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.
