Under the capitalist ethos, producers of goods and services strive to find the lowest possible cost threshold while maximizing growth and earnings potential. For decades, the unrivaled manufacturing prowess of the U.S. contributed to its status as the greatest economic power. However, a changing of the guard implies consumers care more deeply about environmental, social and governance (ESG) issues — which brings up the case for best ESG stocks to buy.
For starters, the millennial and emerging Generation Z demographics are much more attuned to issues involving sustainability and social equity than prior generations. It’s not just an American phenomenon either. As a study from Hiroshima University indicated, Japanese youth have an eye toward sustainability — and that includes deferring higher pay to associate with a sustainable company. That’s a powerful backdrop for adding the best ESG stocks to your portfolio.
Furthermore, a McKinsey & Company article reported that more companies are taking notice of the trend toward ESG demand. Indeed, many of the biggest firms in the world are contributing toward a net-zero carbon emissions goal by 2050, aligning their ambitions with that of President Joe Biden’s net-zero-emissions pledge. Theoretically, we could get to a point where ignoring holistic social wellness issues could be detrimental, thereby bolstering the best ESG stocks.
Of course, that doesn’t mean pursuing environmental sustainability and social governance is an easy box to check off. As the McKinsey article indicated, businesses everywhere would like to decarbonize if money was no object. Unfortunately, it is an object which requires an overhaul in approach. Also, companies will have to take intrepid risks to make sustainability work, which is a constant challenge even for the best ESG stocks.
Nevertheless, the growing impact of climate change means that we cannot ignore sustainable solutions. So with that in mind, below are some of the best ESG stocks to consider.
- Microsoft (NASDAQ:MSFT)
- Sherwin-Williams (NYSE:SHW)
- Orsted (OTCMKTS:DNNGY)
- Five Below (NASDAQ:FIVE)
- Waste Management (NYSE:WM)
- Unilever (NYSE:UL)
- First Graphene (OTCMKTS:FGPHF)
As with any investment sector, you’re going to need to perform your due diligence — even for the best ESG stocks. True, you might feel less aggrieved if you lose money on sustainable companies. But the reality is that losing money stinks, no matter the extraction of a moral victory or not. Therefore, take the same precautions as you would anything else.
Best ESG Stocks: Microsoft (MSFT)
As one of the biggest technology firms in the world — and whose co-founder is often the target of conspiracy theories — you wouldn’t necessarily peg Microsoft as one of the best ESG stocks to buy. A company that’s indispensable in the workforce of the old normal and new normal? Sure. A video-gaming giant which competes robustly with other platforms? Absolutely.
However, it’s now time to look at MSFT stock in another light, that of genuinely forwarding the narrative for best ESG stocks. For one thing, Microsoft asserts that it “has been carbon neutral across the world since 2012 and commits to being carbon negative by 2030.” Furthermore, it maintains a strong position on water scarcity, committing to reducing consumption and “replenishing water in the regions” it operates.
Finally, Microsoft is one of the leaders among blue-chip companies to promote inclusivity. That includes extending opportunities for the more than one billion people in the world with disabilities. Now if we can only figure out a way for Windows to stop bugging out and giving us the occasional blue screen of death, MSFT stock would be just perfect.
If you suspected that Sherwin-Williams had a banner year in 2020 thanks to the unexpected skyrocketing of real estate demand, you’d be right. When Dec. 31 inked its way into the history books, Sherwin-Williams had generated $18.4 billion in revenue in the trailing 365 days, up 2.8% from 2019’s tally. Percentage wise, that’s nothing to write home about. Given the impact of the novel coronavirus, though, that’s saying something.
Better yet, Sherwin-Williams is having an even more robust year in 2021, with its trailing-12-month (TTM) revenue at $19.7 billion. So long as the fourth quarter performs reasonably well, SHW stock should enjoy another year of sizable expansion. But how does that make Sherwin-Williams one of the best ESG stocks to consider for your portfolio?
Surprisingly, the company has a remarkable list of ESG accomplishments, including reducing carbon emissions by nearly 17% since 2017 and cutting employee injuries by almost half since 2015. Moreover, Sherwin-Williams developed the first non-BPA (bisphenol A) epoxy coatings for food and beverage cans.
Plus, with real estate demand still strong, SHW stock proves that you can be responsible and profitable.
Best ESG Stocks: Orsted (DNNGY)
As the largest energy company in Denmark (and a sustainable one to boot), Orsted offers in many ways a double shot for those seeking the best ESG stocks. For one thing, the underlying country is one of the leaders in environmental considerations. For instance, a Bloomberg report noted that Denmark was (at time of writing) featured at the top of Transparency International’s ranking for transparent ethical investing measures.
