ESG is a term used to describe the environmental, social and governance position of a business. Companies that score well on that criteria are becoming increasingly popular with investors. Whereas previously it was all about making a profit, the way in which the company makes the profit is arguably just as important. So with that in mind, here are two top ESG stocks that I’m considering for my portfolio in September.
Pushing for diversity
The first company is AVEVA (LSE:AVV). This might come as a slight surprise as an IT software company isn’t the first type of firm that comes to mind when thinking about the top ESG stocks. However, it’s making a push in key areas that really impress me.
For example, it’s pushing for a higher representation of women in the workplace. IT historically has been a male-driven sector, but AVEVA is trying to make a change here. By 2030, it wants 30% of leadership roles and 40% of management roles to be held by women.
Aside from this, the company also indirectly helps ESG pursuits by providing software solutions to better help compute energy efficiency.
In order to be a top ESG stock though, it needs to prove itself from a financial angle too. The share price is up 91% over the past three years, in a steady trend higher. In Q2 of this year, it saw revenue grow by 11%, with growth across all revenue lines.
A risk that I do note is that the company is still bedding in with a new CEO after the shock and sudden departure of previous CEO Craig Hayman at the end of April. He stepped down was for personal reasons, so the change was somewhat quick. Having seen that a change of CEO can make or break a company, I need to see how this situation plays out.
Another top ESG stock
Another company pursuing ESG aims is GlaxoSmithKline (LSE:GSK). The global pharmaceutical giant has shown that it is driven towards making profits, but it also doing well on other fronts.
For example, each year there is an index published related to access to medicine. It looks at how companies are using research and development and enabling more people and countries to have access to better medicine. In the 2021 index, GSK ranked top, beating several other rivals in the process.
This in itself positions it as a top ESG stock in my eyes. And since the end of 2020, it has also been aiming to have a net zero impact on the climate and net positive impact on nature by 2030. As for this goal, I applaud it but do see this as a potential risk of investing. I feel this is going to be a hard goal to reach. So any underperformance in the years to come could see negative publicity attached to it. This could hamper the share price, even if financial results do well.
As regards performance, the GSK share price is down 7% over the past three years. Yet in the short term, gains of 22% can be seen over the last six months.
Overall, I think both GSK and AVEVA can be classified as top ESG stocks given the actions taken. I’m considering investing in both in September.
