Top 12 ESG Companies in 2022

Published on November 1, 2022 at 1:05 pm by Fahad Saleem in Hedge Funds, News

In this article, we discuss the top 12 ESG companies in 2022.

Over the past few years the concept of ESG has evolved dramatically. Environmental, Social, and Governance principles no longer belong to the vague realm of fancy words but rather play a key role in investing circles. Environmentally-conscious investors and activist hedge funds now pay serious attention to ESG metrics of companies before making investment decisions. Data from Bloomberg Intelligence shows that global ESG assets are expected to surpass a whopping $50 trillion by 2025.

Regulatory pressure from governments around the world is also causing the companies to take ESG seriously. The Securities and Exchange Commission is working to develop a common benchmark on how sustainable products are assessed and reported. However, as outlined in a whitepaper titled “ESG Portfolio Monitoring – A Best Practice for All Sides” in detail, this pressure is resulting in a backlash from several circles. Many fund managers believe these ESG regulations sometimes tend to be too harsh, and can affect their ability to perform to ensure maximum returns for their clients.

A Key Challenge in ESG Investing

It’s also becoming increasingly difficult for average investors as well as fund managers and asset owners to assess ESG risks of companies they want to invest in. Apparently, ESG rating agencies solve this problem. They evaluate companies and provide ESG risk scores and ratings based on their analysis. However, these ratings could further confuse the investor. This is the problem highlighted in the whitepaper we referred to above, authored by Steve Glass, the co-CEO of Abel Noser Holdings, a New York-based firm that provides Transaction Cost Analysis (TCA) and trade surveillance for investment managers and consultants.

The whitepaper argues that because of the lack of standardization and benchmarking in the industry, each ESG ratings agency uses different data sources, methodologies and processes to assess a company. This results in huge variance and subjectivity in ESG scores.

The whitepaper recommends using machine learning and AI to resolve this problem. The paper mentions an interesting example of OWL ESG, a California-based ESG analysis company that uses machine learning to process millions of data points from a plethora of sources to come up with consensus ESG ratings. These consensus ratings minimize divergence and discrepancies in ESG ratings.

Photo by Feri & Tasos on Unsplash

Our Methodology

For this article we used the latest datasets of Just Capital. Just Capital, a not-for-profit founded in 2013 by popular individuals like billionaire Paul Tudor Jones, Deepak Chopra, Rinaldo Brutoco, Arianna Huffington, Paul Scialla, Alan Fleischmann, among others, is striving to solve major problems related to environment, gender, racial justice and equality.

Just Capital ranks the largest US companies based on their performance related to issues concerning environment, workers, customers, communities and shareholders. The company comprehensively surveys the American public based on its 241 individual ESG data points to reach its rankings.

We focused more on the environmental aspect of the ESG matrix of these companies and talked about the projects and investments these companies have committed to in order to tackle the existential crisis of climate change.

Top 12 ESG Companies in 2022

12. Exelon Corporation (NASDAQ:EXC)

Exelon Corporation (NASDAQ:EXC) is an Illinois-based utilities services company that owns nuclear, fossil, wind, hydroelectric, biomass, and solar generating facilities. According to its ESG report published in June last year, Exelon Corporation (NASDAQ:EXC) claims to be the largest producer of zero-carbon electricity in the U.S. In February this year, Exelon completed its split of power generation and competitive energy business. Exelon’s power generation and retail energy business, now known as Constellation Energy Corp., started trading publicly on February 2. Exelon Corporation (NASDAQ:EXC)’s CFO Joseph Nigro thinks that the new, simplified structure will make the company more attractive for ESG investors.

Investment firm UBS agreed with that notion in a report published after the split, saying:

“Exelon post-spin has a clean profile that fits into most ESG funds metrics, even if an exclusionary, already clean approach is used versus a rate of change approach.”

11. PepsiCo, Inc. (NYSE:PEP)

PepsiCo, Inc. (NASDAQ:PEP) in January last year announced that it plans to achieve net-zero greenhouse gas emissions across its supply chain by 2040. PepsiCo, Inc. (NASDAQ:PEP) said in its ESG report that it’s working to promote regenerative agricultural practices, which make soil healthier and reduce carbon from the environment. In 2021, the company spread these agricultural practices to 345,000 acres. Pepsi has also set an ambitious goal of making 100% of its packaging recyclable, compostable, biodegradable or reusable.

