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10 surprising stats about the S&P 500 & sustainability: BofA

Bank of America’s new report highlights ten surprising stats about the S&P 500 and sustainability, looking into companies' higher multiples for low emissions and net zero targets. Yahoo Finance’s Brian Sozzi shares the details.

Video transcript

JULIE HYMAN: All right, Myles, this wait is over. Brian Sozzi, tell us what are the 10 surprises about the S&P 500 for Earth Day? What does that mean?

BRIAN SOZZI: Well, I'm only giving you four. And this comes via the good folks at Bank of America with some of this good research and saying that at the bottom line is, it pays for corporate America to articulate their climate goals to investors. And a couple of things from this report from B of A worth highlighting. First and foremost, it pays to set a date on climate goals. B of A noting the companies that have historically released their carbon neutrality goals trade at a significant premium that those have not. So if you want to have your stock trade at a premium multiple, perhaps you should consider setting some achievable carbon neutrality goals.

Next up, B of A saying it's better to say something bad than not saying anything at all. And by this, they mean companies with high emissions trade at more than a 15% discount to companies with low emissions. But saying nothing can be worse than saying something bad. B of A noting companies that don't disclose any emissions data trade at an even deeper discount relative to the market-- very interesting.

Also, number three, consumer sectors are taking the biggest aim at ways. Historically, a lot of the companies in the S&P 500 are consumer companies. They are some amongst the worst in terms of climate action, but they are now starting to tackle climate initiatives. I know a lot of apparel companies are trying to do that-- more sustainable products. And as a result, these stocks are starting to trade at a higher multiple.

And then last but not least, tech is in a lot of ESG funds, Julie and Myles. But B of A pointing out these companies aren't necessarily ESG friendly. A lot of this tech equipment goes to work in the oil and gas industry. So, indirectly, tech companies are not necessarily ESG friendly and perhaps maybe don't belong-- don't deserve to belong in the ESG funds.

MYLES UDLAND: Yeah, Soz, that was kind of my thought, too, is, if you look at the companies that may have done a lot of this disclosure, I would imagine the screen overlap between, like, large cap tech growth and has done ESG disclosure in terms of what we plan to do over the next 10 or 15 years, I imagine that Venn diagram looks very much like one circle. So these strategies end up becoming kind of tech growth by any other name.

I think-- and Rick Newman just pointed this out in our group Slack-- unrelated to ESG disclosures, I was chatting with someone the other day about just SEC rules and the disclosure regime. And they said, you know, it's funny. Basically, the US regime is, if you disclose it, you can do it. And that's the whole thing with the deli, right, which we'll save for another time. But they just disclosed all the stuff they're doing. It certainly looks shady, but it's [INAUDIBLE]. So there you go. So it's real now. And now it's OK to do it.

So I think maybe that kind of greenwashing was Rick Newman's word. And we can get into that with him coming up after this. But I think there's an element of that, to some extent, in some of these things that B of A is talking about here, as far as performance metrics.

JULIE HYMAN: Yeah, I mean, the SEC may allow it, but you don't have to buy it, right? So, I guess, it depends--

MYLES UDLAND: That's right.

JULIE HYMAN: --on the energy level of investors to go in and really dig into these things. I mean, the other thing with tech companies is, speaking of energy, they use a lot of power. So, depending on where that power is coming from, they also can be pretty bad offenders when it comes to some of that, particularly the data center business, which uses an enormous, enormous amount of energy. And I know all these companies now are saying they're trying to go carbon neutral. But when you're buying that through carbon credits versus actually sourcing it from renewable sources, I would argue it's not quite as valuable or as green, so to speak.