The Best ESG Stocks of 2021 – A Science-Based Approach

Published by Fernando on

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We chose the best ESG stocks of 2021, selecting companies that have Science-Based Targets in alignment with the Paris Agreement and those that have low ESG risk ratings

Intro

There are endless ways that stock lists can be created. When it comes to lists of “stocks to buy”, the internet is overflowing with recommendations. However, most of the time those recommendations are biased or used to promote investment services from actively managed funds and investment advisors.

Here at Your Green Wealth, we strive to be fully transparent and unbiased, always bringing investment recommendations that are based on reliable facts and backed-up by data. Recommendations on environmental, social and governance (ESG) stocks, funds, and ETFs can be particularly tricky. ESG ratings are constantly changing and adapting to upcoming regulations. The whole sustainable investing industry is still maturing.

There is no global consensus on which criteria to use to assess the ESG materiality of companies. Most of the ESG reporting is volunteer and not audited. This leaves room for companies to omit or present data that might favor their ESG performance.

The most pressing issue on ESG is the environmental impact, mainly driven by climate change. There is one organization that wants to mobilize the entire private sector to take concrete science-based actions on climate change: the Science-Base Targets Initiative.

Science-Based Targets inititative: the best ESG stocks of 2021

The Science-Based Targets Initiative (SBTi)

The SBTi was established to promote best practices in emission reductions across industries. The SBTi targets were created based on how much and how quickly companies need to act on their greenhouse gas emissions (GHG) to mitigate climate change.

SBTi is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF), and its main funding is provided by IKEA Foundation, We Mean Business, The Rockefeller Brothers Fund, and The UPS Foundation.

Different than most climate pledges or greenwashed net zero campaigns recently announced by several companies, the targets and ambitions approved by the SBTi are based on time-bound, specific and measurable commitments made by companies.

In July 2021, the SBTi raised its targets to 1.5°C, meaning that it will no longer be accepting targets of ‘well below 2°C’, neither targets of ‘2°C’. The announcement came as a response to the increasing climate action urgency and the environmental concerns presented in the IEA Net Zero by 2050 report.

How the SBTi works:

  • Business Ambitions: as a call-to-action campaign, before setting their targets, companies are encouraged to commit to the ‘Business Ambition for 1.5°C’. However, committing to the ‘Business Ambition’ does not automatically means that the targets have been set or approved by the SBTi.
  • Scopes: Science-based targets must cover scopes 1 and 2. Scope 3 must be included for companies whose scope 3 emissions cover more than 40% of their total emissions (combined scope 1, 2, and 3 emissions).
  • Approach: companies are required to set targets based on emission reductions through direct action within their boundaries or their value chains. Carbon offsets are only seen as an alternative to companies seeking to finance additional emission reductions beyond their science-based target (SBT) or net-zero target.
  • Timeline: All targets must cover a minimum of five years and a maximum of 15 years from the date the target is submitted to the SBTi. The timeframe will be changed to 10 years in 2022.

Selecting stocks based on their SBTi commitments

We see the Science-Based Targets initiative as a good method to assess companies’ commitments towards climate action and, consequently, to access their environmental performance, the ‘E’ on ESG.

Bear in mind that SBTi only focuses on GHG emissions and does not consider other environmental factors, such as water use, waste production, or impact on biodiversity.

According to SBTi, by mid-2021, there were 1,685 companies taking action, 841 of those with science-based targets set, and 695 committed to 1.5°C.

To create our list of Best ESG Stocks of 2021, we have used the companies listed in the ACWI ETF (iShares MSCI ACWI ETF), the largest global equity ETF with 17 billion USD in assets. We then compared ACWI holdings with the list of companies taking action in the SBTi that have set concrete targets.

There are 2,308 holdings in ACWI, however, out of those, only 134 companies have set SBTi targets of 1.5°C. A minuscule fraction of 5.8% represents the number of companies, in line with the SBTi 1.5°C target, which are listed in the popular and broad ACWI ETF.

Moreover, there were only 54 companies with SBTi targets of “well-below 2°C” and 61 companies with SBTi targets of “2°C”.

