The best ESG stocks are financially strong companies that aim to do well for shareholders while doing good for the world. ESG -- short for environmental, social, and governance -- refers to businesses that prioritize issues like sustainability, worker treatment, and ethical leadership.
These priorities matter because many global challenges, from climate change to workplace equity, can’t be solved by governments alone. Companies play a major role.
Strong ESG companies back up their commitments with measurable actions and solid financial performance. ESG ratings from firms like MSCI and Sustainalytics help investors evaluate them.
The goal isn’t to sacrifice returns for values. Many ESG investors seek both, supporting responsible business practices while earning competitive long-term returns.
Top ESG stocks to consider
The 10 stocks in the table below deliver in two ways:
- All have top MSCI ESG ratings.
- All have outperformed the S&P 500 on a total return basis over the last decade.
Based on historical performance and strong business models, these stocks should continue to perform well for long-term investing as part of an ESG strategy.
Rank | Name and Ticker | Industry | MSCI ESG Rating | Market Cap (billions) |
|---|---|---|---|---|
1 | Nvidia (NASDAQ:NVDA) | Semiconductors | AAA | $4,521 |
2 | Intuit (NASDAQ:INTU) | Software application | AAA | $122.6 |
3 | Idexx Laboratories (NASDAQ:IDXX) | Diagnostics and research | AAA | $48 |
4 | Lam Research (NASDAQ:LRCX) | Semiconductor equipment and materials | AAA | $274.9 |
5 | Xylem (NYSE:XYL | Water infrastructure | AAA | $29.8 |
6 | Adobe (NASDAQ:ADBE) | Software and infrastructure | AAA | $112.4 |
7 | Microsoft (NASDAQ:MSFT) | Software and infrastructure | AAA | $3,009 |
8 | Pool (NASDAQ:POOL) | Leisure | AA | $9.16 |
9 | Salesforce (NYSE:CRM) | Software application | AA | $181.9 |
10 | Cadence Design Systems (NASDAQ:CDNS) | Software application | AA | $81.2 |
MSCI evaluates companies by their exposure to, and management of, material ESG risks in their industry. The scale ranges from AAA to CCC, and the leading ESG companies in each industry receive an AAA or AA ranking.
1. Nvidia
NASDAQ: NVDA
Key Data Points
2. Intuit
3. Idexx Laboratories
NASDAQ: IDXX
Key Data Points
4. Lam Research
NASDAQ: LRCX
Key Data Points
5. Xylem
6. Adobe
NASDAQ: ADBE
Key Data Points
7. Microsoft
NASDAQ: MSFT
Key Data Points
8. Pool Corporation
9. Salesforce
NYSE: CRM
Key Data Points
10. Cadence Design Systems
NASDAQ: CDNS
Key Data Points
Types of ESG stocks
As the name implies, ESG stocks span multiple categories, including environment, social, and governance. Let's review the basic types of ESG stocks.
- Environmental: Environmental ESG stocks typically have a focus on renewable energy or sustainability. In recent years, tech companies and others have pledged to go net-zero energy consumption, though those goals may be complicated by AI.
- Social: Social ESG stocks are often focused on DEI (diversity, equity, inclusion), ensuring, for example, that the board of directors has adequate representation of women and people of color, and that pay is equal across genders and racial groups.
- Governance: Governance ESG stocks are those that have received recognition for accountability, an independent board of directors, transparent financial reporting, and executive compensation linked to long-term sustainable performance.
Beyond those categories, investors can also target stocks that are strong in specific issues like solar energy, clean water, or gender equality.
Key factors to consider when choosing ESG stocks
Investing in ESG stocks is a bit different from other sectors. Investors typically choose stocks for financial reasons. If that explains why you're considering ESG stocks, then it makes sense to look into factors like revenue growth, profitability, and dividend yield, depending on your priorities as an investor.
However, if your priority is ESG, that puts you in a unique position among investors.
You'll want to decide which is the important component of ESG for you. If it's renewable energy, you'll want to prioritize companies that are energy-neutral or focused on renewables.
If the social mission, you may want to invest in companies with diversified boards and that are making efforts to support their local communities.
Governance may be harder to assess, but it's worth considering whether a company has stayed out of its regulatory trouble, how much voting power insiders have, and if its board of directors is independent from management.
Based on other ESG issues that are important to you, you may want to consider other factors, such as whether the company is a good employer.
Benefits and risks of investing in ESG stocks
ESG stocks don't align with a specific stock market sector, so the benefits and risks aren't as straightforward as they are with sectors. However, they still exist.
Benefits of investing in ESG stocks:
- Businesses aligned with sustainability, good governance and social progress tend to be viewed more favorably by customers and investors.
- Following ESG guidelines can help companies stay out of regulatory trouble.
- There isn't clear evidence that ESG stocks outperform the market, but they do benefit from drawing in a certain subset of investors.
Risks of investing in ESG stocks:
- Companies might sometimes focus on ESG goals, but lose sight of what's best for the business. Target, for example, flip-flopped on its DEI goals and alienated its customer base.
- Investing exclusively in ESG stocks might cause you to miss other opportunities just because they don't show up in ESG screens.
- ESG companies are sometimes accused of greenwashing, or overstating their environmental bona fides. Companies should be pursuing things like environmental sustainability because it's ethical, not to earn high ESG ratings.
How to invest in ESG stocks
If you're interested in investing in ESG stocks, it's not hard to do. Just follow these steps:
- Open your brokerage app: Log in to your brokerage account where you handle your investments.
- Search for the stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
The bottom line
You can buy these ESG stocks individually, but you can also find ESG exchange-traded funds (ETFs) that hold a broader set of top ESG performers. ESG funds can vary widely in their stock selection process and interpretation of ESG factors, so review the fund documentation carefully to find a good fit for your ESG criteria.
If you're motivated to support specific causes such as climate change or conscious capitalism, you might also expand your fund and stock research into the sustainable investing, impact investing, and socially responsible investing categories. These are related to ESG but are often more oriented toward specific causes. ESG screening is one more tool investors can use to do good while mitigating risk to long-term wealth.
Related investing topics
FAQ
FAQ: ESG Stocks
About the Author
Jeremy Bowman has positions in Nvidia. The Motley Fool has positions in and recommends Adobe, Cadence Design Systems, Intuit, Lam Research, Microsoft, Nvidia, Salesforce, and Xylem. The Motley Fool recommends Idexx Laboratories and Pool and recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.
