Top 10 ESG Stocks to Watch [2023]

Key highlights:

• ESG investing has become increasingly popular in recent years, with many investors recognising the potential for strong financial returns as well as the opportunity to make a positive impact on important societal and environmental issues.
• ESG factors can provide valuable insights into the long-term prospects of a company, as they often reflect the company's management quality, financial strength, and overall level of risk.
• Finding ESG stocks is not just about avoiding "sin" stocks - such as tobacco and weapons manufacturers - but also about identifying companies that are leaders in their industries in terms of sustainability and responsible business practices. This can provide investors with a diversified and well-rounded portfolio that aligns with their values.

ESG (environmental, social, and governance) factors are becoming increasingly important for investors and companies for several reasons. For investors, ESG factors can provide valuable insights into a company's sustainability and ethical performance, which can impact its financial performance and risk profile. ESG analysis can also help investors align their investments with their values and support companies that are making positive contributions to the environment and society.

💡Related: Are these the best ASX ethical ETFs?→

What does ESG stand for?

ESG stands for Environmental, Social, and Governance. ESG factors refer to the three key categories that investors and analysts consider when evaluating the sustainability and ethical impact of a company.

Environmental factors include a company's impact on the natural environment, such as its greenhouse gas emissions, waste and water management, and use of renewable energy.

Social factors refer to a company's impact on society, such as its labour practices, supply chain management, and community involvement.

Governance factors relate to a company's leadership, executive pay, and other corporate governance practices.

ESG analysis is a growing area of interest in the investment world, as more and more investors are seeking to align their investments with their values and support companies that are making positive contributions to the environment and society.

Top 10 ESG stocks to watch

Data as of 18 May 2023.

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What are MSCI ESG ratings?

MSCI ESG ratings are ratings provided by MSCI, a leading provider of research-based indexes and analytics, that measure the sustainability and ethical performance of companies. MSCI's ESG ratings are based on a comprehensive and transparent methodology that assesses a company's exposure to ESG risks and its ability to manage those risks.

The ratings range from AAA (highest) to CCC (lowest) and provide investors with a forward-looking and independent assessment of a company's ESG performance. MSCI's ESG ratings are widely used by investors as a tool for evaluating and comparing the sustainability and ethical performance of companies, and for integrating ESG considerations into their investment decisions.

Discover the top ESG stocks to watch

1. NVIDIA Corporation ($NVDA)

MSCI ESG Rating: AAA

Market Capitalisation: $783.44b

Stock price (as of 18/05/23): $316.78

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 30% / 70%

Nvidia is a technology company that designs and manufactures graphics processing units (GPUs) and other technology for the gaming, professional visualisation, and data centre markets. They are working on making their products more efficient, to reduce their energy requirements. By 2025 their carbon footprint should be zero.

2. Microsoft Corporation ($MSFT)

MSCI ESG Rating: AAA

Market Capitalisation: $2.37t 

Stock price (as of 18/05/23): $318.52

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 42% / 58%

Microsoft is a technology company that develops and sells a wide range of products and services related to computing, including personal computers, gaming consoles, operating systems, and other software and services. Its ESG rating has been rated AAA for more than four years in a row.

3. Xylem Inc. ($XYL)

MSCI ESG Rating: AAA

Market Capitalisation: $18.86b

Stock price (as of 18/05/23): $104.43

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 66% / 34%

Xylem is a water technology provider that operates in various settings, including public utilities, residential, commercial, agricultural, and industrial. The company is based in the United States and has operations in over 150 countries. It is one of the few industrial machinery companies that have an AAA ESG rating.

4. Texas Instruments Incorporated ($TXN)

MSCI ESG Rating: AAA

Market Capitalisation: $154.13b

Stock price (as of 18/05/23): $169.81

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 32% / 68%

Texas Instruments is a technology company that designs and manufactures a wide range of electronic products and components, including microcontrollers, analog and digital signal processing chips, and calculators. It is one of the leading semiconductor companies regarding ESG factors, receiving an AAA rating in 2021.

5. Merck & Co. Inc. ($MRK)

MSCI ESG Rating: AAA

Market Capitalisation: $289.27b

Stock price (as of 18/05/23): $114.00

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 21% / 79%

Merck develops, manufactures, and markets a broad range of prescription medicines and over-the-counter drugs, vaccines, and animal health products. Their portfolio covers the areas of oncology, infectious diseases, respiratory, and immunology. They use their expertise to operate the Merck Medical Outreach Program, through which they donate pharmaceuticals and vaccines for humanitarian assistance in emerging economies and disaster relief efforts worldwide.