Ranking stocks based on SBTi and Sustainalytics

We have then ranked those companies based on the ESG Risk Rating from Sustainalytics, from lowest to highest ESG risk rating. At the table below you can see the top 50 ESG stocks in ACWI that have set SBTi targets of 1.5°C:

TickerNameSectorESG Risk Rating
URWUNIBAIL RODAMCO WE STAPLED UNITSReal Estate4.7
DXSDEXUS STAPLED UNITSReal Estate6.3
CBRECBRE GROUP INC CLASS AReal Estate7
LANDLAND SECURITIES GROUP REIT PLCReal Estate8.5
CCKCROWN HOLDINGS INCMaterials9.8
INFINFORMA PLCCommunication9.8
ITXINDUSTRIA DE DISENO TEXTIL INDITEXConsumer Discretionary9.9
FRVALEOConsumer Discretionary10
SAPSAPInformation Technology10.2
CAPCAPGEMINIInformation Technology10.2
ATOATOSInformation Technology10.2
HPQHP INCInformation Technology10.3
BDEVBARRATT DEVELOPMENTSConsumer Discretionary10.4
BRBYBURBERRY GROUP PLCConsumer Discretionary10.8
ADBEADOBE INCInformation Technology10.9
ACNACCENTURE PLC CLASS AInformation Technology11.3
KERKERING SAConsumer Discretionary11.5
MCOMOODYS CORPFinancials11.7
ZALZALANDOConsumer Discretionary11.9
HPEHEWLETT PACKARD ENTERPRISEInformation Technology12.1
SPGIS&P GLOBAL INCFinancials12.7
SCMNSWISSCOM AGCommunication12.7
ADSADIDAS N AGConsumer Discretionary12.8
NOKIANOKIAInformation Technology12.9
MSFTMICROSOFT CORPInformation Technology13.3
LULULULULEMON ATHLETICA INCConsumer Discretionary13.5
BXPBOSTON PROPERTIES REIT INCReal Estate13.6
BLLBALL CORPMaterials13.8
BARNBARRY CALLEBAUT AGConsumer Staples14.2
6702FUJITSU LTDInformation Technology14.4
UPMUPM-KYMMENEMaterials14.4
PUBPUBLICIS GROUPE SACommunication14.4
HSTHOST HOTELS & RESORTS REIT INCReal Estate14.4
EQIXEQUINIX REIT INCReal Estate14.6
SPGSIMON PROPERTY GROUP REIT INCReal Estate14.7
4307NOMURA RESEARCH INSTITUTE LTDInformation Technology14.8
NKENIKE INC CLASS BConsumer Discretionary15.3
TELIATELIA COMPANYCommunication15.3
SGRESIEMENS GAMESA RENEWABLE ENERGY SAIndustrials15.4
CCHCOCA COLA HBC AGConsumer Staples15.5
ELUX BELECTROLUX BConsumer Discretionary16
MAMASTERCARD INC CLASS AInformation Technology16.3
JCIJOHNSON CONTROLS INTERNATIONAL PLCIndustrials16.3
LSEGLONDON STOCK EXCHANGE GROUP PLCFinancials16.3
TELTELENORCommunication16.4
HEN3HENKEL & KGAA PREF AGConsumer Staples16.5
INTUINTUIT INCInformation Technology16.6
VODVODAFONE GROUP PLCCommunication16.6
DTEDEUTSCHE TELEKOM N AGCommunication16.8
DSYDASSAULT SYSTEMESInformation Technology16.8

The top 10 ESG stocks and their carbon reduction commitments

Unibail-Rodamco-Westfield (URW): the European commerial real estate company commits to reduce absolute scope 1, 2 and 3 GHG emissions by 50% by 2030 from a 2015 base year. Commits to reduce scope 1, 2 and 3 GHG emissions from operational energy use by 80% per square meter over the same target timeframe. URW also commits to reduce scope 3 GHG emissions associated with the transportation of visitors to the shopping centers by 40% per visitors by 2030 from a 2015 base year.

