Are these the top ESG stocks to watch?

ESG investing: what you need to know

ESG investing is a strategy for choosing stocks and funds that takes environmental, social and governance (ESG) practices into account. It involves assessing how a business is affecting the planet, its societal impact and how it’s run.

The rising popularity of ethical and green investing has led more and more people to look beyond fundamentals when picking assets. But weighing up a business’ behaviour can be a tricky process – after all, there’s no single definition of what makes a ‘good’ company.

ESG is one method of assessing a stock beyond strict financial measures. It takes its practices into account as well, for a more cohesive view.

Most businesses will perform stronger against some aspects than others, so if you’re considering ESG then you’ll need to prioritise stocks that align with the values you consider most important. One way of achieving this is to use the ratings from an ESG agency to examine how a company is performing against individual criteria for each factor.

Alternatively, you can invest via exchange traded funds (ETFs) or other funds that use ESG factors as part of their asset allocation. But much like individual investors, fund managers have to choose which criteria they’re going to focus on. So the principle here is roughly the same as choosing stocks – read the methodology of a fund you’re interested in to see whether its ESG aims match yours.

How to trade or invest in ESG stocks

With us, you can invest in ESG stocks and ETFs with a share trading account, or you can choose to trade on their price movements using CFDs. With CFDs, you can go long or short on ESG companies and funds without taking ownership of any shares.

How to trade ESG stocks and ETFs

1. Create an account or log in and go to our platform
2. Choose CFDs and search for your opportunity
3. Select ‘buy’ to go long, or ‘sell’ to go short
4. Set your position size and take steps to manage your risk
5. Open and monitor your position

How to invest in ESG stocks and ETFs

1. Create an account or log in and go to our platform
2. Search for the ESG stock or ETF you’d like to invest in
3. Select ‘buy’ in the deal ticket (you can only go long when investing)
4. Choose the number of shares you want to buy
5. Open and monitor your position

But, please bear in mind that all investment incurs risk – risk that is only amplified when trading with leveraged derivatives like CFDs. Ensure that you understand how they work and always take steps to manage your risk before opening a position.

Not ready to commit any capital? Open a demo account to try out trading on all our available markets.

Top-rated ESG stocks to watch

1. Sims Ltd
2. Brambles Ltd
3. Vestas Wind Systems
4. Taiwan High Speed Rail
5. Nordex SE

The following five companies are the top ranked ESG stocks as rated by Corporate Knights in their annual survey.

Sims Ltd

Sims Limited is a metal recycler headquartered in Mascot. It collects, processes and trades iron and steel secondary raw materials and other metal alloys — including aluminium, copper, lead, nickel and zinc bearing materials.

The company is a circular-economy pure-play, with 100% of its revenues and investments aligned with Corporate Knights sustainable economy taxonomy. It’s also a top performer in various segments analysed by the institution, including energy and carbon productivity, CEO-to-average-worker pay ratio and cash taxes paid.

In recent half-year results, sales revenue increased by 7.4% year-over-year to $4.1 billion, though underlying EBIT fell by 85.6% to $13.4 million.

CEO and Managing Director Stephen Mikkelsen noted that ‘Sims’ recognition as the world's most sustainable company in Corporate Knights' Global 100 Ranking stands as a testament to our high standards in sustainable operations, and serves as recognition of the collective efforts of all our employees towards sustainability.’

Brambles Ltd

Brambles Ltd is a supply-chain logistics business that is a pioneer in the sharing economy, offering services including reusable pallets, containers and crates. Corporate Knights notes that the business has best-in-class sustainable revenue and investment ratios, earned from its circular business model. It also performs well on racial diversity indicators, in addition to having a robust sustainability pay link.

In half-year results, sales revenue increased by 10% year-over-year, reflecting contributions primarily from prior-year pricing actions and also current period pricing to recover cost-to-serve increases. Accordingly, underlying profit rose by some 19%, with operating leverage supported by flow-through of pricing and commercial terms to recover cost-to-serve.

