In this article, we will take a look at the 10 best socially responsible stocks to buy according to analysts. To see more such companies, go directly to 5 Best Socially Responsible Stocks to Buy According to Analysts.
Socially responsible investing is quickly becoming a norm rather than an exception as more and more people understand the importance of taking into account social conscience when making investment decisions. Socially responsible investing includes investing in companies that adhere to ethical or socially conscious business practices or steer clear of businesses or actions that harm the society according to many, including tobacco, alcohol, gambling, weapons, carbon emissions, child labor, etc. Socially responsible investing, ESG investing and impact investing have all seen a huge rise in popularity over the past few years.
According to estimates from Bloomberg Intelligence, assets in the ESG space were expected to reach $41 trillion by the end of 2022. Historically, Europe has been at the forefront of ESG policy making and ESG investing but the Bloomberg report said that the US is now leading the investments in the ESG space.
The Rise of Socially Responsible ETFs
One of the most important trends seen in the socially responsible investing or ESG investing circles is the rise of ETFs and mutual funds. These give individual investors an easy and cost-effective way to have exposure to socially responsible companies. As an individual investors it’s difficult to find which companies are sticking to socially responsible business practices and ESG goals. So why not leave this legwork to the experts and just put your money into an ETF or mutual fund that is focused on finding such companies? The Bloomberg report cited data from Morningstar, which says that money held in ESG ETFs and sustainable mutual funds worldwide jumped 53% in 2021 to reach $2.7 trillion.
As investors grow socially conscious, hedge funds are also upping their activism in the space and many companies are facing heat from ESG-focused hedge funds that are forcing companies to get their act together and stick to environment-friendly business practices. For example, environment-focused fund Engine No. 1 in 2021 managed to defeat oil giant ExxonMobil and installed its two members on the company’s board. The fund, which was not popular until this victory, received support from some of the biggest institutional investors of ExxonMobil, including BlackRock, Vanguard and State Street. This shows the massive change ESG investing is ushering in at the Wall Street and how many investment firms and companies either willingly or unwillingly have to give in to this pressure.
Engine No.1 in a scathing letter to ExxonMobil’s board of directors criticized the company’s lack of adherence to its goals and targets related to climate. Here’s what the historic letter said:
In an apparent acknowledgment of investor sentiment, ExxonMobil has now gone from dismissing emissions reduction goals as a “beauty competition” to claiming repeatedly this month that its emissions reduction plans are “consistent” with the Paris Agreement.1We have therefore reviewed the Company’s claims with a number of experts, including Professor David Victor at the University of California San Diego, who was a convening lead author for the Intergovernmental Panel on Climate Change (IPCC), which provides the analysis that underpins the Paris Agreement. After doing so, we believe it is clear that, as detailed below, the Company’s true trajectory is nowhere near Paris consistency, and that a clear understanding of ExxonMobil’s claims underscores the long-term risk facing the Company in a decarbonizing world. None of the Company’s new claims change its long-term trajectory, which would grow total emissions for decades to come. This is not consistent with, but rather runs directly counter to the goals of the Paris Agreement. We also continue to believe that without new members of the Board with the necessary expertise and experience, ExxonMobil will have little choice but to continue seeking to create the appearance of transformative long-term change, rather than working to make it a reality.
But not all is good and rosy for the ESG investing world. ESG investors and climate activist funds are facing a backlash from some circles and ESG funds also saw a huge exodus of investors amid losses and tough macro backdrop.
For example, the iShares ESG Aware MSCI USA ETF assets have dropped to $13.8 billion from $25 billion recorded a year ago, according to a Bloomberg report. The report said that as of March 2023, global assets of ESG ETFs were about $471 billion, as compared to $486 billion recorded in January. The report said that investors pulled a whopping $4.4 billion in a single week in March.
The report also said the industry was facing a “concentration” problem, in which a handful of major funds were invested in the ESG space and when a single major fund decides to pull money from a fund, the overall industry sees a decline.
Some investors are also getting frustrated with what they believe an overemphasis on environment in the ESG spectrum. Billionaire hedge fund manager Paul Tudor Jones, who is the cofounder of Just Capital, believes worker treatment should be the center of the ESG equation and not the environment.
According to CNBC, Jones said:
“So much of ESG is politicized because the environmental part of the bucket seems to drive, or they would like to believe that the environmental part of it drives it, when in actuality the most important thing by a wide margin is how we pay and treat our workforce.”
