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ESG, or environmental, social and governance investing, is a way to build a more ethical portfolio. An investment’s ESG score measures the sustainability of an investment in three specific categories: environmental, social and corporate governance.
Investors interested in environmental, social and governance issues often cite climate concerns as guiding their ESG investments.
They were rewarded during the market crash as oil prices cratered. In the first quarter, sustainability-focused funds held up better than the broader fund market during the initial bear market sell-off – driven in part by less exposure to fossil fuel energy.
That said, ESG goes beyond not buying petroleum companies; there's the "S" and the "G" parts, too, and those may take greater prominence as people focus on health care amid the pandemic and the social unrest triggered by systemic racism.
The global sustainable fund universe attracted $45.6 billion in the first quarter of 2020, versus an outflow of $384.7 billion from the overall fund universe. In the U.S. specifically, the research firm found that in the first quarter, flows into open-end and sustainable ETFs reached $10.5 billion, eclipsing the previous record set in 2019's fourth quarter.
A June survey in 2020 from global investment manager Nuveen showed high-net-worth investors are starting to choose ESG for its outperformance, in addition to having a positive social impact, with 53% of respondents citing returns as their top reason to invest in ESG.
As such, it seems to be a wise choice to get started on an ESG portfolio. Here are some picks to get you started.
Coca-Cola (KO)
As a mega-cap stock with a current market value around $250 billion, Coca-Cola has already partially recovered from the loss in sales due to the pandemic. Analysts suggest that by providing a dividend yield of approximately 3.1%, Coca-Cola makes the list of the top recovery stocks of 2021.
Moreover, if you’re looking for companies that strictly adhere to ESG policies, Coca-Cola has an AA rating from MSCI. The company performs exceptionally well when it comes to waste management, ensuring health and safety standards, and controlling the carbon footprint per product.
These attributes make it one of the leading ESG dividend stock companies in the beverage industry. Interestingly, only 15% have an AA rating from MSCI, while only 9% have a higher AAA rating.
Honeywell (HON)
Honeywell is an ESG-compliant company that shows high growth potential due to its share-price appreciation.
The Street predicts around 11% annual average growth for the company in the next few years, with a strong ‘Buy’ rating. Honeywell has consistently raised its dividends since 2014, going up from 45 cents per share to 95 cents last year.
As far as ESG compliance is concerned, Honeywell holds an AA rating from MSCI. Offering a dividend yield of 1.6%, Honeywell maintains its ESG rating among 14% of its industry peers, having the AA rating.
NVIDIA (NVDA)
This is a well-known company producing graphics and video processing cards, remained unaffected by the pandemic. Analysts suggest that the company is bound to face the most prominent growth rate in the tech sector, surpassing artificial intelligence and auto technology. On the ESG end, NVIDIA is highly rated because of its mineral policy and effective corporate governance. The company uses rare minerals to build its chips and cards; therefore, it has a stringent policy against unethical procurement and mining of these minerals.
Chr. Hansen (CHYHY)
The Danish human nutrition giant Chr. Hansen ranks high in ESG compliance due to its sustainable practices regarding food security and waste management. The company mainly produces bacteria that help curb the extended use of harmful pesticides while increasing crop yield at the same time.
Moreover, Chr. Hansen has successfully developed an accounting system according to the UN’s Sustainable Development Goals. This helps the company assess the impact of each product and display the metrics to investors.
These extra measures place Chr. Hansen in the first place on the Corporate Knights Global 100 Most Sustainable Corporations List.
