The Impact Investor

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Best ESG Stocks to Invest in Today

Looking to invest in ESG companies that actually are making a difference in everyday life? These are the best ESG stocks to invest in today.

What is ESG?

ESG is an acronym that stands for Environmental, Social and (Corporate) Governance.  ESG investing is sometimes referred to as socially responsible investing (SRI), sustainable investing, responsible investing or impact investing.

While very similar, there are some differences.

SRI hails from the 1960’s and 1970’s, a time when “sinful” companies (e.g.- tobacco and pornography) were starting to be actively shunned and companies associated with South Africa’s apartheid period created a separation from investors on moral and ethical reasons.

Since then, SRI has remained mostly “exclusionary”, meaning that companies who had/did anything against the investor’s values were culled from their investment portfolio and excluded from a list of potential investments.

ESG is similar in that certain industries are mostly excluded, but it takes a broader stance by looking at the companies as a whole.

Realizing that no company is likely to check all of the boxes that exactly align with an investor’s values, ESG provides a framework by which companies are “graded” on how well they perform in the three areas of:

  • environmental impact (positive and negative),
  • social performance (company culture, how well they treat employees, diversification, local community impact as well as society at large), and
  • corporate governance (strength of board of directors, executive compensation, proxy access, transparency of communication)

Read more on the difference between SRI, ESG and impact investing if you’d like to learn more.

Why Invest Using ESG?

ESG incorporates some fundamental analysis of the companies, and as such, is likely to help identify companies that have attractive long-term investment opportunities.

And according to a 2019 Morgan Stanley report, they found that ESG funds were in line with traditional funds on their rate of return.

Moreover, those funds actually provided additional downside risk protection as shown by their performance during the first quarter of 2020 (the beginning of the Coronavirus pandemic).

Of 26 sustainable funds evaluated by Morningstar after the selloff, 24 outperformed similar traditional funds.

Ways to Invest with ESG

There are primarily two ways to invest using ESG: by doing the research yourself to pick stocks of companies matching your values, or by “outsourcing” the choice to an advisor of some sort.

There isn’t a “right” or “wrong” option: it’s going to come down to how much you want the companies to match your values and how much time you have to do the research yourself.

You are reading this article most likely because you at least want to have a better idea of which companies might be a good fit for you.

So we will provide some companies that we think might be good choices to start on your search for ESG companies to add to your portfolio.

Best ESG Stocks to Invest in Today

Let’s get into some of our favorite top ESG stocks to buy.

Home Depot (HD)

Home Depot has seven focus areas they are working on to become a sustainable and responsible enterprise.  They are the largest home improvement retailer in the US, leading to frequent dealings with wood-based products.

However, they have strict sourcing policies in place to prevent the use of any materials gained through conflict or exploitation of the natural resources of developing countries.

They also have strong plans to reduce its emissions by 40% by 2030 and 50% by 2035.

Microsoft (MSFT)

Microsoft received the highest ESG rating of AAA from MSCI ESG Research in 2019 for its unprecedented commitment towards reducing carbon emissions.

It is the first among its peers to target “carbon negative” status by 2030 and has committed a fund of $1 billion towards that effort.

NVIDIA (NVDA)

NVIDIA is known for producing graphics cards and microprocessing chips, and as such, uses many minerals in the production of its products.

This makes it closely linked to both social and environmental issues as they relate to mining.

They have a very stringent policy on the use of conflict minerals, helping it rank high for both the environmental and social components.

Additionally, they train nearly their entire workforce on anti-corruption and anti-bribery, boosting its ranking in governance as well.

Salesforce (CRM)

Salesforce is very focused on ESG initiatives, committing 1 million employee hours to the UN’s Sustainable Development Goals.

It has also joined the UN Global Compact, which is a platform for companies wishing to align with responsible business practices.

Additionally, it has started the Salesforce Sustainability Cloud and 1t.org, with the former as a reporting and tracking tool for companies to track carbon emissions.

The latter is an initiative to connect, empower and mobilize the global restoration of 100 million trees.

West Pharmaceutical Services (WST)

West Pharmaceutical Services is a Pennsylvania-based medical supplies company and is a key supplier to pharmaceutical, biotechnology and generic drug companies.

They have active commitment to ESG that focuses on key areas in environmental (sustainability and quality), social (health and safety, philanthropy) and governance (compliance and ethics, diversity and talent).

Other companies worth investigating

  • Adobe (ADBE)
  • Applied Materials (AMAT)
  • Best Buy (BBY)
  • BlackRock (BLK)
  • Cadence Design Systems (CDNS)
  • Hansen (CHR.DK)
  • Deckers Outdoor (DECK)
  • Emcor Group (EME)
  • Expeditors International (EXPD)
  • GlaxoSmithKline (GSK)
  • Idexx Laboratories (IDXX)
  • Intuit (INTU)
  • iRobot (IRBT), Comfort Systems USA (FIX)
  • Lam Research (LRCX)
  • NextEra Energy (NEE)
  • Pool (POOL)
  • Prologis (PLD)
  • Teladoc Health (TDOC)
  • Vertex Pharmaceuticals (VRTX)

The list above is not exhaustive.  Also, keep in mind that some brokerages have screening tools that will let you search through their listed symbols for companies fitting various ESG categories.

