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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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%.
-
Dow Adds 646 Points, Hits New Highs: Stock Market TodayIt was "boom" for the Dow but "bust" for the Nasdaq following a December Fed meeting that was less hawkish than expected.
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
Best Banks for High-Net-Worth Clientswealth management These banks welcome customers who keep high balances in deposit and investment accounts, showering them with fee breaks and access to financial-planning services.
-
Stock Market Holidays in 2025: NYSE, NASDAQ and Wall Street HolidaysMarkets When are the stock market holidays? Here, we look at which days the NYSE, Nasdaq and bond markets are off in 2025.
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?Markets When does the market open? While the stock market has regular hours, trading doesn't necessarily stop when the major exchanges close.
-
Bogleheads Stay the CourseBears and market volatility don’t scare these die-hard Vanguard investors.
-
The Current I-Bond Rate Is Mildly Attractive. Here's Why.Investing for Income The current I-bond rate is active until April 2026 and presents an attractive value, if not as attractive as in the recent past.
-
What Are I-Bonds? Inflation Made Them Popular. What Now?savings bonds Inflation has made Series I savings bonds, known as I-bonds, enormously popular with risk-averse investors. How do they work?
-
This New Sustainable ETF’s Pitch? Give Back Profits.investing Newday’s ETF partners with UNICEF and other groups.
-
As the Market Falls, New Retirees Need a Planretirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
