Within sustainable investing, Credit Suisse says there's one theme investors should focus on

Published Sun, Nov 22 20208:25 AM EST

(This story is for CNBC PRO subscribers only.) Sustainable investing trends are touching every part of the market, and Credit Suisse believes one theme stands out: companies focused on pushing energy-consuming industries like buildings and the transportation sector toward a zero-carbon world. Amid a surge in ESG investing, the firm said these stocks should see increased momentum under President-elect Joe Biden given the former vice president's ambitious climate targets. Building a zero-carbon world is one of 11 themes Credit Suisse has categorized under its broader sustainable investing umbrella. Other sections include education, diversity, water and renewable energy. The firm noted that the latter has been the top-performing theme over the past year, but that much of the upside is already priced into these stocks. This means that key metrics — including value, growth and profitability — look more attractive across other themes. The building a zero-carbon world theme centers around efficiency, and covers new technologies and services that are improving energy intensity of major end-market consumers. Credit Suisse noted that investment in energy efficiency reached $236 billion in 2017, but that if climate change targets are to be met spending will need to jump to $828 billion by 2040. Currently, buildings consume around 30% of so-called final energy, or the energy used by end consumers, globally. "An increasing global population, urbanization and the emergence of the EM middle-class suggest that building energy demand will continue to rise," the firm said. Biden has called for retrofitting older buildings, and Credit Suisse noted that Emerson Electric , Johnson Controls and Carlisle Companies are among the companies helping to automate and upgrade commercial spaces. Credit Suisse has an outperform rating on all three, with each included in the firm's "key ideas with impact" list, meaning that all three score above average on quality and momentum factors. "We think energy efficiency and healthy buildings are secular growth drivers, and that investment will continue irrespective of the timing of a COVID-19 vaccine," Credit Suisse' analysts led by Eugene Klerk wrote. Acuity Brands could also see upside since it's helping buildings convert to energy-efficient LED lighting, while insulation installers like Installed Building Products and TopBuild would benefit from stricter residential building codes. Should Congress remain split Biden's $2 trillion climate plan would most likely not receive bipartisan support. Still, Credit Suisse said that action at a lower level will drive change. "As with many energy-efficiency initiatives, we are seeing states already take the lead, and we think incremental investment at the federal level would help accelerate these programmes," the firm said. Credit Suisse noted that its renewable energy basket of stocks has gained 55% over the last year, making it the top-performing theme. Names like Plug Power and Enphase Energy , which have gained 628% and 577% over the last year, respectively, fueled the theme's gains. The firm said that while the theme is "highly relevant as a part of the energy transition debate," caution is warranted given elevated valuations. "Building a Zero-Carbon World is a theme that scores much better on operational and cash flow characteristics, it is relevant from an energy transition perspective, it is part of post-pandemic 'Green Recovery' programmes and appears much less expensive from a valuation perspective than renewable energy," the firm said. - CNBC's Michael Bloom contributed reporting.

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(This story is for CNBC PRO subscribers only.)

Sustainable investing trends are touching every part of the market, and Credit Suisse believes one theme stands out: companies focused on pushing energy-consuming industries like buildings and the transportation sector toward a zero-carbon world. Amid a surge in ESG investing, the firm said these stocks should see increased momentum under President-elect Joe Biden given the former vice president's ambitious climate targets.

Building a zero-carbon world is one of 11 themes Credit Suisse has categorized under its broader sustainable investing umbrella. Other sections include education, diversity, water and renewable energy. The firm noted that the latter has been the top-performing theme over the past year, but that much of the upside is already priced into these stocks. This means that key metrics — including value, growth and profitability — look more attractive across other themes.