A huge wave of dedicated economic, social and governance money has been come into the market in the last couple of years. Many regulators around the world and institutional investors are mandating the integration of ESG analysis into the investment process.
To attract this investor money, many companies have upped their public relations strategies to appear greener. One way to get around this âgreenwashingâ is to use hard data to assess a given companyâs greenness. The problem is, this process can be quite complicated.
The London Stock Exchange Group PLC (LSE:LSEG, Financial) has simplified the process by introducing the Green Economy Mark, which identifies London-listed companies and funds that generate between 50% and 100% of total annual revenue from products and services that contribute to the global green economy. According to the Green Economy Mark factsheet:
"The underlying methodology is the Green Revenues taxonomy developed by FTSE Russell as part of the FTSE Environmental Markets Classification System.
The 50%+ threshold for the Mark recognises businesses who have a material revenue contribution from the Green Economy. In this way it includes but also looks beyond âpure-playâ green or clean technology companies to highlight those of all sizes, across all industries, driving the transition to a sustainable, low carbon economy.
Through its consistent application across London Stock Exchangeâs markets and segments, the Green Economy Mark and Green Revenue tracking improves visibility to investors and other stakeholders that are interested in Green Economy activities."
Further research on investing in the green economy (from a global perspective) can be found in an interesting paper from the FTSE Russell.
While I have a strong feeling a portfolio of these 100-plus stocks would outperform broader indexes over the next several years, how about if we just want to choose a handful of the highest-quality green stocks? Using the the Piotroski F-Score and ignoring the Green Economy Mark issuers which are Closed End Investments, I have screened for the top five quality names, which have an F-Score of 7 or higher.
The five scocks
FTSE 250 index member Oxford Instruments PLC(LSE:OXIG, Financial) is a leading provider of high technology products, systems and tools to the world's leading industrial companies and scientific research communities. Its core purpose is to support its customers to address pressing challenges, enabling a greener economy, increased connectivity, improved health and developments in scientific understanding. It was the first technology business to be spun out from Oxford University. Key market segments include Semiconductor & Communications, Advanced Materials, Healthcare & Life Science and Quantum Technology. Its Piotroski F-Score is 7. Its enterprise value/Ebitda is 19.2 times.
FTSE SmallCap member Renewi PLC(LSE:RWI, Financial) is a leading international waste to product company that gives new life to used materials. The company employs 7,000 people working out of 174 operating sites across Europe. A market leader in Belgium, the Netherlands and Luxembourg, Renewi uses innovation and the latest technology to turn waste into secondary raw materials, including paper, metal, plastic, glass, wood, building materials, compost and energy. The company believes waste is a business opportunity and is committed to playing a part in protecting and preserving the worldâs natural resources by turning today's waste into tomorrow's raw materials. The company recycles and recovers 90% of nearly 14 million tons of waste per annum, of which almost 67% is transitioned into raw materials for new products. The company has good knowledge and experience combined with a broad range of services to allow it to offer its customers sustainable and practical recycling solutions. It has a catchy slogan: waste no more. Its Piotroski F-Score is 7. Its enterprise value/Ebitda ratio is 6.1.
AIM-quoted Goldplat PLC (LSE:GDP, Financial) is a profitable African gold recovery services company with two market-leading operations in South Africa and Ghana. Goldplatâs strategy is focused on utilizing its cash flow generated from flagship gold recovery operations in Africa to self-fund sustainable growth and the expansion of its niche gold recovery business model. The company also has a small gold mining and exploration portfolio in Kenya, Burkina Faso and Ghana. Its Piotroski F-Score is 8. Its enterprise value/Ebitda ratio is just 1.8.
AIM-quoted Amiad Water Systems Ltd. (LSE:AFS, Financial) is a world leader in water treatment and filtration solutions. For over 57 years, Amiad has been developing a comprehensive line of water filtration systems for protecting water applications in industrial and irrigation markets. Every Amiad water filtration system is built for efficiency, effectiveness and reliability and the company is committed to excellence in customer service. Its innovative technologies - screen, disc, media and microfiber â aim to meet the challenges presented by different water sources, outlet requirements and extreme working conditions. Its solutions process millions of cubic meters of water every month, delivering clean water all year round and all over the world. Its Piotroski F-Score is 7. Its enterprise value/Ebitda ratio is 10.3.
Newly AIM-quoted musicMagpie PLC (LSE:MMAG, Financial) is a leader in the re-commerce of consumer technology (including smartphones, tablets, consoles, personal computers), disc media (including CDs, DVDs and games) and books in the U.K. and U.S., with sustainability running to the very heart of its operations. It has a strong environmental and social focus, as demonstrated by its trademarked "smart for you, smart for the planet" ethos. Over 400,000 consumer technology products were resold to consumers in the year ended Nov. 30, 2020 by the group. In addition, its management estimates that that the group resells approximately 2,500 tons of books and disc media each year that could otherwise have ended up as waste. Founder and CEO Steven Oliver owns 9.5%. Its Piotroski F-Score is 7. Its enterprise value/Ebitda ratio is 15.6.
