Morgan Stanley analyst Jessica Alsford’s Sustainability in 2022: Broader Thematics is an extraordinarily useful report for investors interested in renewable energy, identifying the subsectors ripe for investment and those that are likely a few years away.
The analyst began by quantifying the mammoth scale of decarbonization and ESG-related spending ahead. Investment flows into ESG funds increased to US$533-billion in the first 10 months of 2021, compared with $331-billion for all of 2020. Morgan Stanley expects that assets under management for sustainability investments will reach $6.5-trillion by 2025, an annual increase of 29 per cent annually.
Ms. Alsford believes that, globally, the decarbonization process is moving from a research and development stage to an execution phase where sustainable technologies are deployed at an increasing rate. She writes, “Decarbonization will continue to drive growth across sectors including renewables, EVs [electric vehicles], hydrogen, CCS [carbon capture and storage], renewable fuels and energy efficiency for the next 30 years.”
Morgan Stanley sees no specific catalyst for climate change-related investments in 2022 outside of the general secular trend. The analyst expects that individual success stories – best-in-class companies in related subsectors – will outperform significantly next year.
The report includes a table listing the stocks involved with each sustainable investing theme (I posted the table on social media here). Each sector was rated in terms of short-term economic attractiveness, from high to low.
The two sectors with high attractiveness ratings are Renewables and Energy Storage. SolarEdge Tech, Sunrun Inc., TPI Composites Inc., American Electric Power Co., and FirstEnergy Corp. are listed under renewables. SolarEdge and Sunrun are also involved with energy storage, the second theme, along with Quantumscape Corp.
Green Hydrogen is rated high-to-moderate in terms of attractiveness. The names included here start with Canada’s Enbridge Inc., along with New Fortress Energy LLC, Chart Industries Inc., Air Products and Chemicals Inc., Linde PLC, Chevron Corp., Baker Hughes Co. (A) and Schlumberger NV.
I am not in any way suggesting that readers randomly pick a few names from the list and add them to their portfolios. Morgan Stanley, however, has helpfully identified a number of promising candidates for further study, and they are all likely to be propelled by a multi-decade, profit-enhancing, secular growth trend.
— Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
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Others (for subscribers)
What’s up in the days ahead
Compiled by Globe Investor Staff