You will have to contact your broker to see what options they have for you and how to use their tools to find ESG investments.

See Related: How to Invest in Vertical Farming

Outsource Your ESG Investing Through Robo-Advisors

Besides an in-person advisor, there are also ESG and impact investing robo-advisors.  These are digital advisors designed to help build and manage a portfolio based on your risk tolerance and goals.

They are often much less expensive than in-person advisors.

The ESG movement has not been unnoticed by the robo-advising industry, with many of them offering pre-built sustainable portfolios at no additional charge.

Some robo-advisors you may wish to look at:

Betterment

Ally Invest

Stash

Axos Invest

Ellevest

Invest Passively With ESG Mutual Funds or ETFs

Another option that might appeal to some investors is to add ESG mutual funds and/or ETFs to their portfolio.

This has the benefit of immediate diversification and can fill out your portfolio with just a few selections.

The downside would be that you don’t get to choose exactly which companies are included, so there may be some companies included that wouldn’t have been had you been choosing individual stocks.

It is suggested that you look through the prospectus of the fund to determine things like what companies make up the fund and at what percentage of the fund.

Managed funds typically have higher expense ratios, but may offer tighter screening and monitoring of companies with ESG ratings.

That being said, both can offer attractive returns.

Ten ESG equity funds that are top performers are:

  • Brown Advisory Sustainable Growth fund (BAFWX)
  • Calvert US Large Cap Growth Responsible index fund (CALGRO)
  • Eventide Gilead fund (ETGLX)
  • Impact Shares YWCA Women’s Empowerment ETF (WOMN)
  • Nuveen ESG Large-Cap Growth ETF (NULG)
  • Nuveen ESG Mid-Cap Growth ETF (NUMG)
  • Putnam Sustainable Future fund (PMVYX)
  • Reynders McVeigh Core Equity fund (ESGEX)
  • Riverbridge Eco Leaders fund (ECOLX)
  • Shelton Green Alpha fund (NEXTX)

Each of those had at least a 38% return in 2020, with over half having returns topping 44%, and one (Shelton Green Alpha fund) at a very impressive 113.9% one year return that year.

Morningstar’s Highest Rated ESG Funds

  • 1919 Socially Responsive Balanced A (SSIAX)
  • AllianzGI Water Class P (AWTPX)
  • Boston Trust Asset Management (BTBFX)
  • Change Finance US LgCp FossilFuel Fr ETF (CHGX)
  • iShares MSCI USA ESG Select ETF (SUSA)
  • JHancock ESG Large Cap Core R6 (JHJRX)
  • Natixis Sustainable Future 2025 N (NSFEX)
  • Parnassus Core Equity Investor (PRBLX)
  • Pax Large Cap Fund Institutional (PXLIX)
  • Thornburg Better World International I (TBWIX)

Morningstar’s Lowest Cost ESG Funds*

  • Fidelity® Sustainability Bond Index (FNDSX)
  • Fidelity® U.S. Sustainability Index (FITLX)
  • IQ Candriam ESG US Equity ETF (IQSU)
  • iShares ESG 1-5 Year USD Corp Bd ETF (SUSB)
  • iShares ESG MSCI USA Leaders ETF (SUSL)
  • iShares ESG U.S. Aggregate Bond ETF (EAGG)
  • iShares® ESG Advanced MSCI USA ETF (USXF)
  • Vanguard FTSE Social Index I (VFTNX)
  • Xtrackers MSCI USA ESG Leaders Eq ETF (USSG)
  • Xtrackers S&P 500 ESG ETF (SNPE)

* – This list includes low-cost funds earning a 4 or 5 Morningstar Sustainability Rating, plus some low-cost sustainable bond funds. (Bond funds generally do not qualify for Sustainability Ratings.)

See Related: Best Impact Investing Books to Read

More About ESG Ratings

ESG standards are not yet widely agreed upon, and as such, some companies may tout ESG compliance, but a deeper look may reveal a less than a stellar report card.  It is important to use third-party ratings to better compare ESG ratings.

However, even then, be mindful of how the data is collected, as many rely on self-reported data.

Financial firms like JPMorgan Chase, Wells Fargo and Goldman Sachs publish annual reports that detail their ESG approaches and bottom-line results.

Other companies, such as MSCI ESG Research, are actively involved in trying to provide ESG Ratings that are consistent across the industry, as each industry deals with separate issues.

To learn more about MSCI ESG Ratings, how they are calculated and how you might apply them, you can visit https://www.msci.com/our-solutions/esg-investing/esg-ratings.

See Related: Impact Investing Examples

Conclusion

While these are lists of stocks and funds/ETFs that rank high on the ESG spectrum now, these lists aren’t comprehensive, nor are they necessarily reflective of stocks or funds/ETFs that best meet your individual values.

As such, these lists are provided as a starting point for you to investigate ESG stocks and funds/ETFs that you might want to add to your portfolio.

Related Resources

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