Goldman Sachs has some new ESG stock picks to cut through the noise

Published Tue, Jan 25 20226:37 PM EST

It's not always easy to find good sustainable investments, according to Goldman Sachs analysts, who shared a number of "fresh ESG ideas" to help investors cut through the noise. Investing in stocks based on "environmental, social and governance" factors, also known as ESG or sustainable investing, is a growing business. U.S. sustainable funds attracted $34 billion of inflows in 2021, according to data from Morningstar , while Bank of America says that assets under management in global ESG funds are growing three times as quickly as their non-ESG peers. However, according to Goldman Sachs, "based on the incomplete and backward-looking nature of existing ESG data, not all ESG opportunities can be easily found." "This is why we spotlight select stocks from our sector analysts based on the latest research where ESG is a core part of the investment thesis," Goldman's analysts, led by Evan Tylenda, said on Jan. 20. The bank screened for companies with "notable positive sustainability impacts," or which are beneficiaries of broader ESG trends. Stock picks Tylenda argues that battery storage is a "key piece of the energy transition." Within this space, the bank likes incumbent manufacturers such as Tesla , BYD , Contemporary Amperex Technology, Samsung SDI and SK Innovation. Other "fresh ESG ideas" from Goldman include emerging technology plays, such as U.S. home energy solutions provider Enphase Energy , engine equipment manufacturer Generac , photovoltaics firms SolarEdge and Sungrow , as well as downstream technology integrators such as NextEra Energy and Stem . The bank also sees opportunities from the decarbonization of Europe's steel sector. The bank's top picks in the sector are Swedish steelmaker SSAB and German zinc recycler Befesa . The analysts said SSAB is "best-positioned" because of its advanced decarbonization plans and power price advantages, while Befesa could be a "significant beneficiary" of the transition from blast furnaces to electric arc furnaces. ArcelorMittal — the world's largest steelmaker — is another of the bank's picks for its scale, which the analysts believe will be attractive to governments seeking to support the decarbonization transition. Other "ESG winners" identified by the Goldman include ReNew Energy — India's largest renewables firm — which it expects to benefit from an expected quadrupling of India's renewable installed capacity over the next decade. Atlanta-based radiation safety company Mirion Technologies also made Goldman's list. The bank believes the company could enjoy upside over time as the market gains an understanding of nuclear's "critical role" in the green transition. Japanese automaker Toyota is another of the bank's "ESG winners." It describes the company as "one of just a few automakers" capable of constructing a vertically integrated model for electric vehicles, including batteries. The in-house production of batteries is a "crucial" factor for Toyota, Tylenda said. Goldman also likes Australian engineering firm Worley for the "long-term prospects" of its energy transition business. The bank noted that the company expects 75% of its revenue to come from its energy transition business within 5 years. Brazilian steel producer Gerdau is another of the bank's picks. Goldman said the company has less exposure to iron ore price volatility than its peers, enjoys earnings resilience and has delivered "superior returns" compared to its competitors.

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

Yves Herman | Reuters

It's not always easy to find good sustainable investments, according to Goldman Sachs analysts, who shared a number of "fresh ESG ideas" to help investors cut through the noise.