If there’s one concept that has kept people in the dark about environmental, social and governance issues — the so-called ESG movement — it’s plausible deniability. Because many of the issues inherent in the broader push toward responsible living have been less visible, it was frankly much easier to ignore them. Now, because of the novel coronavirus pandemic, the gloves are off, which bodes well for ESG stocks.
A perfect example of plausible deniability is climate change. Years ago, I distinctly remember a pastor telling me that it was arrogant for humans to think that we can somehow change a planet that a superior entity created for us. At the time, I felt it was an odd declaration. I’m even more convinced of its bizarre nature, considering that at scale, such an ideology would silence ESG stocks.
However, Stanford University put that fantastical nonsense argument to rest, noting that California’s current “crippling drought [is] far more likely to occur under today’s global warming conditions than in the climate that existed before humans emitted large amounts of greenhouse gases.” Therefore, it’s imperative that companies do more to foster sustainability and encourage social action. You can help through buying ESG stocks.
And it’s not just about the environment. Indeed, one of the most powerful issues to sprout up was the idea of social equity — and millennials are taking the mantle. According to Georgetown University, “By almost any measure, Millennials place a premium on corporate social responsibility (CSR) efforts.” Therefore, ESG stocks trade in a market segment that will likely only grow in relevance.
In fact, the same Georgetown report stated that 81% of millennials “expect companies to make a public commitment to good corporate citizenship.” If that’s not a substantive argument for these ESG stocks, I don’t know what is.
While this piece will focus on the ESG element of the companies below — and mostly on the social responsibility angle — you will still want to perform your due diligence. As academic authorities mentioned, it pays to be responsible, but it’s not the only attribute that matters. With that caveat out of the way, let’s take a deeper look at these ESG stocks.
- Home Depot (NYSE:HD)
- PayPal (NASDAQ:PYPL)
- GlaxoSmithKline (NYSE:GSK)
- Equinor (NYSE:EQNR)
- Churchill Capital Corp IV (NYSE:CCIV)
- Microsoft (NASDAQ:MSFT)
- Unilever (NYSE:UL)
ESG Stocks: Home Depot (HD)
A conspicuous beneficiary of the wild economic and consumer dynamics associated with the coronavirus pandemic, Home Depot carried momentum from the doldrums of March 2020 into the new year. Since the beginning of January, HD stock is up 20%. Though the brand is almost always associated with the home improvement and construction businesses, Home Depot happens to be one of the ESG stocks to consider as well.
How so? The company is one of the biggest employers in the U.S. It’s perhaps most notable for hiring Olympic contenders. Back in an archived April 2000 article from the New York Times, a Home Depot executive described such athletes as follows. “They’re disciplined. They’re on time. They work hard. It rubs off.”
What might not get as much attention is that Home Depot hires across the demographic spectrum. While corporations have done a better job of inclusivity for race and gender, what has been lacking is age discrimination. Honestly, it’s just too difficult to prove, and cynically, that’s why companies get away with it.
Not Home Depot. It’s taking a leadership role in socially responsible hiring, particularly for the older demographic, probably for the same reasons why it hires Olympic athletes: They’re disciplined. They’re on time. They work hard. It rubs off.
Good on them. HD ranks as my top choice among responsible ESG stocks.
While I’m putting digital payment processing and fintech firm PayPal up high on this list of ESG stocks to consider, I’ve got to put a caveat before we go any further. On Feb. 16 of this year, PYPL stock closed at a high of just under $305. From there, it corrected until a rally started to pick up around mid-May. As I write this, shares opened just under $293.
My suspicion? It’s possible, though hardly guaranteed, that we could be approaching a double-top formation. So if you’re always on the hunt for deals in the equities market, you may want to wait a bit before acquiring PYPL stock. A discount could be on the way over the next several weeks.
But specifically as one of the ESG stocks, I’m a big fan of PayPal. Primarily, it supports the gig economy by providing independent workers with an accessible payment and invoicing platform. Better yet, the brand is becoming universal, with recognition approaching that of the major credit cards.
Also, as a forward-looking speculation, PayPal may help mitigate the issue regarding unbanked demographics. According to the Federal Deposit Insurance Corporation (FDIC), 5.4% of U.S. households (nominally 7.1 million) were unbanked in 2019. This figure could jump higher if the economy doesn’t quite recover from the pandemic, bolstering the financial connectivity argument for PayPal.
As one of the world’s biggest pharmaceutical companies, GlaxoSmithKline fundamentally had strong upside potential following the initial shock of the coronavirus. Partnering with Sanofi (NASDAQ:SNY), GlaxoSmithKline began developing a Covid-19 vaccine. According to its Phase 2 trial, patient response results are encouraging.
The only issue? This Phase 2 study came out in May of this year, which means that in terms of addressing the coronavirus, GlaxoSmithKline came out behind leaders Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA). Still, the company’s antibody demonstrated that it “significantly reduced hospitalization and death” among high-risk Covid patients when given early in the disease.
