The coronavirus outbreak has resulted in significant broader market gyrations, compelling investors to stay away from riskier assets including equities. But the pandemic has also opened up doors for investing in companies with solid environmental, social and corporate governance (ESG) principles since they have lesser financial risks, predominantly because of their environmental practices.
Now, these non-financial risk factors form the base of ESG investing, which dependson how much a company is prepared for disasters, its continuity planning and employee treatment.In fact, it may include a company’s ability to provide employee benefits such as paid sick leave and work from home.
Coronavirus to Trigger ESG Investing
A few companies have responded well to the pandemic. For instance, carmakers like Ford have converted manufacturing facilities to make medical supplies, highlighting the role that private companies can play in addressing the pandemic.
But first, what is sustainable investing or ESG? The term covers three main factors, ‘environment’ that includes issues such as climate change policies, carbon footprint, and use of renewable energies. The ‘social' factor involves workers’ rights and protections and ‘governance’ stands for diversity of the board and corporate transparency.
Many companies have been taking significant actions to reduce carbon footprint and save the environment. But the rapid switch of car manufacturers to making respiratory ventilators and apparel companies manufacturing PPEs and masks puts the spotlight on the social factor.
Before the virus outbreak, millennials showed interest in ESG when considering investment opportunities. This paid off well during the pandemic as research shows that ESG funds have outperformed others. Though these stocks suffered heavy losses amid last month’s downturn but those were notably lower than traditional stocks.
These companies are truly focused on the well-being of their workers.
4 Stocks to Watch
The coronavirus outbreak has given opportunities to investors to ask companies questions regarding resilience and contingency planning, which are relevant to long-term performance. Hence, we have shortlisted four solid ESG stocks that investors can keep an eye on as these continue to have proper ESG ratings even during this period of crisis.
Microsoft Corporation MSFT has taken a leap in corporate social responsibility and supports its staff with regular pay even as several companies across the world have announcedlayoffs and salary cuts.
The company’s expected earnings growth rate for the current year is 17.3% compared with the Zacks Computer - Software industry’s projected earnings growth of 3.2%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 3.9% upward over the past 90 days. Microsoft carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chipmaker NVIDIA Corporation NVDA makes a mark among ESG stocks with a strict policy regarding conflict minerals. The company’s due diligence policies state that minerals used in the products do not directly or indirectly finance or benefit armed groups in the Democratic Republic of Congo and adjoining countries (DRC).
The company’s expected earnings growth rate for the current year is 22.1% against the Zacks Semiconductor - General industry’s projected earnings decline of 12.7%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.6% upward over the past 90 days. NVIDIA carries a Zacks Rank #3.
The Procter & Gamble Company PG provides branded consumer packaged goods. The company’s expected earnings growth rate for the current year is 9.5% against the Zacks Soap and Cleaning Materials industry’s projected earnings decline of 1.1%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.2% upward over the past 90 days. The Procter & Gamble Company carries a Zacks Rank #3.
Next we have, NextEra Energy, Inc. NEE. The company is responsible for the generation and supply of energy throughout most of the state of Florida through its regulated subsidiaries. Its ESG ratings have remained unchanged amid the coronavirus outbreak.
The company’s expected earnings growth rate for the current year is 8.1% compared with the Zacks Utility - Electric Power industry’s projected earnings growth of 3.6%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.1% upward over the past 90 days. NextEra Energy carries a Zacks Rank #3.
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