(Bloomberg’s Opinion) – As the coronavirus pandemic spreads across so many industries, investors are outperforming the market by putting their money in companies committed to environmental, social and government priorities that favor transparency, diversity and The sustainability.
ESG is where the profits are, indicating that doing the right thing more and more is the smartest bet. The iShares publicly traded fund investing in companies it believes have “positive environmental, social and governance characteristics,” one of the largest of its kind, produced a total return this year that is more than three times the performance of the S&P index. 500.
The convergence of high-mindedness and profit was noted this month by Al Gore, the former vice president, 2000 Democratic presidential candidate and Oscar-winning environmental documentary filmmaker. He said at a Bloomberg conference: “It is increasingly clear that sustainable technologies are cheaper and better”
For more and more companies, doing the right thing is becoming a business imperative and social responsibility, especially in the renewable energy market. Apple Inc., the maker of personal computing and mobile communication devices in Cupertino, California, which has appreciated 30% this year, recently unveiled its plan to become carbon neutral throughout its manufacturing supply chain and life cycle of the product by 2030. Nike Inc., the Oregon designer and manufacturer of footwear and sportswear, is part of the RE100 coalition of companies that plan to supply all energy needs from renewable sources by 2025.
“In the long term, renewables could emerge stronger than ever, especially if governments integrate clean energy support into Covid-19 economic recovery programs,” said a report in May from the Yale School of the Environment. .
That is already reflected in the anticipated performance of 38 US-based companies that generate at least 50% of their revenue from clean energy or clean technology products. As a group, their sales are expected to increase 9% this year, 30% in 2021 and 23% in 2022, according to data compiled by Bloomberg.
Conversely, the 26 corporations on the S&P 500 Energy Index, a benchmark for fossil fuels, will experience a 29% decline in revenue in 2020, followed by growth of 11% in 2021 and 13% in 2022 , according to analyst estimates compiled by Bloomberg.
The phenomenon of ESG stocks outperforming the market is a long-term trend fueled by the coronavirus. The 38 clean companies produced a total return of 254% (revenue plus appreciation) in the last 12 months, 250% for the past 2 years and 330% since 2015. Among them, Tesla Inc., based in Palo-Alto, has 1 year Yield is 575%, including 130% since March, when the coronavirus shuttered much of the American economy.
Enphase Energy Inc., the renewable energy equipment maker based in Petaluma, California, gained 199% last year, including 27% since March. Vivint Solar Inc., based in Lehi, Utah, is up 192% in the past 12 months and 107% since March, according to data compiled by Bloomberg.
Traditional energy companies in the S&P 500 energy index lost 35%, 46% and 33%, respectively, over the periods of 1, 2 and 5 years. Irving, Texas-based Exxon Mobil decreased 38% over the past year, including 13% since March. Conoco Phillips, based in Houston, is down 30% in 12 months, including 16% since March. Kinder Morgan Inc., Houston’s provider of pipeline transportation and energy storage, fell 28% over the past year, including 25% since March, according to data compiled by Bloomberg.
Since March, when the pandemic demonstrated its virulence, ESG’s market advantage has doubled. That is reflected in the gap between the performance of BlackRock’s iShares Global Clean Energy ETF, one of the largest exchange-traded funds investing in renewable energy and clean technology, and the State Street Energy Street SPDR Sector Select Fund, one of the largest ETFs that invest in traditional energy companies. The multitude of fossil fuels is being crushed, according to data compiled by Bloomberg.
Anyone who thinks that ESG investors are more fortunate than smart, or a modern cohort of awake millennials, should consider the divergence between Aramco and Tesla. Aramco, the Saudi oil giant that remains the world’s largest company for now, was valued at more than $ 2 trillion after its initial public offering in December. Since then, Tesla’s market capitalization has quadrupled to $ 286 billion, moving to Toyota Motor Corp. to become the world’s largest automaker. During the same period, Aramco decreased 15% to $ 1.7 trillion, according to data compiled by Bloomberg.
The gap between Aramco and Tesla narrowed by $ 500 billion, slightly more than the $ 467 billion value of the ninth-largest company in the world. That would be Berkshire Hathaway, created by Warren Buffett, once the world’s richest man and the avatar of value investing. He has shown no inclination to move to ESG. Up to this point.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Matthew Winkler, editor-in-chief emeritus of Bloomberg News, writes about the markets.
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