The world of investing has never been more ethically conscious, and stocks in the FTSE 100 are not immune to this sentiment. Environmental, social, and governance (ESG) ratings are all the rage right now. Not only do they consider how ‘green’ a company is, but also how it deals with social issues, such as equality and human rights, as well as its own management practices.
With that in mind, I’m looking into two top ESG plays for me, Coca-Cola HBC (LSE: CCH) and GlaxoSmithKline (LSE: GSK).
This Switzerland-based bottler of the Coca-Cola product and its ESG rating have me asking myself if I should invest.
It has consistently ranked at the top of the FTSE4GOOD Index series since its inception in 2000. This is due to its advancements in working with recycled materials. By 2025 it plans to be using 50% recycled PET (the type of plastic it uses for packaging) in its European operations and 30% across the company as a whole.
Due to the pandemic, sales fell 12.7% to €6.1bn in 2020, but things are looking up. As vaccinations continue across the world, I’m growing more bullish on the stock and its recovery. In a recent statement, the company said: “We expect to see a strong FX-neutral revenue recovery in 2021”. This has led analysts to provide expectations of revenue growth of 8.3% and 6.7% for FY21 and FY22, respectively.
There is still the risk of renewed Covid-19 cases though, which would throw a spanner in the works of any recovery. Considering the rapidly growing infection rates across major European countries, it’s very possible that business could take another hit.
The Coca-Cola HBC price is currently 2,488p, up 27% in the past year from a price of 1,952p, and giving it a price-to-earnings ratio of 25. Should the current speed of economic reopening continue, I will be more confident to invest in Coca-Cola HBC as the risk of re-closure reduces.
As far as ethical investing goes, you probably weren’t thinking of one of the FTSE 100’s top pharma stocks. However, GlaxoSmithKline has proven to be an ESG leader thanks to its work in providing access to medicine.
The pharma giant, whom activist firm Elliot Management recently took a large stake in, is ranked highest in the Access to Medicine Index. This index measures Big Pharma’s efforts to make its products available to more vulnerable populations. What’s more, this top British firm has promised to have a net-zero environmental impact by 2030.
And although GlaxoSmithKline missed out on 2020’s pharma rally, I believe it could be on the up. New pharmaceutical sales rose 12% to £2.5bn in Q3, accounting for 30% of all revenue. It also remained very profitable, with an operating margin of 22%. It is the sixth-largest pharma company in the world with a strong brand and dedicated workforce.
Unfortunately, its planned corporate restructuring and dividend reduction could spell volatility for its share price. By reducing its dividend for the first time in 15 years and welcoming a heavy-hitter such as Elliot Management on board, it could be too much, too fast.
GlaxoSmithKline is currently priced at 1,333p, down 20% in the past year from a price of 1,668p, and giving it a P/E ratio of 13. As it is still well off its all-time highs, I would be interested in it as a long-term dividend payer.
Jamie Adams holds no position in stocks mentioned above. The Motley Fool UK has recommended GlaxoSmithKline. 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.