny the success of Tesla in this regard?  

The transportation sector was shocked yesterday when the EPA announced forthcoming aviation emissions rules which fortunately the ongoing fuel efficiency designs of companies such as Boeing has already provided space for.  Without sustainability considerations, airplane manufacturing would be on its back foot, much as the coal production sector now is.

Our review will take into account what Consumer Goods companies are doing, as well as what it takes to be a leader, and why few follow any one strategy, as well as how some companies end up stuck in old ways of thinking and get left behind.

The utilities sector is particularly ripe for transformation with winners and losers now specifically emerging from the ability to adapt to new trends versus those stuck with older facilities and strategies.

Strategy is the underlying key to companies being able to successfully transform themselves into taking advantage of the sustainability trends now well underway globally either due to resource constraint considerations or changes to consumer tastes or in the rise of the middle class in the developing world that refuses to accept local pollution.

We will review these sectors, starting next week with Automobiles, and these are the entirety of the 15 sectors which encompass the entire gamut of global business:

  • Automobiles
  • Other Transportation
  • Chemicals
  • Oil, Gas & Coal
  • Metals & Other Resources
  • Construction
  • Other Industries
  • Consumer & Household Goods
  • Healthcare
  • Retail
  • Telecom
  • Travel & Leisure
  • Financial Services & Real Estate
  • Utilities
  • Technology & Media

A number of these sectors have been transformed in their entirety by sustainability trends.  

Three factors more than any other have affected business as pertains to sustainability, those being 1) technology and innovation, 2) the effects of globalization and 3) the need for local resilience and community strength.  These factors will continue to drive value, and the companies that get this right will succeed while those that ignore such trends risk being left behind as businesses and as viable investments.

The entire publishing industry has been in effect swallowed up by technology, which is why we dub the "Technology & Media" sector as one entity when it used to be two.  Which sectors are vulnerable going forward and which provide the biggest opportunity?

We saw the rise of Technology as a sustainability factor years ago and investors who overweighted Technology as we recommended at the beginning of this decade did very well indeed.  Over the last 5 years, QQQ, the PowerShares ETF representing the largest 100 Nasdaq companies such as Apple, Google, et al is +142.64% versus the S&P 500's +93.62%, or something like 1.5 times better financial performance.

 And so while Technology continued to rise, this resulted in better returns for investors while other sectors did worse, which we will review at length in this upcoming series.