That 401(k) from your last job remains where you left it. Your current IRA is on autopilot. There's a good chance you don't even remember what they're invested in. These accounts are still at work building your retirement savings, but they're also doing more than that.

Every investment dollar you put out in the world impacts people and the planet. Some of those impacts are positive and some are negative, but for better or worse, those impacts are helping shape the future that the next generation will inherit.

Most people never tell their retirement dollars what to do beyond "grow." But if that's all you're telling them, you're missing an opportunity to do more. What kind of future do you want for your retirement? What do you want to leave behind for your children and grandchildren?

Of course you want your investments to increase in value so that you can retire comfortably, but you also want them to do so in a way that creates long-term, sustainable value for future generations. It's a simple notion, and it's easy to do by aligning your retirement investments with your values.

Don't just think about your IRA as a vehicle for retirement savings — think of it as part of the legacy you'll leave behind.

What's in your portfolio?

Most people own mutual funds in their retirement accounts, through which they typically invest in stocks and bonds. Your account dashboard probably abstracts these investments into a performance graph and a target number, but that hardly tells the whole story.

In reality, your investments support a wide variety of businesses that have far-ranging impacts on customers, workers, communities and ecosystems around the world.

When you invest in a standard index fund, you own a little bit of everything, including companies that may have significantly negative social and environmental impacts:

• Companies that make money by selling harmful and/or addictive products, such as cigarettes or gambling services
• Companies that are disproportionately contributing to global emissions and climate change
• Companies that are narrowly focused on short-term profit without regard for the long-term health and sustainability of the environmental, societal and financial systems that underpin their success

What most people don't realize is that they have options. You can choose to invest in companies that are creating value for people and the planet, rather than extracting it.

Would you rather invest in a company that profits from the mass proliferation of firearms or in a company developing life-saving medicines? Would you rather invest in a company that blindly sources materials from suppliers that exploit migrant labor or in a company with robust supply chain standards and monitoring programs?

The good news is, you don't have to pick and choose individual companies yourself. There are funds that do the research and make these decisions for you.

By investing in impact funds — actively managed mutual funds with environmental and social goals and standards — you can continue to build retirement savings through diversified portfolios that are better for people and the planet while helping ensure that your children and grandchildren inherit a more sustainable and equitable future.

Impact fund managers recognize that what's good for people and the planet is also typically good for business, so they encourage the companies they invest in to operate in a responsible and sustainable manner. Here's an example of what that impact looks like in action.

In Vermont, dairy farmers have been calling on Hannaford Supermarkets to join Milk with Dignity, a program that was created to establish basic labor standards around fair pay and safe working conditions for the dairy industry.

This past spring, an impact investing fund invited those farmworkers to attend the annual general meeting of Hannaford's parent company, Ahold Delhaize, to present concerns to the board of directors and other shareholders.

After the meeting, company management agreed to continue a dialogue with the farmworkers. This access would not have been possible without impact investors opening the door.

Any retirement account can help drive this kind of impact, if chosen well.

Values without buzzwords

Unfortunately, impact funds are not immune to jargon that can make investing so needlessly complicated for individuals.

Our advice is to tune out the buzzwords. You'll want to look for funds that publish clear environmental and social investment standards, show how they engage with companies to drive change, and regularly report to fund shareholders on their efforts and progress.

Ask:

• What are this fund's sustainability objectives?
• Does the fund manager explain how they avoid investments that might undercut those objectives?
• Do they have clear and transparent standards?
• How do they measure and report on progress?

It's also worth looking at how the funds use sustainability metrics to pinpoint opportunities to create positive change.

For example, impact investors generally recognize that the transition to a low-carbon economy is critical, not only for the future of our planet, but also for the long-term sustainability of our investment portfolios.

Impact funds should show that they are working to reduce the carbon intensity of their portfolio and mitigate exposure to climate-related risks.

Reducing exposure or divesting from fossil fuels and high-emitting sectors is only part of the solution. Impact investors are also working with companies to develop robust climate action strategies that include science-based emissions reduction targets and plans for transforming their business models to align with and contribute to a just and equitable transition.

Impact investors get results when their funds are actively committed to driving progress. Dramatic change rarely happens overnight, but by pointing their retirement savings to work on change, investors can help raise the bar for corporate behavior and drive meaningful progress toward sustainability.

Putting it together

The start of the year is the perfect time to consider your retirement savings and a shift to impact investing. If you have an old 401(k), request a direct rollover. If you make an annual IRA contribution, think about where it's going, and make sure you're picking funds that reflect both your financial goals and your values.

It probably won't feel very different once you make the shift. You'll still get your periodic account statements and have access to dashboards and performance graphs. The value of your account will rise and fall with the market over time — hopefully building toward long-term savings.

Try not to go back on autopilot. Continue to scrutinize your investments and make sure the funds in you invest in are disciplined in their approach and are investing in portfolios that fit your goals and values.

Communication and transparency are important, so look for regular reporting. Make sure your fund managers are letting you know what your money is doing. It's their responsibility to trace a direct line between your investment dollars and real-world impact.

Financial markets often boil real things down into numbers. An impact fund manager should work in reverse — that is, helping you interpret real impact from the numbers.

The impact may not seem very big at first. After all, an individual's retirement wealth is tiny compared to the amount money flowing through the stock market. But when you invest in a mutual fund, your investment dollars are pooled with those of others.

By collectively aligning your retirement portfolios with your shared values, you can be a unified voice for positive change in the world.

So don't just invest for your retirement. Invest for the next generation. Put your money to work building a better future for your children and grandchildren, and leave them a legacy of financial stability and environmental and social responsibility.

Related Content

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• SRI Redefined: Going Beyond Socially Responsible Investing
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• Committed to Sustainable Investing? Three Questions to Ask Your Adviser

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Over my nearly 30 years working as a financial adviser, I have seen a lot of change. For a long time, SRI stood for socially responsible investing. Some advisers and clients still call it that, and they’re certainly not wrong to continue to do so.

However, there is much more to SRI than simply being socially responsible.

Over the years, investors wanted to take a more data-driven approach to responsible investing, making better investment decisions to enhance SRI.

In 2004, the UN report Who Cares Wins coined the term ESG, saying, “…a better consideration of environmental, social and governance factors will ultimately contribute to stronger and more resilient investment markets, as well as contribute to the sustainable development of societies.” Out of this, ESG data was born.

The problem with ESG data is that it is not standardized, and large asset managers equate the term with sustainability.

Therefore, ESG metrics gauge a company's environmental, social and governance risks and are a best practice to enhance an investment manager’s due diligence. So, ESG helps create a “less bad” portfolio with reduced risk, but it is not necessarily a sustainable one.

The new SRI

Sustainable investing needs to evolve to address the demands of our changed climate, ensure the ability of future generations to thrive, be resilient in the face of climate impacts and lead the way in science and innovation.

Because of this, I believe that SRI has evolved to mean sustainable, resilient and innovative investing.

Sustainability is the concept that the current generation can meet its needs without compromising the ability of future generations to meet theirs. In an ideal world, all generations have the opportunity to thrive.

Sustainable companies focus on resource efficiency, health and equity. From clean energy and EVs to green real estate, electrification and the circular economy, sustainable investments promote a new economy concept.

A changed climate

It’s time to stop using the term "climate change" as a matter of practice. The evidence shows that we are now living with a changed climate.

The devastating impacts of storms such as Hurricane Helene, the uncontrolled wildfires in the West and the rising sea levels show that climate change will not happen in the future. It is here now.

Because of the changed climate, infrastructure needs to be updated and built out to be more resilient and adaptive to this new changed-climate paradigm.

Cities such as Miami and Virginia Beach are regularly experiencing flooding during king tide events. Communications systems went down across western North Carolina during Hurricane Helene and need to be hardened so residents aren’t left without a lifeline during the next storm.

And the prevalence of wildfires in populated areas calls for the development of fire-resistant structures, landscaping and even barriers.

How we deal with the changed climate is just as important as reducing emissions, electrifying the economy and creating equity.

Looking to the future

Innovation defines our generation. Over the past few decades, we’ve seen technologies such as smartphones, MRIs and GPS change our lives and solve some of the world’s greatest challenges.

With the advent of artificial intelligence (AI) and iterative learning, the pace of innovation is likely to continue growing exponentially. The timing couldn’t be better, because without serious innovation, facing the existential challenge of the climate crisis will be very difficult.

Investing in this next level of innovation offers an opportunity to fund technologies that will reduce emissions, transition financial and energy systems and develop cutting-edge medicines.

We’re likely to see game-changing technologies such as fusion power, advanced materials and maybe even a cure for cancer.

The evolution of SRI to a more modern definition of sustainable, resilient and innovative investing is a natural progression of the practice that began in 1760, when John Wesley, the founder of the Methodist movement, gave a sermon entitled The Use of Money. In this sermon, Wesley espoused the concept of ethical gains, saying one should “gain all we can without hurting our neighbor in his body.”

We’ve come a long way since 1760 and now have technologies and challenges that Wesley could never have imagined. Investing in solutions to create a sustainable, resilient and innovative economy is the best way to ensure that future generations will not just live but thrive.

This Earth Day, ask yourself if your investments are contributing to innovation or stuck in the past. Your planet (and portfolio) will thank you.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

401(k) plans run by money management firms that incorporate environmental, social, and governance (ESG) factors in their investment decisions are under attack.

Earlier this month, a Texas U.S. District Court judge ruled in favor of an American Airlines pilot who sued the airline in a class action lawsuit for hiring an investment manager (BlackRock) that bases its investment decisions for AA’s 401(k) plan on ESG and non-financial factors. The plaintiff argued that American Airlines violated its fiduciary duties by mismanaging the retirement plan when they utilized investment managers pursuing non-financial and nonpecuniary ESG policy goals.

The case, likely to be appealed, is the latest assault on ESG investing, which has come under fierce opposition from conservatives. “This case is special because it is the first such case dealing with ESG,” says Joshua Lichtenstein, an attorney who heads the ERISA fiduciary practice at law firm Ropes & Gray.

The case against American Airlines

The Spence v. American Airlines case did not involve ESG funds or ESG products. Rather, the lawsuit took aim at the airline for using an investment manager for its $26 billion retirement savings plan with a record of pro-ESG proxy voting practices and shareholder activism in pursuit of ESG goals. American Airlines thus allegedly failed its duty of loyalty to its workers in the plan, but not its fiduciary duty of prudence.

In the ruling, Judge Reed O’Connor of the US District Court for the Northern District of Texas said American Airlines allowed its retirement plan to be influenced by corporate goals “unrelated to workers’ best financial interests.”

“It’s just the first step in the case,” said Aliya Robinson, managing legal counsel for T. Rowe Price’s legislative and regulatory affairs division. “This is probably not the final word on the case. There are a lot of questions out there, still. We’ll continue to follow the case as it evolves.”

Indeed, the judge has yet to decide whether any financial remedies or damages will be awarded. And the legal community expects an appeal at the Fifth Circuit. The impact, at least for now, is unclear, attorneys say.

ESG Funds in 401(k) plans

So, are ESG funds at risk of being removed from 401(k) plans?

That draconian outcome is unlikely, says Lichtenstein. “I don’t think this case will have a material impact on the use of ESG funds (in employer-sponsored retirement accounts) as long as the plan fiduciary can show they selected the fund based only on financial factors.” That said, Lichtenstein says the 401(k) space is extremely litigious and any potential new claim that could be brought against multiple plan sponsors is an important risk to consider. “The biggest impact of this case on ESG funds is likely to be scrutiny of how they vote proxies,” said Lichtenstein.

But the ruling opens the door for ESG funds to be jettisoned from employer-sponsored retirement plans, says Jacob Frenkel, chair of government investigations and securities enforcement practice at law firm Dickinson Wright. “The case stands for the clear proposition that 401(k) plan participants invest their money to make money,” said Frankel. “The investment purpose is not to advance a political or social agenda.”

Whether ESG funds are at risk of being removed from 401(k) plans will depend on the reason a fund was selected for the fund lineup, says Frankel. “Funds that are ESG-friendly, but the ESG concept is not the rationale for the fund’s selection, should be safe. If the (reason) is anything other than ‘financial benefit,’ the plan could have a problem and could start staring at litigation.”

The impact on 401(k) investors

The judge’s ruling does have potential negative consequences for 401(k) investors.

Proponents of ESG investing argue that the ruling limits investment choices for 401(k) savers.

“If left to stand, the Court opinion poses a serious threat to investors’ right to rely on financial advisors and asset managers or make their own informed decisions about how to invest their retirement savings,” said Danielle Fugere, president and chief counsel of As You Sow, a non-profit that promotes corporate social responsibility through shareholder advocacy.

Moreover, the ruling creates a chilling effect that harms 401(k) plan participants. The “fear of lawsuits” could prevent plan fiduciaries from offering participants a wider variety of funds that could allow for better returns and diversification opportunities, Lichtenstein adds.

The risk is if the case becomes a “blueprint for other cases,” says Lichtenstein. “If the Fifth Circuit upholds the opinion, then the Fifth Circuit could become ground zero for copycat cases.”

ESG proponents argue that taking environmental, social and governance factors into consideration is an essential component of the risk analysis for any investment. For example, insurance companies that operate in areas of high fire or flood risk must factor rising climate risk into premium pricing, according to State Street Global Advisors. The court ruling concluded that “just because a financial firm (BlackRock) says (climate change) is ‘financial’ or ‘material’ does not automatically mean that it is.”

“Fiduciaries have an obligation to consider and mitigate long-term climate risk,” said Fugere. “This decision will handcuff them from doing so.”

Expect more scrutiny of ESG in 401(k)s

ESG investments have gained a following among investors. Most 401(k) participants (74%) say having ESG options could inspire them to increase their contribution rate, according to Schroders 2002 U.S. Retirement Survey.

Yet, fewer than 15% of 401(k) plans offer an ESG fund in their investment lineup, according to research by Jane Danyu Zhang, assistant professor of finance at the University of Oregon’s Lundquist College of Business. Zhang’s research found that plans were more likely to offer an ESG option in an employer retirement account if they were in politically liberal jurisdictions.

However, a Gallup poll found that 48% of Americans say retirement fund managers should only take financial factors into account when making investment decisions, vs. 41% who say the managers should also consider ESG factors.

Given the judge’s ruling in Spence v. American Airlines, there’s no doubt employee benefits executives will have to take a close look at the motivations for their investment decisions in 401(k) plans.

“Employee benefits committees and investment managers of 401(k) plans should reevaluate promptly whether the reason for the investments of 401(k) plan assets is solely for financial benefit of plan participants, with social and political considerations being irrelevant to their consideration,” said Frenkel.

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As sustainable, responsible and impact investing (SRI) continues to gain popularity, more investors have questions and are curious to see if it's right for them.

According to US SIF, the Sustainable Investment Forum, about $8.4 trillion is invested using sustainable investing strategies in the U.S. — that’s equivalent to one out of every eight professionally managed dollars.

Despite some of the negative politics leveled at responsible investing, using ESG (environmental, social and governance) metrics to construct a portfolio is simply a good practice. As a fiduciary, it’s important for me to know as much about a potential investment as possible, and ESG metrics are just as important as traditional, fundamental measurements.

It's critical to keep in mind there is a difference between ESG and sustainable investing. ESG is simply the metrics — it’s the data that helps your adviser make a decision about your investments. Sustainable investing is the final portfolio. Some investment managers will try to create a portfolio by layering ESG risk metrics over a traditional index such as the S&P 500. While this may have a better outcome than the original portfolio, it still usually includes fossil fuel companies and other non-sustainable companies.

A truly sustainable investment portfolio is built with intention, asking the question, “What kinds of companies are going to make the world a more sustainable and resilient place?” It’s a new way of thinking for a new economy.

I like to describe the difference like this: An ESG index that reduces its exposure to ExxonMobil is “less bad.” A portfolio that eliminates the company is better. But a portfolio that replaces it with First Solar is sustainable.

With all of that in mind, here are three key questions that you should ask your financial adviser about responsible investing:

1. How much experience do you have with sustainable investing?

The practice has been around for decades, but only a select few advisers have specialized in it. Brokerage houses of all sizes have added ESG portfolios to their investment options, but not all of their advisers have taken the opportunity to educate themselves on the ins and outs of SRI. Look for advisers with the CSRIC designation, which means they are a Chartered SRI counselor and completed a course on the topic.

2. How will you avoid greenwashing and create an intentional sustainable portfolio?

All too often, the ESG portfolios that brokerages put together include greenwashed ESG index funds, or ESG funds that are not sustainable. As described above, these portfolios are simply less bad versions of traditional stock indexes. I’ve found that most individual investors are interested in a solutions-based portfolio — one that truly reflects their personal values. An impersonal ESG index fund likely won’t meet your priorities. It’s just as important to understand what companies the adviser is removing from and adding to your portfolio.

3. Do you use outside managers?

A great way to eliminate the oftentimes proprietary investment recommendations proposed is for an adviser to use an outside expert SRI portfolio manager. These are often termed SMAs, or separately managed accounts. Your adviser basically contracts with the outside expert portfolio manager to oversee the investments for you while the adviser continues to manage the relationship. It’s the best of both worlds!

When you choose to invest with your values, it may make for an uncomfortable conversation with your current or prospective adviser. But it’s important that you not be shy about asking the tough questions — you don’t want to get a year or two into the relationship only to find out that your investments include ExxonMobil and DuPont (which is entirely possible with some “less bad” ESG index portfolios).

These three questions are just a guide to get you started becoming a more responsible investor. There are many more questions to ask depending on your personal situation, values and goals. Make a list before your meeting, and don’t be afraid to say “next” and move on to another expert if your adviser doesn’t understand how to craft a sustainable portfolio that aligns with your values.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Did you know it's proxy season, that period from roughly April through June when public companies hold annual meetings? When you own stock in a publicly-traded company, you can vote by proxy on shareholder proposals about issues such as new board members. While it may seem boring on its face, remember that shareholder proposals essentially function as the complaints department for investors. If you agree with a shareholder proposal claiming the CEO's salary is too high, for example, this is your chance to vent your frustration.

While important, such shareholder proposals are not binding. However, they send strong signals to corporate management. These proxy season votes have garnered more interest in recent years, thanks to support of various resolutions from large mutual fund companies (which vote on behalf of investors) and proxy advisory companies.

2023 proxy season highlights

With this year's proxy season well underway, several trends have emerged, many of them holdovers from the 2022 season.

In the first half of 2023, at least 803 resolutions were filed with companies in the Russell 3000 index, which is on par with the first half of 2022, according to a Harvard Law 2023 proxy season report. Most of these proposals ask companies to address environmental risks such as climate change or biodiversity. About a quarter of all proposals filed pertain to corporate governance, reflecting concerns about political influence and executive compensation.

All shareholder proposals (on environmental, social, governance (ESG) and anti-ESG) received less support in 2023. Generally, these resolutions are said to pass if they receive over 50% of shareholder votes.

These low-vote figures obscure important contexts, however.

• Some environmental proposals received a low vote because the company had already implemented the requested changes, such as disclosing greenhouse gas emissions.
• Overly prescriptive proposals did poorly — for example, asking a company to revise a specific carbon-emissions goal. Those asking for disclosure or research did better.
• Regulatory changes in 2022 have made it harder for companies to dispatch a proposal through the "no-action" process; as a result, the total number of resolutions filed in 2022 and 2023 rose dramatically from prior years. Some of these proposals were esoteric or unlikely to attract many votes.
• Finally, the intensifying politics around ESG investing reduced votes for ESG proposals. So-called "anti-ESG" investors also lowered average vote support by submitting less-successful proposals. These proponents submitted almost 90 proposals, none of which passed; the average vote for was only 6%.

"Say on pay" vote results

"Say on pay" proposals ask shareholders to support or reject a company's executive pay plan. Unlike other proposals, where a vote under 50% is said to fail, corporate pay watchdogs consider a say on pay vote under 50% to be successful. Such low votes mean that shareholders oppose corporate pay plans. For example, just 27% of shareholders voted in favor of Netflix's proposed executive compensation in 2022, and the measure failed again in 2023 with only 28.8% in favor.

Twelve companies failed say on pay resolutions, acccording to research by RBC Capital Market's ESG Group, shown below.

Why should investors care about these votes? When RBC analyzed the future performance of companies that received lower support for say on pay resolutions, they found that these companies tended to underperform on average in the first and third year after the vote. By the fifth year, company performance had recovered.

How does your mutual fund or ETF vote?

In recent years, the "big three" firms — BlackRock, Vanguard and State Steet — dramatically increased their support for ESG proposals. In fact, BlackRock's CEO defended ESG investing as a no-brainer in his January 2022 letter to shareholders, saying that moving away from fossil fuels as an energy source was the investment opportunity of a lifetime. But after an ESG investing backlash in 2022, these firms reduced or eliminated their voting support for ESG proposals.

If you own an ESG fund or ETF, you may assume that managers vote for shareholder proposals related to sustainability most of the time. However, a report by Planet Tracker found that the big three investment firms are more likely to vote against biodiversity proposals, even for the shareholders they represent in their ESG funds.

To see the kinds of shareholder proposals your fund supports, go to the fund's website and search for "proxy voting guidelines" or "corporate engagement principles."

You can also get a quick sense of your fund's commitment to ESG shareholder engagement and proxy voting by going to As You Sow's Invest Your Values tool. Enter the fund or ETF ticker, and look for the "sustainability mandate" grade. If the fund is listed as being a member of the trade association for sustainable investing, USSIF, it is more likely to vote for ESG proposals.

If you are interested in investments that vote against progressive ESG proposals, check out some of the ETF funds for anti-ESG investors.

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Netflix (NFLX) shareholders sent a clear but largely symbolic message to corporate executives at its annual meeting yesterday — don't ask for a raise. The "say on pay" shareholder proposal failed to pass, meaning investors thought the company's roughly $78 million compensation for the top three executives was unjustified.

The Writers Guild of America (WGA), currently on strike for better pay from platforms like Netflix, lobbied shareholders to vote against the pay raise.

"This excessive sum, paid to just a handful of execs, could pay for Netflix’s annual share of all of WGA’s proposed improvements for writers — twice over," the WGA stated in a Twitter thread.

Netflix's proposed pay packages for 2023 included roughly $40 million for its CEO, Ted Sarandos, and $34.6 million for co-CEO, Greg Peters. The executive chairman, Reed Hastings, would receive $3 million.

"Say on pay" proposals rarely fail

Companies are required to solicit these "say on pay" votes each year, and the vast majority receive at least 50% — typically 90% or greater support for proposed executive pay. But Netflix shareholders have mostly rejected the company's say on pay proposals going back to 2019, and only 27% voted in support of last year's proposal.

Netflix's failure to gain shareholder approval for this year's compensation package is a big deal. Such high executive pay both rankles striking writers and shows the company failed to woo investors to its management strategy. Netflix waged an all-out charm offensive after the failed "say on pay" vote in 2022, hosting two listening tours for investors and preparing a detailed explanation for its pay package.

Writers for Netflix note this failure may impact the company's bottom line, especially as it cracks down on password sharing and ups advertising. As Meredith Stiehm, president of the Writers Guild of America West pointed out in a recent letter to Netflix, a "delay in the writing, production, and release of new content may impact Netflix’s ability to attract and retain subscribers and viewers just as the company asks customers to watch advertising and pay more for its content."

What's next

The Netflix board will meet to parse shareholder votes and determine next steps. In the meantime, Stiehm, of the WGA, sent a similar letter to Comcast.

"Comcast is asking shareholders to give retroactive advisory approval of the company’s 2022 reported executive compensation totaling over $130 million," she wrote. "By contrast, the proposed improvements the WGA currently has on the table would cost Comcast an estimated $34 million per year."

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The way businesses and industries are regulated affects people and the economy. So our hugely experienced Kiplinger Letter team will keep you abreast of the latest regulatory developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You will get all the latest news first by subscribing, but we will publish many of the forecasts online a few days afterward. Here’s the latest…

New emissions limits for fossil fuel-fired power plants are on the way.

The centerpiece of the Biden administration’s proposal is technology — specifically, carbon capture and storage, which is one of many ways regulators say that utilities can meet new emissions targets for gas and coal-fired power plants.

The Environmental Protection Agency also includes “co-firing” on its list of ways for power plants to comply. This basically involves burning a cleaner fuel alongside the main one, such as natural gas with coal, or hydrogen with natural gas.

Initial requirements would not kick in until 2030 for coal-fired power plants and 2032 for natural-gas plants and would vary based on several factors, including the size of a plant, how often it runs, its expected lifespan and whether it is new or existing.

Will plants be able to meet these targets?

The goal is to give tech time to catch up with the administration’s goals. But it’s still unclear whether carbon capture and green hydrogen will be ready when that time comes. For example, only two commercial coal power plants now supplying the U.S. grid employ carbon-capture tech. No gas-powered ones do.

Critics say the rules would increase electricity costs and hurt grid reliability by forcing more retirements of dispatchable grid resources — those that can more easily adjust their power output based on consumer demand, which includes gas and coal.

The Biden administration expects retail electricity prices to increase by 0.2% by 2035, fueled by utilities spending at least $10 billion to meet the proposed requirements. Also unclear: whether these regs could survive the inevitable legal challenge.

This forecast first appeared in The Kiplinger Letter. Since 1923, the Letter has helped millions of business executives and investors profit by providing reliable forecasts on business and the economy, as well as what to expect from Washington. Get a free issue of The Kiplinger Letter or subscribe. 

There’s a new wrinkle in the growing controversies over the rise of investment funds that promise to address environmental, social or corporate governance concerns. Amid investigations into allegations of “greenwashing,” or false promises of environmental improvements, and opposition to ESG measures from conservative political leaders, individual investors are gaining new opportunities to direct their money to funds pitched as contrarian responses to the ESG trend. 

At least nine new exchange-traded funds (ETFs) — some signaling their purpose with symbols such as DRLL — launched last year in reaction either to ESG issues specifically or to what some of the new fund founders label as a liberal political agenda behind ESG. In their short history, the 2022 crop of funds has cumulatively gathered more than half a billion dollars in investments, though that is dwarfed by the more than $101 billion in assets currently invested in 279 U.S. ESG ETFs. In 2022 alone, investors put over $5 billion more into ESG ETFs than they took out, according to independent research firm CFRA. 

An evolving debate on risk and shareholder value

Aniket Ullal, head of ETF data and analytics at CFRA, expects more political debates within the investment world. “Political intervention in ETFs is going to be an important story this year,” he says. Some state financial officials are already threatening to pull money from managers they charge are improperly using investments to further political agendas, and Republican leaders in the House of Representatives are threatening to investigate ESG investing. 

At the root of the debate is whether shareholders are helped or hurt by companies’ efforts to report on or address issues such as climate change or socioeconomic inequalities. And should companies stick with a conventionally short time horizon to define a risk as “material” enough to warn investors about, or should longer-term risks merit inclusion in a company’s investor reports? Federal financial regulators have been challenged by the task of determining exactly what ESG risks are material to shareholders. We won’t debate that here. But now, a backlash has begun.

Over the long term, the financial record of ESG investing and its progenitor, socially conscious investing, is mixed. Such values-based strategies have been around since Methodist and Quaker settlers refused to invest in businesses they saw as sinful. In the early 2000s, ESG investing largely pivoted away from its socially responsible roots, which put impact first. ESG investors instead sought to maximize shareholder value by anticipating sustainability challenges like water scarcity.

Backlash funds reflecting opposing views have a long history as well. In reaction to the “socially responsible investing“ boom of the 1990s, for example, some mutual fund companies developed so-called “vice funds“ that focused on firms profiting from tobacco, alcohol, gambling or firearms. But there is no clear evidence that either strategy consistently outperformed the broader market. 

A few of the funds that started in reaction to the current ESG trend have delivered market-beating returns recently. Still, most of the funds are too small or too new to warrant an investment recommendation, one way or the other, yet. And some funds are struggling to gather enough assets to cover their management and marketing costs. Just as investors must do when weighing pro-ESG investments, those who are intrigued by choices promoted as alternatives must wade through a variety of options.

Returns and other data are through January 31, 2023.

A new crop of ETFs opposed to sustainable investing 

By far, the most successful of the counter-ESG funds, in terms of attracting assets, are from Strive Asset Management. Strive was founded last year by Anson Frericks and Vivek Ramaswamy, author of Woke, Inc. The firm launched seven index funds in 2022. 

Strive’s strategy is to promise investors market-like returns through index funds — thus avoiding the danger of significant underperformance — while using its share ownership to vote proxies and engage with executives and board members to focus on, as Strive’s literature proclaims, “excellence over politics.” (Update: after this article went to press chairman and co-founder Ramaswamy announced he is running for U.S. President.)

Strive’s argument is that an ESG investing framework often detracts from profits. An analysis by the firm found more than 30 risk factors that investors might consider before buying a stock, says Matt Cole, Strive’s chief investment officer. He calls ESG-related risks “important,” but adds, “Where should those rank among the 30 to 40 risk factors? Probably, in our view, closer to the bottom.” 

Strive is already engaging with corporate management directly. For example, following the 2021 addition of new members of the board of directors at Exxon Mobil (XOM) with experience in climate science and clean energy, Strive wrote to and met with executives to argue that the board was now too focused on climate change. It is unclear how much influence Strive had over the company, but Exxon Mobil did add two members to the board last December with more conventional business expertise. 

Strive plans to engage with Dow stocks Chevron (CVX) and Home Depot (HD) in 2023, filing resolutions if need be, to counter recent successful ESG campaigns. In 2021, 61% of Chevron shareholders supported a proposal asking for greater climate disclosure. And in 2022, almost 63% of Home Depot shareholders supported a resolution seeking a racial equity audit to assess, among other things, the treatment of minority customers and the effectiveness of the firm’s diversity, equity and inclusion programs. 

In addition to filing its own shareholder resolutions, Strive in January launched a new, alternative proxy voting advisory service, aimed at “advancing long-run value, not progressive social and political agendas,” according to Justin Danhof, Strive’s head of corporate governance. 

Strive has quickly attracted more assets than the rest of the ESG alternative funds combined. The Strive U.S. Energy ETF (DRLL) has gathered roughly $400 million in assets since its August 2022 inception. The passively managed fund tracks a U.S. energy industry index, produced by index provider Solactive, which includes a wide array of energy subsectors but is most heavily weighted to oil and natural gas. The ETF’s top holdings are Exxon Mobil, Chevron and Conoco Phillips (COP). For context, Strive’s energy fund portfolio contains all of the 23 stocks found in the more established Energy Select Sector SPDR Fund (XLE), as well as about 30 additional companies, such as utility stock Exelon (EXC) and gas driller Ovintiv (OVV).

Strive’s large-cap index fund has garnered more than $113 million in assets since its August 2022 launch. Another sector fund, Strive U.S. Semiconductor ETF (SHOC), has collected more than $17 million in assets.

At least six other funds are focusing on using their assets — investor dollars — to either shun companies they believe are too liberal or to bet on firms they believe are being improperly boycotted by ESG-focused investors. Although many of these fund managers plan to vote their proxies, most say they are primarily focused on shaping portfolios that fit their values: “We believe disinvestment is more effective than engagement,” explains Bill Flaig, cofounder of the American Conservative Values Fund (ACVF), with about $36 million in assets. “The success that ESG investing had in raising assets did validate to us that people will invest with their values,” he says. 

Flaig starts with the universe of firms with a market value of at least $4 billion, then screens out companies “perceived as hostile to conservative values.” But because Flaig tries to keep his fund’s sector allocations close to that of the S&P 500, he often ends up investing in companies that look similar to the boycotted ones. Mastercard (MA), which has firearms purchase coding practices, is one of the fund’s largest holdings, for example. “The reality is we need to have some exposure to that industry. A lot of times it does wind up being a lesser of two evils,” he says. The fund generally holds between 200 and 400 names. Only four of its top-10 holdings match those of the S&P 500: Microsoft (MSFT), Berkshire Hathaway (BRK.B), Nvidia (NVDA) and Exxon Mobil. In the year ending Jan. 31, the fund, which has an expense ratio of 0.75%, lost 5.9% — finishing well ahead of the S&P 500, which lost 8.2%. 

In late 2022, a South Carolina–based financial adviser and radio personality launched a similar politically conservative (and anti-ESG) investing option, the God Bless America ETF (YALL). With more than $30 million in assets, founder Adam Curran starts with the universe of companies with market values of at least $1 billion, screens out companies he believes are espousing liberal politics, and then tries to make sure he provides exposure to all 11 main sectors in the S&P 500. 

Besides nixing conservative targets such as Walt Disney (DIS) and Google-owner Alphabet (GOOGL), he says he also avoids the 118 companies whose executives signed the Business Roundtable’s Stakeholder Capitalism commitment, which calls on companies to shift from focusing solely on shareholder returns to also consider concerns of customers, employees, suppliers and communities. 

“We certainly don’t like ESG. And we are the first ETF with the word 'woke' in the prospectus,” Curran says. But he says ESG ratings don’t play into his decisions. Curran’s largest holding is Tesla (TSLA), followed by Nvidia. Curran has been buying those stocks at what he believes are bargain prices since launching the fund in October. Their recent rebound is one reason the fund’s three-month return is 8.9%, compared with 5% for the S&P 500. 

One new ETF specifically focused on anti-ESG investing is 2022’s Constrained Capital ESG Orphans ETF (ORFN). But their stance isn’t political. The name and symbol come from the idea stated in the prospectus that certain kinds of businesses are “‘orphaned,’ discarded or excluded by ESG-centric mutual funds,” and thus can be bought at lower prices. Top holdings: Exxon Mobil, tobacco firm Philip Morris International (PM) and defense contractor Raytheon Technologies (RTX). 

Overall, the fund’s holdings were recently priced at an average multiple of just 14.7 times estimated earnings — below the 17.4 average for similar funds, according to the research firm Morningstar. The fund has lagged the broader market in the past three months, up 3.9%, compared with 5% for the S&P 500 index. With just $3.6 million in assets, the fund charges 0.75% in expenses. These funds are a sample of what is sure to be a wave of new market entrants in reaction to the ESG tsunami. Time will tell if these alternative offerings can garner the assets and deliver the returns they need to in order to thrive over the long haul.

Cyndi Lauper was not commenting on ESG investing when she sang “Money Changes Everything” in 1984. But she could have been. The entire premise behind ESG investing is to use the power of money to create positive change.

What is ESG? ESG encompasses broad areas that companies routinely impact, for better or worse. Businesses inevitably affect the environment (E) and can develop policies that minimize or neutralize the negative effects or produce positive effects in areas such as carbon emissions, water usage, green energy and pollution, to name a few.

Companies also impact the social (S) element, or the relationships it has with people and institutions in their community — that influence is demonstrated through hiring and labor practices, diversity and inclusion policies, workplace safety and philanthropy.

Finally, firms decide on governance (G) — the internal system of practices, procedures and controls for decision-making, governing itself and complying with the law. Governance includes matters such as board diversity, executive pay, business ethics, competitive fairness and financial processes.

ESG Investing Is Growing in Popularity

ESG investing has become an increasingly popular trend, but it’s not just a fad, as ESG assets have been steadily growing for decades now. Globally, ESG investors are increasingly putting their money where their mouths (and hearts and minds) are to the tune of a projected $50 trillion by 2025, up from $35 trillion in 2020. ESG assets represent a third of total global assets under management.

If the money is there, the next question is, is it creating positive change? The answer can be found by looking at examples of how industries and companies have created change with ESG in mind.

• Traditionally, mergers and acquisitions involve a firm making decisions primarily based on whether the target business would increase earnings. Now, firms are increasingly considering ESG priorities when deciding with whom to partner or acquire. For example, companies in the energy sector consider how the deal will benefit them with regard to clean energy, decarbonization targets and supply chains with sustainable sourcing practices.
• J.B. Hunt Transport Services, Inc. sets the bar in making the environment a priority. Its goal is to reduce carbon emission intensity by 32% by 2034 through alternative-powered equipment, more biogenic fuels and better fuel economy. The company also makes use of intermodal shipping, which is more efficient and involves fewer carbon emissions than over-the-road shipping.
• Green investing has incentivized companies like Graphic Packaging Holding Co., a producer of packaging material for food, beverage and consumer-products companies, to shift from producing plastic products to more sustainable paper goods. Changes like this bring us one step closer to a world free of foam cups, plastic takeout containers and six-pack rings.
• A growing number of corporations are issuing impact bonds to meet their ESG goals. In 2022, the agricultural company Archer Daniels Midland (ADM) issued $750 million of bonds with the proceeds going to environmental and social programs. According to the company's website, ADM’s sustainability goals include reducing greenhouse gas emissions by 25%, energy intensity by 15% and water intensity by 10% and achieving a 90% landfill diversion rate, all by 2035.

Just as ESG assets are on the rise, opportunities to invest are likewise growing. The most common way to invest in ESG and be automatically diversified is to choose from the hundreds of ESG mutual funds and ETFs available.

Personalized Indexing Gives Investors More Flexibility

An exciting development, though, is the personalized indexing (PI) option that has more recently emerged.

