It’s been called “a lot of sizzle, no steak.” “Great marketing.” “Overhyped and oversold.”
The ESG label—short for environmental, social and governance—has been slapped on a lot of financial products, and money is pouring into funds that describe themselves as aligned with sustainable ESG practices. Wading through it all can be tricky.
Investors focused on the “E” in ESG can look to companies poised for growth that are working on actual solutions to mitigating and adapting to climate change now. Here’s how three money managers, deploying more than $1 billion dollars in total, say they analyze investments that help combat climate change. Along the way, they give us some of their top stock picks.
Garvin Jabusch, chief investment officer, Green Alpha Advisors
Jabusch likes to build his portfolios by focusing on companies with their own intellectual property, or IP, to “make sure they own the ideas helping the world fix itself.”
That leads Jabusch into traditional—and very untraditional—climate change plays. On the traditional side: Vestas Wind Systems A/S, which is the world leader in onshore wind turbine manufacturing, owns a lot of patents and has offshore wind operations.
On top of the fact that Vestas produces clean energy at a competitive price, Jabusch likes the service contracts it has with rival wind farms—“revenue that grows every year as turbines proliferate.” Vestas has been “getting beat up because of supply chain problems, and related expense increases that are hurting their margins, and is a good value,” he said.
Jabusch’s non-traditional plays are biotech companies Crispr Therapeutics AG and Caribou Biosciences Inc. While the companies are known for their technology’s potential to transform medicine with genome editing, Jabusch sees the ability to modify genetic characteristics for the better as something able to impact every sector of the economy.
“There are potentially huge consequences for agriculture in food that can grow anywhere, that may need less water or could grow on seawater,” Jabusch said. “Or what about parts of the economy where electrification won’t work, like long-haul transportation? What about a gene-hacked biofuel that is carbon-negative because it is so efficient?”
Crispr and Caribou, which trade around $88 and $21, respectively, don’t have much revenue now. “I say just look at the IP, and where the revenues could be in five years,” Jabusch said.
A company relatively new to the public market that Green Alpha’s Jabusch labels “extremely speculative” is Volkswagen AG-backed QuantumScape Corp. The secretive company is working on next-gen battery technology that can be deployed at scale to replace today’s lithium-ion batteries with a more durable, reliable solid-state alternative.