Ethical investing involves choosing investments based on ethical principles, such as environmental, religious, or social values. Unlike socially conscious investing, which follows a specific set of guidelines, ethical investing is more individualized. Investors typically avoid being involved in gambling, alcohol, or firearms, and carefully research to make sure their investments align with their values.
Other stocks that are avoided by ethical investors include the shares of companies where employees are mistreated, have high gender parity, or discriminate against employees due to their race, religion, or sexual orientation. Environmentally conscious companies are also a huge part of ethical investing.
Is Ethical Investing the Future?
A 2022 report by Stamford University noted that the younger generation considers ethical investing quite crucial. A 2022 survey of 2,470 individual investors, conducted by Stanford University’s Rock Center for Corporate Governance, found significant differences in Environmental, Social, and Governance (ESG) preferences based on age and wealth. Younger and wealthier investors are more likely to support ESG initiatives, even at the expense of returns, while older and less wealthy investors are generally opposed.
Over recent years, support for ESG proposals has surged, with average support among S&P 500 companies increasing from 18% in 2012 to 35% in 2021, and the number of proposals passed rising from 0 to 28. The survey found that 70% of young investors (18-41 years old) are very concerned about environmental issues, compared to only 35% of older investors (58+ years old). Similarly, 65% of young investors are very concerned about social issues, versus 30% of older investors. When it comes to governance, 64% of younger investors express significant concern, while only 28% of older investors do.
Moreover, 86% of older investors would not give up any or only a trivial amount of returns for carbon emission reductions, while 64% of younger investors would give up moderate or large amounts. Additionally, 91% of older investors are unwilling to sacrifice returns for workplace diversity improvements, compared to 62% of younger investors who are willing to do so.
The survey also found that investor attitudes towards ESG differ across fund companies. Investors in State Street and Invesco funds exhibit nearly twice the concern for environmental issues compared to those in Fidelity funds. A significant percentage of investors in Fidelity (40-45%) and Vanguard funds are unwilling to forfeit returns for ESG, while a smaller percentage in American Funds and BlackRock (25-30%) share this reluctance.
Despite these differences, 83% of investors across all demographics believe that fund managers should consider their views when voting on ESG issues. The results suggest that fund managers might need to allocate votes on a proportional basis to reflect the diverse preferences of their investor base.
7 Best Ethical Companies To Invest In According to Reddit
Our Methodology
For this article, we scoured through several threads to discover which companies were considered ethical according to the users. We narrowed down the list to 7 stocks that were most widely mentioned and used the hedge fund sentiment of each stock as a tie-breaker. The companies are listed in ascending order of the number of hedge fund holders as of the second quarter of 2024. The hedge fund data was taken from our database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7. HA Sustainable Infrastructure Capital, Inc. (NYSE:HASI)
Number of Hedge Fund Holders: 16
HA Sustainable Infrastructure Capital, Inc. (NYSE:HASI), previously known as Hannon Armstrong Sustainable Infrastructure Capital, Inc., is a company focused on climate investments. It collaborates with clients and provides capital to support the transition to cleaner energy. The company invests in behind-the-meter (BTM) building or facility-specific distributed energy projects, which are tailored to reduce energy consumption or costs for specific buildings or facilities. It is one of the best companies to invest in according to Reddit.
Additionally, it supports grid-connected renewable energy initiatives, including solar, solar-plus-storage, and onshore wind projects, aimed at generating cleaner power. It also invests in various Fuels, Transport & Nature projects, such as fleet decarbonization and ecological restoration efforts. The company carries out a range of investment approaches, including equity stakes, joint ventures, land ownership, and lending activities.
At a stake value of $58.42 million, 16 hedge funds held positions in HA Sustainable Infrastructure (NYSE:HASI) in the second quarter. As of Q2, Encompass Capital Advisors is the top shareholder in the company and has a position worth $18.76 million.
HA Sustainable Infrastructure (NYSE:HASI) is known for its innovative approach to climate investments and its expanding portfolio in sustainable infrastructure. The company has distinguished itself by targeting projects that aim to reduce or offset greenhouse gas emissions. According to the company’s website, it is the first publicly traded U.S. company to report the avoided emissions from each investment using its unique CarbonCount metric.
Since its initial public offering in 2013, it has channeled over $12 billion into assets that collectively prevent 7.4 million metric tons of carbon emissions, which is equivalent to removing the emissions from over 1.6 million passenger vehicles. Additionally, these investments help conserve more than 7 billion gallons of water each year. In 2023 alone, the company invested $2.3 billion in climate solutions. It is one of the best ethical companies to invest in.
HA Sustainable Infrastructure’s (NYSE:HASI) recent performance is evidence of the effective execution of its mission. For the second quarter, the company reported non-GAAP EPS of $0.63, which surpassed expectations by $0.07. Moreover, the company reported revenues of $94.52 million.