CEO Graham Chipchase enthused he is ‘very proud of the progress across all aspects of our sustainability programme and our ongoing recognition as a global leader in sustainability. Most recently, we advanced one position to be ranked second place in Corporate Knights’ Global 100 list and this is testament to the importance of our share and reuse model in reducing environmental impacts on a global scale.’

Vestas Wind Systems

Vestas Wind Systems is a Danish business that manufactures and services wind power plants, alongside both onshore and offshore wind turbines. The company was ranked first on the Corporate Knights list in 2022 — and remains consistently featured for its contribution to renewable energy, board’s gender and racial diversity, and 0% worker fatality rate.

It has consistently been the top global supplier of wind turbines since 2015. At present, it boasts a Vestas installed base of 177GW of wind power, with 152GW capacity under service, and a worldwide installed wind capacity of some 906GW.

The company is based in Denmark, with factories in a number of locations including the US, China and Spain.

Taiwan High Speed Rail

Taiwan High Speed Rail builds, operates and manages a 350-kilometre railway system in Taiwan. As the system is electrified, all revenues and investments at the business are aligned with Corporate Knight’s Sustainable Economy Taxonomy.

Further, it has a best-in-class CEO pay ratio and also scores well on carbon productivity and pension fund quality.

The network connects major cities along the west coast of Taiwan, from Taipei in the north to Kaohsiung in the south — with train speeds reaching up to 300km/h. It also reches 90% of Taiwan’s population, and arguably boosts tourism on the island by making every part of the island more accessible.

Nordex SE

Nordex SE develops, manufactures, and distributes multi-megawatt onshore wind turbines across the world. Based in Germany, it allocates all investments into win technologies.

It scored best among all 100 companies in Corporate Knight’s list for energy productivity, cash taxes paid and racial diversity both on its board of directors and executive team.

In recent full-year results, revenue came in at €6.5 billion. Though analysts estimate that 2024 revenues will only grow by 11% compared to a historical growth rate of 18% over the past five years, the sector average expectation is for only 7.9%.

CEO Jose Luis Blanco enthused that ‘we began 2023 with higher installation volumes and were also able to catch up on part of our backlog in this area. Overall, we installed more than 1,400 wind turbines with a combined output of around 7.3 gigawatts across 24 countries. This represents an increase of almost 40 percent from the previous year’s figure of 5.2 gigawatts.’

ESG investing outlook

KPMG estimated that a quarter of all professionally managed investments in 2023 were in ESG. It has only grown in importance in the years since, and there’s no sign that it’s going anywhere.

Divesting from fossil fuels is quickly becoming standard practice – BlackRock’s CEO, Larry Fink, announced the firm would limit investment in coal in its active funds all the way back in 2019. Climate change continues to dominate headlines.

So the environmental side of ESG is likely to see strong growth in 2024 and beyond. Social and governance are likely to see progress as well, thanks to headlines such as Goldman Sachs tightening its diversity requirements for initial public offering (IPO) clients.

However, there are also questions on how companies are scored for ESG purposes.

Environmental factors that financial organisations like MSCI consider include corporate impact on the environment, including carbon footprint, pollution levels, and sustainability practices. Social factors feature considerations including employee welfare, diversity, working practices and community engagement. Governance is all about management and business transparency, such as executive compensation and risk management.

ESG takes a long-term view as investors often believe that responsible companies are better positioned for the future — and in any event, high ESG scores allow you to invest in companies aligned with positive values, hopefully making a profit while also having a wider positive impact on the world.

Of course, like all investing themes, there are detractors. Different rating agencies use different methodologies and often score companies based on unreliable data. Some ESG funds will even exclude entire industries such as tobacco or oil stocks — this limits portfolio diversification, and perhaps worse, has an element of ignoring the real world.

A tobacco company moving into vaping, or an oil company investing heavily into the energy transition can be ignored for ESG purposes — even though investing in them may effect significant positive change.

The other problem to consider is the question of whether the ends justify the means. ESG scores tend to emphasise internal corporate practices over end results in the real world — which can have an outsized effect on ratings.

Discover more about our ESG investing platform or open an account with us to take your position on ESG stocks and ETFs.

ESG is just one of the thematic investment opportunities we offer. Find out more about investing in AI, water, electric vehicles and cannabis.