10 Stocks and 10 ETFs for Socially Conscious Investors

In recent years, investors have shown an increasing interest in ESG Investing -- which considers a company's environmental, social and governance records. Argus Research and CFRA Research are two of Wall Street's highest quality independent research outfits. Here, these contributors to MoneyShow.com look at investment vehicles that emphasize strong business operations and social responsibilities. John Eade, Argus Research Sustainable Impact investing is gaining traction not only with our clients, but also with the global investment community. According to the Forum for Sustainable and Responsible Investment, assets under management in the strategy globally has grown to $11.6 trillion in 2018 from $178 billion in 2005. The UN Principles for Responsible Investing -- to which Argus Research is a signatory -- now represents more than 1,750 signatories with assets of U.S. $70 trillion, according to BMO Global Asset Management. As assets have flowed in, Sustainable Impact investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol and firearms. In time, the list of industries to avoid increased to include soft drinks, fast food, and oil and gas, among numerous others. Performance of these initial strategies lagged, and the approach subsequently has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes sustainable business practices across all industries that can have an impact on global issues such as the climate, hunger, poverty, disease, shelter and workers' rights. And AUM continues to grow. Due to many requests, Argus has designed a diversified portfolio to take advantage of the ESG (Environmental, Social and Governance) investing trend. We built our Model Portfolio by identifying companies that are either buy or hold-rated by Argus analysts, and also score highly on custom ESG criteria established by Institutional Shareholder Services Inc (ISS), which is a leading provider of objective research and technology solutions that help financial professionals evaluate the environmental, social and governance performance of companies. Below are 10 stocks featured in the Portfolio. All are rated buy. Alphabet Inc. Alphabet is raising the bar in making smart use of the earth's resources, expecting the highest ethical standards throughout its supply chain and creating products with people and the planet in mind. As an example, Alphabet's Global Fishing Watch platform is being used by scientists to protect critical marine habitats. Ecolab Inc. For the fifth consecutive year in 2018, Ecolab, the global leader in water, hygiene and energy technologies and services, is ranked in the top 10 on Corporate Responsibility (CR) Magazine's 100 Best Corporate Citizens list. This list recognizes the environmental, social and governance (ESG) performance of public companies in the U.S. Ecolab ranks eighth on the 2018 Best Corporate Citizens list. Johnson & Johnson JNJ's Health for Humanity 2020 goals focus on People - helping them be healthier by providing better access and care in more places around the world; Places - making the places where the company has a presence healthier by using fewer resources; and Practices - teaming with partners and employees to create a culture of health and well-being. JPMorgan Chase & Co. This bank promotes a diverse and inclusive culture. Two female executives, Marianne Lake, the CFO, and Jennifer Piepszak, who was running the company's credit card business, are at the top of the list to replace long-time CEO James Dimon. McDonald's Corp. In 2014, the company launched McDonald's Global Sustainability Framework, which established 2020 aspirational goals across a series of social and environmental topics in pillars called Food, Planet and Sourcing. The company has made progress on a number of the goals. Microsoft Corp. Microsoft has the highest score (at 96) in the Argus U.S. ESG Model Portfolio. The company has been recognized for its commitment to ESG principles by Forbes Magazine, FTSE Russell, Euronext, Corporate Responsibility Magazine, the Carbon Disclosure Project, MSCI and Dow Jones, among others. Norfolk Southern Corp. Norfolk Southern has produced a sustainability report, Strides in Stewardship, for the past 10 years. Recent highlights include achieving record locomotive fuel efficiency and saving approximately 7.4 million gallons of diesel fuel; and rolling out a safety train that provides first responders across the railroad's network. PNC Financial Services Group Inc. PNC prioritizes the communities in which it does business through