During the quarter, managed assets of the company grew by 21% year-over-year to $13.0 billion, while its portfolio expanded by 27% to $6.2 billion. The yields on new investments made during the first half of 2024 were over 10.5%, and the total portfolio yield stood above 8.0% at the end of the quarter, which reflects its ability to secure high returns.
As the demand for clean energy rises, due to advancements in AI technologies, and the growing adoption of electric vehicles, the company is well-positioned to capitalize on the shift from traditional oil markets to renewable electricity markets. Its renewable energy investments currently reduce CO2 emissions by about 8 million metric tons annually. This combination of effective climate action and robust financial performance suggests that it is well-placed to continue thriving in the evolving energy landscape.
6. Ecolab Inc. (NYSE:ECL)
Number of Hedge Fund Holders: 42
Ecolab Inc. (NYSE:ECL) is a leading global provider of water treatment, purification, and hygiene solutions. Initially, the company focused on innovative cleaning products but has since become a major player in the water, hygiene, and energy sectors. The company serves various industries, including food processing, healthcare, hospitality, and manufacturing, by offering technology and services that ensure water quality and safety.
Ecolab’s (NYSE:ECL) commitment to sustainability and innovation has solidified its position as a trusted partner in improving operational efficiencies and environmental outcomes for businesses worldwide. In 2024, it was recognized as one of the World’s Most Ethical Companies by Ethisphere for the 18th consecutive year. It is one of the best ethical companies to invest in.
Ethisphere Institute is a for-profit organization that specializes in defining, measuring, and promoting corporate ethical standards. The firm is well-known for its annual “World’s Most Ethical Companies” awards, which recognize organizations excelling in ethical business practices.
Moreover, Ecolab’s (NYSE:ECL) history is marked by key developments, from early sustainability efforts in the 1920s to pioneering initiatives like the Water Risk Monetizer and 3D TRASAR Technology. The company remains committed to diversity, equity, and inclusion, and has set ambitious 2030 Impact Goals to further its positive impact on the environment and society.
By 2030, the company aims to conserve 300 billion gallons of water annually, which is equivalent to the daily drinking water needs of over 1 billion people. It plans to reduce its greenhouse gas emissions by 50% while helping customers avoid 6 million metric tons of CO2 emissions each year.
Ecolab (NYSE:ECL) is also focused on enhancing food safety and reducing hospital-acquired infections and has a goal to prevent 1.7 million foodborne illnesses and 10 million hospital-acquired infections annually. Additionally, the company is committed to nurturing diversity, equity, and inclusion. It is striving to increase the representation of women and black, Indigenous, and other people of color executives by 50% and ensuring that 35% of all new hires are people of color.
As of the second quarter of 2024, 42 hedge funds held Ecolab (NYSE:ECL) shares worth $2.82 billion. As of June 30, the Bill & Melinda Gates Foundation Trust is the company’s most significant shareholder with 5.22 million shares worth $1.24 billion.
5. Waste Management, Inc. (NYSE:WM)
Number of Hedge Fund Holders: 49
Waste Management, Inc. (NYSE:WM) stands as a prominent figure in the North American waste management and environmental services sector. Over the years, the company has evolved into a comprehensive waste management company with a vast operational footprint.
Collection operations are the primary revenue driver for Waste Management (NYSE:WM), which involves the pickup and transport of waste to transfer stations, material recovery facilities, or landfills. Approximately 70% of collected waste is processed at its landfills. It is among our best ethical companies to invest in.
According to its latest sustainability report, in 2023, Waste Management (NYSE:WM) recovered over 15 million tons of material, with a significant increase in recovery capacity and a 3% boost in material recovery compared to the previous year. Key initiatives included opening or upgrading eight recycling facilities and adding nine organics processing sites, which expanded its network to 102 recycling and 49 organics facilities. It is one of the best ethical companies to invest in.
The company is making efforts to enhance recycling, including leveraging advanced technologies and expanding access through new facilities and digital tools. It is investing over $1.4 billion in new and upgraded recycling infrastructure by 2026 and is aiming to add 2.8 million tons of capacity annually. The company’s focus on consumer education through the Recycle Right program and initiatives like textile sorting and collaboration with brands like REPREVE highlight its commitment to sustainability.
The company is also working to grow domestic markets for recycled commodities and improve recycling streams. With new facilities and enhanced technologies, the company plans to broaden access to recycling services and support community sustainability goals.
In the second quarter, 49 hedge funds had stakes worth $8.7 billion in Waste Management (NYSE:WM). Bill & Melinda Gates Foundation Trust is the company’s largest shareholder with 35.23 million shares worth $7.5 billion, as of the second quarter.