By Hari Balkrishna, portfolio manager of the T. Rowe Price Global Impact Equity strategy
Society has endured a tumultuous period over the last two years – with a pandemic, heightened economic uncertainty, and military conflict in Europe. These events have caused deep loss and upheaval to the daily lives of individuals, families, and communities around the world.
However, amid the uncertainty, we see cause for optimism. The challenges of our era have created open and broad debate about the rights and freedoms of humankind, the growth in inequality, and the clear and obvious pressures on our environment.
To this point, rarely have society and investors mobilised in the way we have seen in the past two years, with clear and raised expectations as to how businesses should conduct themselves in the context of the societies and the environments in which they operate. Companies are innovating in response to society’s demands for solutions to pressing issues, and industry leaders are adapting in recognition of their responsibilities.
Impact investing has become a vital tool for investors seeking to position themselves to contribute to better social and environmental outcomes. This has created an increasing number of opportunities to access positive impact in public equity markets. This backdrop creates real potential for impact investing within a dual mandate that seeks positive environmental and/or social impact alongside excess financial returns.
Below, we highlight four companies providing solutions to environmental or societal challenges, thus creating positive impact for the planet and society.
With energy generation responsible for over 73% of global greenhouse gas emissions, decarbonising the sector is essential to limiting temperature rises to 1.5°. With nearly $100bn in clean energy infrastructure deployed since 2011, NextEra Energy is the largest renewable energy generator in the US. Renewable energy generation is expected to exceed 50% of revenues by 2030, with continued incremental capital investment.
While NextEra is clearly assisting the energy transition, its carbon footprint and intensity is one of the largest our portfolio. Therefore, we are focused on understanding and pushing NextEra’s commitment to reducing its electricity generation from fossil fuels. Coal plays a very minor role in its generation mix, but we will continue to monitor its reduction and push to reduce CO2 levels further.
Mueller Water Products
Global water use has increased by approximately 1% every year since the 1980s, primarily due to rising industrial and domestic demand, creating global pressure on supplies. It is estimated leaks from pipes in the US drinking water distribution system leads to a loss of 1.7 trillion gallons of drinking water and costs the nation approximately $2.6bn annually. Implementing robust leak detection and repair programs in water delivery systems can help improve the sustainability of industrial and municipal usage and reduce stress on resources.
Mueller Water Products helps municipalities deliver clean water and reduce water waste. Mueller products include water and gas valves, fire hydrants, water metering solutions, leak detection, and pipe condition assessment systems. We were pleased Mueller’s 2021 ESG report included a goal to save 7.7 billion gallons of water loss by 2027 with its latest leak detection technology.
Globally, 1.7 billion people remain unbanked, meaning they lack either an account at a financial institution or a mobile money service provider. Virtually all unbanked adults live in developing countries, with India being home to the second-largest unbanked population. Financial inclusion improves underbanked populations’ economic well-being – allowing them better access to health, education, and the wider economy.
India’s HDFC Bank provides access to finance with retail clients and micro, small and medium enterprises, accounting for 53.6% of revenues. Of its branches, 52% are also in semi-urban and rural areas in India, allowing for greater financial inclusion. By offering business loans, HDFC Bank improves the access to finance for these companies, which helps to improve output and job creation. We continue to engage with HDFC Bank and monitor its progress toward increasing the penetration of its services in semi-urban and rural markets.
Semiconductors are crucial enablers of green and digital economies. As shrinkage in semiconductors’ physical size and monetary cost begins to slow, advancing the design process is essential to bolster performance and to improve performance and efficiency.
Synopsys is a market leader in electronic design automation and holds a strong position in semiconductor intellectual property. Its activities accelerate and improve the power use, energy efficiency, innovation design, and accuracy of the semiconductor design process. Smarter chip design leads to energy-efficiency gains and better outcomes in areas such as healthcare and climate. We are excited about the breakthrough of artificial intelligence in the semiconductor design flow process and are monitoring Synopsys’ advances in the field.