In this article, we will take a look at the 10 Best ESG Stocks To Buy Now.
Defining ESG can sometimes be straightforward: it’s a finance and investing approach centered on managing risks related to environmental factors, social issues, and corporate governance. Although the concept emerged about two decades ago through a collaboration between United Nations officials and the finance industry, who argued that addressing ESG risks like climate change, labor disputes, and poor corporate governance can safeguard investments, it wasn’t until the late 2010s and into the 2020s that ESG evolved into a more proactive movement, rather than a reactive one.
A report from the World Meteorological Organization (WMO) confirmed that 2023 was the warmest year on record, with the global average near-surface temperature reaching 1.45°C—closer than ever to the 1.5°C lower limit set by the Paris Agreement on climate change. Another report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) also reveals that climate-driven disasters are already surpassing scientists’ initial predictions. This urgency has sparked increased interest in niche yet rapidly expanding sectors of ESG investing, such as climate-transition funds and catastrophe bonds. In 2024, global investment in clean energy is expected to hit a significant milestone, doubling the amount allocated to fossil fuels. The International Energy Agency’s (IEA) 2024 World Energy Investment report forecasts that total global energy investment will surpass $3 trillion this year, with $2 trillion directed toward clean technologies like renewables, electric vehicles, and nuclear power. Furthermore, Bloomberg reports that global investment in the energy transition surged by 17% last year, reaching a record $1.8 trillion, with this growth trend continuing. Former VettaFi financial futurist Dave Nadig said:
“If you solely look at climate as your window, you’ll probably not end up not owning a lot of energy companies, not owning a lot of miners [and] not owning a lot of steel companies. So, you end up with something that looks like services, healthcare, and technology, which is a very strong bet to take.”
That said, U.S. funds with ESG goals seem to be losing popularity as of late. Despite the broader stock market’s gains, assets in the sector have dropped to around $335 billion, down from a peak near $365 billion at the end of 2021. Political criticism of ESG in the country has also has led some investors to reconsider their strategies within the sector. Moreover, ESG stocks are also grappling with other significant challenges, such as a key climate regulation from the U.S. Securities and Exchange Commission that is currently under legal dispute, and the Federal Reserve’s resistance to including environmental risks in global financial regulations.
However, despite criticism labeling the ESG sector as “woke” investing, many U.S. firms remain dedicated to ESG initiatives. Investor interest also remains somewhat robust, as these funds continue to attract attention for considering both financial performance and environmental, social, and governance factors. While there have been big outflows from the sector, many institutional investors are approaching climate risks and opportunities in their portfolios with a heightened sense of urgency, with an August analysis published in the Harvard Business Review showing that nearly three-quarters of the corporate climate commitments announced in 2021 had been fully or partially achieved. JPMorgan Chase & Co. and Citigroup Inc. are among the top global underwriters of green bonds this year, while Bank of America, alongside other prominent investment banking firms, recently sponsored ESG-focused conferences in New York and Chicago.
With that in mind, ESG funds saw strong performance in the first half of the year, largely driven by their substantial investments in technology stocks. Most ESG funds that aren’t focused on renewable energy tend to allocate more to tech stocks while maintaining a lower exposure to oil and gas stocks. In the first six months of the year, the S&P 500 rose by approximately 15%, and nearly 60% of this gain was driven by the majority of the ‘Magnificent Seven’, which are often among the largest holdings in ESG funds.
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Our Methodology
To create the list of top ESG stocks to buy now, we chose companies from the Vanguard ESG U.S. Stock ETF and ranked them by their percentage weight in the fund, listed in ascending order. In addition, we used hedge fund sentiments regarding each stock to illustrate how well these stocks hold up in the eyes of hedge fund investors. These were taken from Insider Monkey’s Q2 2024 database.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Tesla, Inc. (NASDAQ:TSLA)
Percentage of holdings in the fund: 1.28%
Number of Hedge Fund Holders: 85
Tesla, Inc. (NASDAQ:TSLA) is the global leader in the electric vehicle (EV) industry. In the past year, Tesla, Inc. (NASDAQ:TSLA) continued to showcase this leadership in the electric vehicle market by significantly bolstering its revenue through carbon credit sales. In 2023 alone, Tesla, Inc. (NASDAQ:TSLA) generated $1.79 billion from these sales, adding to the nearly $9 billion amassed since 2009. Even with a slight year over year dip in quarterly carbon credit income, the automaker’s annual revenue from these credits reached a record high that year. This outcome defies earlier predictions that regulatory credit income would decline as more competitors enter the EV market.
Tesla, Inc. (NASDAQ:TSLA)’s earnings for the second quarter fell short of expectations, driven by a decline in automotive sales for the second consecutive period. Despite a 2% revenue increase to $25.43 billion compared to the same quarter last year, automotive revenue dropped by 7% to $19.9 billion from $21.27 billion. This figure includes $890 million in regulatory credits, more than triple what it was a year ago.
Despite Tesla, Inc. (NASDAQ:TSLA)’s recent challenges, Truist Securities analyst William Stein remains optimistic about the company’s shift from traditional car manufacturing to AI, which he believes could unlock significant value. On August 14, he reaffirmed his ‘hold’ rating on Tesla, Inc. (NASDAQ:TSLA) with a price target of $215, representing a 6.76% potential upside. Stein highlighted that only about a third of the company’s current revenue and profit comes from its automotive and energy storage products, with the remainder driven by its advanced driver-assistance systems, including self-driving software, robotics, and AI training services. He stated, “Based on our current estimates, which we do not consider particularly conservative, we value these [car and energy-storage] businesses at $267 billion, or $75 per share.”
Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) manufactures electric vehicles, related software and components, and solar and energy storage products. The stock contributed as Tesla continued to drive vehicle manufacturing costs lower, accelerate the launch of new models, and invest heavily in its lucrative AI initiatives. Shareholders reaffirmed the CEO’s compensation plan, alleviating personnel and legal uncertainties. Despite material operational complexities resulting in significant shutdowns of key manufacturing facilities and lower sales volume, Tesla presented better-than-expected margins in the quarter. It expects to launch a lower cost model as soon as late 2024, which should result in accelerated revenue growth, reduced manufacturing costs, and increased factory utilization. The company continued to advance its autonomous driving capabilities, expanding its already significant data centers and developing its humanoid robot Optimus. These investments increased confidence in the attractive growth opportunities that remain ahead.”
9. JPMorgan Chase & Co. (NYSE:JPM)
Percentage of holdings in the fund: 1.39%
Number of Hedge Fund Holders: 111
JPMorgan Chase & Co. (NYSE:JPM) operates globally across sectors like Consumer & Community Banking, Corporate & Investment Banking, Commercial Banking, and Asset & Wealth Management. In 2023, the firm achieved a 15% reduction in Scope 1 and Scope 2 greenhouse gas emissions from 2019 levels, advancing toward its goal of carbon neutrality by 2030. JPMorgan Chase & Co. (NYSE:JPM) also facilitated over $200 billion in green financing, including renewable energy projects and green bonds, contributing to its $2.5 trillion sustainable development financing target by 2030. Additionally, the bank invested over $500 million in community development programs, focusing on affordable housing and small business support in underserved communities.
On the financial front, JPMorgan Chase & Co. (NYSE:JPM) delivered a robust financial performance in Q2 2024, reporting net income of $18.1 billion and earnings per share of $6.12 on $51 billion in revenue. After adjusting for one-time items, net income was $13.1 billion, with an EPS of $4.40 and revenue of $43.1 billion. The quarter highlighted the bank’s strengths across various segments, including investment banking, asset and wealth management, and Cards. Additionally, JPMorgan Chase & Co. (NYSE:JPM) repurchased $4.9 billion of its shares, contributing to a 30 basis point increase in its Common Equity Tier 1 (CET1) ratio.
Following the earnings release, Citi raised its price target for JPMorgan Chase & Co. (NYSE:JPM) from $205.00 to $215.00, while maintaining a Neutral rating. BMO Capital also reaffirmed its Market Perform rating with an unchanged price target of $205.00.
Carillon Tower Advisers said the following about JPMorgan Chase & Co. (NYSE:JPM) in its fourth-quarter 2023 investor letter:
“PNC Financial and JPMorgan Chase & Co. (NYSE:JPM) performed well due to more benign inflation data, which the market likely interpreted as a sign that a recession is now less likely to occur. Recall that historically speaking, banks are hyper-cyclical stocks and typically will trade lower if investors foresee a recession, because recessions tend to trigger loan losses.”
8. Broadcom Inc. (NASDAQ:AVGO)
Percentage of holdings in the fund: 1.62%
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO), a global leader in technology, specializes in designing, developing, and supplying a wide range of semiconductor, enterprise software, and security solutions. Following its significant acquisition of VMware in November 2023, the company plans to reassess its baseline and set new Scope 1, Scope 2, and Scope 3 greenhouse gas emission reduction targets. According to the company’s ESG report, these new targets will align with the UN Paris Agreement and the Science Based Targets initiative (SBTi) goal to limit global warming to 1.5° Celsius above pre-industrial levels.
In a recent note, TD Cowen identified Broadcom Inc. (NASDAQ:AVGO) as a stock poised to benefit from the surge in AI spending. Analysts at the firm noted there are “no signs” of slowing demand for generative AI and emphasized that Broadcom recently raised its full-year AI revenue outlook. The company now expects AI-related revenue to reach $11 billion in 2024.
Broadcom Inc. (NASDAQ:AVGO) exceeded expectations in the second quarter, reporting $12.49 billion in sales and earnings per share of $10.96. Additionally, the company raised its AI-related revenue forecast to over $11 billion for the current year. These developments follow Broadcom’s recent 10-for-1 stock split, leading several analyst firms to adjust their price targets. Cantor Fitzgerald maintained an Overweight rating and set a new price target of $200. Oppenheimer also lowered its price target to $200 but kept an Outperform rating, while TD Cowen increased its target to $210 and maintained a Buy rating.
Aristotle Atlantic Large Cap Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. The company strategically focuses its research and development resources to address niche opportunities in target markets and leverage its extensive portfolio of U.S. and other patents and other intellectual property to integrate multiple technologies and create system-on-chip component and software solutions that target growth opportunities. Broadcom designs products and software that deliver high performance and provide mission-critical functionality. The company has a history of innovation in the semiconductor industry and offers thousands of products that are used in end products such as enterprise and data center networking, home connectivity, “set-top boxes broadband access”, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Broadcom differentiates itself through its high-performance design and integration capabilities and focuses on developing products for target markets where it believes it can earn attractive margins.
We view Broadcom’s semiconductor business as being very well positioned to benefit from secular growth in data center networking, which is being driven by AI and cloud computing. The company continues to invest in research and development, and we see this as a competitive advantage for the company. Broadcom’s infrastructure software business is a recurring revenue business model that provides mission-critical mainframe support software to its customer base. The recent VMware acquisition will enhance this business strategy and accelerate the growth rate of this business unit, as VMware’s product suite includes key tools for AI server upgrades. Our long-term investment thesis is supported by Broadcom’s success in its strategy of maintaining technology and market share leadership in mission-critical markets with high switching costs and deep profit pools.”
