There’s a range of products out there to help investors find top environmental, social, and corporate governance (ESG) stocks. Unfortunately, some of these are a bit misleading.
Some providers have different ideas of what counts as a quality ESG stock, and there’s evidence providers don’t do their research. With this being the case, when I’m looking for companies with high ESG ratings, I like to focus on stocks in the FTSE4Good UK Index.
This is an index of UK stocks that demonstrate strong environmental, social and governance practices. The index is compiled by FTSE Russell, one of the biggest financial information providers in the world.
Blue-chip stocks to buy
The FTSE4Good UK Index is a collection of the 50 highest-rated ESG stocks in the UK. Three companies listed in the index I’d buy today are AstraZeneca, GlaxoSmithKline and HSBC.
These are some of the largest listed companies in the UK. They’re also making giant strides in reducing their environmental footprints.
HSBC is committed to reducing carbon emissions across its supply chain and own operations by 2030. It’s also looking to deploy $1trn to help finance the renewable energy transition by 2030.
Banks like HSBC will be instrumental in unlocking financing to help support the transition towards renewable energy. Not only can they provide loans, but they can also connect investors with highly-rated ESG companies seeking funding. In the first quarter of 2021, HSBC raised $68bn for clients through green bond issues.
Glaxo and Astra have also set out ambitious environmental targets. Glaxo is targeting 100% renewable energy usage by 2030. It also wants to replace all of its own vehicles with electric ones and make sure 100% of its materials are sustainably sourced.
Astra has reduced its greenhouse gas emissions by 60% since 2015 and reduced water usage by 20% in the same period. The company’s also planning to reduce energy and water usage further and minimise waste in the years ahead.
As well as their environmental commitments, both of these pharmaceutical companies score highly on ESG ratings because developing and producing medicines positively impacts society. Astra’s decision to supply its coronavirus jab at cost is one of the most significant benefits to society any public business has made.
ESG stocks and risks
Based on all of the above, I think these are some of the best ESG stocks to buy. That’s why I’d acquire all three for my portfolio today.
That said, these companies aren’t necessarily as virtuous as their ambitions make them out to be. HSBC has attracted criticism for its financing of fossil fuels projects. Meanwhile, both Astra and Glaxo have been criticised for high drug prices. High prices can restrict access to vital medications.
As such, these companies may not be the sort of investments all ESG investors would be happy to buy. Nonetheless, I think their ESG plans are encouraging.
