We recently compiled a list of the 7 Best Ethical Companies To Invest In According to Reddit. In this article, we are going to take a look at where NextEra Energy, Inc. (NYSE:NEE) stands against the other ethical companies to invest in.
Ethical investing involves choosing investments based on ethical principles, such as environmental, religious, or social values. Unlike socially conscious investing, which follows a specific set of guidelines, ethical investing is more individualized. Investors typically avoid being involved in gambling, alcohol, or firearms, and carefully research to make sure their investments align with their values.
Other stocks that are avoided by ethical investors include the shares of companies where employees are mistreated, have high gender parity, or discriminate against employees due to their race, religion, or sexual orientation. Environmentally conscious companies are also a huge part of ethical investing.
Is Ethical Investing the Future?
A 2022 report by Stamford University noted that the younger generation considers ethical investing quite crucial. A 2022 survey of 2,470 individual investors, conducted by Stanford University’s Rock Center for Corporate Governance, found significant differences in Environmental, Social, and Governance (ESG) preferences based on age and wealth. Younger and wealthier investors are more likely to support ESG initiatives, even at the expense of returns, while older and less wealthy investors are generally opposed.
Over recent years, support for ESG proposals has surged, with average support among S&P 500 companies increasing from 18% in 2012 to 35% in 2021, and the number of proposals passed rising from 0 to 28. The survey found that 70% of young investors (18-41 years old) are very concerned about environmental issues, compared to only 35% of older investors (58+ years old). Similarly, 65% of young investors are very concerned about social issues, versus 30% of older investors. When it comes to governance, 64% of younger investors express significant concern, while only 28% of older investors do.
Moreover, 86% of older investors would not give up any or only a trivial amount of returns for carbon emission reductions, while 64% of younger investors would give up moderate or large amounts. Additionally, 91% of older investors are unwilling to sacrifice returns for workplace diversity improvements, compared to 62% of younger investors who are willing to do so.
The survey also found that investor attitudes towards ESG differ across fund companies. Investors in State Street and Invesco funds exhibit nearly twice the concern for environmental issues compared to those in Fidelity funds. A significant percentage of investors in Fidelity (40-45%) and Vanguard funds are unwilling to forfeit returns for ESG, while a smaller percentage in American Funds and BlackRock (25-30%) share this reluctance.
Despite these differences, 83% of investors across all demographics believe that fund managers should consider their views when voting on ESG issues. The results suggest that fund managers might need to allocate votes on a proportional basis to reflect the diverse preferences of their investor base.
Our Methodology
For this article, we scoured through several threads to discover which companies were considered ethical according to the users. We narrowed down the list to 7 stocks that were most widely mentioned and used the hedge fund sentiment of each stock as a tie-breaker. The companies are listed in ascending order of the number of hedge fund holders as of the second quarter of 2024. The hedge fund data was taken from our database of over 900 elite hedge funds.
Why are we interested in 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).
A wind turbine, its blades spinning to generate clean renewable energy.
NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 73
NextEra Energy, Inc. (NYSE:NEE) is a prominent energy company renowned for its substantial role in the global energy sector. The company operates a diverse portfolio through its subsidiaries, which include Florida Power & Light (FPL), NextEra Energy Resources (NEER), and NextEra Energy Partners. FPL serves a vast customer base in Florida, while NEER is a leading global producer of renewable energy, focusing on wind and solar power.
From 2005 to 2021, NextEra (NYSE:NEE) made significant strides in reducing its CO2 emissions rate, improving it by 51% compared to the U.S. electric power sector average. This improvement occurred even as the company expanded its total generation capacity by 72% to keep up with increasing customer demand. While the company grew its operations significantly to serve more customers, it managed to cut its emissions rate more effectively than most of its competitors in the industry.
According to the company’s Net Zero blue-print, FPL has built one of the most efficient and environmentally friendly power generation systems in the U.S. Its modernized infrastructure has saved Florida customers over $12 billion in fuel costs and reduced CO2 emissions by more than 175 million tons since 2001. Its solar initiatives, including the largest community solar program in the country, have positioned Florida as the third-highest state for solar capacity.
NextEra (NYSE:NEE) has a 2045 Real Zero goal, which means that it aims to achieve net-zero emissions without adding extra costs for customers. The company is committed to ensuring that each new project remains cost-effective for customers while achieving emissions reduction goals, provided it receives regulatory approval. It is one of the best ethical companies to invest in.
It has outlined a three-part strategy for achieving its decarbonization goals. First, the company aims to become carbon neutral within its operations by 2045, without relying on carbon offsets. This goal shows its longstanding commitment to sustainability.
Second, the company plans to support the broader U.S. power sector in reducing carbon emissions, which include investor-owned utilities, municipal systems, and cooperatives. It will do this by investing in and advancing technologies like wind, solar, energy storage, and green hydrogen.
Third, NextEra (NYSE:NEE) is planning to lead efforts in decarbonizing the U.S. economy as a whole. It intends to become the go-to partner for businesses looking to cut their carbon footprints. By leveraging its expertise and data analytics, it will help commercial and industrial clients meet their own net-zero or Real Zero targets.
In Q2, NextEra’s (NYSE:NEE) shares were held by 73 hedge funds at a combined value of $2.1 billion. Rajiv Jain’s GQG Partners increased its stake in the company by over 850% in the second quarter to 12.5 million shares worth $884.560 and is the most prominent shareholder of the company.
ClearBridge Investments stated the following regarding NextEra Energy, Inc. (NYSE:NEE) in its Q2 2024 investor letter:
“AI-related momentum was a key driver of performance in the second quarter, lifting the enablers in technology as well as holdings like renewable power producer NextEra Energy, Inc. (NYSE:NEE) that supply the increasing energy needs of data centers. Parts of the market lacking an AI connection, like our medical device holdings, underperformed despite no change to fundamentals. We have managed through several similar momentum periods over our tenure and have delivered long-term results for shareholders by staying true to an approach that emphasizes diversification across three buckets of growth companies (select, stable and cyclical) and seeks to take advantage of attractive entry points into quality growth businesses.”
Overall NEE ranks 2nd on our list of best ethical companies to invest in. While we acknowledge the potential of NEE 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 NEE 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.