Use the Sell-off to Invest in a Greener Future With ESG

ESG is not just a buzzword for millennials. With the world shifting towards green power, this is one sector that deserves your attention.

| More on:
Clean energy

Image source: Getty Images

Environmental, social, and governance (ESG) investing has seen an incredible rise in popularity within the past few years. Fund managers and investors alike, when faced with the choice between generating a return on their capital or generating a return and making a difference on the environment, are readily choosing the latter.

With stocks at fire-sale prices, despite the past two days’ rally, here’s a chance to get some ESG names at great discounts.

Carbon reductions are the forefront of economic policies

The world’s most populous regions have embraced greener policies. For example, the E.U. has set a goal of reducing greenhouse gas emissions by 40% in 2030 and is currently on track to exceed that target. Moreover, the E.U. has also targeted 32% of electrical production to come from renewable sources during the same period.

China, while off to a slower start, has targeted 2030 to be the year in which CO2 emissions are set to peak, while non-fossil fuel sources will power 20% of the country.

India, a shining star, is on track to achieve 60-65% of its power generation to come from non-fossil sources and is set to reduce its emissions intensity as a share of GDP, below the 33-35% below the level set in 2005.

These shifting policies toward green power have led to a surge in renewable electricity production. In 2018, renewable sources account for 6,700 terawatts of global power, up from 2,800 terawatts the decade before.

Investors have taken notice

The drive to modernize power generation has caught the attention of investors. From an economic perspective, it makes little sense to rely on coal power generation when it’s already cheaper to generate electricity from renewable sources.

According to data from CarbonTracker, over 60% of global coal power plants are generating electricity at higher cost than it could be produced by building new renewables. By 2030, it will be cheaper to build new wind or solar capacity than to continue operating coal in all markets. Furthermore, since coal plants take on average 15 to 20 years to recoup their costs, the 499 gigawatts of coal generation planned worldwide will inevitably lead to a loss of $600 billion for investors.

Based on these underlying metrics, investors and fund managers are increasingly turning to ESG and away from fossil fuel investing. According to Morningstar, 2019 saw ESG funds record net inflows of $20.6 billion, up four times from the numbers just four years prior.

Brookfield Renewable Partners: One of the best names in the sector

Given where we are, ESG will be a bullish theme for years to come. As the trends are extremely favourable towards this style of investing, stocks with an ESG image will benefit from continued buying pressure from investors and fund managers. One name that stands out is Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP). It is a favourite among income investors, thanks to its 6% annualized dividend-growth rate since 2012.

Furthermore, Brookfield benefits from an investment grade balance sheet (rated BBB+) and a geographically diverse footprint of renewable assets across North & South America, Europe, and Asia.

Currently, the portfolio can generate 18.3 thousand megawatts of renewable power, which results in a reduction of 27 million tonnes of CO2 emissions worldwide. With the Brookfield brand behind it, this power generator is one of the best bets to play the long-term growth of ESG.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Matsepudra has no position in any of the stocks mentioned.

More on Dividend Stocks

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Boosting Your Monthly Income: TSX Stocks That Deliver

Dividend investing can boost regular or active incomes, especially select TSX stocks that pay monthly dividends.

Read more »

Canadian Dollars
Dividend Stocks

How to Earn $2,005 in Passive Income With No Start-Up Costs

Passive income doesn't need to be difficult work. In fact, by definition, it shouldn't be! Here's an easy way to…

Read more »

Dividend Stocks

TFSA Passive Income: How to Earn $4,800 Per Year Without the CRA Taking a Cut

A good strategy to generate tax-free income while reducing portfolio risk.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Ready to Invest With $5,000? 3 Stocks for December 2023

These top stocks are some of the most obvious choices out there for a reason. Pick them up if you're…

Read more »

Dividend Stocks

Should You Buy TC Energy for Passive Income?

TC Energy offers an attractive yield and a growing dividend. Is TRP stock now oversold?

Read more »

A plant grows from coins.
Dividend Stocks

2 TSX Dividend Stocks With Lucrative Yields in December 2023

BCE is one of the lucrative TSX dividend stocks generating strong cash flows, thus resulting in a steadily rising dividend.

Read more »