Historically, evaluating investments focused solely on financial returns. However, with the 2015 Paris Climate Agreement and the growing significance of climate change, the concept of "triple bottom line" or financial, environmental, and social impact has been gaining traction. This push to look at investment decisions more holistically has given rise to ESG (Environmental, Social, and Governance) practices and policy.
ESG measures the societal and sustainability impact of every business activity. Investors are now looking to responsibly invest in companies that manage their impact on the environment and society at large. To serve this need of investors, ESG rating agencies measure the ESG performance of various companies and compare them through ratings and rankings.
Learn how industry leaders like Microsoft, Prologis, and NextEra Energy consistently rank at the top of ESG rating lists.
Sustainable and Responsible Investing has exponentially grown in the United States, and will become even more relevant in a post-COVID world. Source: US SIF
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.
NVIDIA is well-known for making graphic cards and also for supplying chips to cryptocurrency miners. Minerals are something that NVIDIA uses extensively for its chips and cards; thus, NVIDIA is closely linked to environmental and social issues related to mining.
NVIDIA is a highly-rated ESG company because it has a stringent policy regarding conflict minerals. The company has specific due diligence procedures to ensure that it never uses conflict minerals in its products. The company is also big on the governance aspect as it trains nearly 100% of its customer/supplier/partner-facing workforce for anti-corruption and anti-bribery.
Chr. Hansen (CHR.DK)
Chr. Hansen is a Danish bioscience company that operates in the human nutrition space. It specializes in producing bacteria that reduce pesticide usage, increase crop yield, and curb food wastage. From a sustainability standpoint, improving food security and reducing waste are essential milestones. Therefore, the company's business model is inherently ESG-friendly.
The company has also developed a unique accounting system that measures the impact of its products against the UN's Sustainable Development Goals. No wonder Chr. Hansen is the number one ranked company on the Corporate Knights Global 100 Most Sustainable Corporations in the World list
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.
Excerpt from Microsoft’s Q1 2020 Earnings Call Transcript: In closing, we are expanding our opportunity across all our businesses. Along with this opportunity, we recognize the responsibility we have to ensure the technology we build is always inclusive, trusted and is creating more sustainable world. Our customers see this urgent need and are looking to us in partnership with them to take action. That's why we announced an ambitious new sustainability commitment. Microsoft will be carbon negative by 2030. And by 2050, we will remove all the carbon we have emitted since the company was founded in 1975. And our $1 billion Climate Innovation Fund will accelerate the development of carbon reduction and removal technologies. We will continue to innovate alongside customers with profitable, sustainable solutions that expand our opportunity.
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.
Emcor Group (EME)
Emcor is a construction and infrastructure company. It is a highly-rated ESG company because it pursues all the components, namely the E, the S, and the G. The company implements its green energy solutions in multiple areas of its operations. On the social aspect, the company is engaged in eliminating the gender pay gap and removing exploitation from its global supply chain. On the governance front, the company has given unprecedented encouragement to its employees to flag any ethics breaches. Emcor stands out as an excellent all-round ESG-compliant business.
Brookfield Renewable Partners (BEP)
Brookfield is the largest renewable asset manager in the world. It operates a staggering 18.9 GW of hydroelectric, wind, and solar assets across North America, South America, Europe, and Asia. Brookfield Renewable Partners is a yieldco and offers steady dividend payments to investors. The use of renewable and hydro energy significantly contributes to the global climate goal of limiting the temperature rise to 2 degrees Celsius. Brookfield Renewable Partners is considered as an excellent investment to decarbonize a portfolio.
Salesforce has some important goal-based ESG initiatives in place--it has committed 1 million employee hours to the UN's Sustainable Development Goals.
Salesforce has also joined the UN Global Compact, a platform for companies to align with responsible business practices. Plus, the company recently launched Salesforce Sustainability Cloud, a system that helps businesses track, analyze, and report vital environmental information.
These actions can ultimately help in the overall reduction of carbon emissions. In early 2020, the company launched 1t.org, an initiative to connect, empower, and mobilize global restoration of 100 million trees.
This UK-based pharmaceutical giant has some giant ESG initiatives. It has made a total of 13 commitments that contribute to various UN Sustainable Development Goals. The company aims to reduce its environmental impact by 25% by 2030.
On the social front, the company aims to reach 800 million underserved people by 2025. On the governance front, GSK is working towards greater female representation in senior roles and LGBT advancement. All of the company's goals and the progress towards those goals are published in an annual summary report.
Home Depot (HD)
As the largest home improvement retailer in the US, Home Depot tends to deal with multiple wood-based products. However, the company has a strict sourcing policy that prevents the purchase of conflict minerals and exploits the natural resources of developing countries. Home Depot also plans to reduce its emissions by 40% by 2030 and 50% by 2035. Another big goal is to help Home Depot consumers reduce their water consumption by 250 billion gallons. There are a total of seven focus areas on which the company is working to become a sustainable and responsible enterprise.