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The 13 Best ESG Stocks To Consider In 2021


This is a guest contribution from The Impact Investor

Responsible investments in the environmental, social, and governance sectors are gaining momentum in the last decade. In 2020, Morningstar reported that ESG funds made up a fourth of the bond and stock flows in the US capital market.

What’s more, the market is growing exponentially, attributing to investors’ willingness to fund sustainable businesses. While the total ESG fund inflow was only $5.4 billion in 2018, it went up to $51.1 billion in 2020.

Similarly, with more than 90% of millennials hoping to invest in ESG funds, the market trend is not slowing down anytime soon.

Furthermore, ESG reporting and standardization advancements are increasing their credibility, which attracts investors looking for evident impact.

All these statistics and facts mean one thing, if you plan to invest in ESG funds, the time is now.

Here’s my list of the best ESG stocks you should consider in 2021.

Best ESG Stocks to Consider in 2021

Investing sustainably in ESG stocks doesn’t mean you compromise on financial returns. According to Morningstar reports, most ESG-screened corporations outperformed other conventional investment assets in 2020.

However, that doesn’t mean you should go for the first ESG-compliant company that you come across. The best ESG dividend stocks might vary for individuals depending on their portfolio construction and risk handling potential.

Besides that, you should choose companies that align with your values. For example, not every company might promote or work towards green energy and combating climate change.

Instead, ESG criteria vary by industry, and ratings are assigned based on various clauses and conditions. For instance, a significant oil or gas company won’t necessarily be non-compliant with ESG terms.

Similarly, a solar or wind power company won’t have a high rating just because of the nature of its business.

So, which ESG stocks should you go for?

To help you out of the confusion, I have listed the best ESG stocks based on market performance and ESG compliance.

Coca-Cola (KO)

As a mega-cap stock with a current market value around $250 billion, Coca-Cola has already partially recovered from the loss in sales due to the pandemic. Analysts suggest that by providing a dividend yield of approximately 3.1%, Coca-Cola makes the list of the top recovery stocks of 2021.

Moreover, if you’re looking for companies that strictly adhere to ESG policies, Coca-Cola has an AA rating from MSCI. The company performs exceptionally well when it comes to waste management, ensuring health and safety standards, and controlling the carbon footprint per product.

These attributes make it one of the leading ESG dividend stock companies in the beverage industry. Interestingly, only 15% have an AA rating from MSCI, while only 9% have a higher AAA rating.

The aspects that withhold it from the AAA rating are poor water stress policies and dubious corporate behavior.

Nevertheless, if you’re targeting high returns while maintaining an ESG portfolio, Coca-Cola is the safest bet. The company delivers high annual payouts for more than 60 years, with estimated dividend growth of 6.6% in the next few years. Coca-Cola is on the exclusive list of Dividend Kings.

Home Depot (HD)

Home Depot has seen an exponential rise in sales since last year, contributing to the soaring online shopping rates and excessive home decoration during the pandemic lockdowns.

The US’s largest home improvement brand already established itself; the company is worth $350 billion and offers a dividend yield of 2% annually to investors. What’s more, Home Depot has a commendable score on the MSCI ESG assessment sheet.

Among the 89 companies that participate in the MSCI screening process from the retail department, Home Depot is one of the 12% that score an AA rating. Moreover, the company has maintained its rating for around four consecutive years at a stretch.

The ESG aspects where Home Depot scores well are its chemical safety and disposal methods, reducing product carbon footprint, and maintaining flawless corporate governance. On the other hand, areas where the company scores average grades are raw material sourcing and data security.

Furthermore, the company is marked by a majority of analysts at Global Market Intelligence as a Strong Buy, showing a speculated growth of around 8% in the next three to five years.

PayPal (PYPL)

PayPal, the digital payment leader, has received exceptional attention from users around the world, hiking its shares up to 140% in the past year.

Besides that, the newly updated guidance report released by the PayPal management shows the company’s target annual growth of 22% from the coming year. The Bank of America gives an undisputed ‘Buy’ rating to PayPal, while Kupferberg forecasts gradual growth in dividends till 2025.

