Alistair Berg
Investors and shareholders have endured a tumultuous year on the market as overall sentiment sinks lower into bear territory. As macroeconomic problems persist, from out-of-control inflation to aggressive interest rate hikes imposed by central banks, many have been scrambling to park their cash in low-volatile investments against the backdrop of a looming recession.
As the year steadily comes to a close, markets continue to gyrate in all sorts of directions, leaving an air of uncertainty as we slowly start to approach the new year.
While greater market performance has largely been overshadowed by slowing economic growth and a cut-back of consumer spending, environmental, social, and governance (ESG)investing has continued to remain a stronghold for investors hoping to fill their portfolios with lucrative stock picks that could outperform a sudden market turn down.
Corporate conglomerates and mid-tier firms have been toiling with ESG practices and reporting standardization for some time as government and regulatory entities push key private sector players to focus their development on sustainable, social justice, and corporate governance efforts.
There is already a global trend circulating ESG reporting, and in 2020, it was estimated that assets under management by signatories to United Nations Principles for Responsible Investment (PRI) surged past $100 trillion, which marked a 75% increase from 2015.
The Chinese-based asset management firm, Southern Asset Management, commented on the importance of big-league corporate players and investors pursuing ESG-based investment opportunities as the market for it steadily takes off. “The methodology for governments and regulatory facilitators to monitor companies’ ESG reporting already exists within the macroeconomic landscape. As it matures, and more companies adopt these policies, investors could see a great deal of long-term growth for their portfolios.”
Southern Asset Management was recently shortlisted for the PRI 2022 Responsible Investment Award for its PRI case study presented by the United Nations Principles for Responsible Investment (UNPRI). The nomination comes on the “Facilitating Climate Transition-Application of Carbon Emission Database, a project supported by the UN.
The proportion of institutional and retail investors supporting companies on their ESG stance has seen notable momentum since the start of the pandemic. As of 2021, more than a quarter of global investors have stated that ESG is a central part of their investment approach, according to the Harvard Law School Forum on Corporate Governance.
With ESG investing taking flight, and investors looking to bank on its growing possibilities, here is a look at the top five ESG stocks for 2022.
Best Buy Co. Inc.
Wall Street analysts have been enjoying Best Buy (BBY) in 2022, as the company continues to outgrow its peers in terms of its ESG initiatives.
For what it is worth, Best Buy currently operates one of the largest electronic recycling programs in the world, which has seen tons of electronic waste being diverted from ending up in landfills. More so, in 2020, Best Buy Chino, California, managed to achieve a 100 percentile score for its waste diversion efforts.
Its environmental initiatives have helped the company become one of the front runners among other retail competitors in terms of corporate governance and sustainability. Its stock, BBY, is relatively undervalued, with a price-to-earnings (P/E) ratio of less than 10, and holds a dividend yield of 4.7%. On average, year-to-date (YTD) performance is down by roughly 20%, but the company has a strong strategy that ticks the boxes of ESG-hungry investors.
Nvidia Corporation
Big tech has hit a wall in the last few months, as tech giants have seen revenues plummet, leading to many companies cutting back on expenditure by laying off thousands of employees. Earlier this month, Amazon announced that it will be laying off more than 10,000 employees due to slowing consumer spending and lower-than-expected quarterly sales.
Graphics processor giant Nvidia (NVDA) has also been hit by ongoing macroeconomic challenges after Q2 results showed revenue fell by more than 21%, lower than what analysts expected. Despite the slowing growth, Nvidia has assured its employees that it will not be conducting any layoffs, as many were left wondering if the company would follow in the footsteps of Meta, Shopify, Amazon, and others.
The company has some impressive ESG policies, the majority of them being centered around the social aspect of its business model. The company nearly tripled the number of black employees in recent years, and throughout the pandemic, it continued to pay its vendors and contractors.
Stock-wise, shareholders have been enjoying the 10-year annualized return, which exceeds 50%, and full fiscal revenue for 2022 grew by 61% despite bigger economic challenges. Between October and November, NVDA stock prices jumped by 31.11%.
Accenture PLC
Climate change and environmental impact have been a growing topic of conversation this year as global leaders look to provide solutions that can help consumers, companies, and nations transition to net zero.
Accenture (ACN) is one of few companies that have been actively focusing its efforts to provide other companies and organizations with sustainability goals that look to reduce their carbon footprint. For what it’s worth, the company has set out net-zero emissions and net-zero e-waste goals that it looks to achieve by as early as 2025. At the same time, it’s rumored that Accenture also wants to reduce its total carbon footprint by 10% in less than three years.
ACN has seen steady growth, but a slowing consumer market has meant that the company did experience a dip in stock performance for much of the year. In early September, after more than a year of 12% losses, institutional investors were pleased to see share prices increase by 3.9%, leaving an indication that returns will likely trend again in the coming months. More so, Accenture also pays a 1.40% dividend to shareholders.
First Solar Inc.
As one of the world’s largest manufacturers of solar panels, First Solar (FSLR) has experienced outstanding share price growth, with FSLR seeing a 91.31% YTD increase.
The company has remained bullish, considering that more and more consumers are looking to make the shift to renewable energy in the coming years as governments face issues related to power shortages due to geopolitical tension and the sharp rise in production costs.
Unsurprisingly, the company focuses mostly on helping communities transition to solar power by moving them away from fossil fuel-based energy sources. Innovation forms a big part of this company’s business model; it is working to recycle more than 90% of its waste and is further working to cut greenhouse gas emissions by 30% in the coming years.
FSLR has remained a steady performer, especially as demand for solar and renewable energy sources takes flight. Stocks have a P/E ratio of 75 and have yet to announce whether it looks to start paying dividends to shareholders.
Pool Corporation
For what it’s worth, Pool (POOL), a wholesale supplier and seller of swimming pool supplies, has seen modest growth throughout the last couple of years after hitting a high during the early months of the pandemic as demand for pool-related equipment skyrocketed.
Currently, the company has more than 120,000 wholesale clients in North America, Europe, and Australia, and sales have been trending upward for much of the year. In October, the company managed to beat analysts’ estimates, and in total, sales were up by 35% from 2021. Earnings per share (EPS) ballooned by more than 68% between ending March 2022, and its 10-year annualized return is currently sitting at 30%.
On the ESG front, Pool Corp has a wide selection of products that are part of the EPA WaterSense program. Social and corporate governance all form part of its ESG strategy, with the company providing free swimming lessons to children and having pledged an undisclosed amount to human rights groups and the National Forest Foundation.
Looking forward
The outlook for 2023 will present itself with a whole new set of challenges that companies will need to bargain into their ESG initiatives. The growing consumer demand for the private sector to take more environmental and social responsibility has seen companies now incorporate innovative practices into their business models.
While consumers and some government entities are urging companies to become more complacent with ESG standards, investors and shareholders have steadily taken notice, creating a new opportunity for responsible investing.
The coming year will again test the limits of companies on the stock market, and investors will need to be smart and agile. ESG investing will forever remain a viable strategy, but investors will need to continuously look for companies that are not only implementing ESG standards for the sake of broader acceptance but rather to ensure and develop an attitude of change.
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