These Five Small-Cap Impact Stocks Are Punching Above Their Weight In Addressing Social and Economic Challenges
Over the last decade ESG (environmental, social and governance) stocks have quickly been gaining in popularity. In fact, a study conducted by asset manager Capital Group in 2022 found that 89% of investors now consider ESG factors in some way when choosing investments.
More recently, investors have begun to tweak their investment strategy by shifting from ESG to impact stocks. Last year, a survey conducted by Fidelity Charitable found that more than 60% of Millennials utilized impact investing approaches to pick stocks. It also found that 40% of all investors planned to make their first impact investment in the coming year. However, contrary to what many investors think, ESG and impact investing are not interchangeable terms.
ESG versus impact investing
One of the simplest ways to explain the differences between ESG and impact investing strategies is based on timing. ESG focuses on a company's history and provides concrete numbers showing how it has progressed on major environmental, social and governance issues in the past.
On the other hand, impact investing is a forward-looking effect that gauges what a company is doing or plans to do to make an impact on the world. In some ways, impact investing may be superior to ESG. For example, utilizing an impact-investing strategy may result in a more diversified portfolio than one that targets ESG factors.
The critical difference is that impact stocks have a broader focus on positively affecting the world in a wide variety of different ways, while ESG stocks zero in specifically on environmental, social and governance issues. In short, companies can impact the world positively in a much wider range of areas than just in the three areas of ESG.
Here are five impact stocks that can help address some of the most pressing social and economic challenges facing the world today.
Draganfly (DPRO) has been in the drone business for more than 20 years — long before drones became part of household or mainstream industry conversations. Today, the company's drones and related services are used in the agriculture, environmental and energy, humanitarian, insurance, military and government, and public health and safety sectors. While there may be dozens of positive impacts from Draganfly's many product and service offerings, we will focus on the positive impacts from the company's humanitarian efforts.
In fact, Draganfly management said in an interview via email that one of their drones was the first to save a human life. With over 25 years of experience in humanitarian aid, Draganfly has been working with emergency services, police and firefighters to develop technology to assist in numerous life-saving applications.
More recently, the company's drones have had significant positive impact in Ukraine, where ambulances are unable to deliver lifesaving supplies to territories besieged by invading forces. Draganfly has also been working with Ukrainian officials to detect landmines and assist with search and rescue efforts in the hardest-hit areas of Ukraine.
Hydreight Technologies (CVE:NURS) describes itself as "Uber for healthcare practitioners," adding that it empowers healthcare professionals to take control of their lifestyle, career and earning potential. Nurses can work independently, with more flexibility or to supplement their income with a side job, setting their own hours and prices.
Hydreight qualifies as an impact stock because of how it supports and empowers nurses, enabling them to shift from traditional nursing positions to mobile positions that get them out of the hospital or office environment. Recent studies like this one have shown that a growing percentage of nurses are unhappy in their jobs — down from 80% to 85% a decade or more ago.
Despite its small market cap, Hydreight reported adjusted revenue of C$4.2 million and GAAP revenue of C$2.6 million for just the first quarter alone. The company operates a telehealth platform, medical network and online pharmacy that connects mobile healthcare professionals with patients who book their at-home services via the Hydreight mobile app.
Ideal Power (IPWR) has developed a proprietary semiconductor switch that offers significant improvements in energy efficiency, slashing power losses by 50% or more. Ideal Power's Bidirectional Bipolar Junction Transistor, known simply as B-TRAN™, generates less heat than other switches, significantly reducing thermal management requirements.
Additionally, the B-TRAN™ is bidirectional, so a single B-TRAN™ replaces multiple conventional power switches in a bidirectional circuit. While Ideal Power's switching solution can be used in a wide variety of applications, it offers particular benefits in electric vehicles, EV charging, renewable energy solutions, energy storage, data centers and utility infrastructure.
Ideal Power's impact is in making energy-efficient products even more efficient by reducing switching and conduction losses, resulting in significantly less power being wasted. At a time when investors are pushing ESG narratives with a focus on boosting energy efficiency, Ideal Power is making a step change in energy efficiency, all while cutting costs for the manufacturers building those energy-efficient solutions.
Verde Bioresins/TLGY Acquisition
Verde Bioresins is preparing to trade on the Nasdaq using the ticker symbol "VRDE" after merging with the special purpose acquisition company (SPAC) TLGY Acquisition (TLGY). The company touts its PolyEarthylene as "biobased, curbside recyclable, and landfill biodegradable."
With the rise of ESG investing, most companies have been searching for sustainable, renewable packaging. Plastic has proven to be particularly damaging to the environment because only 2% of plastics are biobased. Additionally, while recycling and composting are important, they have limitations.
Verde Bioresins estimates that its PolyEarthylene bioresin targets $300 billion of a $600 billion total addressable market with a high-performance alternative to many petroleum-based plastics. PolyEarthylene is sourced from renewable and sustainable materials and is generally recyclable under codes two, four, and five.
The bioresin has been designed to be drop-in ready, seamlessly integrating with current equipment used to manufacture plastic products. Unlike most bioresins, PolyEarthylene is not brittle or sensitive to certain temperatures. It is FDA Title 21 Food Contact-Compliant, eco-friendly, and designed to combat the ever-growing impacts of new long-term waste on the environment.
Vision Marine Technologies
Vision Marine (VMAR) is tapping into a corner of the electric-vehicle market that doesn't get much attention: our waterways. The company enjoys a first-mover advantage with its electric boat motors, aiming to protect our water habitats while improving air quality. In fact, Vision Marine's E-Motion outboard motor, announced in December at the Paris Boat Show, is currently the only turnkey solution for boat manufacturers.
According to the company, 8 million speedboats in the U.S. released 15 times more pollutants annually in the early 2000s than the catastrophic oil spill from the Exxon Valdez oil tanker in 1989. As a result, some areas are already starting to restrict or move toward a total ban on traditional gasoline and diesel power boats that run on internal combustion engines.
Additionally, some boat owners are simply choosing to go electric. In fact, one estimate suggests the global electric-boat market could be worth $16.6 billion by 2031.
Investing in impact stocks
Impact investing offers a great way for investors to put their investment dollars to work in companies that are aiming to do good in the world. In fact, some investors would argue that impact investing serves as an extension of their philanthropic efforts.
Like any other investment, it's always a good idea to keep an eye on your returns from your impact investments. However, investors who choose their impact investments wisely don't necessarily need to sacrifice returns in order to invest with their conscience.
A 2020 survey by the Global Impact Investing Network found that over 88% of investors who opted for impact strategies reported that their investments met or exceeded their expectations. Other studies revealed that the median impact fund generated a return of 6.4%.
While that's slightly below the median return of 7.4% from non-impact funds, many investors are willing to accept a small hit on their returns in exchange for the experience of choosing companies that are doing good in the world.
Ari Zoldan is CEO of Quantum Media Group, LLC. Ideal Power and TLGY Acquisition/Verde Bioresins are clients of Quantum Media Group.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.