ESG Stock Ideas, Green Investing Tips From Abrdn, Ralph Bassett

  • Ralph Bassett is Abrdn’s head of North American stocks and also a fund manager.
  • He explained how he finds smartly-priced stocks that will benefit from environmental themes.
  • Bassett’s Sustainable Leaders Fund is beating 90% of its peers this year, according to Morningstar.

Ralph Bassett has quite a challenge cut out for him. Not only does he have to choose stocks that consistently go up, he has to do it while rigorously measuring their environmental performance.

Bassett is the head of North American equities for Abrdn, a firm that handles $731 billion in assets. He also manages its US Sustainable Leaders Fund, which buys companies that are trading at attractive prices, have strong business models and financials, and that don’t just get good environment grades, but will benefit from the growing focus on ESG.

“We’re putting the emphasis on the evidence,” he said. “We have a few negative screens around tobacco, around unconventional oil and gas, and around certain areas of defense. But really what we’re focused on is … evidencing that our portfolios have carbon intensity below the benchmark.”

Investors have started paying attention to companies that could be vulnerable to rising ocean levels, more severe storms, and other aspects of climate change. Bassett wants to avoid those as well, but he told Insider his primary focus is looking in the other direction and finding winners instead of ruling out potential losers.

“We see a lot of evidence that companies that are better governed manage their risks well, but importantly, harness those opportunities, really are going to have a longer runway for growth” over a three-to-five-year span, he said. Morningstar says that’s helped the fund beat 90% of its competition in 2021.

Socially responsible and green investing often comes with a focus on new technologies that aren’t being widely used, and where the leaders of an industry can quickly fall behind new competitors. That’s one of the critical challenges of investing in those areas, and Bassett says a focus on sensible valuations reduces the risk — and should also help during tougher periods in the market.

He told Insider about five stocks he thinks will keep thriving over the next three to five years.

(1) Trex

The decking materials maker became a Wall Street favorite during the 2020 home-improvement fad and has nearly tripled in value over three years. Bassett says it’s becoming a dominant player in its industry.

“The product that they make is, is very, very good because it’s obviously more durable than wood, but it has the dual benefit of being made from recycled material,” he said.

Along the way, the company has struck distribution deals with retailers like Home Depot and Lowe’s, which are contributing to even better growth.

“Once you have that, that kind of structural, if you will, benefit of scale, you can really start to see sales and profitability, importantly, accelerate. And that’s what we’ve really seen with Trex,” he said.

(2) NextEra

The Florida-based utility has found two paths to success, according to Bassett. It’s become greener on its own by decarbonizing and adding more solar power capacity, which reduced its costs, and it’s getting paid to help other utilities make the same transition.

“They have made a fantastic business, and really done well with investors because they have the benefit of being in the Southeast where there’s quite a lot of solar,” he said. “They’re also able to take that know-how and offer it both to consumers and other utilities. So they have this almost project-like business that they’ve built up.”

(3) Tetra Tech

Bassett says the engineering and consulting company shifted its business in an important way. It’s now less vulnerable to getting involved in projects where cost overruns can erode its profits, and it’s focusing on the areas where the private sector will want its expertise, like water utilization, energy efficiency, and infrastructure.

“Tetra Tech has really pivoted more towards the front end engineering and design work,” he said. “They’ve really been able to be a go-to company for large projects.”

(4) Ameresco

Another winner in engineering services, Ameresco is up more than 400% in three years. Bassett says the company’s focus on big engineering projects will continue to help them.

“There are these enduring themes out there around, energy efficiency, for instance, that’s benefiting a lot of industrial companies,” he said.

(5) New Fortress Energy

New Fortress Energy helps companies switch from using oil to natural gas as a fuel and has recently added a focus on clean hydrogen. Bassett says the name has become somewhat controversial, but it’s going to benefit from a global trend.

“They put a lot of infrastructure in place themselves to support the transition away from dirtier fuels,” he said.