PI allows an investor to choose exactly which companies will be in their ESG fund, akin to the best Las Vegas casino buffet in investing. An investor could fill a plate with a scoop of wind energy, a dollop of social justice and a sprinkling of gender diversity while actively avoiding any helpings of animal testing or slices of unethical behavior.

This custom-tailored approach ensures the fund will precisely align with the investor’s values, rather than relying on a fund manager’s judgment, as well as provide enhanced opportunities to improve the tax efficiency of the investor’s portfolio.

So Many Choices Can Be Overwhelming

It's always nice to have a choice, and clearly the choices are plentiful when it comes ESG investing. Sometimes, however, those choices can also make investing seem somewhat overwhelming. The most surefire way to make sure your portfolio not only aligns with your values but also meets your overall investment goals is to work with a financial adviser well-versed in ESG.

ESG investors can feel good about intentionally and thoughtfully using their dollars to make a difference. ESG investing provides the opportunity to receive a return on an investment while prioritizing the environment, people and ethics at the same time.

Without ESG, would some companies independently create change on their own and focus on environmental, social and governance issues to make positive strides in those areas? Of course. Some companies would, but others would not.

The pressure and financial incentive to make that progress is important in encouraging good behavior across the board. The goal for many ESG investors is just that — to encourage positive change in our world by investing in funds and companies that prioritize those changes. Money talks, and beyond that, it has the potential to change everything.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

There are as many approaches to investing as there are investors. One strategy that has received much attention of late is ESG.

ESG stands for environmental, social and governance. It aims to mitigate the risks a company faces from poor practices in any of these areas. For example, a company that doesn't treat its employees well has a greater risk of strikes or lawsuits. One that doesn't treat the environment well could face fines or costly regulations in the future – not to mention backlash from investors and customers.

ESG is distinct from sustainable investing because it isn't strictly about "doing good."

The key feature of ESG is that it focuses on metrics that can create or destroy financial value, says Todd Cort, senior lecturer of sustainability at Yale School of Management.

Let's take a closer look at each of these metrics, how ESG can be incorporated into investment decisions, and if it should.

What does ESG mean?

ESG investing breaks these risks and opportunities into environmental, social and governance metrics. What does that mean in practice?

Environmental. An environmental analysis of a company will assess how big an impact the company makes on the environment and how well it manages that impact.

A beverage company, for instance, may get extra scrutiny because its business is water-intensive, but it can win points if it manages its water usage efficiently.

A mining or industrial company's environmental score matters more overall than that of, say, a software company or bank.

Social. This category covers issues related to employees, supply chain labor, customers and communities impacted by company operations. Some of these categories are especially important in a given industry.

Product safety, for example, is critical to the value of a pharmaceutical company, but less so to that of a publishing company.

Good employee relations are universally important for the retention and protection of a company's reputation.

Governance. Good governance rests on sound ethics and transparency.

ESG investors look for companies that have a track record of clean accounting, sensible executive compensation (bonuses that are tied to long-term company results, for example), and straightforward, timely communication with shareholders.

Each bit of ESG information is typically rolled up into scores assigned by ESG rating companies. In this way, investors can compare companies across industries or geographies.

An example of ESG

There are two broad approaches to ESG: positive screening and negative screening. The former looks for best-in-class companies. This would lead to a portfolio that still holds energy stocks, but opts for the highest-scoring oil company.

Negative screening entails eliminating "bad" companies. Such a portfolio may exclude all oil companies entirely.

"With ESG, beauty often lies in the eye of the beholder," says Robert R. Johnson, professor of finance, at Creighton University's Heider College of Business. Some may consider certain factors socially responsible while others don't.

"For example, some might consider The Coca Cola Company (KO) to be irresponsible because it produces sugary soda that leads to obesity and other health problems, yet it is a prominent holding in many ESG mutual funds and ETFs," he says.

ESG decisions can also be convoluted from a business perspective. Cort gives an example of a business that wants to invest $1 million in water efficiency technology that could save them $1 million per month in a future drought.

"Therefore, the business is taking on a risk that a water curtailment could impact them and that using less water would protect them from that risk," he says.

When incorporating ESG into your portfolio, it's important to look under the hood – be that the hood of a specific company or a fund. You need to look beyond a simple ESG score or label to discern the metrics that truly matter.

"The most effective strategies assess material sustainability factors at a sector-specific level," says Guy Gresham, a global capital markets and ESG expert who formerly served as Group Head of Global Investor Relations Advisory at BNY.

"A technology company's data security practices or an energy firm's climate transition strategy aren't just ethical considerations – they're fundamental business imperatives that directly impact valuation," Gresham adds.

With ESG funds, look at the investment strategy being used to ensure the fund manager's definition of ESG aligns with yours.

Why is ESG controversial?

"ESG has become a lightning rod in the investment world, with critics challenging everything from its methodology to its fundamental purpose," Gresham says.

Critics point to inconsistency in scores and a lack of standardization that bring its validity into question.

"The biggest problem in implementing ESG is that there are no universally accepted principles that constitute an ESG firm," Johnson says. "There are some firms, for instance, that produce sustainable products but have significant governance or labor issues."

This lack of standardization has led to variations in ESG scores for the same firm across rating providers. But standardization frameworks like IFRS Sustainability Disclosure Standards are working to resolve this.

There are also concerns over if it helps investment providers more by enabling them to market products as "ESG" without actually benefiting investors.

"The term has become politicized to represent two extremes," Cort says. One extreme is that it is a "distraction and dereliction of fiduciary duty." The other extreme is greenwashing, where companies mislead investors about their environmental impact.

Cort would argue that both of these are incorrect. "The reality is that ESG is only those environmental and social risks and opportunities that create and degrade financial value," he says. "So, the criticism is not fair because each side of the political spectrum is selecting only the extreme interpretation of a complex field in order to draw their criticism."

Ultimately, much of the controversy around ESG relates to a misconception about its purpose, Gresham says. "ESG is not a social movement disguised as an investment strategy – it's an analytical framework for identifying risks and opportunities that impact enterprise value."

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Green rewards credit cards and debit cards are having a moment. The promise of a tree planted for every dollar spent or cash back for sustainable purchases is enticing. And innovations in financial technology and carbon measurement are making it easier than ever for companies to link consumer spending to climate change. But don’t be fooled into thinking you can spend your way to saving planet Earth. The real impact lies in the bank issuing the card. 

Types of Green Credit Cards and Rewards

There are four categories of green credit cards, with some overlap in a number of instances. 

First, cards that promise to help the environment by buying carbon offsets are evolving. Where these cards used to promise to plant a tree for every purchase or amount spent, they are starting to use more sophisticated methods to engage consumers. A number offer apps that calculate the carbon footprint of purchases, and others offer cash back for shopping for sustainable products or from environmentally conscious companies. 

Whenever a card pledges to plant thousands or even millions of trees to absorb carbon dioxide from the atmosphere, be wary. Poor reforestation projects may do more harm than good, by planting the wrong tree species, failing to work with local communities, or providing little monitoring. Still, there are a number of reputable tree planting or conservation programs, and some offset programs include developing renewable energy projects or other measures besides tree planting. The best projects work with third-party monitors like 3Degrees or Native Energy.

One of the most effective ways to green your credit card is by focusing on the banking institution offering the credit. “A lot of people try to shop and live green but don't think about their banking, including credit cards,” according to Todd Larsen of non-profit Green America. “It has a big impact on the world.” 

Larsen first recommends avoiding credit cards from banks profiled in Banking on Climate Chaos, a report on total fossil fuel investments by major financial institutions. According to the report, the top four banks supporting fossil fuels are all based in the U.S.: JPMorgan Chase, Citi, Wells Fargo, and Bank of America. 

Instead of relying on these mega-banks, Larsen thinks it is best to bank with smaller financial institutions or credit unions that are working to build community wealth. For example, Amalgamated Bank supports clean energy and local communities. Others include Beneficial State Bank, Sunrise, and Aspiration. Many of these banks are “B Corps,” meaning they have embedded social and environmental benefits into their business model. 

One of the oldest types of eco-conscious credit cards is affiliate cards that donate a percentage (usually 0.5%) of a monthly bill to an environmental charity. On the positive side, these cards make donating easy. However, cardholders are not able to deduct donations come tax time, and many cards do not disclose how much is actually donated to charity or how the money is spent.

According to Ted Rossman of CreditCards.com, “it would be better to earn as much cash back as possible, then donate to a cause of your choosing. Why get only 1% on an eco-friendly card when you can get 2% on another?” But he has come to realize that consumers like the reminder that they are aligned with a non-profit whenever they pull out their card. “People like identifying with causes they care about,” explains Rossman. “Some people would ‘sacrifice’ rewards for a cause.”

Finally, some banks are swapping out the usual plastic cards with cards made from recycled content. Bank of America and American Express are issuing such recycled cards. But don’t fall for this gimmick. The financial practices of the banking institution issuing these cards are far more important than what materials make up the physical cards.

What to Look for in a Green Credit Card

As with any new card, when you think about how to choose a credit card, pay attention to the card’s interest rate and fees. If you typically carry a balance, make sure you focus first on cards with low interest rates. And if you have had a card for many years you may want to hold onto it, as older cards help boost your credit score.

The best green cards will offer low fees and interest rates in addition to a clear explanation of environmental benefits. These credit card issuers should report annually on carbon offsets and should partner with reputable organizations. 

Some green card issuers also offer debit cards with better rewards, so be sure to check out all the options at a given bank.

Here are some of the best green credit and debit cards available.

Amalgamated Bank Maximum Rewards World Mastercard

• Green credentials: B Corp certified
• Website: www.amalgamatedbank.com
• Interest rate APR: 18.49% to 24.49%
• Introductory rate: 0% on purchases and balances transfers for the first twelve billing cycles.
• Annual fee: None
• Sign-up bonus: $30 after spending $600 in the first three billing cycles
• Carbon offsets: None
• Cash back or rewards: 1.5% cash back

Amalgamated offers a solid rewards credit card with no green marketing or offsets. The real impact is in putting your dollars to work in a mission-driven bank. Founded almost 100 years ago by a garment workers union, the bank does not invest in fossil fuel companies, and almost a third of its lending is dedicated to investing in climate solutions. The bank has excellent reporting and policies across environmental, social and governance issues. This card is ideal for people who want to keep their credit card simple but also support goals like affordable housing and renewable energy.

Aspiration "Zero"

• Green credentials: B Corp certified.
• Website: www.aspiration.com
• Interest rate APR: 13.90% to 23.70%
• Introductory rate: none
• Annual fee: $60
• Sign-up bonus: $300 back if you spend $3,000 in the first 90 days
• Carbon offsets: One tree planted each time you use your card
• Cash back or rewards: 1% cash back if you use your card enough times to offset your carbon footprint.

At first blush, the Aspiration Zero card looks like an exciting way to plant trees and earn cash back at the same time. The bank has put sustainability front and center in its products and messaging, helping customers measure and offset their carbon footprint. In fact, Aspiration recently acquired a tech company that helps customers measure the carbon footprints of their purchases. Aspiration partners with reputable offset certification companies like 3Degrees. 

Every time a customer uses the card, Aspiration will work with its conservation partners to plant a tree. The company estimates that planting 30 trees in a month would offset the carbon emissions of a typical American household, so consumers who use the card this often will be rewarded with 1% cash back, or the option to plant more trees. 

Aspiration lacks robust reporting on environmental impact, likely due to growing pains. The company launched in 2015, and the Zero card is only a year old. The CEO stepped down on October 13, 2022 as the company struggled to go public. 

Aspiration also offers two green debit cards that provide up to 10% cash back on purchases from affiliated sustainable companies, called the Conscience Coalition. The coalition includes companies like the sustainable footwear manufacturer Allbirds, but lacks rewards for reducing consumption, such as by using public transportation.

Futurecard Visa Debit Card 

• Green credentials: None
• Website: www.future.green 
• Interest rate APR: N/A
• Annual fee: None 
• Carbon offsets: None, but the card helps consumers track their carbon footprint.
• Cash back or rewards: 1% for standard purchases, up to 6% back for sustainable purchases.

With the recent launch of the Future debit card, consumers finally have access to a card that rewards reduced consumption. Cardholders earn up to 6% cash back for taking the subway or charging an electric vehicle, purchasing used clothing from The North Face or Goodwill, or buying affiliated ebikes or standard bikes. The company’s mission is to make sustainable choices more affordable to U.S. consumers. 

According to the Futurecard’s website, planting trees alone is not the best way to address a family’s carbon emissions. In order to offset their emissions, “[e]very average American family would need to plant their own forest with thousands of trees each.” It is much simpler to “figure out how to make climate smart choices to lower their family’s carbon emissions in the first place.”

Atmos Debit Card

• Green credentials: B Corp
• Website: www.joinatmos.com 
• Interest rate APR: N/A
• Annual fee: None 
• Carbon offsets: None, but the card helps consumers track how their deposits are reducing carbon emissions.
• Cash back or rewards: 1% to 5% cash back for shopping with affiliated companies.

Like the Futurecard, Atmos is a recent fintech start-up that offers cash back for certain purchases from affiliated companies, like charging your electric vehicle at a Tesla charging station. Futurecard has a greater emphasis on reducing consumption through affiliates than does Atmos. 

With each charge Atmos customers can donate “loose change” to the climate non-profit of their choice, or deposit the change in a savings account. 

Atmos will use capital deposited by customers in their checking accounts to lend to renewable energy, energy efficiency, sustainable agriculture and similar green projects, as long as they do not displace local people. Atmos plans to launch a credit card sometime in the next year.

The Green America Visa Card

• Green credentials: Affiliated with Green America
• Website: www.greenamerica.org
• Interest rate APR: 12.24% to 22.24%
• Introductory rate: 0% Introductory APR on purchases and balance transfers for 12 months
• Annual fee: None 
• Sign-up bonus: None
• Carbon offsets: None
• Cash back rate: 1% for each reward point that may be redeemed for goods through a third party.

The Green America card is a bit of a holdover from the days when affiliate cards were the only option available to eco-minded consumers. With each swipe of the card, a small amount is donated to Green America for its work promoting renewable energy, fair trade, and holding corporations accountable. The card is managed by community-oriented TCM Bank.

Similar affiliate cards include those that benefit Ducks Unlimited and Salmon Nation.

Feel like society and the environment are beginning to break down? There’s an ETF for that.

Newday Impact’s Sustainable Development Goals ETF (SDGS) delivers a growth-oriented product that promotes dual impact, promising to advocate for environmental and social improvements and donating 10% of revenues to global youth education and skills development programs.

American Dystopia

Partnering with a veritable who’s who of progressive economists, scientists, and non-profit organizations, the firm’s investment criteria rests on a sophisticated analysis of global ills and solutions. This approach may turn off investors who disdain concepts like decarbonizing the economy, but should resonate with anyone who feels like Mad Max may just drive down Mainstreet, U.S.A. any day now.

Though the problems are global, the U.S. is a great place to focus on these daunting problems, according to Newday’s President, Anne Popkin. “It doesn’t matter what side of the political spectrum you’re on,” said Popkin. The U.S. has “food inflation, heat waves, rising tides in the south, and fires in California. It’s all happening here.”

Limits to Growth

The ETF’s rationale is based on the belief that the planet’s ability to withstand human impact on the environment is limited. When these limits are exceeded, we are said to have gone beyond the “planetary boundaries” of the earth. In fact, several resources, like forested land—central to food, fuel, clean water and air—have already been pushed beyond a safe limit of use. Crossing such a boundary means that humans will have an increasingly difficult time thriving, and eventually, surviving on the planet.

Newday points to two approaches that may alleviate this problem. First, the eponymous Sustainable Development Goals encompass 17 broad areas for improving human and environmental outcomes. Established in 2015, the UN Sustainable Development Goals help measure progress against global targets, like ensuring safe drinking water globally by 2030. If that sounds far-fetched, consider that the last version of this exercise, called the Millennium Development Goals, helped to raise over one billion people out of poverty between 2000 and 2015.

Second, Newday has embraced the approach of Earth4All, a group of economists and scientists advocating for revamping the economic system to stay within planetary limits. Based on computer modeling, they contend that climate change and inequality are inextricably linked.

Earth4All calls for an economic system that is focused less on growth metrics and more on the resilience and well-being of society and the environment. Some of these ideas stem from the 1972 book, Limits to Growth, which was also based on computer models that predicted a dystopian future if trends at the time continued.

Youth as the Solution

“Our generation will basically try to stop the sinking of the ship,” according to Popkin, “but the youth will be the ones to find a way forward.” With this adage in mind, SDGS is partnering with UNICEF to develop its advocacy strategy.

Typically firms like Newday engage companies by meeting with executives, voting shareholder proxies, on up to filing shareholder proposals asking for specific changes to company policies.

The ETF will also donate 10% of revenues to several non-profit organizations that support youth leadership. One such group is EarthEcho International, which is building a youth movement to protect and restore oceans. EarthEcho was co-founded by ocean environmentalist Philippe Cousteau, Jr., grandson of the famed ocean explorer, Jacques Cousteau.

Popkin also points to the decline of the middle class and growing inequality in the US as problems the ETF will hope to address.

Under the ETF hood

SDGS seeks long-term capital appreciation, a category that still makes sense given today’s volatile market for investors with a longer time horizon. Benchmarked to the S&P 500, the actively managed SDGS has an expense ratio of 0.75%, which is about average for this type of ETF.

The ETF invests in a blend of value and growth stocks, with about 60% of companies based in the US, and about 40% abroad. Managers also avoid investments in specific countries, including Russia and China.

All holdings are screened to meet basic ESG criteria. Newday evaluates the quality and breadth of company sustainability disclosures, and whether third parties have certified the data. SDGS also avoids investing in companies engaged in the production of landmines, tobacco, and other controversial products. The fund also avoids companies that are involved in the fossil fuel industry or rely on child labor.

Newday’s SDGS is not the only ETF that links its holdings to the UN Sustainable Development Goals. For example, the MSCI Global Impact ETF (SDG) tracks the MSCI index of companies addressing at least one of the 17 goals. Morningstar gives this ETF a five-star, silver rating for being well-priced and having a good management team. The expense ratio is typical of an index ETF at 0.49%, and with over $384 million in assets under management, it has proven popular.

There are also numerous ETFs that target just one of the 17 goals, such as reducing the emissions that cause climate change. The SPDR MSCI USA Climate Paris Aligned ETF (NZUS) is one such example.

These ETFs, issued by more conventional managers, lack Newday’s strong commitment to corporate engagement and profit-sharing with key non-profit groups. Although Newday is small fry compared to firms like BlackRock or State Street, the firm does seem committed to an outsized focus on engagement. Unlike some of its impact-focused competitors, like Calvert and Green Century, the firm does not yet have a meaningful track record as an investor or activist.

Divesting from ESG

Over the past two decades, the financial community has largely come to accept that environmental, social and governance (ESG) factors may influence a company’s profitability and stock performance. In the past year, however, some governors have politicized ESG investing, dubbing it “woke” and banning this investment style from their state pension funds. It seems the culture wars are coming to investing.

Why the Sudden ESG Backlash?

The U.S. economy is on the path to a major transformation, powered less by fossil fuels and more by climate-friendly energy sources like wind and solar. The fossil fuel industry may publicly acknowledge the need to decrease greenhouse gas emissions to mitigate climate change, but the industry remains resistant behind the scenes. As a result, ESG investors have pushed the industry to disclose more hard data on how it will manage this transformation. This effort culminated in draft requirements for public companies to report more broadly on their greenhouse gas emissions with the Securities and Exchange Commission. Citing issues like the cost of extra reporting, the attorneys general in 21 red states wrote comments in August protesting the draft rule.

A second reason for the backlash is the success of shareholder resolutions targeting companies with poor reporting or performance on climate change and diversity. These gains galvanized opposition to ESG investors.

If it seems as though the anti-ESG effort has suddenly sprung up in an organized manner, it’s because it has. An investigative report found that the State Financial Officers Foundation (SFOF), dark money groups, ALEC, the Heritage Foundation and others were orchestrating the bans. A dark money group called Consumers’ Research is managing the messaging and appears to be fundraising for the campaign.

ESG bans in 2021 mostly focused on fossil fuels, but have branched out to cover other “woke” corporate issues such as gun control, reimbursing travel for abortion care, diversity training and others.

Republicans aim to take ESG bans from the states to the federal arena if they win both houses in November.

State ESG Bans

Many states with Republican governors have embraced ESG investing bans in pension funds, as well as bans of major firms offering ESG investments. Some states target funds that limit or exclude investment in the fossil fuel industry, others in firearms, and some exclude any kind of ESG investment. A number of states are also targeting BlackRock (BLK), the largest global investor and a proponent of ESG investment. These states include: Texas, Florida, West Virginia, North Dakota, Oklahoma, Minnesota, Idaho, South Carolina, Louisiana, Idaho, Wyoming, Arizona, Kentucky, Utah, Indiana, Missouri, Ohio and South Dakota. Some of these states may also adopt wider ESG bans.

Texas recently enacted one of the most sweeping ESG bans. The state is removing 348 funds from state pensions, including those offered by mainstream firms like Fidelity, State Street (STT) and Vanguard. Texas has also blacklisted BlackRock, UBS Group (UBS) and eight other firms from contracting with state and local entities.

According to Republican State Senator Phil King, The ban “sends a strong message to both Washington and Wall Street that if you boycott Texas Energy, then Texas will boycott you.”

Firms like BlackRock protest that they are hardly boycotting the Texas oil and gas industry. In a statement from the company, BlackRock said it “does not boycott fossil fuels – investing over $100 billion in Texas energy companies on behalf of our clients proves that.” The firm also manages billions of dollars worth of Texas infrastructure and other bonds.

Major banks, like JPMorgan Chase (JPM), Goldman Sachs (GS) and Bank of America (BAC) were also banned from underwriting the municipal bond market. This move has driven up the cost of borrowing for municipal bonds, as there are fewer big banks competing to be underwriters. According to a study by a researcher at the Wharton School, “Texas taxpayers can expect these [anti-ESG] bills to cost them about $445 million a year in additional borrowing costs. If more banks leave, these costs will go up.”

West Virginia is also denying contracts to banks that support ESG. Five banks are prohibited from doing business in the state because of their public support for the phase-out of coal-based energy. As in Texas, this approach is likely to increase the cost of borrowing for municipal projects.

Florida also passed a similar bill to remove ESG funds from its $168-billion pension plan.

Anti-ESG Funds and ETFs

There has been a spate of new investing products tied to anti-ESG rhetoric. Most are yet to launch or have been unable to grow significantly. One exception is the Strive U.S. Energy ETF (DRLL), launched in August and already boasting nearly $316 million of assets under management. The ETF’s manager, Strive Asset Management, was founded in 2022 and backed by billionaire investors Peter Thiel and Bill Ackman to offer anti-ESG ETFs and shareholder advocacy. The firm recently filed for four additional index ETFs.

Strive Asset Management is planning to adopt the strategy of Engine No. 1 – buying companies for the purpose of authoring shareholder proposals and lobbying for shareholder votes, but from an anti-ESG perspective. While the firm may successfully grow and attract investors, it is unlikely to make a real dent in proxy voting counts given the trillions of dollars that have supported ESG proposals recently. Moreover, non-partisan proxy voting firms like ISS and Glass Lewis, which advise investors on how to vote their proxies on shareholder resolutions, have for years considered many ESG factors financially relevant.

How Will the ESG Backlash Affect Investors?

It seems unlikely that the backlash will have a big impact on Wall Street. ESG investing has lost momentum recently, but in general, the investing strategy remains extremely popular, with 85% of investors interested in ESG products.

The fashion industry faces many sustainability challenges, and it has been financially sucker-punched by COVID lockdowns in China and surging inflation. So investors with environmental, social and corporate governance issues in mind face a host of hurdles when it comes to trying on fashion stocks. But we found a handful of companies that stand to outperform the industry on both financial and ESG measures.

Apparel makers have long come under fire for being environmentally unsound. A 2020 report by McKinsey & Co. and the Global Fashion Agenda, a nonprofit group dedicated to improving sustainability in the apparel industry, found that the industry was responsible for about 4% of global greenhouse gas emissions in 2018. That amount is on par with the annual emissions of France, Germany and the U.K. combined. Moreover, much of the industry hews to the “fast fashion” business model, which designs and markets styles in rapid cycles to increase consumption and demand. As a result, any improvements made in fashion sustainability may be erased quickly by growing consumption.

Some apparel companies have committed to achieving net-zero emissions by 2050 using transparent, evidence-based measures as part of a United Nations initiative to coordinate the fashion industry’s sustainability efforts. But Lindita Xhaferi-Salihu, who leads the UN project, thinks regulation is needed to bring the full industry on board.

Managing climate risk isn’t the fashion industry’s only challenge. Labor and human rights issues are also tricky. The industry has a deep and complex supply chain. Most garment companies rely heavily on supply-chain workers in Southeast Asia, where human trafficking, violence and safety lapses abound, despite some improvements after a 2013 Bangladesh factory collapse killed more than 1,100 garment workers.

Change is Coming

Regulatory change on many levels may spur the fashion industry forward on sustainability. The Securities and Exchange Commission is moving closer to requiring clothing companies to disclose greenhouse gas emissions that occur all along their supply chains. New York is working on a fashion sustainability law requiring firms with more than $100 million in operating profit and a presence in New York—where most U.S. fashion companies are based—to comply with climate change disclosures. On the employment front, earlier this year California passed the Garment Workers Protection Act, which requires that workers be paid by the hour instead of by the piece of clothing made. A similar bill has been proposed at the federal level. Many garment workers in the U.S. are paid by the piece instead of by the hour, earning well below minimum wage.

In short, the fashion industry faces myriad ESG challenges, as well as financial tests, with inflation and the possibility that a recession is on the way. These three companies are up to the task. All returns and data are through July 8.

Deckers Outdoor (DECK) produces iconic footwear, including Uggs and Teva. Like most fashion firms, Deckers uses a mountain of resources to make its shoes and clothing. But the firm is vigilant about tracking and lowering its consumption. For example, it takes 1,885 gallons of water to manufacture and package one pair of Uggs—or roughly 11% less water than it takes for the average leather shoe. And the Uggs brand is on track to cut its water use by 30% by 2030. That’s partly why Deckers has earned a “leader” rating from The Textile Exchange, a nonprofit group that rates company commitments to source sustainable and responsible raw materials.

Since 2014, Deckers has issued an annual report that examines the firm’s environmental footprint—“from farm to foot”—including inputs such as water and outputs such as emissions and waste. The firm sets a number of earth-friendly targets it wants to achieve and reports its year-by-year progress for each one. In its report for fiscal year 2021, which ended in May, Deckers said it was on track to use only repurposed wool (no virgin wool) for its footwear by 2022; last year, 98.7% of wool used in its footwear was repurposed. That level of management and disclosure is far greater than the average shoe company offers.

Meanwhile, business is humming. Deckers recently reported robust growth in sales across all of its brands over the past fiscal year. The company has a healthy balance sheet with no long-term debt, too. CFRA rates Deckers a “buy” and has a 12-month price target of $350 for the stock. A consensus of Wall Street analysts is even more bullish, with a price target of $397.

PVH Corp (PVH), which owns the Calvin Klein and Tommy Hilfiger brands, has emerged as a leader in promoting good labor practices along its supply chain. The company places third among 37 industry peers in the KnowTheChain benchmark, which rates clothing firms for labor conditions.

PVH has done a good job of addressing worker grievances and boosting supply-chain transparency. It signed the International Accord for Health and Safety in the Textile and Garment Industry, and the company has earned a near-perfect score for its Bangladesh operations; last year, it relied on 11 Bangladeshi suppliers, most with more than 1,000 workers. And ESG-rating company Refinitiv places the company fifth-best overall out of 118 apparel and textile companies, thanks to high scores on human rights, governance and sustainability.

The company spent the pandemic getting its balance sheet in order, reducing debt and building cash reserves. It reinstituted its $0.0375 quarterly dividend in late 2021 and plans to repurchase $1 billion in shares through 2026. And the stock is cheap. Shares recently traded at six times expected earnings for the year ahead, half the average price-earnings ratio of its peer group, according to Zacks Investment Research. CFRA analyst Zachary Warring rates the stock a “buy” and has a 12-month target price of $100.

Tapestry (TPR) owns the brands Coach, Kate Spade and Stuart Weitzman, which boast broad international appeal and strong sales. The firm’s overall ESG score from Refinitiv ranks a so-so 35 out of 276 specialty retail companies, largely because it lags in supply-chain labor issues. But chief executive Joanne Crevoiserat, who arrived in 2020, has reenergized the firm’s ESG strategy.

Among the new initiatives: By 2025, Tapestry will use 100% renewable energy to power its stores, offices and procurement centers. It aims to reach 500,000 factory workers with programs that address “health, financial inclusion and gender equality.” And it will link 10% of executive bonuses to performance on diversity, equity and inclusion goals.

Argus analyst Kristina Ruggeri rates the stock a “buy.” The company’s focus on data analytics and customer engagement has improved sales outside of China. Still, COVID lockdowns in China, its biggest market outside of North America, have hit Tapestry hard. As a result, Argus recently lowered its price target from $54 to $40.

“Gobsmacked” best describes the mood among congressional Democrats and environmental advocates yesterday. After months of difficult negotiations with Sen. Joe Manchin (D.-W.Va), a small group of senators secured his support for a $369 billion climate package that is part of the Inflation Reduction Act of 2022.

The bill still faces some obstacles. All fifty Senate Democrats must vote in favor of the bill next week, and that means showing up in person at a time when lawmakers have been sidelined by COVID. Plus, Sen. Kyrsten Sinema (D-Ariz.) still has not given her approval; the word is that she bristled at being left out of the negotiations. Plus, it will have to pass the House, where the Democrats’ margin is thin.

But for companies that prioritize environmental, social and corporate governance, the bill has substantial promise – and could give their shares a boost. Here’s why.

Electric vehicles (EVs) are flying off dealer lots, but they still typically cost more upfront than gas-powered cars. The climate package would extend and modify the tax credits that have been available to offset these higher costs. From an investors’ point of view, the most significant change is that a popular tax credit (extended to the car buyer) of up to $7,500 on new EVs would again be available on some models. Because Tesla (TSLA) and General Motors (GM) had already exhausted their allotted tax credits, this renewal would allow some buyers to potentially claim the $7,500 tax credit. For example, the base price of a new Model 3 Tesla would drop from about $47,000 to $39,500. Expect Tesla and GM’s sales performance to benefit as well, assuming the auto companies can secure the battery components and semiconductor chips necessary to keep up with demand. Note also that the new bill would impose income limits ($150,000 adjusted gross income for singles, $300,000 for couples) on claiming that credit, plus impose caps on the cost of the vehicle itself ($80,000 MSRP for trucks, $55,000 MSRP for cars).

Homeowners can receive up to $1,200 per year for insulation projects, $2,000 for installing heat pumps (which provide highly efficient heating and cooling) and $600 per year for efficient windows. U.S. heat pump manufacturers like Carrier Control (CARR) may also receive tax incentives. And homeowners at risk from coastal flooding or wildfires could benefit from the bill’s grants to protect coastal communities and create fire-resilient forests.

The renewable energy power sector would enjoy tax credits that could be applied to any type of low- or zero-carbon technology, such as wind or solar projects. Unlike past incentives that expired every couple of years, often undermining the industry’s ability to plan and grow, these tax incentives would last for ten years.

Domestic manufacturing of energy transition products, like solar panels, EV batteries, and wind turbines, would also benefit. First Solar (FSLR) said it would consider expanding US manufacturing if the deal passes.

Overall, investors with a focus on a transition to a low-carbon economy should enjoy a boost if the Inflation Reduction Act passes. After being trounced by high fossil fuel prices and piled on by critics over the past few months, ESG investors may shortly have their day in the sun.

Mass shootings in the U.S. have become a quotidian part of American life. Just as the public was struggling to understand the May rampage at a Uvalde, Texas, elementary school that left 19 students and two teachers dead, the carnage of a July Fourth shooting in Highland Park, Illinois, has shocked the country yet again.

If it feels like there are more firearm deaths and injuries in the news, it is because there really are. Add in suicides, accidents and other homicides, and deaths from firearms have more than tripled since 2014. Firearms are now the leading cause of death among U.S. children and teens age 1 to 19, overtaking automobile crashes and cancer.

This naturally has sparked a national conversation about how to solve the problem, with suggested solutions including anything from gun control to better mental-health resources. Some are trying to distance themselves from guns in any way imaginable – even in their own portfolios.

Divesting from firearms would seem easy – just sell any gun stocks you might own. But where things get complicated is when a portfolio is chock full of mutual funds or exchange-traded funds that hold dozens, hundreds or thousands of companies, making it difficult to determine which funds will keep you invested in guns.

Do You Hold Gun Stocks? You Might Be Surprised.

Discovering whether you own a mutual fund or exchange-traded fund (ETF) that invests is gun stocks is probably easier than you think.

The website Gun-Free Funds, for one, allows users to search funds by name, ticker or manager, and it will list all gun-related companies it holds. It also grades funds on an A-to-F scale; the more gun manufacturers or retailers it holds, the worse its grade. For example, Vanguard’s S&P Mid-Cap 400 Index Fund (IVOO) earns a “D” rating for holding stocks including Olin (OLN), which owns the Winchester brand of firearms and ammunition.

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What about readers looking for a fund that is both gun-free and well-positioned for the current market?

In the Kiplinger 25 – our 25 favorite low-fee mutual funds – we recommend several that do not have exposure to gun manufacturing or retailing:

• DF Dent Midcap Growth (DFDMX)
• Parnassus Midcap (PARMX)
• Baron Emerging Markets (BEXFX)
• Brown Capital Management International Small Company (BCSVX)
• Fidelity Select Health Care (FSPHX)
• T. Rowe Price Global Technology (PRGTX)
• A number of bond funds, including Fidelity Intermediate Municipal Income (FLTMX) and TIAA-CREF Core Impact Bond (TSBRX)

Generally speaking, of course, it’s easier to avoid guns if you’re dealing with individual stocks instead of diversified funds. For instance, in the Kip Dividend 15, just one stock – Lockheed Martin (LMT) – is involved in the manufacture of controversial weapons and small arms.

Walmart (WMT) does sell some gun-related merchandise for hunters, but since a mass shooting at a Walmart in El Paso, Texas, in 2019, the company stopped selling handguns, and it hasn’t sold assault rifles since 2015. Also, customers must be 21 to buy a gun at a Walmart store and undergo a background check.

Additional tools exist to help investors parse stocks, ETFs and mutual funds for involvement in the sale or manufacture of guns. In fact, we have cataloged several tools to help investors access environmental, social and governance (ESG) ratings across many issue areas, weapons included.

The future is clean energy, or so the International Energy Agency (IEA) hopes. The autonomous, Paris-based intergovernmental organization set a goal of a net-zero economy by 2050, meaning that all greenhouse gasses produced by human activity will be negated through reduced emissions and other activities that absorb carbon dioxide.

If there's one thing investors love, it's investing in the future today. And one way to invest in the future of clean energy is hydrogen stocks, which are enjoying increasing attention of late.

Green hydrogen emits no greenhouse gasses when burned, is light and storable, and can be used to power fuel cells, such as those in electric vehicles.

"(Hydrogen) is enjoying unprecedented momentum around the world and could finally be set on a path to fulfill its longstanding potential as a clean energy solution," writes Fatih Birol, executive director for the IEA, in the agency's 2019 report "The Future of Hydrogen."

But hydrogen as a fuel source is still in its infancy. For would-be investors in hydrogen stocks, that could mean a bumpy ride.

The Future of Hydrogen

"Hydrogen is a natural successor of fossil fuel for energy-intensive industrial processes," says Harlin Singh, head of sustainable investing at Citi Private Bank. It's energy dense, transportable and can be stored across seasons, she says.

In the long term, hydrogen will be particularly important for fueling commercial vehicles and replacing diesel, she says. It can also play an important role in hard-to-decarbonize and energy-intensive sectors such as steel, chemical manufacturing and shipping.

Many nations are trying to pave the way for green hydrogen as a fuel source. The European Union includes hydrogen in its REPowerEU plan. China has a 2035 hydrogen roadmap that details the country's phased approach to developing its domestic hydrogen industry. In the U.S., Democrats tried to push through a tax credit for green hydrogen in the Build Back Better Act; it has stalled, but interest remains in incentivizing the development of a U.S. hydrogen industry.

"We see significant growth potential in the entire value chain of the hydrogen business, from green hydrogen production with renewable energy, electrolyzer technologies such as hydrogen production enablers, hydrogen distribution, and finally end-market uses in transportation, industrial energy and power generation," says Hua Cheng, portfolio manager at Mirova US, the sustainable investing affiliate of Natixis Investment Managers.

But while many believe hydrogen will be crucial to achieving net zero by 2050 and can be expected to grow rapidly over the next several decades, it's still in the early stages.

Cheng sees two key challenges to investing in hydrogen: the cost of green hydrogen, and volatility among hydrogen stocks.

"The cost of green hydrogen has been falling fast over the last decade, but is still higher than traditional energy in general," he says. "The cost is expected to continue to fall and become cost competitive against traditional energy over the next several years, mainly due to the expected lower cost of renewable energy and electrolyzer technology."

