The world is changing. Newer, eco-friendly businesses have emerged, encouraging mindful investors to seek more sustainable and environmentally-aware companies for investment opportunities. The rush into green stocks is on such a scale that environmentally friendly investing no longer involves sacrificing financial rewards.
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Ethical and green stocks come in many forms. Their different profiles mean that some offer higher risk-return than others and some offer a degree of stability. The below five stocks selected by AskTraders not only tick the box in terms of offering potential returns with an ethical twist but would also complement each other if held in the same portfolio. Read on as we consider the top stocks to boost the eco-friendly and ethical status of your portfolio.
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The Green Revolution
A wide range of sustainable and environmentally friendly ‘green’ stocks are available for investors. This is the result of a paradigm shift in thinking within governments and political organisations. Consumer sentiment has also moved, and there appears to be no going back to the approach of only a few years ago.
Selecting the best green stock is made more difficult by the fact that big and small corporations around the world are getting on board with the ethical investment program. That means investment decisions need to factor in the relative appeal of new start-up operations compared to established firms, which are embracing the need for change. From vehicle manufacturing and consumer durables to power generation and waste management, we’ve researched the best environmentally friendly stocks to buy now.
Green stocks are shares of listed companies that have a primary focus on business activities benefitting the environment. The sectors that form the natural home for environmentally friendly stocks include renewable energy, pollution control, carbon capture, and waste management and recycling. All of these industries have benefited from the global shift towards more ethical business practices.
The green revolution is not around the corner, it is here already. The $450bn Inflation Reduction Act announced in late 2022 is the biggest climate change package in US history and other governments are lining up similar measures. As a result, huge spending budgets are now in place to tackle the climate crisis. The question is, which firms will do the best job of expanding their market share?
The Risks Associated With Ethical Investing
Investing in green stocks does involve something of a ‘feel good’ element. But as with all investments, any decision needs to factor in likely risk-return and there are reasons why ethical investing might at times be a bumpy ride.
The main threat to the sector is that government subsidies and tax incentives that are being used to prime the sector will, over time, be phased out. The timescale of that move is hard to track because of the political nature of the process. But when considering the removal of public finance support, it is a case of ‘when’ rather than ‘if’.
There are also macro factors such as recessions, inflation and energy prices that can throw off even the best-made plans. With all this in mind, our shortlist of environmentally friendly stocks and ethical investments has been created to include stocks with profiles that might smooth out returns and boost the environmental and ethical nature of your portfolio.
Enphase Energy Inc. (ENPH)
This California-based green energy company was founded in 2006 and produces solar microinverters for residential and commercial properties. The company’s green credentials are illustrated by it offering best-in-class energy management solutions including solar generation, battery storage, electric vehicle (EV) charging, smart load control, and cloud-based monitoring and control.
Enphase has installed more than 48 million microinverters on over 2.5 million homes in over 140 countries. It has more than 2,500 staff based across the world and more than 6,000 installers. The total amount of CO2 the firm offsets is equivalent to that used by 3.5 million homes in one year.
The approach taken by Enphase forms a sweet spot for ethical investors. The firm’s aim of providing clean, affordable, and reliable energy is backed up by its approach to providing good jobs. The Enphase Learning Academy offers training programmes to existing employees. Upskilling of staff is a main priority with the firm offering talks on niche technical topics, webinars on wellness and work-life balance, and management development modules.
Enphase Energy – Weekly Share Price Chart – 2015 – 2022 – Price Channel
The momentum in Enphase stock has resulted in the ENPH share price posting some impressive gains. Between September 2020 and September 2022, it increased in value by 329%. With the stock currently trading at the top end of its trading range, investors are left with the tricky decision of whether to wait for a correction before buying in. The way that the stock proved resilient to the economic headwinds of 2022 suggests that such a correction is far from guaranteed.
You might not expect a timber real estate investment trust to be on this list. Weyerhaeuser’s core business, after all, involves felling trees for the lumber it uses in construction. This company, however, practices sustainable forestry and has planted more than one billion trees over the last decade while also maintaining a commitment to responsible development and clean energy.
It also does well on good governance principles. In 2021, the firm appointed a Director with a sole focus of stakeholder engagement, diversity and inclusion in the workforce. The targets it sets itself in terms of sustainability take the form of a 10-year roadmap, which is adjusted on an annual basis. Despite the targets being stringent, the firm has a track record of meeting them. Its 2021 ESG report confirms it exceeded the original greenhouse gas reduction target by reducing its emissions by 57% compared to levels in the year 2000.
The share price performance of Weyerhaeuser is not of the same scale as that of Enphase. But WY has an annual dividend yield of 2.59% and has a remarkably low P/E ratio of 8.2, which suggests it is undervalued.
Weyerhaeuser – Weekly Share Price Chart – 2015 – 2022
If you’re building a portfolio based on ethical investments, then sticking with the basic principles relating to stock diversification is still a good idea. A lot of stocks in the sector are categorised as growth stocks, and while that means they might offer significant long-term returns, the short-term price volatility promises shareholders a bumpy ride. Weyerhaeuser represents an opportunity to tap into ecologically aware investing but to also smooth out portfolio returns.