6. J.B. Hunt Transport Services, Inc ($JBHT)

MSCI ESG Rating: AA

Market Capitalisation: $17.69b

Stock price (as of 18/05/23): $170.69

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 97% / 3%

J.B. Hunt Transport Services, Inc. is a transportation and logistics company based in the United States. The company provides a range of transportation and logistics services, including trucking, intermodal, and last-mile delivery services. It aims to zero its carbon footprint by 2025.

7. Visa, Inc. ($V)

MSCI ESG Rating: AA

Market Capitalisation: $478.68b

Stock price (as of 18/05/23): $233.60

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 28% / 72%

Visa is a multinational financial firms known for its credit and debit cards. They are primarily involved in payments and are committed to enabling small businesses enter the digital economy. Visa is also focused on reducing fraud and enhancing security for their customers. Their operations use 100% renewable electricity.

8. Gildan Activewear Inc. ($GIL)

MSCI ESG Rating: AA

Market Capitalisation: $5.26b

Stock price (as of 18/05/23): $29.45

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 8% / 92%

Gildan Activewear Inc. is a Canadian clothing company that designs, manufactures, and sells a range of apparel products, including t-shirts, sweatshirts, and other items. The company's products are primarily targeted at the wholesale and printwear markets, and are sold to various customers around the world, including screen printers, distributors, and retailers. It is one of the few luxury brands with a good ESG rating.

9. STMicroelectronics N.V. ($STM)

MSCI ESG Rating: AA

Market Capitalisation: $41.00b

Stock price (as of 18/05/23): $25.91

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 31% / 69%

STMicroelectronics is a multinational electronics and semiconductor company that designs, manufactures, and sells a range of products, including integrated circuits, discrete devices, and microsystems. The company's products are used in a variety of applications, including automotive, industrial, and consumer electronics. By 2030 they should have zeroed their carbon footprint.

10. First Solar, Inc. ($FSLR)

MSCI ESG Rating: AA

Market Capitalisation: $22.04b

Stock price (as of 18/05/23): $206.28

Stake Platform Bought / Sold (1 Jan 2023 - 18 May 2023): 44% / 66%

First Solar provides solutions for those looking for larger solar scale power sources, including support services like financing, maintenace and recycling. Their solar panel manufacturing takes places in the U.S. and they are working on to reduce matterials required in the process. They aim to powr 100% of their global manufacturing operations with renewables by 2028 and have a Net Zero goal for 2050.

ESG Stocks FAQs

What does ESG investing mean?

ESG investing, also known as sustainable investing, refers to the practice of considering environmental, social, and governance (ESG) factors in investment decisions. This approach to investing aims to align an investor's values with their investments, and to support companies that are making positive contributions to the environment and society.

ESG investing has gained popularity in recent years, as more and more investors seek to integrate sustainability and ethical considerations into their investment strategy. ESG investing can take many forms, including investing in companies that are leaders in their industry in terms of ESG performance, or avoiding companies that have poor ESG records. ESG investing can also involve actively engaging with companies to encourage them to improve their ESG performance.

Are ESG companies good investments?

Whether or not a company is a good investment depends on a variety of factors, including its financial performance, market conditions, and the investor's individual goals and risk tolerance. Some studies have shown that companies with strong ESG performance tend to have better financial performance and lower volatility, which can make them attractive to investors. 

However, ESG performance is just one of many factors that investors should consider when evaluating a potential investment, and there is no guarantee that a company with strong ESG performance will necessarily be a good investment. It is important for investors to conduct thorough stock research and analysis before making any investment decisions.

Considering ongoing accusations of 'greenwashing', companies also need to be clear about following through with their ESG plans. Those which have not been able to verify their claims have come under scrutiny. Achieving goals within the expected timeframe and adequately tracking all their activities reflects good general business practices.

What are the best ESG ETFs to invest in?

There are a number of ETFs that focus on companies with ESG credentials. They tend to follow indices that screen for specific or multiple ESG factors. Some ESG ETFs popualr amongst Stake customers are listed below.

1. iShares ESG Aware MSCI EM ETF ($ESGE)
2. Vanguard ESG US Stock ETF ($ESGV)
3. Xtrackers MSCI USA ESG Leaders Eq ETF ($USSG)
4. iShares ESG Aware MSCI USA ETF ($ESGU)

This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial or taxation advice before investing.