By Thomas Kostigen
You might think there’s a certain theme that runs through the world’s most sustainable companies: that they’re mostly technology companies or alternative energy companies or are headquartered in places that embrace environmental, social, and governance issues; a place such as San Francisco, for example. But, no.
Sustainability runs the gamut from retailers to software makers to financial concerns. And they’re also spread out geographically. In this column, we have previously shamed most lists, labeling them not much more than clickbait, and largely compiled unscientifically by marketers, not researchers.
Barron’s, however, has put together a list of the top 100 most sustainable companies based on analysis by Calvert Research & Management, one of the foremost investment managers in the ESG space. That makes the list worth mentioning and examining.
Investments in ESG companies have skyrocketed of late, with no topping off in sight. And this makes the top 100 list all the more important to look at. Barron’s explains how they created their ranking: “Calvert started with the 1,000 largest publicly traded companies by market value, then ranked each by how they performed for five key constituencies: shareholders, employees, customers, community, and the planet. Specifically, Calvert looked at more than 230 ESG performance indicators, such as workplace diversity, data security, and greenhouse gas emissions. Based on the indicators, Calvert assigned a score of zero to 100 in each stakeholder category. Then, it created a weighted average of the categories for each company, based on how financially material each category was for its industry peer group.”
If any company on the Barron’s list performed poorly, it was disqualified. Which is all well and good, but investors are interested in returns, too. By that measure, sustainable companies outperformed the S&P 500 Index last year, which was quite a remarkable feat given the strong market returns 2020 produced.
Last year, the S&P 500 Index brought in an 18.4 percent return for investors. Meanwhile, Barron’s list of sustainable companies brought in a 21.9 percent return for investors. A 3.5 percent difference in return is and should be compelling. Going forward, the sustainable list has predictive value, too. It shows that weighted by market capitalization the Barron’s list outperforms the S&P 500 benchmark.
The full list along with Barron’s commentary and analysis can be found here. A good financial advisor might help you pick which companies could fit well within your portfolio. Or you could figure yourself whether any of the companies are attractive by one of the numerous ESG measures that Barron’s lists.
Overall, as Barron’s notes, “Our leaders in sustainability continue to beat the market.”
There is room for improvement, of course. For example, women accounted for only one-third of the members of the typical board among the companies on the list. To be sure, scoring high on nearly 250 performance indicators is a tall order for any company.
In sum, that performance reduces risk. And as a group, the Barron’s list of sustainable companies did well to manage the downside risk of the COVID-19 epidemic on their businesses. Clearly other risks could pose more troublesome. But by constantly being on the lookout for downside issues, sustainable companies are proving to produce lots of investment upside.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.