Best Sustainable Companies To Own: 2022 Edition
We believe these companies strong ESG management practices give them a long-term advantage.
Editor’s NoteA previous version of this article appeared on Aug. 11, 2022.
Companies with wide moats are difficult to compete with. And this advantage is especially appealing when paired with solid management of environmental, social, and governance risk.
In other words, durability and sustainability, or what’s called ESG, are natural partners. ESG keeps a close eye on long-term risks that aren’t articulated by traditional finance.
All companies faces some sustainability risk, not least because of the industries in which they operate. For example, an oil and gas company will be highly exposed to potential environmental problems, while a consumer technology business will be exposed to social risks like data privacy violations.
Indeed, Morningstar research finds that the biggest ESG risk is in energy and utilities, with the smallest in technology and real estate.
A companys approach to sustainability demonstrates how it anticipates and addresses these long-term risks. Companies that mishandle ESG issues could incur significant economic costs that jeopardize their ability to earn long-term, sustainable profits.
In the table below, we refined our Best Companies to Own in 2022 list to highlight the ones with Morningstar ESG Risk Rating Assessments of Negligible or Low. This rating is based on the ESG Risk Rating.
Here are the 53 companies that made the cut, ranked by the risk score.
Why Is It Important For Companies To Use Sustainable Practices
Until Elon Musk gets us interplanetary space travel we only have this one home. And the resources on this planet are not all abundant. Companies use large amounts of these resources so they can have significant impacts on our planet. Additionally, consumers are starting to vote with their wallets. Meaning, well purchase from companies making significant efforts to be eco friendly.
The younger generation is realizing they are inheriting a world thats been abused, and the only path forward is to take care of our planet. Theyll do this by buying from sustainable companies. And the companies that dont have sustainable practices will get left behind.
So without further adieu, below is a list of the best eco friendly companies to invest in or purchase from.
Whats Investing In Green Energy All About
Investing in green energy is about putting your money into companies using energy generated from natural sources. Governments worldwide are trying to pass legislation to increase the resources invested in renewable energy sources to rely less on fossil fuels.
Renewable energy sources that are low impact or naturally replenished like wind, solar and water are better for the environment, they dont emit greenhouse gasses. As the demand for renewable energy sources increase, many companies want to go green.
According to data from Allied Market Research. the global renewable energy market was worth $881.7 billion in 2020, and its expected to reach almost $2 trillion by 2030. The research also mentions that all renewable energy sources combined currently provide 7% of global energy demand.
Investing in green energy stocks allows you to put money towards companies focused on renewable energy sources, which many feel is the future of energy, period. At least the future of energy sector growth.
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Plug Power Industry Leading Green Fuel Cell And Hydrogen Developer
Plug Power offers turnkey hydrogen fuel cell solutions. Specifically, the company focuses on fuel cell processing and proton exchange membrane technology. Plug Power also provides green hydrogen generating, storage, and dispensing infrastructure, along with battery hybrid technology.
The company develops complete clean hydrogen and zero-emission fuel cell solutions for supply chain and logistics. This includes on-road electric cars, the stationary power sector, and other uses. Essentially, the company produces and markets fuel cell devices that may take the place of batteries and diesel generators in fixed backup power applications.
Products and services provided by Power Plug target the North American and European material handling markets. Renewable energy sources like wind and solar power can be used to create hydrogen. By 2024, Plug Power expects to use more than 80 tons of hydrogen, and it has also committed to achieving a 50% green content.
Based on its price at the time of writing, in the past five years, Plug Power stock has increased by over 1,170%.
ESG rating according to MSCI: A
78% of retail investor accounts lose money when trading CFDs with this provider.
What Sustainable Companies Should I Invest In
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Wrapping Up Eco Friendly Companies
Some of the aforementioned are great companies to buy from for your everyday products. Others like Microsoft and Tesla might be good investments to add to your portfolio. As customers and consumers, we need to support the companies that are doing right by us and the planet. I strongly encourage you to use the power of your money to reward companies willing to strive for zero waste.
If youre new to the investing world and would like to invest in some of these eco friendly companies, Webull has a great promotion that will give you 3 FREE stocks for signing up and funding your account. Check it out ->
The Companies That Stand Out To Fund Managers
There are no perfect companies in ESG funds, either. Fund managers think of them as leaders and laggards, with plenty of space in the middle. Investors who are conscious about the environment will likely find their best choices in leaders who are making environmental gains beyond most of their peers but still have flaws.
