ESG investing: should I buy these 2 UK shares?

As ESG investing grows, Christopher Ruane digs into the pros and cons of adding two UK shares with environmental and social credentials to his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

ESG investing has boomed. Many investors are now looking at the environmental, social, and corporate governance records of the companies they choose. Financial prospects alone are not the only consideration.

Below I reveal two shares I have been assessing for my portfolio, both from an ESG and financial perspective.

Vaccine champion

One of the companies I am considering is AstraZeneca (LSE: AZN). Why? Its focus on providing vaccines in the key phase of the pandemic to developing countries without profit ticks the social box in my view.

The pharma giant’s success launching its vaccine at speed compares to its more mixed business results in recent years. Along with dissatisfaction at high executive pay, that helps to explain why its shares have fallen 9% over the past year. Could now be the time to add it as an ESG investing choice to my portfolio?

Pros and cons

The vaccine has pushed AstraZeneca onto the front pages, but its business is much broader than that.

In the past couple of years, the company has reversed a falling revenue trend. Profits also more than doubled. That is driven by more than just its vaccine development, though ultimately it will help revenue and profits.

The company has a strong research and development capability. The years it spent building up its pipeline of new drugs finally seems to be paying off. Releases of products such as Lynparza have generated multibillion pound sales and the company is lining up a successor.

But AstraZeneca does face risks. Pipeline development is very costly and there can be unforeseen disappointments as clinical trials progress. That can lead to falling revenues.

Given AstraZeneca’s quality portfolio and future pipeline, I would consider picking it as an ESG investing option for my portfolio.

ESG investing in recycling

A second choice I would consider for ESG investing in my portfolio is Biffa (LSE: BIFF).

The name is familiar from bin lorries. Biffa already positions itself as the leading sustainable waste management company in the UK. It announced yesterday it would be buying more waste management and recycling assets from Viridor.

The company is set to publish its annual results next week. In a trading update in March, it said that its second half performance surpassed its base case planning scenario.

Biffa share price risks

One concern I have about Biffa is its debt load. Like many companies, the company has borrowed to help finance itself. Its estimated net debt of £440m-£460m at the end of March makes the company more highly leveraged than I would like. That is still within its loan covenants. But servicing this debt risks lower future returns to shareholders.

I am also concerned that customers such as councils could look to cut budgets in coming years. That would be a risk to the company’s profits.

My next ESG investing move

I have been looking at both AstraZeneca and Biffa for my portfolio. Their ESG credentials are sufficient for me. But I think ESG investing involves financial considerations too. I would never buy a share just because it had a strong ESG story.

I would consider buying AstraZeneca for my portfolio now. But Biffa’s debt pile puts me off the shares for now. I will wait and take the opportunity to study next week’s results closely.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

christopherruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »

Black father and two young daughters dancing at home
Investing Articles

A £3K investment buys me 632 shares in 2 stocks for a second income!

This Fool explains how a second income is possible through dividend-paying stocks and details two picks that could help her.

Read more »