Are these the best ESG stocks to watch?

ESG shares are investments in companies which are considered to be socially responsible, or at a minimum, more socially responsible than its competitors. ESG is an acronym covering three separate criteria: environmental, social and governance.

This is important, because a company could have exceptional green credentials, but if it treats employees poorly or is badly managed, it will still have a low ESG score.

ESG factors to consider

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 age-old Kantian 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.

Best ESG stocks to watch

The following five shares are the top-scoring listed businesses in the world according to ESG Book, a global leader in sustainability data and technology. They have been taken directly from the organisation’s Top 100 list.

1. ASML Holdings
2. Check Point Sodtware Technologies
3. Hermes International SCA
4. Linde
5. Kone OYJ

ASML Holdings

ASML Holdings is a Netherlands-based multinational which is well-known being the only manufacturer in the world capable of building the most advanced lithography machines on the market.

These machines are themselves used to manufacture semiconductors (microchips), which in an age of artificial intelligence makes ASML a globally important company. They work by transferring circuit patterns onto silicon wafers, which is a foundational step in creating integrated circuits.

In Q1 2024 results, ASML recorded net sales of €5.3 billion and a gross margin of some 51%. And the company advised that it expects Q2 2024 net sales of between €5.7 billion and €6.2 billion.

CEO Peter Wennink enthused that ‘we see 2024 as a transition year with continued investments in both capacity ramp and technology, to be ready for the turn in the cycle.’

Check Point Software Technologies

Check Point Software Technologies is a titan of the cybersecurity world, specialising in safeguarding governments and corporations from cyber threats. These include some of the most sophisticated attacks, including ransomware and malware.

The key product is the company’s Check Point Infinity Platform, which offers a full suite of tools to protect your network, cloud data and hardware devices. It includes Check Point Harmony and CloudGuard, which are very well known pieces of software in the cybersecurity environ. Perhaps a key attractant is that the company has a comprehensive offering for all cybersecurity needs, which save significant client time.

In Q1 2024 results, Check Point saw total revenues rise by 6% year-over-year to $599 million, driven by a 15% increase in security subscription revenues to $263 million.

CEO Gil Shwed noted that ‘we introduced Quantum Force, a new line of security gateways empowering organizations of all sizes with next-generation firewall technology. In addition, we launched new technologies including Harmony SaaS protecting SaaS platforms and data, and Infinity AI Copilot.’

Hermes International SCA

Hermes International SCA is a French company that designs, manufactures and sells luxury goods. It has a reputation for high quality products and designs that do not go out of fashion. Hermes’ product range runs the gamut, from its iconic range of leather handbags, wallets and accessories, to jewellery, perfumes and homeware.

Like many luxury French brands, the company has adopted a market position as a premium brand with an aura of heritage and exclusivity — a Hermes bag is in certain circles a serious status symbol.

In Q1 2024 results, consolidated revenue rose by 17% year-over-year in constant currency terms to €3.8 billion.

CEO Axel Dumas enthused that the ‘solid sales growth in the first quarter 2024 reflects the loyalty of our clients worldwide, the strength of the group’s artisanal model and the desirability of our creations in a more complex environment. Hermès pursues its strategy based on exceptional know-how, the finest materials and uncompromising quality.’

Linde

Linde is a global leader in industrial gas and engineering. It manufactures atmospheric gases including oxygen, nitrogen, argon, and hydrogen — which are used in an array of products and services including healthcare, manufacturing and food production.

It also designs and builds the industrial plants needed to process these gases, in addition to standard natural gas facilities. Linde is also well-known for its tech advances in the space to help make gas manufacturing both more efficient and greener. It’s also worth noting that outside of the main business, the company has a hand in operations across the entire manufacturing space.

Importantly for ESG investors, Linde is a member of the Hydrogen Council, and accordingly expects hydrogen vehicles to compete with lithium-powered electric vehicles over the longer term.

In Q1 2024 results, Linde saw adjusted operating profit rise by 6% year-over-year to $2.1 billion.

CEO Sanjiv Lamba noted that ‘We had another strong quarter, growing EPS 10%, ROC to 25.6% and expanding operating margins 200 basis points, reaching 28.9%. These results demonstrate the resiliency of our integrated industrial gas model through optimizing our network density, all while developing high-quality growth opportunities.’

Kone OYJ

Kone OYJ (more commonly known only as Kone) is perhaps not a household name, but the company is well-known in certain circles as the market leader for designing and installing lifts, escalators and automatic doors — as well as providing long-term maintenance services for its products.

The corporate goal is to ‘make the world’s cities better places to live’ by creating the conditions for a more efficient flow of people through buildings. This includes innovations like smart lifts (elevators) that learn foot traffic patterns to optimise which floors to go to.

In Q1 2024 results, sales grew by 0.5% year-over-year to €2.57 billion at constant currency rates. President and CEO Phillipe Delorme enthused that ‘We had very good orders received in many parts of the world with strongest growth in India, South-East Asia and North America. We won several important infrastructure projects in both Modernization and New Building Solutions and continued to gain market share in Modernization more broadly.’

How to invest or trade in ESG shares with us

1. Learn more about ESG shares
2. Open an account with us or practise on a demo
3. Select your opportunity
4. Choose your position size and manage your risk
5. Place your deal and monitor your trade

You can either invest in shares directly or trade using spread betting or CFDs to benefit from leverage.

Keep in mind, leverage means you can gain or lose money faster than expected. Because your position size is far greater than your deposit, you could lose more money than you put in. Be aware also that past performance is not an indicator of future returns.

Learn more about the differences between trading and investing here.