A modern-day investor’s choice of stocks no longer depends solely on a company’s earnings and balance sheet. With climate change becoming a sensitive issue, investors, too, are trying shift their focus toward environmental, social and governance (ESG) inclined companies when it comes to adding stocks to their portfolio.
What Are ESG Stocks?
These companies are that prioritize sustainability and take into consideration environmental, social and governance factors rather than solely focusing on maximizing profits. While they still aim for profitability, their approach emphasizes reducing their environmental impact and promoting social responsibility.
The metric evaluates the company’s progress and achievements concerning its environmental, social, and governance initiatives. The environmental aspects pertain to a company’s approach to climate change, striving for zero-carbon emissions, deforestation and overall ecological conservation.
Social standards encompass the company’s policies and approach toward its employees, suppliers, customers, and communities, while corporate governance focuses on assessing the company’s management and leadership, pay structure, internal control, audits and protection of shareholders’ rights.
Why Add ESG Stocks to Your Portfolio?
Eco-investing is gaining prominence as younger generations, particularly millennials and Gen-Z, are assuming a prominent role as investors in environmentally responsible companies. With climate change becoming a major concern among the youth, there is a noticeable socio-economic shift in favor of environmentally sustainable businesses.
Moreover, ESG stocks offer the advantage of reducing portfolio risk. Companies that prioritize ESG factors often exhibit strong leadership, resulting in improved decision-making capabilities. As a result, these companies are better equipped to navigate market uncertainties and remain resilient during challenging times.
Do ESG Stocks Hold Promise?
The ESG standard is still in its early stages, and only a few companies have embraced these initiatives. Consequently, there is limited historical evidence to suggest that ESG stocks consistently deliver better returns compared to other companies.
Nonetheless, with growing consumer awareness and social consciousness, ESG stocks undoubtedly possess a competitive advantage. As consumers prioritize sustainability and social responsibility, companies that align with ESG principles are likely to gain favor and thrive in the market.
Stocks to Watch
Salesforce, Inc. CRM has successfully attained net-zero residual emissions throughout its value chain. CRM has also accomplished its objective of operating solely on 100% renewable energy. The company has set a goal to eliminate all carbon emissions by the year 2040 and designed a custom-built platform to monitor its own carbon footprint. Salesforce takes pride in its commitment to work exclusively with suppliers that have a carbon footprint reduction target for 2024.
Salesforce’s expected earnings growth rate for the current year is 42%. The Zacks Consensus Estimate for current-year earnings has improved 4.6% over the past 60 days. CRM currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PepsiCo, Inc. PEP, the global beverage giant, is committed to achieving net-zero greenhouse gas emissions by 2040. As part of its sustainability efforts, PEP is actively promoting regenerative agricultural practices, which focus on restoring and enhancing the environment through farming practices. Another key target for PepsiCo is to ensure that all its packaging materials become recyclable, compostable and biodegradable.
PepsiCo’s expected earnings growth rate for the current year is 9.9%. The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the past 60 days. PEP currently carries a Zacks Rank #2 (Buy).
Adobe Inc. ADBE aims to attain a zero-carbon operational footprint, emphasizing the development of digital products that have a positive environmental impact. ADBE is actively working toward achieving a 100% renewable energy target by 2035, underscoring its commitment to using sustainable energy sources in its operations.
Adobe’s expected earnings growth rate for the current year is 14.5%. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the past 60 days. ADBE currently sports a Zacks Rank #1.
Microsoft Corporation MSFT is actively pursuing various initiatives to achieve a net-negative carbon footprint by 2030. MSFT’s efforts include significant reductions in carbon emissions, transitioning to carbon-free energy sources for electricity consumption, and implementing measures to eliminate any remaining emissions.
Microsoft’s expected earnings growth rate for the current year is 4.8%. Shares of MSFT have gained 23.7% in the past three months. MSFT currently has a Zacks Rank #3 (Hold).
Microsoft Corporation (MSFT): Free Stock Analysis Report
Salesforce Inc. (CRM): Free Stock Analysis Report
PepsiCo, Inc. (PEP): Free Stock Analysis Report
Adobe Inc. (ADBE): Free Stock Analysis Report
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