Green hydrogen is also "extremely energy inefficient," says Adam Rozencwajg, managing partner at investment firm Goehring & Rozencwajg, noting that 70% of the energy is lost in green hydrogen production.

"How can we possibly transition to an energy storage technology where 70% of the energy is consumed in the storage process itself?" he asks.

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Investors face the additional risk of near-term stock volatility.

"Hydrogen-linked stock price volatility might be higher than that of the broad market, particularly for pure players that are still in the early stage of their business," Cheng says. "However, this high volatility might offer a good entry point for long-term investors."

Investing in Hydrogen Stocks

Those willing to ride the waves of hydrogen-linked stocks can find opportunity in some of the leading industrial gas and hydrogen companies.

Without making a judgment on present valuation, Cheng says there are a few ways to approach hydrogen investing. For one, you could invest in companies in the industrial gas business, which are well-positioned to benefit from hydrogen distribution and end-market use. Global leaders in this area include Dividend Aristocrats Linde (LIN, $291.41) and Air Products (APD, $243.13), as well as Air Liquide (AIQUY, $27.47), he says.

Renewable energy utility stocks can also provide indirect exposure to hydrogen investing. Cheng points to Orsted (DNNGY, $34.79) and NextEra Energy (NEE, $76.00) as two potential options in this area.

Another approach is to invest in a pure-play company such as Plug Power (PLUG, $16.35), which is a U.S.-based green hydrogen and fuel cell solution provider. Plug Power is an interesting holding for the long run "as it has an integrated business model from generation to distribution to end-market applications, with broad business opportunities from transportation, industry and power generation," Cheng says.

Hydrogen energy is in its infancy, however, which can make picking individual winners difficult, says Peter Krull, CEO of investment firm Earth Equity Advisors. Because of this, he prefers to use exchange-traded funds (ETFs) – which can hold dozens or hundreds of hydrogen stocks – such as the Defiance Next Gen H2 ETF (HDRO, $11.13).

HDRO tracks the BlueStar Hydrogen & NextGen Fuel Cell Index, which includes companies engaged in hydrogen-based energy development and fuel cell technologies around the globe. Top holdings include California-based Bloom Energy (BE), Oslo-based Nel (NLLSF) and the aforementioned Plug Power.

"(HDRO) is global in scope which gives investors access to both domestic and international companies," Krull says. "Right now, the market in Europe looks to be moving faster than here in the U.S., so having that global exposure could be an advantage."

Be aware, however, that HDRO debuted just last year and is still a smaller ETF, with only $42 million in assets and an average daily trading volume of around 58,000 shares. So while it will provide lower risk compared to buying individual hydrogen stocks, it's not a terribly liquid fund; depending on when you sell, it might be difficult to get the exact price you're trying to sell at. Thus, HDRO should primarily be considered for buy-and-hold purposes.

The managers behind the recently launched Engine No. 1 Transform Climate ETF (NETZ) focus on U.S. stocks that will drive the transition to decarbonize the economy. But they aren’t above working with polluters.

That’s part of their DNA.

Engine No. 1, the exchange-traded fund’s adviser, is a relative newcomer to environmental, social and governance (ESG) investing and advocacy. But last year, it helped to force the replacement of three members of Exxon Mobil’s (XOM) board with directors committed to addressing the company’s climate risks.

Transform Climate ETF will use a similar strategy of active engagement, working as a shareholder advocate to get companies to make their operations greener. But there’s a twist: This new ETF invests in the industries that are most in need of decarbonization, including agriculture, transportation and energy.

“You can’t solve a problem by running away from it,” says Engine No. 1’s head of ETFs, Yasmin Dahya Bilger. “Most climate strategies are built on the concept of divestment. They screen away bad actors, typically companies with the highest emissions. So ESG funds will often be underweight in oil and gas, auto, and agribusiness industries. Those three sectors alone represent 70% of greenhouse gas emissions.”

By investing in and engaging with companies in those sectors that have nevertheless set a clear path to decarbonizing their businesses, Engine No. 1 hopes to help the world move closer to net zero, when carbon emissions are balanced by absorption.

That said, you might be surprised by what’s inside the portfolio.

An Active, Activist Strategy

Among the fund’s 21 stocks are ESG standard-bearers First Solar (FSLR) and Tesla (TSLA). But the fund also holds several funds that are far from it, including General Motors (GM) and oil and gas giants Occidental Petroleum (OXY) and Shell (SHEL).

These firms bring fat wallets that can fund change in ways that pure-play startups often cannot, says Dahya Bilger. GM, for example, has pledged to invest $35 billion to sell 100% electric vehicles by 2035 and has made early investments in battery technology.

What’s more, some of these companies are greener than they seem. Shell wins a double-A rating from MSCI – the financial data firm’s second-highest sustainable grade – in part because it manages toxic waste better than peers.

Others are working hard to lessen their environmental impact. Occidental has been investing heavily in experimental climate-change-busting technologies, such as carbon capture, says Dahya Bilger. The company plans to break ground later this year on a facility that will suck carbon dioxide out of the atmosphere in the Permian Basin, the most productive oil field in the country. The carbon dioxide is then stored and some of it is put to use in other products, such as low-carbon fuels and building materials.

The fund’s unique approach skews it toward sectors that often get little play in other ESG funds. Industrials and materials, for instance, are the biggest sectors in Transform Climate ETF. By contrast, the top sectors in the typical U.S.-stock ESG fund are technology and financials.

That might make the fund appealing to investors as a complement to traditional ESG strategies.

It’s early days, but Transform Climate ETF has lost 0.9% since its early-February launch through May 6. That’s better than the 9.8% decline in the S&P 500 and the 11.3% average drop in the typical U.S. ESG stock fund.

Investors very well might find riches at the end of the Golden Arches. Indeed, McDonald's (MCD, $244.52) stock is a popular Buy call on Wall Street, and it features prominently in our own Kiplinger Dividend 15 as a stalwart payer.

But from an ESG perspective, McDonald's isn't nearly as clear-cut a winner. While it has made some strides in becoming a more environmentally conscious company, its business model – built on selling more beef burgers than any other restaurant in the world – is locked into an unsustainable product.

Here, we'll explore how MCD stock falls short, and what the blue chip has going for it.

Cattle, Carbon and Climate

Enormous, public-facing companies such as McDonald's are attractive targets for environmental activists. And indeed, MCD stock is facing its share of controversies and challenges on the environmental, social and governance (ESG) front.

The company has shown leadership in areas such as sustainable packaging, partnering with the Environmental Defense Fund for over three decades. By 2020, almost 100% of its customer packaging was from deforestation-free sources, and by 2025, all customer packaging will come from recycled, renewable, or certified sources.

However, its reliance on beef puts it on a collision course with the need to reduce its climate-warming emissions.

Cattle in the company's supply chain serve up a double portion of climate impact:

• As cows digest, they emit methane gas, which is 25 times more powerful than carbon dioxide when it comes to trapping heat in the earth's atmosphere.
• And the huge demand for cattle drives deforestation in places such as the Amazon rainforest, where ranchers may illegally burn forestland and claim it as their own farmland.

To its credit, McDonald's has tried to lead the restaurant industry to a more sustainable way of raising cattle, but it is a slow, tough slog, says Bloomberg. Despite pledging to source sustainable beef, a recent investigation by Repórter Brasil cataloged problems in McDonald's Brazilian supply chain. The report alleges that suppliers sourced meat from ranchers that illegally cleared forested land and violated labor and human rights laws.

This news came just weeks after a sobering report that the Amazon rainforest is reaching a tipping point and could quickly transform into grasslands, disturbing global weather patterns.

"There is no way that McDonald's can continue to grow with its current meat-heavy menu while delivering on its promise to reduce emissions," says Kari Hamerschlag, deputy director of the food and agriculture program at Friends of the Earth.

More Meaty Controversy

MCD stock investors should expect a prickly shareholder battle at the annual meeting on May 26. In addition to a shareholder proposal filed by the Humane Society, activist investor Carl Icahn has put forward two board nominees who would support better conditions for pigs in McDonald's supply chain.

While this effort might seem capricious to investors unfamiliar with the issue, the U.S. Supreme Court announced in March that it will hear a case at the center of this fight between animal welfare activists and the pork industry, and 10 states and several countries have adopted similar pig welfare standards. After years of trying to transform these standards together, both McDonald's and the Humane Society have released blow-by-blow accounts of how the partnership soured.

McDonald's promised in 2012 to phase out by 2022 the use of all "gestation crates" – cages that house pregnant sows, unable to turn around, for any period during their four-month pregnancy. The practice became a pork industry norm in the 1970s as a way to curb injury or aggression by sows, but these assumptions were later challenged by animal welfare scientists.

Gestation crates had for years been especially abhorrent to animal welfare groups, and McDonald's commitment was momentous. McDonald's VP of Corporate Social Responsibility at the time, Bob Langert, was central to this effort.

"I toured my first sow facility, astonished as I observed a few thousand sows all lined up in rows, each confined to what seemed like a little prison," he wrote.

Langert found that, though the cost passed on to the consumer was low, the cost of transitioning from gestation crates to more humane housing was considerable, up to $25 million per supplier. Meat companies and lobbyists were dead-set against these changes. For this reason, Langert set a 10-year goal to allow suppliers to make changes gradually as they retired assets, and subsequent studies supported the business case for this transition.

Once McDonald's pioneered this commitment to phase-out gestation crates by 2022, other retailers soon followed, and their pork suppliers started to fall in line with similar commitments. Ten U.S. states banned gestation crates, as did several countries.

Yet despite these promises, many pork producers failed to make progress on the phase-out.

From the Humane Society's perspective, the company made a clear commitment in 2012 to abolish all gestation crates.

"McDonald's believes gestation stalls are not a sustainable production system for the future," Dan Gorsky, senior vice president of McDonald's North America Supply Chain Management, said at the time.

Now that the 10 years is up, the Humane Society is understandably upset that MCD has moved the goalposts, allowing suppliers to keep sows in crates for four to six weeks of every pregnancy.

McDonald's counters that it only purchases 1% of the U.S. pork supply, and that fully gestation-free crate pork is a "niche" market that would require an extra 300 to 400 times the current number of animals to produce the same amount of meat.

This is an uncomfortable position for MCD stock holders. McDonald's appears to be reneging on its original commitment because its suppliers revolted and possibly also because the transition is more expensive and difficult than it estimated.

Mr. Icahn's nominees are unlikely to win board seats at the annual meeting. Proxy voting advisory firms ISS and Glass Lewis recently recommended opposing his proposal, citing a lack of attention to the proposal's cost and impact on shareholder value.

MCD Stock: A Buy (For Conventional Investors)

For investors with pretty strict standards about the environmental impact of their holdings, McDonald's shares still need some work. MCD earns average ratings on ESG management from MSCI and Sustainalytics. MSCI notes that the company has comprehensive climate goals, but critics point to fuzzy math and greenwashing.

But if you're less concerned about ESG criteria, MCD stock does offer safe harbor.

As mentioned above, McDonald's is a member of our Kiplinger Dividend 15, thanks in large part to its status as a Dividend Aristocrat. The dividend on MCD shares has improved annually without interruption for 45 years, at an annual compound rate of 8% over the past half-decade.

McDonald's stock also offers up a 2.4% yield at present, which is better than the S&P 500's 1.6% yield.

Wall Street remains pretty high on the consumer discretionary stock as well. According to S&P Global Market Intelligence, 36 analysts cover the stock – of those, 27 maintain a Strong Buy or Buy rating, while eight say Hold and only one has a Sell recommendation.

So, you buy an ESG mutual fund or ETF and you’re excited that you’re going to change the world with your investments. But then you get your annual report and start browsing through the holdings and realize that your ESG fund is simply less bad than your traditional index fund, and reality sets in. This isn’t what you thought it was.

This happens all the time because there is no regulation when it comes to labeling funds as “ESG” or “sustainable” or anything else in the responsible investing realm. It’s the wild, wild West, buyer beware, every red flag you can think of.

Ultimately, the disconnect happens because there isn’t a universal understanding of what ESG (environmental, social, governance) or sustainable investing is. We think that it’s all the same and we want to jump in. And the people marketing ESG funds assume that you’re not going to take the time to look under the hood to see what you really own, and they take advantage of that. But it truly does a disservice to those of us who really care about making a difference in the world and aligning our investments with our values.

Too often these ESG index funds rely on traditional indexes as a base from which to invest. The problem with this is that the traditional indexes are rooted in the old economy, and you can’t invest for the new economy by looking in the rearview mirror.

The Difference Between ESG and a Sustainable Portfolio

ESG is a way of analyzing companies based on the three metrics it’s named for. It is not the be-all, end-all of the investment research process – it’s just a piece and should be considered as one component of comprehensive investment research. However, many index-based fund managers put together portfolios using only ESG metrics and very little common sense. They eliminate the step where a person asks, “Does it make sense that ExxonMobil is in a sustainable or responsible portfolio?”

By contrast, a truly sustainable portfolio is focused on a positive, solutions-based approach. What are the companies that are going to help us adapt and be more resilient to the structural and systemic risks that we are facing? It uses ESG metrics, but also looks at a new, more sustainable economy and the opportunities it presents.

I like to look at it this way: An ESG portfolio that reduces its allocation in ExxonMobil is less bad. A portfolio that eliminates it entirely is better, but a portfolio that buys First Solar (FSLR) in its place is both sustainable and responsible.

To Be Sustainable, You Have to Go the Extra Mile

A sustainable portfolio requires forethought and analysis beyond basic fundamentals and ESG metrics. It includes understanding the new economy and which technologies, sectors and industries are going to be market leaders and changemakers. In some cases, it might be traditional industries that are rapidly adapting, or it might be a technology that didn’t exist five years ago. It could be sustainable real estate and green building technologies or the rapidly expanding world of batteries, electric vehicles and other forms of green transportation. And beyond the obvious like clean energy, opportunities exist in cutting-edge biotechnology to cure disease and help people live longer, healthier lives. A healthier society is a more sustainable society.

If your ESG fund isn’t actively looking at its holdings from a similar solutions mindset, then it isn’t sustainable.

What You Should Do as an Investor

The best way to avoid the greenwashing that is happening in the ESG investing world is to do some basic due diligence. Before you buy a fund, take a look at its holdings – if something doesn’t seem right, it probably isn’t.

Don’t just trust the label because the reality is that virtually all of the widely distributed ESG indexes aren’t sustainable. Find an investment manager who actively invests in solutions to the world’s greatest problems and avoid the ones who are simply trying to be a less bad version of traditional indexes.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Earth Day – celebrated on April 22 in 2022 – is a time to celebrate environmental wins, especially for investors who focus on environmental, social and governance (ESG) investing. So today, we're going to examine several ESG stocks that act as industry leaders in several key environmental areas.

No company has a perfect ESG profile, just as no company has a perfect balance sheet. In fact, many companies that now lead environmental efforts started out at the back or the middle of the pack. ESG investors can take some credit for many of these glow-ups, filing shareholder proposals on thorny environmental issues, demanding better ESG disclosure and creating an investing milieu that favors sustainability for long-term growth.

But therein lies the rub of ESG investing. This approach focuses on long-term issues such as climate change and biodiversity. Capital markets often revolve around much shorter-term thinking, however, with even quarter-to-quarter earnings changes demanding the utmost scrutiny. Thus, finding ESG stocks that are able to effectively manage both is difficult – but ultimately rewarding to both portfolio and planet.

Here, we look at five ESG-friendly stocks as we head into Earth Day 2022. We have teed up companies that act as standouts in five key environmental areas – climate change, water stewardship, clean transportation, biodiversity and safer chemicals – while also earning high marks from Wall Street equity researchers.

Analysts' recommendations and other data as of April 18, courtesy of S&P Global Market Intelligence and YCharts, unless otherwise noted. S&P surveys analysts' stock calls and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Stocks are listed by analysts' consensus recommendation, from highest score (worst) to lowest (best).

• Market value: $235.7 billion
• Dividend yield: 2.5%
• Analysts' consensus recommendation: 2.27 (Buy)
• ESG focus: Water stewardship

As a major packaged food and beverage company, PepsiCo (PEP, $170.91) has an enormous "water footprint" in its agricultural supply chain and in beverage production.

The company took a proactive approach to water risk – reputational, regulatory and physical – by joining business and stakeholder alliances going back to 2008. By 2016, the company had realized $80 million in water efficiency savings at just one U.S. plant. And last year, PepsiCo pledged to become the most water-efficient food and beverage company by 2030, ultimately recharging aquifers with more water than it extracts.

According to a 2021 report by the nonprofit Ceres, PepsiCo is among the top 10 global companies for responsible water stewardship. Sustainalytics rates PEP No. 5 out of 588 food companies for overall sustainability.

That isn't to say PepsiCo doesn't have room for improvement. It does, as do many ESG stocks. PEP, for instance, faces challenges such as its reliance on plastic packaging and consumer preference for healthier food choices.

"We continue to like [PepsiCo] due to its above-average growth profile and beverage/food and snack diversification, which it has benefited from throughout the pandemic" says CFRA analyst Garrett Nelson. "PEP's food and snack exposure has been growing steadily over the past several years, increasing from 48% of total revenue in 2011 to 55% in 2020. PEP has also shown a willingness to grow its portfolio via the acquisition of faster-growing, emerging brands."

PepsiCo also is attractive given its status as a Dividend Aristocrat, boasting nearly half a century's worth of uninterrupted annual dividend hikes. That makes PEP shares popular enough with the Street – heading into this year's Earth Day, the stock has 11 Strong Buy or Buy calls versus nine Holds, two Sells and no Strong Sells.

• Market value: $111.5 billion
• Dividend yield: 2.4%
• Analysts' consensus recommendation: 2.11 (Buy)
• ESG focus: Biodiversity

Over the past several years, Goldman Sachs (GS, $331.97) has adopted policies to improve its performance in the area of biodiversity loss and deforestation, such as by investing billions in clean energy, acknowledging the land rights of Indigenous peoples and clarifying how the company intends to achieve net-zero emissions within its portfolios.

These and other efforts have driven a relatively favorable view among ESG evaluators.

The Refinitiv ESG scoring service rates the company sixth out of 373 banking and investment service companies. Meanwhile, the Karner Blue Biodiversity Impact Fund (KAIBX) holds Goldman Sachs in part because of the company's $750 billion commitment to finance climate-related projects by 2030.

"Outside of its normal operations, the company has partnered with the Wildlife Conservation Society to protect, in perpetuity, 735,000 acres of the Karukinka Natural Park in Chile," adds Vicki Benjamin, co-founder and CEO of Karner Blue Capital.

Like many ESG-friendly stocks, Goldman still has work to do. The 2021 Banking on Climate Chaos report found that, while Goldman Sachs was hardly the biggest financier of fossil fuel projects between 2015 and 2020, it did rank 15th out of 60 companies. And after criticism that Goldman Sachs was taking advantage of loopholes to fund drilling in the Arctic, the Sierra Club filed a shareholder proposal in 2022 asking the company to report on its full greenhouse gas footprint within its lending portfolio.

On the financial side, as interest rates continue to head higher, mega-banks such as Goldman will be challenged to grow loan portfolios without sacrificing quality. BMO Research's James Fotheringham (Outperform, equivalent of Buy) notes that the company's strength in transaction banking and consumer finance should help offset these risks.

GS shares hold a consensus Buy rating, according to S&P Global Market Intelligence, on the strength of eight Strong Buys and eight Buys, versus 11 Holds and no sells. A target price of $422.67 implies a 27% return by this time next Earth Day.

• Market value: $59.0 billion
• Dividend yield: N/A
• Analysts' consensus recommendation: 1.65 (Strong Buy)
• ESG focus: Sustainable transportation

The race is on between legacy car stocks like General Motors (GM, $41.01) and pure-play electric vehicle (EV) companies such as Tesla (TSLA) and Rivian Automotive (RIVN) to capture a growing market share of EVs.

For its part, GM has pledged to "eliminate tailpipe emissions from new light-duty vehicles by 2035" and has upped by 75% its commitment to EV and autonomous vehicle development, to $35 billion through 2025.

S&P Global gives General Motors an ESG Score of 78 out of 100 for overall ESG and notes that the automaker has one of the highest scores for environmental performance when compared to industry peers. Although its flagship EV, the Chevy Bolt, has suffered from recalls and vehicle fires, GM is moving on to a superior "Ultium" platform in future vehicles.

Supply-chain disruptions resulted in a 20% slump in 2022 first-quarter sales, but Steve Carlisle, president of GM North America, says "we expect to continue outperforming 2021 production levels, especially in the second half of the year."

The Street seems just about as optimistic about GM shares, with 19 analysts calling it a Strong Buy or Buy, versus just four Holds and zero Sells of any sort. Meanwhile, a $70.09 price target means the pros are calling for more than 70% upside between now and Earth Day 2023.

• Market value: $65.5 billion
• Dividend yield: 6.0%
• Analysts' consensus recommendation: 1.48 (Strong Buy)
• ESG focus: Climate change

Insurance companies such as French multinational AXA (AXAHF, $28.95) are at the front lines of climate change, paying claims after wildfires, floods and storms, and estimating the cost of future risks to people, companies and assets.

In 2005, for instance, Hurricane Katrina surprised the insurance industry with the high cost of climate change losses. And even today, the industry has struggled to keep up with the growing number of annual weather-related disasters; 2021, for instance, was the third-costliest year ever for natural disasters, suffering $343 billion in damages.

AXA, which boasts 95 million clients and a diverse portfolio of products, has responded to these climate challenges more forcefully than almost any other insurance company. AXA shifted its investments away from coal and other high-emitting technologies, earning second place in a 2021 benchmarking report of insurance companies' response to climate change. S&P Global gives the stock a high ESG score of 87, reflecting favor for its climate strategy, commitment to sustainable finance and transparency. And AXA has a number of products to help vulnerable customers handle climate volatility, such as a program that automatically pays claims to smallholder coffee farmers in Nicaragua when rainfall dips below or rises above levels ideal for the coffee crop.

AXA, which trades at an attractive 0.85 times its book value (assets minus liabilities), is among the ESG stocks that currently earn a Strong Buy consensus rating, according to analysts polled by S&P Global Market Intelligence. That's thanks to 19 Strong Buy or Buy calls versus just two Holds and no Sells of any kind.

Among the Buys is CFRA's Jun Zhang Tan, who says "We remain positive on AXA's position in the [Property and Casualty] commercial, which benefits from P&C market hardening and AXA XL's reinsurance portfolio repositioning to reduce exposure to volatile lines. Overall, we expect AXA to deliver strong momentum in P&C commercial in 2022."

And as we head into Earth Day 2022, the pros expect AXAHF shares to trade 23% higher by this time next year.

• Market value: $7.5 billion
• Dividend yield: 2.1%
• Analysts' consensus recommendation: 1.38 (Strong Buy)
• ESG focus: Safer chemicals

One lesser-known impact of the fashion industry is its reliance on toxic "forever chemicals" that remain dangerous for years and easily migrate from landfills to water and air. Some of the worst offenders are those that are used in waterproof coatings, called PFCs (perfluorochemicals) and PFAS (per- and polyfluoroalkyl substances).

If this sounds familiar, perhaps you've watched the documentary Dark Waters, starring Mark Ruffalo.

Levi Strauss (LEVI, $18.81) was one of the first companies to eliminate these chemicals from its products, and in 2022 it earned the highest rating in an apparel benchmark conducted by the nonprofit Natural Resources Defense Council (NRDC) for eliminating PFAS from its supply chain. "PFAS have been linked to health problems like cancer, liver damage, weakened immune systems, and developmental problems in children," the NRDC says. Levi also touts its comprehensive program to eliminate toxic chemicals from its products and manufacturing.

While Levi's has been around since 1863, it's the youngest ESG stock on the list; shares hit the New York Stock Exchange following its 2019 initial public offering (IPO). But LEVI has been a roller-coaster ride in that short time. Like many apparel companies, Levi's stock plunged during the early part of the pandemic, then it surged by about 180% from its spring 2020 COVID bottom through May 2021 before simmering to current levels that are only about 10% higher than its $17 IPO price.

Levi Strauss retooled its strategy by strengthening its e-commerce and direct-to-consumer business, and Wall Street tends to agree that the company is emerging from the trough. Of the 13 pros that cover the stock, all have Strong Buy or Buy ratings, giving it an overall Strong Buy rating, according to S&P Global Market Intelligence. Moreover, a $30.62 average price target means that, over the next 12 months or so, those pros see 63% upside in LEVI shares.

"We expect strong earnings-per-share growth and price-to-earnings expansion to drive the stock to our $34 price target over time," says UBS analyst Jay Sole (Buy), who adds that while macro headwinds will likely keep Levi's stock muted in the short term, "we believe LEVI's current stock price represents a very attractive entry point into a leading, high-quality, global apparel franchise at a very reasonable price for those with a long-term investment time horizon."

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Links mentioned in this episode:

• How to File Your Taxes for Free
• 7 Money-Smart Ways to Spend Your Tax Refund
• Earn 7.12% With Series I Bonds
• Amy Domini on the Secrets of Sustainable Investing
• Double Your ESG Impact With Funds Tied to Charities
• 5 'Blue Economy' Stocks and Funds
• Kiplinger ESG 20: Our Favorite Picks for ESG Investors
• EWG Skin Deep® Cosmetics Database

Transcript

David Muhlbaum: Environmental, social and governance investing is hot these days. So much so that we at Kiplinger now have our own editor on the beat. Ellen Kennedy will share her insights about the intersection of investing and activism. Also, how to spend that tax refund wisely, coming up on this episode of Your Money’s Worth.

David Muhlbaum: Welcome to Your Money’s Worth. I’m kiplinger.com’s senior editor, David Muhlbaum, joined by my co-host, Kiplinger senior editor, Sandy Block. How are you doing, Sandy?

Sandy Block: I’m good. Finishing up my taxes right now. Did you file yours yet, David?

David Muhlbaum: Me?

Sandy Block: You said you were going to get them done this year before the deadline.

David Muhlbaum: I think it’s going to be close. I’ve roughed out a version of them. I imagine I’m going to pay what’s owed and get the extension. So at least I won’t be paying penalties for late payment. There may be domestic penalties, but I’d rather not get into that. On the bright side, I did file both of my kids’ tax returns and we, that meaning me and my kids, had a little discussion about how to claim exemption from withholding in the future, so at least someone got a little education. Actually also, I used IRS Free File so I guess I got some education too.

Sandy Block: So tax teachable moments for you and your kids. We certainly pushed IRS Free File here enough, so what did you think? What’s your review?

David Muhlbaum: You’re asking me to review software? You’re the one who reviews tax software. Well, first of all, as you know well, IRS Free File is an expression, it’s a phrase, it’s a marketing term that we and others use to get people to those filing software options that are actually free, so long as you meet the income and other requirements. IRS Free File isn’t a piece of software itself. It’s like a program. So there are many and, of those, I chose TaxSlayer. And I guess I’d say the one thing I noticed that was different from when I’ve used, shall we say, full-pay versions of TurboTax and others in the past, was that the Free File version of TaxSlayer did not offer me the ability to log into brokerage accounts and things like that to get information directly imported electronically. And that meant I had to copy and paste, sometimes even look and retype and, as we know, that’s a way to make mistakes and is tedious.

Sandy Block: Yeah, and actually TaxSlayer has gotten pretty good reviews from us, but I suspect you have to upgrade the premium to get that service, which tells us that you get what you pay for. TurboTax and H&R Block basically dropped out of Free File so the most popular tax software versions aren’t even available there anymore. So on the one hand, you get to file for free. On the other hand, you may not get all the bells and whistles you’re used to if you pay.

David Muhlbaum: Duly noted, and we should probably move on because, well, when this episode drops, it will be after that filing deadline and the only people still mucking around in software will be clowns like me who missed it. But we’re still in the tax season in a way, because now we’re in potentially the happy side of tax season, refund time.

Sandy Block: Well, refund checks or more hopefully and likely, direct deposit. And we certainly understand that this isn’t anything other than getting your own money back because you’ve given an interest-free loan to the government, but people still love their refunds. And a fat refund is probably a sign that you should consider adjusting your withholding, which you do with a W-4 if you’re an employee, but maybe that’s another-

David Muhlbaum: Yes! That’s what I went over with my kids.

Sandy Block: That’s right. Don’t give the government all your money. All right, it’s too late to do that for 2021 so let’s just talk for a minute about what to do with that fat refund. And as we’ve mentioned before, refunds are up in part because of the various stimulus programs like the enhanced child credit. While generally the goal of those was to get money out quickly, depending on how some people access them, some people didn’t really get to claim their full credit until they filed their taxes, which means a bigger refund for them.

David Muhlbaum: Okay, so I’m sure we’ve got some good solid Kiplinger eat your broccoli ideas about what you should do with that refund.

Sandy Block: We sure do, and I guess the takeaway is make your refund work for you. So I think the number one thing would be, if you’ve got any high-interest credit card debt, you want to pay that down. Interest rates are going up. The fed has pretty much put on billboards, “We are raising interest rates.” That’s going to raise the amount you��re paying on a balance on your credit card. Pay off your balance. You get a 15% return or more, you can’t get that anywhere else, so that’s number one. Build up your emergency fund is another one, and you may want to invest it because many brokerage firms will now let you open an account for less than $500 and some have no minimums at all.

David Muhlbaum: A brokerage account, or you could invest directly with Uncle Sam. You could turn that money right back around and go get you... What is the bond-

Sandy Block: The I bond.

David Muhlbaum: The I bond that’s paying 7.12%.

Sandy Block: And it’s going to go up-

David Muhlbaum: For now, for now.

Sandy Block: It’s going to go up above 9%.

David Muhlbaum: Okay, I’m going to get myself one of these. I’m going to do this as a reader service or a listener service. I’m just going to go get myself one and I’ll report back on the process.

Sandy Block: Yeah, we’ve got to talk about this.

David Muhlbaum: Yeah, okay. There are other ways that you can put that refund to use and Sandy’s delineated many more of them in... What’s it called, Sandy, the slideshow?

Sandy Block: This is a Kiplinger special. It is Seven Money-Smart Ways to Spend your Refund.

David Muhlbaum: That’s right. Do not blow it at the racetrack. Coming up next, we’ll be joined by Ellen Kennedy, Kiplinger’s editor for environmental, social and governance investing. She’ll help us decode ESG. Stick around.

Decoding ESG Investing with Ellen Kennedy

David Muhlbaum: Welcome back to Your Money’s Worth. Joining us for our main segment today is Ellen Kennedy, an associate editor for Kiplinger with a long history in the ESG space, as the jargon goes. She was an ESG manager and analyst at Calvert Investments for 15 years covering environment, climate, consumer staples, and she served on the sustainability councils of several Fortune 100 and Fortune 500 companies. She’s filed shareholder proposals on supply chain and issues like that. She served on ESG boards and councils. Real hands-on stuff. And now she’s writing for us here at Kiplinger with articles that do a great job unpacking all these acronyms we find in environmental, social and governance investing. ESG is just one of them and I think you’ll find her articles interesting, whether you’re grappling with what is this ESG stuff about really? Or maybe you’re already deep into the topic and you’d appreciate her interview with Amy Domini of Domini Impact Investments, who is a true pioneer in ESG. So welcome, Ellen.

Ellen Kennedy: Thanks for having me.

David Muhlbaum: And a welcome back also to Kyle Woodley, senior investing editor for kiplinger.com who helped bring Ellen to Kiplinger. He’ll be co-hosting with me today. Sandy Block is going to give ESG a pass.

Kyle Woodley: Hello, hello.

David Muhlbaum: So to move from who Ellen is to what she knows, I’m going to start with a definitional question. The term we’ve headlined this podcast with is ESG, environmental, social and governance investing. But let’s wade a little bit into history. When you started in this field, Ellen, it was called social investing, socially responsible investing. Can you take us back a bit please?

Kyle Woodley: Wait, did he just ask you to define the history of ESG in 30 seconds? Good luck with that.

David Muhlbaum: No, no. You’ve got a whole minute. You’ve got a whole minute.

Ellen Kennedy: Okay. Well, back in the 1980s, religious groups and human rights activists started to realize that capital markets, the stock market, are a powerful tool to bring about change. So a handful of firms, like Amy Domini’s that you just mentioned, dedicated to socially responsible investing or SRI, they set the table for a way investors could avoid industries they found distasteful or unsustainable like tobacco. And they also tried to work with these activists to pressure corporations to change. So SRI investors were asking the question, how can we use investing to maximize positive impact in the world?

David Muhlbaum: So investors, they were part of the fight against big tobacco?

Ellen Kennedy: That’s right, David. And as SRI investors became more and more successful, the mainstream investors sat up and took notice. They realized that some sustainability issues really could affect a company’s bottom line or what we call material, and so environmental, social and governance or ESG investing was born in the mid 2000s. They asked the question, how can we harness sustainable opportunity or risk to improve performance?

David Muhlbaum:

They being investors?

Ellen Kennedy: Yes, the ESG investors. Yes, so nowadays we have this huge mosaic of many, many sustainable investment approaches. ESG has two levers it can pull. If you imagine a box with two up and down vertical levers in front of you, the first one is deciding how much you want to invest to avoid risk versus seize opportunity. So all the way at the top of that lever, your ESG fund will avoid investing in the dirtiest companies. And if you pull that lever chunk like in an old voting booth, it will focus on a theme like renewable energy or investing in industry leaders.

The second lever is how much the fund will try and influence a company through engagement or advocacy. So on one extreme, a fund could do nothing at all to encourage the companies that it holds to be more sustainable. And on the other hand, if you pull that lever all the way, it could meet with corporate leadership or even file shareholder proposals. There are so many combinations of these two continuums, so the mantra is ESG is not a monolith.

David Muhlbaum: Well, thank you. The history is important here, because ESG is not something that came out of nowhere. There was John Wesley, the Methodist minister, he was telling his people in the late 18th century, don’t invest in liquor, don’t invest in gambling, that sort of thing. So I think there’s also a religious component to the history.

Ellen Kennedy: It goes back to the Bible!

David Muhlbaum: We might just have been calling it differently, but language matters. So now that we’ve said, ‘Here’s what it is,’ I guess my first question would be what do you think is the biggest misperception about ESG investing?

Ellen Kennedy: Definitely that you have to sacrifice returns for gains. And most studies have shown, however, that you will do as well as or better than traditional investment approaches. Last year, there was this huge, ginormous — That’s a technical term — study looking at over a thousand other studies on the stock market performance of companies with high ESG scores. It found that a majority, 58% of the time, companies that embraced ESG beat the performance of non-ESG companies. ESG laggards beat the stock performance of ESG-embracing corporations only 8% of the time and the remaining studies showed mixed results. So again, that score was ESG 58%, non-ESG 8%.

Some other really interesting findings that came out of that study were that ESG is more likely to outperform over longer time horizons, and ESG can provide a hedge against economic or social crises. And I’d say we are facing several of those major crises these days.

David Muhlbaum: No doubt. We live in interesting times. So beyond tracking performance trends on the macro scale, Ellen, you also write about new wrinkles in ESG investing, and one that caught my eye were these mutual funds or exchange traded funds that link your investment to a charity. Let’s say you want to support an organization like the National Wildlife Federation, well, you can invest in a fund with their name on it. But here’s my question, it’s not so simple you say, or rather, these funds are not all cut from the same cloth. We don’t have time to rank them all. That’s what your article is for. But what should someone who’s trying to do good and get a good return with one of these linked funds be looking for?

Ellen Kennedy: There are a growing number of funds that donate a portion of their fees to a specific charity, and in some cases they even construct the portfolio to match the goals of the fund. So in a way, you can have your cake and eat it too. For example, the Simplify Healthcare ETF whose ticker is PINK (PINK) is actively managed by Michael Taylor. He’s a really fascinating guy. He’s a virologist who also has deep experience in biotech and also is a highly regarded hedge fund manager. Simplify is donating all of its net profits from managing the fund, or a minimum of $100,000 per year, to the Susan G. Komen Foundation for breast cancer research. The fund is in the top quartile for its category year to date according to Morningstar, so it’s really interesting to look at this.

David Muhlbaum: So to break this down, in this case, in PINK, is the fund invested in companies that are trying to solve breast cancer?

Ellen Kennedy: So remember those two levers I spoke about earlier, this actually doesn’t use an ESG screen per se. It just invests in really solid biotech healthcare stocks. It doesn’t focus on breast cancer or even on women’s health. It just uses Michael Taylor’s knowledge of that sector, which one could argue is a beneficial sector for social good and so that’s the ESG investing slant, but they don’t call themselves an ESG fund per se. And then it has this minimum $100,000 donation as well.

David Muhlbaum: Got it. So he, as a fund manager, is basically taking some of his earnings from being a fund manager and apportioning it to the Susan G. Komen Foundation?

Ellen Kennedy: Yes.

David Muhlbaum: And your returns are what you get from his fund?

Ellen Kennedy: Yes.

David Muhlbaum: Okay, got it. But there are some other funds that where the fund itself is choosing investments based on the charity with which it’s affiliated?