Apart from that, the company maintains a steady ESG rating, which makes it ideal for investors to build a sustainable portfolio around tech stocks.

Honeywell (HON)

Honeywell is an ESG-compliant company that shows high growth potential due to its share-price appreciation.

The Street predicts around 11% annual average growth for the company in the next few years, with a strong ‘Buy’ rating. Honeywell has consistently raised its dividends since 2014, going up from 45 cents per share to 95 cents last year.

As far as ESG compliance is concerned, Honeywell holds an AA rating from MSCI. Offering a dividend yield of 1.6%, Honeywell maintains its ESG rating among 14% of its industry peers, having the AA rating.

The company performs exceptionally well in the ESG sector among its contemporaries in corporate behavior and opportunities in clean tech. However, it does lag behind its contemporaries when it comes to proper labor management.

NextEra Energy (NEE)

NextEra Energy is one of the largest electric companies in the world, working to reduce carbon emissions and combat climate change for the last decade. Compared to other electricity utility giants in the US, NextEra Energy produces 55% less harmful emissions.

What’s more, by 2025, the company pledges to lower its carbon emissions by 67% from its base level recorded in 2005. This ensures that although NextEra Energy will be doubling its energy production through renewable sources, its emissions will go down by 40%.

For extra credibility, NextEra has received the highest ranking among utility sector companies from the S&P Global Ratings’ ESG Evaluation, and a AAA ESG rating from MSCI.

Another aspect that makes NextEra a reliable dividend stock investment is its regulated revenue streams. They add predictability to the company’s business model, mitigating the risk factor in your sustainable investing portfolio.

NextEra Energy is on the list of Dividend Aristocrats, a group of 65 stocks in the S&P 500 with 25+ consecutive years of dividend growth. You can see the entire Dividend Aristocrats list here.

NVIDIA (NVDA)

NVIDIA, a well-known company producing graphics and video processing cards, remained unaffected by the pandemic. Despite the significant health crisis affecting businesses worldwide, the company managed to double its stock value during the past year.

Analysts suggest that the company is bound to face the most prominent growth rate in the tech sector, surpassing artificial intelligence and auto technology. Similarly, the Bank of America gives it a ‘Buy’ rating with a price target of $625.

On the ESG end, NVIDIA is highly rated because of its mineral policy and effective corporate governance. The company uses rare minerals to build its chips and cards; therefore, it has a stringent policy against unethical procurement and mining of these minerals.

Similarly, unlike any other leading tech company, NVIDIA trains all its service representatives facing customers, clients, suppliers, and partners regarding anti-bribery and anti-corruption tactics. So, if these are the morals you believe in, you should buy NVIDIA stocks and earn steady annual dividends.

Chr. Hansen (CHYHY)

The Danish human nutrition giant Chr. Hansen ranks high in ESG compliance due to its sustainable practices regarding food security and waste management. The company mainly produces bacteria that help curb the extended use of harmful pesticides while increasing crop yield at the same time.

Moreover, Chr. Hansen has successfully developed an accounting system according to the UN’s Sustainable Development Goals. This helps the company assess the impact of each product and display the metrics to investors.

These extra measures place Chr. Hansen in the first place on the Corporate Knights Global 100 Most Sustainable Corporations List.

Salesforce (CRM)

Salesforce is a leading company providing cloud-based digital solutions in the corporate sector. With its reach in multiple sectors, including marketing, support, e-commerce, and sales, the organization represents an earning opportunity worth $62 billion for potential investors.

Besides that, Salesforce aims to expand its reach in these markets by 15% in the coming years, making it an appealing choice for sustainable investors. Analysts forecast at least 17% annual profit from Salesforce stock, with a substantial speculated growth in the coming years.

Similarly, the Bank of America has a ‘Buy’ rating for Salesforce with a $300 basic stock price.

Microsoft (MSFT)

Microsoft has created the buzz around itself by becoming the first company to pledge for a carbon-negative status by 2030. The company has assigned a $1 billion fund to meet this ambitious commitment and has received an AAA ESG rating from MSCI in 2019.

