By ValueWalk, Adriaan Brits

• Investors eye BlackRock’s example of ESG investing, particularly as gas prices force EV adoption.
• Solar Integrated Roofing Corp. and other fast-moving solar charging providers are particularly attractive for those who believe Tesla’s market share will shrink in the U.S. 
• America’s major automakers are going all-in with new all-electric vehicles as the ESG investment trend accelerates.

It has been two years since BlackRock led the reshaping of global capitalism by establishing a norm of investment into greener companies with its landmark environmental, social and governance (ESG) fund: iShares ESG Aware MSCI USA (ESGU). By implementing ESG standards into this fund, BlackRock induced a dramatic shift in the portfolios of other major players by inserting ESGU into influential model portfolios and investment advice.

The harboring of this tenet of green and sustainable investment by such a giant asset management firm has enabled the same ethos to seep down even to ordinary investors, who now wish to embrace this trend. One may argue that Tesla and Solar Integrated Roofing Corp are some of the most trendy green investment opportunities for the ESG curious investor that seeks to benefit from global conflict and high energy prices. Yet given the bold action taken by General Motors and Toyota, analysts feel Tesla will lose a lot of market share. This means that  Solar Integrated Roofing is left in a better position to keep benefiting as mainstream automakers are set to downsize the market share of Tesla.

The case for solar EV charging:

The case has already been made for government and private investment in sustainable EV charging. Investors are not only flocking to this space to “feel good” over their ESG ambitions – but rather to cash in on a new trend to replace dirty fuel and ensure Tesla charging does not have a monopoly over Americans.

For sustainable investment to truly be embraced, it is vital for other opportunities to proliferate – and that is exactly why investors are looking into green investments like Sunrun,  Solar Integrated Roofing, and First Solar.

The Example of BlackRock Portfolio Rebalancing

A closer look at the 10 most substantial Green stocks in BlackRock’s ESGU Portfolio does not provide a great deal of guidance for anyone seeking fast-moving stocks with a huge upside and it is clear that BlackRock played it safe:

• Apple Inc.
• Microsoft Corp.
• Amazon Com Inc.
• Alphabet Inc.
• Tesla Inc.
• Nvidia Corp.
• JPMorgan Chase.
• Home Depot Inc.
• Meta Platforms Inc.
• Johnson & Johnson

In early 2020, Larry Fink, the CEO of BlackRock, announced that capital on a large scale was about to shift as the world moved towards a greener future and that his firm would embrace this by making it easier to invest in companies with environmental, social and governance practices that furthered this goal.

Following Fink’s highly influential letter to CEOs, there was an influx of capital towards sustainable investment through ETFs. BlackRock is credited with being the primary driving force behind this shift due to the placement of its primary ESG fund (ESGU) into popular model portfolios and trusted investment advisers, who subsequently advised their clients across the US to look into it.

As a result of this placement, the ESGU experienced huge inward flows from these popular models. As a consequence, many investors had been entered into an agent of ESG, mostly without consciously choosing this as a particular strategy of investment, or even knowledge that their money had gone towards backing such companies.

The positive reception of BlackRock’s green fund conveys a powerful message of the opportunity of using sustainability as a new standard for investing to other hedge fund giants, such as AQR Capital Management, Bridgewater Associates, Renaissance Technologies, Man Group, and Elliot Management.

Larry Fink’s assertion that “BlackRock is a leader in this, and … are seeing the flows, and … big shift[s] in investor portfolios” should be interpreted as a challenge by these other hedge fund giants to strive to apply ESG criteria as successfully and impactfully as BlackRock. By pulling their collective weight on this global issue, some headway might start to be made.

Environmental, social and governance (ESG) criteria refers to the set of standards for investors to evaluate companies in which they might want to invest that has steadily become more popular; already, nine out of ten S&P 500 companies have since reported using ESG metrics, a significant rise from the abysmal two out of 10 a decade ago.

Opportunities For Green Investors

‘Greenwashing’

There are worries that the fund does not help the environment through investment due to the metric through which the fund measures companies it considers ‘sustainable.’ The index measures the effect of potential government environmental regulation changes on each company’s bottom line (particularly with regards to climate change) as a means of assessing which companies are sustainable enough to deserve investment.

Furthermore, if a company will be greatly hurt by government regulations meant to improve sustainability, they are necessarily not sustainable enough. Therefore, with this metric the companies with the lowest scores must be the least unsustainable, and most deserving of the top spots on the ESGU fund.

This does of course give rise to a risk that this fund achieves nothing other than further lining the pockets of Wall Street – especially since ESG funds generally charge investors higher fees than normal non-sustainably labeled alternatives. Whilst lower than industry averages for ESGs, ESGU’s fees are still 5 times higher than IVV, a BlackRock fund with a composition and performance predicted to be mirror that of ESGU.

Further, due to the manner in which ESGU measures the companies it labels as “sustainable,” there is little to suggest it is effective in achieving anything beyond fattening BlackRock’s profits and making people believe they are supporting the environment through investments when in reality nothing of the sort is occurring.

This is not necessarily a bad thing though, as if people believe they are investing in sustainable companies, it is normalizing a culture of prioritizing this in other investments, and could induce others to be on the lookout for new opportunities for green investment, some ideas for which have been explored below. The figures would indicate this trend is only going to increase as ESG funds become more profitable.

Solar Integrated Roofing Corp.

One hot investment opportunity that is extremely timely given the astronomical prices of gas and oil prices around the world currently, this company is pioneering the electric vehicle space with its universal charging stations.

The company’s CEO, David Massey, regards EV charging as “the next massive opportunity in the market, and [their] calculated alignment of [their] near-term focus will help to position [them] as a clear national player in the space.”

As the world shifts its focus to sustainability as a whole, investors focussing on businesses aligning themselves with this ideal will yield a great profit. Given Solar Integrated Roofing’s recent planned acquisition of a $100 million order pipeline as part of their overall refocus of efforts on EV charging, it is evident this company intends to lead this industry moving forward, and thus early investment will prove lucrative.

Other Green Investment Opportunities

Brookfield Renewable

Brookfield Renewable is the owner of one of the world’s largest power platforms able to be publicly traded. Their portfolio is primarily composed of wind, solar and hydroelectric storage facilities around the globe. As renewable energy shifts to become the dominant form of energy in the world, early investors in this company will reap dividends.

Clearway Energy

Clearway Energy is another force to be reckoned with in the renewable energy sector, owning in excess of 5,000 net MW of installed wind and solar generation projects. On top of this, they also own nearly 2,500 net MW highly efficient facilities for the generation of natural gas, plus a portfolio of district energy systems.

First Solar

First Solar is a publicly traded company that provides photovoltaic solar energy solutions. The company designs and manufactures semiconductor technology and PV solar modules. Necessarily, as the world shifts towards renewable energy sources like solar in line with its general move towards sustainability, their value will mirror the rise in demand.

Final Thoughts

Whilst the raw effectiveness of BlackRock’s ESGU fund in terms of supporting a greener world is dubious due to the way in which it measures which companies are to be considered ‘sustainable,’ the trickle-down effects it has on ‘everyday’ investors is extremely powerful and is curating an environment in which sustainability as a criterion is becoming a standard.

There are a number of investment opportunities available for the keen investor, most of which surround renewable energy, however, given the acquisitions made by Solar Integrated Roofing – all of which may help position itself as the dominant force in the EV charging industry. It may well be that early investors in this company could end with a good return and a sense of achievement in rebalancing towards a greener future.

ValueWalk

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.