ESG investing, also known as “sustainable investing,” is the next big thing in the financial world. As we move forward, the expectation is that ESG investing will move from the fringe to center stage. That will do wonders for the stocks currently investing in several emerging key trends — from climate change to social unrest.
As Laura Gonzalez, Ph.D., associate professor of Finance at California State University, Long Beach, wrote in an email to InvestorPlace, “Investment analysts forecast that ESG investing is poised to become mainstream investing. Companies that offer under the same umbrella multiple services for a client facilitate interactions with technology and are likely to be favored by customers and investors, including fintech innovators.”
She separately noted, “At the end of the day, especially during pandemic times, people are going to support sustainability initiatives that they find will be of interest to consumers living with less discretionary budgets and more uncertainty than before 2020. Therefore, investors will be interested in supporting companies that offer reasonable, even if more expensive, products that individuals need.”
However, ESG investing is not for everyone. The majority of companies are sticking to mandatory financial reporting under SEC guidelines. However, several large enterprises have gone a step ahead and are increasingly making disclosures related to ESG metrics.
Numerous institutions, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD) have put in place standards that can be used to assess whether companies are doing all that they can to make sure their activities are sustainable. The investment strategy is encapsulated by the phrase: “doing well by doing good.”
As Gonzales further wrote, “Investment analysts forecast that ESG investing is poised to become mainstream investing.”
This article comprises three such companies going above and beyond in their efforts to satisfy socially conscious investors. As you ring in the new year, check these out and see if they warrant a place in your portfolio:
ESG Investing: Nvidia (NVDA)
Nvidia designs graphics processing units that are used in everything from gaming to mobile computing. Along with Advanced Micro Devices (NASDAQ:AMD), it has the semiconductor industry on lock. InvestorPlace’s own Chris Markoch went into significant detail regarding its current operations and how it’s doing exceptionally well, despite the novel coronavirus pandemic.
Now, where does ESG fit into the picture? Nvidia publishes a comprehensive CSR report annually. In that document, it gets into the nitty-gritty of what it does to ensure a sustainable future. For instance, it nearly trains all of its workforces on anti-corruption and anti-bribery best practices. It also has a stringent policy regarding conflict minerals, making sure that it never uses any controversial raw material to manufacture its products.
NVDA stock has returned 121% versus the S&P 500 this year. Shares are trading at 89% of their 52-week high, so there is some upside here. NVDA stock is an excellent position to initiate or add to.
A name synonymous with customer relationship management, Salesforce’s market share is about 20%, and over 80% of all Fortune 500 companies use its CRM software. Despite a market cap of $224.6 billion, CRM is still a growth stock in my eyes. In the second fiscal quarter, revenue rose 29% year-over-year to finish at $5.15 billion. The company boosted FY21 Revenue Guidance to roughly $20.7 billion to $20.8 billion, up approximately 21% to 22% year-over-year.
Fundamentals for the company are rock solid, and it continues to innovate with each passing day. We extensively covered its Artificial Intelligence initiatives in a recent article. However, the biggest piece of news surrounding the company its acquisition of Slack’s (NYSE:WORK) workplace messaging app. Our eagle-eyed editor Sarah Smith gave a rundown of 13 important facts surrounding the blockbuster deal.
On the ESG front, the company recently launched a $100 million Impact Fund through its strategic investment arm, Salesforce Ventures. The investment will help provide high-quality education, job reskilling, access to clean energy, climate change solutions and tech for nonprofits and foundations. Year to date, CRM stock is up 51.8%. Shares are trading at 78% of their 52-week high.
Disney took a bit of a pounding earlier this year due to the pandemic. Although the company is a highly diversified conglomerate, Covid-19 forced its studios, parks and cruises to shutter. That forced it to pivot towards streaming. In the first half of fiscal 2021, Disney’s parks, experiences and products divisions have laid off 32,000 employees and counting. DIS’s one-year return stands at 5%, pretty staggering considering the company we are talking about.
However, the pandemic is a minor blip in terms of the long-term outlook of the company. I would even go so far as to say that Covid-19 is a boon for Disney. Chief Executive Officer Bob Chapek, who took over from long-time chief Bob Iger in February, is a major fan of streaming and was already shifting the company’s focus when the virus hit. Even though the company reported a loss of 20 cents per share in the latest quarterly report, it reported more than 73 million paid subscribers to its Disney+ streaming service. That was the most telling stat coming out of the earnings season, one that will drive the business for several quarters moving forward.
Now moving to the ESG side of things, Disney is one of the best companies out there. Its operations incorporate several areas of ESG, renewable electricity, reducing waste, using water responsibly and “greening” production.
DIS stock trades at 3.94 times forward price-to-earnings, while Netflix (NASDAQ:NFLX) stock trades at 8.59 times. Shares are close to pre-pandemic levels but considering 2021 is the year for recovery, there is still upside left to exploit.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.