Can you actually make money with environmental, social and governance (ESG) plays or so-called ethical stocks? Legacy interpretations imply that ethics and profits go together like water and oil. After all, motor racing leagues penalize corner-cutting antics; otherwise, everybody would attempt to secure an advantage.
However, it may be a fallacy to assume that business ethics represent a barrier to profitability. To be fair, a short-term benefit may materialize from shirking morally upright practices. But in the long run, ESG stocks should outperform their less morally equipped counterparts. For one thing, it’s difficult to sustain customer loyalty if you’re constantly running afoul of basic principles.
On another level, it’s important for publicly traded enterprise especially to attract new investors. People are much more leery about investing in teams they don’t feel comfortable with. If a corporation earns a reputation for purely bottom-line thinking, prospective shareholders may think: could I be mistreated next? That’s why ethical stocks involve way more than just virtue signaling.
Finally, as a diverse cohort, Generation Z largely embraces ESG. Therefore, the below ESG stocks really just align with burgeoning realities.
Waste Management (WM)
Specializing in its namesake practice, Waste Management (NYSE:WM) isn’t just a landfill operator. Instead, it’s one of the leaders in environmental sustainability with a focus toward waste reduction and renewable energy initiatives. For one thing, the company owns a vast network of recycling facilities. Further, under its Recycle Right program, Waste Management provides educational materials in helping individuals accelerate the process effectively.
Second, the company forwards a waste-gas-to-energy project. Per its website, the natural decomposition of organic waste in landfills produces gas. By using a network of wells to collect this gas, Waste Management converts it into renewable energy. By substituting this unique energy source for fossil fuels, this process reduces greenhouse gases, thus benefiting the community and the environment.
Not surprisingly given the company’s permanent relevance, WM rates strongly for margins and consistent profitability. In addition, analysts rate shares a consensus moderate buy with a high-side target hitting $230. Therefore, it’s one of the top ethical stocks to consider.
NextEra Energy (NEE)
Another entry for “E” under ESG stocks, NextEra Energy (NYSE:NEE) presents a logical case for the conscientious investor. Per its website, NextEra is one of the nation’s largest capital investors in renewable infrastructure. Commanding a presence in 49 states, the company is working toward securing America’s independence. Through its vast network of facilities – including solar and wind turbines – NEE features about 72 gigawatts (GW) of operating capacity.
Through its investments, more of the country’s energy infrastructure stems from clean and renewable sources. Further, NEE makes a strong case for ethical stocks that are also profitable thanks to the burgeoning core industry. Per Straits Research, the global renewable energy market size reached a valuation of $1.09 trillion last year. By 2032, this figure could expand to $2.45 trillion.
To be fair, rough economic conditions hurt NEE bad in the final months of 2023. However, analysts anticipate a recovery, pegging shares a moderate buy with a $69.60 average price target. Thus, it’s one of the ethical stocks to target.
Costco (COST)
Moving onto the “S” component of ESG stocks, Costco (NASDAQ:COST) offers an intriguing opportunity. I don’t think it’s an anecdote to say that most Americans love the open-warehouse-style big-box retailer. For a nominal fee, you can get 800-pound jars of mayonnaise and a lifetime supply of pasta. Well, not really but you get the idea. But where it really shines is how well Costco treats its employees.
As the company states on its website, the success of the business depends on the well-being of its employees. Of course, I think every company says something like that about themselves. The difference with Costco is that countless independent assessments back up the claim. In 2022, data from Glassdoor noted that the retailer’s employees rated the business a four out of five regarding worker satisfaction, well ahead of direct competitors.
And while it’s not a blistering market performer, it’s a consistent winner. To no one’s shock, analysts rate COST stock a strong buy with a high-side target of $825. It’s easily one of the top ethical stocks.
Starbucks (SBUX)
A brand that needs no introduction, Starbucks (NASDAQ:SBUX) helps fuel America – in a sense, quite literally. To get through the drudgery of the workday, millions of worker bees turn to caffeinated beverages. And with Starbucks located everywhere, it’s just too tempting to turn in for a quick (though expensive) pick-me-up.
Fundamentally, Starbucks also appeals to modern investors by emphasizing the “S” component of ESG stocks. In particular, the company proudly boasts of its ethical sourcing of its key ingredients, from coffee beans to tealeaves to cocoa. In addition, its manufactured goods – from the merchandise on its shelves to the furniture in its stores – involve ethical sourcing. Basically, the company talks the talk and walks the walk.
Also, I’d be remiss not to mention Starbucks’ youth empowerment, hunger relief, and inclusivity programs. The brand has been at the forefront of positive changes in society, making SBUX one of the top ethical stocks. And analysts love it, pegging shares a consensus strong buy.
Visa (V)
A multinational payment card services firm, Visa (NYSE:V) also needs no introduction. That’s mainly because there’s a good chance the card is in your wallet. According to a Forbes article in 2023, Visa represents the most carried card, printing a market share of 52.8%. So, it’s winning in the payment services department. It’s also waving the checkered flag in terms of ethical stocks.
Lots of folks love talking about the “E” and the “S” in ESG stocks. However, governance is also a major component of holistic ethics. Here, Visa’s corporate governance practices help promote long-term value and accountability to its shareholders. Part of this involves ensuring diversity and inclusion and not just in the workforce itself but in the upper echelons of leadership.
In this case, market forces help keep Visa honest. As a major blue chip, the company would get called out very quickly if it was ESG in name only. Lastly, analysts rate shares a consensus strong buy with a $303.74 average price target.
Apple (AAPL)
A multinational technology company, Apple (NASDAQ:AAPL) designs, develops and sells consumer electronics, computer software and online services. Like some of the other ethical stocks on this list, Apple products – along with its connected ecosystem – have become ubiquitous. As a result, the tech firm leverages tremendous influence. Better yet, it’s wielding its power responsibly.
Maintaining high standards of governance, Apple focuses on a range of important issues. In June 2020, the company launched its Racial Equity and Justice Initiative, advancing opportunities for many people of color and Indigenous communities. To be fair, the company needs work regarding ensuring more opportunities become available for leadership roles. Increased scrutiny and public pressure may help in this regard.
Also, Apple implements a shareholder voting process focused on executive compensation. That’s one distinct mechanism to keep the company accountable to stakeholders. Overall, analysts peg shares a moderate buy with a $208.07 average price target. Notably, the high-side target hits $250, implying robust bullishness despite a soft start to 2024.
Microsoft (MSFT)
It wasn’t that long ago that Microsoft (NASDAQ:MSFT) seemed a rudderless enterprise, just skating by on its legacy software suite. Those days are long gone. Thanks to the tech giant’s big investments in artificial intelligence, it has steadily rocketed higher since the 2022 doldrums. Further, as AI becomes more ingrained into everyday life, Microsoft stands to be a massive winner.
And when it comes to ethical stocks, the company may be the all-around champion. It’s really difficult to pin down MSFT stock as it belongs exclusively to one of the ESG components. For example, management set out ambitious environmental targets, most conspicuously being its aim to be carbon negative; that is, it will remove its historical emissions since its founding in 1975.
In addition, it’s a huge player in social equity, promoting directives focused on encouraging women to participate in technology. Finally, MSCI Ratings awarded Microsoft an AAA rating, the highest rating available to organizations. Unsurprisingly, analysts love MSFT, rating it a consensus strong buy with a $469.45 price target. It’s practically a no-brainer example of ESG stocks.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.