ESG has become a popular topic globally and many investors, as well as companies, have started taking ESG rating as an important metric when it comes to analyzing the performance of companies. But what is ESG?
ESG investing refers to an investment philosophy that puts emphasis on environmental, social, and governance concerns. Rather than focusing entirely on whether a company generates profit and is growing its revenue over time, ESG principles consider other factors such as impacts on the environment, company employees, customers, and shareholder rights.
E stands for environmental
The environmental component addresses how a company affects the planet through factors such as:
Climate change policies
Greenhouse gas emissions
Carbon footprint and carbon intensity
Water usage and conservation, overfishing, and waste disposal
Renewable energy usage
Recycling and disposal practices
Green products, technologies, and infrastructure
S stands for social
The social component of ESG covers issues affecting employees, customers, consumers, suppliers, and the local community. Examples include:
Employee treatment and compensation
Employee training and development
Employee safety policies and sexual harassment prevention
Diversity and inclusion in hiring, promotions, and pay increases
Customer service performance
Consumer protection activity, including lawsuits, recalls, and regulatory penalties
Mission or higher purpose
G stands for governance
The governance component relates to board independence, leadership effectiveness, and business ethics. Specific topics include:
Policies that define and enforce ethical business practices
Diversity of the board and management team
Potential for conflicts of interest for board members
Shareholders’ ability to nominate board candidates
Separation of the chairman and CEO roles
How board votes are decided — by a majority or by who receives the most votes
Transparency of shareholder communications
History of shareholder lawsuits
Relationship with regulatory bodies such as the Capital Markets Authority (CMA) for Kenyan companies, and the U.S. Securities and Exchange Commission (SEC) for U.S companies.
Some of the stocks with the highest ESG rating in the year 2022 include:
1. Alphabet Inc. Class A (NASDAQ: GOOGL)
Alphabet Inc Class A (NASDAQ: GOOGL) is the top ESG company in 2022, thanks to the billions of dollars worth of ESG-related investments and ambitious goals it has set for the betterment of the environment. In its 2022 ESG report, the parent of Google said that it issued a whopping $5.75 billion in sustainability bonds, easily surpassing all peers in the industry. 100% of the net proceeds of these bonds have been allocated. As of 2021, Alphabet Inc Class A (NASDAQ: GOOGL) was able to match about 66% of the electricity used across its data centers with carbon-free sources.
2. Intel Corporation (NASDAQ: INTC)
Earlier this year, Intel Corporation (NASDAQ: INTC) announced plans to achieve net-zero greenhouse gas emissions across its global operations by 2040. Intel is operating in an industry notorious for its emissions. The manufacturing industry in the US alone accounts for about 23% of direct carbon emissions. But Intel Corporation (NASDAQ: INTC) is heavily investing in its ESG goals.
3. Microsoft Corporation (NASDAQ: MSFT)
With a market cap of $1.76 trillion, Microsoft Corporation (NASDAQ: MSFT) is one of the biggest tech companies in the world and is leading from the front when it comes to ESG. Microsoft plans to become carbon neutral by 2030. Since announcing this historic plan in January 2021, Microsoft Corporation (NASDAQ: MSFT) has cut its carbon emissions by 6 percent in a period of 12 months. During the same period, it was involved in the removal of 1.3 million metric tons of carbon from 26 projects around the world.
4. Salesforce Inc. (NYSE: CRM)
Cloud company Salesforce Inc (NYSE: CRM) announced in September 2021 that it had achieved net-zero residual emissions across its full value chain, and met its 100% renewable energy goal for its operations. Salesforce Inc (NYSE: CRM) has also joined Amazon’s The Climate Pledge and plans to remove all carbon emissions from its business by 2040. The company built what it calls “Net Zero Cloud” to efficiently track and analyze its own carbon footprint. In 2020, Salesforce Inc (NYSE: CRM) also signed an agreement with renewable energy firm X-ELIO’s Blue Grass solar farm in Australia. The project will have the capacity to power 80,000 homes and save more than 320,000 tons of CO2 emissions annually.
5. Bank of America Corporation (NYSE: BAC)
Bank of America Corp (NYSE: BAC) has set a goal of achieving net zero greenhouse gas (GHG) emissions by 2050. The company says that its Environmental Business Initiative will “deploy and mobilize” about $1 trillion by 2030 to hasten the shift to a low-carbon economy. Bank of America Corp (NYSE: BAC) says 100% of its electricity usage on an annual basis comes from renewable sources. The bank is reported to have spent a whopping $200 billion since 2007 in financing low-carbon and sustainable business activities as part of its Environmental Business Initiative.
In the Kenyan Stock Market, only a few companies listed on the Nairobi Securities Exchange (NSE) have complied with the NSE directive to make ESG disclosures. These companies include:
- •Safaricom
- •East African Breweries
- •Nation Media Group
- •Bamburi Cement
- •KCB Bank Group
- •Kakuzi
- •Standard Chartered
Kenya ranked eighth in 2022 Absa Africa Financial Markets Index (AFMI)
Listed companies challenged to adopt sustainability reporting