PepsiCo, Inc. (NASDAQ:PEP) produced about 57 million metric tonnes of greenhouse gas emissions (GHQ) all over the world in 2019. Over the next nine years, it is hoping to reduce this figure to just 26 million metric tonnes.

10. Cisco Systems Inc. (NASDAQ:CSCO)

Digital communications giant Cisco Systems Inc (NASDAQ:CSCO) is one of the top 12 ESG companies, with an ESG risk score of just 12 and several ESG-related projects under its belt. In September last year, Cisco Systems Inc (NASDAQ:CSCO) announced plans to reach net-zero emissions across all scopes by 2040. Cisco Systems Inc (NASDAQ:CSCO) has set a short-term goal to reach net zero for all global Scope 1 and Scope 2 emissions by 2025. Scope 1 emissions are defined as emissions from owned or controlled sources, while Scope 2 emissions are indirect emissions from the generation of purchased energy. In its Purpose report, Cisco highlighted some of its achievements related to ESG. The company has made $477 million worth of contributions for community programs. In 2021, the company also met its goal to source 85% of electricity needs through renewable energy sources.

9. Verizon Communications Inc. (NYSE:VZ)

American telecom giant Verizon Communications Inc. (NYSE:VZ) is making strong progress on the ESG-related front. In 2019, it became the first US telecom company to issue a green bond. The offering raised about $1 billion in net proceeds. Verizon Communications Inc. (NYSE:VZ) has announced plans to generate renewable energy equivalent to 50% of its annual electricity consumption by 2025.

The telecom industry is one of the biggest polluters in the world. Verizon says it’s taking steps to lead from the front in solving this problem. The company claims that in 2021 alone, it recycled about 35.5 million pounds of e-waste, including 1.79 million pounds of plastic and 3.4 million pounds of lead-acid batteries. Earlier this year, Verizon Communications Inc. (NYSE:VZ) struck 15 new deals related to renewable energy. Among the companies it signed these deals with include Duke Energy, Leeward Renewable Energy and Lightsource BP.

8. NVIDIA Corporation (NASDAQ:NVDA)

GPU company NVIDIA Corporation (NASDAQ:NVDA) is fighting climate change in a unique, innovative way. The company says it’s building a digital version of our planet on which it’ll apply its AI and Omniverse technologies to predict weather changes and their effects over a span of several decades. NVIDIA Corporation (NASDAQ:NVDA) GPUs will also be used to power the Department of Energy’s supercomputer called “Kestrel” which is dedicated to advanced energy solutions.

NVIDIA Corporation (NASDAQ:NVDA) is also striving to cut its carbon emissions. In 2014, the company started asking its manufacturing suppliers to report their greenhouse gas (GHQ) emissions. In its latest Corporate Sustainability report, NVIDIA Corporation (NASDAQ:NVDA) said that its bulk carton packing operations use corrugated material that is 100% recycled fibers.

NVIDIA Corporation (NASDAQ:NVDA) has also partnered with Lockheed Martin AI Centre to solve the problem of wildfires. The companies plan to use machine learning and AI to decrease the response time to wildfires and make wildfire predictions.

7. Apple Inc. (NASDAQ:AAPL)

Apple Inc (NASDAQ:AAPL) has an ambitious goal to become carbon neutral by 2030 and the company is making significant progress towards this goal. Apple Inc (NASDAQ:AAPL) claims about 20% of the materials used in its products are made from recycled content and that it’s working to increase this figure. Last year, it announced that 175 suppliers have committed to completely shift to renewable energy.

According to Apple Inc (NASDAQ:AAPL)’s latest ESG report, the company avoided 23 million metric tons of emissions across all scopes. Apple Inc (NASDAQ:AAPL) also said it reduced its carbon footprint by 40 percent in 2021 as compared to fiscal year 2015. Apple is also trying to reduce its carbon emissions by coming up with an environment-friendly design. For example, Apple says switching to the Apple M1 chip in its 13-inch MacBook Pro reduced the product’s carbon footprint by 8%.

6. PayPal Holdings Inc. (NASDAQ:PYPL)

Payments giant PayPal Holdings Inc (NASDAQ:PYPL) announced last year that it plans to reach net-zero emissions by 2040. The company also pledged to use renewable energy to power all its data centers by 2023. PayPal has 13 data centers and 22 points of presence (POPs). Currently, about 50% of the energy used to power its data centers comes from renewable sources. PayPal Holdings Inc (NASDAQ:PYPL) is also eyeing to cut its operational greenhouse gas emissions by 25% by 2025.