Clean Harbors (CLH)
This company is not only dedicated to social responsibility within its core operations but is also the organisation frequently called in to clean up other organisation’s messes. Emergency spill response and end-to-end hazardous waste management being two services it offers.
Founded in 1980, Clean Harbors has a market cap of $5.9bn and is one of the highest profile firms in its sector. Its client base is largely made up of Fortune 500 companies and its track record dates back to its role leading the clean-up effort after events such as the Deepwater Horizon explosion and the Gulf of Mexico Oil Spill of 2010.
This Massachusetts-based company operates throughout the US, Canada, Mexico and Puerto Rico. Operating through its subsidiary, Safety-Kleen, Clean Harbors is also the largest re-refiner and recycler of used oil in North America. The company has a comprehensive sustainability program revolving around energy usage, health and safety, customer solutions and engagement.
Clean Harbors – Weekly Share Price Chart – 2015 – 2022
Clean Harbors revenue has tripled over the last decade, with a current normalised price-to-earnings ratio of 19.66. The profit margin of 10.92% is relatively slim but the opportunity for Clean Harbors investors is all about scalability. The services the firm offers are increasingly in demand as the world’s big corporations turn green.
Brookfield Renewable Partners (BEP)
Brookfield is a US-based renewable energy company with a global presence. Its focus, as the name implies, is on clean, green, renewable energy sources and each year it is responsible for 11 million metric tonnes of emissions being avoided.
Unlike many other clean energy firms, Brookfield has diversified its energy sources with hydroelectric dams (making up around 75% of its generating capacity) wind power (20% of capacity) and solar power (the remaining 5%). That means Brookfield is in position to not only generate clean energy but to solve the challenge facing renewables by doing so on a 24/7 basis.
The company is one of the largest investors in renewable energy worldwide, with 18,100 megawatts of generating capacity – 7,830 megawatts of that capacity being US based. The company owns 940 power-generating facilities worldwide, including 219 hydroelectric facilities. Brookfield’s commitment to corporate social responsibility goes beyond its core business activities as well. It has a strong focus on employee wellbeing, health & safety, community engagement, philanthropy, transparency, and ethical governance.
Brookfield Renewable – Weekly Share Price Chart – 2015 – 2022
The Brookfield share price has more than halved in value since it peaked at over $60 in 2021. That spike illustrates the potential returns on offer and the current dip in price represents a chance to buy BEP stock while it’s offering a dividend yield in the region of 3.96%.
Brookfield is also looking past the potential for organic growth in the sector. A relatively ambitious programme of buyouts and takeovers of other firms looks likely to be continued for the foreseeable future. In September 2022, Brookfield announced it will acquire Scout Clean Energy from investment manager Quinbrook Infrastructure Partners for $1bn and that it had completed its buyout of Standard Solar for about $540m.
Bloom Energy (BE)
San Jose-based renewable energy firm, Bloom Energy, delivers reliable, clean, sustainable electricity to organisations worldwide. The company develops, produces, and installs Bloom Energy Servers. These are power generators that use fuels from biological sources such as methane – a gas produced as a by-product of various types of waste – but recycled by Bloom into a usable energy source.
Bloom servers let organisations customise energy solutions, allowing them to reduce their carbon footprint and meet sustainability goals. Bloom provides energy solutions to over 500 sites across the globe. As well as reducing carbon emissions, its technology facilitates reduced water consumption and results in lower levels of air pollution.
Bloom is a well-run and long-established company that has a track record of being able to monetise its research and development projects. It also continues to be attractively cutting-edge in its approach. The firm was founded in 1960 by Jim McElroy, who was working on developing hydrogen fuel cells for NASA’s Gemini project, and links to ground-breaking technologies have been maintained ever since. The firm developed electrolysers and life-support systems for NASA’s space shuttles and fuel cells for NASA’s Mars missions.
Bloom Energy – Weekly Share Price Chart – 2019 – 2022
The high-tech approach the firm takes is reflected in the Bloom Energy share price. Investors need to factor in that not all the experimental projects will pay off, but some could be game changers. The high price volatility marks BE stock as being at the high-beta end of the spectrum and in the 12 months between March 2020 and February 2021 BE stock increased in value by 727%.
Buyers of Bloom Energy would do well to apply some patience to their strategy in order to optimise trade entry points. Appropriate risk-management techniques also need to be considered. It’s a high-risk-return proposition but offers investors the chance to make a significant financial return at the same time as investing in a green stock with an ethical edge.
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Green stocks and ethical investments might take some time to realise their full potential. The projects some of the firms are engaged in involve restructuring entire infrastructure networks or investing in long-term research projects. Weyerhaeuser’s pioneering approach includes the planting of new forests. Bloom Energy is investing in programs that are pushing the boundaries of hydrogen fuel cell technology. As a result, ethical and green stocks can be a better fit for buy-and-hold investors who have a longer investment timeframe.
Investors adopting a long-term approach need to give extra thought to broker selection. Whether you’re a seasoned investor or a beginner, it is important to ensure frictional costs don’t erode your returns. These broker reviews offer an insight into the pros and cons of respective brokers, and part of the AskTraders fact-checking process involves ensuring a broker is appropriately regulated and trustworthy.