It is no secret that investors are becoming increasingly concerned with environmental, social, and governance matters (ESG) when choosing where to direct their capital. Most observers would agree that ESG has never been as important as it is today.
There are many metrics and measures which we can cite to assert this claim to be true. One in particular, the EY 2020 Climate Change and Sustainability Services Institutional Investor survey proves particularly useful. The survey found that “of the 98% of investors surveyed who assess ESG, 72% carry out a structured review of ESG performance, compared with just 32% in the previous survey conducted two years earlier. Moreover, many of those who currently use an informal approach, plan to move to a more rigorous regime (39%).”
In short, institutional investors are quickly aligning their businesses toward greater ESG performance. It clearly implies that ESG increasingly relates to overall risk. The greater a firm’s ESG commitment, the more likely investor capital is to remain with that firm.
With that in mind, let’s look at highly rated ESG stocks that not only tops the league table on that front, but that are fundamentally solid all-around.
- Microsoft (NASDAQ:MSFT)
- Nvidia (NASDAQ:NVDA)
- Danaher (NYSE:DHR)
- ASML Holding (NASDAQ:ASML)
- NextEra Energy (NYSE:NEE)
- Coca-Cola (NYSE:KO)
- American Express (NYSE:AXP)
ESG Stocks: Microsoft (MSFT)
Microsoft is basically an easy pick when it comes to ESG investing. Not only is it among the strongest and most successful companies in the world, but its list of ESG accolades is quite noteworthy.
Microsoft compiles a comprehensive corporate social responsibility report each year that outlines its efforts across multiple areas. The latest report (for 2020) and includes four strategic pillars, includingsupporting inclusive economic opportunity, protecting fundamental rights, commitment to a sustainable future and earning trust.
The report notes that Microsoft’s top suppliers reduced their collective CO2 footprint by 21 million metric tons during the period. The firm contributed in excess of $4 billion to diverse-owned businesses as well, putting it in the top 20 globally. Further, Microsoft provided broadband access to 17.2 million people in rural areas globally over the past three years through its Microsoft Airband Initiative.
And the list goes on and on. Suffice it to say, Microsoft is a responsible company by every ESG matter.
It is also always among the most recommended stocks, consistently vying for the top-valued company spot by market capitalization. Moreover, MSFT stock maintains an overwhelming “buy” rating, with plenty of price appreciation in store.
As with Microsoft, there are multiple metrics by which investors can say Nvidia is a responsible company. One such rating, done by Sustainalytics, a Morningstar company, places Nvidia as the third least-risky semiconductor firm by ESG rating. That rating included a comprehensive survey of 303 firms within the industry, so Nvidia’s top three rank is highly impressive.
Nvidia is a well-regarded chip manufacturer, likely a massive understatement. Broad indications are that as a pure return-focused investment, NVDA stock will remain among the most attractive stocks there are. There is very little indication that anything is wrong at all. Shares of the GPU-driven semiconductor manufacturer has an average target price of $341 but trade for $283 presently.
Being that we’re looking at ESG stocks for 2022, we should at least consider the broader expectations for the firm. Fortunately, those too, are positive. Nvidia should record somewhere in the neighborhood of $26.7 billion in revenues this year. That figure is expected to rise to $31.7 billion in the coming fiscal year. Since top line growth goes a long way in determining share price appreciation, NVDA stock looks to be in great position.
ESG Stocks: Danaher (DHR)
Danaher is a large, medical and sciences firm headquartered in Washington, D.C. Its businesses are separated into Life Sciences, Diagnostics and Environmental & Applied Solutions.
The firm’s most recent earnings are a strong place to begin in understanding why DHR stock is a reasonable ESG name for 2022. Essentially, Danaher is doing very well by traditional business fundamentals.
In Q3, revenues reached $7.2 billion, which represented a 23% increase on a year-over-year basis. Perhaps more importantly, net earnings increased by 33%, reaching $1.2 billion. That suggests that Danaher’s operational efficiency is increasing even as it increases its sales base.
Generally, when firms perform as well as Danaher has, their stock price approaches target prices. That usually leaves little room for growth. However, DHR stock is slated to grow, and target prices leave plenty of reason to expect price appreciation moving forward.
