Solar power is driving efforts to decarbonize global utilities and economies. Sunny first (FSLR), a manufacturer of solar photovoltaic (PV) modules, panels and systems, is a bright spot at the center of this transition.
FSLR’s stock ranks No. 6 on IBD’s list of the best ESG companies for 2022. The Tempe, Arizona-based company sells its products to utilities. They, in turn, use solar technology to convert sunlight into electricity. It came in at No. 1 in the energy category, pred Phillips 66 (PSX) and Cheniere Energy (LNG), No. 2 and No. 3, respectively.
“Solar is a core ESG (environmental, social and governance) beneficiary as governments and utilities shift away from fossil fuels and toward renewables,” said Morningstar analyst Brett Castelli.
Yet even solar companies face scrutiny from ESG critics. First Solar makes a green product, but it still needs to reduce its own carbon footprint for manufacturing. And it should consider gender equality and working conditions, critics say. It calls its internal ESG efforts “responsible solar.”
Solar energy boom
In the next five years, First Solar (founded in 1999) expects the number of global solar installations to double. As governments and corporations phase out fossil fuels like coal, solar companies will benefit.
Meanwhile, the planet will be, according to the ESG narrative. Coal, oil and natural gas come from sources that cannot be renewed over time and pollute the air. Solar, wind and water, on the other hand, are clean and abundant forms of renewable energy.
In the US, solar power just got a big boost from Uncle Sam. President Joe Biden signed the Inflation Reduction Act into law in mid-August. It contains manufacturing incentives and tax credits for homeowners for solar installations.
Castelli expects First Solar to be a big winner from the recently signed act.
FSLR finished behind some big names in IBD’s 2022 Best ESG Companies ranking. Worthington Industries (WOR) is number 1 on the list and JB Hunt (JBHT) follows. Verisk (VRSK) took third place and Texas Instruments (TXN) came in fourth. A tech giant An apple (AAPL) finished fifth.
Last year, First Solar made progress on all three metrics that underpin ESG investing – environmental, social and governance. Its financial and stock performance is also solid. He had a combined rating of 81 out of 99 as of August 31. His RS rating was a near-perfect 98 when the list was compiled in late August.
FSLR shares, first solar gains
Shares of First Solar nearly doubled in the third quarter after the company raised its revenue guidance for 2022. On Oct. 4, shares of FSLR hit a 52-week high of $145.74. To see FSLR’s current ratings and its stock chart, visit IBD’s Stock Checker page.
The deflationary law and ESG investing are upside drivers for the company. The new law encourages local production. First Solar has three factories in Ohio and is adding a fourth in the southeastern United States
The “E” in ESG Investing: Improving Technology
Asia, and China in particular, is home to 90% of the world’s solar energy production.
Most Chinese companies, incl JinkoSolar (JKS), use crystalline silicon technology, which accounts for 95% of the market. The first solar modules used cadmium telluride, which has a 5% share.
The first solar panels were a type of thin-film technology. This technology has a much lower negative impact on the environment than silicon-based modules made in China, the company says.
For example, First Solar recovers more than 90% of semiconductor material for reuse in new solar modules. It recovers 90% of the glass and uses it in new glass container products. In addition, in 2021 its water recycling measures saved more than 268 million liters of water.
First Solar’s environmental efforts extend up and down the product life cycle. These range from “sourcing of raw materials to end-of-life recycling” of the modules, according to its 2022 Sustainability Report. This report was released on July 26 and updates investors on ESG progress.
Morningstar’s Castelli believes FSLR is “uniquely positioned” with its differentiated technology and manufacturing capacity in the US.
He noted a possible warning. Cadmium is a dangerous substance and is suspected to be a carcinogen. And that has led to clashes between First Solar and the local communities where it plans to install solar farms. However, First Solar says that cadmium telluride is much more stable and safer than cadmium.
The “S” in ESG Stocks: Improving Worker Safety
Solar energy generation is carbon free. But the manufacturing practices and conditions of solar workers – associated with the “S” in ESG – are under scrutiny.
Two years ago, allegations of forced labor in China’s solar supply chain surfaced. In the past year, solar customers and ESG investors have become more concerned about the industry’s labor practices.
“First Solar has no exposure (in China),” Castelli said. While First Solar operates in Asia, its factories are in Vietnam, Malaysia and India.
“We have consistently demonstrated that a ‘solar at any cost’ approach that turns a blind eye to the human and environmental costs of solar production should not be the norm,” said First Solar CEO Mark Widmar. He made the remarks in a news release accompanying the 2022 Sustainability Report.
“Customers are increasingly appreciating our comprehensive approach to responsible sourcing and supply chain due diligence, from our supplier vetting process to our ethics hotline,” Widmar said in the report.
The “G” in ESG Investing: Improving Diversity
First Solar continues to make strides in management. In 2021, it increased the gender, racial and ethnic diversity of its board of directors.
Women in management positions increased by 4%. A third of its board is now diverse, with 25% of seats held by women and 17% by racially or ethnically diverse members. Each board committee now has at least one different member.
Improving gender diversity in tech careers requires early exposure. First Solar recently participated in the University of Toledo’s Introduce a Girl to Engineering day.
The event attracted about 750 middle school girls from across Ohio. First Solar demonstrates solar panel kits.
“The general reaction is ‘Wow. I didn’t know engineers did that.’It’s an eye-opener,” said Leslie Berhan, associate dean for diversity, inclusion and community engagement in the university’s College of Engineering.
Women in science
Women are underrepresented in science, technology, engineering and mathematics (STEM) careers, as well as in university programs. Intervention in middle school — before girls go to high school or college and make career choices — is important, Berhan told IBD.
“Companies are interested in diversifying their workforce — it’s a win-win” for schools and corporations, she added.
And First Solar says it is currently reviewing gender pay at the company. He expects to expand this effort to assess racial pay equity. It raised minimum hourly wages last year. A competing solar company Sunrun (RUN) says it has already achieved gender pay parity.
Women in solar make 74 cents on the dollar compared to men, a 2019 study by The Solar Foundation and the Solar Energy Industries Association found. The report added that “the solar industry has more work to do to reflect the diversity of the entire population.”
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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