Three ESG stocks worth watching
With so many stocks available in the stock market, it can be difficult to pinpoint the sustainable investments.
More investors are embracing responsible or sustainable investing principles, avoiding companies that do social or environmental harm and favouring those that have a positive impact, according to the 2023 ASX Australian Investor Report.
Companies that are genuinely committed to environmental, social and governance (ESG) principles are creating long-term value for both shareholders and stakeholders.
Some of the companies kicking goals on the ESG front in recent times include Woolworths, Perpetual and Transurban Group.
The supermarket giant has taken significant ESG actions from both environmental and social perspectives such as replacing its petrol-fuelled delivery fleet with electric vehicles to reduce carbon emissions and the launch of Mini Woolies, a program supporting the education and skills of young Australians with disabilities.
Woolworths took a substantial step towards improving social impact in mid-2021 with the demerger of the Endeavour Group, its alcohol and hotels group division. This took place after recognising the rising impact of alcohol, gaming, and tobacco consumption in Australia.
Woolworths recognises some products it sells like tobacco and alcohol can be unhealthy if misused or overconsumed. While the rising consumption of alcohol and tobacco products enhanced demand for Endeavour Group products, addressing the rising social impact has proved more valuable for Woolworths.
The dilution of Woolworths' association with gambling, alcohol and tobacco was a major step in achieving the company's ESG goals.
Morgans recently upgraded Woolworths to a buy rating while Citi and UBS also have respective buy ratings on the supermarket giant on the back of strong FY23 results, particularly earnings growth in Australian Food.
In Perpetual's 2023 Sustainability Report, the global financial services firm outlined the commitments and actions required to meet their ESG targets.
The Perpetual Private Investment research team is accountable for the Responsible Investment related reporting and reviewing of all Perpetual Private portfolios which includes ensuring that all ESG factors are appropriately considered throughout the entire investment process.
This team also oversees the monitoring of each appointed external investment manager's ESG policy and incorporation of ESG risk factors into decision-making processes and reviews of any relevant legislation that requires changes.
While ESG actions are difficult to measure for a service provider like Perpetual, the company has a very strict screening process whereby worst-case offenders are excluded on a case-by-case basis, leading to the removal of securities where engagement is deemed unviable.
In January 2019, Perpetual Private removed tobacco-related investments from its Australian and international shares asset classes.
Furthermore, Perpetual offers thematic investing options that enable clients to align their portfolios with ESG elements that resonate most with their objectives.
The global financial services firm is also a signatory to the United Nations-supported Principles for Responsible Investment (UNPRI) to incorporate ESG issues into all investment analysis and decision making.
Transurban Group (ASX:TCL)
Transurban, which operates a diversified suite of Australian toll road assets and toll roads in Northern Virginia in the United States, has also been a popular investment choice among investors and brokers for its ESG commitments.
Transurban boasts ESG-related awards and recognition from the Workplace Gender Equality Agency of Australia, Equileap and the Ethibel socially responsible investment register. It's also had an MSCI ESG Rating of AAA for the past five years and it became the first ASX20 company to be validated by the Science Based Targets initiative.
The company has prioritised addressing its role in contributing to climate change through adopting new greenhouse gas reduction targets and has focused efforts on decarbonising the business.
UBS and Macquarie both have buy ratings on Transurban and the company's shares are up 16% over the last five years. In the recent high inflationary environment companies like Transurban have been the beneficiaries of rising inflation as it has an inflation-linked revenue stream with annual escalators through toll road concessions being inflation-linked.
When embracing responsible investing principles, it's important to remember there is still minimal governance and reporting requirements for companies investing in sustainability.
However, with an outlook of building shareholder value and long-term sustainability, companies are continuing to prioritise their ESG targets as part of their strategies in 2023.
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