When it comes to ESG investing, I think there’s a lot of fluff out there on the market. For example, I have noticed that some ESG funds own stocks that I wouldn’t necessarily consider to have high environmental standards. That’s why I like to focus on finding renewable energy equities myself.
There’s one company in particular that I think is more attractive than many others on the market at the moment.
ESG investing champion
The Foresight Solar Fund (LSE: FSFL) is, in my opinion, one of the best renewable energy investments on the London market. It invests in a diversified portfolio of ground-based solar PV and battery storage assets in the UK and internationally.
The addition of the battery assets is a huge plus. As renewable energy assets grab a larger share of the UK grid, balancing supply and demand will be a considerable challenge.
Batteries are one way of overcoming this challenge. By storing excess power generation when the sun’s shining, operators can balance the grid when demand rises, and supply falls. I’ve looked at this area of the ESG investing market in the past, and I think it’s incredibly exciting.
Foresight only started investing in battery facilities earlier this year. Nevertheless, I remain excited about the diversification potential.
Humming along
The rest of the company’s solar portfolio seems to be humming along nicely. For the six months ended 30 June, generation in the portfolio was 3.4% above the base case in the UK. Including the international market, portfolio generation declined by 2.3% below the base case.
Going forward, the renewable energy group’s looking for additional acquisitions in the UK and overseas. The managers believe the international strategy is the right one, considering the scale of the global solar market.
Cash generation from the growing portfolio is also funding the group’s dividend to shareholders. For the first half of the year, it declared a dividend of 3.5p per share. That gives a yield of 3.5% on the current share price.
Last year, the dividend totalled 6.9p, suggesting management could declare another 3.4p per share payout for the second half of 2021. This would give the stock a yield of around 6.9%. However, these are just projections at this stage.
Renewable energy stock with growth potential
As ESG investing opportunities go, I think Foresight has enormous potential, both as an income play and growth stock. That’s why I rate the firm as one of my top renewable energy buys.
That said, this isn’t going to be a risk-free investment by any means. The company is using debt to fund new acquisitions, which could prove troublesome if interest rates rise.
Solar power can also be unpredictable, as evidenced by the decline in generation from the group’s international assets in the first half. A slump here could hit Foresight’s cash generation and, as a result, dividends.
Despite these risks, I’d buy the company for my renewable energy portfolio today.
