Over the last two years, Johnson Controls International (JCI 2.07%) has seen a substantial increase in its backlog. The backlog represents revenue the company has booked through new orders and expects to complete over the next years or so. A company's backlog of new business can be viewed as a barometer of future revenue growth. Its growth is helping fuel energy conservation and environmental initiatives around the world.

This stock might be interesting to investors looking at ESG stocks, which stands for environmental, social, and (corporate) governance.

In its recently reported results for the fiscal third quarter, ended June 30, Johnson Controls experienced 13% organic growth in its backlog to $11.1 billion, an all-time record for the company. That comes on the heels of an impressive string of quarterly backlog growth over the last four quarters. Here's how Johnson Controls can continue to grow its backlog.

Chart showing organic growth of Johnson Controls backlog

Image source: Johnson Controls International.

What drives Johnson Controls' backlog?

Overall orders were up 11% in the third quarter. "Healthy Buildings" orders  were up 27% in the year-to-date to $1.3 billion, supported by Johnson Controls' remote equipment monitoring system, OpenBlue. OpenBlue's Indoor Air Quality as a Service (IAQaaS) feature can monitor and improve indoor air quality and reduce infection rates for employees returning to the office. The system can also track the flow of people inside a building and adjust room temperature and lighting accordingly. The energy and cost savings for high-traffic facilities like college campuses or hospitals can produce an attractive return on investment for Johnson Controls customers.

People chatting and working in and open office setting.

Image source: Getty Images.

Johnson Controls is also experiencing demand from data centers, which facilitate cloud providers -- one of the fastest-growing tech industry segments. Data centers consume an enormous amount of power to operate and cool hardware. So, efficiency is critical to keep costs down. Johnson Controls offers some of the most energy-efficient HVAC units, with an OpenBlue remote monitoring option. The OpenBlue system can tell a building manager when they need to replace parts before they go bad, mitigating downtime and the risk of overheating servers.

To a lesser extent, Johnson Controls' increasing backlog has been driven by supply chain disruptions over the last several months. Slowdowns in equipment deliveries mean it takes the company longer to complete an order, and the order stays in the backlog longer than it normally would. Management cited supply chain issues pushing out $65 million in sales during its third quarter, while backlog increased $1.7 billion year over year and $100 million sequentially.

Demand for Johnson Controls' units and services commands pricing power. The company agrees on a price for an order several months in advance of installation. So when Johnson Controls began to feel the sting of inflation this year, new orders came with higher prices to reflect its higher costs. So, the company's pricing power played a role in increasing the backlog and maintaining its profitability.

What does it mean for investors?

Johnson Controls stands to ride the coattails of environmental trends and regulations over the next several years. Countries and companies worldwide have established lofty energy conservation goals. Johnson Controls' ability to help companies meet those goals and lower their expenses simultaneously is a no-brainer, and it shows in the company's backlog.

JCI PE Ratio (Forward) Chart

JCI PE Ratio (Forward) data by YCharts

Johnson Controls stock is down 27% this year, while the S&P 500 is down 15%. Johnson Controls expects to earn $3 per share for its fiscal year ending Sept. 30. At its current price, that implies a forward price-to-earnings ratio of about 19. That's roughly the same forward price-to-earnings ratio as in the company's second quarter of 2021, ended March 31, when its backlog was noticeably lower. Now could be an excellent opportunity to pick up Johnson Controls stock for a bargain.