Companies with large moats find it harder to compete in today’s world. This benefit is especially compelling when combined with effective environmental, social, and governance risk management. In other words, durability and sustainability, often ESG, go hand in hand. ESG companies observe long-term hazards that standard finance does not articulate. All businesses confront some level of sustainability risk, not least due to the industries in which they handle. For example, an oil and gas company will be vulnerable to environmental issues. In contrast, a consumer technology company will be susceptible to social risks such as data privacy violations.
The ESG – or environmental, social, and governance – criteria assist in determining how an organization performs as a keeper of nature, how it controls its stakeholder relationships, and how transparent it is in its reports and management practices while emphasizing a high level of ethical and moral leadership. The world is increasingly relying on businesses to make sustainable decisions. Companies take steps to decouple growth from their environmental footprint, focusing on eco-friendly operations, manufacturing facilities, and activities to reduce the impact of operations on biodiversity and nurture it.
Retail investors, financial product distributors, and counselors are typically concerned about returns. However, society now prefers to associate with businesses more concerned with sustainability. This is already apparent in worldwide lending and investment practices. ESG companies with low ESG scores may lose visibility or significance in the investment horizon, although earning enormous profits, and hence risk losing capital flows.
The growing importance of ESG has significantly transformed how businesses and investors see sustainability. ESG variables were historically regarded mainly as “nice-to-haves” rather than “must-haves” in business and financial decisions. However, as ESG has grown in popularity, firms and investors are implementing a more complete strategy, incorporating ESG considerations into their business strategies and decision-making procedures.
How We Chose the Top 10 ESG Companies
The standard selection criteria to rank the top ESG (Environmental, Social, and Governance) companies can vary depending on the organization or entity conducting the rankings. However, there are generally accepted and widely used criteria and principles that serve as a foundation for such rankings. These criteria are designed to assess a company’s sustainability and responsible business practices comprehensively. Here are the standard selection criteria commonly used to rank the top ESG companies:
Carbon Emissions: Measurement of a company’s greenhouse gas emissions and its commitment to reducing them.
Energy Efficiency: Assessment of energy consumption and efforts to improve energy efficiency, including the use of renewable energy sources.
Resource Management: Evaluation of how efficiently a company uses natural resources, reduces waste, and manages its environmental impact.
Biodiversity Conservation: Recognition of efforts to protect and preserve biodiversity, particularly in industries with significant environmental impact.
Employee Welfare: Consideration of fair labor practices, workplace safety, fair wages, and employee benefits.
Diversity and Inclusion: Assessment of diversity within the workforce, including gender and ethnic diversity, as well as initiatives to promote inclusion.
Community Engagement: Evaluation of a company’s involvement in local communities, charitable contributions, and support for community development projects.
Product Safety and Quality: Recognition of efforts to ensure the safety and quality of products and services offered to consumers.
Human Rights: Consideration of policies and practices that respect and promote human rights throughout the company’s operations and supply chain.
Ethical Leadership: Assessment of the company’s leadership and management practices, including ethics, transparency, and accountability.
Board Diversity: Recognition of diverse representation on the board of directors, which can enhance governance and decision-making.
Shareholder Rights: Evaluation of shareholder rights, including voting procedures, transparency, and the protection of minority shareholders.
Anti-Corruption Measures: Consideration of anti-corruption policies and practices, including compliance with anti-bribery laws.
Executive Compensation: Examination of executive compensation structures to ensure they align with long-term sustainability goals.
Reporting and Transparency
Sustainability Reporting: Companies that provide detailed and transparent reporting on their ESG performance are often preferred.
Independent Verification: Recognition of efforts to have ESG data and reports verified by external, independent parties.
Long-term Sustainability Goals
Ambition and Vision: Companies that demonstrate a clear vision for long-term sustainability and set ambitious ESG goals are often ranked higher.
Engagement with Stakeholders: Recognition of efforts to actively engage with various stakeholders, including customers, employees, investors, and NGOs, to gather feedback and respond to concerns.
These criteria may be further tailored or weighted differently by organizations conducting ESG rankings to suit their specific objectives and methodologies. Additionally, it’s important to note that ESG rankings are dynamic, and the criteria may evolve over time to reflect changing societal and environmental expectations. Companies that consistently perform well across these criteria are often recognized as leaders in ESG practices.
Which are the Top 10 ESG Companies of 2024?
1. American Water Works Company
American Water Works Company highly recommended sustainability because of its leadership and transparency. The corporation, formed in 1886 in the United States, employs approximately 6,800 people and is the world’s biggest traded water and wastewater utility company. Although supplying 15 million people in 46 states, the firm saves 12.5 billion liters of water yearly due to efficient infrastructure. It has also pledged to cut emissions of greenhouse gases by 40% by 2025.
According to Walter Lynch, the Company’s president and CEO, providing a regular supply of safe, clean, and inexpensive water to consumers and treating their wastewater is just one element of their commitment. Numerous initiatives are underway to increase the Company’s sustainability and impact on society.
Microsoft is one of the most valuable companies in history. It created Windows, the world’s most popular operating system. Microsoft, on the other hand, develops server software and builds its hardware. It has also invested significantly in cloud computing, machine learning, and artificial intelligence. Microsoft recognizes its significant carbon footprint and has already achieved operational carbon neutrality. It has guaranteed carbon neutrality across its value chain within the next decade. The Company will offset emissions from its establishment in 1975 by 2050. Microsoft is not just environmentally conscious, but it is also operationally open. As a major player in AI, it also actively invests in AI research, particularly in the ethics of AI.