Danaher is particularly focused on diversity & inclusion. One program it has built out is its associate resource groups, or ARGs. It is a set of associates who mentor and coach underrepresented talent across seven diverse groupings. Two of those groups, Asian Descent + Friends and Black + Friends, count 4,000 members and have seen headcount increases of 165% and 350% over the last year, respectively.
ASML Holding (ASML)
ASML Holding is a Netherlands-based producer of semiconductor manufacturing equipment. It is probably best to paint in broad strokes with ASML, because the overall direction of the company is very promising.
Simply put, there’s a lot of reason to believe a purchase of ASML stock could lead to healthy returns. This is most evident in the target stock price of the firm which sits at $952.60. ASML shares currently trade at $755, thus there’s more than 26% upside baked into that price. Further, the highest target price is above $1,000, and sits at $1,030.
The firm has faced supply chain issues which forced it to pull back on previously issued guidance for the remainder of 2021. However, AMSL should still reach revenue growth near 35% in the year.
The firm’s ESG efforts are broadly wrapped into its sustainability efforts, which include five pillars. One strong example of the company’s efforts is the fact that it reached its goal of 100% renewable energy use across its operations.
ESG Stocks: NextEra Energy (NEE)
Bank of America Global Research recently hosted NextEra Energy’s senior management team at a conference in New York, noting that NextEra Energy continued to be bullish on its decarbonization message and the opportunities it sees in the U.S.
The BofA analysts also stated that NextEra “has delivered a consistently positive adjusted EPS trajectory, with periodic rebasing and a rising growth outlook. The company has grown above 9% annually, well above its legacy rate and even the current 6%-8% (high-end) target. Due to the magnitude of [decarbonization and other] opportunities from the [Biden administration’s Build Back Better plan], we would not be surprised if further positive baselining to the compound annual growth rate in earnings per share is announced at NextEra’s 2022 June Analyst Day”
That sentiment led the bank to place a $98 target price on NEE stock. That price is higher than the near $94 consensus price of the 17 analysts with currently covering NextEra’s shares. That’s certainly a bullish sign moving into 2022.
NextEra Energy is otherwise interesting because it operates an electric utility company in Florida as well as a renewable energy arm primarily focused on wind and solar generation.
Coca-Cola is likely more familiar to readers for its association with Warren Buffett and as a dividend aristocrat. Those are great associations to have, to be sure. But Coca-Cola should also be the radar of investors seeking stocks with significant ESG efforts as well.
For example, the firm has a large philanthropic arm, the Coca-Cola Foundation, that’s existed since 1984 and in that time has awarded more than $1 billion in grants toward sustainable community initiatives globally.
Coca-Cola is also committed to returning 1% of its previous yearly operating income every year. In 2020 that resulted in $186 million going to 432 different organizations across 154 countries. Further, in early 2020 Coca-Cola announced that it was funding $11 million to be distributed over the following three years for the cleanup of nine rivers across the world.
Beyond those efforts, KO stock is simply a strong, reasonable pick. The consumer packaged goods giant experiences consistent growth which will continue through 2022. To that end, Coca-Cola is expecting roughly $40.4 billion in revenues in 2022, up from the $38.1 billion it expects in 2021.
ESG Stocks: American Express (AXP)
American Express is of course the ubiquitous credit card that almost everyone has heard of. From a fundamental perspective, there’s little reason to worry about American Express’ business.
As an earlier Kiplinger report put it; “The pros are especially impressed by the credit card company’s outsized long-term growth prospects. Indeed, the Street expects AXP to deliver average annual earnings per share (EPS) growth of more than 40% over the next three to five years. And for what it’s worth, AmEx is one of Warren Buffett’s all-time favorite stocks. The CEO of Berkshire Hathaway first bought shares in the firm in 1963 and remains its largest shareholder (by far!) today.”
On top of that, AXP stock is bolstered by a AA rating for its ESG efforts. That is a claim that only 7% of its industry peers can make. To that end, the firm recently committed to a zero carbon emissions goal by 2035.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.