For this article we first scanned the Vanguard FTSE Social Index Fund Investor Shares which seeks to track the performance of the FTSE4Good US Select Index. The fund’s holdings includes companies that are not involved in business practices like adult entertainment, alcohol, tobacco, cannabis, gambling, chemical and biological weapons, cluster munitions, anti-personnel landmines, nuclear weapons, conventional military weapons, civilian firearms, nuclear power, and coal, oil, or gas. The fund also uses ESG criteria to screen stocks. We picked 10 stocks which have a strong upside potential based on their average analyst price targets. Some notable names in the list include Like NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG).
Best Socially Responsible Stocks to Buy According to Analysts
10. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 62
Analyst Price Target: $340
Home improvement giant The Home Depot, Inc. (NYSE:HD) has solid ESG ratings. The Home Depot, Inc. (NYSE:HD) also mentions its ESG goals and ESG-related plans on its website. It is an important constituent of the Vanguard FTSE Social Index Fund.
According to CNN Business, The Home Depot, Inc. (NYSE:HD)’s price target set by analysts is $340. The Home Depot, Inc. (NYSE:HD) was trading at around $300 as of the market close of April 28. This shows that The Home Depot, Inc. (NYSE:HD) has a solid upside potential.
As of the end of the fourth quarter of 2022, 62 hedge funds tracked by Insider Monkey had stakes in The Home Depot, Inc. (NYSE:HD). The biggest hedge fund stakeholder of The Home Depot, Inc. (NYSE:HD) was Ric Dillon’s Diamond Hill Capital which owns a $340 million stake in the company.
Madison Sustainable Equity Fund made the following comment about The Home Depot, Inc. (NYSE:HD) in its Q1 2023 investor letter:
“The Home Depot, Inc.(NYSE:HD) provided an update on reducing the environmental impact of its stores. Since 2010, the company has reduced U.S. store electricity use by 50% by implementing LED lighting across all of its stores, buying electricity from large-scale commercial solar farms, and installing rooftop solar farms. The company is now applying its experience to other parts of its operations, including reducing electricity use in its supply chain and water use in store irrigation. Home Depot was also recognized by the U.S. Environmental Protection Agency for being one of the nation’s largest green power users.”
9. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 66
Analyst Price Target: $545
Last year, Costco Wholesale Corporation (NASDAQ:COST) voted in favor of a proposal put forward by Green Century Capital Management which suggested that the company should set targets for reaching net-zero greenhouse gas (GHG) emissions.
Costco Wholesale Corporation (NASDAQ:COST) also made it to our list of the best ethical stocks to invest in according to Redditors since the company is quite famous among Redditors for its employee-friendly policies.
A total of 66 hedge funds in Insider Monkey’s database of 943 hedge funds were long Costco Wholesale Corporation (NASDAQ:COST) as of the end of the fourth quarter of 2022. The biggest hedge fund stakeholder of Costco Wholesale Corporation (NASDAQ:COST) was Ray Dalio’s Bridgewater Associates which owns a $428 million stake in the company.
8. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 71
Analyst Price Target: $138
NIKE, Inc. (NYSE:NKE)’s slogan in the ESG space is “Move to Zero,” which shows its commitment to becoming carbon neutral. NIKE, Inc. (NYSE:NKE) plans to reduce its carbon emissions by 0.5 million tons by 2025.
NIKE, Inc. (NYSE:NKE)'s goal also includes reducing fresh water usage per kilogram in textile dyeing and finishing by 25%.
NIKE, Inc. (NYSE:NKE)’s median price target for the next 12 months according to CNN Business is $138, which shows a strong upside potential from the current levels.
As of the end of the fourth quarter of 2022, 71 hedge funds were long NIKE, Inc. (NYSE:NKE), according to Insider Monkey’s database of 943 hedge funds. The biggest hedge fund stakeholder of NIKE, Inc. (NYSE:NKE) was Fundsmith LLP of Terry Smith which owns a $787 million stake.
LikeNVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG), NIKE, Inc. (NYSE:NKE) is one of the most popular stocks among hedge funds and Wall Street analysts.
7. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 75
Analyst Price Target: $46.50
The Vanguard FTSE Social Index Fund is exposed to about 2.7 million Pfizer Inc. (NYSE:PFE) shares as of the end of March 2023. Pfizer Inc. (NYSE:PFE) mentions it achievements and goals across the ESG spectrum on its website. Pfizer Inc. (NYSE:PFE) plans to achieve the Net-Zero Standard by 2040.
As of the end of the last quarter of 2022, 75 hedge funds had stakes in Pfizer Inc. (NYSE:PFE). The biggest stakeholder of Pfizer Inc. (NYSE:PFE) was Cliff Asness’s AQR Capital Management which owns a $503 million stake in the company.
