Last week, electric vehicle powerhouse Tesla (TSLA 2.24%) was in the headlines for all the wrong reasons. The S&P 500 ESG Index, which is composed of companies that have carbon-neutral and socially responsible strategies in place, conducted its annual rebalancing in May and booted Tesla out. 

It was a blow for the company that prides itself on driving the green revolution, but according to S&P Global, it still falls short in other areas. Nonetheless, for investors looking for another green option, I'll share the second-largest stock holding in the aforementioned index, since it's trading at an attractive 24% discount to its all-time high right now. 

A model of Earth made of green grass, next to E S and G tiles.

Image source: Getty Images.

What ESG is, and what it isn't

How does the electric vehicle industry leader lose its place in an index focused (in part) on clean energy? Well, the framework is far broader than that alone; ESG stands for environmental, social, and governance. It factors in whether a company operates in a socially responsible way, assessing its approach to human rights, diversity, and political ties. For example, does the company support politicians with anti-green policies? 

On the governance side, ESG looks at a company's ethics and whether it operates for a cause beyond just compensating the top brass. Think about companies that have misused consumer data, or have tried to cover up their environmental missteps; these things indicate a poor approach to internal accountability. 

Unfortunately for Tesla, while its impact on green energy adoption is positively indescribable, the company has been in the spotlight numerous times recently for reasons that run counter to what the ESG framework stands for. For example, some Tesla employees have described poor working conditions, and S&P Global specifically cites a lack of a low-carbon strategy. 

In order for the S&P 500 ESG Index to remove Tesla during the month, it would need to have sold all of its Tesla shares. Not to mention, large funds with an ESG mandate might also have been inclined to sell the company on this news. It could be one contributor to Tesla stock falling over 35% in 2022 so far.

Still, Tesla has delivered big returns for investors from a financial standpoint over the last few years. But these issues should undoubtedly raise questions about the company's trajectory if it can't fix them in a timely manner. 

The ESG stock to buy now

For investors who want to polish their portfolios with a little green, Microsoft (MSFT -0.50%) might be the stock to buy. It's the second-largest holding in the S&P 500 ESG Index behind Apple, but it's an enticing opportunity right now for a few reasons. 

By 2030, the company plans to be carbon negative, which means it will be removing more carbon from the atmosphere than it emits. It will achieve this in a few ways. By 2025 it will shift to 100% renewable energy across all of its data centers, buildings, and campuses, and by 2030 all of its operating vehicles will be electric, globally. And from 2020, the company implemented an internal carbon tax of $15 per metric ton, which gets paid toward sustainability improvements. 

The company also plans to be water positive by the end of the decade by reducing its consumption and replenishing supply where possible, through innovative water capture and water recycling initiatives. In addition, Microsoft believes it can generate zero waste in the same timeframe by reusing materials and recycling, especially in its hardware manufacturing segments. 

But one of Microsoft's biggest contributions to date is the planetary computer that contains petabytes (1 petabyte is equal to 1,000 terabytes) of environmental monitoring data, accessible through APIs that make it easy for conservationists to call upon in the cloud. This provides information and data on a scale never seen before, and it could help accelerate green initiatives worldwide.

A person looking at server hardware while holding a laptop computer.

Image source: Getty Images.

Microsoft is also a financial powerhouse

Beyond ESG, Microsoft consistently delivers for investors from a financial perspective. While the company's household notoriety stems from its Windows operating system and Office 365 document suite, which are used by billions of people worldwide, its cloud services business might be the biggest reason to own it. The cloud is a revolutionary technology that has moved a growing list of tasks online for both individuals and businesses, powering everything from collaborative documents to artificial intelligence. 

Microsoft's Intelligent Cloud segment is the largest of the company's three business units, representing 37% of its $146 billion of revenue in the first nine months of fiscal 2022 (fiscal year ends on June 30). It's driven by Microsoft Azure, the company's flagship cloud services platform that boasts over 200 products and 40 solutions designed for almost every industry. Azure is so widely adopted that over 95% of the Fortune 500 companies are using it in some capacity.

The cloud could be a $1.5 trillion opportunity each year by 2030, so the company's focus on this technology could still bear plenty of fruit. 

Microsoft stock trades at a small premium to the Nasdaq 100 technology index, with a price-to-earnings ratio of 27 (compared to 25 for the Nasdaq) based on its $9.58 in trailing-12-month earnings. But since Microsoft stock has fallen 24% from its all-time high, this is a dip worth buying whether you like growth, earnings, or the company's approach to ESG.