Kim Clark
ESG, an investing style that eyes a company's profits, risks and long-term sustainability through an environmental, social or corporate-governance lens, is weathering a political storm.
The values-based strategy, also known as socially conscious or sustainable investing, traces its modern-day roots back to the latter part of the 20th century.
Now, "ESG is a four-letter word," says Paul Beland, global head of research for wealth management at CFRA Research.
But backlash aside, ESG investing principles are as relevant today as they were 40 years ago, says Robert Klaber, director of sustainability research and a portfolio manager at Parnassus Investments, and they're still materially pertinent to a company's bottom line and investment prospects.
"We believe these investment concepts are durable for the long run," he says.
Since our last update of the Kiplinger ESG 20, our favorite stocks and funds that stand out on ESG and financial metrics, the headwinds have stiffened.
The Trump administration is less climate-friendly, intensely scrutinizing ESG and pushing for a federal government ban of DEI (diversity, equity and inclusion) initiatives.
Wall Street's top regulator is moving closer to rescinding a rule requiring public companies to quantify the business risk caused by climate change.
Employer-sponsored plans, such as 401(k)s, are in the crosshairs, too. A U.S. district court ruling in Texas earlier this year found that American Airlines (AAL) violated the law by including funds in its retirement savings plan from an investment firm considering ESG factors in its proxy voting and other related shareholder engagement measures.
Given the controversy, we want to reiterate that the Kiplinger ESG 20 comprises companies we think are good businesses with good investment prospects. Our picks include some of the best companies and stocks on the planet, such as computer chip designer Nvidia (NVDA) and software giant Microsoft (MSFT).
Our role is to provide readers with a broad range of investment options and strategies to consider as they look to increase their wealth.
The evidence shows there's still significant interest in values-infused investing. Seven of 10 investors say companies should incorporate ESG or sustainability considerations directly into their corporate strategy, according to consulting firm PWC.
The size of the U.S. market for ESG or sustainable investing is $6.5 trillion, according to US SIF, a sustainable-investing association.
And despite a retreat from ESG investing in the final quarter of 2024, assets in U.S. sustainable funds rose 6.3% last year, according to Morningstar. Investors still want to own companies that align with their values.
"I think people are asking themselves, 'If the federal government isn't going to prioritize the changes that I want to see in the world, how can I support that change?' One answer is through their investments," says Cy McMillan, co-manager of the Green Century Balanced Fund (GCBLX), a member of the Kip ESG 20.
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. 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: These companies support their employees, customers and suppliers and treat them fairly, while positively impacting their community and the world at large.
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 April 17, unless otherwise noted.
The Kiplinger ESG 20 at a glance
Company | Symbol |
|---|---|
First Solar | FSLR |
Levi Strauss | LEVI |
Microsoft | MSFT |
Prologis | PLD |
Xylem | XYL |
Nvidia | NVDA |
Novo Nordisk | NVO |
Salesforce | CRM |
Trane Technologies | TT |
W.W. Grainger | GWW |
Applied Materials | AMAT |
Hilton Worldwide Holdings | HLT |
CBRE Group | CBRE |
Costco Wholesale | COST |
Accenture | ACN |
Funds | Row 15 - Cell 1 |
Brown Advisory Sustainable Bond Fund | BASBX |
FlexShares STOXX Global ESG Select Index ETF | ESGG |
Green Century Balanced Fund | GCBLX |
Impax Global Environmental Markets Fund | PGRNX |
Putnam Sustainable Future ETF | PFUT |
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Environmental steward: First Solar
First Solar (FSLR) is a U.S.-based producer of photovoltaic cells. Despite facing competition from low-cost Chinese manufacturers, First Solar's 2025 earnings per share are expected to soar more than 50% over 2024.
The company has benefited from federal rules promoting U.S. manufacturers, for example, with subsidies from the Inflation Reduction Act. Customers have already ordered all the panels the company can make through 2026.
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Environmental steward: Levi Strauss
Jeans maker Levi Strauss (LEVI) wins praise from environmentalists for efforts to reduce greenhouse gas emissions at its company-operated facilities and along its supply chain as well.
"They are moving further and faster than many competitors," says Rachel Kitchin, who specializes in climate-related issues in the fashion industry for Vancouver-based nonprofit Stand.Earth.
Tariffs are an issue for the consumer discretionary stock, says UBS Global Research analyst Jay Sole, but he believes Levi "is better positioned than most because of its global supply chain network, which is more robust compared to what most companies have."
