We recently compiled a list of the 10 Best ESG Stocks To Buy Now. In this article, we are going to take a look at where Eli Lilly And Company (NYSE:LLY) stands against the other ESG stocks.
Defining ESG can sometimes be straightforward: it’s a finance and investing approach centered on managing risks related to environmental factors, social issues, and corporate governance. Although the concept emerged about two decades ago through a collaboration between United Nations officials and the finance industry, who argued that addressing ESG risks like climate change, labor disputes, and poor corporate governance can safeguard investments, it wasn’t until the late 2010s and into the 2020s that ESG evolved into a more proactive movement, rather than a reactive one.
A report from the World Meteorological Organization (WMO) confirmed that 2023 was the warmest year on record, with the global average near-surface temperature reaching 1.45°C—closer than ever to the 1.5°C lower limit set by the Paris Agreement on climate change. Another report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) also reveals that climate-driven disasters are already surpassing scientists’ initial predictions. This urgency has sparked increased interest in niche yet rapidly expanding sectors of ESG investing, such as climate-transition funds and catastrophe bonds. In 2024, global investment in clean energy is expected to hit a significant milestone, doubling the amount allocated to fossil fuels. The International Energy Agency’s (IEA) 2024 World Energy Investment report forecasts that total global energy investment will surpass $3 trillion this year, with $2 trillion directed toward clean technologies like renewables, electric vehicles, and nuclear power. Furthermore, Bloomberg reports that global investment in the energy transition surged by 17% last year, reaching a record $1.8 trillion, with this growth trend continuing. Former VettaFi financial futurist Dave Nadig said:
“If you solely look at climate as your window, you’ll probably not end up not owning a lot of energy companies, not owning a lot of miners [and] not owning a lot of steel companies. So, you end up with something that looks like services, healthcare, and technology, which is a very strong bet to take.”
That said, U.S. funds with ESG goals seem to be losing popularity as of late. Despite the broader stock market’s gains, assets in the sector have dropped to around $335 billion, down from a peak near $365 billion at the end of 2021. Political criticism of ESG in the country has also has led some investors to reconsider their strategies within the sector. Moreover, ESG stocks are also grappling with other significant challenges, such as a key climate regulation from the U.S. Securities and Exchange Commission that is currently under legal dispute, and the Federal Reserve’s resistance to including environmental risks in global financial regulations.
However, despite criticism labeling the ESG sector as “woke” investing, many U.S. firms remain dedicated to ESG initiatives. Investor interest also remains somewhat robust, as these funds continue to attract attention for considering both financial performance and environmental, social, and governance factors. While there have been big outflows from the sector, many institutional investors are approaching climate risks and opportunities in their portfolios with a heightened sense of urgency, with an August analysis published in the Harvard Business Review showing that nearly three-quarters of the corporate climate commitments announced in 2021 had been fully or partially achieved. JPMorgan Chase & Co. and Citigroup Inc. are among the top global underwriters of green bonds this year, while Bank of America, alongside other prominent investment banking firms, recently sponsored ESG-focused conferences in New York and Chicago.
With that in mind, ESG funds saw strong performance in the first half of the year, largely driven by their substantial investments in technology stocks. Most ESG funds that aren’t focused on renewable energy tend to allocate more to tech stocks while maintaining a lower exposure to oil and gas stocks. In the first six months of the year, the S&P 500 rose by approximately 15%, and nearly 60% of this gain was driven by the majority of the ‘Magnificent Seven’, which are often among the largest holdings in ESG funds.
Our Methodology
To create the list of top ESG stocks to buy now, we chose companies from the Vanguard ESG U.S. Stock ETF and ranked them by their percentage weight in the fund, listed in ascending order. In addition, we used hedge fund sentiments regarding each stock to illustrate how well these stocks hold up in the eyes of hedge fund investors. These were taken from Insider Monkey’s Q2 2024 database.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An array of pharmaceutical pills with the company’s logo on the bottle.
Eli Lilly And Company (NYSE:LLY)
Percentage of holdings in the fund: 1.79%
Number of Hedge Fund Holders: 100
Eli Lilly and Company (NYSE:LLY) is a global pharmaceutical firm renowned for its innovative medications. This past year, the company released its 2023 ESG report, highlighting significant strides toward its sustainability goals. The company has reduced greenhouse gas emissions by more than 20% between 2020 and 2022, despite notable business growth. The report also showcases Eli Lilly’s commitment to diversity, with minority group members now holding 25% of U.S. management positions and women occupying 49% of management roles globally. Additionally, the Lilly 30×30 initiative has nearly doubled patient outreach in resource-limited settings, reaching 13 million people in 2022, up from 7.3 million in 2020.
Investor sentiment toward Eli Lilly and Company (NYSE:LLY) surged after the company’s second earnings upgrade this fiscal year. Second-quarter revenue grew 36% to $11.3 billion, driven by strong sales of diabetes and obesity treatments Mounjaro and Zepbound, along with breast cancer therapy Verzenio. The company expressed increased confidence in overcoming manufacturing challenges and raised its full-year revenue guidance midpoint by $3 billion to $46 billion.
In a recent update to its large-cap rankings, Wells Fargo analysts highlighted Eli Lilly and Company (NYSE:LLY)’s robust pipeline and potential to surpass market expectations in the coming years. The firm named Eli Lilly & Co. (NYSE:LLY) as its new top pick among large-cap pharmaceutical stocks, anticipating the company will outperform 2025 consensus estimates. Key drivers include upcoming events like the Surpass-CVOT trial in 2025 and pivotal results for Orforglipron and Retatrutide in 2025 and 2026.
The LLY stock recently hit an all-time high of $967, marking a 75.35% increase over the past year. Additionally, Eli Lilly and Company (NYSE:LLY) completed its acquisition of Morphic Holding, Inc., bolstering its immunology portfolio with MORF-057, a therapy for inflammatory bowel disease. The company also raised approximately $4.96 billion through a note sale, with plans to use the proceeds for general corporate purposes, including debt repayment and potential acquisitions.
Baron Health Care Fund stated the following regarding Eli Lilly and Company (NYSE:LLY) in its first quarter 2024 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a global pharmaceutical company that discovers, develops, manufactures, and sells medicines in the categories of diabetes, oncology, neuroscience, and immunology, among other areas. Stock performance was strong due to robust fourth quarter sales of Mounjaro/ Zepbound, better-than-anticipated initial guidance for fiscal year 2024, and ongoing enthusiasm surrounding the company’s obesity and diabetes franchises. We continue to think Lilly is well positioned to grow revenue and earnings at attractive rates through the end of the decade and beyond.”
Overall LLY ranks 7th on our list of the best ESG stocks to buy. While we acknowledge the potential of LLY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.