Goldman Sachs names 6 global stocks to own as sustainability focus kicks into high gear

Published Thu, Jan 13 202211:01 PM EST

Goldman Sachs has named six stocks it says will benefit from a rising urgency to address critical environmental and social issues. Amid the looming climate emergency, companies are facing ever greater scrutiny to reduce their carbon footprint and do more to alleviate the effects of climate change. And Goldman thinks the focus will now shift from setting targets to actual execution. "The rising 'urgency to accomplish' versus the 'desire to support' will drive critical changes in sustainability investing starting this year as focus shifts from aspiration to action," Goldman's analysts, led by Brian Singer, said in a research note on Jan. 6. This creates opportunities for stocks across the supply chain to further outperform, he added. Stock picks Goldman believes Norwegian aluminum producer Norsk Hydro will benefit from increased regulatory pressure, particularly from the European Union taxonomy — which is a new classification system that establishes a list of environmentally sustainable economic activities. "Hydro is establishing itself as a green leader through growth in recycling capabilities, and further expansion into renewable and battery technologies," Singer said. The company estimates that up to 27% of its revenue and up to 35% of its capital expenditure are aligned with EU taxonomy, which Goldman said is higher relative to global peers and the broader market average of less than 10%. Among its various initiatives, the company aims to deliver the first near-zero emissions aluminum product to the market by 2022 and double the sale of green products by 2025, Singer added. Chinese glass microfiber producer Zaisheng Technology also makes Goldman's list, with the bank viewing the company as "well positioned" to benefit from various growth opportunities across the decarbonization supply chain. The bank sees the company's products as "enablers" for other industries to effect climate change mitigation. Goldman also likes U.S chipmaker Advanced Micro Devices for its continued market share gains in personal computers and server processors, as well as its gross margin expansion and significant operating leverage. The bank said that the company is a key "greenabler" (green enabler) for global data centers due to its more energy efficient server chips, which would result in significant carbon dioxide savings by 2025, Singer said. In addition, the bank said Michigan-based CMS Energy is positioned to be a "best-in-class" regulated utility with upside potential as the company seeks to exit its coal-fired power generation portfolio and replace it with cleaner sources by 2025. The company is on track to achieve 90% of its generation capacity from clean energy sources by 2040, Singer said. The bank expects the company to achieve 6%-8% earnings per share growth through to 2025 — higher than that of it peers, he added. Novartis is another stock favored by Goldman for its inclusive growth strategy. The pharmaceutical giant increases access to health care through the development of generic and biosimilar drugs, pricing policies and other access initiatives, Singer said, adding that it is one of the earliest biopharma companies to issue sustainability linked bonds with 2025 access targets. The company has also committed funds to research next-generation anti-malarial treatments and will double its patient reach in low-and-middle income countries, Singer added. Rounding off the list is German automaker Volkswagen , whose transition strategy and sustainable product offering is not yet fully appreciated by the market, the bank said. The automaker aims to be carbon neutral by 2050, through shifting their product mix toward electric vehicles and investing across the renewable energy supply chain, Singer said. The company also plans to venture into battery cell production, battery recycling, and building out EV charging station infrastructure, he added.

A delegate walks past a sign during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 11, 2021.

Yves Herman | Reuters

Goldman Sachs has named six stocks it says will benefit from a rising urgency to address critical environmental and social issues.