After COP26? Here are 3 sustainable investing strategies and 40 stock picks.

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Finance has become a central theme of the United Nations Climate Change Conference. Banks, insurers and asset managers with some $ 130 trillion on the books have pledged to align with the net zero emissions targets.

The conference, known as


COP

26 — highlighted the role that public and private investment can play in decarbonizing the economy, and raised the profile of investment from an environmental, social and governance (ESG) perspective.

Individual investors may want to follow suit.

But this type of investment is a rapidly evolving and ill-defined category of financing. Additionally, a lack of climate disclosure rules and extensive valuations in some green sectors can make sustainable investing a daunting prospect.

Upstream of COP26, Barron spoke with Jessica Alsford, head of global sustainability research at Morgan Stanley, to discuss sustainable strategies and the best opportunities in the space.

What is sustainable investing?

“There is no single definition of what sustainable investing is,” said Alsford.

And she is right. While many fund managers explicitly offer ‘ESG’ funds and some companies promote green initiatives to stand out, there is no set of central standards for sustainable investing.

The ESG definition itself can get a little confusing. In theory, climate compliance, social impact and board governance should all play a key role in scoring sustainable investments. Overall, most people focus on the environmental side of things, and maybe for good reason: Climate change is arguably the most pressing problem of our time.

Read also : Climate talks at the height of an energy crisis: what COP26 means for businesses

So what are you looking for in a sustainable investment? “Sustainable growth, sustainable returns and a positive impact on the environment or society,” said Alsford.

“You can’t invest sustainably without thinking about the viability of the business,” she added. After all, there is little economic sense in investing capital in a business that will eventually fail, no matter how green.

It’s about investing through a lens – and while profitability is always a central goal, some investors may also feel a moral imperative.

“There is an element of reflection on ‘what kind of world are we aiming for? – and is this company actually helping drive the change to make it happen? Alsford said.

For individual investors, one of the most difficult aspects of sustainable investing is finding assets that match the bill. This is especially true for those who want to go beyond general ESG funds and choose their own stocks.

That may soon change. The group of financial institutions that rallied around the climate for COP26 – under former central bank governor of England and Canada, Mark Carney – represents all of the major Western banks. One of their requests concerns new disclosure rules for broadcasts; the Securities and Exchange Commission also agrees with this decision.

If listed companies are forced to disclose their emissions, including emissions involved in the production or consumption of their products or services, it could be a game-changer, according to Alsford. Not only would this increase transparency about some of the biggest polluting companies, but it would make it easier for investors to adjust their portfolios to reflect their appetite for sustainability.

What are the sustainable investment strategies?

Investors have the freedom to choose the definition of sustainable investing that suits them. For some, that could mean investing money only in purely green and environmentally friendly companies, and ditching the oil and gas industry, for example. For others, investments in oil and gas may be more acceptable.

“I am not saying that we should not invest in oil. To me that is not what sustainable investing is. Sustainable investing is a specter, ”said Alsford. “You can be part of that spectrum of whether you care only about value creation, or values ​​and alignment, or somewhere in between. “

Alsford describes three distinct investment strategies that fit into the sustainability spectrum.

The first is an exclusion strategy. Investors put their money where they say it; if you don’t like the role oil and gas companies play in environmental pollution, then don’t invest in it.

More: 2 things that could make the COP26 climate summit fail

The second is an integration strategy. Instead of categorically rejecting the oil and gas industry, you could think more deeply about how climate change and the energy transition are altering the dynamics of the sector and factor this into your decisions. In this case, you would incorporate ESG factors into investment decisions, but you could still put profits above pure sustainability.

The third is to focus on the “improvers”. Sticking to the oil and gas industry, an improvement strategy would dictate that you only invest in companies that you believe have a forward-thinking, climate-conscious business strategy.

“Three completely different approaches, but they all fall under the umbrella of sustainable investing,” said Alsford.

Where are the opportunities for sustainable investing?

Even with a clear strategy in hand, it can be difficult to pick the right stocks. It is not unique to individual investors.

Last year, one of the world’s largest funds, the $ 1.4 trillion Norwegian sovereign wealth fund, which on average owns more than 1% of every publicly traded company, said it was struggling to find green energy projects in which to invest. In large part, the fund blamed fierce competition, inflated valuations and lack of opportunities.

Looking at the stock charts of wind and solar energy companies, it’s not hard to see why, let alone booms in electric vehicle builders, battery makers, clean infrastructure groups, and industry innovators. ‘hydrogen.

Morgan Stanley’s view is that there are many companies that stand to benefit from the decarbonization trend, broadly defined. The investment bank has collected well-rated stocks across seven sectors which represent some of the most attractive opportunities for sustainable investing.

Are you interested in the renewable energy sector? Look at China Jushi (600176.China), Jiangsu Zhongtian Technologies (600522.China),


Luoyang glass
(1108.HK), Engie (ENGI.France), Ørsted (ORSTED.Denemark),


Siemens Energy

(ENR Germany),


First Energy

(


EF

) and Sunrun (RUN).

For energy storage,


Ganfeng Lithium
(1772.HK),


Panasonic
(6752.Japon), Zhejiang Huayou Cobalt (603799.China), and


QuantumScape

(QS) are worth seeing.

Through hydrogen, Morgan Stanley identifies


Beijing SinoHytec
(688339.China),


China Petroleum and Chemicals
(0386.HK),


Johnson matthey

(JMAT.UK), NEL (NEL.Norway),


Airline products

(


APD

), Enbridge (ENB) and


New Fortress Energy

(NFE) among the potential winners.

Big Oil Companies Make Attractive Bets on Sustainable Alternative Fuels


Exxon Mobil

(XOM) and


Chevron

(CLC), as well as


Holly Frontier

(


HFC

) and


Oil Marathon

(


MPC

).

The developing field of carbon capture, use and storage offers choices such as Bayer (BAYN.Germany),


ConocoPhillips

(COP), NextDecade (NEXT) and


Western Oil

(


OXY

).

Opportunities in electric transport and green mobility still abound. Stocks of familiar electric vehicles such as Tesla (TSLA), NIO (NIO) and


Li Auto

(


LI

) are on Morgan Stanley’s list, just like TPI Composites (TPIC),


Schneider National

(SNDR), Knight-Swift Transportation (KNX), FREYR (FREY), Fisker (FSR) and


Alstom
(ALO.France).

Renovation and energy efficiency also offer options. NARI Technology (600406.China), SINOPEC Engineering Group (2386.HK),


Covestro
(1COV.Germany), and


Rexel
(RXL.France) are among the potential parts.

Morgan Stanley’s view is that there are also many stocks facing headwinds related to the decarbonization trend, including sectors such as energy; electricity and utilities; cement; chemical products; coal; metals and mining; industrialists; automobiles; Airlines companies; and shipping.

In particular, it is bearish on stocks including Consolidated Edison (ED),


Continental resources

(


CLR

),


XCel Energy

(


XEL

),


Ford engine

(F),


Bmw
(BMW.Germany),


Nissan
(7201.Japan),


American Airlines

(AAL),


Deutsche Lufthansa
(LHA.Germany), and


Air France-KLM
(AF.France), among others.

Write to Jack Denton at [email protected]

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