Ellen Kennedy: Sure. So there are a number of funds that try to combine an ESG screen that would favor what a nonprofit is trying to accomplish in the world with a donation as well. So one example that’s really interesting is the Impact Shares NAACP Minority Empowerment ETF. The ticker on that one is NACP.

David Muhlbaum: So like the charity minus one A. Right.

Ellen Kennedy: Minus one A, yes. So they actually have worked with the NAACP to design the fund. The only screen really, as I recall, is for racial equity and they then hired somebody from the NAACP who has a very deep experience in what’s called DEI or diversity, equity and inclusion to work with impact shares to talk with companies and to say, “Hey, we really want you to be in this fund. And it’s a real sign of your commitment to NAACP values to be in this fund, but you’re not quite there yet. Here’s the changes that you need to make.” So they’re really reaching out to companies and actively trying to change their policies and programs to align with those goals.

David Muhlbaum: And backing it up by saying, “Do this and we will buy your shares.”

Ellen Kennedy: Exactly, yes. So these are very attractive funds but before you invest, there’s a few things that you have to look out for as you can imagine. It would be very easy for these kind of funds to just be a marketing ploy. So you have to ask yourself is this fund designed to bring a positive impact to the cause it supports? And the example that I just gave of NACP is an example where they are trying to do that. You can also ask yourself is the company that manages the fund dedicated to sustainability? Does it actively partner with a nonprofit group it benefits to bring about change like I just mentioned? And also does the fund vote shareholder proxies or file shareholder proposals to help the nonprofit’s cause? And most importantly, make sure you’re not investing in these funds just because they donate to the charity you like. That’s just not a good way to focus your donations or your investments.

David Muhlbaum: Well, they make the donation to take the tax deduction as opposed to you. It seems a little odd, yes.

Ellen Kennedy: Exactly. And we are limited now in the amount of tax deductions we can take so this might be a way for people to have more of an impact in terms of their donations.

David Muhlbaum: Oh, that’s a good point.

Ellen Kennedy: But still, this is an investment and you need to treat it as such. You should make absolutely sure that the fund is a solid investment that fits with your own personal portfolio and your investment goals.

David Muhlbaum: Got it. Okay, we’ve talked about PINK, the ticker, and we’ve talked about green because the first word in ESG is environmental so I use that as a proxy for the color. But there’s a new color on the block too and that’s blue. So we had a piece in Kiplinger’s personal finance magazine recently about the blue economy and so, Ellen, what’s the blue economy?

Ellen Kennedy: I see what you did there with those colors. That was very clever.

David Muhlbaum: Thank you.

Ellen Kennedy: So the blue economy refers to all of the dollars spent to improve the economic health and livelihood of oceans and coastal zone ecosystems. So think about everything related to oceans which cover 70% of the world’s surface. They’re huge, but also that section of the earth where the oceans come up to the shore and we interact with them there. So we often just forget about oceans. They’re really critical to our survival and also for healthy economies. We’ve been dumping plastic and toxics in the oceans. We’ve been overfishing and removing coastal plants that help buffer the effects of hurricanes. I’ve experienced that personally because my husband is from New Orleans and the loss of so much of coastal zones in those areas that had been planted or had wild habitat there acted as a buffer to hurricanes. But when those were taken out, Hurricane Katrina, of course was able to exact a real toll on that area.

David Muhlbaum: So blue is not water, but ocean. That’s one of the key distinctions, because there are water funds out there, right?

Ellen Kennedy: That’s right, there’s a ton of water funds out there. I actually used to manage the sustainability side of one of them, but they’re often filled with utilities and water infrastructure companies and they don’t focus as much on the conservation solutions. One interesting company we’ve profiled recently is called Danimer Scientific (DNMR). The ticker is D as in dog, N, Nancy, M-R. It is developing a kind of plastic that is 100% biodegradable and compostable. It’s a small company that IPO’d in 2020 and is still proving that it can turn a profit and scale up, but it has already scored valuable customers like PepsiCo and Walmart.

David Muhlbaum:

Okay, so Danimer Scientific doesn’t handle water or oceans, but because their product is aimed at helping the oceans, that’s how they got on the list. So this screening and thinking, it also governs a much longer list that we have at Kiplinger, the Kiplinger ESG 20. Now, we rolled this out in 2021 and it’s 15 stocks and five funds that do well on meeting environmental, social and corporate governance challenges. Good corporate citizens. So Ellen and Kyle, I was hoping you guys could call out one or two from that list, which we’ll link to, but you know there are 20, so Ellen?

Ellen Kennedy: One of the stocks that I like from the ESG 20 may surprise you, it’s called Clorox.

David Muhlbaum: No, I never heard of that.

Ellen Kennedy: The ticker is C-L-X and most of us think, ‘Oh, gross. It’s bleach. It’s environmentally terrible. Why would Clorox be in the ESG 20?’ Well, first of all, aside from the environmental issues, it’s a really good pick on governance. They’ve done a good job of diversifying their board of directors. 42% of its members are women and four members are people of color. And the board is also independent, which is a great metric for understanding how a company has tried to shape its board in a way that will benefit investors and shareholders. I used to cover the household products and personal care products industries. And I remember the bad old days when Clorox was really a laggard in this area, but they did a lot of work to clean up their act and to get more involved in green chemistry. For example, if you go on a website called the Skin Deep database of the Environmental Working Group-

David Muhlbaum: Skin Deep?

Ellen Kennedy: Yeah, that’s right. Skin Deep. They provide ratings on the toxicity of thousands of different products. And so, for instance, you can find products made by Clorox that score very well because they are, for instance, bleach-free hand sanitizers. They also acquired Burt’s Bees which you may think of as a green company. And overall they’ve really worked to think about the life cycle of those products and ensure that they are just much more environmentally responsible than they used to be from cradle to grave.

David Muhlbaum: Yeah, that’s interesting. Kyle, I think we ought to look to you for a fund.

Kyle Woodley: Yeah, so if you just prefer to buy a bundle of ESG-friendly stocks and let it ride, one ESG 20 option is the Putnam Sustainable Future ETF. That’s ticker P-F-U-T, and this is an actively managed ETF whose companies either make products or provide solutions to sustainability challenges. Top holdings include science and tech from Danaher, that’s ticker D-H-R. There’s Chipotle Mexican Grill, ticker C-M-G, and that’s long been a pioneer in sustainable food sourcing. And it even holds MSCI, ticker M-S-C-I of course, which is the top global provider of ESG indexes, so there you go.

David Muhlbaum: That’s very inside, that they-

Kyle Woodley: There’s a little meta there, isn’t there?

David Muhlbaum: We’ve mentioned Amy Domini’s name a couple of times so far, and we’ve done so in part because you, Ellen, got to interview her recently. So tell us a bit more about who she is, what she’s done.

Ellen Kennedy: So I’m an Amy Domini fan girl, as I think a lot of people who came out of the SRI industry are. She’s someone I’ve admired for years. She pioneered SRI investing way back in the 1980s by founding Domini Impact Investments which is still growing strong. And she did all this as a woman in a field that was very male-dominated back then. What I appreciate most about her is her clarity. She helped develop the concept of triple P investing or investing for people, planet and profit. And she recommends avoiding companies that spell trouble in those three areas. Very simple, invest in triple P, and she’s always looking out for the next sustainability opportunity around the corner. She’s especially bullish these days on healthcare and transportation innovations, so check out my interview with her.

David Muhlbaum: We’ve gone in a number of directions with ESG. There are many more we can go to. We’ve got to keep an eye on the clock, but one of the things that just lurks in the back of my head that I want to ask Ellen before we go is, there’s a phenomenon where writing about/discussing ESG investing generates negative feedback. Is that a fair enough term for it? What is it about ESG that frankly gets some people so riled?

Ellen Kennedy: Well, I think first of all, as I said, ESG is not a monolith. It’s many things, but overall I think there’s a lot of misunderstanding about how ESG has become professionalized. And as we know, it could use more standardization but it’s getting there. And so people often read into ESG, I think, political opinions. It’s to try and find those metrics that will deliver the best return for shareholders and that’s really all there is to it. It just so happens that a lot of the metrics that were ignored by shareholders for many years are these things that lead us to a more sustainable world.

Ellen Kennedy: I actually often think of ESG, I know Kyle is also a nerd, I think of it like a Tardis, like a time machine from Dr. Who, a big red telephone box that you can get into and you can set your course for the future. And if you look at the major trends going on, a lot of them happened to be sustainability trends, climate change, water issues that we’ve talked about, equity issues we’ve also talked about, along with those other thing that investors have considered for many years, like population growth or geopolitical risk. So I really think that when people dig into the way ESG is conducted, they’ll see that it really just makes business sense and that is why so many people are turning to it now and why it’s so popular.

Kyle Woodley: Well, being a fellow nerd, I’m going to have to point out, the Tardis is blue. It is not a big red box. It is a big blue box. And sorry, ladies, I am not available. Sorry.

Ellen Kennedy: I am mortified. I thought it was red. Thank you so much. I stand corrected.

David Muhlbaum: Okay. Well, we’re sure if that’s all we have to worry about, we’re in great shape. Thank you so much for joining us today, Ellen. We really appreciate your insights and all you’ve brought to ESG coverage for Kiplinger. Thanks again.

Ellen Kennedy: Thank you. My pleasure.

David Muhlbaum: That will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple podcasts or wherever you get your content. When you do, please give us a rating and a review. And if you’ve already subscribed, thanks. Please go back and add a rating or review if you haven’t already. To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed, go to kiplinger.com/podcast. The episodes, transcripts and links are all in there by date. And if you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

The Securities and Exchange Commission in March released guidance for publicly traded companies on the links between their businesses and climate change – a boon for investors, regardless of whether they’re concerned with environmental, social and governance (ESG) criteria.

Proposed SEC rules would require a number of new disclosures. For instance, companies would have to reveal any financial risks related to climate change. They also would be compelled to include details about corporate greenhouse gas emissions, which are a globally recognized way of measuring a company’s contribution to climate change. The SEC also wants a discussion of how companies are managing climate risk.

Investors focused on ESG investing have long called for standardized climate change disclosures, especially in light of the fact that public companies are responsible for 40% of greenhouse gas emissions.

“For too long, disclosure of climate risk information by publicly traded companies has been voluntary and without uniform standards, said New York City Comptroller Brad Lander. “As a result, investors lack the information needed to evaluate the financial risks to their portfolios posed by physical climate impacts like rising seas, floods and wildfires, as well as from policies enacted to reduce emissions and exposure to climate threats.”

Many companies already report their greenhouse gas emissions, and welcome standardization efforts. But plenty of companies, business groups, and even states are likely to litigate the proposed rules.

Expect an animated 60-day comment period.

Sign up for Kiplinger's FREE Closing Bell e-letter: Our daily look at the stock market's most important headlines, and what moves investors should make.

For now, however, we’ve considered three ways these climate change disclosure rules could benefit investors.

“Greenwashing” Will Be More Difficult

Greenwashing is presenting an exaggerated public image of environmental responsibility, and the SEC’s proposed rules would clamp down on this practice.

If passed, publicly traded companies would have to report annual “scope 1 and 2” emissions. These are emissions that companies are directly responsible for, such as pollution from an auto factory (Scope 1) and emissions from the energy required to power the factory (Scope 2).

In certain cases, the SEC will also require reporting of “Scope 3” emissions, or those emanating along the supply chain and from product use, such as emissions from mining the materials used to make the car, and then from driving it.

The proposed SEC climate change disclosure rules include a phase-in period, with particular flexibility on reporting Scope 3 emissions and greater latitude for smaller companies. Regardless, investors would be able to compare the emissions of different companies far more easily.

Cleaner Supply Chains

Many publicly traded companies already measure and report on Scope 1 and 2 emissions. Scope 3 is trickier, especially when companies rely on the private sector.

However, as those disclosures increase for public companies, private suppliers will have more incentive to track and manage their emissions in order to compete for contracts. Better climate management among suppliers will in turn make for a more resilient supply chain.

Carbon Offsets Will Be More Transparent

More than 5,000 companies have pledged to achieve net zero emissions by 2050. One way they intend to achieve this goal is through the purchase of carbon offsets, or projects that either capture carbon or ensure that natural carbon absorbers, such as forests, remain standing.

Carbon offsets have frustrated environmentalists and investors for their lack of standardization and clarity. The SEC's proposed climate change disclosure rules would require companies to reveal “transition plans” to a lower-carbon economy, which are widely understood to include more detail about offsets.

Market volatility early in 2022 hasn’t dragged down only growth stocks and blue-chip names. It has also had a brownout effect on the Kiplinger ESG 20, our list of favorite stocks and funds that excel at meeting environmental, social and corporate governance standards.

Companies lauded for planet-friendly products, treating their workers well and building diverse boards and management teams are not immune to headwinds such as rising interest rates, spiking inflation, supply chain disruptions, computer chip shortages and the uncertainties of war. But short-term hiccups for companies committed to long-term sustainability shouldn’t deter investors, says Peter Essele, head of portfolio management for Commonwealth Financial Network.

“An ESG investing framework is well suited for the economy of the future,” he says.

After a bullish 2021 for ESG picks with impressive credentials, a pullback is under way early in 2022. Among our favorite ESG stocks, only cereal maker Kellogg (K), which settled a strike with workers in December by offering better pay and benefits, and consumer electronics retailer Best Buy (BBY) have posted a positive return so far this year. (Prices and returns are through March 4.)

Overall, our 15 ESG stocks have tumbled 13.3% since the start of the year, compared with a loss of 8.9% for the S&P 500.

The hardest-hit ESG stocks on our list are water technology company Xylem (XYL), down 28.7% in 2022, and Trane Technologies (TT), which makes energy-efficient heating and cooling systems, off 24.8%.

Our 15 ESG favorites have edged the broad market over the past 12 months, however, gaining 16.8% compared with the S&P 500’s 16.5% advance. And our picks still hold a performance edge over the broad market in the latest three-year period (25.4% versus 17.7%).

Common Complaints

The weak recent performance of our ESG picks is due to the well-known market depressants that have made headlines.

Vestas Wind Systems (VWDRY), which makes turbines that turn wind energy into electricity, has been hurt by higher costs for materials and shipping due to supply-chain disruptions. Xylem has been impaired by computer chip constraints, which reduced the number of water meters it could ship to customers. Economy-wide bottlenecks and ingredient shortages have made it harder for Kellogg to get enough boxes of Frosted Flakes and Froot Loops on store shelves.

Like other growth-oriented stocks that tend to struggle when interest rates are rising, those on our list – such as solar panel maker First Solar (FSLR), chipmaker Nvidia (NVDA) and Salesforce.com (CRM), a giant in the cloud-based software market – have been buffeted by the Federal Reserve’s commitment to hike rates to fight the hottest inflation readings in 40 years. Higher interest rates eat into the value of a company’s future earnings, making stocks whose promise is largely future-loaded less attractive.

Our ESG-focused funds have posted mixed results. Brown Advisory Sustainable Bond Fund’s (BASBX) 2.8% decline so far in 2022 was smaller than the 3.1% loss suffered by the Bloomberg U.S. Aggregate Bond index. The fund also topped that market benchmark in the past one- and three-year periods. FlexShares Stoxx Global ESG Select Index ETF’s (ESGG) one-year return of 9.0% and three-year return of 14.6% topped the MSCI All Country World index in both periods, although it has lagged slightly for the year to date.

The biggest fund losers so far in 2022 are Pax Global Environmental Markets (PGRNX), which owns foreign and U.S. stocks, down 18.4%, and Putnam Sustainable Future ETF (PFUT), which owns significant stakes in the technology and healthcare sectors, down 19.0%.

You might have noticed a flurry of new investment products that link sustainably themed funds with donations to nonprofit groups, from the NAACP to the National Wildlife Federation to the Susan G. Komen Foundation.

But before you invest in a mutual fund or exchange-traded fund (ETF) tied to your favorite charity, make sure that it fits within your portfolio, meets your investment goals and truly delivers a benefit to the nonprofit group with which it partners.

When comparing these funds with competitors, “consider the fund donation to be the cherry on top, not the main driver of the decision,” says Jon Hale, global head of sustainability for investment research firm Morningstar. “Don’t be seduced into a fund that doesn’t further your financial goals,” he says.

And look beyond a fund’s donation to measure impact. Start by taking a hard look at its management company. Does it actively partner with the nonprofit group it benefits to bring about change? Is it voting shareholder proxies and filing shareholder resolutions to further the nonprofit’s cause?

“ESG investing alone doesn’t create concrete, real-world impact,” says Leslie Samuelrich, president of Green Century Capital Management. “You need to pick funds that do shareholder advocacy.”

Green Century Balanced Fund

The concept of working hand-in-glove with nonprofits isn’t completely novel. Consider Green Century Balanced Fund (GCBLX), a member of the Kiplinger ESG 20, a list of our favorite stocks and funds with a focus on environmental, social and governance issues. Fund sponsor Green Century is owned by several nonprofit groups around the U.S., and its profits from fees support their environmental and public health goals.

Moreover, Green Century has for years engaged companies by filing shareholder resolutions, speaking with corporate executives and doing policy work. Apple, for example, Balanced Fund’s second-largest holding, announced in November that it would redesign its products to enable consumers and independent shops to repair devices and thereby reduce electronic waste, the fastest-growing global waste stream. Green Century was one of the main drivers of this “right to repair” decision.

All that engagement comes at a cost—the expense ratio for Green Century Balanced is 1.46%. But over the past 10 years, Balanced Fund’s 10.6% annualized return beat 83% of its peers, and it placed in the top 25% of similar funds over the past three-, five- and 10-year periods. (Returns and other data are through January 7.)

Simplify Health Care ETF

Simplify Health Care ETF (PINK, $26) is another fund that has a strong investment thesis and aims to provide a significant boost to a nonprofit group.

The PINK ETF is actively managed by Michael Taylor, a trained virologist as well as a seasoned and highly regarded hedge fund manager. Simplify is donating all of its net profits from managing the fund, or a minimum of $100,000 per year, to the Susan G. Komen Foundation for breast cancer research.

Although the foundation’s reputation was tarnished in the past decade for high CEO pay and overhead, Komen has since improved its leadership, management and transparency, such that it has earned a four-star rating (out of five) from Charity Navigator and a Gold rating from Guidestar.

Simplify Health Care does not apply an ESG screen per se to its stock-selection process; even so, it earns a strong four out of five “globes” ESG rating from Morningstar. Top holdings include UnitedHealth Group and Pfizer. Launched in October 2021, the ETF has gained 4.5% since then, garnering over $30 million in assets. The fund’s 0.50% expense ratio is reasonable, given that it has such strong management.

Another plus for the fund is that healthcare stocks are often resilient in times of inflation. And the long-term demographics of aging societies are working in their favor. For those reasons, this fund could be a solid addition to a portfolio for investors looking to diversify into the healthcare sector.

Impact Shares NAACP Minority Empowerment ETF

Impact Shares, itself a nonprofit organization, manages a suite of sustainable funds in collaboration with leading nonprofits, including the NAACP, the YWCA and others. Impact has partnered with the groups to help design investment criteria and has pledged to donate 100% of net fee profits to them.

In the case of Impact Shares NAACP Minority Empowerment ETF (NACP, $35), which tracks a Morningstar index designed to provide exposure to U.S. companies with strong racial and ethnic diversity policies in place, Impact has absorbed a portion of the management fee, lowering the expense ratio from 0.75% to 0.49%.

According to Impact Shares CEO Ethan Powell, the fund is almost at breakeven, at which point donations to the NAACP will begin. Although the donations will be important, Powell believes that an even greater benefit to these groups is the opportunity to engage with corporations alongside an institutional investor. In fact, Impact Shares hired a former senior director of the NAACP as chief engagement officer for the fund in 2020, and corporate execs have been reaching out to learn how they can better their racial equity scores so that their companies can be included in the fund.

Unlike many other funds that donate to specific causes, the ETF is not sector-specific. But it recently held a hefty 29% weighting in tech. The portfolio of large-company shares, topped by Apple and Microsoft, is a blend of growth-focused and value-priced stocks. Since its launch in July of 2018, its 19.8% annualized return outpaced the S&P 500’s 17.9%.

Bottom Line

The funds above are far from the only ones partnering with causes you might hold dear.

The investment arm of New York Life Insurance launched a suite of ESG funds in 2021 that will donate the larger amount of 10% of net fees or $30,000 per year to specific causes. These include IQ Cleaner Transportation, which will donate to the National Wildlife Federation, as well as ETF index funds donating similarly to Girls Who Code, the American Heart Association and Oceana, an ocean conservation group.

Although the investment case for some of these funds is intriguing, the track records are still short, and investors who care about making an impact should note that the New York Life funds will not be engaging with companies beyond voting on shareholder proposals.

Expect to see more funds linking up with charities. The bottom line is that with any fund promising to donate fee income to a worthy cause, you will have to do some extra homework to make sure the pledge is more than just a marketing exercise.

Nonetheless, for investors who want to beef up donations to their favorite charities along with their portfolios, these new partnerships are worth watching.

The friction between Russia and Ukraine has again brought to the forefront the importance of renewable energy sources, as it has become apparent how dependent Europe is on Russia for the supply of fossil fuels.

In reaction, the European Union in early March unveiled a new plan to accelerate near-term deployment for renewables by 20% – a move BofA Securities strategists say boosts the outlook for wind stocks and other green energy investments.

And in the U.S., the federal government recently netted a record $4.37 billion through the sale of more than 488,000 acres in the Atlantic Ocean, off the coasts of New York and New Jersey. The six offshore sites, once developed, are expected to generate around 7 gigawatts (GW) of clean energy.

But this may be only the beginning, given President Joe Biden's plan of deploying 30 GW of offshore wind energy in the U.S. by 2030. Plus, the Energy Information Administration (EIA) expects the the share of solar and wind renewable energy sources will grow from 13% in 2021 to 17% in 2023.

What's more, according to a report by the University of Delaware's Special Initiative on Offshore Wind (SIOW), private-sector investment in U.S. offshore wind could reach $109 billion by the end of the decade.

With that in mind, here are three wind stocks that are well-positioned to harness this growth. To narrow down our list, we turned to the TipRanks database to find names that analysts' are upbeat on. The wind energy stocks featured here either have Buy or Strong Buy ratings from the Wall Street pros or are targeted for significant upside potential over the next 12 months. Let's take a closer look.

Data is as of March 13.

• Market value: $26.3 billion
• TipRanks consensus price target: $36.36 (11.3% downside potential)
• TipRanks consensus rating: Strong Buy

Brookfield Renewable Partners (BEP, $41.01) operates a publicly traded, pure-play renewable power platform. It is a flagship renewable power company of alternative asset management firm Brookfield Asset Management (BAM). The company's portfolio consists of hydroelectric, wind, solar and storage facilities in North America, South America, Europe and Asia. BEP's expansive portfolio of assets has around 21,000 megawatts (MW) of installed capacity and a 62,000-MW development pipeline.

The company generated its highest-ever normalized funds from operations (FFO) – a key measure of operating performance for the limited partnership – of $1.45 per share in 2021, with total funds from operations of $934 million, up 10% year-over-year (YoY). BEP defines FFO as adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) before the effects of certain non-recurring cash and non-cash items.

While BEP generates most of its cash flows from its hydroelectric assets, its wind and solar assets are also growing quickly. This is indicated by the fact that the company's wind energy assets generated FFO of $396 million in 2021, up 67% year-over-year and comprising 42.4% of BEP's total FFO.

What's more, in 2021, the company diversified its business further, completing the acquisition of more than 300 MW in wind in Asia.

Credit Suisse analyst Andrew M. Kuske thinks BEP is one of the top wind stocks, calling it "a best in class developer of long-dated renewable power, an active capital recycler and a savvy purchaser of distressed assets."

Plus, "an acceleration of development pipeline is core to aiding underlying value creation and de-carbonization transactions may provide additional upside not within our base scenario," the analyst adds.

In addition to an Outperform (Buy) rating on BEP, Kuske has a $46 price target, indicating implied upside of 12.2% from current levels.

And while most Wall Street analysts' price targets have yet to catch up with the stock's nearly 15% year-to-date surge, they are bullish in general. Of the 12 covering analysts, nine have issued Buy calls on BEP over the last three months. See which other analysts are in the BEP Buy camp on TipRanks.

• Market value: $101.4 billion
• TipRanks consensus price target: $112.44 (21.8% upside potential)
• TipRanks consensus rating: Moderate Buy

Industrial conglomerate General Electric (GE, $92.28) is going through a transformation of sorts. Last November, the company announced a plan to split into three investment-grade public companies, comprising its aviation business, healthcare and energy businesses.

While the healthcare segment is expected to be spun off in early 2023, its energy division – which includes its renewable energy, power and digital businesses – will spin off in early 2024. Following these spinoffs, GE will be purely an aviation-focused company.

In its recent investor update, GE said it expects supply-chain issues, labor availability and inflation to persist in the first half of fiscal 2022 year, even as demand remains strong across its businesses. As a result, the company anticipates that these challenges will pressure its profit and free cash flows in the first half of 2022.

When it comes to wind energy stocks, GE's renewables business consists of offshore wind energy – which is still pre-revenue but growing – grid and onshore wind (the largest division of the three). The company foresees its renewables business delivering revenue growth in "low single-digits" this year, with an improvement in profitability.

So, what are GE's prospects when it comes to its renewables business, and more specifically, wind energy?

"[W]hen you look medium to long term, we continue to be big believers in the demand environment for onshore wind, and we think we're well positioned to be an important part of that going forward," said CEO Larry Culp in the company's fourth-quarter earnings call.

While RBC Capital analyst Deane Dray (Outperform) did trim his growth and margin estimates for GE following the company's investor update, the analyst remains positive about the stock. This is because Dray perceives potential upside to GE's break-up story, "from faster timing of transactions than originally targeted and prospects for potential value-unlocking asset sales/divestitures."

The analyst's price target of $113 (up from an earlier $108) values the company on a sum-of-parts basis and could see GE deliver a 22.5% return from its current price.

A solid 10 out of 14 analysts covering GE have rated the stock a Buy, versus only four Hold ratings and no Sells. See GE's stock full analyst forecast on TipRanks.

• Market value: $525.0 million
• TipRanks consensus price target: $19.14 (35.6% upside potential)
• TipRanks consensus rating: Hold

TPI Composites (TPIC, $14.12) is an Arizona-based manufacturer of composite wind blades, catering to the wind energy market. In 2020, the company's wind blades comprised around 32% of all those sold onshore globally, on a MW-basis, excluding those sold in China.

Similar to its fellow wind energy stocks, macro headwinds persisted for TPI Composites in the fourth quarter and are likely to carry over into 2022. However, the company still achieved record net sales in 2021 of $1.73 billion versus $1.67 billion in 2020.

Interestingly, substantially all TPI Composites' revenues in 2021 came from three primary wind blade customers: GE Wind, Vestas (VWDRY) – a member of the Kiplinger ESG 20 – and Nordex (NRDXF). These three made up 24.7%, 40.4% and 22.4%, respectively, of TPIC's total net sales in 2021.

Another key highlight for the company in Q4 was that it signed an agreement of "meaningful" size for a passenger electric vehicle (EV) platform to supply composite components.

However, the company's outlook for this year remains muddy. "As we look to 2022, we expect the operating environment to continue to be challenged," said Bill Siwek, president and CEO of TPI Composites, in the company's fourth-quarter earnings report press release. "With that said, the long-term drivers for wind both domestically and globally remain intact and we are well positioned to capture that growth in the future.”

It was this lack of visibility for 2022, due to macro pressures, that has kept Stifel analyst Stephen Gengaro (Hold) sidelined on the stock. Still the analyst admits there were "some positive developments during the fourth quarter," including the company adding four new lines in China for top customer Vestas and continued strong global service growth. He also has a $27 price target for TPIC, which indicates implied upside of 91.2%.

And TPIC Composites actually started 2022 on our short list of stocks to sell. UBS analysts, for instance, had just reduced their 12-month price targets to $20 per share from $44. TPIC has since fallen to $20, then cratered to as low as $9.23. Now, a consensus price target of $19 per share sits 35.6% higher than current prices. The upside potential to the average price target suggests that the stock could be undervalued at current levels.

Two of seven analysts surveyed by TipRanks categorize TPIC stock as a Buy. Check out their price targets and analysis at TipRanks.

The environmental, social and governance (ESG) rating firm MSCI downgraded Russia’s ESG Government rating this week, from B to the lowest rating possible, CCC.

Many ESG fund managers rely on MSCI ratings for portfolio construction and for ETF indexes. Thus, many Russian companies could end up being cycled out of funds that rely on maintaining a minimum ESG ratings bar for inclusion.

The downgrade acts as yet another hit to Russian investments, many of which have been flattened since the country’s invasion of Ukraine. It's not the first one, either; MSCI ESG Research originally downgraded Russia at the end of February.

“Since the downgrade to B on Feb. 28, we have observed further heightening of Russia’s ‘Economic Environment’ and ‘Financial Governance’ risks based on the widening domestic impact of international sanctions and financial isolation on Russia’s economy,” the MSCI notice said.

Many firms have halted new investments in Russia. JPMorgan Chase, BlackRock and State Street have all announced that they are exiting Russia as able, and JPMorgan also removed Russian debt from its tracking indexes.

You can thank an increasingly untenable financial situation for both the country and its investments alike. Debt rating agencies S&P, Fitch and Moody’s lowered Russia’s credit rating to at or near junk status as of March 3, a full five days before MSCI made its latest downgrade.

ESG was at least part of the conversation. These debt rating agencies incorporate environmental, social and governance considerations when they are believed to be “material,” or important to a company’s financial performance.

Fitch, for example, cited its incorporation of country-level World Bank Governance Indicators for political risk and rights in its credit assessment. Moody’s considers a country’s inability to repay debt an ESG criterion, also pointing to Russia’s poor governance and corruption.

ESG Not Exactly Hot on Russia in the First Place

A Bloomberg analysis found that only about 300 of 4,800 ESG funds held Russian companies. Bloomberg noted that several ESG funds invested in Russia in search of green or responsible companies to meet intense demand from investors. These ESG investors might have waived human-rights concerns to further goals like renewable energy.

Other ESG investors, Bloomberg noted, steered clear of Russia.

Morningstar’s Jon Hale found that ESG funds held fewer Russian companies than conventional funds.

“Sustainable emerging-markets equity funds have, on average, just 1.8% exposure to Russian equities, nearly two-thirds less than the overall category average.” Hale notes that in most cases, Russian companies are ESG laggards and don’t meet fund criteria.

The question going forward is whether future ESG criteria will take a longer, harder look at investments in autocracies.

Amy Domini is founder and chair of Domini Impact Investments. She has authored several books, most recently Thoughts on People, Planet & Profit.

Kiplinger: You are a pioneer in what is often called socially responsible investing (SRI). How and why did you first come to marry your sense of moral responsibility and fairness to investing?

Domini: My first real job was as a stockbroker. I started asking clients, “Are there industries that you’d rather not invest in?” I was astonished that most people said yes. They might want to avoid tobacco companies, for instance, because their brother died of lung cancer. Over time, I saw the power in the relationship between investors and society. Do you believe that investors should be involved in this conversation? If the answer is yes, then you’re my people.

Investors today hear a lot about ESG, or environmental-, social- and governance-based investing. Is that different from socially responsible investing or values-based investing? No, it is just a battle of vocabulary. I think that ESG has a precision to it that appeals more to conventional analysts on Wall Street. But we all make selections as to what to invest in based on people and the planet.

What is the best way for investors to integrate ESG into their portfolios? The simplest way is to purchase an SRI or ESG mutual fund. You will join thousands of other investors to raise issues with a company’s management. You multiply your power when you go that route. But a lot of people enjoy getting to know companies and making decisions that suit them personally. I would urge them to focus on companies that will improve people’s lives.

The criticism of this kind of investing for years has been that you’d have to sacrifice returns. What’s your opinion? It hasn’t been borne out by the facts. Embedded in that assumption is the idea that you should try to have as big a selection of investments to choose from as possible to maximize performance and that restricting yourself to ESG choices will limit returns. But every single small-cap portfolio manager invests only in small-cap stocks and still promises to outperform. And every single value portfolio manager invests only in value stocks and still promises to outperform. So I feel that there’s a different set of rules when it comes to our investing in ESG companies.

Imagine I am comparing two companies in the same industry. The first has a lot of product safety recalls, and the second one doesn’t. By investing in the second company, I’ve avoided trouble. That’s rule number one for making money: Avoid trouble.

Looking at a company’s potential from an E, S or G lens, which of those offers the most promise from an investment standpoint today? I think the S is most important because it involves such a broad set of issues. The social lens evaluates how the company interacts with stakeholders, including suppliers, customers, employees, communities and shareholders. Does a company have problems such as child labor in the supply chain? Does it provide training for its workforce? These kinds of questions help us understand the quality of management. I think every conventional investment adviser would agree that management quality is the most difficult thing to assess when you’re analyzing a company.

What do you see next for ESG investing? Mainstreaming and better information flow. It is a majority opinion now that ESG investing has a role to play. That will put more pressure on regulators to provide a systematic framework for information that is comparable from one company to another. And with that information will come pressure to show the impact on people and the planet.

There was no such thing as a corporate sustainability report when I got started. So there have been changes, but this level of public information is the big one.

Investors have been working for decades to define ESG criteria that best translates into corporate risk or opportunity. How can we make sense of all of the ratings and raters that are proliferating today? Years ago, I started a rating company called KLD, which has since been acquired. I think in the early stages of a new manager getting involved in this field, they want a yes or no–can I buy the stock or not? And this has driven the absolute scores from rating agencies such as MSCI and Sustainalytics. But knowing how they got that top-line score helps you make a better decision about the company.

Most investors will do well by reading the corporation’s sustainability report. Already we see some annual reports that have a fulsome discussion of how the company has addressed the customer, the manufacturing process, the supply process, the environment through an ESG lens. And there is a way to put a monetary value on some of these benefits. We can imagine a time when this integrated reporting actually puts dollar values on ESG outcomes, but that’s a decade or two away.

In general, which investment vehicles would you recommend now? I’m pretty conventional. I like stocks better than bonds. I think you can have more long-term growth with stocks, but bonds have a role as a safety net. In this stock market, I prefer active management. We are entering a phase of very strong crosscurrents, including COVID and tensions between China and Taiwan, and it is potentially very scary. At this time, then, I prefer the nimbler approach offered by active fund managers; they can react more quickly to these challenges than a passively managed fund.

Anything in particular you like right now? I am optimistic about the future of the stock market. We have tremendous energy going into products that didn’t exist 10 years ago. I mean technology writ large, in healthcare, transportation and entertainment–even service industries. I don’t think that we are even near the middle of this innovation wave, let alone the end. And it is accelerating at an incredible pace.

Home improvement and home goods have been very strong in the last year or two. We’ve been nesting. We want a new rug. We want a new roof. But over the next period, I’m moving away from that home-focused theme. I also think that we’re all desperate for experiences and travel, even if it’s 30 miles up the road to an Airbnb. These are the areas I’m looking at right now in terms of opportunity sets.

If there was one thing you’d want readers to take away from this interview, what would it be? “Triple P” investing, for people, planet and profit. It is a phrase that cuts out all the noise and gets to the heart of our approach.

Thematic green exchange-traded funds (ETFs) and mutual funds allow you to zero in on a specific area of the fight against climate change, from electric-vehicle batteries to solar power.

These funds deliver the benefit of diversification and can hold shares in burgeoning companies that you might feel uncomfortable buying on your own because they have no profits and short histories as publicly traded stocks.

What's more, a lot of leading sustainable companies are based overseas – so you may not be able to buy shares in them, but these green funds can. Let's take a closer look.

KraneShares Electric Vehicle and Future Mobility ETF

The KraneShares Electric Vehicle and Future Mobility ETF (KARS) is a green ETF that tracks a global index that includes companies throughout the EV ecosystem – from auto and battery makers to autonomous driving technology (sensors), charging stations and raw materials.

KARS owns shares in several EV battery makers, including Contemporary Amperex Technology, better known as CATL, the world's largest lithium battery maker; its shares trade only in China. Other holdings include BYD – a Chinese EV maker backed by Warren Buffett's Berkshire Hathaway (BRK.B) – and lithium stock Albemarle (ALB). 

The fund has struggled in recent years amid weakening demand for EVs, but expectations are for the electric vehicle market to grow by leaps and bounds over the next several years which could create tailwinds for KARS. According to Statista, the global EV market, is forecast to hit 18 million vehicles by 2026 vs 10.8 million in 2023.

Given KARS remains a highly volatile green ETF (as many of the funds featured here are), investors would be wise to approach it with extreme caution and due diligence.

Learn more about KARS at the KraneShares provider site.

Global X Lithium & Battery Tech ETF

Battery manufacturing must increase dramatically (some estimates say by 80-fold) if electric vehicle sales are to progress as expected.

The Global X Lithium & Battery Tech ETF (LIT) tracks an index of lithium mining and refining companies and battery makers around the world.

U.S. lithium firm Albemarle, as well as BYD and TDK (TTDKY), a Japanese electronics company, are top holdings. Expect high volatility. However, the fund boasts a solid five-year average annualized return of 10.9%.

