The year 2020 was full of upheavals as several small-scale businesses had to shut down and many closed temporarily. The COVID-19 pandemic damaged economies globally and those who survived the health scare showed us the importance of focusing on environmental, social and governance (ESG) aspect of the business.
Investors who hold stocks of ESG-focused companies were shielded from the economic turbulence with the respective companies managing to stay afloat. A sustainable company coheres with the aforementioned principles as well as promotes clean energy, prioritize women in leadership roles and holds accountability for the society.
Record Flows in Sustainable Funds During 2020
ESGfunds, which aim to invest in companies with sound ESG practices, emerged as winners last year. These funds have a significant exposure to medical and technology companies, which got a boost from the pandemic situation owing to stay-at-home and remote-working trends apart from the progress in coronavirus vaccines or treatment. Hence, the rally in these socially responsible funds is self-explanatory.
According to a
Morningstar report, U.S. Sustainable Funds witnessed net flows of $51 billion in 2020 compared with $21.4 billion in 2019, more than double and nearly 10 times more than the 2018 levels. Additionally, the report states that investors pumped $20.5 billion into ESG funds in the last quarter of 2020, setting a quarterly record and doubling the previous record in a quarter. Growth Indicators for 2021
Growth of ESG investing in 2020 was underlined by the pandemic, climate change, the movement for racial justice and the presidential elections. This year, the aftermath will propel the market movement and ESG stocks will continue to tread north. ESG-driven companies are now being prepared for a future pandemic or similar crisis scenarios. Hence, lessons learnt from this unprecedented plight will continue to influence enterprise risk-management evaluations and supply-chain management.
While vaccination programs help the economies reopen and recover faster, American ESG companies could get an additional impetus as President Joe Biden’s primary agenda for the economy is to focus more on clean and green environment. The Biden administration could signal a shift in broad, high-level “principles-based” disclosures, especially those dealing with climate hazards, thus further boosting the companies' needs to track ESG parameters.
A post-pandemic “green" recovery could boost companies to produce more sustainable low-carbon products and investors should also park their funds, keeping broader societal concerns in mind. Biden already pledged $2 trillion to help America meet sustainable targets and improve infrastructure to be more environmentally-friendly. To this end, investment in research on decarbonization, hydrogen technologies and other environmental innovations are a strong possibility.
Our Top ESG Stock Choices
New environmental regulation and changing business landscape focusing more on ESG will impact sectors, such as manufacturing, utilities, housing and agriculture. These indicate a sharp rise in ESG investing for2021. Here are five such companies that will continue growing in such a scenario, all currently carrying a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here . Microsoft Corporation ( MSFT Quick Quote MSFT - Free Report) develops, licenses and supports software, services, devices and solutions. The company’s expected earnings growth rate for the current year is 27.4% compared with the Zacks Computer - Software industry’s projected earnings growth of 2%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 9.1% upward over the past 60 days.
Microsoft has been carbon neutral across the world since 2012 and commits to being carbon negative by 2030. This tech giant 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.
Texas Instruments Incorporated ( TXN Quick Quote TXN - Free Report) designs, manufactures and sells semiconductors to electronics designers and manufacturers. The company’s expected earnings growth rate for the current quarter is 25.8% compared with the Zacks Semiconductor - General industry’s projected earnings growth of 6.9%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 14.4% upward over the past 60 days.
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.
Deckers Outdoor Corporation ( DECK Quick Quote DECK - Free Report) designs, markets, and distributes footwear, apparel and accessories for casual lifestyle use and high performance activities. The company’s expected earnings growth rate for the current year is nearly 31% against the Zacks Shoes and Retail Apparel industry’s projected earnings decline of 11%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 13.6% upward over the past 60 days.
Deckers Outdoor has been a member of the world’s largest corporate sustainability initiative, the United Nations Global Compact (UNGC), since 2016. Its sustainable development goals focus on materials, waste, water, gender equality and quality education, chemistry, climate and clean energy and human rights.
Lam Research Corporation ( LRCX Quick Quote LRCX - Free Report) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company’s expected earnings growth rate for the current year is 55.6% compared with the Zacks Semiconductor Equipment - Wafer Fabrication industry’s projected earnings growth of 29.3%. The Zacks Consensus Estimate for thecompany’s current-year earnings has been revised 11.2% upward over the past 60 days.Lam Researchis committed to sustainable management of environmental, health and safety concerns as a core business principle. Boise Cascade Company ( BCC Quick Quote BCC - Free Report) manufactures wood products and distributes building materials. The company's expected earnings growth rate for the current year is more than 100% compared with the Zacks Building Products - Wood industry’s projected earnings growth of 26%.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised 4.1% upward over the past 60 days. Boise Cascade has a robust environmental management system with a comprehensive set of policies, procedures and controls to manage the procurement of all forest-based fiber used in wood products operations.
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