Kering’s good position was maintained when measured against 24 quantitative KPIs, covering resource management, people management, managing finances, clean income, investment, and supplier performance. Transparency and sustainability are promoted at all operational levels, from the Board of Directors to front-line employees. Kering’s resolve to safeguard and preserve the environment on which it depends, according to Conservation International CEO Dr. M Sanjayan, is a significant step forward for the fashion sector. It provides a channel for the industry to influence customers and rethink what trends and luxury mean.
Nvidia is one of the world’s largest ESG companies producing semiconductor chips. It is a global leader in designing graphics processors (GPUs) and system-on-chip units (SOCs) for playing games, mobile, automotive, and various other industries. Nvidia is responsible for a lot as a global maker and supplier of semiconductor chips. It extracts materials. Its manufacturing and workstations consume a lot of energy and water. Nvidia, on the other hand, has not backed away from its responsibilities. It is, in fact, well-known for its environmental practices. Nvidia achieves power efficiency of up to 35%. It has committed to boost its renewable energy use to 65% by 2025. The manufacturer is also fully compliant with the Responsible Minerals Assurance Process.
Neste is a worldwide sustainability leader, well-known for its environmentally friendly diesel, sustainable aviation fuel, chemical reuse, waste plastic management, and expertise in converting raw materials into sustainable fuels. In recent years, the Company has risen and is continuously on the Corporate Knights Global 100 Index for the 15th year—far more than any other global energy firm. Neste’s President and CEO, Peter Vanacker, says the Company’s objective of “making the world a better place for future generations” pushes them to push themselves for greater daily heights. The CEO also admitted that many organizations are constantly improving their sustainability activities, making it more challenging to make the list each year. “It feels good to observe more companies proactively integrating sustainability into their operations,” he said.
6. Cisco Systems
Cisco is a global leader in developing and manufacturing networking gear, software, and telecommunications equipment. It is also one of the most sustainable organizations in the world. Its entire value chain is energy-efficient and sustainable, from mining and sourcing minerals to developing and manufacturing items, utilizing electricity, and supporting fair hiring and data security. Cisco claims that 80% of its operational electricity is clean, and it has committed to becoming carbon neutral across its whole value chain by 2030.
7. Schneider Electric
Schneider Electric has frequently been named the world’s most sustainable firm. The European energy and automation behemoth is well-known for its unwavering dedication to addressing ESG issues. Jean-Pascal Tricoire, Chairman and CEO of Schneider Electric, noted that the core of their strategy has always been to develop a sustainable business and organization—an organization that has always been committed to elevating ESG. Over the previous decade, the Company has consistently raised the bar for itself and its clients and partners.
8. McCormick & Company
McCormick & Company is a global leader in producing, marketing and distributing seasonings. Because McCormick is a successful food firm, its value chain is international in scope. Over 2500 goods are sourced from over 85 countries by the Company. Despite having a vast and complex supply chain, its sustainability activities are outstanding. McCormick has collaborated with organizations such as the World Wildlife Fund (WWF), the Rainforest Alliance, and the Sustainable Trade Initiative to help impoverished communities, empower women, and end labor abuse.
Stantec is one of the most ecologically responsible companies in the world. Clean earnings and investments primarily focus on goods and services with a demonstrated environmental and social impact, accounting for half of the Company’s overall ESG score. Stantec President and CEO Gord Johnston has noted that the organization’s remarkable track record on sustainability results from its deep dedication and excellent leadership across its global operations. According to the CEO, Stantec’s teams are working to improve sustainability in their operations and assisting clients in developing and achieving their own sustainability targets.
Hewlett-Packard is one of the world’s leading ESG companies and IT gear and services manufacturers. The Company’s most well-known products are computers and laptops. It was reputedly the world’s leading PC producer from 2007 to 2013. However, the IT pioneer also produces printers, scanners, and cameras. Hewlett-Packard has maintained over 1.5 million pounds of plastic out of the world’s oceans. It recycles over 875 million ink cartridges through its value chain, which includes materials purchased from around the world. The firm is the leading recycler of printing supplies in the world. HP is dedicated to minimizing single-use plastic in packages by roughly 80% by 2025. It also works with non-profit organizations worldwide to help students with technology, medical care, sanitation, and water.
ESG, which means Environmental, Social, and Governance, has become a business buzzword recently. ESG companies increasingly include ESG concerns in their choice-making processes, and consumers are evaluating possible investments using ESG criteria. There are various reasons why businesses should incorporate ESG trends into their operations. To begin with, there is mounting evidence that organizations that adhere to ESG principles perform better financially in the long run. According to studies, companies emphasizing sustainability and social responsibility outperform their peers regarding profitability, stock performance, and risk management. Furthermore, investors are increasingly willing to invest in companies with high ESG performance, which may increase access to finance and lower capital costs.
Q1. Is ESG still important in 2024?
The increased importance of ESG-related legislation, such as the European Union’s Sustainable Finance Disclosure Regulation and Taxonomy Regulation, has considerably impacted demand last year. We anticipate that regulations will remain a significant demand driver in 2024.
Q2. In India, who assigns ESG scores?
ESG rating services can now only be given by firms certified by the Securities and Exchange Board of India (SEBI). Even overseas agencies that provide ESG rating services must obtain SEBI accreditation to supply services to Indian firms.
Q3. Which companies are emphasizing ESG?
One of India’s foremost private sector banks, HDFC Bank, has made substantial ESG progress by focusing on financial inclusion, sustainability, and governance. Under its Sustainable Livelihood Initiative, the bank has supported over 7.6 million rural households and offered vocational training to over 850,000 people.