Environmental, social, and corporate governance (ESG) investing has taken the market by storm in 2021. With increased awareness about businesses’ societal and environmental impacts, many investors have begun retargeting their capital to support the firms looking to make the world a better place.
Since climate change and other issues aren’t going to be solved overnight, ESG investing looks like it’s here to stay. But apart from the moral side of this strategy, can it generate substantial returns for my portfolio? I certainly think so.
And there’s one business that has come back onto my radar that could be one of the best ESG investments of 2022 and beyond.
Saving the world… one fish at a time
Global warming is often foremost in people’s thoughts regarding the environment. Yet there are plenty of other areas where rapid change is needed. One, in particular, is the fishing industry. With humanity’s insatiable appetite to consume marine wildlife, conservationists are increasingly concerned about dwindling fish populations, water pollution, and habitat degradation.
To put in perspective how serious the problem has become, an estimated 70% of the global fish population has been depleted. That poses a serious threat to the global food supply over the long term. But Benchmark Holdings (LSE:BMK) claims to have found a solution.
This biotechnology company operates in a rising industry called aquaculture. This sector specialises in breeding fish specifically for human consumption. And, in turn, reduces the reliance on capturing wild fish from the oceans.
Benchmark has been using its scientific expertise in genomics to breed fish that are resistant to most diseases. At the same time, the group has developed its own specialised feed that improves mortality, as well as researching new medicines for treating infected fish.
The end result is a higher quality food source for humans without depleting and damaging the ocean environment. To me, that sounds like an excellent candidate for an ESG investment. But while the cause is noble, is this a high-quality business?
An ESG stock worthy of investment in 2022?
Benchmark recently released its full-year results. And, in my opinion, there is reason to be excited. Revenue over the last 12 months grew 18%, reaching £125.1m. Meanwhile, ignoring the effects of exceptional items, adjusted operating profits shot up 37% to £10.8m.
Needless to say, that’s quite an impressive level of growth. And with the demand for the group’s solutions bound to increase exponentially in 2022 and beyond, I don’t think this upward trend will be slowing down anytime soon.
However, like all investments, this ESG stock is far from risk-free. While underlying earnings may be in the black, the bottom line isn’t. And it hasn’t been for several years. An unprofitable young enterprise is hardly an uncommon sight.
And to stay afloat, management has racked up a considerable amount of debt. A good chunk of the firm’s outstanding obligations is maturing within the next two years. And while the company has outlined a plan to renew or replace these credit facilities, additional capital might need to be raised through equity, causing dilution.
But even with this caveat, Benchmark looks like it’s perfectly positioned to benefit from some solid future tailwinds in the aquaculture industry. That’s why I think it could be one of the best ESG investments for my portfolio in 2022.