local leadership and collaboration with local groups. In 2017, PNC supported its communities through $72 million in charitable giving, including both charitable sponsorships and PNC Foundation grants. Waste Management Inc. Waste Management is committed to the highest standards of environmental, social and governance practices. The company has been named 2018 sector leader on the Dow Jones Sustainability Index for Commercial Services and Supplies and has been included on the Dow Jones Sustainability Index for North America and/or the world for 13 of the past 16 years. WEC Energy Group Inc. This Midwestern utility has set aggressive goals to reduce carbon dioxide emissions by approximately 40% (to below 2005 levels) by 2030 and 80% by 2050. Todd Rosenbluth, CFRA Research's The Outlook While ETFs focused on companies helping protect the environment or practicing good corporate governance remain a small piece of the growing ETF pie, they are starting to capture larger slices. Assets in environmental, social and governance (ESG) equity ETFs climbed 63% since end of 2017, stronger than 17% growth for broader smart beta ETF strategies as of late May. In 2019, some highly successful ESG product launches helped to drive overall flows; however, we think many investors do not understand what drives, and what does and does not make it into an ESG ETF. As of late May, $8.5 billion was invested in ESG ETFs, $2 billion more than at year-end. This was largely driven by the successful launches of Xtrackers MSCI USA ESG Leaders Equity in March and iShares ESG MSCI Leaders in May. Aided by investments from a European insurance company, the two ETFs pulled in $2.3 billion within the first three months of trading. They joined iShares MSCI KLD 400 Social ( 103 Overweight) and iShares MSCI USA ESG Select ( 114 Overweight) in the $1 billion assets under management club. Unlike smart beta ETFs that screen in securities based on fundamental and/or performance-based attributes, these $1 billion ESG ETFs focus more on excluding stocks that do not score well based on ESG criteria. Under the three ESG pillars (Environment, Social and Governance), MSCI breaks down companies based on 10 themes. For environmental, these are climate change, environmental opportunities, natural resources and pollution waste. For social, these are human capital, product liability, social opportunities and stakeholder opposition. Lastly for governance, these are corporate behavior and corporate governance. However, some of the recent demand for these ETFs has been offset by outflows from others. For example, iShares MSCI ACWI Low Carbon Target and SPDR SSGA Gender Diversity had approximately $430 million and $270 million in assets, respectively, down from $540 million and $360 million at the mid-point of 2018. These two ETFs focus on just one of the three ESG pillars -- CRBN on Environment and SHE on Governance -- rather than covering all three. They both earn our overweight rating. According to Thomson Reuters Lipper as of May 29, the largest ESG exchange-traded funds are: iShares MSCI KLD 400 Social Xtrackers MSCI USA ESG Leaders Equity iShares ESG MSCI USA Leaders iShares MSCI USA ESG Select iShares ESG MSCI EAFE iShares ESG MSCI EM iShares MSCI ACWI Low Carbon Target Vanguard ESG US Stock SPDR S&P 500 Fossil Fuel Reserves Free Invesco Solar Historically, ESG ETFs had been priced at a premium fee to market-cap weighted and smart-beta ETFs. However, asset managers have brought the same level of competition to this potentially up-and-coming investment approach as they have others. Xtrackers MSCI USA ESG Leaders Equity charges a miniscule 0.10% expense ratio and all but one of the top-10 largest ESG ETFs has a 0.25% expense ratio or less. In addition, investors that prefer an ESG approach can build a global portfolio. iShares also offers popular developed and emerging markets focused ETFs through iShares and iShares , while Vanguard and DWS offer competitors. Overall, we think ESG investors will continue to gain comfort in using ETFs to gain exposure to these approaches in the coming years. Subscribe to CFRA Research's The Outlook here: https://www.cfraresearch.com/individual-investors/

10 Stocks and 10 ETFs for Socially Conscious Investors

Investors have shown an increasing interest in ESG Investing. These top investment vehicles emphasize strong business operations and social responsibilities.

Columnist Conversation

Banks, Banks, Banks

Here Is Your Pullback in ORCL

Rolled Up Google, Morgan Stanley

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.