PayPal Holdings Inc (NASDAQ:PYPL) is also exploring different horizons in the financial technology segment to solve the climate change problem. It funded the development of Digital Finance for Climate Resilience (DF4CR) Framework for Action which is working on developing climate resilience among financially underserved populations. The company also supports Catalyst Fund, which helps startups working to improve the livelihoods of underserved customers.

Here is what RiverPark Large Growth Fund has to say about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2022 investor letter:

“PayPal, announced better-than-expected 2Q results, positive guidance (including more than $1.3 billion of 2023 cost savings leading to operating margin expansion), a $15 billion stock repurchase program, and the appointment of Blake Jorgensen as CFO, who was previously the well-regarded CFO at Electronic Arts. The company reported 9% revenue growth, in-line with guidance, and $0.93 EPS, exceeding guidance due to robust operating leverage. Management narrowed its 2022 revenue guidance from 11%-13% growth to about 11% growth due to the macro environment but raised its EPS guidance due to greater operating margin leverage and share buybacks. The stock also reacted to the news that activist investor Elliott Management had taken a stake in the company. PYPL operates at significantly lower margins than its payment competitors Visa and Mastercard, and sources suggest that Elliott intends, among other things, to push for the company to improve its margins and drive higher cash flow growth in the near term.

PayPal provides direct exposure to the secular growth in ecommerce-driven digital payments as it is the most accepted digital wallet on-line. More than 3/4 of the 1,500 largest online retailers across North America and Europe accept PayPal, which is almost triple the acceptance of Apple Pay, the number two digital wallet. PayPal is also a key beneficiary of the current dramatic shift in consumer buying habits brought on by the pandemic, as well as the relatively newer consumer-to-consumer payment trends through its Venmo peer-to-peer (P2P) payment service. With a 2Q non-GAAP operating margin of 19%, PYPL also has significant margin expansion potential given that competitors Adyen, Visa and Mastercard have 50%-65% operating margins. We believe the combination of the secular growth of eCommerce and P2P payments, along with expanding operating leverage and the strategic use of the company’s significant and growing cash balance should fuel a mid-20% earnings growth rate over the next five years. This, to us, presents an excellent risk/reward profile given that PYPL trades at a modest premium to the market multiple and a 6% 2023 FCF yield.”

5. Bank of America Corporation (NYSE:BAC)

Bank of America Corp (NYSE:BAC) has set a goal of achieving net zero greenhouse gas (GHG) emissions by 2050. The bank achieved the net zero emission goal for Scope 1 and Scope 2 emissions in 2019. The company says that its Environmental Business Initiative will “deploy and mobilize” about $1 trillion by 2030 to hasten the shift to a low-carbon economy. Bank of America Corp (NYSE:BAC) says 100% of its electricity usage on an annual basis comes from renewable sources. The bank also claims to have spent a whopping $200 billion since 2007 in financing low-carbon and sustainable business activities as part of its Environmental Business Initiative.

Bank of America Corp (NYSE:BAC) in 2021 formed an ESG advisory and financing solutions team. This year, the company hired four top executives for the team, according to Reuters.

4. Salesforce Inc. (NYSE:CRM)

Cloud company Salesforce Inc (NYSE:CRM) is one of the top ESG companies in 2022. Salesforce Inc (NYSE:CRM) announced in September 2021 that it achieved net-zero residual emissions across its full value chain and met its 100% renewable energy goal for its operations. Salesforce Inc (NYSE:CRM) has also joined Amazon’s The Climate Pledge and plans to remove all carbon emissions from its business by 2040. The company built what it calls “Net Zero Cloud” to efficiently track and analyze its own carbon footprint. The CRM company says it works with suppliers who have committed to reduce their carbon footprint by 2024.

In 2020, Salesforce Inc (NYSE:CRM) also signed an agreement with renewable energy firm X-ELIO’s Blue Grass solar farm in Australia. The project will have the capacity to power 80,000 homes and save more than 320,000 tons of CO2 emissions annually.