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Environmental steward: Microsoft
One of the so-called Magnificent 7 stocks that dominated the market for much of 2024, Microsoft (MSFT) has struggled to start 2025 amid a rotation out of riskier tech stocks Still, it continues to be a darling on Wall Street thanks to its mix of software, artificial intelligence (AI) and cloud-computing businesses.
The company is also a leader in its use of alternative energy. Environmentalists appreciate actions such as the $10 billion contract Microsoft signed in May to develop renewable energy to power its computer banks.
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Environmental steward: Prologis
Prologis (PLD), a real estate investment trust (REIT) specializing in warehouses is slightly lower on a year-over-year basis.
Still, analysts are generally positive, expecting that continuing growth in e-commerce will increase demand for the company's storage facilities. Prologis continues to reduce costs by mounting solar panels on its warehouse roofs.
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Environmental Steward: Xylem
Xylem (XYL), a leading producer of water-filtration equipment, makes the cut to be one of just 40 stocks in the Parnassus Mid Cap Fund (PARMX).
In part, says Klaber, that's because new federal rules setting caps on "forever" chemicals, such as PFAS in drinking water, should boost demand for Xylem's water-cleaning products and services for at least the next three years.
The industrial stock is down 4.5% for the year to date, better than the S&P 500's nearly 10% decline.
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Social standout: Nvidia
Big-box retailer Costco Wholesale (COST) takes over for Nvidia (NVDA) in our list of social standouts, while NVDA moved to our governance category.
The retail heavyweight is a Wall Street favorite. Costco has posted annualized returns of 39.8% and 20.7% in the past one- and three-year periods, thanks to its affordable prices and growing and recurring membership revenue.
"Everyone knows they have a cult-like following," says CFRA’s Beland. Morgan Stanley analyst Simeon Gutman dubs Costco a "market share gainer" that will continue to benefit from technology and supply-chain advantages that lead to faster growth.
The retailer is also a champion of its diverse workforce and earns kudos for treating its employees and suppliers fairly and equally. Earlier this year its board recommended that shareholders vote down a request to report on the possible business risks of its DEI policies, such as potential shopper boycotts and litigation, and nearly all Costco shareholders (98%) voted against the measure.
Still, Trump's DEI executive orders "sow uncertainty about voluntary DEI initiatives," according to attorneys at Pillsbury law firm. In late January, 19 state attorneys general urged Costco to end "unlawful discrimination" through its DEI practices.
Costco shares aren't cheap, trading for nearly 58 times estimated earnings for the year ahead. So, like Costco customers waiting to pounce on sale merchandise, investors will do best to buy this stock on dips.
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Social standout: Novo Nordisk
Providing many free or low-cost drugs to low-income patients globally makes Novo Nordisk (NVO) a social standout.
Most Wall Street analysts who cover the health care stock say it is still a good buy, as they expect profits to increase by more than 16% annualized for the next three to five years.
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Social Standout: Salesforce
Salesforce (CRM) is a social leader in part because it offers free software to nonprofits. It also has a loyal and growing customer base for its business-management software.
Noting that Salesforce retains more than 90% of its customers from year to year and is rolling out AI programs to help businesses increase sales, Morningstar analyst Dan Romanoff calls the company "one of the best long-term investment opportunities in software."
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Social standout: Trane Technologies
Trane Technologies (TT) returned 14.8% in the past year, more than double the S&P 500, in part because climate change is strengthening demand for its heating and air conditioning equipment.
Trane wins plaudits for its safety record and benefits – such as paying tuition benefits for its workers up front, instead of requiring them to wait for reimbursement.
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Social Standout: W.W. Grainger
Industrial supplier W.W. Grainger (GWW) is on the list of the Kiplinger ESG 20 because it's ranked as a "best place to work" by several organizations.
Meanwhile, analysts say it could be an attractive option for investors looking to weather economic uncertainty.
Shares of GWW "have historically outperformed the S&P 500 into and during recessions," says William Blair analyst Ryan Merkel, who adds that it's a beneficiary of inflation.
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Governance Leader: Applied Materials
Semiconductor equipment manufacturer Applied Materials (AMAT) is at risk from escalating trade tensions with China, but analysts at Argus Research think it is "well positioned for long-term growth based on cyclical, demographic and secular factors."
Applied Materials scores points with corporate governance watchdogs in part because chief executive pay is aligned with the interests of long-term shareholders, with more than 70% of CEO compensation tied to achieving certain profitability and total-shareholder-return goals over a three-year time frame.
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Governance leaders: Hilton Worldwide Holdings
Morningstar analyst Dan Wasiolek, for instance, notes that Hilton Worldwide Holdings (HLT) has the most loyal customers in the industry.
And because most of its customers book directly with Hilton, the company has higher profit margins than competitors that rely more on booking sites.