Behar, the CEO of As You Sow, gave Kelloggs as an example of a leader on the food supply chain. Like most companies, it used wheat and oat crops that had been treated with the herbicide glyphosate, a known carcinogen. After being pressured by lawsuits and activists that included As You Sow, Kelloggs made a plan in 2020 to phase out glyphosate by 2025. Companies like General Mills and PepsiCo have also recently made regenerative agriculture plans.
A company like Kelloggs is being a leader. General Mills is also being a leader, Behar said. And now the whole industry has to follow because of competitive pressure.
Courtines highlights Michelin, the tire company. Thats a tough industry to be in, she said, but they are very, very responsible owners of managing the rubber supply chain and in helping build the tires that are going to be the best tires for electric vehicles that will help reduce carbon footprint on the roads in the future.
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Why Invest To Electric Car Revolution
Investing in the electric vehicle industry is one of the most certain investments. The electric car market share will only grow. Plans for the future are to make battery-powered vehicles the main means of transport.
Countries all over the world made strategies for reducing carbon use. Fossil fuel cars will be replaced with electric cars soon. All these are signs that the electric car revolution is a great investment.
As we mentioned, there are so many ways to invest in this car revolution. There are not only cars but many other aspects that need investment. And all of them are highly profitable.
Four Types Of Esg Strategies For Investors
They focus on the production of electric vehicles. In this way, it helps reduce the overall level of greenhouse gas production in the world
At the top of our list of the top 10 sustainable companies to invest in is Brookfield Renewable Partners, one of the worlds leading renewable energy investors.
In 2021, the company reported a record third quarter revenue of $34 billion. As they said their goal is to double the size of the company in the next five years, the future looks bright for the company and the investors.
That concludes our article on what we think are the top ten sustainable companies to invest in. Note that this is not financial advice.
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Msci Esg Universal Indices
The MSCI ESG Universal indices are characterised by low cost and broad market coverage. These benefits result from a fairly straightforward ESG-scanning method. By default, the MSCI ESG Universal indices exclude only companies found to be in violation of international norms as defined by the UN Global Compact and companies involved in controversial weapons. Some sub-indices add further controversial sectors to this spectrum. The MSCI ESG Universal indices enhance exposure to companies which feature both a high ESG Rating and a positive ESG trend over the most recent 12 months by increasing the weight of these companies. By contrast, the weightings of companies who lag behind their industry peers in terms of ESG quality are reduced.
Methodology of the MSCI ESG Universal indicesFactsheetMethodology
- based on their respective regional parent index
- weighted by ESG-criteria: over-weight companies with high ESG Ratings
- ESG-related improvements by companies are taken into account
- exclusion of companies that fail to comply with the UN Global Compact or that are involved in controversial weapons
- some sub-indices feature additional exclusions
European sub-indices of the MSCI ESG Universal
Create New Job Opportunities
Creating new job opportunities after the pandemic is the way to go! Green companies are offering new job opportunities that were not available before. The best thing with such companies is that they encourage jobs in the local communities.
Solar plants employ people in the community, and we also have installers in the communities. If you want to create job opportunities in the community, it is advisable to invest in green energy companies in your community.
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Msci Climate Change Esg Select Indices
The MSCI Climate Change ESG Select indices evaluate and weight companies from the respective parent index by their impact on climate change. Companies are assessed according to their carbon emissions and climate-friendly companies are given greater weighting in the index. An additional ESG filter excludes companies that are involved in controversial weapons, tobacco, thermal coal, unconventional oil and gas production or nuclear power or that violate the standards of the UN Global Compact.
Methodology of the MSCI Climate Change ESG Select indicesFactsheetMethodology
- based on their respective regional parent index
- titles are weighted according to their impact on climate change: climate-friendly companies are given a greater weight
- index is reviewed semi-annually
- excluded sectors and companies: controversial weapons, tobacco, thermal coal, unconventional oil and gas production, nuclear power, non-compliance with UN Global Compact
European sub-indices of the MSCI Climate Change ESG Select
How Do You Invest In Sustainable Companies
If youre someone who wants to put your money toward the causes you care about and grow your wealth over time, look no further than sustainable investing.
Choosing companies to invest in that align with your values is an incredibly personal and unique process. Our value systems are varied and complex, and undoubtedly no two are the same. Thankfully, investing apps like Public make it easy to research companies, their performance, and their industry.
Picking the sustainable stocks you wish to invest in is essentially no different than choosing any other, there is just an added layer of research involved.