Here is what Cooper Investors Global Equities Fund has to say about Salesforce, Inc. (NYSE:CRM) in its Q3 2022 investor letter:

“It seems unfashionable to discuss technology stocks given the current market mood, but we are observing positive signs from US software companies in terms of their journey along the ‘HubrisHumility’ cycle. We have trimmed and concentrated our software exposure significantly over the last 18 months down to two cloud-native SAAS players, Workday and Salesforce. We met with both businesses during our trip and came away encouraged from language indicating increased focus on profitability and cost control.

We see significant optionality in these businesses to grow at the same time as expanding margins and free cash flow. The discussions increased our conviction that returns on capital are now becoming a
priority for CEOs and CFOs in this sector who are talking for the first time about cost discipline, reduced capex, more measured hiring practices, a reduction in the level of stock-based compensation and scaled back M&A ambitions. Salesforce in a recent earnings update announced its first ever buyback for US$10bn…” (Click here to see the full text)

3. Microsoft Corporation (NASDAQ:MSFT)

With a market cap of $1.76 trillion, Microsoft Corporation (NASDAQ:MSFT) is one of the biggest tech companies in the world and is leading from the front when it comes to ESG. Like Apple, Microsoft plans to become carbon neutral by 2030. Since announcing this historic plan in January 2021, Microsoft Corporation (NASDAQ:MSFT) has cut its carbon emissions by 6 percent in a period of 12 months. During the same period, it purchased the removal of 1.3 million metric tons of carbon from 26 projects around the world.

By 2050, Microsoft Corporation (NASDAQ:MSFT) plans to remove the “historical emissions” it created since its founding. By 2030, Microsoft says it will be replenishing more water than it uses, becoming “water positive.” By the same time period, Microsoft Corporation (NASDAQ:MSFT) will become zero waste producer across its direct waste footprint.

2. Intel Corporation (NASDAQ:INTC)

Earlier this year, Intel Corporation (NASDAQ:INTC) announced plans to achieve net-zero greenhouse gas emissions across its global operations by 2040. Intel is operating in an industry notorious for its emissions. The manufacturing industry in the US alone accounts for about 23% of direct carbon emissions. But Intel Corporation (NASDAQ:INTC) is heavily investing in its ESG goals.

In 2021 alone, the company saved about 486 million kWh of electricity since the baseline date, while its total GHG emissions decreased 2% from the previous year. The company also plans to invest about $300 million in energy conservation at its facilities to achieve 4 billion cumulative kilowatt hours of energy savings. Intel Corporation (NASDAQ:INTC) is also eyeing to build new facilities to make progress towards meeting the U.S. Green Building Council® LEED® program standards.

1. Alphabet Inc. Class A (NASDAQ:GOOGL)

Alphabet Inc Class A (NASDAQ:GOOGL) is the top ESG company in 2022, thanks to the billions of dollars’ worth of ESG-related investments and ambitious goals it has set for the betterment of the environment. In its 2022 ESG report, the parent of Google said that it issued a whopping $5.75 billion in sustainability bonds, easily surpassing all peers in the industry. 100% of the net proceeds of these bonds have been allocated. As of 2021, Alphabet Inc Class A (NASDAQ:GOOGL) was able to match about 66% of the electricity used across its data centers with carbon-free sources.

Alphabet is also focusing on other aspects of the ESG matrix. In 2019, it committed $1 billion to support the construction of 20,000 affordable houses in the Bay Area. It is also focusing on racial equity and women’s rights across the globe.

Bronte Capital made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q3 2022 investor letter:

Consensus longs—those stocks widely held and admired by fund managers—have recently underperformed the market. Consensus shorts have been bad shorts. We have over 500 shorts, of which a few are consensus, and we have noticed this effect. But we also own what we think is (alas) the most consensus long in this market: Alphabet Inc. (NASDAQ:GOOG). We find it hard to find any strong reason not to own it. Internet advertising is going from strength to strength and Google’s place in the market is mostly improving. Some of the other bets such as cloud services are beginning to pay off, and finally the CEO is expressing discipline on costs. (Per the consensus, the biggest problem with Google has been a lack of discipline on costs. Every time we look there are another 20 thousand employees.) Being a consensus long, it is down hard. We did say consensus longs are not going well…” (Click here to read the full text)

You can also take a look at Top 11 Stocks With Growth Potential According to Juniper Investment Company and 10 Stocks Hedge Fund Legend Donald Sussman is Buying.

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Top 12 ESG Companies in 2022

Published on November 1, 2022 at 1:05 pm by Fahad Saleem in Hedge Funds, News