Learn more about LIT at the Global X provider site.

Invesco WilderHill Clean Energy ETF

Invesco WilderHill Clean Energy ETF (PBW) covers a range of renewable-energy sources – wind, solar, hydro, geothermal and biofuel – and clean-energy tech.

Top holdings at present include PV solar module maker First Solar (FSLR) and rare earth materials miner MP Materials (MP).

Morningstar gives the green ETF a Neutral rating, saying that while fees are relatively low and experience among the management team is "abundant," the fund's "strategy has been a rocky, volatile ride for investors."

Indeed, PBW has been clobbered over the past year, down 43%. 

Learn more about PBW at the Invesco provider site.

Fidelity Climate Action

Fidelity Climate Action Fund (FCAEX) is an intriguing option for climate-focused investors. Asher Anolic runs this relatively new, actively managed green mutual fund, which launched in June 2021. 

It invests in global companies that work to address climate change (or its impacts) through corporate strategies or by providing technology, services or products.

Microsoft (MSFT), Alphabet (GOOGL) and Nvidia (NVDA) are among FCAEX's top holdings. Given the strength of these Magnificent 7 stocks over the past 12 months, the fund boasts a one-year return of 24%.

Learn more about FCAEX at the Fidelity provider site.

Related content

• Kiplinger ESG 20: Our Favorite ESG Stock and Fund Picks for Investors
• How the EV Tax Credit Works
• ETF Funds for Anti-ESG Investors

It's the end of business as usual. To save the planet, consumers, companies and governments all over the world are stepping up their sustainability game, or at least pledging to do so.

That's important, because it will take all parties working to fight climate change if we are to get to a net zero-world – when carbon emissions are balanced by absorption – by 2050, which is part of the goal of the Paris Agreement, an international treaty to tackle climate change that came into force in 2016.

Nearly 200 countries have committed to the agreement and set targets to reduce carbon emissions.

Companies are vital players, too. One-fifth of the world's largest 2,000 companies have committed to net-zero target emissions. And 90% of the companies in the S&P 500 Index now release sustainability reports, up from 20% a decade ago. Setting targets and measuring progress, says Katherine Collins, Putnam's head of sustainability investing, is an important step.

Consumers are changing their ways, too. Shoppers are sending a clear signal: Sustainability is no longer the exception, it's the expectation, especially for frequent, essential purchases such as groceries, household and personal care items, and clothing.

According to a 2020 U.K. study by accounting and consulting firm Deloitte, buying locally produced vegetables, cutting down on the consumption of meat and animal products, and reducing the purchase of products sold in single-use plastic packaging were top concerns for shoppers.

Where there's change, there's opportunity. It may take years for investors to see the benefits, and there will be bumps along the way. After logging stunning gains in 2020, environmentally focused investments – especially renewable energy stocks – are taking a beating.

"We have a long road ahead of us," says Haim Israel, of BofA Global Research. But the revolution is happening "because it must," he adds.

For those who want to join the fight as an investor and can deal with temporary tumbles, we've found eight innovative companies – three of them part of the so-called blue economy, focused on ocean sustainability. Some of our picks are more established than others, but each is poised to play an important role in finding solutions in this climate-challenged world.

But first, bear in mind a few guiding principles when you invest in climate-change fighters.

No company is perfect. China is the world's biggest maker of solar panels, but many of its plants are coal fired. Even so, if we use those solar panels to power our homes, we're helping the environment in the long run. "It's a life-cycle analysis," says Gabriela Herculano of iClima Earth, an impact-oriented investment firm. "You look at the manufacturing phase and the end-user phase. Solar panels have a lifespan of 30 to 35 years – time you’re not using fossil fuels."

Be patient. Whether a company is a consumer-products giant or a pure-play green firm, any significant environmental benefits from their goods or services could take years to realize. Athletic-wear company Lululemon (LULU), for instance, is trying to come up with a synthetic textile that can be recycled. (The global fashion industry produces 58 million tons of material every year. Much of that ends up in landfills or on a bonfire; less than 1% is reused to make new clothes.) It's early days, but "it's a great example of forward thinking about how to make a direct, sustainable impact" and an indication of potential long-term growth at the firm, says Putnam's Collins.

Stay open-minded. It would be wonderful to invest only in pure-play green stocks that are making direct, positive environmental impacts, but currently those opportunities are either too few or too nascent. Meanwhile, many large companies, which have the resources to explore and innovate, are making solid strides to combat climate change. These efforts may not impact their revenues or earnings much – for now – but they are notable.

Procter & Gamble (PG), for instance, developed a technology that PureCycle Technology is using to turn discarded carpets and drinking cups into ultra-pure polypropylene that is used to make other recyclable plastic products. Ford (F) is already taking orders for the F-150 Lightning, the electric version of its best-selling truck. The Lightning's battery is bidirectional, which means it can also serve as a generator that can power a home for up to three days when fully charged.

And Nvidia's (NVDA) computer chips helped scientists map rain forests in Peru. By studying the maps, researchers learned there were 36 different types of rain forests; they previously had thought there were only three. The discovery changed the government's strategy for protecting animals and the rain forests, says Andrew Niebler, a comanager of Karner Blue Biodiversity Impact fund. "Nvidia is a game-changer in terms of scientific advancement in biodiversity and nature."

In short, climate-change fighters, direct and indirect, are everywhere. Here are five green stocks making a direct impact to consider now.

Returns and other data, unless otherwise noted, are as of Feb, 4.

Reversing climate change is a company objective at Allbirds (BIRD, $11), the footwear start-up that launched in 2016 with a single model of sneakers sporting all-wool uppers.

Allbirds, which has a market value of just $1.8 billion, is incorporated as a public benefit corporation (PBC). That means its executives and the board of directors have a duty to maximize shareholder value and the company's environmental conservation goals.

The company takes carbon neutrality seriously. Allbirds already sources much of the wool it uses from sheep farmers that engage in regenerative agricultural practices; it has pledged to source 100% of its wool from sustainable farmers by 2025. And four years ago, with a Brazilian partner, it developed a shoe-sole material that it says has a negative carbon footprint (it's made of sugarcane, a low-carbon-intensity feedstock, in facilities powered by renewable energy).

Allbirds then shared its formula with competitors. At least a dozen footwear brands now use the material, including Puma, Timberland and TOMS.

What carbon Allbirds does emit – across every business area and along its supply chain all the way back to the woolly sheep – it offsets with investments in sustainability elsewhere. Since 2019, Allbirds' offsets have funded, among others, projects that improve soil health in Argentina and provide rural households in China with cookstoves to replace coal or firewood.

At $11 a share, this green stock trades at a more than 60% discount to the high it reached after its initial public offering (IPO) in November and below its $15 IPO price.

Morgan Stanley analyst Kimberly Greenberger recently upgraded the stock to Overweight, the bank's top rating. She expects 28% annual revenue growth in 2022, up from 24% the previous year. Its business is not yet profitable, but Greenberger says Allbirds is a distinctive ESG-driven brand with a potentially long runway ahead."

The more we reuse and recycle, the better off our planet will be – less trash means fewer landfills and lower greenhouse gas emissions. Ball, best known for its glass jars, is a big player in the so-called circular economy.

That’s because more than 80% of its business makes beverage cans, bottles and caps out of aluminum, a metal that can be endlessly recycled. According to the Aluminum Association, nearly 75% of all aluminum ever produced is still in use today. By contrast, only 9% of plastic ever produced has been recycled. And demand for aluminum is on the rise, too, after it was out of vogue for many years.

Shares in Ball (BLL, $94), which has a market value of $30.3 billion, trade at a premium to its peers. But performance has been flat lately, in part because beverage can sales in the second half of 2021 were lackluster.

But CFRA's Matthew Miller rates Ball a Strong Buy because of its "attractive market position in an aluminum can market that is experiencing the strongest growth trend in the last four decades." The stock trades at 23 times expected year-ahead earnings, and analysts expect 18% earnings growth in 2022.

To achieve net-zero emissions by 2050, BofA Global Research estimates that electric vehicle sales need to rise from 20% of global car sales today to 60% by 2030 and 100% by 2035. That bodes well for EV makers, including Lucid Group (LCID, $28), which had its IPO in July.

There's a lot of excitement about Lucid. Though its first Air sedans rolled into customer garages only a few months ago, the company boasts a whopping market value of $45.4 billion.

BofA analyst John Murphy says Lucid is "one of the most legitimate" start-up electric vehicle automakers and a "competitive threat" to incumbent automakers. Underpinning his recommendation of the stock is the company's electric powertrain technology – Lucid has been the sole supplier of battery packs and software for Formula E, the electric-car motorsport league, since 2018 – and its efficient battery, which promises a longer range (500 miles) than the Tesla Model S Plaid (390 miles) or the Porsche Taycan Turbo S (201 miles).

Shares have fallen 48% since their November peak. That makes LCID more attractive. Even so, we’d look to buy this green stock on further dips.

Though revenues are expected to increase dramatically over the next two years – BofA's Murphy expects a fourfold increase between 2022 and 2024 – net losses will linger beyond that.

Planet Labs' (PL, $6) network of 200 high-frequency satellites circle the globe all day, every day, snapping millions of images. These real-time images, which most Planet customers subscribe to receive, are vital to monitoring the health of agricultural crops, rain forests, rivers and oceans, among other things, over time.

The images can help farmers make decisions that improve crop yields and lower the use of water and fertilizers; companies can better manage their carbon footprint; and government agencies can deploy relief efforts to the neediest areas after natural disasters. "The information is hugely valuable and impactful," says Putnam's Collins, a comanager of Putnam Sustainable Future ETF (PFUT).

Helping the environment is part of Planet's DNA. As a public benefit corporation, its board and key managers have a duty to act not just to maximize shareholder value but also to advance the company's stated public mission, which is to accelerate humanity to a more sustainable, secure and prosperous world by illuminating environmental and social change.

Planet has a $1.6 billion market value and no earnings. But it logs more than $100 million in annual revenue – 94% in recurring subscription fees – from 700 customers, including global agriculture firm Corteva Agriscience, advanced data analytics company Kayrros, and Australia's Department of Natural Resources and Mines.

What's more, Planet's network is hard to replicate. "If I wanted to start a competing business, it would take a decade and a lot of money," says Collins. "That’s a high bar."

Wedbush analyst Daniel Ives rates this green stock Outperform and expects 29% annualized growth in revenue over the next three fiscal years. (Planet Labs’ fiscal year ends in January.)

Cattle pose a big challenge for the environment for many reasons, among the largest being the methane gas they produce when they belch and break wind.

Methane is a more harmful greenhouse gas than carbon dioxide. According to the United Nations Food and Agriculture Organization, livestock produce 14.5% of global greenhouse gas emissions every year. Reducing that output would be a big win for the environment.

That's why we like Royal DSM (RDSMY, $47), or Koninklijke DSM, as it's known in its native Netherlands. The 120-year-old Dutch company started as a coal producer but now focuses on health, nutrition and bioscience.

Its cow-feed additive, Bovaer, cuts methane emissions and is now approved for use in Brazil, the world's biggest beef exporter, and Chile. Just one-fourth of a teaspoon of Bovaer per cow per day will reduce methane emission by 30% for dairy cows and up to 90% for beef cattle. That could be one of the biggest positive impacts on the environment made by a single company. David Winborne, of Pax Global Environmental Markets (PGRNX), a member of the Kiplinger ESG 20 list of favorite ESG funds, says the additive has "enormous potential."

DSM, which has a market value of $32.6 billion, has a strong niche in both its animal and human nutrition and health businesses.

The ingredients it supplies for (human) food, especially for immunity-optimizing products, are selling well thanks to the trend to make packaged food products healthier, says Pax's Winborne. And the company's operating profit margins are expanding.

Shares in this green stock, which trade in the U.S. as American depositary receipts, trade at 28 times expected earnings for 2022.

Blue economy isn’t a household term – one investing expert told us he had to search for it on the internet when we asked about it recently. But it’s getting a growing amount of attention.

What is it? The blue economy represents all of the dollars spent to improve the economic growth, health and livelihood of ocean and coastal zone ecosystems. The reason it matters: The ocean constitutes 70% of the world’s surface. “You can’t have a healthy planet without a healthy ocean,” says Louise Heaps, the head of sustainable blue economy at the global nonprofit WWF, in London. (In the U.S., this group is known as the World Wildlife Fund.)

The problem is, finding good ways to invest in improving the health of the ocean is not easy. Conservancy groups and non-profits dominate ocean cleanup efforts. You can donate money to them, but you can’t invest in them.

Even finding a fund that focuses on solving water-scarcity issues or decontaminating waterways, for example, is hard. Many water-focused funds are filled with utilities and related infrastructure companies without a stated focus on conservation.

“The funds roll up all the companies that have something to do with water, and that’s their index,” says Katherine Collins, head of sustainable investing at Putnam. “It’s not really satisfying.”

There’s some hope, though, in the form of these five “blue economy” investments. We recommend two funds that focus on water sustainability. We also found the stocks of three companies doing interesting things that will help us use water more efficiently or that go some way toward stemming water pollution.

Every bit helps to foster sustainability.

Tetra Tech (TTEK, $148) is an engineering and consulting firm has big roles in many sustainable areas, including water management.

For instance, the company helped a Kentucky sewer system authority save $200 million from 2006 to date by building a high-tech, real-time system to monitor and manage sewer system overflow during periods of heavy rain.

And in Los Angeles, Tetra designed a smart cistern system that can predict how much rain will fall, estimate a cistern's current capacity and then release water at just the right time to underground aquifers, which provide the city's local water supply.

Stifel analyst Noelle Dilts recommends the blue economy stock.

"We believe the company is well positioned to benefit from strong secular drivers in water and environmental services, with 85% [or more] of revenues tied to these markets," she says.

Analysts expect the company, $8.0 billion in market value, to deliver annual earnings growth of 9% in 2022 and 8% in 2023.

Tetra's shares are down 22% from 2021 highs, but they're still trading at 36 times year-ahead earnings estimates. Dilts believes the stock can command an even higher P/E. She has a 12-month price target on the shares of $200, based on a price-earnings multiple of 44 on her estimate of earnings in 2023.

Pollution harms the health of ocean wildlife and habitats, which can hurt coastal economies. In particular, "plastic is a killer of ocean life," says Vicki Benjamin, a comanager of Karner Blue Biodiversity Impact Fund (KAIBX).

Indeed, the ocean is home to five plastic islands of floating trash; one is roughly twice the size of Texas. Danimer Scientific (DNMR, $4) could help reduce that. It is developing a kind of plastic that is 100% biodegradable and compostable.

The blue economy company is another newcomer to the stock market; it had its initial public offering in December 2020. The company has a $409 million market value, no profits and just $53 million in revenue over the past 12 months.

It's one to watch for now. Jeffries analyst Laurence Alexander rates the stock a Buy, saying that 2022 should be a "validation year," when leading brands adopt its plastic. It already has a number of well-known customers, including PepsiCo (PEP) and Walmart (WMT).

Excessive use of fertilizer can run off into waterways, harming plants, animals and habitats, not to mention water quality.

"If we could just reduce the use of fertilizer, that would have the biggest positive impact on water," says Putnam's Collins.

Deere's (DE, $369) "See & Spray Select" technology, installed on a fertilizer sprayer, uses camera technology to identify color differentiation in the field so that only weeds get sprayed with herbicides. The system reduces herbicide use by 77%, on average.

As a giant in agricultural equipment, Deere has its share of eco-bugaboos, but it’s a leader in precision agriculture – technology that helps increase crop yields and minimize the use of fertilizers, two key environmental pluses.

The company spends $4 million a day on research and development, with an emphasis on precise automated machines. In January, Deere unveiled an autonomous tractor that should lead to more efficient planting and better harvests.

At current prices, Deere stock trades at 17 times earnings expectations for the year ahead and has a market value of $114 billion. Analysts expect 11% growth in earnings in its 2022 fiscal year, which ends in October, and 18% in fiscal 2023.

Credit Suisse's Jamie Cook rates the stock Outperform.

Fidelity Water Sustainability Fund (FLOWX, $15, expense ratio 1.00%), a new, actively managed fund, focuses on firms working on solving the world's water crisis. That includes software and data analytics that help deliver easier and more reliable access to clean water.

Industrial machinery is the fund's top industry weighting at a quarter of assets. It's followed by water utilities (17%) and electronic equipment and instruments (15%), as well as 11% of assets each in building products and industrial conglomerates.

Roper Technologies (ROP) and American Water Works (AWK) are top holdings.

FLOWX has returned 7.9% over the past 12 months.

Invesco has three water-focused exchange-traded funds (ETFs), but we favor Invesco Water Resources ETF (PHO, $52, 0.60%) because it tracks a Nasdaq index that includes companies creating products designed to conserve and purify water.

PHO is similar to FLOWX in that its largest asset concentrations are in machinery (27%) and water utilities (20%). However, it also has a substantial 16% invested in life sciences tools and services.

Waters Corp. (WAT) and American Water Works top the portfolio. The fund has gained 9.4% over the past 12 months.

BlackRock (BLK), the world’s largest investment firm, published on Tuesday the much-anticipated annual Letter to CEOs from its own chief, Larry Fink.

Over the past decade, these letters have increasingly urged companies to recognize and manage environmental, social, and governance (ESG) risks and opportunities.

Fink’s tone this year is insistent, recognizing that the pandemic has “turbocharged” the move to “stakeholder capitalism,” or how companies relate to employees, customers, the environment, and society.

“Stakeholder capitalism is not about politics,” Fink writes. “It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism.”

Information Revolution Gives Way to Decarbonization Revolution

Chief among these ESG opportunities is the move away from an economic system that consumes fossil fuels and emits large volumes of greenhouse gases, also known as “decarbonization.” Writes Fink:

“Engineers and scientists are working around the clock on how to decarbonize cement, steel, and plastics; shipping, trucking, and aviation; agriculture, energy, and construction. I believe the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. ... The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators – startups that help the world decarbonize and make the energy transition affordable for all consumers.”

Fink clarifies that for investors, this decarbonization may extend to the portfolio level, contributing to the massive growth in sustainable investments.

The old model of employee management? “That world is gone.”

Given the “great resignation” of 2021 and the attendant focus on employee mental health, a fair wage for lower-income employees, and the work-from-home trend, companies must radically rethink internal management.

“Our research shows that companies who forged strong bonds with their employees have seen lower levels of turnover and higher returns through the pandemic,” Fink says.

And those companies that ignore worker concerns face real business risk.

“Turnover drives up expenses, drives down productivity, and erodes culture and corporate memory.”

Stepping up shareholder engagement and proxy voting

Until recently, BlackRock avoided or even blocked efforts by other investors to pressure companies to operate more sustainably, by actively voting with management and against sustainable investors for specific recommendations, such as better disclosures on climate change risk.

BlackRock was itself targeted for this obstructionist behavior in a shareholder resolution filed by investors in 2020, and later withdrawn when BlackRock agreed to change its proxy voting practices.

And change they did; the CEO Letter affirms proxy voting as a shareholder right. Like other firms, BlackRock allows some large clients, such as pension funds, to dictate how proxies should be voted, but this ability will be extended to the individual investor once technical and regulatory logistics are sorted.

It should be noted, however, that all of BlackRock’s efforts on shareholder proposals to date are reactive; the firm does not file such proposals itself but merely votes on those created and managed by other investors, typically those active in the U.S. Forum for Sustainable and Responsible Investment.

Recognizing the growing interest in better research, advocacy and data related to ESG investing, BlackRock is also launching a Center for Stakeholder Capitalism to “further explore the relationships between companies and their stakeholders and between stakeholder engagement and shareholder value.”

Both Black Lives Matter and COVID have made more Americans aware of our society’s major racial disparities. In fact, since COVID’s start, investors have become considerably more interested in making impact investments that will benefit people of color. But that begs the question: Can the sustainable/impact investing movement have any impact on societal discrimination?

Surprisingly, the answer is yes. Thanks to community impact investing, untold millions of dollars have flowed into lower-income communities that have been excluded from traditional financing. And thanks to shareholder initiatives, many publicly traded companies have taken steps to hire, retain and promote more African Americans.

Boosting Workforce Diversity through Shareholder Engagement

The lack of African Americans in corporate management is seen most clearly at the senior level. Today only four of the Fortune 500 companies’ CEOs are African American, and likewise African Americans are woefully underrepresented on corporate boards of directors.

Shareholder engagement can foster workforce inclusion by convincing companies to release data publicly on employment diversity, and particularly on race and ethnicity. An even greater impact may come from tying CEO compensation to the achievement of specific diversity goals. According to a leading executive compensation firm, only about 78 of the 3,000 largest publicly traded U.S. companies currently tie executive pay to increasing workforce diversity. The number of companies that publicly release data on hiring, retention and promotion of underrepresented groups is also inadequate.

In 2020 and 2021, institutional shareholder engagement on CEO, workforce and board diversity has increased dramatically. These large shareholders meet with senior management to discuss measures to increase diversity. If management is not willing to take steps forward, these institutional shareholders can vote against management’s board members and/or force a proxy vote on releasing company workforce diversity data. A number of the efforts on releasing race and ethnicity data have been successful.

As an added bonus shareholder engagement on diversity may even benefit companies’ bottom lines: There is strong evidence that a more diverse workforce can lead to higher corporate profitability.

What Can You Do as an Individual Investor to Help?

What role do individual sustainable investors play in holding companies more accountable for their hiring practices? When you own shares in a mutual fund company, the company has the right to vote your shares in proxy votes. And it is sustainable mutual fund companies that most reliably will lobby management on diversity issues, and if necessary, initiate a shareholder campaign and proxy vote for greater diversity. (Note investors in individual stocks can vote their shares when these diversity issues come to a proxy vote.)

With the dramatic increase in interest in ESG investing, many fund companies are jumping on the sustainability bandwagon without doing any shareholder engagement or having much of a commitment to sustainability. So it is particularly important to consider an allocation in one of the sustainable mutual funds that has a strong record of shareholder engagement or to work with a financial adviser knowledgeable about these issues.

Community Impact Investing Makes a Difference

Impact investors provide greater opportunities to lower-income individuals throughout the U.S., whether in Appalachia or our inner cities. Unquestionably, community impact investing has a particularly important impact on helping African American communities. Community impact investing is how individual investors can have the greatest possible societal impact.

Community impact investing focuses on affordable housing, community development and financing small community businesses. Beyond the positive impact of these projects themselves, thousands of jobs are created in these communities.

There are impact investing firms that allow individual investors to get involved with community impact investing. Through their funds, as an example, money is lent to not-for-profit community organizations and social enterprises that typically have not been provided access to traditional financing. A good example is a local community group that focuses on making loans to small-scale entrepreneurs of color, perhaps someone who has been a cleaning person or a child care provider for years.

The person may want to open their own child care or cleaning business but lacks the capital. They may also need some technical assistance getting the loan and opening the business. Who could argue with providing budding entrepreneurs with an opportunity to “pull themselves up by their bootstraps,” as the old expression goes.

What Can You Do to Take Part?

Individual investors can purchase these social impact investing bonds through their financial adviser, in most brokerage accounts or in some cases online for as little as $20. Like investing in a certificate of deposit (CD), you should plan to keep the bond until it matures; you can choose terms of one to up to 10 years. These bonds would nicely diversify almost every fixed income portfolio.

The Bank You Choose Can Make a Difference, Too

You can also make your cash an impact asset. For instance, you can choose a bank that channels many of its loans into low-income communities. One option is the Self-Help Credit Union, and since it is a credit union, most of their products are FDIC insured. Oftentimes the rates are quite attractive.

Another approach is to find a community development bank in your state. For example, you can use the search function at the National Community Investment Fund to find one, http://ncif.org/.

Whether it is investing for community impact, choosing a bank or buying a sustainable fund, retail investors can help make a more just and diverse society. In fact, the more sustainable and impact investors there are, the greater the positive impact there will be.

Sandbox Financial Partners, LLC, is a registered investment adviser. This article is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any action with respect to your portfolio. If you have any questions, please contact the firm at info@sandboxfp.com or 301-214-4190.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As enthusiasm about ESG investing has been on the rise, so too has controversy. ESG is an acronym that refers to the environmental, social and governance considerations relating to investing. It’s an approach that, by some estimates, may become integrated into half of all U.S. managed accounts by 2025.

Why should investors and companies care about ESG? The argument is that in the long run, those risks will impact the business — companies that consider these non-financial, yet material, metrics in their strategy are best poised to mitigate risk and succeed. The increasing frequency of extreme weather events, rising prices for oil and gas, and spiraling discontent among workers provide early evidence of how environmental and social concerns will impact investors.

Where ESG Draws Criticism

Criticism about ESG generally falls into two broad categories. One view holds that ESG is systemic “greenwashing.” Companies publish glossy reports about their social and environmental engagement and hope that investors take interest or include them in sustainability indices. This view maintains that companies are rewarded for publishing a report that reveals some good practices, while ignoring the bad ones, and thus get a bump up in their third-party ESG ratings.

The second category of criticism is that if environmental and social challenges in business are so fundamental to long-term good management, and thus good financial performance, then the market will eventually price it into corporate valuations. This view believes that markets are efficient; it then follows that better social and environmental outcomes will prevail, if we keep the eye on the ball, which is financial performance.

A consistent assumption among the critics, however, is that ESG is designed to enable better ethical and social outcomes. But that's not necessarily the case — ESG is not the same as ethical, socially responsible or impact investing. And that’s OK, because we need all these strategies.

Impact investors seek measurable impacts on people, planet and profits with respect to how they allocate their money. A socially responsible or ethical investment strategy might seek to exclude from their funds companies that are deemed unethical. But an ESG strategy remains invested in the company, even if there are activities not aligned with their values, and will push for change.

For example, ESG investors might use their investment stewardship and proxy voting team to engage with the companies’ boards and CEOs about their plans to address climate risk, or even vote against the re-election of certain board members. The recent proxy battle victory by activist investor Engine No.1 at Exxon Mobil demonstrates this point (see my analysis here).

The Impact ESG Has on the Economy and Companies

Advocates for ESG investing indicate that their interest in climate and social factors stems from their view that poor management of those risks will impact financial portfolios and long-term business performance. The analytical focal point is impact on the economy and on the financial performance of companies, not the other way around.

Regulators also point to the risks that ESG considerations pose to the financial portfolios. The Department of Labor, for instance, recently proposed rules that, if passed, would permit fiduciary investment managers to take ESG risks into consideration, namely because they “may have a direct relationship to the economic value of the plan’s investment.” If there are any positive effects on people and the planet, it’s considered a “collateral benefit.”

The NY Department of Financial Services also provided guidance about climate change risks to the financial firms under its jurisdiction. They indicated that financial firms, particularly insurance companies, should integrate into their governance and risk-management processes how various climate change scenarios are likely to impact their business.

The frame of analysis, thus, is the impact on business and financial systems. The success of ESG depends on further expanding, measuring and defining the business case for ethics. This is one reason why making “the business case” for social challenges has become a feature of academic research and the business press (as I argue here, sometimes it goes too far).

Maintaining Principles Is a Key to Success

A principled ESG fund will therefore present investments that are at the intersection of financial performance and social or environmental good, so that investors can align their values with those opportunities. As Tariq Fancy describes in The Secret Diary of a Sustainable Investor, think of a Venn diagram where purpose and profit seek to intersect — that intersection constitutes the ESG integration approach for social and environmental good.

For ESG to continue to grow and succeed, the intersection in that Venn diagram needs to expand. Financial firms, companies, rating agencies and other intermediaries need to collaborate to improve the consistency of data, the accuracy of marketing and continued standardizations in disclosures.

To be sure, there is greenwashing in ESG, and some companies take advantage of sustainability reports by, for example, highlighting only marginal efforts around stakeholder engagement without any change in their core operations. Governments and regulators should help define the space and provide oversight with respect to these practices.

We all need to speak, write and report more precisely around this topic. Conflating ESG, sustainability, impact and ethical investing can confuse the aims of adherents to each approach. The longevity of the movement depends on it.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It's no secret that much of Wall Street is adopting a green-is-good investing mentality to combat climate change. But that doesn't mean less environmentally friendly, old-style oil and gas stocks can't speed ahead from time to time. That's just what has happened in recent months.

Thanks to supply shortages and a rise in demand for fossil fuels as the economy recovers, large-company energy stocks have gained 60% since the start of 2021. That's more than double the 27% rise in the S&P 500 and tops all other market sectors. And it comes after a disastrous 2020, when energy stocks plunged 34% – the sector's worst return in a calendar year in more than a decade.

The resurgence of old-economy energy stocks comes as U.S. oil prices skyrocket. West Texas Intermediate crude prices recently hit their highest level since 2014 and topped $85 per barrel. And natural gas prices more than doubled in the first 10 months of 2021.

In the past, these sharp price spikes have been bullish for energy stocks. Energy was the top-performing S&P 500 sector in 2007 and 2016, for instance, when WTI prices surged 58% and 45%, respectively, in those calendar years.

Many investment firms and the U.S. Energy Information Administration (EIA) are forecasting higher energy prices to persist in 2022, which bodes well for fossil fuel energy stocks, even as the world is focused on going green. We'll explain why and tell you the best way to make a strategic investment in this sector. Returns and data are through Nov. 5, unless otherwise noted.

A Suppy and Demand Mismatch

What's revving up fossil fuel prices?

For starters, bad weather and lower oil production have hurt supply. Hurricane Ida hobbled operations in the oil-rich Gulf of Mexico in late August, and snow and ice storms in early 2021 froze natural gas pipelines in Texas, which produces 25% of U.S. natural gas, the EIA says.

On top of that, OPEC, the 13-country oil cartel, has been slow to bring crude production back to pre-pandemic levels since its record cut in spring 2020 of 10 million barrels per day (roughly 10% of the global oil supply). Analysts say OPEC production won't recover to pre-COVID levels until mid-2022. Until then, scarcity should keep oil prices elevated.

The world's shift to clean energy and investors' growing preference for companies that score high on ESG (short for environmental, social and governance) measures are crimping supply, too.

Investors have pressured traditional energy companies to spend less on new oil wells and other fossil fuel projects and instead reinvest profits into buying back shares and paying bigger dividends. Oil and gas execs have been "beaten over the head by investors and ESG proponents who say, 'stop the development of fossil fuels,'" says Stewart Glickman, energy analyst at CFRA, a Wall Street research firm.

It's part of the reason why the number of active rigs drilling for oil and gas in the U.S. is down 50% from their recent peak level in late 2018, according to Baker Hughes, a company that provides oilfield services to drillers. The dearth of domestic energy production should exacerbate fossil fuel supply shortages in the coming months.

Meanwhile, demand is on the rise, thanks in part to the economic recovery. The International Energy Agency, a Paris-based organization that advises countries on energy policy, projects global oil demand to recover to pre-COVID levels by the end of 2022. Add that to short supply, and what you have is "a perfect storm" that supports higher energy prices, says Mark Haefele, chief investment officer of UBS Global Wealth Management.

A Bumpy Transition to a Net-Zero Economy

Clean energy isn't ready to take over from fossil fuels, and that's also good for oil and gas companies in the near term. Renewables currently lack the bandwidth to supply enough power when demand spikes. And clean energy is also vulnerable to weather. If the sun isn't shining or the wind isn't gusting or the rain isn't falling, the renewable-energy grid becomes less reliable and more vulnerable to intermittent outages.

What's more, the buildout of wind farms, solar infrastructure and renewable-energy storage solutions hasn't been big enough – so far – to make up for the reduced investment in fossil fuel projects.

"We lack the ability to count on renewables in the same way we can count on fossil fuels," says CFRA's Glickman. All told, these shortcomings lead to periodic energy price spikes that cause oil and gas stocks to rally.

Energy Stocks Have Plenty of Gas Left in the Tank

The long-term investing outlook favors green-friendly energy firms, but shares of oil and gas companies tend to perform well in periods, like now, when crude and natural gas prices are on the rise and demand is outstripping supply. Energy sector analysts at BofA say crude could top $100 a barrel this winter if temperatures plummet, a roughly 20% jump from current prices.

And profits are rising. In 2022, analysts expect 30.2% profit growth for energy firms year-over-year, outpacing the broad market's 7.5% increase, according to earnings tracker Refinitiv. In recent earnings calls with analysts, executives at oil services firms Halliburton (HAL) and Schlumberger (SLB) described the recovery in their businesses as a "multiyear" event.

Another plus: Energy stocks are cheap. The S&P 500 energy sector trades at 12.3 times estimated 2022 earnings, compared with a P/E of 21 for the broad market, according to S&P Dow Jones Indices. Will Riley, comanager of Guinness Atkinson Global Energy, says current prices of energy stocks don't fully reflect the earnings benefits that companies typically derive from the sharp run-up in crude and natural gas prices.

If you're thinking of adding fossil fuel companies to your portfolio, a tactical, diversified approach is best. To gain broad exposure to old-economy energy names, consider Energy Select Sector SPDR ETF (XLE, price $58, expense ratio 0.12%), which owns oil giants such as Exxon Mobil (XOM), as well as companies with gas and oil reserves, such as EOG Resources (EOG) and Pioneer Natural Resources (PXD), and oil services firm Schlumberger. Over the past 12 months, Energy Select Sector SPDR ETF has returned 106%.

The biggest beneficiaries of rising energy prices are the companies that "own the oil and gas under the ground and sell it when it comes to the surface," says CFRA's Glickman. That makes iShares U.S. Oil & Gas Exploration & Production ETF (IEO, $66, 0.42%) and First Trust Natural Gas ETF (FCG, $19, 0.61%) attractive now. Both funds track a broad index of shares in companies that generate the bulk of their revenues from oil and natural gas, such as ConocoPhillips (COP), EOG Resources and Occidental Petroleum (OXY). The iShares fund has gained 159% over the past 12 months; the First Trust Natural Gas ETF is up 214%.

And don't rule out fossil fuel com­panies that are taking meaningful steps to reduce harmful emissions. BofA highlights stocks with this kind of upside, including Chevron (CVX), Devon Energy (DVN) and ConocoPhillips.

Finally, we're not turning our backs on renewable energy. We view this area of the energy sector as a solid long-term, albeit volatile, investment. Consider SPDR Kensho Clean Power ETF (CNRG, $110, 0.45%) and Invesco WilderHill Clean Energy ETF (PBW, $92, 0.61%), which is a member of the Kiplinger ETF 20 list of our favorites.

You've spent your entire life fighting for a cause -- perhaps it's donating to environmental groups or protesting for police reform or even pushing for equal pay in the workplace. Now those causes seem to matter more than ever. "Older people may feel a greater urgency because it's their legacy," says Fran Teplitz, executive co-director of business, investing and policy at Green America, a Washington, D.C., nonprofit that promotes ethical investing. "They aren't going to be in the workforce working to correct what needs to be fixed in society much longer, but their assets can continue working for a better world."

Nevertheless, the companies you invest in could be the antithesis of your ideals. "Are you funding what you are fighting?" asks Brian Haney, founder of the retirement plan consulting firm The Haney Co. in Silver Spring, Md. If so, maybe there's a better way to invest, one that lets you support the causes you believe in without sacrificing your financial goals.

That's where environmental, social and governance -- or ESG -- investing comes in. These investments have been gaining steam and not just for advocates of clean environments and social justice. Mainstream investors like ESG investments because of the potential for lower risk and outsize returns. "We now have hundreds of studies that show integrating ESG criteria into the investment process can match and sometimes exceed the financial performance of their conventional counterparts," Teplitz says.

The Case for ESG

In 2020, a volatile year for investing markets by any measure, 11 of 12 large-cap U.S. ESG funds walloped the S&P 500 index. The 12 ESG funds, including the one that didn't beat the S&P 500, returned an average of 22.35% last year versus 18.37% for the iShares Core S&P 500 ETF, according to Morningstar.

Over the long term, the median returns between sustainable and traditional funds were comparable, often within 2 percentage points of each other, according to a 2019 report from the Morgan Stanley Institute for Sustainable Investing, which analyzed the performance of more than 10,700 funds over 15 years. The same report also found that ESG investments were more stable during sharp market swings, with significantly less downside risk than traditional funds.

In fact, a company focusing on ESG initiatives has a lot going for it. Because governing bodies are more likely to trust socially conscious firms, they may be able to enter new markets more easily and benefit from less regulatory oversight, according to a 2019 McKinsey report on why ESG creates value. Other advantages that can boost bottom lines, McKinsey says, include greater productivity from employees who have more reason to be motivated and consumers willing to pay extra for green products and services. Socially conscious businesses are also more likely to pay attention to energy conservation, thereby reducing operating costs.

Whatever your beliefs, don't overlook ESG investing as a way to hedge your bets in a rapidly changing, deeply uncertain world. A climate change skeptic, for example, would be foolish to ignore the portfolio risks of global warming as well as the potential rewards of companies that stand to profit from global warming's solutions. As BlackRock CEO Larry Fink wrote in a letter to CEOs earlier this year: "We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity."

ESG investing isn't only stocks. An older investor may want to consider ESG bonds, says Elliot Pepper, co-founder of Northbrook Financial in Baltimore. The value of green, social and sustainability bond issuances totaled $321 billion in 2019, up 52% from the prior year, according to a 2020 report from Environmental Finance. "You could incorporate ESG investing into a more fixed-income portfolio to maintain that more conservative approach," he says.

