In this piece, we will take a look at ten sustainable investing stocks billionaires are loading up on. If you want to skip our primer on the benefits of sustainable investment, then head on over to 5 Sustainable Investing Stocks Billionaires Are Loading Up On.
Investing often involves evaluating a firm's business operations and the broader environment to see whether it will generate value in the future to justify the allocation of existing funds. Sustainable investing expands this basic principle to also consider the impact of a firm's operations on the environment, society, and stakeholders. The list of these stakeholders includes shareholders, customers, employees, and any other group of individuals that might face direct or indirect effects from the business.
Including this broader set of factors narrows down the pool of firms that are available for investment, and a hot topic surrounding ESG (Environmental, Social, & Governance) investing is whether shareholders receive adequate returns. Massive amounts of money have already been poured into exchange traded funds (ETFs) that invest in sustainable firms, and estimates from Morningstar show that a sizeable $2.74 trillion was invested in this segment at Q4 2021 end. This time period was marked by a recovery of sorts in the global investment climate since in the prior year's Q4, the total investment was a trillion dollars lower and stood at $1.65 trillion. Flows in the funds have continued to recover, but the disruption of 2022 in a high interest rate and inflation environment has stalled the overall recovery.
So when it comes to returns, it turns out that sustainable or unsustainable investing really doesn't have that much of a difference. Research shows that comparing the returns of low sustainability funds with their high sustainability counterparts does not yield a significant difference, and researchers from Columbia Business School have a rather stunning conclusion that shows that investing in highly rated ESG companies might actually be counterproductive in achieving stakeholder friendly outcomes. This paper analyzed more than 300 ESG funds available to U.S. investors and concluded that companies part of ESG funds were more likely to commit violations such as employee health and safety endangerment, wage theft, and a statistically insignificant difference in the rate of environmental regulations violations.
However, ESG investment has made quite an impact when it comes to the operations of large companies such as The Coca-Cola Company (NYSE:KO). Between 2004 and 2015, the firm reduced its water intensity (the amount of water that it uses to make a liter of coke) by 26.6% or from 2.7 liters to 1.98 liters. Consulting firm McKinsey is also a fan of sustainable investing, as it believes that through this investors can create value in five areas. These cover top line revenue growth by attracting customers that value ESG products and using credibility as a responsible firm to leverage a community for better resource access, to saving up on costs like Coca-Cola, and investing in long term assets that are able to pay off their capital expenditure before being written off and becoming a burden on the environment.
After all, the goal of sustainable investing is to improve the world and then make profits according to the strictest adherents. And the returns are nearly similar as well, since when we look at the returns of the broader MSCI ACWI Index and compare them to the MSCI ACWI ESG Universal Index we find out that over the past ten years, the former has delivered 8.75% in annualized returns while the latter's returns have stood higher at 9.12%. So while sustainable investment might not lead to explosive growth, it still performs nearly the same when analyzed in a limited scope. After all, returns of the S&P 500 are higher over the same time period, as these stand at 12.22% on an annualized basis as of June 30, 2023. And for another small win for the ESG crowd, the S&P 500 ESG Index has posted 12.83% in net total return over the same time period, similar to the returns of the S&P 500 ESG Leaders Index - an index that excludes sectors such as tobacco, alcohol, nuclear power, and fossil fuels.
So, the next question to ask is which firms are highly rated when it comes to ESG. Well, we took a look and found out that out of the Top 12 ESG Companies in 2022, the top three that plan to pump millions of dollars into making their operations sustainable and foster a sustainable business environment are Alphabet Inc. (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC), and Microsoft Corporation (NASDAQ:MSFT). As to what makes these firms special? Well, Intel, a company whose operations require using copious amounts of water for high product purity, saved 9.6 billion gallons of water in 2022 and upgraded its electricity usage in the U.S., E.U., Israel, and Malaysia to 100% renewable. Microsoft, on the other hand, aims to be water positive and carbon neutral by the end of this decade and upgraded its Microsoft Cloud platform to expand data gathering for ESG reporting and analysis in June 2023.
