Over the past four years, climate change and environmental issues have been one of the areas ignored by the U.S. administration. In fact, rise in climate catastrophe and the massive health scare in 2020 forced businesses and government to look into the environmental, social and governance (“ESG”) aspects. As Joe Biden gears up to be sworn as the 46th president of the United States, he has called climate change as "the number one issue” that humanity faces and promises to make a federal investment of $1.7 trillion over the next 10 years.
ESG Initiatives a Mega Trend
ESG stocks and funds have been in limelight over the past few years but the pandemic has particularly spurred demand for these investment vehicles as traders are focusing more on impact investment. Per a CNBC article, Morningstar data shows that during the third quarter, assets under management in ESG funds hit $1.2 trillion. In the same quarter, the United States witnessed inflows of $9.8 billion, which reaches the year-to-date total to $30.7 billion. Though fourth-quarter reports are not published yet, the figure surpasses the $21.4-billion total for 2019.
The Forum for Sustainable and Responsible Investment’s 2020 trends report states that sustainably invested assets under management grew 42% from $12 trillion in 2018 to $17.1 trillion in 2020, per another CNBC article. This report also infers that sustainable investment now encompasses 33% of the $51.4 trillion in total U.S. assets currently under professional management.
Looking at the current scenario, Biden’s administration has been keen on investing in clean energy future and environmental justice. The plan is to achieve a 100% clean energy economy and net-zero emissions by 2050 in America. The administration also plans to take action against fossil fuel and other companies for concealing information about toxic waste and putting risk on environment and health of people. Additionally, the team will be fulfilling obligation toward workers and communities who have powered the industrial revolution in America and led to economic growth.
What’s in it for investors? ESG-focused companies not only withstood damage caused by the pandemic but also addressed factors like racism and geo-political tensions. When the nation embraces the transition to a low-carbon economy, there will be early stage investments in several small and big companies through venture capital and private equity. Hence, investments in companies focused on renewable energy, low carbon and fossil fuel-free portfolio will rise. The “green president” is expected provide government initiatives, investments and federal policies that will be favorable for the sustainable investment space.
5 Stocks to Buy
Biden’s administration has been quite vocal about addressing climate change for the long term. In addition to that, the administration plans to address the health crisis and will be working to put an end to the pandemic. Here are five ESG stocks that can make the most as task force implements new changes.
Shopify Inc. SHOP is a e-commerce company that provides a cloud-based multi-channel commerce platform. The company’s Sustainability Fund spends at least $5 million annually on the most promising, impactful technologies and solutions to fight climate change globally. Shopify's expected earnings growth rate for the current year is more than 100% compared with the Zacks Internet - Services industry’s projected earnings growth of 20.7%.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised 2.5% upward over the past 60 days. Shopify holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Magna International Inc. MGA designs, engineers, and manufactures components, assemblies, systems, subsystems, and modules for original equipment manufacturers of vehicles and light trucks. The company has a strong global environmental program that includes routine assessment of environmental compliance. Magna that belongs to the Zacks Automotive - Original Equipment industry has an expected earnings growth rate of 44.7% for the current quarter and will grow as demand for EV rises. The Zacks Consensus Estimate for this Zacks Rank #1 company’s current-year earnings has been revised 7.5% upward over the past 60 days.
IDEXX Laboratories, Inc. IDXX develops, manufactures, and distributes products and services primarily for animal veterinary, livestock and poultry, dairy, and water testing markets. The company brought down per square footage average energy consumption by 15% in kWh at facilities and operations since 2017 and plans to continue to decreasing in the years to come. IDEXX’s expected earnings growth rate for the current year is 25.4% compared with the Zacks Medical - Instruments industry’s projected earnings growth of 14.7%. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s current-year earnings has been revised 7.2% upward over the past 90 days.
Facebook, Inc. FB develops products that enable people to connect with friends and family. The company’s global operations plan to achieve net zero greenhouse gas emissions and be 100% supported by renewable energy. Facebook’s expected earnings growth rate for the current year is 46% compared with the Zacks Internet - Services industry’s projected earnings growth of 20.7%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 15.6% upward over the past 90 days. Facebook holds a Zacks Rank #2.
PayPal Holdings, Inc. PYPL operates as a technology platform and digital payments company that enables digital and mobile payments. The companycontinues to manage climate-related risks and opportunities through a formal process and will further develop the system in the future. PayPal’s expected earnings growth rate for the current year is 22.6% compared with the Zacks Internet - Software industry’s projected earnings growth of 8.1%. The Zacks Consensus Estimate for this Zacks Rank #2 company’s current-year earnings has been revised 1.6% upward over the past 90 days.
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