ESG, an acronym for “environmental, social, and governance,” takes into consideration these three non-financial factors that may affect the long-term impact of a company. Several assessors publish ESG scores for companies that reflect how sustainable and ethical their businesses are. Whether a high ESG score helps a company perform better financially is up for debate, but these factors matter to many institutional as well as individual investors.
According to a report by professional services firm PwC, ESG-focused institutional investment is expected to grow by 84% to $33.9 trillion by 2026. Another study by Finra Foundation shows there’s plenty of room for growth for individual investors to adopt ESG strategies, as only 28% of them are aware of ESG.
The 10 stocks we feature in this guide not only get high scores for their ESG efforts, but are all performing well financially, making them excellent ESG-focused investments. Read on to discover our picks of the 10 best ESG stocks to invest in right now:
Take a quick look at the 10 best ESG stocks available today:Top ESG Stocks to Buy in [cur year]
Best ESG Stocks to Invest in 2024
Now, let’s take an in-depth look at the best ESG stocks and the case for investing in each of them:
1. ASML Holding – Cutting Down on Waste, Emissions
The Dutch company was founded 40 years ago with the merger of ASM International and Philips. It has a monopoly on EUV lithography machines used to imprint silicon chips and this positions it to benefit from the spread of artificial intelligence (AI) technology. ASML’s sustainability goals include zero waste from operations to landfill or incineration by 2030, as well as a tiered approach to reaching zero greenhouse gas emissions.
ASML’s gradual approach to reaching that target is as follows: zero emissions by 2025 in company operations, zero emissions on company travel and commuting by 2025, none in its supply chain by 2030 and none from product use by 2040.
One area where ASML lags is diversity, equity, and inclusion (DE&I). Only 10% of the company’s senior management are women and that is a lower ratio than at other Dutch tech companies. ASML, which is the largest company by market cap in the Netherlands, says it’s addressing this at the root level by sponsoring science, technology, engineering and mathematics programs (STEM) in education.
ASML has increased revenue for eight consecutive years. In 2023, it reported sales of €26,5 billion ($29.9 billion), an increase of 31%, while EPS climbed 40.8% to €19.19. The company increased its yearly dividend payout 5.2% in 2023 to €6.10 and also has a €2 billion share repurchase plan underway.
Ticker
P/E
Dividend Yield
NASDAQ: ASML
44.43
0.57%
2. Microsoft – Improving Its Own and Its Customers’ ESG Efforts
The tech company is taking its own ESG goals seriously, and it’s also coming out with tools to help other companies do the same. The company is one of the leaders in AI technology. Earlier this year, it introduced AI capabilities and data analytics to its Cloud for Sustainability, platform to help its customers measure, reduce and report their environmental impact.
In the second quarter of fiscal 2024, Microsoft had $62 billion in revenue, up 18% year over year, led by a 24% increase in Microsoft Cloud revenue. Quarterly EPS was $2.93, up 33% from the same period a year ago.
It raised its dividend by 10.3% last year to $0.75 and has increased its dividend by 9.5% or more for six consecutive years.
Ticker
P/E
Dividend Yield
NASDAQ: MSFT
37.50
0.72%
3. Hermes International – Taking a Long-Term View of Sustainability
The French luxury goods company says it uses as few non-renewable materials as possible to make its products to respect the principles of sustainable development. It makes everything from leather goods to ready-to-wear clothing, including footwear, belts, gloves, hats, jewelry, furniture, wallpaper, tableware, perfumes and watches.
In 2023, the company had revenue of €13.4 billion ($14.24 billion), up 15.7%, while full-year EPS grew 28.1% to €41.12. Hermes has delivered a dividend for 31 consecutive years and raised it in the past three years, including a 92.3% bump this year to a total dividend of €25.
Ticker
P/E
Dividend Yield
OTC: HESAF
56.15
1.01%
4. Fortinet – Proof that Growth and Sustainability Can Mix
Fortinet is known best as a provider of server firewalls, though it makes a mix of cybersecurity products, from servers to routers and software. The company has increased revenue by 668.7% over the past decade. Considering the concern about cybercrime, it’s easy to see that growth continuing.
In 2023, Fortinet had $5.3 billion in revenue, up 20.1% and EPS of $1.46, up 37.7% over the previous year. This year, the company has forecasted EPS of between $1.65 and $1.70, an increase of 14.7% at the midpoint and revenue of between $5.715 billion and $5.815 billion, up 8.7% at the midpoint.