With these details in mind, let's take a look at some top sustainable stocks to invest in according to billionaires. Some notable names are First Solar, Inc. (NASDAQ:FSLR), Tesla, Inc. (NASDAQ:TSLA), and Enphase Energy, Inc. (NASDAQ:ENPH).
10 Sustainable Investing Stocks Billionaires Are Loading Up On
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Our Methodology
To compile our list of billionaire sustainable stock picks we first used the Invesco MSCI Sustainable Future ETF and picked out the top forty companies. Then, the number of billionaires that had invested in them as of Q1 2023 was determined and the final list of top ten sustainable stocks according to billionaires is as follows.
10 Sustainable Investing Stocks Billionaires Are Loading Up On
Ormat Technologies, Inc. (NYSE:ORA) is a utility company that focuses primarily on generating power through geothermal sites and solar cells. The firm has consistently been beating analyst EPS estimates during its recent quarters and the stock has a small $8 price upside based on average analyst price targets.
By the end of this year's first quarter, 24 of the 943 hedge funds part of Insider Monkey's database had bought Ormat Technologies, Inc. (NYSE:ORA)'s shares. Out of these, the firm's largest investor is Ian Simm's Impax Asset Management with a stake worth $178 million.
Along with Tesla, Inc. (NASDAQ:TSLA), First Solar, Inc. (NASDAQ:FSLR), and Enphase Energy, Inc. (NASDAQ:ENPH), Ormat Technologies, Inc. (NYSE:ORA) is a top sustainable stock that billionaires are piling into.
NextEra Energy Partners, LP (NYSE:NEP) is an energy company that operates in the natural gas and renewable power industries. The firm announced in May 2023 that it plans to reach Real Zero emissions by 2025 and sell natural gas assets to finance future growth.
After digging through 943 hedge funds for 2023's March quarter, Insider Monkey discovered that 24 had invested NextEra Energy Partners, LP (NYSE:NEP).
NIO Inc. (NYSE:NIO) is an electric vehicle manufacturer headquartered in Shanghai, China. It makes and sells both SUVs and sedans and the firm is one of the dominant players in the growing Chinese electric vehicle market. However, a slowdown in the Chinese economy is also affecting its operations, since the company reported in early July that its June 2023 electric vehicle deliveries had stood at 10,707 units marking a sharp 17% annual drop.
Insider Monkey dug through 943 hedge funds for their Q1 2023 investment portfolios to find out that 18 had bought the firm's depository shares. NIO Inc. (NYSE:NIO)'s largest hedge fund investor out of these is Jim Simons' Renaissance Technologies since it owns ten million shares that are worth $113 million.
KB Home (NYSE:KBH) is an American construction company headquartered in Los Angeles, California. As part of its sustainability push, particularly since construction uses high volumes of timber, the firm announced in July that it will partner up with a nonprofit to fund efforts seeking to preserve landscapes and forest habitats.
As of March 2023, 29 of the 943 hedge funds part of Insider Monkey's database had bought and owned a stake in KB Home (NYSE:KBH). Among these, Ken Fisher's Fisher Asset Management is the biggest shareholder with an investment of $110 million.
Sunrun Inc. (NASDAQ:RUN) is a solar power equipment provider which serves the needs of residential customers in the U.S. by providing products such as panels and energy systems. These days, the firm is busy providing solar power equipment to affordable and public housing communities in California by teaming up with a public housing authority.
By the end of Q1 2023, 27 out of the 943 hedge funds surveyed by Insider Monkey had invested in the solar company. William B. Gray's Orbis Investment Management is the largest investor out of these, courtesy of a $265 million stake that comes via 13 million shares.
First Solar, Inc. (NASDAQ:FSLR), Sunrun Inc. (NASDAQ:RUN), Tesla, Inc. (NASDAQ:TSLA), and Enphase Energy, Inc. (NASDAQ:ENPH) are some great sustainable investing stocks on the billionaire radar.