Beware of 'Greenwashing'

Socially conscious ideals aren't easily captured on a balance sheet, and investors can't always gauge a company or fund's commitment to ESG values. "There is a lot of greenwashing," says Matt Orsagh, senior director of capital markets policy at CFA Institute, which helps educate investment professionals. Greenwashing is a marketing gimmick that promotes a product as ecofriendly when it really isn't. "Not all funds advertised as ESG friendly really are. You have to investigate whether they walk the walk." For instance, you might check an ESG fund's prospectus for the investing criteria, Teplitz says. Do the investments reflect the fund's values? Does the fund put its mouth where its money is? See how the fund votes its proxy ballots on social or environmental issues.

Outside organizations can help quantify an investment's compliance with ESG principles. Sustainable investing advocate US SIF provides data, such as financial returns and screening criteria, for mutual funds and exchange-traded funds offered by its institutional members. Investors also can check the bona fides of specific mutual funds and ETFs on fossilfreefunds.org, which lists the financial performance of each fund and how well it scores for the companies it invests in, such as whether they manufacture weapons or promote gender equality within their own business.

Virtually any financial adviser can help you with ESG investing, even if it's not their specialty. If you want a specialist, US SIF has a directory of planners, advisers and brokers who specialize in ESG.

Keep It Balanced

Basic investing principles still apply for an ESG-based portfolio. "Don't short-circuit the process because you are emotionally more engaged," Haney says. Consider your financial goals, risk tolerance and how long you will hold the investments, adds Teplitz. Periodically rebalance your portfolio to maintain an appropriate investment mix and amount of risk.

Your ESG investments should be diversified across different industries, sectors, countries and asset classes, says Rick Smyers, head of Fidelity ESG Pro, which helps financial advisers grow their ESG investing practices. Like any investments that aren't diversified, an ESG portfolio that is not well balanced and highly concentrated in certain areas can spell trouble, he says.

Anyone who has dipped a toe in environmental, social, and governance (ESG) investing knows that there is an alphabet soup of reporting standards aiming to measure corporate adherence to sustainability.

Because government regulators have been reluctant to establish mandatory reporting standards, a host of mostly nonprofit groups have worked for decades to build consensus among the private sector, governments, investors, and stakeholders to build out voluntary reporting systems, such as the Global Reporting Initiative (GRI), or the Carbon Disclosure Project (CDP).

Companies were left to pick and choose between reporting frameworks, confounding investors’ ability to compare companies across platforms – and in some cases, enabling greenwashing by companies able to cherry-pick data for a particular reporting system.

Enter the International Sustainability Standards Board (ISSB), a new effort to merge many ESG disclosure standards into one, and to encourage the uptake of these standards globally.

An Introduction to the ISSB

The International Sustainability Standards Board was announced this week at the COP26 global climate conference in Glasgow. Thirty-eight governments expressed support for the standards, including the U.S.

The ISSB will be managed by the International Financial Reporting Standards (IFRS) body, based in Germany. The IFRS released a working draft of climate-related disclosures that will be vetted over the next few months, and released in mid- to late 2022.

Erkki Liikanen, chair of the IFRS Foundation Trustees, says "Sustainability, and particularly climate change, is the defining issue of our time. To properly assess related opportunities and risks, investors require high-quality, transparent and globally comparable sustainability disclosures that are compatible with the financial statements. Establishing the ISSB and building on the innovation and expertise of … others will provide the foundations to achieve this goal."

The International Organization of Securities Commissions (IOSCO) will oversee the ISSB, and its goal is to ensure that ESG disclosure is as standardized and universal as financial reporting. IOSCO says that it had made clear "in 2020 that it was not happy with either the fragmented way private-sector standard setting for sustainability was developing or with the scale of the risk of greenwashing."

Will the ISSB Have Teeth?

A key question is how the ISSB will ensure buy-in from regulators and companies, who often complain that ESG reporting is not based on materiality (financial performance).

Happily, the IFRS Foundation established "first principles" for the ISSB standards. These include a focus on investor needs, on building company value, and other approaches that, according to the CFA Institute, "are explicitly intended to facilitate economic decision making."

Whether companies are required to report on the finalized ISSB climate reporting standards will depend in part on geography and timing. The European Commission is working with various reporting bodies to develop mandatory ESG reporting for roughly 49,000 large companies operating in the European Union or trading on EU exchanges. These standards will likely be published in 2022, implemented in 2023 and first reported on by companies in 2024, and they will be incorporating ISSB standards as appropriate for the EU region.

For U.S.-based companies with operations in the European Union, subsidiaries might be required to report based on these standards. Or the parent companies might decide that using EU standards is simpler than adopting multiple standards.

The IOSCO might also prove pivotal to adoption of some form of ISSB standards in the US. The IOSCO counts as members 95% of the world's securities markets – including the Securities and Exchange Commission (SEC). According to Reuters, the IOSCO could push for harmonization of ESG reporting.

The SEC this year issued preliminary guidance for climate disclosure by U.S. companies. Although there appears to be broad support for this effort within the SEC, it is by no means universal, and may be subject to political pressure.

Still, if executed well, the ISSB could lead to standardized, reliable ESG data on a universe of global companies, with a strong underpinning of materiality.

Sustainable investments take into consideration environmental, social and governance (ESG) factors. What is a company's carbon footprint? How diverse is its management team? What efforts does it make to promote gender equality in the workforce? All of these – and so many more – are questions that ESG attempts to answer for investors.

But such queries are not easily answered without lots of data, which begs an even bigger question: What ESG tools are available for individual investors to evaluate investments – in both stocks and funds – based on their sustainability practices?

The good news is that with the growing demand for sustainable investment options is an increasing number of companies providing ESG tools and research to help investors find the strategies they seek. Although most data sets are costly and designed for institutional investors, there are a number of free or limited data sets available to individual investors.

Here are nine such free, online socially responsible investing (SRI) and ESG tools to help you start or refine your sustainable investing portfolio.

As a national non-profit for shareholder advocacy, As You Sow offers one of the most comprehensive SRI/ESG tools available to investors. On its site InvestYourValues.org, investors can evaluate the social responsibility of 3,000 mutual funds and ETFs, from their fossil fuel impact to gender equality and racial justice through the companies' relationships with private prisons.

One way to approach these tools is with a list of what you currently own in hand, says Andrew Behar, CEO of As You Sow. Then go to InvestYourValues.org and click on any of the screen options. This will take you to a new page where you can type the name, ticker or manager of a fund into the search box. The result will show how that fund scores on an A through F scale for the screen you chose and scrolling down will reveal the fund's score in all the other metrics As You Sow provides.

"If it is completely out of alignment with your values, start to look for something better," Behar says, which you can do by clicking "Search funds" in the upper right-hand corner navigation bar. This lets you view all funds rated by As You Sow with a "Search settings" option to refine your results by fund family, category, performance or minimum grade on any given screen.

The nonprofit's newest campaign hopes to highlight the responsible investment options – or lack thereof – in many 401(k) plans. If your 401(k) doesn't have good options, the site has tools for how you can engage with your employer and plan sponsor to help change that, including how to organize among your colleagues and a letter you can download to take to your 401(k) provider.

If you're interested in sustainable investing, you should know about US SIF: The Forum for Sustainable and Responsible Investment.

The Forum consists of financial institutions such as broker-dealers and investment management firms, as well as individual financial advisors, community development organizations and non-profit associations, all of whom are working together to advance long-term sustainable investment practices.

Part of that effort includes increasing investor awareness, such as through the Sustainable Investment Mutual Funds and ETFs Chart publicly available on the site. The chart shows all of the sustainable funds offered by US SIF member firms.

Using this ESG tool, viewers can compare cost and financial performance across funds. Under the Screening & Advocacy tab you can also quickly see how the fund screens companies for its portfolio and if it participates in shareholder engagement. You can also see proxy voting records for many funds.

While you can sort the data by any of the financial metrics listed on the Financial Performance tab – including assets under management, year-to-date return and expense ratio – the only other way to narrow your search is by viewing funds by type: either all cap, balanced, bond, international or equity large cap, mid cap, small cap or specialty.

Sustainable investing isn't just morally responsible; it can also be financially prudent. Companies that don't have strong ESG practices can be exposed to greater environmental, government and social risks.

For instance, a company with poor carbon practices may find itself facing pollution penalties in the future or being required to change its practices. To this end, Sustainalytics provides company ESG risk ratings for more than 4,600 companies. The ratings highlight ESG issues that Sustainalytics believes may pose a financially material risk to the company and assess the magnitude of that unmanaged risk.

Sustainalytics combines the company's exposure, or its vulnerability, to ESG risks, and the actions taken by the company's management to address the ESG issue. The firm then gets an overall ESG rating. A lower numerical ESG risk rating indicates lower overall risk of experiencing negative financial impact from ESG issues.

Morningstar's ESG Screener lets you search for sustainable mutual funds based on your chosen criteria. Using this ESG tool – which is supported by company-level data gathered from Morningstar-owned Sustainalytics – you can search for funds by their name or ticker.

You can also search using a variety of filters, including by which funds have sustainability or ESG focuses identified in their prospectus, if they have a low carbon designation and by Morningstar's Sustainability Rating, a measure of how well the fund is managing ESG risks relative to its peer group. Morningstar's Sustainability Rating is designated on a scale of one to five "globes," with more globes indicating the fund has a higher investment in companies identified as having lower ESG risks by Sustainalytics.

You can also view Morningstar's sustainability breakdown for a given fund under the Portfolio tab. The Historical Sustainability Score takes a weighted average of the fund's scores over the previous 12 months, with a heavier weight placed on more recent scores. Based on this historical average, funds are given ranks within their Morningstar category so you can see how they measure up to peers. The higher the score, the better the fund's performance relative to its peers.

A fund is considered a "Sustainable Investment" if management identifies sustainability or ESG metrics as a focus in its public filings. If a fund meets this criteria, it is then categorized into one of three levels: ESG funds that focus on ESG factors, Impact funds that strive to get a financial return while also driving positive change, and Environmental Sector funds that invest in environmental industries such as water or renewable energy.

MSCI's free ESG Ratings & Climate Risk Search Tool lets you search across the more than 2,900 constituents of the MSCI ACWI Index, the investment management firm's flagship global equity index. Type in a company name or ticker symbol to see how it aligns with global climate targets and its ESG risks and opportunities.

A firm's impact on global climate targets is indicated by its implied temperature rise, which shows how aligned it is with the target of keeping global warming this century to below 2 degrees Celsius.

This ESG tool is a forward-looking measure that converts current and projected greenhouse gas emissions from nearly 10,000 publicly listed companies based on their share of the carbon budget if we want to stay within the global target. Companies that are projected to emit below-target carbon levels are "aligned," while those projected to emit above-target levels are "misaligned" or "lagging."

You can also see if a company has issued a decarbonization target and, if it has, its target year for achieving a net-zero carbon footprint.

On the ESG ratings front, a company is assessed across key issues for both it and its industry. A firm is given a grade from AAA (leader) down to CCC (laggard) based on how it shapes up relative to peers. MSCI then shows where a company lags or leads its peers across the material ESG issues for its industry.

For investors looking to conduct research on ESG ETFs, one of the best places to go is ETF.com. The ESG tab in its ETF Finder gives MSCI ESG ratings data for each fund based on its exposure to several factors, including carbon emissions, sustainability impact and governance risks.

You can see the fund's ESG rating on a scale of AAA to CCC and its quality score – the ability of the ETF components to manage medium- to long-term ESG risks – out of 10, with 10 being the highest possible score. And to help you put these numbers in perspective, ETF.com gives the percentage of the fund's peers that have an ESG score equal to or lower than the fund in question, as well as its global rank among all funds covered by MSCI.

"While it's relatively straightforward to find the ESG ETFs on the platform, there are an incredible number of different ways those ETFs are constructed," says Simon Tryzna, chief investment officer and wealth advisor at ClearPath Capital Partners. "The difficulty in investing in ESG ETFs is really just finding out how they are constructed and whether that meets the investors' definition of ESG and fits in with their overall investment thesis."

An investor's research shouldn't stop with a single ESG tool or screen. You should also understand how the ETF defines and accesses the underlying ESG investments. "Is the ETF looking to filter out and invest solely in companies that score in a top percentile of an internal factor score, or are they looking to exclude the bottom-scoring ones and allocate to the rest of the market?"

Tryzna also says to pay attention to whether the fund is targeting only one component of ESG (the E, S or G) or all three so you can get a better understanding of how it will fit into your portfolio and investment goals.

ETF.com does a great job of underlying these nuances and helping educate investors, Tryzna says. For more ESG education and insights, check out the ESG ETFs channel under the ETF Channels tab, too.

S&P Global released its company ESG Scores to the public in February 2021. This ESG tool has been the basis for selecting companies for the Dow Jones Sustainability Index (DJSI). Now all investors can go to the S&P Global website to view ESG data on 9,200 companies, and each firm is evaluated across roughly 1,000 data points.

S&P Global uses company responses to the Corporate Sustainability Assessment (CSA) industry-specific questionnaire to evaluate a company relative to its peer group.

Viewers can use the ESG tool to see how the company in question ranks on environmental, social and governance issues relative to the peer group average and the best score from within the industry.

There's also a spider chart that provides a visual representation for how the company fares relative to its peers on nine metrics, from climate strategy to labor practices and talent attraction and retention.

Refinitiv, a subsidiary of the London Stock Exchange Group, is a global provider of financial markets and company data, including ESG company scores.

The company boasts the "largest ESG content collection operations in the world," which it uses to manually process verifiable publicly available data across more than 450 ESG metrics for more than 10,000 global companies. Overall company assessments are primarily based on the 186 most industry-relevant and comparable of these metrics.

To use Refinitiv's ESG tool, you can search by company name to see how it scores on a scale of 0 (poor relative ESG performance and transparency) to 100 (excellent relative ESG performance and transparency).

Companies are evaluated across 10 main themes within the E, S and G pillars. For instance, the environmental (E) pillar is broken down into emissions, resource use and environmental product innovation, while the social (S) pillar looks at human rights, product responsibility, workforce and community.

Company data is continuously updated in line with corporate reporting (usually annually) and product scores are refreshed weekly.

Individual brokerage firms also provide SRI and ESG tools and resources. Some are only available to clients, but others, such as Charles Schwab, make their search tools available to everyone.

Charles Schwab has also been making big steps in enhancing its tools for identifying socially responsible and ESG mutual funds and ETFs. Both clients and non-clients can quickly identify if a fund is socially responsible when looking at its profile. You can also compare up to five funds at a time to determine which have an SRI focus that most fits what you're looking for.

Or, if you want to see what is available in its entirety, Schwab has a prebuilt screen within its Advanced Fund Screener that lets you view only funds with an SRI mandate, as specified in the fund prospectus. You can then combine this screen with other criteria, such as fund ratings, portfolio characteristics and fees, to narrow down the SRI universe into a more defined sphere.

Astute investors tracking the initial public offerings (IPOs) of companies such as eyewear maker Warby Parker and green shoe manufacturer Allbirds might have noticed that these companies are registered as public benefit corporations (PBCs).

Until recently only private companies or subsidiaries adopted this corporate structure, and PBCs were beyond the reach of the typical individual investor.

Should you add one of these "feel-good" companies to your portfolio?

Public Benefit Corporations (PBCs)

The PBC corporate structure signals that a business considers a "triple bottom line" – people, planet and profit – extending benefits to stakeholders like communities and employees.

Delaware, where a majority of publicly traded companies (and virtually all new startups over the past five years) are incorporated, adopted PBC regulation in 2013. At present, 36 states and the District of Columbia have passed laws allowing for PBC charters.

An amendment to the law in 2020 has made this option more feasible and attractive for a growing number of companies. For example, directors now have greater protection if a company is accused of failing to deliver on its public benefit goals, and opting in or out of a PBC is now a matter of obtaining a majority of shareholder votes, lowered from 90%.

Before 2020, there was just one publicly traded PBC: Laureate Education (LAUR). Since then, about a dozen publicly traded companies have incorporated as PBCs, and several private PBCs have come public via IPO.

Given strong investor interest in environmental, social, and governance (ESG) issues, more companies might consider the PBC business model to set themselves apart, and possibly to prime themselves for inclusion in ESG funds.

Public benefit corporations define the particular benefit purpose aside from shareholder interest. In the case of online education company Coursera (COUR), for example, this purpose is "to provide global access to flexible and affordable high-quality education that supports personal development, career advancement, and economic opportunity." A PBC company's directors are required to balance the stated purpose with financial interests of shareholders. However, this does not mean that financial concerns are secondary to a benefit purpose, nor does it mean that directors are legally liable for failure to meet the benefit purpose.

A PBC must report every other year on its efforts and progress to attain the stated public benefit. Though this reporting may be done through a third-party certification, it is not required and may simply be self-reporting.

Also note that the nonprofit B Lab has provided "B Corp" certification to more than 4,000 companies globally, including to some PBCs. These two monikers sound similar but are not the same.

PBCs Meet Shareholder Activism

In response to rising corporate and investor interest in ESG and sustainability, the U.S. Business Roundtable (BRT) issued a splashy reframing of the Purpose of a Corporation document in 2019, signed by 181 CEOs.

No longer centered only on creating shareholder value (referred to as "shareholder primacy"), the new purpose includes creating value for customers, employees, communities and suppliers, in a nod to the concept of "stakeholder capitalism."

Yet a 2020 study of BRT letter signatories found that these companies performed no better than non-signatories when it came to responding to the workplace and societal challenges posed by the COVID-19 pandemic. Frustrated by this apparent lack of accountability, some ESG investors have pressured signatories to the BRT letter to become public benefit companies by filing shareholder proposals.

So far, those proposals largely haven't stuck.

Investor advocacy nonprofit The Shareholder Commons and others filed at least 16 shareholder proposals asking companies to convert to PBCs. Of these, all but one received very low shareholder support and cannot be refiled next year; in fact, even some of the most progressive fund managers, such as Boston Trust Walden and Calvert, voted against PBC shareholder proposals.

Yelp (YELP) – which garnered almost 12% shareholder support and is the only vote that stands a chance of moving forward to the next proxy year – will be an interesting test case.

Pros and Cons of PBCs

There are some good reasons that investors interested in ESG should consider PBCs:

• In many cases, these corporations offer innovative business models that embed public benefit by design. For example, Broadway Financial (BYFC) is the largest Black-led minority depository institution in the U.S., which in turn can help provide much-needed capital to minority-owned businesses in urban communities.
• Company directors have more freedom to adopt a long-term vision for company growth and value creation.
• Many of these companies are consumer-facing, offering sustainable branding and origin stories at a time when consumers increasingly favor sustainable brands.
• For companies that are now private and going public, the PBC IPO may offer greater transparency on ESG goals and reporting.
• The PBC corporate structure has not deterred venture capital (VC) investors, indicating a level of comfort and trust in the PBC model. A 2020 study of 295 Delaware-registered PBCs that received private funding between 2013 and 2019 showed that VC funds invested $2.5 billion in PBCs, at a rate similar to conventional companies.

Just understand there are downsides to investing in PBCs as well.

• Existing publicly traded PBCs are still a new structure, and many companies remain skeptical of the logistics and legal fees required for conversion.
• PBCs might be less attractive as takeover targets, meaning that shareholders might be less likely to benefit from an acquisition.
• Just because a company is a PBC does not mean that it has adopted other best practices for corporate governance. In the case of Allbirds, the company's IPO includes dual-class board structure, granting directors 10 times the voting power as shareholders.
• PBCs are not required to be certified by third parties, and the value of ESG reporting and performance metrics are not regulated or standardized.

Bottom Line

PBCs are likely to remain a small but growing niche of investible companies. While this business model is an intriguing way of signaling that sustainability is part of corporate DNA, there are no guarantees that this structure will avoid greenwashing, or merely be used for marketing. Investors should care about this potential shortfall.

Accurate, certified, standardized ESG reporting and performance commitments may lead to better management and in many cases, improved financial performance. A 2020 Fidelity study found that from January to September 2020, companies with top ESG ratings outperformed those with poor ratings for every month other than April, with a cumulative difference in relative returns of 17 percent. A 2020 State Street study reported similar effects.

How do individual investors get access to this valuable ESG data? Aside from a few nonprofit organizations that assemble publicly available information, mom-and-pop investors have few ways to access or untangle it. For this reason, investors should welcome sustainability information provided in a PBC IPO, where ESG disclosure is so often lacking.

For existing and larger corporations however, this type of self-reported data is simply less valuable than what the big investment firms are analyzing, and investors should tread with caution.

General Mills (GIS, $62.23) has long been a pantry staple for investors seeking dividend stability. But the consumer giant, and its commitment to a sustainable supply chain, might also be appropriate for those who value certain environmental, social and governance (ESG) criteria.

Most people know General Mills because of its iconic brands, which include Cheerios, Annie's and Häagen-Dazs, marketing products in more than 100 countries. The steady income from this wide brand portfolio has allowed General Mills to pay dividends without interruption for more than a century.

Less known, perhaps, is General Mills' actions to link its environmental performance to its financial success, and to move toward not just sustainability, but regeneration, in its agricultural supply chain.

Let's dig a little deeper into what might make GIS stock look attractive to investors.

From Sustainability to Regeneration

We'll start with the ESG case.

As a major food manufacturer, most of General Mills' exposure to environmental and social risk lies in its agricultural supply chain.

The global food system is responsible for more than one-third of greenhouse gas emissions (GHGs) that contribute to climate change, and the agriculture sector consumes roughly 70% of global water supplies. Moreover, several key crops in General Mills' supply chain are threatened by climate change and water scarcity. These include tropical commodities such as cocoa, as well as domestic crops such as corn and soybeans.

In response, GIS has launched two innovative solutions for reducing GHGs and enhancing agricultural sustainability.

First, the company is pioneering innovative financial instruments to finance and incent its internal sustainability goals. On Oct. 6, GIS launched a sustainability bond specifically linked to meeting its commitments to combat climate change. The 10-year, $500 million bond will raise the company's interest payments if it fails to achieve its targets, which include reducing emissions by 30% in its operations and supply chain by 2030 (compared to 2020 emissions). The GHG goals are designed to increase global temperatures no more than 1.5 degrees Celsius by 2050, using science-based targets – the gold standard for addressing climate change risk.

General Mills asserts the bond is the first of its type issued by a "U.S. investment-grade consumer packaged goods company." However, GIS made a similar maneuver earlier this year; in April, it renewed a $2.7 billion revolving-credit facility while linking it to reducing emissions.

Second, GIS has vowed to move beyond sustainability as a goal.

"Today, about a third of the world's topsoil is degraded. We have lost about 40% of insect species on the planet, including pollinators that are important to our food," Mary Jane Melendez, General Mills' chief sustainability and social impact officer, explains to Tony Loyd, host of the podcast Social Entrepreneur. "There is nothing about that fate that should be sustained. We don't want to sustain declining ecosystems."

General Mills committed to converting 1 million acres of North American farmland in its supply chain to "regenerative" practices by 2030. Regenerative agriculture typically involves disturbing soil as little as possible (as opposed to tilling or plowing), increasing plant diversity (instead of growing one crop), integrating livestock onto cropland, and other methods. This type of agriculture can transform a farm from a source of climate-emitting carbon emissions, soil erosion and water pollution, to a net environmental benefit, pulling carbon from the air and storing it through roots to the soil, increasing biodiversity of pollinators, managing water runoff and building topsoil.

Several ESG ratings agencies appear to think highly of GIS stock. MSCI, which rates stocks between CCC (worst) and AAA, deems General Mills an AA, highlighting the company's leadership in the areas of environment, nutrition and corporate behavior. Sustainalytics ranked the company 33 out of 565 food companies globally, characterizing the company's ESG risk as "moderate" but its management of its relevant ESG issues as "strong" – its highest-tier rating.

How GIS Stock Delivers Shareholder Value

In the shorter term, General Mills and many of its food manufacturing competitors face challenges from inflationary pressures, a labor shortage, extreme weather reducing crop yield, and transport backlogs that have driven up the price of some key inputs and commodities.

In response, the company is doubling down on high-growth segments such as pet care brands, with acquisitions of natural pet treat brands such as Nudge.

The company credits its well-positioned brand portfolio for much of its success – specifically citing cereal, refrigerated dough and global Mexican-style food products – and in brands that were popular during COVID-19 lockdowns and have maintained their appeal as consumers work from home. General Mills has also tightened logistics management to account for supply chain interruptions.

"GIS is executing well and navigating this challenging environment better than competition," writes CFRA analyst Arun Sundaram, who rates the stock at Buy with a 12-month price target of $68 per share (9% implied upside). "Also, its portfolio-reshaping actions should set the company up for stronger and more profitable long-term growth."

Where GIS really shines is in its steady dividends, which the company has paid without fail over the past 122 years. The company currently yields 3.3%, which is far better than the 1.3% on the S&P 500, but more importantly, better than the consumer staples sector's 2.6%. From a dividend-growth standpoint, GIS isn't overly generous, but it does improve upon its payouts. General Mills has improved its quarterly dole by about 3% annually over the past five years. Argus Research estimates much of the same going forward, predicting fiscal 2023 dividends of $2.16 per share, up from $2.02 in 2021, or a 3.4% annualized rate.

That said, the analyst community as a whole isn't glowing about GIS at the moment. According to S&P Global Market Intelligence, the analyst community has just five Buys or Strong Buys, versus 12 Holds and another three Sells or Strong Sells.

Valuation is a fair concern. The stock currently trades at a price/earnings-to-growth ratio of 3.9. With PEG, a value metric that factors in future growth, a score of 1 is considered appropriately valued; lower than that, undervalued; and higher, overvalued. That's higher than both the S&P 500 (0.9) and the loftily valued staples sector (2.1), according to Yardeni Research.

Credit Suisse, for one, maintains a Neutral rating (equivalent of Hold) and believes the stock is worth $63 per share (1% implied upside). "Sales growth deceleration from consumer mobility returning to normal faster than expected represents the main risk to our target price," they write.

The takeaway here? GIS provides the durability and dividends you expect out of the consumer staples sector, and appears to be making real strides from an environmental perspective. But investors particularly concerned with value might want to wait for some of GIS's froth to come off.

A significant majority of investors say a company’s commitment to ESG principles is important to them when choosing investments, according to a new national poll conducted by Kiplinger in partnership with money management firm Domini Impact Investments. More than 70% of respondents say a company’s environmental practices, social issues management and governance policies are very or somewhat important to them when choosing investments.

Four in 10 respondents say they have purchased stocks or bonds in the past based on environmental, social or governance issues. Among millennials, the number jumps to nearly two-thirds. Almost eight in 10 (78%) say they are very or somewhat likely to add an ESG investment to their portfolio over the next one to two years. Their reasons vary: More than one-third want to make a positive impact on the environment. About one-fourth want to build a better future for all. Some 15% want to invest in their local community.

Recent headlines may be spurring some of this increased interest: More than half (52%) say they are more likely to put money in ESG investments because of news of environmental or climate change concerns; more than one-third (35%) were more likely to do so because of media reports of social unrest; nearly one-third (32%) were also more likely to make an ESG investment because of the pandemic.

Overall, more than half of respondents would be willing to sacrifice some performance on their investments to achieve an ESG goal. Breaking it down by generation, 75% of millennial investors, 51% of Gen X investors and 35% of baby boomer investors would be willing to sacrifice some level of return.

One-fourth of investors say ESG investing is simply a way to diversify their holdings and reduce market risk. Only 13% believe that ESG investments will deliver better returns than non-ESG investments. Respondents cited lower returns, lack of information and higher fees as concerns about ESG investing. Men were more likely to be concerned about lower ESG returns than women (43% versus 27%). More men also cited concerns about higher fees than women (27% versus 19%).

Almost half of respondents (49%) say that when it comes to ESG investing, they prefer mutual funds that hold a diversified portfolio of stocks with better environmental or social attributes. An even larger percentage of baby boomers (58%) say this is their preferred strategy. Here are the highlights from the survey:

When choosing an investment, how important are the following factors to you?

Environmental practices

such as climate change, renewable energy

and sustainability

• Somewhat important: 38%
• Very important: 34%

Social issues

such as diversity, labor relations and

conflict minerals

• Somewhat important: 41%
• Very important: 28%

Governance policies

such as management structure, board

independence and executive compensation

• Somewhat important: 44%
• Very important: 31%

Have you invested in stocks or bonds because of environmental, social or governance issues?

• No: 53%
• Yes: 41%
• Not sure: 6%

Do you currently own shares in an ESG-focused fund (either stocks or bonds)?

• Yes: 29%
• No: 42%
• Not sure: 29%

How likely are you to add ESG investments to your portfolio over the next one to two years?

• Very likely: 35%
• Not likely: 22%
• Somewhat likely: 43%

Which of these objectives BEST summarizes the ESG value you care most about?*

• Encourage clean energy to help mitigate climate change: 19%
• Avoid depletion of natural resources and protect our ecosystems: 18%
• Improve business ethics and transparency: 13%
• Protect employee safety and treatment of workers: 13%
• Positively impact your community and/or underserved communities: 12%
• Do more to ensure equal opportunity for all: 11%
• Reduce poverty and promote human dignity around the world: 8%
• Increase how much companies donate to causes I care about: 5%
• Increase the number of women and people of color in corporate leadership: 3%

Which of these statements BEST reflects your beliefs (or expectations) for the role of ESG investing in your portfolio?

• It’s another way to diversify my holdings and reduce market risk: 25%
• I want my investments to reflect my values: 21%
• It will perform no better or worse than non-ESG investments: 17%
• I don’t see any benefit to ESG investing: 16%
• It delivers better returns than non-ESG investments: 13%
• It delivers less growth, but I am willing to sacrifice returns in exchange for building a better future for all: 7%
• Other: 1%

Are there any factors keeping you from making a greater investment in ESG stocks, bonds or funds?†

• Concern about weak performance: 35%
• Lack of readily available information to help select ESG stocks, bonds and funds: 25%
• Possibility of false claims about preserving the environment: 24%
• Concern that ESG funds have higher fees: 23%
• Not sure how to get started with ESG investing: 21%
• No concerns: 16%
• Not interested in ESG investing: 12%

If you were to make an impact investment, which of these would be most important to you?

• To make a positive impact on the environment: 35%
• To build a better future for all: 24%
• To invest in my local community: 15%
• To NOT invest in certain areas (for example, weapons, fossil fuels or for-profit prisons): 12%
• To create more diversity at the executive level and in the workplace: 8%
• To help advance social justice: 6%

When it comes to ESG-focused investing, which one of the following approaches would you prefer?*

• Investing in mutual funds with a diversified portfolio of stocks with better environmental and/or social attributes: 49%
• Investing in a mix of stocks and private investments: 25%
• Investing directly in private businesses with a focus on ESG: 12%
• No preference: 15%

Methodology

The survey included 1,029 respondents, age 25 and older, with a minimum of $10,000 in investable assets (excluding retirement accounts). It was conducted August 4 to 10. A survey quota was implemented around familiarity with the term “ESG investing” to ensure that about half of the respondents were familiar with the term prior to taking the survey. The median age of survey participants is 51. Half are male and half are female. Median estimated household income before taxes in 2021: $141,788. Median current value of investment portfolio, excluding retirement accounts: $193,701. Median combined net worth of household, excluding primary residence: $436,449.

*Percentages do not add up to 100% due to rounding.

†Respondents were asked to select all that apply.

A few years ago, I wrote a column about investing in companies that are compatible with your values. I had sold my shares of Facebook after it came to light that during the run-up to the 2016 presidential election, data analysis firm Cambridge Analytica collected information from tens of millions of Facebook users without their permission—and Facebook wasn’t doing much to police such breaches. But I admitted that I wasn’t all-in on severing my ties to the social media company. I was reluctant to delete my Facebook account because it was (and still is) a wonderful way to stay in touch with family and friends.

If investing in companies that do an outstanding job helping people and the planet is important to you, you face some challenges. In addition to the usual screens (price-earnings ratios, revenues and so forth) to evaluate a company for performance, it takes an enormous amount of time to do the research to be sure a company’s practices jibe with what’s important to you—assuming you even have access to all the facts.

Introducing the ESG 20. Introducing the Kiplinger ESG 20 identifies 15 companies and five funds that excel at meeting ESG challenges. (ESG stands for environmental, social and corporate governance.) To create our list, our investing team did extensive research, reviewing ratings of stocks and funds published by ESG rating firms and interviewing fund managers, Wall Street analysts, ESG investing experts and company executives.

Since I wrote my column about my struggles to invest with a value screen, ESG investing has taken off. In recent years, asset flows into ESG-oriented funds have broken records quarter after quarter. More investors are embracing it in a bid to drive change and help solve problems in light of crises tied to climate change and the global pandemic, as well as pressing social issues such as income inequality and the push for racial justice.

The poll that Kiplinger conducted with Domini Impact Investing offers a snapshot of attitudes toward ESG investing today. In the national survey of more than a thousand investors, more than two out of three respondents say a company’s environmental practices, social issues management and governance policies are very or somewhat important to them when choosing investments. Four in 10 say they have purchased stocks or bonds in the past based on environmental, social or governance issues; among millennials, the number jumps to nearly two-thirds.

The reasons vary: More than one-third want to make a positive impact on the environment. About one-fourth want to build a better future for all. Some 15% want to invest in their local community.

Recent headlines may be spurring some of this interest: More than half say they are more likely to put money in ESG investments because of news of environmental or climate change concerns; more than one-third are more likely to do so because of media reports of social unrest. Nearly one-third are also more likely to make an ESG investment because of the COVID-19 pandemic.

The good news is that you don’t have to sacrifice performance with ESG investing. The S&P Composite 1500 ESG index, a broad measure of ESG-focused stocks covering U.S. companies of all sizes, returned an annualized 18.6% over the past three years; the S&P Composite 1500, its non-ESG cousin, had a 17.2% gain.

It has been a tough year for investors who include environmental, social and corporate governance (ESG) factors when assembling their portfolios, as well as our picks of companies and funds that are ESG leaders.

The 15 stocks in the Kiplinger ESG 20 returned an average of 4.3% over the past 12 months, compared with 15.9% for the S&P 500. Just six of our stock picks outpaced the index. Of our favorite ESG funds, only one outperformed its respective peer group, and we're making several changes.

When we looked at the landscape a year ago, the climate for ESG investing was turning hostile. A number of companies, faced with pressure on social media, retreated from policies designed to promote diversity, equity and inclusion.

Large investors began to pull out of groups formed to advocate that companies adhere to tough climate goals. Despite that, our picks did well compared with the broader market in the 12 months that ended August 31, 2024.

The election of President Donald Trump accelerated the attacks on ESG. From November 5 through August 31 of 2025, our ESG stock picks averaged a 3.7% return, while the S&P 500 rose 14.3%. There's no doubt ESG investing is in the crosshairs.

The Trump administration's Department of Justice asserts that DEI policies amount to illegal discrimination, for example. And Trump has repeatedly expressed disdain for renewable energy, particularly wind power.

Many investors are following Trump's lead, pulling $12.2 billion from U.S. sustainable-investing funds in the first half of 2025, according to investment research firm Morningstar.

Should investors stay the course or flee?

Is it time to walk away from these stocks and the whole concept of ESG investing? That may be hasty.

"One hundred percent, this is a short-term panic" because of the priorities of the Trump administration, says Nell Minow, a corporate governance pioneer and founder of a research firm called The Corporate Library.

ESG-focused investing, also known as socially conscious or sustainable investing, has been a strategy for some investors for decades, and it will likely remain so for a core group seeking to invest in line with their values.

Importantly, we believe our ESG picks represent good business prospects as well. Indeed, some experts believe the current backlash presents an opportune moment for investors with a longer-term view.

"When people are beginning to question the validity of ESG, if you really understand these issues you can start to find some good investment opportunities because people are mispricing or misunderstanding the moment," says Ed Farrington, the North American president of ESG-oriented investment firm Impax Asset Management.

It's worth noting that although U.S. investors continued to flee ESG, the story is different outside the country. Morningstar says European investors poured $8.6 billion of net new money into ESG funds in the second quarter, offsetting the U.S. decline and making the global number positive.

Kiplinger's favorite ESG stocks and funds 

With this in mind, here is the Kiplinger ESG 20, a list of our favorite stocks and funds with an environmental, social or governance focus and healthy financial prospects.

Each of our picks for the best stocks to buy has a strong record on at least one ESG pillar. We reviewed ESG ratings from Morningstar Sustainalytics, Institutional Shareholder Services and LSEG Data & Analytics, among others.

But no company can be all things to all people; a firm we've highlighted for its strong governance focus, for example, may not also be an environmental star. As such, we have broken down our stock picks into three separate categories:

Environmental stewards: These companies offer products, services or technologies that provide solutions to problems such as greenhouse gas emissions, air and water pollution, or resource scarcity.

Social standouts: More companies are explicitly abandoning diversity policies and programs and scrubbing their corporate reports of any mention of DEI. But we'll note that diversity is only one of the criteria for this category, which also encompasses a company's broader treatment of its employees, customers, suppliers and community.

