European regulators and investors are at the front of the pack when it comes to sustainability issues. Over the past decade, this has encouraged the creation of many green corporate champions in the region.

It is no surprise, then, that sustainability is a key theme for many of the European ex-UK stocks that are most popular with the best fund managers in the world.

Companies such as Sika, Schneider Electric and Veolia are shaping their businesses around their ability to lessen the impact their customers have on the planet. Nestlé, which has faced heavy criticism in the past over the ethics of its marketing of baby formula in poor countries, has also made huge efforts to boost its sustainability credentials over the past decade.

Even oil company TotalEnergies, which is among elite managers’ 10 favourite European shares, has recently rebranded to emphasise its activities in renewables, though many activists remain unconvinced it is moving fast enough.

The tech darling that makes it into the top European picks, ASML, also boasts sustainability credentials. Its lithography technology allows computer chips to become smaller and thereby more efficient. Along with smarter chip design, this reduces the impact on the planet of our growing use of data.

Consultancy and outsourcing services companies are also popular with the elite managers we track. Slots in our list of 10 favourite European shares have been taken by Capgemini and Teleperformance.

The list of the 10 favourite European shares has been formed by using our unique measure of elite manager collective conviction. The elite managers we track represent around the top 5% in the world and all stocks are linked to at least one of our 18 Fix the Future themes. The themes can be either positive or negative for the investment case and do not influence the rankings, which are presented in alphabetical order.

ASML

Fix the Future theme: Digital infrastructure

ASML has played a pivotal role in the exponential growth in computing power known as Moore’s law. It has a massive competitive advantage in the field of lithography and looks set to remain pivotal in driving huge advances in computing.

ASML’s lithography machines allow chip companies to work at a seemingly impossible minute scale. As chips are miniaturised, computing power expands. The company’s fortunes are tied to the world’s ever-growing thirst for data and the health of its relatively concentrated customer base of leading chip manufacturers.

The Dutch company’s high-conviction backers include Lawrence Burns and Paulina Sliwinska, who hold 13.2% of their Baillie Gifford International Concentrated Growth Equities fund in the shares.

Read our deep dive on ASML here.

Axa

Fix the Future theme: Emerging prosperity

Axa boasts a leading position in some important insurance markets. As well as being the second-largest insurer in Europe, it is the global leader in commercial insurance as well as health and employee benefits. About four-fifths of its income comes from its property and casualty insurance, health, and protection.

The company has been through a period of restructuring since 2016 to reduce and refocus financial risks. It is now looking to reap the rewards of these actions.

Thomas Sørensen, manager of the Nordea Invest European Stars fund, is a particularly high conviction backer, with a 4.5% position in the shares.

Capgemini

Fix the Future theme: Digital infrastructure

Running a company that relies heavily on, or even just uses, technology can be difficult, but Capgemini can help. The Paris-listed company does this by consulting with its clients on how to transform and manage technological resources.

With its 340,000 team members, Capgemini reckons it can partner with almost any business to benefit it in some way. Top backers include Filipe Benzinho and Daniel Ling, who hold a 2.3% position in the MFS Institutional International Equity fund and a 2% position in the MassMutual Overseas fund, which they run together.

Hexagon

Fix the Future theme: Virtual society

Over two decades Hexagon has gone from being a sprawling conglomerate and Scandinavia’s largest importer of fresh tuna to a high-tech precision measurement, scanning and data company.

The Swedish company offers a huge range of solutions to a panoply of industries. Its services include tools to help miners improve ore extraction, construction layout planning, and ground-penetrating radar to detect utilities.

Ken Hughes, manager of the Martin Currie International Sustainable Equity fund, is a heavy backer, running a 6.6% position in the shares.

Nestlé

Fix the Future theme: New agriculture and food tech

Nestlé is the world’s largest food company and the owner of many of the top consumer staple brands, from the KitKat chocolate bar to Nespresso coffee pods.

A virtue of strong brands at a time of fast-rising costs is their pricing power. While investors are nervous about whether this is enough to deal with the scale of current inflation, the early signs from Nestlé have been broadly encouraging.

With sustainability becoming increasingly important for consumers, these issues have become an important consideration in promoting brands. Large companies are at an advantage in pushing the sustainability agenda given their ability to use scale to monitor and influence supply chains as well as improve the efficiency of their own operations and the healthiness of their products.

Nestlé occupies a dominant position in the Swiss stock market, accounting for over a fifth of its size. That’s reflected in Patrick Hasler’s 22.3% position in his Migros Bank Fonds Institutional SwissStock Sustainable fund, but the stock is also a large position for fund managers with a wider focus. Ian Kirwan holds 5.7% of his Calvert International Equity fund in the shares.

Schneider Electric

Fix the Future theme: Resource efficiency

For nearly two decades Schneider has been focusing its business on offering green solutions for its customers in the buildings, infrastructure and industrial sectors. Its products and services help customers electrify their operations and digitally monitor and manage performance to increase efficiency.

Increased regulatory and investor focus on sustainability is expected to lift Schneider’s market growth rates. The company is also increasing its focus on services, software and consultancy, which should improve margins and the quality of earnings.

Koen Bosquet is among Schneider’s highest-conviction elite fund manager backers, holding 5.1% of his DPAM B Equities Euroland fund in the shares. Read our deep dive on Schneider Electric here.

Sika

Fix the Future theme: Resource efficiency

Swiss specialist chemicals company Sika offers products that improve the performance of roofs, floors, concrete, cement and waterproofing.

Central to the company’s ethos is that every new product launched must not only perform better but must also be more sustainable. This latter concern is increasingly seen as a competitive advantage and has helped build an impressive track record of margin gains.

Stefan Gries and Giles Rothbarth are heavy backers, holding 5.9% of their BlackRock Continental European fund in the shares. Read our deep dive on Sika here.

Teleperformance

Fix the Future theme: Virtual society

Whether you are calling Apple’s technical support in a panic after dropping your iPhone in a puddle or screaming blue murder at the British Passport Office about delayed documents, there’s a good chance the call centre you have been put through to will be run by Teleperformance.

As well as call centres, the Paris-based company offers customer relations through many other mediums. Teleperformance also provides a range of outsourced, back-office services, from visa processing to human resources, and its services increasingly use AI to help clients deal with the public.

Elite fund manager backers include Oliver Fritz and Matthias Born, who hold 5.8% of their Berenberg Eurozone Focus fund in the shares.

TotalEnergies

Fix the Future theme: Energy transition

French supermajor oil company TotalEnergies has recently rebranded to emphasise its efforts to clean up its business.

While the company remains about 90% fossil fuel-focused and a target for green activists, there are signs it is working hard to realise its ambition to take renewable capacity from 10GW to 100GW by the end of the decade. In May, it took a significant step down this road when it announced a $24bn (£20bn) deal to buy half of Clearway, the fifth-largest renewables operator in the US.

High-conviction backers include Lei Wang, who holds 4.9% of his Thornburg International Equity fund in the shares.

Veolia

Fix the Future theme: Recycling and environmental repair

At the start of 2022, Veolia completed a bruising takeover battle for rival Suez, which involved assets sales, negotiations with competition authorities and threats of criminal lawsuits against board members. The tussle had originally kicked off in mid-2020 with news that Veolia was buying a near 30% stake in Suez from power company Engie.

The French water and waste management giant now has a new chief executive who is trying to focus the company on life after the deal. That means integration is to be coupled with innovation as the company tries to play a lead role in tackling sustainability issues in water and waste.

Veolia’s elite investors include Noel O’Halloran, who holds 4.4% of his KBI Global Sustainable Infrastructure fund in the shares.