It is no secret that there is a significant shift in investment preferences. The next generation is deeply concerned about ESG (environmental, social, and governmental factors), and a company’s ESG performance will have a significant impact on its profitability and market value in the future.
These investors believe that their investment decisions can help bring better changes to both society and the planet, which is a theme encouraged by government institutions to achieve their ambitious green investment goals.
Given the global discussion over the negative consequences of climate change, investors are likely to pay more attention to companies committed to achieving net-zero emissions. With more companies and countries enacting legislation to meet ESG standards, particularly for carbon emissions, the emphasis on sustainable investing is expected to grow in 2022.
1. Microsoft
When it comes to top-valued ESG stocks, software behemoth Microsoft (NASDAQ:MSFT) has attracted the attention of analysts and investors. Microsoft recently reported better-than-anticipated results for its fiscal second quarter, with revenue forecast to reach $48.9 billion in the current quarter. Every year, Microsoft also publishes a detailed corporate social responsibility report that details its work in four major areas: supporting inclusive economic opportunity, protecting fundamental rights, committing to a sustainable future, and earning trust. The 2021 report notes that Microsoft, in FY21 and 22, contracted to remove 2.5 million metric tons of carbon removal. The company granted $100 million to Breakthrough Energy Catalyst to help speed up the development of climate solutions as well. According to Sustainalytics, a Morningstar company, Microsoft has a low ESG risk rating and ranks 26 out of 995 companies in the industry group.
2. NVIDIA
NVIDIA (NASDAQ:NVDA), a leading manufacturer and distributor of computer graphics for the gaming and professional markets, is the fourth least-risky semiconductor company according to ESG ratings. The ranking was based on a comprehensive poll of 300 companies in the sector, so NVIDIA's fourth-place finish makes it one of the companies to look out for in this space. In FQ4 2022, the company surpassed Wall Street estimates for earnings, with revenue growing 53% year-over-year. NVIDIA is also responsible for a lot in terms of the environment as its factories and workstations are power and water-intensive. However, the company aims to have 65% of its global electricity use come from renewable sources by 2025. The manufacturer is also fully compliant with the Responsible Minerals Assurance Process. Further, the company plans to develop E2 (Earth 2) to model the planet's climate, which will be able to accurately predict regional impacts of climate change up to 30 years in the future with the help of its Omniverse platform.
In the last two years, the world has witnessed unprecedented levels of health crises, humanitarian crises, and climate crises, the consequences of which will continue to force businesses to rethink their business strategies to be more flexible and responsive to unforeseen global events. Although ESG goals were considered important in the pre-pandemic world, the discussions about ESG have reached new heights following the pandemic outbreak. NVIDIA seems to be on track to mitigate the negative impact of its factories while building technological solutions to combat climate risk in the future, which makes the semiconductor giant a formidable ESG company to consider.
3. Autodesk
Autodesk (NASDAQ:ADSK) is a company with women accounting for half of its directors and executives. A leading design software company that serves practically every industry from architecture to education achieved net-zero greenhouse gas emissions across its entire business and value chain in 2021. In addition, the company obtained 100% renewable energy to power its facilities, data centers, and work-from-home operations. The company has a low Sustainalytics ESG risk rating and reported a 17% year-over-year growth in revenue in the last quarter, which highlights the growth prospects enjoyed by the company.
4. American Express
As diversity and inclusion have become important aspects of any work environment, American Express (NYSE:AXP), one of Warren Buffet's all-time favorite companies, announced a $1 billion investment in October 2020 to promote diverse representation and equal opportunities for its colleagues, customers, and communities. AXP stock has an AA rating for its ESG activities, and the company recently announced a goal of zero carbon emissions by 2035.
5. Cisco Systems
Cisco Systems (NASDAQ:CSCO) also recognizes the value of diversity in the workplace to remain competitive and attract top talent. Cisco announced its diversity initiatives in 2020, with women accounting for 27% of its board of directors and 47% of its total workforce. The company is energy-efficient and sustainable at every stage of its value chain and claims that 80% of its operational electricity is generated from clean energy sources. Cisco has also committed to becoming carbon neutral across its entire value chain by 2030, and it has a low ESG risk rating.
The need for ESG practices is growing as the new generation of investors gravitates to ESG as a core aspect of portfolio designing and stock selection. Leading tech companies are, not surprisingly, leading the charge in implementing ESG-friendly business practices to not only remain relevant but also to attract higher valuation multiples in the market. Investing in ESG-friendly companies today could help investors book handsome returns in the future when the concept gains more widespread attention and recognition.