Ticker
P/E
Dividend Yield
NASDAQ: FTNT
44.28
N/A
5. Check Point Software Technologies – Balancing Security With ESG
The Israeli company makes hardware and software products for IT security, including network security, endpoint security, cloud security, mobile security, data security and security management. The company said that more than 50% of its executive leaders are women and that it promotes a healthy work-life balance by allowing employees their choice of in-office, remote or hybrid working.
Last year, it posted revenue of $2.41 billion, up 3.6% and EPS of $7.19, a rise of 13%. The level of unrest in Israel due to conflicts in Gaza and with Iran may complicate predicting the company’s business. The company doesn’t offer a dividend yet but it repurchased 9.9 million shares at a cost of about $1.29 billion in 2023.
Ticker
P/E
Dividend Yield
NASDAQ: CHKP
22.08
N/A
6. Colgate-Palmolive – Consumer Goods Firm With a Solid Track Record
The company, which makes the No. 1 US toothpaste brand Colgate, and the No. 3 US toothpaste brand Tom’s of Maine, sells more toothpaste than its next three closest competitors combined. It also sells soap, pet food and home cleaning products. Colgate-Palmolive has a strong record of inclusiveness and sustainability.
In 2023, it had $19.46 billion in revenue, up 8.29% from 2022, and EPS of $3.23, an increase of 8.75%.
The company is a Dividend King, one of the select companies that have raised their quarterly dividend for 50 or more years. In Colgate-Palmolive’s case, it has raised its dividend for 60 consecutive years, including a 4.2% increase this year to $0.50.
Ticker
P/E
Dividend Yield
NYSE: CL
31.07
2.32%
7. Adobe – AI-Enabled Software, Environmentally Conscious Standards
Adobe makes software, primarily in the area of creative products, including graphics, photography, illustration, animation, multimedia/video, motion pictures, and print. The company’s buildings are 80% certified to green building standards, such as LEED, and the company has several ongoing efforts to become more sustainable. It has said it plans to operate with 100% renewable energy by 2025 and to have 90% global waste diversion rate annually, along with reducing water use by 25% by 2025. The company is promoting diversity in its workforce, offering mentorships and career development programs to more than 22,000 students of Historically Black Colleges and Hispanic-serving Institutions.
The company doesn’t deliver a dividend, but it plans to spend $25 billion through March 2028 on buying back its shares. It projects second-quarter revenue to be between $5.25 billion and $5.3 billion, which fell short of analysts’ projections of $5.31 billion. It also said it expects adjusted EPS of between $4.35 and $4.40.
Ticker
P/E
Dividend Yield
NASDAQ: ADBE
45.49
N/A
8. Brookfield Renewable Partners – Renewable Energy, Dividend Growth
The company is the renewable power and transition company of Brookfield Asset Management, a leading global alternative asset manager. It operates 25,000 megawatts of renewable energy assets across 30 countries and has 31,800 megawatts of installed capacity in total. The projects it’s developing are 95% in cost-competitive renewable technologies — onshore wind, utility-scale solar, distributed energy or storage.
Brookfield Energy Partners raised its quarterly dividend by 5.2% this year to $0.355, the third consecutive year it has increased its dividend by 5% or more. The company tries to keep its FFO payout ratio below 70%, which should allow it to continue to increase the dividend.
Ticker
P/E
Dividend Yield
NYSE: BEP
N/A
7.10%
9. Constellation Energy – Largest Carbon-Free Energy Producer in US
Constellation serves more than two million customers and is the largest producer of carbon-free energy in the US, with more than 32,400 megawatts of capacity and an annual output that is 90% carbon free.
In 2023, the company reported $24.9 billion in revenue, up 1.96% while its net income rose to $1.62 billion, compared to a $160 million loss in 2022. The company, which has said its goal is to raise its dividend by 10% or more every year, increased it by 25% this year to $0.3525.
Ticker
P/E
Dividend Yield
NASDAQ: CEG
37.26
0.76%
10. Applied Materials – Serious About Renewable Energy
While the semiconductor industry is seen as being beneficial to ESG efforts because semiconductor chips power electrification and energy-efficiency measures in vehicles and equipment, the flip side of that is the chip-making industry is responsible for as much carbon dioxide output as half of US households.
The company had revenue of $6.7 billion in the first quarter, which was flat year over year, but because margins improved slightly, EPS grew by 19% over the same period last year, to $2.41. In the second quarter, the company is forecasting revenue of around $6.5 billion, with a $400 million margin of error, and adjusted EPS is expected to be between $1.79 and $2.15, compared to $2 in 2023. The company raised its quarterly dividend this year by 25%, the seventh consecutive year it has boosted its dividend.