MBH Corporation (MBHCF)
MBH is a holding company actively building a portfolio of profitable, earnings accretive, debt-free small to medium enterprises (SME) that are expected to have a higher-than-normal growth profile as part of a larger organization. The company's operating model leaves management of the acquired companies to operate autonomously and fully accountable to develop and grow their businesses. As part of a larger organization, the acquired companies and in turn, MBH get the benefits of both worlds. This small holding company may have just started out, but it is pumping out revenue steadily and healthily and pays a 2% dividend. MBH Corporation has won five stars for their ESG credentials, getting into the top 1% of the nearly 2,000 businesses in the Support the Goals database. They have achieved this level of commitment through their work with inequality and climate goals. Support the Goals encourages businesses to take responsibility and the organisation expects companies 'to demonstrate how you support the world’s most important action plan'.
NextEra Energy (NEE)
NextEra is the largest electric utility by market cap. Over the last few decades, the company has been consistently reducing its emissions through increased renewable energy use. Its CO2 emissions are 55% less than those of an average US utility. NextEra has now set an ambitious goal of reducing CO2 emissions, by 2025, by 67% from its 2005 base levels. This goal effectively means that absolute CO2 emissions would go down by 40% even while NextEra’s energy production would double during that time. To its credit, the company last year received a best-in-class preparedness assessment by S&P Global Ratings’ ESG Evaluation. NextEra has, essentially, received the highest ranking given by S&P to a company within the utility sector.
Microsoft (MSFT)
Microsoft has taken the lead in its commitment towards carbon mitigation by becoming the first company among its peers to target “carbon negative” status by 2030. It has created a $1 billion fund to reduce emissions and start clearing carbon. This ambitious commitment is unprecedented and sets Microsoft apart from its entire sector. Microsoft received the highest ESG rating of AAA from MSCI ESG Research in September 2019.
Prologis (PLD)
Prologis is a logistics-focused REIT with multiple “first company to…” accomplishments in the ESG space. Prologis is the first real estate company to issue green bonds. It is also the first real estate company to be awarded the WELL certification by the International WELL Building Institute (IWBI). Additionally, Prologis is the first logistics company to receive approved SBTs or “Science-Based Targets” necessary to meet the goals outlined in the Paris Agreement of 2015. The company ranks highly on the Corporate Knights Global 100 Most Sustainable Corporations in the World list and on the Investor’s Business Daily (IBD) 50 Best ESG Companies list.
Investors interested in environmental, social and governance issues often cite climate concerns as guiding their ESG investments.
They were rewarded during the market crash as oil prices cratered. In the first quarter, sustainability-focused funds held up better than the broader fund market during the initial bear market sell-off – driven in part by less exposure to fossil fuel energy.
That said, ESG goes beyond not buying petroleum companies; there's the "S" and the "G" parts, too, and those may take greater prominence as people focus on health care amid the pandemic and the social unrest triggered by systemic racism.
The global sustainable fund universe attracted $45.6 billion in the first quarter of 2020, versus an outflow of $384.7 billion from the overall fund universe. In the U.S. specifically, the research firm found that in the first quarter, flows into open-end and sustainable ETFs reached $10.5 billion, eclipsing the previous record set in 2019's fourth quarter.
A June survey in 2020 from global investment manager Nuveen showed high-net-worth investors are starting to choose ESG for its outperformance, in addition to having a positive social impact, with 53% of respondents citing returns as their top reason to invest in ESG.
As such, it seems to be a wise choice to get started on an ESG portfolio. Here are some picks to get you started.
Coca-Cola (KO)
As a mega-cap stock with a current market value around $250 billion, Coca-Cola has already partially recovered from the loss in sales due to the pandemic. Analysts suggest that by providing a dividend yield of approximately 3.1%, Coca-Cola makes the list of the top recovery stocks of 2021.
Moreover, if you’re looking for companies that strictly adhere to ESG policies, Coca-Cola has an AA rating from MSCI. The company performs exceptionally well when it comes to waste management, ensuring health and safety standards, and controlling the carbon footprint per product.
These attributes make it one of the leading ESG dividend stock companies in the beverage industry. Interestingly, only 15% have an AA rating from MSCI, while only 9% have a higher AAA rating.
