UK investors seeking out opportunities in environmentally and socially positive companies don’t have to look too far from home for decent ones, according to JPMorgan’s Anthony Lynch.
He pointed to the UK mid-cap space, which he said was a particularly good hunting ground for opportunities as smaller companies can adapt to change quicker than their larger peers. 
For example, a mega-cap such as oil giant BP would take decades to transition away from oil and into renewables, therefore making it a viable ESG stock.
Smaller companies on the other hand can adapt much more easily, he said, adding that this is the area where new initial public offerings (IPOs) were also likely to add further new ESG solutions.
Lynch (pictured) said: “Anyone who's come up with a new idea for a company this is the part of the market where they're going and showing up.”
Investing with a focus on environmental, social and governance (ESG) has been a growing theme in recent years and has not slowed down in 2021.
IA data showed that £1.4bn entered responsible investment funds in July, the sixth consecutive month where inflows exceeded £1bn into this type of portfolio.
Lynch’s newly launched JPM UK Sustainable Equity fund is different from the growing number of new ESG funds, as it is concentrated on the lower end of the market, buying companies that sit within two main ‘buckets’ within sustainability. The first, is companies supporting resilient ecosystems, including climate change solutions and companies responsible consumption.
Second, is a social focus, investing in companies which provide socially beneficial products but also have a diverse workforce which provides equal opportunities. Below, he gives examples of strong ESG stocks that have yet to reach the upper echelons of the FTSE 100 index.
Britvic
The first example of a mid-cap ESG opportunity is soft drinks company Britvic. Lynch said the company was focused on creating a “circular supply chain”, and was making great strides on its packaging.
“Drinks come in packaging. There's not a huge amount that we can do about that,” Lynch said. But the company has committed that by 2022 all of its packaging will be made from recycled materials.
The company is also one of the founding members of Circularity Scotland, part of the Scottish government’s Deposit Return Scheme, which involves recycling and repurposing single-use plastics.
“This is really trying to drive that circular economy usage by recycling plastic packaging,” Lynch said.
However, it has not compromised its performance. Over the past five years the stock has beaten the FTSE 250.
Company’s performance vs FTSE 250 over 5yrs
Source: FE Analytics
Tate & Lyle
Next is Tate & Lyle a company known for its sugar but that has been also moving into the healthy eating space. Indeed, the brand stepped away from it sugar production over a decade ago, redefining its core business to focus on healthier food.
This was in response to growing social awareness on health and wellbeing, a trend which has been compounded during the current pandemic, with schemes such as Joe Wicks’ morning physical education classes thrusting healthy living into the spotlight.
Now the company focuses on producing food and drinks with reduced sugar content and with increased fibre.
“It has committed by 2025 to have removed 9 million tonnes of sugar in its customers’ products, and that’s equivalent to about 250 billion cans of Coke,” Lynch said.
The ESG appeal of this is a “massive, positive impact” on health and wellness in the UK, the manager said. Again, shares have done well over five years, up 19.7%, although this has lagged the FTSE 250 index.
Company’s performance vs FTSE 250 over 5yrs
Source: FE Analytics
Softcat
Last up is IT infrastructure provider, Softcat. Lynch said he has held the stock since its IPO in 2012 in his other UK equity funds and has brought it into his new portfolio.
Like the previous example, Softcat focuses more on the social benefit, in particular diverse work environments and good business ethos.
Softcat was ranked the fifth best place to work in 2020, according to the Great Place to Work survey and was the only tech business in the top 100 for gender diversity.
This is an important characteristic, not just because it “makes sense to have diversity,” Lynch said, but because from an investment perspective this feeds into better growth and share price as the company can retain its pool of talent.
“This doesn’t happen by accident, it’s cultivating the right kind of culture and you can see the results,” Lynch said. Indeed over five years the company has outperformed the FTSE 250 by almost 14-fold.
Company’s performance vs FTSE 250 over 5yrs
Source: FE Analytics
Lynch said: “The actual happiness of the employees and performance of the revenue lie in that business as a result.”