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Sustainable investing
September 21, 2021
3 mins

Two key components to evaluating sustainable companies

September 21, 2021
3 mins
Harlin Singh Urofsky
Global Head of Sustainable Investing
SUMMARY

We are keenly aware that the sustainable investing space is complicated and nuanced. And to this end we review investment opportunities through multiple lenses to gauge if they have earned the sustainable investment dollars of our clients.


An investment may meet sustainability objectives for a variety of reasons. Companies that produce clean energy solutions or provide access to basic resources may be obvious candidates because of what products or services they offer. But just as important as what products or services a company offers is how a company conducts business, in essence, the impact of its day-to day operations.

At Citi Private Bank, we are keenly aware that the sustainable investing space is complicated and nuanced. And to this end we review investment opportunities through multiple lenses to gauge if they have earned the sustainable investment dollars of our clients. In the broadest terms, we consider both what a company does and how they do it.

What a company does

What are the goods and services a company provides? Companies directly involved in sustainable business such as renewable energy, electric vehicles, sustainable plastic, automatically come to mind. These companies exist to address an environmental or social issue and are especially compelling to thematic investors.

They are also compelling for another reason – the urgency and necessity of these innovative products and services create a compelling growth opportunity for long-term investors. The addressable markets for innovative solutions are vast, from technology that generates resource-efficient farming and boosts crop yields, to infrastructure that will gather, store, and treat water to reduce water scarcity.

How a company does it

Every company has environmental and social footprints from its day-to-day operations – impacts on its employees, supply chain and surrounding community.  For example, companies that produce industrial equipment may have energy intensive manufacturing processes. Industry leaders in these sectors will take action to mitigate climate related transition risks and curb greenhouse gas emissions. Furthermore, strong businesses will evaluate physical risks such as extreme weather and ensure continuity of operations for its plants. For some companies, there are many wins to point to – cost savings from energy-efficient technology, decarbonization and risk management.

Reported and extrapolated environmental, social and governance (ESG) data and fundamental analysis – the use of which is referred to as ESG Integration – is increasingly utilized in security selection to understand a company’s footprint.

When evaluating this information, there is an additional and significant nuance to consider beyond its current footprint: For companies that don’t yet have big wins to point to, one can identify those poised to improve by seeking out key indicators such as their progress against their stated goals or a positive mitigating factor in their footprint including a diverse workforce, community involvement or close oversight of their supply chain.

In fact, some of today’s highest emitters, such as utility companies, are poised to be tomorrow’s greatest facilitators in an energy transition. This story of transition may be where some of the greatest value lies today.

“What a company does” and “how a company does it” as investment criteria are by no means mutually exclusive and can apply across all sectors. They provide a good starting point to evaluate the potential contribution of a company on society at large – as well as important clues about possible ESG risks.

To learn more about our platform of sustainable investment opportunities visit Investing with Purpose.

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