Furthermore, unlike other ESG compliant companies, Microsoft has maintained an AAA rating since 2017, along with only 3% of its peers.

The most commendable aspects of Microsoft’s ESG compliance are its corporate governance, data security, and clean teach approaches. However, the company scores average marks in human resource development and carbon emissions.

Analyzed by experts at the S&P Global Market Intelligence, Microsoft is speculated to bring an annual growth of 14.1% in the coming years. The company’s market value stands around $1.9 trillion and pays 0.9% in dividend yield to investors.

West Pharmaceutical Services (WST)

This Pennsylvania-based pharmaceutical company works as a supplier to major biotechnology and generic drug companies. The company produces elastomer products to administer and store injectable drugs. These include products like syringes, plungers, stoppers, and other devices.

Similarly, the company is conducting advanced research and development around self-injection and auto-injectors. With the world coping with a disastrous health crisis, pharmaceutical companies like West Pharmaceutical Services are reliable dividend stock investments for ESG investors.

On the ESG front, the company is rating well in aspects related to workplace ethics and diversity, affordable healthcare, and environmental sustainability.

WST is on the list of Dividend Aristocrats and also the Dividend Champions.

International Business Machines (IBM)

International Business Machines, commonly known as IBM, is an international leader in ESG compliance. Since 2017, the company has maintained its AA rating, addressing issues such as privacy, data security, and cleantech opportunities.

Its efforts place IBM among the 19% of companies that score an AA rating from MSCI from the software and engineering sector.

Only a rare 3% of companies from the industry have an AAA rating from the MSCI.

Currently, the company has a market value of $123 billion and a 4.7% dividend yield to investors. Moreover, IBM faced exponential growth in 2021 due to the increasing demand for cloud computing services and the digitalization of traditional business systems.

This means analysts are optimistic about the long-term share price appreciation of the company. Observing the stock fluctuation over the last 12 months, a majority of analysts from The Street rate it as a ‘Hold’ while some label it as a ‘Strong Buy’ as well.

GlaxoSmithKline (GSK)

GlaxoSmithKline is a leading pharmaceutical giant based in the UK. However, what makes it appealing to sustainable investors are its ambitious ESG initiatives.

Apart from making short-term amendments to its corporate governance system, the company has created long-term goals for environmental and social contributions as well.

Mainly, GSK aims to reduce its negative environmental impact by 25% by the year 2030. Similarly, it is striving to reach more than 800 million people with deserved healthcare by 2025.

GSK has taken strict measures to increase female representation and LGBT advancement across its offices in the corporate governance sector. In total, it has made around 13 commitments from the UN Sustainable Development Goals.

To provide a clear representation of these advancements for investors and stockholders, GSK submits an annual summary report every year. This way, you can get meaningful information about its impact on its target sectors.

American Express (AXP)

Finally, American Express is one of the best ESG dividend stocks for investors to consider in 2021. With a market value of $116 billion, the company is backed with a ‘Strong Buy’ recommendation from leading Wall Street analysts.

Offering a dividend yield of 1.2%, the company stands out as one of Warren Buffett’s most favored stocks. He bought some shares from the company back in 1963, which he still holds on to and remains the largest stockholder of American Express.

However, low expenditure on traveling can result in a negative impact on the stock value of the company.

As far as ESG compliance is concerned, American Express receives an AA rating from MSCI. It scores high in areas such as corporate governance and human resource development. But, it has average ratings in consumer financial protection.

Luckily, the company does not significantly lag in any of the critical issues defined by MSCI, making it an ideal choice for ESG investors.

Author Bio: Kyle is the founder of The Impact Investor, a website focused on helping others invest sustainably without sacrificing financial returns. We all want products sourced by sustainable and ethical means, why should investing be any different? Follow my investing journey on my Facebook, YouTube or Twitter accounts.

Thanks for reading this article. Please send any feedback, corrections, or questions to support@suredividend.com.


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