Governance leaders: These companies are committed to diverse and independent boards, strong ethics policies, responsible executive pay that is tied to performance, and combatting corruption.

Meanwhile, our five favorite ESG funds are all focused on sustainability, but each has a unique approach. These funds might focus on an ESG category, seek a measurable impact on a specific challenge, integrate ESG criteria into a broader strategy or engage with firms to improve ESG practices.

For details on how our picks have performed and why we think they are standouts, read on. All returns and data are as of August 31, unless otherwise noted.

First Solar (FSLR) finds itself a direct target of the Trump administration's attack on renewable energy, and spooked investors have sent the shares down 14.2% over the past year.

The outlook for the largest U.S. producer of solar panels is better than you may think: The One Big Beautiful Bill Act preserved a tax credit that benefits First Solar bigly.

And the government's desire to push Chinese companies out of the market is a plus. Twenty-nine of 35 analysts who cover the stock rate it a Buy, according to S&P Global Market Intelligence.

Shares in Levi Strauss (LEVI), an apparel company best known for its denim wear and given high marks for its greenhouse-gas emission reductions and water management, gained 18.8% over the past year.

The company exceeded expectations for revenue, profits and profit margins in its most recent quarter and is generating healthy cash flow with very little debt.

Analyst Jay Sole of investment firm UBS, who likes the consumer discretionary stock, says the company is transforming into a global retailer with a "lifestyle brand" that appeals to both men and women.

Microsoft (MSFT) was the top performer in the environmental steward category, gaining 22.3%. Thanks to cloud computing and artificial intelligence, the maker of the fusty Windows software is getting bigger, faster, in its fiftieth year.

Year-over-year revenue growth at its Azure cloud business, home to many of its AI services, hit 39% in the quarter that ended June 30, compared with a 31% growth rate two quarters prior.

The promise of AI suggests Microsoft may defy the law of large numbers and keep posting impressive sales and profit gains, analysts say.

Brian Schwartz, of investment firm Oppenheimer, says Microsoft is his firm's top large-cap stock idea for AI and cloud investing. Of course, the computing power required for AI is an energy hog. Microsoft retains its place on our list by maintaining its goals to be carbon negative and water positive — replenishing more water than it consumes — by 2030.

Prologis (PLD) is a real estate investment trust (REIT) with more than 1.3 billion square feet of warehouse space worldwide. It continues to be an environmental leader with emissions lower than its industry average and a commitment to renewable energy.

But the shares have fallen 7.9% over the past 12 months as investors worry that a downturn in consumer spending could clip Prologis's rental income. That's short-term thinking, considering Prologis's size, quality markets, and healthy balance sheet.

"Despite its blue-chip REIT status, the company does not trade at a meaningful premium to peers, and we think it should," says analyst Jonathan Petersen, of investment firm Jefferies.

Global freshwater scarcity means high demand for the kind of water-filtration equipment that Xylem (XYL) produces, and the industrial stock is a popular pick for funds that focus on sustainability.

Xylem returned 4.1% over the past year as investors worried about tariffs driving up the costs of the parts and raw materials the company uses to make its systems.

Now, though, Xylem is passing along those costs. Profit margins are growing as the firm emphasizes profitable markets and product lines, says analyst Jonathan Sakraida, of research firm CFRA, one reason for his Strong Buy rating on the stock.

Costco Wholesale (COST) joined the ESG 20 in May, not long after it pushed back on DEI opponents and reaffirmed its support of the policies. Costco is also known for compensating employees fairly and treating suppliers well.

Shares are up a modest 6.3% over the past year, as fears about a potential slowdown in consumer spending have prompted a retreat from the stock's February highs. The stock still isn't cheap, trading at 49 times estimated earnings for the year ahead, but we're not checking out of Costco.

Morgan Stanley analyst Simeon Gutman says Costco's customer traffic, sales gains and membership growth are "best in class," and he sees the company steadily increasing its earnings and profit margins.

Novo Nordisk (NVO), the maker of the Ozempic and Wegovy drugs, is in our penalty box. The shares are down a disastrous 58.2% from a year ago.

Novo disclosed disappointing results in a late-stage trial for one of its newer weight-loss drugs in December and cut its sales outlook in July. Many investors believe competitor Eli Lilly (LLY), maker of Zepbound, will pull ahead of Novo with its new pill, which will be easier to use than the current injectables.

Others think there's room enough for two in a weight-loss market that could top $200 billion in the next decade — and that investor negativity has made Novo a good value.

With shares trading at about 15 times earnings for the year ahead — a third of the multiple it carried in the summer of 2024 — we'd like to give Novo some time to succeed.

Salesforce (CRM) is the leader in customer relationship management software, with the most comprehensive set of CRM products and a client retention rate above 90%.

Among its social strengths are strong policies to ensure its suppliers pay attention to human rights and treat their workers fairly. The stock is up just 2.0% for the past 12 months, reflecting a transition as the company pivots from focusing on sales growth to focusing on profitability. Profit margins are catching up to (but still behind) the average for software companies in its peer group.

The challenges for Salesforce are reflected in its discounted valuation, says Jefferies analyst Brent Thill, who rates the shares a Buy. We're watching closely to see how quickly the firm can close the gaps with peers.

Investors' desire for all things AI has swept up Trane Technologies (TT), which has seen its shares rise 15.9% over the past year — on par with the S&P 500.

Trane makes heating, ventilation and air conditioning systems, and AI needs AC (otherwise the computers in the data centers will overheat).

The stock may be a bit overheated, however, given recent weakness in Trane's residential business. A drop in the shares in late July may not have been quite enough to create a compelling opportunity for new buyers, as the stock still trades at 30 times estimated earnings.

But analyst Andrew Kaplowitz, of investment bank Citi, says he believes Trane deserves its premium valuation because of its innovative products and strong execution. We'll be watching upcoming results closely.

Industrial supplier W.W. Grainger (GWW), ranked as a "best place to work" by several organizations, is up just 3.8% over the past year. (In November 2024, we warned that a 39% gain in the previous year made it unlikely that the shares would outperform the broader market the following year.)

The lackluster return includes a double-digit drop in August, when Grainger lowered its profit expectations for the remainder of the year due to the cost of tariffs on its imported products.

That's a blip for a company that has consistently shown excellent profitability, and Baird analyst David Manthey believes Grainger will continue a long-term track record of successfully passing along cost increases to its customers.

Novo Nordisk might be in the penalty box, but Accenture (ACN) is in the DOGEhouse.

Shares in the global consultant, which gets high marks for its anti-corruption and anti-bribery policies, fell 22.2% over the past year on worries about cuts to government contracting inspired by the Department of Government Efficiency.

Indeed, Accenture reported that while its sales increased 8% in the quarter that ended May 31 from the same quarter a year ago, its bookings — or new contracts on which it hasn't yet done the work and earned the revenue — fell 6%.

David Grossman, an analyst at investment firm Stifel who likes the shares, says the report wasn't as bad as it looked and that Accenture is both well positioned for AI and "consistently the best-managed business in the sector."

The current fears allow you to pick up shares in this top consulting firm at a discount.

Applied Materials (AMAT) shares fell 17.6% over the past year, illustrating that AI hype hasn't lifted all boats.

The company is one of the world's largest makers of equipment for the semiconductor industry. It stands to benefit from growth in AI, but the company is also more exposed to tariffs than its peers, and a disappointing earnings report in August was a setback.

The company issued weak guidance to Wall Street analysts about earnings prospects in the short term, but that "doesn't change our view of Applied's position to capitalize on AI investment longer-term," says Morningstar analyst William Kerwin.

We think the company, praised for excellent compensation disclosure and a strong code of business ethics, can weather the storm.

Real estate services company CBRE Group (CBRE) makes our list because key board committees are fully independent, and governance monitors give the company plaudits for transparency in how it discloses pay matters.

CBRE delivered a one-year return of 40.8%, among the best of all real estate companies in the S&P 500.

Don't bet against it, say most of the analysts who follow the stock. Even though CBRE hit new 52-week highs in August after strong earnings and a buoyant outlook, analyst Stephen Sheldon, of investment firm William Blair, says CBRE's outlook for 2025 earnings is conservative.

Hilton Worldwide Holdings (HLT) boasts a highly independent board and is a guardian of shareholder rights. The stock gained 26.0% over the past year, but there may be no room at the inn for similar gains over the next 12 months, especially if the economy falters and travel trends worsen.

That said, Hilton is the biggest hotel chain in the world and, says analyst Chad Beynon, of investment firm Macquarie, "the most stable and resilient operator" in case of a recession.

Investors have bid up the price of Hilton shares in a flight to quality, but given a muted outlook for travel, investors may be able to pick up this stock at cheaper prices in the months ahead.

Nvidia (NVDA) has been one of the best stocks of the century — logging a 126,100% return over nearly 25 years. A one-year gain of 45.9% is nearly as impressive, given the colossus it has become.

Nvidia's chips are tops for the complex computing that artificial intelligence requires. As companies such as Microsoft and Facebook plow billions into computing's future, much of that money goes straight to Nvidia, which we consider a governance leader due to its independent board and laudable compensation practices.

Reaction to Nvidia's most recent quarterly results were mixed, but traders eventually concluded that the AI boom will remain intact.

Impax Global Environmental Markets (PGRNX) is out to make way for the iShares Environmental Infrastructure & Industrials ETF (EFRA).

The exchange-traded fund tracks a global index of utility, industrial and basic materials companies that support energy efficiency and emissions mitigation; reduce air, water or land pollution; or minimize land-use and local environmental impact.

Top holdings include Xylem, sustainable paper and packaging business Smurfit Westrock (SW), and Core & Main (CNM), which provides essential products for community infrastructure, including pipes, valves and pumps for wastewater and storm drainage. The fund's 12-month return is 8.1%.

Learn more about EFRA at the iShares provider site.

The iShares ESG Aware 60/40 Balanced Allocation ETF (EAOR) replaces the Green Century Balanced Fund (GCBLX).

The iShares global moderate-allocation fund hews to sustainable screens — such as no weapons makers or firms embroiled in human-rights or labor issues — and focuses on stocks and bonds with strong ESG traits.

It is a fund of funds: Just over 60% of assets sit in four ESG stock funds that invest in U.S. and foreign shares; the rest is in iShares ESG Aware U.S. Aggregate Bond. The fund's 12-month, 10.2% return beat 59% of its peers.

Learn more about EAOR at the iShares provider site.

The Fidelity Sustainable Core Plus Bond ETF (FSBD) replaces the Brown Advisory Sustainable Bond Fund (BASBX). The Fidelity ETF, yielding 4.4%, is run by bond-picking veterans we know well, including Ford O'Neil and Celso Munoz, who also have a hand in Fidelity Strategic Income (FADMX), a member of the Kiplinger 25, our favorite no-load mutual funds.

The managers invest in bonds with positive ESG traits. Though 80% of the fund is invested in high-quality securities, up to 20% can be high-yield debt. That side bet, currently just under 12% of assets, helped in recent months, as did an overweight position in government mortgage-backed securities.

Over the past year, the fund's 3.0% gain has kept pace with the Bloomberg U.S. Aggregate Bond index.

Learn more about FSBD at the Fidelity provider site.

The FlexShares STOXX Global ESG Select ETF (ESGG) has been a Kip ESG 20 member from the start.

The ETF focuses on large-company stocks in the U.S. and foreign countries that comply with the United Nations principles of behavior governing human rights, labor, the environment and anti-corruption. Top holdings include Nvidia, Apple (AAPL) and Amazon.com (AMZN).

No surprise, then, that the fund has done well over the past 12 months, with a 15.7% return. That beat 71% of its peers in the global large-stock blend category.

Learn more about ESGG at the FlexShares provider site.

Actively managed Putnam Sustainable Future ETF (PFUT) focuses on companies that provide solutions to the world's social, environmental and economic-development problems.

The fund's growth-tilted portfolio has been volatile. From its December 2024 peak through April 8, the fund fell more than 27%, as trade worries rocked U.S. stocks. It has rallied 30% since, but the bumpy ride has left the fund with a 12-month return of 3.6%.

Top holdings include Hilton Worldwide, infrastructure firm Vertiv Holdings (VRT) and power company Vistra (VST).

We expect volatility with a fund like this, and we'll wait out this soft patch for now. But we're watching closely.

Learn more about PFUT at the Putnam Investments provider site.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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2024 Update: The New York Stock Exchange (NYSE) no longer plans to launch Natural Asset Class (NAC) tradable assets, according to an SEC filing.

The New York Stock Exchange (NYSE) is launching a new type of asset class that could transform the way investors value nature.

Called natural asset companies (NACs), these securities will be listed and traded on the NYSE, just like traditional stocks. The exchange plans to list these entities starting later this fall. The launch comes just as companies and governments are preparing to make substantial commitments to combating climate change at the next U.N. global climate meeting in November.

Here's the skinny on this new investment class geared toward ESG (environmental, social and governance) investors.

What Are NACs?

Natural asset companies assign value to the services provided by nature (such as storing carbon in a forest), rather than to the extraction of natural resources (such as logging).

NACs will hold the rights to "ecosystem services," or the benefits people receive from nature, such as food, pollination, tourism, or clean water; such global benefits are valued at an estimated $125 trillion annually.

Each NAC will issue an IPO tied to a specific tangible asset, such as a rainforest, a marine ecosystem or farmland. The proceeds will be used to manage the property to enhance ecosystem services – or in the case of farmland, to convert it to sustainable, "regenerative" agriculture. (Regenerative ag actually builds soil, stores carbon, and increases biodiversity.)

How Are They Valued?

The NYSE is working with, and has a minority stake in, the Intrinsic Exchange Group (IEG). The IEG has several years of experience tackling challenges to the NAC model, such as how natural value should be measured, monitored and translated into financial value.

The IEG, with the help of the Inter-American Development Bank (IDB), has developed an accounting framework based on projects conducted throughout Latin America. The NYSE will license the IEG's accounting framework.

"We believe it is absolutely critical to provide investors in Natural Asset Companies with relevant, reliable and understandable information on the flows of the ecosystem services they produce and their stocks of natural capital assets," Robert Herz, former chairman of the Financial Accounting Standards Board (FASB), says in a statement.

Bottom Line

One of the biggest challenges to addressing climate change has been a lack of funding for conservation, biodiversity, and other climate strategies tied to natural value. If natural asset companies are scalable and earn the confidence of investors and stakeholders, they could help ramp up investments in climate solutions.

More comprehensive climate policy in the U.S. and abroad also could make NACs attractive long-term investments. Not to mention, they provide another way investors can diversify their portfolios.

Investors interested in ESG should keep an eye out for natural asset companies in the next few months. You might just be able to help keep a forest standing as you feather your nest.

Water sustainability might not be among the flashiest crises our planet faces, but it's certainly one of the most important. Put simply: All 8 billion humans on this planet need water. And as worldwide water shortages grow, so too does interest in water investing – that is, in companies that help treat, distribute and dispense water.

"Water is at the core of sustainable development and is critical for socioeconomic development, healthy ecosystems and for human survival itself," the United Nations says. It is also a finite and irreplaceable resource that can only be renewed if well-managed.

The problem: It's currently not well-managed in many parts of the world.

"In 2020, around 1 in 4 people lacked safely managed drinking water in their homes and nearly half the world’s population lacked safely managed sanitation," according to the World Health Organization and UNICEF. "Billions of people around the world will be unable to access safely managed household drinking water, sanitation and hygiene services in 2030 unless the rate of progress quadruples."

Anthony Eames, director of responsible investment strategy at Calvert, a leading provider of environmental, social and governance (ESG) investments, says "the reality of water scarcity means that stewardship is a financially material issue for many industries,” adding that numerous companies depend on access to water in their manufacturing supply chains.

"Responsible investors can play a role in water stewardship efforts," he adds.

A growing spotlight on water sustainability, then, is also shining brightly on water investing. If you’re interested in starting to invest in water, read on as we highlight five of the best mutual funds and the best ETFs to buy that focus on this theme.

Data is as of April 17. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.

• Assets under management: $1.6 billion
• Dividend yield: 0.6%
• Expenses: 0.53%, or $53 annually for every $10,000 invested

Daniel Milan, managing partner of Cornerstone Financial Services in Southfield, Michigan, has invested in water via the First Trust Water ETF (FIW, $96.61) in portfolio models for years.

"I've used it in lieu of traditional utility funds," he says, "but more importantly due to the thesis on the importance of water sustainability, the increased future scarcity of water and the need for more efficient and effective potable water solutions, as well as storage and transportation of the resource."

The First Trust Water ETF tracks the ISE Clean Edge Water Index, which holds companies in the potable water and wastewater industry with worldwide market capitalizations of at least $100 million. It’s a "modified" market cap-weighted index that, at each semiannual rebalancing, assigns the top 10 stocks by size a weight of 4%, the next 10 a weight of 3.5%, and so on. Thus, larger companies have a greater effect on performance than smaller ones, but those smaller firms have more influence than they would have in a traditional cap-weighted portfolio.

If you're doing your water investing via funds, get used to tight portfolios: FIW, for instance, holds just 36 stocks. Top holdings include the likes of water treatment technology firm Veralto (VLTO); Xylem (XYL), which offers up a wide swath of water and wastewater technology products; and American Water Works (AWK), which provides water-utility services in several states.

"As the world's population continues to expand, clean and safe drinking water will be one of the top priorities in order to promote and protect human life," Milan says. "These companies will have their hands in making this a possibility for nations all around the world."

MSCI's ESG Fund Ratings rates First Trust Water ETF at AA – the second-best rating, and within the system’s so-called Leader tier.

Learn more about FIW at the First Trust provider site.

• Assets under management: $586.9 million
• Dividend yield: 1.2%
• Expenses: 1.24%

The Calvert Global Water Fund A Shares (CFWAX, $27.54) is a water investing mutual fund that seeks to track the Calvert Global Water Research Index, CALH2O, a proprietary index comprised of "companies that manage water use in a sustainable manner and are actively engaged in expanding access to water, improving water quality, promoting the efficient use of water, or providing solutions that address other global water challenges."

This gives CFWAX access to "the water value chain not found in other strategies”" that typically only focus on water-related industries, says Calvert's Eames.

"We invest in companies representing the supply side, such as water utilities, water infrastructure and water technology companies, as well as on the demand side through investments in companies in water-intensive industries that are leading in their water stewardship and water efficiency," he says.

The resulting portfolio includes top holdings such as water and hygiene specialist Ecolab (ECL), Xylem and Idex (IEX), a diversified industrial firm that provides water metering and flow technology products and services, among many other things.

Eames adds that CFWAX "also employs a shareholder engagement strategy which seeks to improve companies' performance on financially material ESG issue areas, including water use and efficiency." The company's engagement team works with investor groups and policymakers to drive positive change. It also files shareholder resolutions and manages all proxy voting for the Calvert funds.

Note that CFWAX, which also receives MSCI's AA rating, is one of the more expensive ways to invest in water. In addition to a 1.24% expense ratio, investors also pay a 5.25% front-end sales load unless their brokerage waives or lessens the load. (Fidelity and Schwab are examples of brokerages that will waive the load on CFWAX.)

If your broker doesn't waive the load, you might want to consider the ETFs or the no-load water-themed mutual fund on this list instead.

Learn more about CFWAX at the Calvert provider site.

• Assets under management: $2.0 billion
• Dividend yield: 0.5%
• Expenses: 0.60%

Invesco’s flagship water-themed fund, Invesco Water Resources ETF (PHO, $63.04), was launched in 2005, making it one of the oldest water investing funds you can find.

PHO tracks the Nasdaq OMX US Water Index, which invests in companies that purify and conserve water for home, business and industrial users. Rene Reyna, head of thematic and specialty product strategy at Invesco, adds that these companies "must be engaged in the Green Economy, which factors in their contributions to improving the water space as determined by Sustainable Business LLC."

Invesco also offers a global version of this fund, the Invesco Global Water ETF (PIO). That said, it’s not nearly as popular, at $2790 million in assets, and it trades about 10,000 shares per day on average compared to 72,000 for PHO.

That's OK. While the Invesco Water Resources ETF only invests in U.S.-listed companies vs international stocks, many of these businesses – including Danaher (DHR) and Roper Technologies (ROP) – are multinational operators.

"So while its sister fund, PIO, may provide enhanced international diversification, PHO by no means misses out on the global opportunity of water resource investment," Reyna says.

PHO earns five stars and a bronze badge from Morningstar for, among other things, strong past performance compared to peers and relatively low costs. It also earns an AA ESG rating from MSCI.

Learn more about PHO at the Invesco provider site.

• Assets under management: $945.7 million
• Dividend yield: 1.5%
• Expenses: 0.56%

The Invesco S&P Global Water Index ETF (CGW, $53.34) could be considered a more traditional way of investing in water than PHO or PIO.

This ETF tracks the S&P Global Water Index, which focuses on the 100 largest companies in water-related businesses across the globe. CGW targets two distinct segments – water equipment and materials, and water utilities and infrastructure.

“By investing in the underpinnings of the water infrastructure, including water utilities, equipment, instruments and materials, CGW offers a different way to invest in the water theme,” Reyna says.

The fund is tilted slightly toward U.S. vs non-U.S. companies, with the bulk of the non-U.S. holdings coming from Europe. Top holdings from across the pond include U.K.-based utility stock Severn Trent.

CGW also earns four stars from Morningstar, as well as an AA ESG rating from MSCI.

Learn more about CGW at the Invesco provider site.

• Assets under management: $99.4 million
• Dividend yield: 0.4%
• Expenses: 0.93%

Fairly new to the water investing scene is the Fidelity Water Sustainability Fund (FLOWX, $16.47).

Launched in April 2020, FLOWX invests at least 80% of its assets in water sustainability companies, such as those involved in water resources, treatment or distribution. These can include the companies found in the S&P Global Water Index, but the managers also reserve the right to choose other companies they feel meet the fund’s criteria.

When the managers do deviate, it’s usually to smaller, growth-oriented companies, which pulls this Fidelity mutual fund into the mid-cap growth style box.

Morningstar analysts warn that the fund has high fees, which create a high hurdle to clear.

And as many themed funds tend to be, FLOWX is fairly concentrated at just 30 holdings, most of which are U.S.-domiciled. The top 10 holdings – which include Xylem and Tetra Tech – account for nearly 60% of the portfolio's assets. Investors should be wary of concentration risk if they hold the same companies elsewhere in their portfolios.

Of the five water investing options in this article, FLOWX deserves the most scrutiny before jumping in given its relatively short track record.

Still, MSCI's ESG Fund Ratings rates the product at AA.

Learn more about FLOWX at the Fidelity provider site.

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Though not exactly page-turners, corporate sustainability reports are must-reads if you want to align your investments with your values.

A sustainability report goes beyond traditional financial numbers to highlight a company's environmental, social and corporate governance (ESG) goals and practices, such as steps taken to reduce carbon emissions, close the gender pay gap or boost the number of minorities on the board.

The report also identifies the ways that broad ESG trends may impact a firm's long-term strategy and outlook, letting stakeholders know the risks and opportunities around ESG, says Maura Hodge, national ESG assurance leader for accounting firm KPMG. "Readers should look to see if the company has embedded ESG into its core business activity," she says.

A firm's ESG record has emerged as a key input when choosing investments. U.S. asset managers now manage more than $17 trillion using ESG strategies, up 42% from the start of 2018, according to the Forum for Sustainable and Responsible Investment. And investors are pressuring firms to provide more data and transparency around ESG. Nine out of 10 S&P 500 companies now publish sustainability reports, up from 20% in 2011, according to the Governance & Accountability Institute, a sustainability consulting firm.

Currently, sustainability reports are published voluntarily and measure progress on ESG goals based on standards and metrics developed by nonprofits and independent groups, such as the Value Reporting Foundation, which oversees the Sustainability Accounting Standards Board (SASB). The Global Reporting Initiative (GRI) and the Task Force on Climate-Related Financial Disclosures (TCFD) are others.

These reports, however, aren't required or bound by disclosure rules set by regulators such as the Securities and Exchange Commission. Thus, they lack the standardization (think clarity, consistency and comparability) found in accounting.

"What's needed is standardized reporting, so that you can compare Company A to Company B," says Louis Coppola, executive vice president and cofounder of the G&A Institute.

That's where the Securities and Exchange Commission (SEC) is headed. SEC chair Gary Gensler has asked his staff to come up with new rule recommendations for disclosures related to climate change and human capital management, and to consider rules that would require fund sponsors to show the criteria they're using to market a fund as "sustainable." Lawmakers are also pushing for fuller disclosure. In June, the U.S. House of Representatives passed a bill that requires public companies to annually disclose certain ESG metrics and address how they affect their long-term business strategy.

What to Look for in a Company's Sustainability Report

For now, with regulations and disclosure practices in flux, investors can be susceptible to "greenwashing," which occurs when a company embellishes its ESG profile. You should check to see whether an independent third party has audited a company's report to ensure that its contents are credible, reliable and comparable to peers, says KPMG's Hodge.

Despite their potential shortcomings, however, sustainability reports can provide a lot of insight. Here's what to look for:

The CEO letter

In the CEO letter, the chief executive lays out the company's long-term vision for ESG goals.

"The letter sets the tone," Coppola says. "You can get a good idea of what's important and what the company is focused on."

In PepsiCo's (PEP) "2020 Sustainability Report," for example, CEO Ramon Laguarta writes about the snack and beverage company's commitment to develop green-friendly alternatives to single-use packaging and to work with farmers to make sure acreage is farmed in a sustainable, resilient way.

Materiality section

You'll learn which ESG issues are most important to a company's core business over the long term in this section. It's where the company narrows potentially thousands of ESG issues to a short list of the ones that matter most and shares its plan to mitigate ESG risks.

Risks differ by industry. An oil firm faces different challenges to its business model than, say, an apparel maker, says Carole Laible, CEO of Domini Impact Investments. A Nike (NKE) investor would see less about carbon emissions, for example, and more about products designed in a way to extend their useful life, materials sourcing, supplier relations, disclosure of factory locations and employee wages.

The materiality section is often accompanied by a matrix or plot chart that lists issues the company deems top priorities, with topics shown in the top right quadrant typically the most important.

In TD Bank's (TD) "2020 Environmental, Social and Governance Report," for example, the bank ranks issues such as data security and privacy, sustainable finance, customer experience, talent attraction, and diversity and inclusion as most material.

Readers who find themselves wondering whether a report lacks credibility should look for telltale signs of greenwashing. Red flags include reports that lack a materiality assessment, skimp on data and metrics to measure success, or aren't audited by a third party or benchmarked to standards set by GRI, SASB and TCFD.

Highlights section

Typically found at the front of the report, the highlights provide a high-level overview that shows how a company is progressing toward its ESG goals.

In its "2020 Global Sustainability Report," for example, financial technology company FIS (FIS) reported that it increased the percentage of U.S. women in director-and-above leadership positions by three percentage points in the past year and reduced its energy consumption by 23%.

"Year-over-year data is important to be able to understand a company's risk-mitigation capabilities," Laible says. Similarly, if a company devotes a full chapter to a topic such as "Managing a Sustainably Focused Supply Chain," as FIS does, you can assume it's a top priority.

Content indexes

Look for an index to help you find information on the things that you feel most strongly about, such as a company's workforce diversity, anti-corruption practices or key risks. These index sections are often based on disclosure standards of groups such as GRI and SASB and often provide links to source materials such as an annual report or proxy filing.

"They are great navigational tools," says Coppola.

Data tables

If you want to see the numbers or data points that show, say, the precise percentage of Asian, Black, Latino and white employees at a company or the number of hours devoted to worker training, data tables typically located at the end of the report will allow you to cut right to the chase and avoid having to comb through the full report.

Most investor attention this year is centered around artificial intelligence and the companies best in place to utilize it. But electric vehicle (EV) stocks – some of the biggest winners during the 2020-2021 tech boom – are also making a comeback.

Or at least some of them are!

"The early stage of the EV boom was a bit of a free for all," explains Sonia Joao, chief operating officer of Houston-based RIA Robertson Wealth Management. "Interest rates were cheap, and investors had a high tolerance for risk. In an environment like that, it's not uncommon to see the riskiest bets pay off."

Naturally, 2023 looks very different than 2021. The Federal Reserve has raised interest rates to the highest levels in two decades, and investors are a little more sober than they were two years ago. "In an environment like this," Joao continues, "it's generally going to make sense to stick with the most established and best capitalized in the space."

The world is going electric. By 2030, just seven years from now, S&P Global forecasts that one out of every four new cars sold will be electric. By 2035, the European Union and Japan are planning to ban sales of most traditional internal combustion engines, as are several American states. This goal is ambitious and may or may not be achievable. Only time will tell. But it does make one thing abundantly clear: A flood of money is going into the EV space, and the companies on the receiving end of that flood are worth a good look.

With that in mind, here are seven of the best EV stocks to capitalize on this expanding industry. To find the best stocks to buy in this space, we looked for companies that are in the center of the electric vehicle revolution. We also found a few names that have more "pick and shovel" exposure to the space, meaning they provide critical infrastructure to build EVs – and are poised to profit as a result. 

Data is as of July 19. Analyst opinions from S&P Global Market Intelligence. Stocks are listed in reverse order of analysts' consensus rating.

• Market value: $13.5 billion
• Analysts' ratings: 6 Strong Buy, 8 Buy, 9 Hold, 1 Sell, 3 Strong Sell
• Analysts' consensus recommendation: 2.52 (Hold)

Relations between the U.S. and China aren't great right now, so investing in Chinese stocks isn't exactly on a lot of investors' radars. But we should remember that China is the world's largest market for electric vehicles by a country mile. Last year, there were 5.9 million electric vehicles sold in China vs less than a million in the United States. So, any discussion on electric vehicles has to include a discussion of China.

With that said, consider the shares of XPeng (XPEV, $14.98), a leading EV maker in China. It offers SUVs under the G3, G3i and G9 names; four-door sports sedans under the P7 and P7i brands; and family sedans under the P5 line. The company also provides super charging, ride-hailing and advanced driver-assistance system technology.

XPEV should be considered highly speculative. The stock has a beta of 2.84, which means it is wildly sensitive to the market's moves. The company is also currently unprofitable. 

Still, if you are bullish on EV stocks and accept that China is the center of the action, then XPeng is a good way to get exposure to this fast-growing market.

• Market value: $932.6 billion
• Analysts' ratings: 12 Strong Buy, 3 Buy, 18 Hold, 3 Sell, 2 Strong Sell
• Analysts' consensus recommendation: 2.47 (Buy)

Any discussion of EV stocks has to include the company that put the industry on the map: Tesla (TSLA, $291.26). Though TSLA faces stiff competition, it's still the biggest pure-play EV automaker.

For better or worse, it's hard to separate Tesla from its high-profile and controversial CEO Elon Musk. While the stock historically commanded a "Musk premium," the CEO's controversial purchase of social media platform Twitter and his generally erratic behavior have weighed on the share price over the past year. 

However, Tesla stock has been moving sharply higher since May, and has more than doubled since the start of the year.

The biggest knock on TSLA is simply its price. At a price-to-earnings (P/E) ratio of 86 and a price/sales (P/S) ratio of 12, the company is priced aggressively for even an upstart tech stock. And this is a company with a market cap of close to a trillion dollars.

Still, Tesla's growth continues to impress. Auto sales revenues were up 46% year-over-year in the second quarter, and total revenues were up 47%. The company delivered 466,140 cars last quarter, an 83% improvement over the year prior.

TSLA still has a profitability problem. It really needs to see fatter profit margins if it is to justify its valuation. But if you believe that the electric vehicle space is poised to boom in the years ahead, then it's hard to avoid Tesla.

• Market value: $55.1 billion
• Analysts' ratings: 10 Strong Buy, 5 Buy, 9 Hold, 0 Sell, 1 Strong Sell
• Analysts' consensus recommendation: 2.08 (Buy)

General Motors (GM, $39.23) isn't generally the first stock you think of when you hear "electric vehicle." The parent company of the Chevrolet and Cadillac brands, among others, has more of a stodgy, old-school reputation.

Yet the company has formal plans to stop selling gas and diesel vehicles entirely by 2035, just 12 years from now. That's an ambitious goal, but even if the automaker ultimately falls short, it's clear that they are going big. 

The luxury Cadillac line will be all electric by 2030. And Chevrolet is launching an electric version of the popular Silverado pickup truck this fall that boasts a range of 400 miles on a full charge and up to 10,000 pounds of towing capacity.

Apart from its ambitions in the EV space, perhaps the most compelling reason to consider an investment in General Motors is the stock's valuation. GM trades at just 6.1 times earnings and 0.3 times sales. And, frankly, its profit margins are about in line with Tesla's.

General Motors is a cyclical stock, as car sales tend to decline in a recession. So, given that we're seeing early signs that an economic slowdown may be in store for us later this year, you might want to consider dollar-cost averaging into this stock little by little.

• Market value: $18.9 billion
• Analysts' ratings: 13 Strong Buy, 6 Buy, 8 Hold, 1 Sell, 0 Strong Sell
• Analysts' consensus recommendation: 1.89 (Buy)

Similar to XPeng, Nio (NIO, $10.64) is a leading manufacturer of electric vehicles in China. The company offers five and six-seater electric SUVs and sedans. Taking a page out of Tesla's books, the company also offers home power solutions under the name Power Home.

The company has proven to be innovative. One of the major pain points on electric vehicles is finding a place to plug in when you're away from home. Well, Nio has the solution. Its Power Mobile is a mobile charging service that will send a van with a battery bank to juice up your car the same way that AAA will come to fix a flat tire.

Nio is another one of the EV stocks on this list that should be considered a speculative play. Apart from the country-specific risk of being located in China, the company is not currently profitable. 

But again, if you are bullish on EVs and appreciate that China is the world's biggest market for electric vehicles, then having exposure to one of the country's leading producers only makes sense.

• Market value: $27.3 billion
• Analysts' ratings: 15 Strong Buy, 4 Buy, 6 Hold, 1 Sell, 1 Strong Sell
• Analysts' consensus recommendation: 1.85 (Buy)

It's widely understood that the vast majority of miners that jumped into the California gold rush in the mid-1800s never made much money. They took enormous risk in the pursuit of getting wealthy… and ended up mostly empty handed.

The safest way to profit from the gold rush was serving the needs of the miners. Selling picks and shovels, if you will.

Well, the same logic applies to electric vehicles. We may not know which automaker or automakers will end up being the ultimate winner. But we do know that more electric cars means more demand for batteries … and that means more demand for lithium.

As a good long-term play on lithium demand, consider the shares of Albemarle (ALB, $232.52), one of the world's largest miners and producers of lithium. The shares are cheap at current prices, trading at just 7.5 times earnings.

The lithium stock is not without risk, particularly on the political side. Like crude oil, copper and other critical industrial commodities, lithium producers are ultimately at the mercy of the governments in the countries where they mine. 

For instance, Chile is the world's largest producer of lithium, and the government there is seeking to take more control over the industry. That's a risk for Albemarle, but it would seem that at current prices, the risk is already factored into the price.

If you're looking for a pure play in the single most important commodity for the EV revolution, it's hard to beat Albemarle.

• Market value: $3.1 billion
• Analysts' ratings: 10 Strong Buy, 3 Buy, 5 Hold, 0 Sell, 0 Strong Sell
• Analysts' consensus recommendation: 1.72 (Buy)

For another "pick and shovel" play on this list of the best EV stocks, consider ChargePoint Holdings (CHPT, $8.69). CHPT provides electric vehicle charging solutions in the U.S. and internationally. It offers a portfolio of hardware, software and services for commercial, fleet and residential customers. When you see EV chargers in office parks or parking lots, there is a decent chance you're looking at one of ChargePoint's products.

In a list of fairly high-risk stocks, ChargePoint is going to be one of the riskier plays. The company is not currently profitable, and it faces competition from Tesla among others. But again, if the EV revolution comes to pass as expected, CHPT will likely see a major boost in revenue, and the profits should follow.

The shares recently took a tumble on news that General Motors, Ford Motor (F) and Rivian Automotive (RIVN) had all agreed to use Tesla's standard for fast charging, creating a perception that ChargePoint was being left behind. Yet this would seem to be overblown because CHPT has itself indicated that it was already exploring ways to make its products compatible with Tesla's standard.

Again, ChargePoint is a risky stock, and you might want to wait for an indication that the shares have started an uptrend before buying. Initiating a position today might be an attempt to catch that proverbial falling knife. But at the right price, the shares are an interesting play on the growing EV industry.

• Market value: $44.0 billion
• Analysts' ratings: 17 Strong Buy, 3 Buy, 9 Hold, 0 Sell, 0 Strong Sell
• Analysts' consensus recommendation: 1.72 (Buy)

For one final "pick and shovel" play on EV stocks, consider the shares of ON Semiconductor (ON, $101.91).

As you probably guessed from the name, ON makes chips. And it so happens that the chips it makes are particularly well suited for electric vehicles.

ON's silicon carbide chips address the two major pain points of electric vehicles. They can extend driving range per charge compared with traditional silicon chips and they can help reduce the time it takes to charge a car battery.

How big is the opportunity here?

