ESG Ratings: A Closer Look At The Leading Stocks

Knowing where to find the best ESG stocks requires investors to understand how ESG scores work and how the rankings reflect a company’s corporate values as well as its environmental practices. It’s also essential to identify the companies that can deliver solid returns.

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As part of IBD’s fifth annual 100 Best ESG Companies special report, we review companies not only on their ESG scores but how well they fare when measured by investing metrics.

Best ESG Stocks: Sustainability Standards And Dimensions

In addition, this year we took a look at how companies performed in what are known as sustainability dimensions. Those dimensions are key factors in ESG rankings. They originated with the Sustainability Accounting Standards Board (SASB), a nonprofit organization founded in 2011. SASB standards identify the subset of sustainability issues most relevant to financial performance in each of 77 industries.

By sharing the dimensions scores from among our list of the best ESG stocks, we offer a greater transparency of the ESG ranking process, and spotlight companies that might not otherwise rise to the level of investor consideration.

The dimensions are:

Business Model & Innovation
The Environment
Human Capital
Leadership & Governance
Social Capital

Best ESG Stocks: How IBD Created Its Lists

Public companies that made our 2023 100 Best ESG Companies list combine high Dow Jones sustainability scores with superior IBD technical and fundamental stock ratings. They are standouts for ESG investing. 

Read our profiles and interviews on the top-scoring companies:

The tables below highlight IBD’s best ESG stocks in the five sustainability dimensions.

Companies that top the dimensions lists and also are in the top 10 in the 2023 List of 100 Best ESG companies include Microsoft (MSFT) (in the top spot overall), Caterpillar (CAT), Mastercard (MA), Marathon Petroleum (MPC), Motorola Solutions (MSI), and Applied Materials (AMAT).

Note: The scores in the tables below are the companies’ overall ESG score.

Read Our Full Special Report On IBD’s 2023 100 Best ESG Companies, Our Feature Story On Green Patent Innovation And See The Full List Of Winners.

Business Model & Innovation

This dimension addresses the integration of environmental, human and social issues in a company’s value-creation process, including resource recovery and other innovations in the production process, as well as in product innovation, including efficiency and responsibility in the design, use phase, and disposal of products.

Rank
Company
Symbol
ESG score

1
Microsoft
MSFT
80.75

2
Alphabet
GOOGL
75.67

3
Caterpillar
CAT
72.57

Environment

The environmental dimension includes environmental impacts, either through the use of nonrenewable, natural resources as inputs to the factors of production or through harmful releases into the environment that may result in impacts to the company’s financial condition or operating performance.

Rank
Company
Symbol
ESG score

1
Marathon Petroleum
MPC
73.09

2
Tetra Tech
TTEK
72.80

3
Lam Research
LRCX
71.25

Human Capital

This dimension addresses the management of a company’s human resources (employees and individual contractors) as key assets to delivering long-term value. It includes issues that affect the productivity of employees, management of labor relations, and management of the health and safety of employees and the ability to create a safety culture.

Rank
Company
Symbol
ESG score

1
Tetra Tech
TTEK
67.18

2
Zoetis
ZTS
67.10

3
MA Safety
MSA
67.09

Leadership & Governance

This dimension involves the management of issues that are inherent to the business model or common practice in the industry and that are in potential conflict with the interest of broader stakeholder groups, and therefore create a potential liability or a limitation or removal of a license to operate. This includes regulatory compliance, risk management, safety management, supply-chain and materials sourcing, conflicts of interest, anticompetitive behavior, and corruption and bribery.

Rank
Company
Symbol
ESG score

1
Motorola Solutions
MSI
73.22

2
Applied Materials
AMAT
72.61

3
Tempur Sealy
TPX
72.18

Social Capital

This dimension relates to the expectation that a business will contribute to society in return for a social license to operate. It addresses the management of relationships with key outside parties, such as customers, local communities, the public, and the government. It includes issues related to human rights, protection of vulnerable groups, local economic development, access to and quality of products and services, affordability, responsible business practices in marketing, and customer privacy.

Rank
Company
Symbol
ESG score

1
Lam Research
LRCX
74.25

2
Broadcom
AVGO
73.06

3
Bunge
BG
72.56

Definitions source: Sustainability Dimension & Category Field Definitions – SASB Standards/Dow Jones

Best ESG Stocks: Methodology

To build the 2023 100 Best ESG Companies list, we started with each company’s environmental, social and governance (ESG) sustainability score created by Dow Jones Newswires, an IBD affiliate. These scores capture a broad spectrum of information on the ESG profile of more than 6,000 global companies. 

On Aug. 24, IBD asked Dow Jones for an ESG-scored list of all the U.S.-traded companies it tracks, a total of 2,067. We then cut the list to 1,559 companies on Aug. 25 by removing nonpublic companies and companies with stock prices below $10 a share. We also removed any companies that lacked sufficient data to create an IBD Composite Rating.

We further qualified the ESG investing list by removing those companies that did not meet or beat the S&P 500 in the past five years. We selected the 100 with the highest IBD Composite Rating — all with scores of 81 or better. To break any ties, we looked at companies’ Relative Strength Rating and then, if needed, their EPS Rating. Finally, we ranked the 100 companies by Dow Jones’ ESG score.

Also see the best ESG companies in each of eight industry categories.

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