Ticker
P/E
Dividend Yield
NASDAQ: AMAT
24.64
0.76%
What Elements Are Considered in ESG Investing?
Environmental, the first pillar of ESG, means avoiding companies with poor records on the environment because they face greater scrutiny from governments and their business models could be upended by government rules and laws designed to protect the environment.
Social, the second pillar of ESG, has a lot of aspects that can be grouped under it. It covers how a company relates to its own workers and others, such as pay and working conditions for employees, because lower turnover among staff could potentially lead to better profits.
Other areas that fall under the social pillar may be related to the company’s hiring practices regarding DE&I, or how stringent a company’s record is on data collection and data protection.
Governance, the final pillar of ESG, refers to how well a company is run, and not just financially. It looks at how accountable the company is to various stakeholders, such as shareholders, employees, customers and the community. It means how diverse a company’s leadership is.
It also refers to how well the company mitigates environmental, social and financial risks. Business ethics, as in how well a company avoids unfair business practices, and corruption and bribery, are other important aspect of governance.
Why Does ESG Investing Matter?
The sheer size of ESG investing is now too big to ignore. According to research by Bloomberg, the number of ESG-related assets under management (AUM) will reach $53 trillion by 2025, equivalent to a third of all global investments.
With that growth, though, has come controversy. There are an estimated 150 ESG raters in the market, but the lack of common standards on ESG data has drawn criticism. There is no unified definition on what exactly ESG should be measuring in terms of sustainability and for that reason, ESG ratings often draw varying conclusions, despite drawing their information from the same source.
ESG investors, concerned about the environment, social issues or governance, are seeking more engagement with companies and keeping ESG issues in mind when casting their votes at annual shareholder meetings.
In 2021, the ESG fund Engine No. 1 was able to successfully push for the replacement of three directors on Exxon Mobile’s board, pointing out the need for decarbonizing.
Is ESG Investing Good for Market Returns?
The jury is still out on that. Research by the Wall Street Journal, looking at a three-year period from 2021 to 2023, found that ESG funds underperformed the S&P 500 significantly and that an index made up of companies that were ESG neutral outperformed the S&P 500.
Most top-rated ESG funds don’t outperform the S&P 500 index, but there are a few that do. The Fidelity U.S. Sustainable Index (FITLX) has had a return of more than 27% over the past year and the Vanguard ESG US Stock ETF () had a return of more than 25% over the past year, while the S&P 500 Index was up only 24% over that period.
However, ESG proponents say that looking at the past year, or even the past three years, doesn’t speak to the ESG’s strength of reassessing companies’ long-term risks. They argue that companies with strong environmental, social and governance practices are better managed and take fewer risks. That can mean steadier performance and less portfolio risk, particularly during market downturns.
Where to Get ESG Stock Picks and Insights
Investing in ESG stocks takes a great deal of research, because you’re looking for two things. Companies with strong records on sustainability and DE&I, as well those with sound financials. To learn more about ESG stock picks, we recommend checking out AltIndex.
AltIndex uses web searches, customer satisfaction ratings, social media, and app downloads, to analyze a company. Its lists of best stocks update every half hour and it provides real-time share prices. The lists use an AI score, taken from several datasets, to show which stocks are likely to make a big move. Stocks are scored from 1 to 100, simplifying selections for investors.
AltIndex has more than 10,000 members and provides more than 100,000 stock insights and alerts each day and has a strong win rate of 75% from its AI stock picks.
You can try AltIndex’s Starter Plan for just $29 a month and receive stock picks directly to your email, as well many other useful features.
Conclusion
ESG investing has become a huge industry. It allows the public to look at investing from a different angle, finding companies that are good citizens in addition to being good businesses. It also focuses on long-term threats to companies that investors may otherwise overlook, such as governmental crackdowns on environmental or social bad actors.
As the above list shows, it’s possible to be both successful financially and as an ESG steward. If nothing else, the same forces that are pushing for more sustainability at companies are hopefully leading to more transparent reporting, both on the financial side and on ESG efforts.
References
https://www.pwc.com/gx/en/news-room/press-releases/2022/awm-revolution-2022-report.html
https://investors.constellationenergy.com/static-files/9670ad06-09c5-461d-b6b8-aefd1426b6c4
https://ir.appliedmaterials.com/static-files/736393f3-a154-4e1b-a3c1-33bbfed1673c
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