Honeywell (HON)
Honeywell is an ESG-compliant company that shows high growth potential due to its share-price appreciation.
The Street predicts around 11% annual average growth for the company in the next few years, with a strong ‘Buy’ rating. Honeywell has consistently raised its dividends since 2014, going up from 45 cents per share to 95 cents last year.
As far as ESG compliance is concerned, Honeywell holds an AA rating from MSCI. Offering a dividend yield of 1.6%, Honeywell maintains its ESG rating among 14% of its industry peers, having the AA rating.
NVIDIA (NVDA)
This is a well-known company producing graphics and video processing cards, remained unaffected by the pandemic. Analysts suggest that the company is bound to face the most prominent growth rate in the tech sector, surpassing artificial intelligence and auto technology. On the ESG end, NVIDIA is highly rated because of its mineral policy and effective corporate governance. The company uses rare minerals to build its chips and cards; therefore, it has a stringent policy against unethical procurement and mining of these minerals.
Chr. Hansen (CHYHY)
The Danish human nutrition giant Chr. Hansen ranks high in ESG compliance due to its sustainable practices regarding food security and waste management. The company mainly produces bacteria that help curb the extended use of harmful pesticides while increasing crop yield at the same time.
Moreover, Chr. Hansen has successfully developed an accounting system according to the UN’s Sustainable Development Goals. This helps the company assess the impact of each product and display the metrics to investors.
These extra measures place Chr. Hansen in the first place on the Corporate Knights Global 100 Most Sustainable Corporations List.
MBH Corporation (MBHCF)
MBH is a holding company actively building a portfolio of profitable, earnings accretive, debt-free small to medium enterprises (SME) that are expected to have a higher-than-normal growth profile as part of a larger organization. The company's operating model leaves management of the acquired companies to operate autonomously and fully accountable to develop and grow their businesses. As part of a larger organization, the acquired companies and in turn, MBH get the benefits of both worlds. This small holding company may have just started out, but it is pumping out revenue steadily and healthily and pays a 2% dividend. MBH Corporation has won five stars for their ESG credentials, getting into the top 1% of the nearly 2,000 businesses in the Support the Goals database. They have achieved this level of commitment through their work with inequality and climate goals. Support the Goals encourages businesses to take responsibility and the organisation expects companies 'to demonstrate how you support the world’s most important action plan'.
NextEra Energy (NEE)
NextEra is the largest electric utility by market cap. Over the last few decades, the company has been consistently reducing its emissions through increased renewable energy use. Its CO2 emissions are 55% less than those of an average US utility. NextEra has now set an ambitious goal of reducing CO2 emissions, by 2025, by 67% from its 2005 base levels. This goal effectively means that absolute CO2 emissions would go down by 40% even while NextEra’s energy production would double during that time. To its credit, the company last year received a best-in-class preparedness assessment by S&P Global Ratings’ ESG Evaluation. NextEra has, essentially, received the highest ranking given by S&P to a company within the utility sector.
Microsoft (MSFT)
Microsoft has taken the lead in its commitment towards carbon mitigation by becoming the first company among its peers to target “carbon negative” status by 2030. It has created a $1 billion fund to reduce emissions and start clearing carbon. This ambitious commitment is unprecedented and sets Microsoft apart from its entire sector. Microsoft received the highest ESG rating of AAA from MSCI ESG Research in September 2019.
Prologis (PLD)
Prologis is a logistics-focused REIT with multiple “first company to…” accomplishments in the ESG space. Prologis is the first real estate company to issue green bonds. It is also the first real estate company to be awarded the WELL certification by the International WELL Building Institute (IWBI). Additionally, Prologis is the first logistics company to receive approved SBTs or “Science-Based Targets” necessary to meet the goals outlined in the Paris Agreement of 2015. The company ranks highly on the Corporate Knights Global 100 Most Sustainable Corporations in the World list and on the Investor’s Business Daily (IBD) 50 Best ESG Companies list.
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