6. Tesla Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 91
Analyst Price Target: $186.20
Tesla Inc. (NASDAQ:TSLA) is an important part of the Vanguard FTSE Social Index Fund since the company is the leader in the EV industry which is helping the world move towards a greener future. Tesla Inc. (NASDAQ:TSLA) spearheaded the EV boom that is currently taking over the world and many countries plan to replace conventional engine cars with EVs in the coming decades.
Despite short-term headwinds, analysts believe Tesla Inc. (NASDAQ:TSLA) has a lot of room to run. Tesla Inc. (NASDAQ:TSLA)’s price target stands at $186. Hedge funds are also piling into the stock. Insider Monkey’s database of 943 hedge funds show that 91 hedge funds were long Tesla Inc. (NASDAQ:TSLA) as of the end of the fourth quarter of 2022.
Like NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG), Tesla is one of the most popular stocks among hedge funds and Wall Street analysts. Aristotle Atlantic Focus Growth Strategy made the following comment about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2023 investor letter:
“Tesla, Inc.(NASDAQ:TSLA) was a negative contributor to performance due to our underweight position relative to Russell 1000 Growth Index, as the company had strong performance in Q1. The strength occurred after the company partially reversed a previously announced price cut for its electric vehicles following a period of strong demand. Tesla also reported better-than-expected results for Q4 2022 during the first quarter.
Tesla Motors designs, develops, manufactures, and markets high-performance, technologically advanced electric cars and solar energy generation and energy storage products. Tesla sells more than five fully electric cars, among others, the Model X and Y SUVs, as well as the Model S sedan and Model 3 sedan. The company has a growing global network of Tesla Superchargers, which are industrial grade, high-speed vehicle chargers, typically placed along well-traveled routes and in and around dense city centers to allow Tesla owners quick and reliable charging. Tesla offers certain advanced driver assist systems under its Autopilot and Full Self-Driving options. US customers generate nearly half of Tesla’s sales.
We see Tesla as the leading manufacturer of battery powered electric vehicles (EVs). The company has achieved scaled production of EVs before the other large automobile manufacturers. The company’s technology in battery production and self-driving technology is more mature than competitors’ offerings. EVs are one of the fastest growing categories within automobile manufacturing. The profit margin in the automotive segment is significantly above automotive competitors which provides the company flexibility to price its vehicles more strategically as the competition eventually scales up their EV production. The direct-to-consumer sales model gives the company more control over its relationship with its customers as well as a source of higher profit margin since there is no dealership share of the profits.”
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Disclosure: None. 10 Best Socially Responsible Stocks to Buy According to Analystsis originally published on Insider Monkey.
As an enthusiast and expert in socially responsible investing (SRI) and environmental, social, and governance (ESG) criteria, I bring a wealth of knowledge to the table. My understanding spans the rise of SRI, the influence of ETFs and mutual funds, and the increasing activism of hedge funds in the ESG space. I'm also familiar with specific companies mentioned in the article, such as The Home Depot, Costco Wholesale Corporation, NIKE, Pfizer Inc., and Tesla Inc.
The article highlights the growing importance of SRI, with estimates suggesting that assets in the ESG space were expected to reach $41 trillion by the end of 2022. The U.S., according to Bloomberg Intelligence, has taken the lead in ESG investments, marking a significant shift. The rise of socially responsible ETFs and mutual funds is a key trend, providing individual investors with an efficient way to align their investments with ethical and socially conscious practices.
The case of Engine No. 1 defeating ExxonMobil in 2021 showcases the impact of ESG-focused hedge funds in pressuring companies to adopt environmentally friendly practices. The scathing letter to ExxonMobil's board emphasizes the scrutiny companies face regarding their adherence to climate goals.
However, the article also notes challenges in the ESG investing world, such as a backlash and investor exodus from some ESG funds. The concentration problem, where a few major funds significantly influence the industry, is highlighted. Additionally, there's a debate about the emphasis on environmental factors in ESG, with some, like hedge fund manager Paul Tudor Jones, advocating for a focus on worker treatment.
The methodology used in the article involves scanning the Vanguard FTSE Social Index Fund, which screens stocks based on ESG criteria. The article then lists 10 socially responsible stocks to buy, backed by analyst price targets and comments from funds. Notable stocks include The Home Depot, Costco Wholesale Corporation, NIKE, Pfizer Inc., and Tesla Inc.
If you have specific questions about any of the concepts or companies mentioned, feel free to ask.