Once a niche corner of the investment world, ESG investing is now mainstream.
Since the turn of the century, corporations have devoted more and more resources to promoting sound environmental, social, and governance practices in conjunction with tighter regulatory scrutiny. It is a trend that has accelerated in the wake of the pandemic amid an increased focus on transparency and higher standards of living.
As companies have made ESG causes a greater priority, so too have investors. This is especially true of Millennials and other younger generations who have been credited with ushering in the era of sustainable investing.
Given its relatively youthful base, the ESG space is expected to have a long road of growth ahead. In its 2022 ESG Outlook, J.P. Morgan Asset Management stated that $500 billion flowed in ESG-integrated funds last year representing 55% growth in AUM. It also noted “we expect growth in ESG investing to continue through 2022, and well beyond”.
Of course, choosing a stock to do good and choosing a stock to do good for portfolio performance aren’t always one and the same. Yet the two approaches can certainly be combined to fulfill both goals.
Here are three companies that can have a positive impact on the world—and on investment returns.
Is Archer-Daniels-Midland ESG-Friendly?
Archer-Daniels-Midland Co. (NYSE:ADM) is an ESG leader in the food products industry according to MSCI’s ESG Research methodology. This mostly relates to the strength of the company’s climate change programs. ADM provides technical and financial support to its suppliers to promote sustainable agriculture practices. This in turn reduces both its upstream greenhouse gas emissions and overall water usage.
Compared to its peers, the farm commodity distributor is considered to have better water conservation measures in place and lower water withdrawal intensity. One of the ways ADM acts as a steward for sustainable water practices is by participating in the World Wildlife Fund’s AgWater Challenge. Since 2016, the project has gotten food and beverage companies like ADM to commit to protecting freshwater in their supply chains.
Already up 30% this year, ADM stock is in the midst of a nice run. While a dip may present a better entry point, the company’s position as a key food chain cog and worldwide demand for nutrition makes it a healthy long-term ESG play.
What are Owens Corning’s Sustainability Goals?
Owens Corning’s (NYSE:OC) position as an ESG leader for the building products industry is driven by the ‘S’ component of ESG—strong social practices. The insulation and roofing manufacturer is known to put employees at the center of its workforce productivity and safety management efforts. Its 2021 Sustainability Report details several stories about how its employees make a difference in day-to-day operations and are an active part of the decision-making process.
Sustainability is also a big focus at Owens Corning where it has three goals: 1) expanding its product handprint; 2) reducing its environmental footprint, and 3) increasing its social handprint. Each of these goals is linked to more specific targets around making products that have a positive impact, reducing negative operational impacts, improving employees’ quality of life, promoting diversity, and having positive impacts on local communities.
Owens Corning’s ESG focus starts at the top. CEO Brian Chambers was the recipient of 3BL Media’s 2021 Responsible CEO of the Year Award in the category of ESG Transparency. What’s also transparent is the company’s growth opportunities in the housing and construction markets. With the Street forecasting 22% profit growth this year, the stock’s 9x forward P/E makes it a bargain ESG investment.
What Makes Target an ESG Friendly Stock?
Target Corp. (NYSE:TGT) scores high among retailers because of strong ESG practices across the board but especially with regard to the environment. That’s because product design and management initiatives incorporate principles of green chemistry, which is all about making things that reduce the presence of hazardous substances. It accomplishes this by continually seeking out viable, less hazardous alternatives to stock the shelves and keep customers and the environment safe.
The company’s Target Forward program is a series of measurable goals around caring for employees, the community, and the planet. The goals relate to creating sustainable brands, finding innovative ways to eliminate waste, and bringing opportunity and equity to the workplace.
Among Target’s goals is to become the market leader in sustainable brands and inclusive experiences by 2030. It is aiming to have all of its own brands made from 100% recycled materials like wood and cotton by the end of the decade. Earlier this year Target Zero was launched, an effort to help guests find products that create less packaging waste.
Target’s private brands are not just ESG-friendly but are becoming an increasingly important part of the business. Last year they accounted for nearly 30% of revenue and provided a big boost to margins. This trend is expected to continue which, along with a strong e-commerce
channel, should keep this ESG-friendly stock delivering the green for investors.
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