As we celebrate Earth Day 2024, it's heartening to see that the world of sustainable investing has evolved significantly over the past few years. The COVID-19 pandemic, which dominated the global conversation in the early 2020s, brought environmental concerns to the forefront, but also led to a somewhat frenzied and unrealistic approach to sustainable investing. Now, as the dust settles and we enter a new era, the landscape appears more promising, with realistic valuations and investor expectations paving the way for genuine progress.

In a recent conversation with Damian Cottier, a portfolio manager at Perennial Value Management focused on sustainable investing, he and JR reflect on the journey of InvestSense’s Better World portfolios and Perennial’s Better Future Trust over the past few years. During the height of the pandemic, there was a significant focus on sustainable investing, but this often came at a price, with investors paying a premium for companies aligned with environmental goals. Now, however, the trade-off seems more balanced, even if there is slightly less buzz surrounding the topic.

Damian points out that the current environment, with higher interest rates and a more pragmatic approach from investors, has led to some interesting opportunities in the sustainable investing space. Companies that are making genuine progress in shaping a better future, such as those focused on healthcare, education, and renewable energy technologies, are now trading at more reasonable valuations. This shift allows investors to support these companies without having to compromise on financial returns.

One example Damian highlights is Telex Pharmaceuticals, a company that has revolutionised the imaging, detection, and treatment of prostate cancer. With a strong pipeline of products and promising growth prospects, Telex Pharmaceuticals is trading at multiples similar to the broader market, presenting an attractive opportunity for investors looking to make a positive impact in the healthcare sector.

Another company Damian mentions is Sims Limited, which recycles metals and scrap metal. By using electric arc furnaces and recycled materials, Sims Limited can reduce greenhouse gas emissions by up to 50% compared to traditional methods, and even higher when recycling aluminium and copper. Despite these promising tailwinds, the company is trading at reasonable multiples, around its net tangible assets (NTA), making it an appealing investment for those focused on the green transition.

It's encouraging to see that sustainable investing has become more pragmatic and realistic. Companies that are making a genuine difference are now more accessible to investors, without the need to compromise on financial returns. This shift in the investing landscape bodes well for the future, as it allows more capital to flow towards companies that are actively working to address environmental challenges.

Earth Day 2024 serves as a reminder that sustainable investing is not just a trend, but a crucial component of building a better future for our planet. With realistic valuations and investor expectations, we can hope to see more progress in the years to come, as companies and investors work together to create a more sustainable world.