no
NO
Norway
en-NO
no_intm_classes
intm
Intermediary
en
en
Insights

Why investing with “purpose” makes sense

Environmental sustainability is beginning to affect a company’s brand and competitive edge.

Just as anxiety about climate change and pollution mounts, so it is influencing which brands and products consumers prefer. So much so, in fact, that a company’s perceived sustainability, including the environmental footprint of its products, is beginning to affect its competitive edge.

In a recent global survey, a huge 81% of respondents felt strongly that companies should act to help improve the environment. The millennial generation, Gen X and Gen Z are most passionate, but their elder peers aren’t far behind (see chart).1 Importantly, they are willing to drop brands that do not meet their expectations and find it easier now than ever before to find alternatives that do.

Figure 1: Generations

Percentage of respondents who said that it is “extremely” or “very” important that companies implement programs to improve the environment

Procentage of global respondents

Source: The Conference Board Global Consumer Confidence Survey, conducted in collaboration with Nielsen, Q2 2017. https://www.nielsen.com/us/en/insights/report/2018/the-education-of-the-sustainable-mindset/

Thinking of new technology as disrupting entire industries has become commonplace. Yet corporate environmental practices are also a potential source of disruption. For an asset manager such as Columbia Threadneedle Investments, that judges its long-term holdings by virtue of their competitive edge, the “purpose” of a company – how it seeks to have a positive effect on stakeholders, especially with regard to the environment – is becoming an important factor.

At the centre of Columbia Threadneedle Investments’ analytical framework is a model called Porter’s Five Forces, named after Michael Porter, the Harvard business school professor who defined them. These five forces help to understand the competitive structure of an industry. As consumers’ tastes become more focused on the environmental sustainability of products, so their bargaining power increases. As new entrants emerge to meet these changing demands, and technology enables their marketing and distribution, so rivalry intensifies. Companies can no longer simply rely on a brand’s power to support returns.

Greening the brand

When it comes to consumer brands, environmental sustainability is both threat and opportunity. Some businesses view it as a danger to their brands and competitive edge that they must adapt to; others see it as an opportunity both to do good for society and for their shareholders. Investors are aware of this and are increasingly asking about how the environment affects stock selection.

Unilever, the Anglo-Dutch consumer goods company, is adapting to changing attitudes and responsibilities, looking to underpin its future brand strength through reducing environmental impact throughout its business. It is acting to manage the potential danger to its brands as consumers become fervent about sustainability. Notably, it aims to make all its agricultural raw materials sustainably sourced by 2020. It’s also targeting 100% fully recyclable packaging by 2025. Similarly, Adidas is enhancing its brand among environmentally-aware consumers. In collaboration with Parley Ocean Plastic, it is using recycled ocean plastic to make running shoes. More broadly, Adidas has a target of only using recycled plastics by 2024. For Adidas, making running shoes that help to remove plastic from the sea is an opportunity to grow sales and look after the planet.

Embracing sustainability can also boost a company’s competitive edge beyond simply its brand. Turning to a less well-known business, Trex is a US company that has recycling at the core of its business model and is steadily becoming more profitable. Trex manufactures decking from recycled plastic mixed with wood shavings and is one of the largest recyclers of plastic in the United States. Ninety five percent of a Trex deck is made from recycled plastic. In fact, a standard 16-foot (around 4.9 metres) Trex board contains approximately 2,250 plastic bags.

For Trex, recycling has proved exceptionally good business sense. Not only is it doing good for the environment, but also scrap plastic is far cheaper than the virgin plastic used by rivals. Further, a product that is easier to maintain than wooden decking is highly attractive. The result? Steadily rising revenues, a cost advantage over its peers and a growing market share.

A disruptive theme

If businesses do not act quickly enough to adapt to consumers’ growing concern about the environment, they risk seeing their competitive advantages being undermined. These businesses are likely to be the losers over the long term.

In a world where consumer tastes are changing fast, environmental sustainability is becoming an increasingly important theme. In a similar way to ground-breaking tech businesses, sustainability pioneers can gain a powerful competitive edge. If they do that in a way that leads to predictable growth in profits, then they can be compelling investments.

ESG analysis, especially regarding the environment, has become an essential part of the long-term investor’s tool kit. That is why companies with “purpose” should have a place in portfolios.

20 February 2020
Columbia threadneedle investments logo
Columbia Threadneedle Investments
Share article
Key topics
Related topics
Listen on Stitcher badge
Share article
Key topics
Related topics

PDF

Why investing with “purpose” makes sense

1 Source: The Conference Board Global Consumer Confidence Survey, conducted in collaboration with Nielsen, Q2 2017. https://www.nielsen.com/us/en/insights/report/2018/the-education-of-thesustainable- mindset/

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

19 November 2024

Melda Mergen

Global Head of Equities

2025 Equity Outlook: Will lower rates and strong earnings be enough to keep markets up?

Going into 2025, strong company fundamentals and trends in innovation could be outweighed by increased geopolitical risk and policy uncertainty.
11 November 2024

Paul Doyle

Head of Europe ex-UK Equities

European reform must wait as the US continues to advance

The continent is struggling with competitiveness and needs to cut interest rates faster – but even that may not be enough.
5 November 2024

Scott Woods

Portfolio Manager, Global Equities

WD-40, the graveyard cabinet and a hunt for special smaller companies

I spend about nine weeks a year in a rental car looking for companies all over the world, discovering their products, operations and customers. Here's what I'm looking for.
4 December 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – December 2024

Our fixed income team provide their weekly snapshot of market events.
2 December 2024

Steven Bell

Chief Economist, EMEA

The US under the new President: four good years or four bad?

It is no exaggeration to say that financial markets and governments across the world have greeted the clean sweep by Republicans in the US elections with some nervousness.
26 November 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – November 2024

Our fixed income team provide their weekly snapshot of market events.
true
true

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Investment Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

Woman listens to music through headphones
Play Video

CT Property Trust- Fund Manager Update

Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque laudantium