The trifecta of environmental, social, and governance issues encapsulates ESG investing. So far this year, ESG has attracted significant investments. In the second quarter, global sustainable mutual fund assets hit a fresh record high of $2.3 trillion. Assets grew for five consecutive quarters and 12% from the quarter ending March 2021.
ESG stocks have strong financial performance along with increasing materiality of social and environmental issues — from biodiversity to racial equity to climate change. Hence, there has been a consistent demand for ESG stocks. These stocks not only managed to stay afloat during the pandemic but also became a go-to option during the slump.
Major economies across the globe have taken up initiatives to become carbon-neutral or achieve net-zero emissions by 2050. However, greenwashing is overshadowing visions toward a greener and cleaner environment, and making it difficult for analysts to justify the sustainable label. The United Nations has launched an ecosystem restoration initiative on World Environment Day (Jun 5) this year. With millennials supporting such initiatives, there will be significant investment in sustainable businesses.
Given such a scenario, let’s talk about trends that will shape and transform growth in the environment, sustainability and investment pattern –
First, with net-zero emission in focus let’s talk about decarbonization. America looks to achieve net-zero emissions by 2050, which emphasizes on energy efficiency, shift toward renewables, hydrogen and hydrogen-based fuels, bio-energy, and carbon capture -- the pillars of decarbonization. This long-term vision also emphasizes on all-new builds to be zero-carbon ready by 2030 and existing buildings to be retrofitted to such standards. This puts the spotlight on renewables and related stocks.
Next, we have digital sustainability. The use of advanced sensors with artificial intelligence (AI) for better sorting and waste segregation, waste management, and recycling not only drives operational efficiency and brings down costs but also supports carbon-emission reduction. Additionally, cloud-based data platforms help in taking quicker and safer decisions. Waste removal companies and utilities dealing in the aforementioned space are poised to grow.
And lastly, we have supply chain sustainability. There is a huge need for behavioral change when it comes to sustainability. While businesses need to monitor the sustainability credentials of their supply chain, customers should also play a significant role in supporting sustainability efforts. Businesses should incorporate software solutions and services to lay out an integrated, end-to-end solution that will cover upstream sourcing and downstream recycling. For instance, companies that offer reusable containers or packaging materials during delivery of goods or foods can design a model for pick-up of empty containers either during the next delivery or on a weekly or monthly basis. This will reduce the amount of waste generated in online shopping/delivery.
5 ESG Stocks to Pick
ESG investing has become a secular theme among investors, especially with its scope in tackling climate change and the boom in cleantech. Hence, we have shortlisted five top-ranked ESG stocks that are poised to grow. All the stocks sporta Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Microsoft Corporation MSFT develops, licenses and supports software, services, devices and solutions. This tech giant has been carbon neutral globally since 2012 and commits to being carbon-negative by 2030. It is investing $50 million in AI for Earth to accelerate innovation by putting AI in the hands of those working to directly address sustainability challenges.
The company’s expected earnings growth rate for the current year is 8% compared with the Zacks Computer - Software industry’s projected earnings growth of 2.4%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 3.6% upward over the past 60 days.
EMCOR Group, Inc. EME provides electrical and mechanical construction, and facilities services. The company engages in water system conservation and retrofits, lighting retrofits, solar & wind programs and more. Its expected earnings growth rate for the current year is 9.4% against the Zacks Building Products - Heavy Construction industry’s projected earnings decline of 1.3%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 4.5% upward over the past 60 days.
West Pharmaceutical Services, Inc. WST designs and produces containment and delivery systems for injectable drugs and healthcare products. The company has received MSCI’s highest ESG Fund rating of AAA. West’s six contract manufacturing sites recycled 84% of their total waste in 2020 and aims to reduce absolute emissions by 10% over five years (2019 – 2023).
The company’s expected earnings growth rate for the current year is 68.1% compared with the Zacks Medical - Dental Supplies industry’s projected earnings growth of 24.2%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 11.7% upward over the past 60 days.
Deere & Company DE manufactures and distributes various equipment. The company launched a Smart Industrial Operating Model last year and recycled 28 million pounds of material through remanufacturing. The company sources 32% of its electricity from renewables and has recycled 78% of its wastes.
The company’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Manufacturing - Farm Equipment industry’s projected earnings growth of 31.7%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 1.8% upward over the past 60 days.
Texas Instruments Incorporated TXN designs, manufactures and sells semiconductors to electronics designers and manufacturers. Texas Instruments’ operations require the use of raw materials, chemicals, energy and water. Hence, the company set voluntary reduction goals which comprise investment in new abatement technologies and the reuse and recycling of water when feasible.
The company’s expected earnings growth rate for the current year is 31.7% compared with the Zacks Semiconductor - General industry’s projected earnings growth of 22%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 6.5% upward over the past 60 days.
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