Looking for stocks that don’t just do well, but also do good? This might be a start.
Morgan Stanley analysts put together a list of 30 stocks that in their view “offer a strong fundamental investment case at the same time as creating a positive social or environmental impact.”
According to a Thursday note, the 30 were selected by the investment bank’s sustainability team, which evaluates securities through the lens of ESG investing. ESG stands for environmental, social, and corporate governance; strategies that evaluate companies on these issues and use those scores to form portfolios are sometimes called socially responsible investing.
There are some trends in the group of 30; nearly half is comprised of health care and technology companies, both of which make up 20% of the unofficial portfolio, while 13% of the holdings are in the consumer sector, and financials make up another 13%. In addition, 40% of the names are based in North America, while 37% are European and 3% are Japanese. The remainder are from the Asia-Pacific region.
To create the collection, Morgan Stanley looked solely at stocks with a market capitalization of at least $5 billion and which are rated either “overweight” or “equal weight” by the investment bank’s analysts. From there, it narrowed the pool into companies that derive at least half of their revenue or Ebita (earnings before interest, taxes, and amortization) from products or services “that solve a sustainability challenge and thus create a positive social or environment impact.”
To be included, the companies must also have strong scores in terms of both corporate governance and reputational risk.
There are a few familiar names on the list, including Visa Inc. V, -0.04% MasterCard Inc. MA, +0.37% and BioMarin Pharmaceutical BMRN, -0.25% among others.
From a sustainability perspective, MasterCard’s inclusion comes as it “appears to have a focus on diversity within its workforce,” Morgan Stanley’s note read. Separately, “carbon emissions have reduced over the last couple of years, helped by initiatives such as using hydropower and improving energy efficiency. All of Mastercard’s owned building have LEED certification.”
One stock that doesn’t appear on the list is Tesla Inc. TSLA, +3.86% the electric-car maker that is widely viewed as being on the vanguard of environmentally friendly policies. In August, Morgan Stanley calculated that the carbon emissions required to make one of Tesla’s cars was greater than those saved by the electric vehicles themselves.
In compiling the group of 30, Morgan Stanley used 17 different “sustainable development goals” to score the companies, evaluating their exposure to such initiatives as reducing poverty and hunger, gender equality, clean water and energy, climate issues, and “peace, justice and strong institutions.”
The most popular category was “good health and well-being,” which included 17 of the 30 stocks. On average, the 30 stocks fell into fewer than three of the categories, though three stocks—Thermo Fisher Scientific TMO, -0.31% PerkinElmer Inc. PKI, -0.29% and SGS SA SGSN, -0.45% —each scored six.
The list is part of a broader trend of focusing on ESG issues. According to an annual survey conducted by Natixis Investment Managers, 61% of institutional investors say their firm integrates ESG factors into their process, compared with the 52% who said so in 2016. More than half of those surveyed—56%—said that ESG investing mitigates risk.
There are a number of funds built around these factors, and data has indicated that this strategy can lead to better returns compared with the overall market. According to Morningstar, which looked at how “sustainable” funds performed relative to the S&P 500 in the recent correction, 65% of such funds outperformed their peers.
