Sustainability is an increasingly prominent investment. So is investing with the intent of identifying innovative and disruptive companies with attractive growth traits.
Those two endeavors don’t have to be mutually exclusive. Some exchange traded funds, including the Goldman Sachs Innovate Equity ETF (GINN), do both. As its name implies, GINN checks the innovative equity exposure box, but a look under the hood reveals that the ETF has more credibility as an avenue to sustainability than meets the eye.
What makes GINN all the more alluring as a backdoor avenue to stocks meeting sustainability criteria is that several sustainable members of the GINN portfolio are attractively valued.
“In November 2021, as Morningstar’s head of global research Haywood Kelly noted, our equity analysts saw less attractive valuations for companies with low ESG risk ratings. That conclusion remains true in late January 2022, as evidenced by average price/fair value estimate ratios above 1.0 for securities with Sustainalytics ESG Risk Ratings of Negligible and Low, and below 1.0 for stocks with higher ESG Risk Ratings,” says Morningstar analyst Adam Fleck.
A prime example of a GINN holding that scores well on the basis on environmental, social, and governance (ESG) standards that’s growing revenue at an impressive rate and is attractively valued is cloud computing giant Salesforce.com (NYSE:CRM).
“We also see minimal ESG risks. While we note that Salesforce faces strong competition for software engineers on the hiring front, and also faces risks arising from potential data breaches within its data centers, Sustainalytics rates the company has having a Low ESG Risk Rating,” according to Morningstar.
GINN allocates 34% of its weight to tech stocks, and another one of its holdings from that sector, Adobe Systems (NASDAQ:ADBE), also fits the bill as a stock that’s now undervalued and sporting compelling sustainability traits.
“We see Adobe’s expanding portfolio and unencumbered dominance supporting further growth, and we view shares as undervalued,” notes Fleck. “Like Salesforce, Adobe’s primary ESG threats relate to human capital and data security. Nonetheless, the ESG Risk Rating is also Low for Adobe, owing to strong management of these issues through its internal sustainability committee.”
Walt Disney (NYSE:DIS), which like Salesforce is a Dow stock, is also a credible ESG idea with alluring valuations. It’s also a GINN holding.
“From an ESG perspective, labor relations remain one of the company’s largest risks. Disney and its subsidiaries have been subject to a number of lawsuits alleging racial and gender discrimination, sexual assault/harassment, and wage gap/discrimination. That said, we estimate the potential financial impact of these individual cases is relatively immaterial, a view that’s supported by its ESG Risk Rating of Low,” concludes Fleck.
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