ON expects the silicone carbide market to see 33% compound annual growth through 2030. If that holds, it would be bigger than the expansion seen by CPUs in the 1990s and mobile processors in the 2000s, which saw growth rates of 20% and 18%, respectively.

The semiconductor stock isn't exactly an undiscovered gem. Its shares are up by roughly 400% since 2020. But the shares aren't excessively priced at 20 times forward earnings. And if the company's investments in silicon carbide pay off as expected, its massive move since 2020 could be only the beginning.

The solar energy boom is the modern equivalent of the California Gold Rush of 1848.

Data from Wood Mackenzie Power & Renewables and the Solar Energy Industries Association notes that it took 40 years to reach 1 million solar installations in the U.S., but just three more years to hit 2 million installations. And the forecast for 2021 alone is 3 million installations.

Green energy exchange-traded funds (ETFs) have benefited as investors have piled into solar stocks. This is evidenced in the bellwether Invesco Solar ETF (TAN), which is still up more than 50% over the past year even after a sharp cooling-off in early 2021.

And the setup for solar stocks still looks good, with climate change firmly atop the Biden administration's agenda.

Like the supply companies that profited during the gold rush selling picks and shovels to eager prospectors, solar energy offers a similar "pick-and-shovel" opportunity. Companies that make components, batteries, the materials to produce panels or the software to manage them are riding the coattails of the inexorable march away from fossil fuels and toward solar power.

Here are five of the best solar stocks that offer a differentiated strategy for profiting from the green energy boom.

Data is as of Aug. 25.

• Market value: $14.7 billion

Israel-based SolarEdge Technologies (SEDG, $281.44) makes inverters: a key component of the microgrid that delivers solar energy to where it's needed in homes, schools, businesses, campuses and beyond.

Shares of SEDG have been on a tear the last two years. However, since hitting an all-time closing high near $365 in December, shares slumped down to around $200 this spring before rebounding to current levels.

Sentiment has likely tempered on the solar stock thanks to a modest 2% rise in 2020 revenues and a 3% drop in net income. The company's earnings release was mum on the precise reason for this, but declines in both gross and operating margins suggests that as the market for microgrids expands, so too do costs, at least at this stage of the game.

This should be of little concern for longer-term investors looking at solar stocks.

First, SEDG is sitting on just over $680 million in cash and marketable securities as of June 30, with only a few hundred thousand dollars in debt due this year. Next, cash flow from operations for 2020 was $223 million, almost twice reported net income, and this easily covered $126 million in capital expenditures (capex) with a sizable cushion left over.

Finally, about 40% of SEDG sales come from the U.S. While renewable energy policies have been wobbly, a progressive administration coupled with 37 states that have renewable energy targets offers a good setup for sales and earnings growth.

Consensus estimates for SolarEdge Technologies' adjusted fiscal 2021 earnings are $5.09 per share, which, if realized, would represent a 24% improvement from 2020 – a pretty nice bump.

• Market value: $23.3 billion

Enphase Energy (ENPH, $172.91) also manufactures inverter systems. Unlike "string converters" made by SolarEdge, which draw power wholesale from all the panels in an installation, Enphase sells microinverters, which draw energy from individual panels as needed or as conditions allow, and, as a result, can be more efficient.

Though microinverters cost more, the market for them may grow faster because they can be more responsive to site-specific conditions. Estimated average annual global growth for microinverters through 2025 is 21% versus about 15% for string inverters, according to Research and Markets, a market research firm.

For investors who believe in the underlying fundamentals of the solar market and who are looking to buy the dips, Enphase might be the stock for you.

Shares of the solar stock dropped from around $215 per share in February to about $115 in mid-May, thanks in part to Enphase's first-quarter report. While sales grew an impressive 46% year-over-year, earnings declined and ENPH reduced its second-quarter outlook based on semiconductor shortages and supply chain interruptions.

But things have improved for the stock since then, thanks to a Q2 report that saw earnings more than triple to 53 cents per share, which easily beat estimates for 43 cents.

Enphase should be able to weather any near-term headwinds. It's sitting on about $1.7 billion in cash, and while long-term debt is just over $900 million, the current portion is only $85 million. Meanwhile, operations last year threw off about $216 million in cash, while capital expenditures were modest at about $25 million.

• Market value: $26.9 billion

Generac Holdings (GNRC, $425.87) has grown handsomely selling backup generators to consumers who have become more attuned to and proactive toward power outages. Ice storms in Texas and fires in California offer vivid reminders about the importance of backup power.

But in 2019, Generac entered the battery storage business with a pair of acquisitions. By purchasing Pika Energy and Neurio Technology, GNRC positioned itself to develop and distribute its PWRcell and PWRview solar power products.

Sales are small and not broken out on earnings reports, but Generac touts PWRcell as a high-growth area for the company. And what we're seeing with PWRcell today might be the thin end of the wedge – a setup many investors like. Think Apple (AAPL), where the relatively small services division is expected to be the next big leg of growth for the company, and contributed to about 19% of total sales in its fiscal second quarter. And Amazon.com's (AMZN) cloud division – at a little more than 10% of total sales – is seen as one of the linchpins of the company's growth.

Generac enters the solar business with two distinct advantages. First, it's reliably growing in its core generator business, increasing sales and cash flow at an average annual rate of 10% during the last five years, according to Value Line. Notably, cash flow from operations last year was some $487 million, plenty to finance its foray into the solar business.

Second, unlike Enphase and SolarEdge, which rely principally on third-party sellers and are relatively young companies, Generac has been doing business since 1959, has a global network of 7,000 dealers and has decades of customer data that it can ply with its solar offering.

Shares have been highfliers, up more than 410% since April of last year. Arguably, much of the enthusiasm is being driven by generators, but GNRC could emerge as one of the best solar stocks as its green energy business takes hold.

• Market value: $4.0 billion

Daqo New Energy (DQ, $54.01) is based in China and produces polysilicon, which is used to make solar panels. Right now, China is the world's largest producer of solar panels, and as a result, Daqo is well-positioned to capitalize on the country's leadership in this green energy space.

Another driver for Daqo shares is that demand for polysilicon is increasing and this is boosting prices. For instance, according to Bernreuter Research, in 2021 alone, prices per kilogram for polysilicon have risen from $11 to nearly $28 – and much of that growth goes straight to Daqo's top line. Daqo is solidly profitable, and price increases for its core product are driving increases in its gross and operating margins.

Chinese companies have been chipping away at the hegemony of Western polysilicon producers. Daqo, which is among the top 10 polysilicon producers in the world, typifies this trend. The company plans to increase capacity to 270,000 metric tons by the end of 2024, representing roughly 50% compound annual growth over that time.

With solar booming, Daqo will presumably find a home for all of this new polysilicon, at what looks like increasing prices and better margins. This could make DQ one of the best solar stocks to have on your radar.

Market value: $469.8 million

Almost nothing in this world works without software, and solar power is no exception. CleanSpark (CLSK, $13.20) offers a suite of software solutions that provide end-to-end microgrid modeling, communications and energy management.

CleanSpark is tiny, but its market cap, at about $550 million, suggests some investors think it could be mighty. CLSK is not for the faint of heart, but the fact that it's showing some momentum above and beyond what's been seen in the broader green energy sector is notable. In its recently reported fiscal third quarter, the company announced that nine-month revenues were $22.3 million – up 176% year-over-year.

CleanSpark is unprofitable on a generally accepted accounting principles (GAAP) basis, but analysts believe CLSK will flip to a 41-cent adjusted profit this fiscal year, from a $2.44 loss in fiscal 2020. If it does, catching the solar stock now, while it's trading at half of what it was at the start of 2021, might be a tenable first step in building a larger position long term.

Also noteworthy, CleanSpark is ramping up its participation in the Bitcoin mining business. Mining revenue didn't appear as a line item on its most recent annual report, but it did show up in CLSK's first-quarter results. And in April of this year, the company announced a material expansion of its Bitcoin mining operations.

Carbon-belching Bitcoin mining and renewable energy can be somewhat at odds, but CleanSpark notes that 95% of the power for its mining operations is carbon-free – an important marker for ESG investors, those focused on environmental, social and corporate governance, and perhaps a source of buying support for the solar stock going forward.

Here's something for investors to celebrate on Earth Day 2021: Environmental, social and corporate governance (ESG) matters have never been more important to shareholders and, by extension, the folks leading the nation's publicly traded companies.

As investors' focus on ESG stocks has grown, sustainability reporting has gone mainstream. Bank of America Securities recently found that 90% of companies in the S&P 500 publish corporate social responsibility (CSR) reports, up from 20% in 2011.

And that's not just because corporations are bending to societal pressures. It turns out that taking ESG issues seriously is good for the bottom line.

"It pays to be green," say Bank of America Securities equity and quant strategists Savita Subramanian and Marisa Sullivan. "We see higher multiples for low emissions, net zero targets, and water efficiency."

Even members of the Dow Jones Industrial Average – that old and elite bastion of just 30 blue-chip companies – are increasingly concerned with how they measure up when it comes to ESG matters. However, it might come as a disappointment to some investors that only a third of the Dow's constituents rank as ESG leaders in their respective industries.

MSCI, the investment research firm specializing in indexes, portfolio analysis and various analytic tools, has set itself up as a leader in ESG ratings. The firm maintains MSCI ESG ratings on nearly 3,000 companies, and it has become a go-to provider of information for investors who hold ESG issues close to their investment processes and hearts. We decided to see where all 30 Dow companies rank as ESG stocks using MSCI ratings, which range from industry leader (AAA, AA), to average (A, BBB, BB) to laggard (B, CCC), and found that just 10 of them are considered "leaders."

So read on as we look at the 10 best ESG stocks within the Dow 30. Happily, in many cases, it does indeed pay to appear to be green. Dow stocks with high ESG scores often happen to be some of analysts' favorite blue-chip stocks to buy, too.

Data is as of April 20, courtesy of S&P Global Market Intelligence, MSCI and YCharts, unless otherwise noted.

• Market value: $116.6 billion
• Dividend yield: 1.2%
• MSCI ESG rating: AA

The first of the Dow's AA-rated ESG stocks is American Express (AXP, $145.10), which also gets a consensus recommendation of Buy from Wall Street analysts. The pros are especially impressed by the credit card company's outsized long-term growth prospects.

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Indeed, the Street expects AXP to deliver average annual earnings per share (EPS) growth of more than 40% over the next three to five years.

And for what it's worth, AmEx is one of Warren Buffett's all-time favorite stocks. The CEO of Berkshire Hathaway first bought shares in the firm in 1963 and remains its largest shareholder (by far!) today.

That said, some analysts are concerned about the slow recovery of spending on travel and entertainment as we emerge from the worst of the pandemic.

"Non-travel and entertainment (T&E) spending has recovered to pre-Covid levels and actually grew 1% in the quarter, but T&E remains very depressed (down 69% YoY for Q3)," writes CFRA Research analyst Chris Kuiper, who rates AXP at Hold.

For investors who put ESG at the forefront of their investment process, they'll be happy to hear that American Express' rating makes it a leader in the consumer finance industry. Indeed, only 7% of the firms in AXP's industry received an AA rating.

American Express stands out in scores for corporate governance, human capital development, privacy and data security, and carbon emissions. It gets average marks for corporate behavior, consumer financial protection and access to finance.

Lastly, MCSI says AXP is not a laggard on any of the key issues evaluated for the company's industry.

• Market value: $149.2 billion
• Dividend yield: 2.7%
• MSCI ESG rating: AA

Amgen (AMGN, $259.14), which replaced Pfizer (PFE) in the Dow last year, gets an AA ESG rating from MSCI – a level it first attained in June 2019.

Only 39 biotech companies, or 13% of the sector, score an AA rating from MSCI, making Amgen an industry leader.

Although MSCI considers AMGN to be an industry laggard when it comes to product safety and quality, that assessment is offset by average grades for corporate governance and corporate behavior.

What puts Amgen among the top ESG stocks in the Dow are its industry-leader rankings for human capital development, access to healthcare, and toxic emissions and waste. The bottom line is that AMGN compares very favorably against industry peers on ESG matters.

As for Wall Street's view of Amgen's stock, it leans bullish. Analysts' consensus recommendation stands at Buy, according to a survey by S&P Global Market Intelligence. Of the 31 analysts covering Amgen tracked by S&P GMI, nine rate it at Strong Buy, five say Buy, 14 call it a Hold, one says Sell and one calls it a Strong Sell. One analyst has no opinion.

"Amgen is posting solid adjusted earnings, driven by innovative drugs, including biosimilars, and investing its strong cash flow into R&D and acquisitions, such as its recently announced purchase of Five Prime," writes Argus Research analyst David Toung, who rates the stock at Buy. "Another growth driver is Otezla, an immunology drug acquired from Bristol Myers Squibb.

"We also expect the company to benefit from the launch of new pipeline products and from its collaboration agreement with Chinese biotech company Beigene."

• Market value: $218.3 billion
• Dividend yield: 2.9%
• MSCI ESG rating: AA

Cisco Systems (CSCO, $51.79) gets a consensus Buy recommendation from the Street – and even higher marks from MSCI when it comes to its commitment to ESG principles.

CSCO's rating of AA puts it in fairly elite company within the technology hardware, storage & peripherals industry, MSCI says. Indeed, only about a fifth of the industry scores a rating as high as Cisco's – and none get the ultimate rank of AAA.

Cisco's industry leadership status stems from top marks on human capital development and opportunities in clean technology. It gets average grades for controversial sourcing, supply chain labor standards and corporate behavior, among other key issues. Furthemore, CSCO is not a laggard on any of the key issues MSCI evaluates for the company's industry.

The pros aren't quite as upbeat on CSCO as a stock. Yes, of the 26 analysts covering Cisco tracked by S&P Global Market Intelligence, nine rate it at Strong Buy, six say Buy and 11 have it at Hold. However, analysts' average target price of $53.50 gives CSCO implied upside of just about 3% in the next year or so.

Whether some analysts hike their price targets or downgrade shares remains to be seen. Analysts don't exactly expect spectacular growth from the company anytime soon, either. The Street forecasts average annual EPS growth of just 5.4% over the next three to five years.

CSCO is transitioning from being heavily dependent on hardware such as internet routers and switches to higher-growth software and cloud services. The bull case rests, in part, on accelerating corporate spending on information technology (IT) as the economy reopens and workers return to their offices.

"Strong IT spending should prove a tailwind to Cisco estimates through fiscal 2022," writes Wolfe Research analyst Jeff Kvaal, who upgraded the stock to Outperform (Buy, essentially) from Peer Perform (Hold) in mid-April.

• Market value: $233.3 billion
• Dividend yield: 3.1%
• MSCI ESG rating: AA

Although the pandemic put a crimp on sales at restaurants, bars, cinemas, live sports and other events, analysts are optimistic about Coca-Cola's (KO, $54.17) prospects as a recovery stock, giving shares a high conviction recommendation of Buy.

The drinks giant also is among the best ESG stocks in the Dow, claiming a MSCI rating of AA. That makes it a leader among 53 companies in the beverages industry. Only 15% of the industry gets an AA rating, with another 9% ranking at the highest level of AAA.

Coca-Cola stands out for high scores on packaging materials and waste, health and safety, and product carbon footprint. Its overall score gets dinged by being a laggard on opportunities on health and nutrition. KO is considered average by industry standards on water stress and corporate behavior, among other issues, according to MSCI.

As for the Street's view? Eleven analysts rate Coca-Cola's shares at Strong Buy, six say Buy and none call it a Hold. They expect the company to deliver average annual EPS growth of 6.6% over the next three to five years, per S&P Global Market Intelligence.

Analysts at UBS Global Research are bullish on KO, citing improving volumes, among other factors.

"We maintain our Buy on KO as a topline recovery story overlaying an accelerated business transformation that should lead to compounding recovery at the bottom line," writes UBS analyst Sean King in a note to clients. "We are encouraged by volume trends that tracked pre-pandemic levels beginning in March and believe KO will continue to outpace the asynchronous economic recovery."

Investors also should not forget Coca-Cola's status as a Dividend King. The beverage company has lifted its payout annually for almost 60 years.

• Market value: $348.4 billion
• Dividend yield: 2.0%
• MSCI ESG rating: AA

Investors who are conscientious about ESG factors can feel good about Home Depot (HD, $323.96).

A country basically cooped up at home has been great for business at the nation's largest home improvement retailer – and analysts see more upside ahead for HD stock. At the same time, Home Depot corporate gets good marks when it comes to MSCI's ESG assessment.

HD's AA ESG rating makes it a leader among 89 companies in the retail – consumer discretionary industry, per MSCI. Only 12% of the industry's firms score an AA rating, while just 3% get MSCI's coveted AAA. And Home Depot has maintained that rating for four consecutive years.

The home improvement chain's spot among the Dow's top ESG stocks is chalked up to its attention to chemical safety, product carbon footprint and corporate governance. Labor relations, raw material sourcing, privacy and data security, and corporate behavior are relevant areas where HD gets average only marks vs. peers.

In no key issue areas was Home Depot found to be an industry laggard, MSCI notes.

Meanwhile, the Street leans heavily bullish on the name, thanks in part to HD's success in navigating both the depths of the pandemic and the current nascent recovery.

"HD's performance supports our thesis that the company is well positioned to deliver future earnings growth and market-share gains," writes Argus Research analyst Christopher Graja, who rates the stock at Buy. "With excellent financial strength, we believe that the shares stand out for diversified investors who are looking for exposure to discretionary retail."

Of the 35 analysts tracked by S&P Global Market Intelligence covering HD stock, 17 rate it at Strong Buy, eight say Buy, nine have it at Hold and one calls it a Strong Sell. They expect HD to generate average annual EPS growth of 8.2% over the next three to five years.

• Market value: $157.9 billion
• Dividend yield: 1.6%
• MSCI ESG rating: AA

Honeywell (HON, $227.33), which returned to the Dow last year to replace the former United Technologies, is already one of its top ESG stocks.

Honeywell scores well against its 35 industry peers by MSCI's ESG ratings. Only 14% of the industrial conglomerates industry can equal its AA mark, and just 8% of its peers score higher.

The Street is similarly optimistic about its growth prospects and potential for share-price appreciation. The Buy-rated company – with 8 Strong Buy, five Buy, nine Hold and one Sell recommendation – is forecast to generate average annual EPS growth of more than 11% over the next three to five years.

With a gain of just 7% for the year-to-date through April 20, shares in Honeywell have lagged peers – as well as the Dow – but bulls say it's only a matter of time before they catch up.

"Honeywell is a leading blue-chip industrial company that we think is poised to generate low double-digit earnings growth over the long term," writes Argus Research analyst John Eade, who rates shares at Buy. "We believe that Honeywell will continue to benefit from its diverse product lines, as well as from its strong presence in the commercial aerospace and commercial construction markets."

The analyst adds that the pandemic "upended the global economy and Honeywell's record of growth. We think both will eventually recover." Eade also likes the "well-managed company's history of paying and raising the dividend." The payout has more than doubled since 2014, from 45 cents per share to its current 93 cents.

On the ESG front, HON stands out among peers for its corporate behavior, MSCI says. It gets average marks for corporate governance and opportunities in clean tech, and is an industry laggard for its labor management practices.

• Market value: $123.3 billion
• Dividend yield: 4.7%
• MSCI ESG rating: AA

International Business Machines (IBM, $138.16) recently reported better-than-expected top- and bottom-line results for its first quarter of 2021, thanks to growth in cloud computing and solid contributions from its mainframe business.

It's just what long-suffering shareholders in Big Blue needed to hear, and shows that the tech giant's operating performance might be catching up to what are already high marks on ESG issues.

IBM has been an industry leader when it comes to ESG concerns for several years now. Its AA rating dates back to May 2017. Share performance is a different matter. IBM stock is off more than 13% since May 1, 2017, vs. a gain of almost 62% for the Dow Jones Industrial Average.

The Street has become incrementally more optimistic on the stock over the past 12 months, but analysts' consensus recommendation has remained stuck at Hold the entire time. Currently three analysts rate IBM at Strong Buy, one says Buy, 11 call it a Hold and one says Sell.

Their average target price of $138.89 gives the stock virtually no implied upside over the next year.

"One quarter does not make a trend but Q1 was a good start, as transactional deal activity started to firm and alleviate pressure in hardest hit areas (e.g., Services)," writes CFRA Analyst David Holt, who rates IBM at Hold. "However, we still view the shares as a 'show-me story.'"

When it comes to matters of ESG, the picture is decidedly brighter, however. Only 19% of the 140 companies in the software & services industry score an AA rating, per MSCI. A paltry 3% earn the top grade of AAA.

IBM stands out as a leader on privacy and data security, and opportunities in clean tech, MSCI says. Offsetting that somewhat are industry laggard marks for corporate behavior and human capital development.

• Market value: $209.1 billion
• Dividend yield: N/A
• MSCI ESG rating: AA

Salesforce.com (CRM, $227.96), which also was added to the Dow last year, gets an AA ESG rating from MSCI, thanks to high marks for human capital development and privacy and data security.

However, industry laggard status for issues of corporate governance have weighed on CRM's score in the past. As recently as October 2019, Salesforce was among the market's top ESG stocks, sitting on a perfect AAA rating from MSCI. But it was downgraded to AA in November of last year.

The current ESG designation is still pretty darn good, however. It puts CRM on par with IBM as an industry leader in the software & services industry. Just average marks on corporate behavior, carbon emissions and opportunities in clean tech also militate against CRM notching an even higher score.

As for what the Street thinks of the stock, CRM enjoys a high-conviction Buy recommendation from analysts. Indeed, by S&P Global Market Intelligence's ratings system, shares sit on the cusp of a Strong Buy recommendation.

Of the 44 analysts covering Salesforce tracked by S&P, 26 call it a Strong Buy, nine have it at Buy and eight call it a Hold. One analyst has no opinion on shares. With an expected average annual EPS growth rate of more than 25% over the next three to five years, it's easy to see why most of the Street is so bullish on the name.

The company's $27.7 billion acquisition of Slack Technologies, announced at the end of 2020, also bolsters the bull case, analysts say.

"If Salesforce wants to expand beyond its core gold mine of sales and marketing departments and further into the enterprise ... [the deal] represents a major shot across the bow against Microsoft," writes Wedbush analyst Daniel Ives, who rates the stock at Outperform (equivalent of Buy).

Ives adds that an ongoing corporate digital transformation puts CRM in prime position to benefit over the coming years "given its end-to-end cloud product suite."

• Market value: $114.9 billion
• Dividend yield: 3.0%
• MSCI ESG rating: AAA

3M (MMM, $198.30) is the first of only two Dow stocks to receive a perfect MSCI ESG rating of AAA.

Unfortunately, the Street thinks considerably less of the stock.

MMM gets a firm consensus recommendation of Hold from the 19 analysts covering the stock tracked by S&P Global Market Intelligence. Two of them call the stock a Strong Buy, and two more say Buy, but two say Sell and one rates it at Strong Sell. The largest concentration of opinions is right in the middle, however, with 12 pros saying 3M is a Hold.

Valuation plays a part in the Street's tepid consensus view. Analysts expect average annual EPS growth of only 6.8% over the next three to five years, and yet MMM trades at more than 20 times this year's estimated earnings.

Somewhat ironically, ESG issues contribute to at least one analysts' dim view of the stock. 3M has pledged to invest $1 billion toward achieving new water and climate goals. Shareholders are also voting on whether to transition the firm's corporate structure to one of a public benefit corporation.

The uncertainty over ESG matters – as well as regulatory risks over polyfluoroalkyl substances and litigation risks related to lawsuits over allegedly defective 3M earplugs – have forced some analysts to back off the name.

"While an economic recovery and large valuation discount present interesting tactical and short-term opportunities, we believe these potential sources of upside are outweighed by ongoing and potential litigation and ESG risks over the next 12 months," writes UBS Global Research analyst Markus Mittermaier, who rates MMM at Sell.

As far as its position among the market's best ESG stocks goes, only 8% of the companies in the industrial conglomerates industry can boast of having 3M's AAA rating. Furthermore, 3M has held the coveted top rating for five consecutive years.

The company stands out for its industry leadership on issues of corporate governance, toxic emissions and waste, and opportunities in clean tech. Corporate behavior and labor management practices are average for its industry. MSCI says 3M doesn't lag industry peers on any key ESG issues.

• Market value: $1.9 trillion
• Dividend yield: 0.9%
• MSCI ESG rating: AAA

Microsoft (MSFT, $258.26) is the only Dow stock to get top marks on ESG matters and a consensus recommendation of Strong Buy from Wall Street analysts.

The software and cloud computing behemoth has had a perfect MSCI ESG rating of AAA since May 2017. Only 3% of the 140 companies in the software & services industry can claim such lofty leadership status, per MSCI.

MSFT stands out among the best ESG stocks for its handling of corporate governance, privacy and data security, and opportunities in clean tech. The firm gets industry average marks when it comes to issues of human capital development and carbon emissions.

There is, however, a blotch on Microsoft's record. It lags industry peers on ratings for corporate behavior.

Still, analysts' ardor for MSFT stock is almost unblemished.

"Microsoft has refocused the company around Azure and Office 365, which we view as several large, multi-year secular growth engines that should help drive mid-to-high single-digit Productivity and Business Process growth and low double-digit Intelligent Cloud growth in coming years," writes Stifel analyst Brad Reback, who rates the stock at Buy.

Reback adds that strong commercial cloud revenue, gross margin growth and expense discipline "should lead to accelerating operating profit and free cash flow generation in coming quarters."

Twenty-five analysts surveyed by S&P Global Market Intelligence rate MSFT stock at Strong Buy. Eight analysts call it a Buy and three have it at Hold. They expect the company to generate average annual EPS growth of 14.1% over the next three to five years.

Investors are rapidly moving toward investing with environmental, social and corporate-governance (ESG) qualities in mind. Global assets in ESG ETFs and other exchange-traded products (ETPs) more than tripled in 2020 to a record $187 billion, says ETFGI, an independent research and consultancy firm.

By February, that number had jumped to $227 billion.

As people's hunger grows for investments aligned with their own values, companies are putting a higher priority on many ESG measures ... while still keeping their eye on the bottom line.

"Given the growing investor focus on positive and negative screening, improvement in performance on ESG metrics is a key target of corporates. However, most are also seeking to ensure their actions improve economic efficiency too," Barclays strategists said in a recap of their inaugural ESG EM Corporate Day. "Plans to reduce emissions are closely aligned with cost reduction gains, for example. Or, if premiums emerge for low carbon products in the future, companies are keen to invest now in order to gain revenue benefit subsequently."

That dual focus is expected to keep ESG from being a mere "feel-good" investment that sacrifices performance, and instead a strategy capable of producing real alpha. However, given the difficulty in assessing individual ESG stocks by their various standards, ESG ETFs help provide investors with a basket of stocks (and even bonds) that meet a baseline of various "responsible" metrics.

Here are seven of the most interest ESG ETFs to buy if you're interested in joining the trend.

Data is as of April 20.

• Assets under management: $3.5 billion
• Expenses: 0.10%, or $10 annually on a $10,000 investment

The Xtrackers MSCI USA ESG Leaders Equity ETF (USSG, $38.03) is one of the largest and most liquid ESG ETFs on the market. At $3.5 billion in assets, it's in the top 10, behind products from "Big Three" providers BlackRock and Vanguard, as well as WisdomTree.

USSG tracks the performance of the MSCI USA ESG Leaders Index – a portfolio of more than 300 large- and mid-cap U.S. stocks that have high ESG rankings relative to their sector peers. The fund is only six months old, so it doesn't have much of a track record to look back on.

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The MSCI USA ESG Leaders Index, however, has existed for well more than a decade. Since June 1, 2004, the index has experienced only three years with negative returns. It has averaged 15.2% in annual returns through March 31, which is only slightly less than the 15.9% of the MSCI USA Index, which consists of more than 600 large- and mid-cap U.S. stocks. Depending on the year, the ESG index actually outperformed – a reminder that you're not necessarily sacrificing much, if any, in the way of returns by investing responsibly.

The largest slug of the portfolio is in information technology (27.8%), including top holdings Microsoft (MSFT) and Google parent Alphabet (GOOGL). It also has significant chunks invested in consumer discretionary (13.5%), healthcare (12.7%) and communication services (12.0%).

The ETF itself is dirt-cheap too, charging just 10 basis points (a basis point is one one-hundredth of a percent) in annual expenses.

Learn more about USSG at the DWS Xtrackers provider site.

• Assets under management: $2.0 billion
• Expenses: 0.15%

If you're interested in geographical diversification, consider the Vanguard ESG International Stock ETF (VSGX, $62.65). It not only screens out adult entertainment, alcohol and tobacco, weapons, fossil fuels, gambling and nuclear power companies, but it also excludes companies that don't meet certain diversity and U.N. standards.

This ESG ETF tracks the performance of the FTSE Global All Cap ex US Choice Index. The index is a collection of nearly 5,000 stocks of all sizes across developed and emerging markets outside the U.S.

As of the end of March, 36% of the fund was invested in developed Europe, followed by 30% in the developed Pacific, 27% in emerging markets and the rest peppered across the globe. Japan makes up the largest slice of the pie at 17.6% of assets, followed by China (11.5%) and the U.K. (8.0%). Large-caps account for roughly three-quarters of the fund's holdings, with the rest spread among mid-, small- and micro-cap stocks.

VSGX is as complete as global ESG coverage gets. And all it costs is 0.15% annually.

Learn more about VSGX at the Vanguard provider site.

• Assets under management: $7.3 billion
• Expenses: 0.25%

Just as the U.S. economy is recovering, so too are emerging markets. Unsurprisingly, then, EM stocks are in the midst of a rally that's expected to continue right alongside that return to growth.

"We believe there is also an opportunity in emerging markets relative to developed markets, generally speaking, thanks to their diverging situations," says Brian Singer, Partner Head of the Dynamic Allocation Strategies Team and Portfolio Manager at William Blair. "The developed world has to address very significant social welfare commitments, and at the same time demographics and productivity aren’t there to provide support.

"So, where does the support come from? We believe it will come from emerging markets, via increasing migration, trade of goods and services, and capital flows. These things have been set back a bit recently, but should resume over time."

The U.S. might be considered a safer haven than EMs. But investors chasing growth may want to put a small portion of their funds in these countries' stocks.

The iShares ESG MSCI EM ETF (ESGE, $43.69) tracks the performance of the MSCI Emerging Markets Extended ESG Focus Index – a subset of stocks selected from a larger, market capitalization-weighted parent index that have favorable ESG characteristics and perform similarly to the parent index.

A couple dozen countries are represented, with China (35.6%), Taiwan (15.6%) and South Korea (13.8%) atop the geographical concentrations.

The fund isn't particularly top-heavy, either. The top 10 holdings only account for less than 30% of the portfolio, providing plenty of diversification among the remaining 340 or so emerging-markets stocks.

The price is attractive too. The fund's 0.25% in annual expenses are far less than the ubiquitous iShares MSCI Emerging Markets ETF (EEM, 0.70%), and competitive with many other options. However, it still is more expensive than the company's low-cost EM fund, the iShares Core MSCI Emerging Markets ETF (IEMG, 0.11%).

Learn more about ESGE at the iShares provider site.

• Assets under management: $819.3 million
• Expenses: 0.40%

As more investors jump on the ESG bandwagon, additional ETFs are launching to meet increased demand across all the market's corners.

The Nuveen ESG Small-Cap ETF (NUSC, $43.16), launched in December 2016, is one of the few ESG ETFs helping investors to inject responsibility into their small-company exposure.

NUSC tracks the performance of the TIAA ESG USA Small-Cap Index, a group of small- and mid-cap stocks that adhere to basic ESG screening criteria. Companies excluded from the fund include those participating in the manufacture or sale of alcohol, tobacco, military weapons, firearms, nuclear power and gambling.

Despite the "small-cap" name, 31% of the fund is invested in mid-cap stocks. Still, the largest portion of the fund (more than two-thirds) is in small-caps, and the rest is in even-smaller micro-cap companies. Six sectors – information technology, industrials, financials, healthcare, real estate and consumer discretionary – boast weights of between 10% and 17%.

The ETF's turnover is 54%, which means it replaces its entire 673-stock portfolio every two years. That amount of trading does tend to drive up trading costs, which can weigh on performance. It also costs 0.40% in annual fees, which is more than double the popular iShares Russell 2000 ETF (IWM).

But Nuveen's ESG ETF has accumulated more than $800 million in net assets in its short time on the market. And it has rewarded its investors for their leap of faith, generating 16.4% in annual total returns over the past three years versus 13.2% for the IWM. That more than makes up for the higher management fee.

Learn more about NUSC at the Nuveen provider site.

• Assets under management: $2.6 billion
• Expenses: 0.60%

Clean energy ETFs did well in the months leading up to Joe Biden's victory in November, but they've cooled off since then.

Despite announcing a $2.25 trillion infrastructure plan on March 31, which is said to be one of the most significant investments in American jobs since World War II, the First Trust NASDAQ Clean Edge Energy Index Fund (QCLN, $62.84) is actually off 10.5% year-to-date – but it remains up 153% since the start of 2020.

This ESG ETF has been around for more than a decade, launching in February 2007. It's only in the last couple of years that it's begun to attract a real following. That might have something to do with its performance. Over the past year, it has a total return of 178.1%. Over the past three years, QCLN has had an annualized total return of 48.2%.

The ETF tracks the performance of the NASDAQ Clean Edge Green Energy Index Fund, which comprises U.S.-listed clean energy companies in emerging clean-energy technologies such as solar photovoltaics, wind power, advanced batteries, electric vehicles and fuel cells.

The portfolio currently consists of 53 holdings. QCLN's top 10 holdings account for 54.5% of its total assets. The top two holdings are two of the world's largest electric vehicle manufacturers in Tesla (TSLA) and Nio (NIO) at weightings of 9.7% and 7.3%, respectively. The median market cap of its holdings is $4.0 billion.

The top three sector weightings at the moment are renewable energy equipment (24.3%), automobiles (18.9%), and alternative electricity (15.0%).

The ETF is reconstituted in March and September each year and rebalanced quarterly. No stock can have more than an 8% weighting at rebalancing, and QCLN can't have more than five stocks with an 8% weighting. Any excess weight is distributed amongst the remaining holdings.

Learn more about QCLN at the First Trust provider site.

• Assets under management: $443.4 million
• Expenses: 0.43%

Who better to do an ESG fund than Global X, one of the most innovative ETF providers in the country? After all, the company's overarching theme is "Beyond Ordinary ETFs."

Global X Conscious Companies ETF (KRMA, $30.28) got its start in July 2016. And like many ESG ETFs, it didn't start to gain real traction until the past couple of years, and now boasts a respectable $443.4 million in assets.

The ETF tracks the performance of the Concinnity Conscious Companies Index, which provides exposure to companies that deliver positive outcomes to customers, suppliers, stock and debt holders, local communities, and employees.

An essential distinction between many ESG-type funds and KRMA is that it tracks an index where companies can earn their way in. It doesn't exclude companies merely because they participate in a so-called "dirty" industry such as firearms or tobacco.

Global X has found that 70% of KRMA's past outperformance has to do with stock selection. Only 30% is related to the sectors represented by those selections. It continues to demonstrate that companies with good values and a multi-stakeholder operating system are likely to outperform those that aren't as motivated by values.

At present, the ETF has 165 holdings, with the top 10 accounting for 19.9% of the portfolio's total assets. Many of the top 10 are familiar faces, with Apple (AAPL), Microsoft, and Amazon.com (AMZN) holding down the top three positions.

The ETF is equal-weighted, reconstituted once a year in October, and rebalanced quarterly. Holdings below a market cap of $1.5 billion are removed from the index at the next rebalancing. The same is true if they fail to live up to their responsibility to deliver positive outcomes to the five stakeholders mentioned in the beginning.

Learn more about KRMA at the Global X provider site.

• Assets under management: $1.2 billion
• Expenses: 0.10%*

ESG isn't just for stock holders. Fixed-income investors can allocate responsibly via funds such as the iShares ESG U.S. Aggregate Bond ETF (EAGG, $54.80) might become even more popular with investors.

The EAGG tracks the performance of the Bloomberg Barclays MSCI US Aggregate ESG Focus Index, which invests in U.S. dollar-denominated, investment-grade bonds issued by companies deemed by MSCI ESG Research to have favorable environmental, social and corporate governance practices.

Like many ESG ETFs, iShares' bond offering is a youngster, getting its start in October 2018. But it's doing a fantastic job of attracting assets, eclipsing the $1 billion mark.

EAGG's roughly 3,400 holdings include a large slab of U.S. Treasury bonds (37%), as well as large weightings in corporate bonds (27%) and mortgage-backed securities (26%). The portfolio has an effective duration – a measure of sensitivity to interest rates – of 6.3 years. This means if interest rates rise by 1 percentage point, the fund should lose 6.3% of its value. The average weighted maturity of EAGG's bonds is close to eight years, which is considered intermediate-term.

This fairly high-credit-quality fund offers a modest 1.1% yield.

* Includes a 1-basis-point fee waiver good through June 30, 2024.

Learn more about EAGG at the iShares provider site.