Best ESG stocks to watch
Consider some of the best ESG stocks to watch. These are some of the largest ESG companies in the world by market capitalisation.
ESG stocks in brief
ESG — or Environmental, Social, and Governance — stocks represent companies that are market-leading in terms of sustainability, ethics and corporate management within their business models. They tend to appeal to investors seeking to balance financial returns with supporting companies that improve the world, though proponents consider companies which promote strong ESG practices are also more likely to generate higher returns.
Environmental considerations include a company's impact on climate change, resource management, and carbon footprint, while social factors include work practices, diversity, community engagement, and human rights. Governance is all about transparently ethical decision-making, competent leadership and accountability to shareholders.
Importantly, it’s common for companies to score highly in two out of three categories but fall down in the third. Sometimes this is because of the nature of their sector — for example, oil and gas businesses, or sin stocks like those involved tobacco, gambling and alcohol — but it’s also common for companies to underinvest in ESG, especially in this higher rate environment.
However, this may be a mistake. ESG companies are investing in long-term risk mitigation, perhaps making them more resilient to reputational damage and regulatory change. They are also often viewed as better at long term growth planning, which can help to attract institutional support — and also increase brand loyalty among other competitive advantages.
On the other hand, it’s worth noting that ESG investing has its drawbacks. Possibly the largest issue is the rating system, as there is no one central rating organisation — with different agencies using different criteria to compare stocks. This can be particularly complex when companies operate on weak jurisdictions where comparative ESG standards are used.
Beyond this, some businesses engage in greenwashing, where they misrepresent their ESG efforts to appeal to ethics-focused investors without putting in the work. ESG investors can also miss out on high-return industries such as oil stocks, even when the company is actively investing in the green transition — and indeed, maintaining high ESG standards is a cost in itself.
Overall though, ESG continues to hold a special place in the hearts of many investors, and as regulations tighten among a changing world, companies prioritising ethics may be better placed to adapt.
How to invest in ESG stocks with us
- Learn more about ESG stocks
- Download the IG Invest app or open a share dealing account online
- Search for ESG stocks on our app or web platform
- Choose how many shares you’d like to buy
- Place your deal and monitor your investment
Investors look to grow their capital through share price returns and ESGs - if paid.
But the value of investments can fall as well as rise, past performance is no indicator of future returns, and you could get back less than your original investment.
We also offer many ESG-focused ETFs, including the popular iShares ESG Screened S&P 500 ETF, which seeks to track large cap US equities while applying screens for companies involved in controversial business practices. Top holdings include Apple and Nvidia, and it comes with a very low expense ratio of just 0.08%.
Top ESG stocks to watch
These are 10 popular ESG stocks that appear in many ESG-focused ETFs. Please note that there is some subjectivity when it comes to ESG investing, including personal ethics.
Trane Technologies (NYSE: TT)
Trane Technologies is a global provider of heating, ventilation, air conditioning (HVAC), and refrigeration systems. The company makes the ESG cut due to its market-leading position in developing energy-efficient technologies that reduce carbon emissions in what is traditionally a carbon intensive sector.
The company is committed to sustainable innovation and climate action — working toward a goal of net-zero emissions across its value chain by 2050 — and was recently named to S&P Dow Jones Sustainability World Index for a fourth consecutive year.
WW Grainger (NYSE: GWW)
WW Grainger is a worldwide distributor of industrial supplies and equipment. The company is committed to sustainability in its operations and supply chain, focusing on energy-efficient solutions and waste reduction. For context, it has set a goal to reduce its absolute Scope 1 and Scope 2 greenhouse gas emissions by 50% between 2018 and 2030 — using LED lighting, building management systems, and hydrogen fuel cell technology to improve its carbon footprint.
The business offers a specific range of environmentally preferable products to customers, an is committed to achieve 50% women in leadership positions by 2030.
Microsoft (NASDAQ: MSFT)
Microsoft Corp is a world-famous multinational technology company, famous for the Office suite software, Windows, and Azure cloud services. The company has been carbon neutral since 2012 and aims to be carbon negative by 2030. Microsoft also invests heavily in renewable energy, energy-efficient technologies and artificial intelligence solutions for the modern age.
Microsoft also plans to be water positive by 2030 (replenishing more water than it consumes) — and hopes somewhat ambitiously be a zero waste operator as well.
First Solar (NASDAQ: FSLR)
First Solar is a market leader in solar energy solutions, providing photovoltaic modules and developing utility-scale photovoltaic power plants — essential to solar panels and their production. The company has set ambitious environmental goals, including achieving net-zero emissions by 2050. First Solar is also focused on reducing water usage, recycling materials, and using renewable energy for its manufacturing processes.
Nvidia (NASDAQ: NVDA)
Nvidia is a multi-trillion-dollar tech company known for its microchips — which used to be famous for gaming but are now leading the charge in artificial intelligence and deep learning. Nvidia is also a key player in the development of autonomous vehicles and research technology and remains committed to reducing energy consumption and promoting sustainability in its product designs.
The company’s core ESG factor stems from the potential its chips have in advancing AI and machine learning for a more enlightened world.
Salesforce (NYSE: CRM)
Salesforce is a US-based cloud software company, offering CRM solutions to businesses worldwide. The company is a leader in social responsibility and sustainability, with a focus on carbon neutrality, renewable energy, and inclusivity. It's also worked on improving diversity and advancing social causes.
For example, it’s already carbon neutral — using 100% renewable energy to power the company and investing in carbon removal to offset any emissions. The company also offers a sustainable cloud platform which that helps businesses track and reduce their environmental impact.
Xylem (NYSE: XYL)
Xylem — named for the plant tissue — is a water technology company providing solutions for water and wastewater treatment, water infrastructure management, and water efficiency. Xylem is well-known for tackling water scarcity and improving water quality globally.
Its filtration systems, disinfection solutions and biological treatment processes have made a huge impact worldwide, as has innovations including smart metering solutions, irrigation systems, and water conservation technologies.
Levi Strauss (NYSE: LEVI)
Levi Strauss is a global apparel company, known principally for its denim jeans, but also for general casual wear. The company focuses on sustainable fashion through initiatives like waterless denim techniques, using organic cotton, and reducing waste in production. Levi’s has also invested in improving working conditions, pay for its workers, and increasing transparency in its supply chain.
Novo Nordisk (NYSE: NVO)
Novo Nordisk is a global healthcare company specialising in diabetes care — including insulin manufacturing — and treatments for other chronic diseases. It is committed to environmental sustainability and has set carbon neutrality targets, including an aim to reach net-zero emissions by 2030.
The company is popular among ESG investors for its advances in weight loss treatments including Wegovy and Ozempic, which could contribute to solving the western world’s obesity crisis.
Prologis (NYSE: PLD)
Prologis is a market-leading logistics and real estate company, developing and managing industrial properties like warehouses and distribution centers. The company incorporates sustainable practices into its buildings, including solar energy systems and energy-efficient technologies, arguably putting it ahead of rivals from an ESG standpoint.
The company plans to achieve net zero by 2040, and is well-known for its efforts to consider sustainability throughout its buildings’ entire lifecycle from design to redevelopment.
ESG stocks summed up
- ESG stands for Environmental, Social, and Governance considerations
- ESG stocks represent companies that are market-leading in terms of sustainability, ethics and corporate management within their business models
- ESG companies are investing in long-term risk mitigation, perhaps making them more resilient to reputational damage and regulatory change.
- Different ESG rating agencies using different criteria to compare stocks, which can make ratings subjective
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