ESG stocks are trending after EV leader Tesla (Nasdaq: TSLA) lost its position in the S&P 500 ESG Index (EFIV). The index is a group of top ESG stocks to buy based on certain criteria.

ESG is an investing strategy that considers more than company profits, such as social and environmental issues. Though many people associate ESG with just the environment, it includes more than that. With this in mind, ESG stands for

  • Environmental
  • Social
  • Governance

After its removal from the ESG index, Tesla CEO Elon Musk took to Twitter to express his frustration, calling ESG a scam. Do you agree with the move? Certainly, Tesla is working towards a more sustainable future, right?

Find out why Tesla was booted from the index and if the company is still one of the best ESG stocks to buy now below.

Top ESG stocks to buy for 2022.

Is Tesla an ESG Stock?

To answer the question on everyone’s mind, yes, Tesla is still an ESG stock. The company single-handedly changed the auto industry, with automakers pouring funds to develop their own EV models.

That being said, Tesla falls short in other areas that matter to the overall score, according to North American Head of ESG Investing Margaret Dorn. For example, Dorn mentions:

  • Tesla’s lack of low carbon strategy and,
  • Codes of business conduct.

Furthermore, the blog post mentions Tesla’s Media and Stakeholder Analysis slipped with several events reducing its score. In particular, the company’s handling of injuries linked to autopilot mode and claims of poor working conditions, including racial discrimination.

Therefore, Tesla is not included in the S&P’s top ESG stocks to buy now index. But the post ends with praise on Tesla’s part in growing the EV market, saying they will have the opportunity for review again each year.

How Are ESG Ratings Calculated?

As can be seen, the ESG score includes more than just the company’s purpose and vision. In fact, the S&P collects 600 to 1,000 data points on companies which translates to four levels of scores.

Researchers then identify industry-specific factors that can greatly impact the company. For example, Restaurants (customer relationships), Mining (community impact), and pharmaceuticals (addresses cost burden.)

Then, the factors are given a weight for the greatest accuracy. For instance, governance will weigh the most in pharmaceuticals, with product quality carrying the most significant risk.

Lastly, companies are not eligible if they have involvement with thermal coal, tobacco or controversial weapons.

To discover the top ESG stocks to buy now for significant return potential, keep reading.

What Are the Best ESG Stocks to Buy Now?

Using the criteria above, in combination with earnings growth, free cash flow and balance sheet strength, here are the best ESG stocks to buy now. You’ll discover why each company earns a spot on the list and what makes them solid long-term investments.

No. 5 Home Depot (NYSE: HD)

  • MSCI ESG Rating: AA (Leader)

Home Depot is an ESG leader focusing on three main pillars: its people, operating sustainably and strengthening the community.

So far, the company is proving itself through less energy use. Home Depot has cut energy use by 44% since 2010 and is on track to cut its emissions by 50% by 2035. Additionally, Home Depot stepped up during the pandemic, investing around $2 billion to support employees with another $50 million for the community.

On top of this, the company achieved its “highest first-quarter sales in company history” despite the challenging business conditions.

No. 4 NVIDIA (Nasdaq: NVDA)

  • MSCI ESG Rating: AAA (Leader)

After a huge run during the pandemic when computer chips were needed more than ever, the company is on many investors’ watchlist.

Although many know Nvidia as an explosive growth stock, the chipmaker does more for the planet and its people than most. In fact, Nvidia makes the most energy-efficient supercomputer (DGX SuperPOD) while powering 26 of the top 30 world’s greenest supercomputers.

Lastly, 17 Nvidia locations are fully renewable energy powered, with a goal of 65% clean energy use by 2025.

No. 3 Salesforce (NYSE: CRM)

  • MSCI ESG Rating: AAA (Leader)

Already using 100% renewable energy sources across its entire value chain, Salesforce is one of the best ESG stocks to buy now.

With this in mind, Salesforce’s Pledge 1% has over 15,000 companies’ support. The movement commits 1% of Salesforce equity, tech, and employees’ time to enhance education, equality, and the environment.

Most importantly, the company is putting its money where its mouth is. Salesforce has raised over $26 billion in the past ten years to support these causes.

No. 2 Microsoft (Nasdaq: MSFT)

  • MSCI ESG Rating: AAA (Leader)

Another sustainability leader, Microsoft, is taking steps to become carbon negative, water positive and zero waste by 2030. Moreover, the tech giant is also working to protect more land than what they use.

Although the company saw its emissions grow 23% YOY, it was mainly due to business growth. The company notes a 20% increase in business activity, with demand for cloud and Xbox soaring.

However, to help offset this, Microsoft bought the most carbon removal at 1.4 million metric tons while the firm expects to raise the bar again this year with another 1.5 million.

No. 1 Adobe (Nasdaq: ADBE)

  • MSCI ESG Rating: AAA (Leader)

Adobe is another company that doesn’t just talk about what it’s going to do but does it. The company’s mission, to change the world through digital experiences, is becoming more critical than ever, with people spending more time behind the screen.

For one thing, Adobe’s product alone helps reduce physical waste while cutting emissions. So far, the company expects 75% renewable energy use by the end of this year.

The digital firm emphasizes equal pay with global 1:1 pay parity. Lastly, Adobe has invested over $88 million in the community so far to drive a positive impact.

Are These Top ESG Stocks to Buy Now for You?

Investors are having a hard time buying ESG stocks as all major indexes continue slipping. However, now may be a good time to consider the top ESG stocks to buy, with the leaders taking a step back from their highs.

These companies are down over 30% from their 52-week highs (expect Microsoft –27%), giving investors a chance for long-term returns. If you are investing for 3,5,10+ years, these companies are working towards a better, cleaner future for all. Meanwhile, they are at the top of their industries with earnings growth, strong cash flow and fundamentals.

If you wish to support a cleaner future, these are some of the best ESG stocks to buy now with high return potential.