Moreover, the world’s least corrupt nation wants to spread clarity in the often opaque world of ESG investing. Moving forward, such a cooperative partnership between governments and businesses may be necessary to fully decarbonize our global economy.
Naturally, such a supportive backdrop allows Orsted to do what’s necessary to establish a sustainable business while keeping shareholders happy. Featuring a range of clean energy and storage solutions, Orsted disproves the myth that even the best ESG stocks struggle to pad the bottom line. In fact, the company posted five-consecutive years of positive net income between 2016 through 2020. And with Orsted on pace to generate $3 billion in net income, you might as well make that six.
Five Below (FIVE)
While much of the investment hype in 2020 and for most of this year has been focused on the rise of newly minted millionaires and billionaires, the problem with playing too hard into this narrative is that it’s an unrealistic one. Broadly speaking, the widening wealth gap of course favors the ultra-affluent, leaving most everyone else scrambling for the scraps.
Therefore, you might say that Five Below is by default one of the best ESG stocks to consider because of its underlying business. A discount retailer specializing in products that are priced no more than $5, Five Below is a cut above your typical discount-dollar stores. While grabbing something for a buck is appealing on many levels, the products tend to be disastrously cheap. With Five Below, you get a nice balance between price and quality.
Furthermore, the company has performed very well despite the ravages of the Covid-19 pandemic, with the fiscal year ended Jan. 31, 2021 of $1.96 billion up over 6% from the prior. As well, its TTM revenue currently stands at $2.58 billion. Thus, a reasonable final quarter to round out the year should see FIVE stock deliver another outstanding performance.
Best ESG Stocks: Waste Management (WM)
Ordinarily, you wouldn’t be in a hurry to look up Waste Management if you’re focused on the best ESG stocks to buy. After all, ESG is about sustainability and efficient use of materials; So they don’t end up in a landfill. As an operator of landfills, the optics are at the very least awkward for WM stock.
However, no matter how much people talk about buying the best ESG stocks, waste disposal is a reality. For years, the U.S. has been exporting its recycling materials to developing nations for storage and eventual processing. While the process seemed to be a viable short-term solution, those nations receiving American trash got tired of it. That shouldn’t come as a surprise, but it does leave us in quite a pickle.
Fortunately, Waste Management is dedicated to being part of the solution, not the problem. In addition to its recycling centers, the company facilitated a number of changes, including shifting its collection fleet to incorporate alternative fuels. Moreover, at WM controlled sites, the locations use 100% renewable energy.
As well, Waste Management prioritizes social and governance concerns, articulating that 100% of WM employees are paid a living wage.
As the manufacturer and distributor of popular household goods, along with food and beverages, the usually boring Unilever saw a conspicuous demand spike during the Covid-related lockdowns. With restaurants and other non-essential public establishments closed for much of 2020, companies like Unilever enjoyed a cynical benefit. Honestly, what else were you going to do during that awful period?
Moreover, many people are still stuck at home with the coronavirus still running wild. With that in mind, Unilever demand remains robust based on TTM revenue. And just as importantly, the company is maintaining strength in free cash flow throughout 2021.
But what really stood out in terms of best ESG stocks is Unilever’s commitment to social equity. Last year, management took cues from the lessons it learned. And as a result, the company has made a pledge for racial justice, which include substantive initiatives like increased spending with diverse suppliers.
In turn, it’s good to see companies walking the walk, proving that you can operate ethically and profitably.
Best ESG Stocks: First Graphene (FGPHF)
Invariably, while it feels great to buy the best ESG stocks, many tend to be plucked from established blue chips. In other words, they can be quite boring. If you want to live a dangerously, however, you might want to check out what First Graphene has to offer.
Before I get into it, FGPHF — as you might tell from its unusual ticker symbol — is an over-the-counter play: that means you can expect plenty of volatility and low volume. Additionally, the equity unit is priced at 15 cents a pop, which makes it quite hazardous.
I would know. I own a modest amount of shares, and let’s just say I’m not exactly thrilled.
That aside, I think First Graphene has huge potential for the patient. As the top research-and-development firm in the graphene space, First Graphene sells additive compounds to bolster strength and resilience of building materials and industrial equipment, thereby reducing carbon emissions on a net basis.
And yes, mundane materials like concrete emit a surprising amount of carbon. Therefore, by mitigating concrete usage and waste, First Graphene could turn out to be a gamechanger years down the line. Thus, you definitely need to watch this space.
On the date of publication, Josh Enomoto held a LONG position in FGPHF. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.