x Abu Dhabi, UAEMonday 24 July 2017

Does the sustainability factor affect the market?

Tracking two random stocks, one from a business with a reputation from environmentally sound practices, and one without.

When constructing an ethical investment portfolio, investors are increasingly assessing the return on companies that have a sufficient reputation for environmentally sound practices to be included on the Dow Jones Sustainability Index (DJSI) against stocks that have not.

A month ago, we began to track the progress of two randomly selected stocks: Nokia, the Finnish phonemaker and a sustainability leader on the DJSI, and Scientific Games Corporation, a global supplier of products and services to lotteries, and a provider of gaming technology and content to operators worldwide.

The two stocks have contrasting investment histories over recent years. Despite its lead in sustainability, Nokia has seen its share price drop from about US$40 in 2007 to US$6.28 (Dh23.14) as of Tuesday.

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Big profits, small carbon footprint

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The New York-based Scientific Games Corporation, on the other hand, is a smaller company that places less emphasis on sustainability and is still growing, frequently reporting contract wins such as a deal signed in early March to be the primary vendor to supply instant ticket games and services to the Colorado lottery in the US.

But anyone investing in the Finnish phonemaker over the past month would have seen the stock value rise from $8.50 on March 10 to $9.20 a month later. In contrast, the share price of Scientific Games barely moved from $9.09 to $9.13.

According to SAM, an investment group focused exclusively on sustainability investing, Nokia scores highly on environmental sustainability. Energy efficiency, materials management, environmental services as well as take-back and recycling are core aspects in Nokia's vision.

Besides having a best-in-class environmental management system, a clear climate-change strategy and being a precursor in reducing the use of hazardous substances, Nokia also has initiatives in place to improve the affordability of telecommunications in remote regions and for disadvantaged people.

There is, of course, no way of calculating to what extent Nokia's environmentally sound strategies have attracted investment. But last month's rise in Nokia's share price nevertheless took place against a backdrop of negative investor sentiment following its software partnership deal with Microsoft and a pending components shortage for the mobile-phone industry after the recent environmental and nuclear disasters in Japan.

pf@thenational.ae