To help make browsing stocks easier and more user-friendly, Public organizes public stocks and ETFs within Themes. That way, you can search for the brands under the umbrella of causes or business operations that you want to support most. Want to find companies with female CEOs? Search Women in Charge. You can also browse by themes like Combat Carbon for environmentally-friendly companies, or take a look at companies based in the USA who do all of their manufacturing in the States.
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Ormat Supplier Of Clean Geothermal Energy Technology
Globally, Ormat has designed, built, and installed power plants with a combined gross geothermal capacity of around 3,200 MW. This is one of the more popular clean energy stocks to watch in 2022, as the activities of Ormat are expanding into a range of renewable projects.
This includes solar PV and energy storage services. The companys purchase of power portfolio stands at around 1.2 GW. The US, Guadeloupe, Kenya, Guatemala, Honduras, and Indonesia are just a few countries where Ormats products are sold.
Additionally, it owns an 88 MW portfolio of energy storage in the US alone. Moreover, the opening of Casa Diablo IV, a 30 MW geothermal plant that is set to service many Californian regions, was announced in mid-2022.
In the past five years of trading, this renewable energy stock has increased in value by almost 68%.
ESG rating according to MSCI: N/A Not disclosed
78% of retail investor accounts lose money when trading CFDs with this provider.
Sustainable Companies Can Still Have Controversies
Clearly, a spot on this list doesnt mean that a companys sustainability efforts are flawless.
For example, in 2021, several shareholders called for Berkshire Hathaway BRK.A to publish an annual assessment of how it manages climate risks and handles diversity and inclusion efforts. CEO Warren Buffett and Berkshires directors recommended against it, saying that its subsidiaries are already making sound climate-related decisions and that its decentralized businesses are individually responsible for their own diversity initiatives. And indeed, the resolution ultimately did not pass.
That said, Berkshires energy division has a Morningstar Portfolio Carbon Risk Score that places it in the High category. Coal and natural gas generation accounted for 33% and 30%, respectively, of 2020 owned power generation.
Even so, Berkshire holds a spot in our catalog of sustainable companies because it is on the right track to transition the bulk of its power generation to renewable and noncarbon sources by 2050. As Morningstar sector strategist Greggory Warren observes, While has not declared a net-zero emissions target, it has already seen a nearly 40% decline in carbon emissions over the past 15 years, with management recently noting that it will have reduced emissions 50% below 2005 levels by 2030.
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Ethical Investment Vs Sustainable Investment
Although sustainability is classed as an ethical issue, there are some differences between an ethical investment and a sustainable investment.
Ethical investment involves choosing stocks, shares and other assets based on moral principles. Therefore, each investment decision should consciously align with investors ethical beliefs. Ethical investment is also known as socially responsible or conscious investment. An ethical investor should avoid âsinâ stocks such as companies that profit from cigarette smoking and alcohol production, and instead look for companies that follow strict ethical guidelines.
Sustainable investment, however, involves choosing stocks and shares or other assets based on their ability to have a long-term positive societal impact. One example is investing in water stocksâ of companies that deal with water waste management. Sustainable investments can refer to companies that want to solve the worldâs challenges and create a more sustainable future. Although, it could also refer to blue-chip companiesââ with sustainable initiatives that exceed their competitors.
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Starbucks Stores Go Green
This company embraces principles of environmental sustainability across the board. The company not only purchases Fair Trade Certified and Certified organic coffee but also focuses on achieving LED certifications for its new outlets. By creating ‘green’ stores, the company is able to reduce operating costs as well as minimize the impact of business practices on the environment. In addition, the company has a green building strategy that includes adjusting temperatures for its air-conditioned stores from the standard that is 72o to 75o F and purchasing cabinetry that is made using 90% post industrial materials while incorporating low-flow water valves.
Sustainable Companies Will Continue To Be Sustainable
Remember, this list is about long-term sustainabilitynot valuations. For guidance in that area, you can look to the Morningstar US Sustainability Moat Focus Index.
From that perspective, not all the names on this catalog of low-ESG-risk companies with wide moat ratings can be considered a buy at the moment. Still, for investors interested in managing long-term ESG risks, theyre worth keeping a close eye on.
This article is based on the 2022 edition of Morningstars Best Companies to Own. Find the full list of companies and read about our selection methodology.
Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. Please click here for a list of investable products that track or have tracked a Morningstar index. Morningstar, Inc. does not market, sell, or make any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.
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