Certainly, you can consider GSK one of the ESG stocks from that angle. While it may not have crossed the finish line first, it put up a valiant effort. Not only that, Covid-19 remains a problem in many parts of the world. And a resurgence of the disease could make GSK stock great again.
But the real reason why GlaxoSmithKline is on this list of ESG stocks is its longstanding efforts for inclusion and diversity. Specifically, the company seeks “at least 45% female representation in senior roles by end of 2025.” Also, GSK is one of the top organizations for LGBT+ representation.
Equinor is another company that requires a caveat — in this case, two of them. First, the technical posture for EQNR stock isn’t exactly encouraging. From mid-June, shares took a huge dive, then bounced higher from the lows. Now, the question becomes, is this a dead-cat bounce or a credible move higher? I’m not sure, considering that shares are straddling their 50-day moving average.
The other caveat involves its fundamental argument. A Norwegian state-owned energy firm, Equinor operates primarily as a petroleum company. As you know, fossil fuels don’t natively align with ESG stocks. But you don’t want to close the book on EQNR just yet.
According to its website, Equinor has made a strong pivot to renewable energy. It plans to increase this capacity tenfold by 2026. Moreover, the company plans to develop as a global offshore wind power provider, suggesting that management has done its homework regarding demographic and ideological shifts.
Also, it doesn’t hurt that Equinor’s home market is the electric vehicle capital of the world. At least that’s what the Norwegian government says. In seriousness, the country provides ample incentives for its citizenry to go electric. Therefore, Equinor’s pivot is simply a natural progression of the good stuff that’s happening over there.
Churchill Capital Corp IV (CCIV)
As events in the market over the trailing year demonstrated, it’s risky to put too much capital (either sentimental or financial) in special purposes acquisition companies, or SPACs. Frankly, if I don’t have to talk about another SPAC for the next decade, it might be too soon. Nevertheless, as a play on ESG stocks, you may want to rethink perceptions with Churchill Capital Corp IV.
Eventually (barring very unusual circumstances), Churchill Capital will ditch its funky name for Lucid Motors, its reverse-merger target. Of course, Lucid gained popularity — or is that notoriety? — for challenging Tesla (NASDAQ:TSLA). What I like about CCIV stock is that Lucid is currently focused exclusively on the upper income bracket. In sharp contrast, Tesla aims for the lower income threshold.
Frankly, I don’t see Tesla succeeding in that department with current EV battery technology. But that’s the real reason why CCIV stock is an ESG-related opportunity. Lucid may very well convince the rich and powerful who haven’t made the transition to Tesla vehicles to go electric.
You see, in prior paradigms, rich folks typically wanted big, bold gas-guzzling vehicles to demonstrate how important they are. So to change that mindset and make quiet, environmentally friendly vehicles desirable may be Lucid’s biggest socially responsible success story.
Given the wild conspiracy theories surrounding Microsoft co-founder Bill Gates, you might presume that the software giant is hardly one for consideration among ESG stocks. I beg to differ.
For one thing, Microsoft is incredibly relevant to the emerging generation. Yes, other companies like Apple (NASDAQ:AAPL) generate much more interest from time to time. But if you look at office software, nothing comes close to the utility and ubiquity of Microsoft’s cloud-based business software. Speaking from personal experience as an independent worker, I would not be anywhere without Microsoft’s Software-as-a-Service platform.
And this isn’t just an anecdotal observation. As the New York Times pointed out last year, during the pandemic-fueled lockdowns, many worker bees got their first taste of professional independence. Today, many businesses are recalling their employees. Not wanting to give up that independence just yet, several workers will undoubtedly give the gig economy a try.
Beyond that, the consumer tech firm generated rave reviews and industry accolades for its sustainability and responsibility initiatives. For instance, Microsoft in 2019 achieved a rating of AAA — the highest possible that MSCI Ratings gives to organizations.
During the summer of social unrest last year, the occasional violent outbursts hid a reality that had long gone ignored: America has been fracturing not just on class but on race and origin. Further, the lack of opportunities, resource and social currency widened the wealth gap, bringing the matter to a head.
Even in the best of circumstances, this dynamic is an extremely difficult one to address. But because of that difficulty, many organizations choose to make a saccharine, polished statement and leave it at that. Not Unilever. Management quickly realized that the coronavirus pandemic disproportionately affected underprivileged communities. Therefore, it did something about it.
As Black Enterprise wrote, “Unilever, parent company to many of the beauty brands people love and support, is launching the United for America to feed people living in vulnerable communities in partnership with Feeding America and Direct Relief.”
Better yet, no one can claim that Unilever is merely pandering based on the circumstances of the time. That’s because the company also made sure to support the essential needs of frontline workers, who have been instrumental in combating this dreadful pandemic.
So kudos goes to Unilever, which didn’t wait to do something positive for the conflicts within society.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.