ESG Stocks And ETFs To Watch As SEC Weighs Greenhouse Gas Disclosure Requirement

Zinger Key Points
  • A SEC requirement to disclose emissions could hurt several sectors and businesses, including many in the energy sector.
  • Another sector to watch is the financial sector, with banks and funds now facing a decision of whether they should provide funding for stocks and sectors that have high emissions.

On Monday, the Securities and Exchange Commission proposed that all publicly traded companies disclose their greenhouse gas emissions.

The proposal continues a push in the clean energy sector and could result in winners and losers in different sectors.

What Happened: The SEC made the proposal at an open meeting. Three Democratic commissioners voted for the proposal and one Republican commissioner voted against the proposal.

SEC Chair Gary Gensler said the proposal would provide “consistent, comparable information” to investors of public companies.

Many environmentalists praised the proposal as an important first step in the fight against climate change. Other environmentalists are pushing for stricter proposals including businesses to disclose emissions from their customers and supply chain partners.

Public companies would have to disclose emissions and the effect on their business to the SEC under the new proposal. Large companies would also have to have emissions numbers verified by an independent auditing firm under the proposal.

Companies would also be forced to disclose if they use carbon offsets to lower emissions.

A 60-day public comment period will open soon on the proposal. The public comment period will be followed by a final vote from the SEC’s four commissioners.

Potential Winners: The Washington Post article on the new proposal highlights several companies that already disclose emissions.

Ford Motor Co F discloses emissions from vehicles and its production facilities. With the company already making these disclosures public, it could help save the company time and money under new rules and also highlight how the company was ahead of the game and had nothing to hide.

Tesla Inc TSLA publicly shares the emissions from the Tesla Model 3 car and production facility. The Washington Post report said this is the only vehicle for which Tesla breaks down the full emissions from production to the road.

A report from S&P Global SPGI from earlier this month showed that Microsoft Corp MSFT, PepsiCo Inc PEP and Ecolab Inc ECL received grades of A- by an advocacy group grading emissions disclosures. Apple Inc AAPL and Alphabet Inc GOOG GOOGL received B- and B grades, respectively.

Another sector that could benefit from the new emissions guidelines: satellites.

Planet Labs PL shared in a blog post in October 2021 that satellite data is helping to “enable global transparency and sustainability.”

Planet co-founder Robbie Schingler shared that space technology like satellites is helping with societal well-being.

“What we have learned from history is that a clear and transparent view from space can create a more peaceful and secure Earth,” Schingler said.

Planet provides data that can help companies and governments better analyze their supply chains and ESG indicators, Chief Impact Officer Andrew Zolli said.

Spire Global SPIR was mentioned as a company helping with ESG in a SpaceNews article.

“The incorporation of ESG into operational demands is absolutely rising,” Spire Global CEO Peter Platzer said. “It’s rising because of changes in regulatory environments, changes in customer behavior and changes in policy.”

Maxar Technologies MAXR is one of the largest geospatial intelligence companies and provides satellites, imagery, data and analytics for commercial and government customers. The company has committed to its ESG efforts before for itself and customers.

Two of the largest companies in the world have put out plans to be carbon negative in the future.

Microsoft announced a plan in January 2020 to be carbon negative by 2030.

“While the world will need to reach net zero, those of us who can afford to move faster and go further should do so,” the company said.

The company also has a goal of removing all carbon emitted into the environment since it was founded in 1975 by the year 2050.

Microsoft also announced it would help suppliers and customers reduce their carbon footprints with a $1-billion innovation fund to help accelerate changes.

Apple announced plans in October 2021 to be carbon neutral by the year 2030. The company launched 10 initiatives to help support communities around the world. Apple also highlighted that it is committed to using suppliers that have initiatives for clean energy.

“Every company should be a part of the fight against climate change, and together with our suppliers and local communities, we’re demonstrating all of the opportunity and equity green innovation can bring,” Apple CEO Tim Cook said. “We’re acting with urgency, and we’re acting together.”

The initiatives by Microsoft and Apple make the stocks among the top holdings in many ESG ETFs.

Related Link: Rockefeller Descendants Push For Banks To Stop Financing Fossil Fuel Companies 

Potential Losers: A SEC requirement to disclose emissions could hurt several sectors and businesses, including many in the energy sector.

The S&P Global report showed that four of the top five utility companies in the U.S. received failing grades from an advocacy group for not disclosing greenhouse gas emissions.

While many U.S. utility companies disclose some emissions and receive grades in the C range, Exelon Corp EXC, Dominion Energy D, Duke Energy DUK and NextEra Energy NEE received F grades.

“To accurately assess net-zero progress, it is critical that utilities measure not only direct emissions associated with producing power, but also the indirect emissions associated with their fuel sources and products,” the report said.

A report from October 2021 showed that Peabody Energy BTU, ConocoPhillips COP, Chevron Corp CVX, Exxon Mobil XOM, BP PLC BP and Shell PLC SHEL were among the heaviest polluting companies in the U.S.

Another sector to watch is the financial sector, with banks and funds now facing a decision of whether they should provide funding for stocks and sectors that have high emissions.

ETFs To Watch: Over the years, many ETFs have popped up that are focused on ESG practices, which covers environmental, social and governance. 

The Vanguard ESG US Stock ETF ESGV screens companies for ESG criteria and also eliminates stocks from certain areas like alcohol, tobacco, weapons, fossil fuel, gambling and nuclear power. The ETF has a low 0.09% expense ratio and has over $6.1 billion in assets under management.

Top holdings in the Vanguard ESG ETF are Apple, Microsoft, Alphabet, Inc AMZN and Tesla.

The iShares MSCI USA ESG Select ETF SUSA has $4 billion in assets under management and includes U.S. companies with strong ESG criteria. Top holdings include Microsoft, Apple, NVIDIA Corp NVDA, Alphabet and Tesla.

The iShares S&P Global Clean Energy ETF Index Fund ICLN is another ETF that focuses on large and mid-cap U.S. stocks with strong scores for ESG criteria.

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