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Governance leaders: CBRE Group
Real estate services company CBRE Group (CBRE) has a strong and steady profit stream, says Morgan Stanley analyst Ronald Kamdem.
Its mortgage-servicing and property-management lines should help boost earnings per share by 18% annualized over the next two years, he believes.
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We are removing Target (TGT) from the Kiplinger ESG 20. Although the company's commitment to shareholder rights still rates it high on governance, its double-digit-percentage stock-price declines in the past one- and three-year periods ranks it dead last among our 15 stocks.
That gives us pause, as did the retailer's recent decision to suspend its DEI initiatives in the face of political pressure, which runs afoul of the spirit of ESG investing.
In its place in our governance category, we are adding Nvidia (NVDA), which is moving from its current slot as a social standout. The chip giant excels in all parts of the ESG acronym, including G, where it earns high marks for strong ethical practices (tying executive pay to measurable corporate financial metrics) and board independence (12 of 13 directors are independent).
Investors concerned about Nvidia losing its dominant leadership position in the artificial-intelligence race due to competition from China's AI start-up DeepSeek and other new entrants need to take a deep breath.
"I don't think their business model has been disrupted," says CFRA analyst Angelo Zino, who rates Nvidia a Buy. Despite Nvidia's initial sell-off on news of competitive AI models that are cheaper to run and use older chips, Wall Street remains confident in Nvidia's long-term AI prospects.
New AI innovation will result in a significant increase in the usage of AI models overall, which in turn means more usage of Nvidia's sophisticated GPU chips. "We think this is bullish," says Dom Rizzo, manager of T. Rowe Price Technology ETF.
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Governance leaders: Accenture
Consulting firm Accenture (ACN) was added it to the Kiplinger ESG 20 in 2024, in part because of its strong ethics policies. The stock lost 8.6% over the past year.
Lance Garrison, a portfolio manager of the ESG-friendly Calvert Equity Fund, says he remains invested because Accenture has been "a good business through up cycles and down cycles," which is strengthened by its attention to ESG factors such as leadership diversity. It's "one of the best-run companies in the industry and an excellent earnings compounder," he says.
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ESG fund: Brown Advisory Sustainable Bond Fund
We're watching the Brown Advisory Sustainable Bond Fund (BASBX). Up 5.8% over the past year, it has lagged the Bloomberg U.S. Aggregate Bond index (up 6.4%).
There's still much to commend the fund: It beat the Agg in 2018, 2019 and 2020, and held up well in 2022. Plus, Sustainable Bond stands out with a portfolio packed with companies sporting low-to-negligible ESG risk.
But it has struggled since 2023, when the managers lightened up on corporate debt to position the fund more defensively. The fund yields 4.4%.
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ESG fund: FlexShares STOXX Global ESG Select Index ETF
The FlexShares STOXX Global ESG Select Index ETF (ESGG) tracks an index of U.S. and foreign ESG companies that comply with the U.N. Global Compact principles of behavior covering human rights, labor, the environment and anti-corruption.
Top holdings include Dow Jones stocks Apple (AAPL), Microsoft and Amazon.com (AMZN).
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ESG fund: Green Century Balanced Fund
The managers of the Green Century Balanced Fund (GCBLX), an all-in-one fund of roughly 60% stocks and 40% bonds and cash, invest in stocks that pass strict ESG criteria.
And the fund firm actively engages companies. It played a key role, for instance, in Apple's new-ish policy that allows customers to independently repair select iPhones and other products, thereby reducing electronic waste. The fund's 1.9% one-year return outranks 94% of similar funds.
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ESG fund: Impax Global Environment Markets Fund
The environmentally focused Impax Global Environmental Markets Fund (PGRNX) invests in foreign and U.S. companies that strive to reduce food waste, increase energy efficiency or improve water infrastructure.
Among the fund's top holdings are Waste Management (WM) and Linde (LIN). Over the past five and 10 years, the fund has outpaced the MSCI All-Country World Index's average annual returns.
Learn more about PGRNX at the Impax Asset Management provider site.
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ESG Fund: Putnam Sustainable Future ETF
Only companies with solutions to the world's social, environmental and economic development problems will find a home at the Putnam Sustainable Future ETF (PFUT). A top holding, for example, is waste-management firm Casella Waste Systems. In 2022, Casella recycled 1.213 million tons of waste (such as household and food waste, mattresses, and tires), and it aims to recycle 2 million tons in 2030.
The fund's 84-stock portfolio is heavy in tech and health care relative to other mid-cap growth funds. And its 12-month, -7.4% return beat 86% of its peers.
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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