HSBC names 2 outperforming climate change sectors — and picks the stocks to cash in

Published Mon, Feb 21 20227:45 PM EST

HSBC has named a raft of global climate stocks it says have outperformed and will continue to do well. Sustainable investing is on the rise, as market participants increasingly seek to invest in stocks based on "environmental, social and governance" factors — also known as ESG investing. Investors are also choosing to exclude companies that run counter to their values and ethical principles — an investment approach known as socially responsible investing (SRI). HSBC noted that inflows into ESG and SRI funds stood at $291 billion in 2021, the highest since at least 2019. The bank expects inflows to remain strong this year. Climate stocks however, have had a slow start to the year. After outperforming global equities over the past 2 years, they have shown signs of weakness lately, lagging global equities by 2.6% so far year-to-date, HSBC's analysts, led by Amit Shrivastava, said on Feb. 17. These stocks, which exhibit growth characteristics, have underperformed on the back of a sharp pullback in global assets ahead of potential tightening by major central banks across the globe, Shrivastava added. Stock picks Nevertheless, the bank continues to see opportunities in selective themes, noting that forestry and bio-energy stocks have enjoyed the highest outperformance against global equities so far this year. HSBC screened for companies across both sectors, saying the resulting stocks have outperformed over the past six months, are well-liked by investors and have improving earnings and price momentum. "Year-to-date, the forestry theme has outperformed global climate stocks by 5% and despite the recent outperformance, the theme's long-term valuation measures are trading at discounts relative to history, signifying that there is still scope for the theme to further re-rate," Shrivastava said. HSBC said forestry companies are expected to benefit from increasing emphasis on sustainable forestry practices and the key role of forests in meeting climate goals. The bank's top picks in forestry include U.S. timberland firm Weyerhaeuser , Finnish paper company UPM-Kymmene , Brazilian paper company Suzano , wood pulp producer Stora Enso , British paper and packaging firm Mondi and Chilean energy firm Empresas Copec. In addition, bio-energy has been the "most attractive" climate theme for two consecutive quarters, Shrivastava said. He added that the theme scores well on long-term investor sentiment, as well as short-term earnings and price dynamics. The bio-energy theme has a high association with global oil prices and the energy sector, the bank said, with the theme outperforming the broader climate sector by around 5% so far this year against the backdrop of a strong rally in Brent oil prices, up around 20% year-to-date. Within this theme, the bank's top picks are Finnish oil refiner Neste , sustainable natural indigents producer Darling Ingredients , Brazilian energy firm Cosan SA and German biofuels manufacturer Verbio Vereinigte Bioenergie . Utility-grade wood pellets supplier Enviva , sustainable biomass producer Drax Group and Chinese energy firm Guangdong Shaoneng also make HSBC's list.

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HSBC has named a raft of global climate stocks it says have outperformed and will continue to do well.