Dexus Stapled Units (DXS): Australian real estate investment trust Dexus commits to reduce absolute scope 1 and 2 GHG emissions by 70% and absolute scope 3 emissions by 25% by 2030 from a 2018 base year.

CBRE Group (CBRE): the Americal commercial real estate company commits to reduce absolute scope 1 and 2 GHG emissions by 68% by 2035 from a 2019 base year. CBRE commits to reduce scope 3 GHG emissions from the use of sold products managed on behalf of occupiers by 79% per square foot and scope 3 GHG emissions from the use of sold products managed on behalf of owners by 67% per square foot over the same timeframe.

Land Securities Group (LAND): UK based commercial property development and investment company Landsec commits to reduce absolute GHG emissions by 70% by 2030 from a 2014 base year (scope 1, scope 2 and a portion of scope 3 emissions from downstream leased assets).

Crown Holdings (CCK): American producer of metal beverage and food cans, commits to reduce absolute scope 1 and 2 GHG emissions by 50% by 2030 from a 2019 base year. Crown Holdings, Inc. also commits to reduce absolute scope 3 GHG emissions by 16% over the same target period.

Informa (INF): Multinational events and publishing company Informa commits to reduce absolute scope 1 and 2 GHG emissions by 55% by 2030 from a 2017 base year. Informa commits to reduce absolute Scope 3 GHG emissions 20% by 2030 from a 2017 base year.

Industria De Diseno Textil (ITX): Inditex commits to reduce absolute scope 1 and 2 GHG emissions by 90% by 2030 from a 2018 base year. Inditex also commits to reduce absolute scope 3 GHG emissions by 20% by 2030 from a 2018 base year.

Valeo (FR): Frenchh global automotive supplier, commits to reduce absolute scope 1 and 2 GHG emissions by 75% by 2030 from a 2019 base year. Valeo commits to reduce absolute scope 3 GHG emissions from purchased goods and services by 15% by 2030 from a 2019 base year. Valeo also commits to reduce absolute scope 3 GHG emissions from direct and indirect use of sold products by 15% by 2030 from a 2019 base year.

SAP: the German multinational software corporation commits to reduce total scope 1, 2, and 3 GHG emissions by 40% by 2025, using a 2016 base year. SAP also targets a reduction in emissions of by 85% by 2050.

Capgemini (CAP): French multinational information technology services and consulting company commits to reduce absolute scope 1 and 2 GHG emissions by 80% by 2030 from a 2015 base year. Capgemini SE commits to increase annual sourcing of renewable electricity from 25% in 2015 to 100% by 2025. Capgemini SE commits to reduce absolute scope 3 GHG emissions from purchased goods and services by 50% by 2030 from a 2015 base year. Capgemini SE commits to reduce scope 3 GHG emissions from business travel and employee commuting by 50% per employee by 2030 from a 2015 base year.

Improving the list of Best ESG Stocks

In our list of 50 best ESG stocks, there are 8 real estate companies (four companies among the top 10), 10 companies in the consumer discretionary sector (20% of total) and 14 are in information technology (28% of total):

SectorsBest 50 ESG stocksAll 1.5C stocksACWI
Communication14.0%14.2%6.8%
Consumer Discretionary20.0%13.4%11.7%
Consumer Staples6.0%19.4%8.0%
Financials6.0%2.2%17.0%
Health Care0.0%11.2%10.1%
Industrials4.0%9.7%14.1%
Information Technology28.0%14.2%12.4%
Materials6.0%4.5%9.0%
Real Estate16.0%6.7%5.5%
Utilities0.0%4.5%5.4%

To balance the sectorial distribution we have adjusted the 50 best ESG stocks, using ACWI sectorial distribution as a guideline.

In ACWI, the financial sector represents 17% of the stocks, which requires at least 9 stocks. However, there are only 3 financial stocks with SBTi targets of 1.5°C: Moody’s Corp, S&P Global and London Stock Exchange Group.

