ESG Investing: Why This Stock In High Carbon Emitting Industry Ranks As Top 2021 ESG Pick

ESG investing trends have gained significant traction amid a world challenged by big issues like climate change and social inequality. This year, chemicals company Linde PLC (LIN) ranked among IBD’s best ESG stocks — that is, companies focused on environmental, social and governance issues.


Investing in ESG companies means finding stocks that focus on solutions to environmental issues like climate change or social issues like equal pay and workplace diversity.

Linde grabbed the No. 2 position on Investor’s Business Daily’s 2021 Best ESG Companies list. Its performance stood out for a number of factors that put it ahead in the chemicals industry and in the broader industrials sector. Dow Jones assigns the company an ESG score of 76. Linde has been on the Dow Jones Sustainability World Index for 18 consecutive years, which is something that no other chemicals company can say.

To make the IBD list of best ESG stocks, companies also had to rank highly in terms of fundamental and technical factors tied to stock performance over the past 12 months.

Linde is trading today over 317.

According to Dow Jones’ ESG data scores, Linde excels in areas of energy management and GHG emissions, as well as critical incident risk management and management of regulatory environment. Its human rights community relations are also a strong component. On the negative side, Linde is lagging in business model resilience.

Chemicals Industry: High Carbon Emissions

The fact that Linde, a chemicals company, made the list may be shocking to some. A high demand for energy, combined with large-scale use of fossil raw materials, makes the chemicals industry one of the biggest carbon emitters on the planet. How could it be suitable for ESG investing?

Currently, the nature of chemical production creates substantial greenhouse gas (GHG) — more specifically, carbon dioxide (CO2) emissions — which is linked to shifts in our planet’s weather system and climate change.

Based in Ireland and headquartered in the United Kingdom, Linde is the largest industrial gas company in the world. It makes and sells industrial gases used in a plethora of industries. Oxygen, hydrogen, nitrogen, argon and CO2 are among the major gases Linde sells. Linde’s customer base spans every industry from health care facilities to steel mills to chipmakers.

Although the chemicals industry cannot avoid carbon emissions completely, it can use carbon more efficiently and reduce its GHG emissions. Linde is one of the few firms at the helm of this tall task.

Also, to achieve its ESG score, Linde is ranked against its peers in the chemicals industry. And the industry itself has different sustainability measures that may not be included in other industries. A company’s ESG data in the chemicals industry is considered materially different from other industries.

Linde is developing and commercializing carbon capture technologies that capture CO2 emissions, and then repurpose those emissions for various purposes like food-freezing and water treatment.

Additionally, Linde has the opportunity to sell hydrogen as a green fuel alternative to other industries, like fuel-cell electric-vehicle manufacturers and semiconductor firms. On Aug. 18, Linde announced a long-term deal with chipmaker Infineon Technologies to pioneer the use of green hydrogen in the semiconductor industry.

Linde’s ESG Investing Initiatives

On Aug. 27, 2021, Linde published a 118-page Sustainable Development Report for fiscal 2020. The report describes the steps and initiatives it’s taking to operate ethically and align with ESG investing principles. Linde lists “helping to sustain the planet” as a key part of its driving mission.

In 2019, Linde announced a new set of targets, including 10-year climate change targets. “I am pleased to announce we are well ahead of meeting these goals,” said CEO Steve Angel in the report.

Linde lowered its greenhouse gas emissions intensity in 2020 by more than 16% from 2018. In 2020, its total GHG emissions were 37.2 million metric tons. Linde is well on track to reach its goal of 35% reduction by 2028. Through its applications and technologies, Linde helped customers avoid more than two times Linde’s own GHG emissions in 2020 (or 85 million metric tons of equivalent CO2 emissions).

As part of Linde’s commitment to increase decarbonization investments, the company has announced a series of large projects, including supplying the world’s first hydrogen-powered ferry.

Perhaps Linde’s greatest strength as an ESG company is that it helps customers reduce their carbon footprint. The company also promised the announcement of more aggressive GHG emission reduction targets soon.

ESG Investing: Linde On Social Issues

The company is committed to providing positive environmental impact to its communities. In 2020, Linde enabled more than 200 million people to have access to safe drinking water. As access to drinking water becomes more scarce, demand for a water treatment process known as desalination has expanded. Linde uses carbon dioxide as a safe alternative for the re-mineralization of water.

In Australia, Linde’s use of CO2 currently desalinates water for 15% of the population in Sydney, according to its sustainability report.

Amid the Covid-19 pandemic, Linde’s teams took measures to deliver essential medical oxygen to health care facilities. As the pandemic also exposed inequalities in our society, Linde expanded their Global Giving Program. The program’s funds now exceed $10 million and provide additional capital to organizations addressing social justice issues.

The firm also has set a goal to have 30% female employees by 2030. It’s currently on pace to beat that. “Diversity and inclusion remain top priorities in our company,” noted CEO Angel in the Sustainable Development Report.

LIN Stock: Financially Sustainable

Regarding top- and bottom-line numbers, Linde has posted four quarters of rising earnings growth. Sales gains have also accelerated. Last quarter, EPS rose 42% year over year to $2.70 on a 19% increase in revenue to $7.58 billion, exceeding estimates of $7.383 billion.

Linde also reported growth across all end markets on a year-over-year basis, with the strongest being manufacturing, metals and chemicals, and refinery.

“Linde employees delivered another quarter of record-breaking results, with operating profit margins expanding 350 basis points, ROC (return on capital) improving to 15% and EPS growing 42%, reaching an all-time high of $2.70,” said Angel in the July 20 Q2 earnings news release.

Double-digit earnings and sales growth is pretty impressive for a company with a nearly $153 billion market cap. Linde also earned the No. 7 rank among its peers in the specialty chemicals industry group.

Linde’s high growth as a stable large-cap stock combined with its sustainability initiatives makes it a strong contender for ESG investing.

Linde Increases Dividend, Nears Buy Point

Linde stock has fallen below its current buy range after clearing a recent 305.81 buy point in a flat base. Shares were hit by the correction sell-off at the end of September. But the stock has not yet triggered the 7%-8% sell rule, which means the breakout is still in play. Shares still remain below the 21-day and 50-day moving average lines.

Linde increased its dividend by 10% in 2020, representing the 28th year of consecutive dividend increases. “These results are a testament to our ability to outperform in any macroeconomic environment,” said Angel in a letter to shareholders. The stock holds an annualized dividend of $4.24 per share, representing a yield of 1.4%.

Linde will release its third-quarter 2021 financial results on Oct. 28 before the market opens.

Follow Fox on Twitter at @foxonstocks for more market insight and commentary on ESG investing.


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