As a consequence, the rebalanced list of best ESG stocks have only 44 stocks:

TickerNameSectorESG Risk Rating
URWUNIBAIL RODAMCO WE STAPLED UNITSReal Estate4.7
DXSDEXUS STAPLED UNITSReal Estate6.3
CBRECBRE GROUP INC CLASS AReal Estate7
CCKCROWN HOLDINGS INCMaterials9.8
INFINFORMA PLCCommunication9.8
ITXINDUSTRIA DE DISENO TEXTIL INDITEXConsumer Discretionary9.9
FRVALEOConsumer Discretionary10
SAPSAPInformation Technology10.2
CAPCAPGEMINIInformation Technology10.2
ATOATOSInformation Technology10.2
HPQHP INCInformation Technology10.3
BDEVBARRATT DEVELOPMENTSConsumer Discretionary10.4
BRBYBURBERRY GROUP PLCConsumer Discretionary10.8
ADBEADOBE INCInformation Technology10.9
ACNACCENTURE PLC CLASS AInformation Technology11.3
KERKERING SAConsumer Discretionary11.5
MCOMOODYS CORPFinancials11.7
ZALZALANDOConsumer Discretionary11.9
SPGIS&P GLOBAL INCFinancials12.7
SCMNSWISSCOM AGCommunication12.7
BLLBALL CORPMaterials13.8
BARNBARRY CALLEBAUT AGConsumer Staples14.2
UPMUPM-KYMMENEMaterials14.4
PUBPUBLICIS GROUPE SACommunication14.4
SGRESIEMENS GAMESA RENEWABLE ENERGY SAIndustrials15.4
CCHCOCA COLA HBC AGConsumer Staples15.5
JCIJOHNSON CONTROLS INTERNATIONAL PLCIndustrials16.3
LSEGLONDON STOCK EXCHANGE GROUP PLCFinancials16.3
HEN3HENKEL & KGAA PREF AGConsumer Staples16.5
NOVNNOVARTIS AGHealth Care17
ENRSIEMENS ENERGY N AGIndustrials17
ETNEATON PLCIndustrials17.2
WOWWOOLWORTHS GROUP LTDConsumer Staples17.2
OCOWENS CORNINGIndustrials17.5
ABBNABB LTDIndustrials17.8
CMICUMMINS INCIndustrials17.8
VERVERBUND AGUtilities18.1
GIVNGIVAUDAN SAMaterials19.1
IBEIBERDROLA SAUtilities19.4
CVSCVS HEALTH CORPHealth Care20.2
ORSTEDORSTEDUtilities20.5
GSKGLAXOSMITHKLINE PLCHealth Care21.3
BIIBBIOGEN INCHealth Care21.3
DVADAVITA INCHealth Care21.5

Runners-up

Among the ACWI ETF holdings, there were 54 companies committed to the “well below 2°C” and 61 companies that committed to the “2°C” target. Those companies should update their commitments with SBTi to reach the 1.5°C targets and become part of our best ESG stocks group.

Among those the largest holdings in the ACWI ETF are: Procter & Gamble, Cisco Systems, Diageo, Advanced Micro Devices, Canadian National Railway, Infosys, Autodesk, Volkswagen, Pernod Ricard and Kimberly Clark.

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Conclusion

It is disappointing that starting from the largest equity ETF with more than 2,000 holdings, is only possible to list 134 best ESG stocks that have committed to the SBTi 1.5°C targets.

Even considering the companies with targets of “2°C” and “well-below of 2°C”, we only reach a total of 249 companies or a bit more than 10% of all ACWI ETf holdings.

The Science-Based Targets initiative is a reliable resource and has implemented clear methodologies for companies that are seriously committed to fighting climate change.

Companies that have committed and implemented measurable and time-bound targets, to keep global temperatures within 1.5°C increase, are on the right track and in line with the ambitions of the Paris Agreement.

Companies not following the SBTi are putting society and the environment at risk. Sustainable investors should be very critical when evaluating net zero pledges or other carbon emissions goals that are not verified or audited by reliable and independent third parties.


Not an investment advice: The information provided on this website is intended for general information purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. You should conduct your due diligence and, if necessary, consult a qualified independent financial advisor before making any investment decisions.

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Fernando

Fernando created Your Green Wealth to help investors find sustainable investing options. When not writing for Your Green Wealth, he is a business developer for renewable energy projects.

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