ESG Investors Will Love These 3 Stocks

Environmental, social, and governance (ESG) investing is more than just looking at a company's balance sheet. It forces investors to think about how a company and its products are impacting the world and whether that impact is positive.

There are lots of industries and ways to look at companies with an ESG lens, so we asked three of our Fool.com contributors for their top stock in the space. They came up with very different answers: Apple (NASDAQ: AAPL), Brookfield Renewable Partners (NYSE: BEP), and Steel Dynamics (NASDAQ: STLD).

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More than a tech giant

Travis Hoium (Apple): Companies that focus on environmental, social, and governance issues do so with everything they do. It's more than a press release or a ribbon-cutting; the focus has to drive to the heart of what a company does. That's why Apple is a great ESG stock.

Here are a couple of the highlights of Apple's environmental focus:

• Apple's operations are already carbon neutral.
• By 2030 Apple plans to make all of its products and manufacturing suppliers carbon neutral.
• Apple has nearly 400 megawatts (MW) of solar, including on the roof of its headquarters, which is more than any other company in the U.S.

You'll notice here that the environmental focus is on everything from products to the impact corporate and retail stores have on the planet. That's the holistic view investors should want to see.

The social side could be equally as impactful for Apple. Apple Watch's focus on fitness is important, but it's the health monitoring features that I think really differentiate Apple. Not only will Apple tell you when you may be experiencing heart problems, but it enables users to participate in health studies through the Apple Watch, giving valuable data to researchers.

Apple is one of the few companies that incorporate an environmental focus and social impact on all of its products. It doesn't do that perfectly, but for a tech giant it makes as big an effort as anyone and that's why it's my top ESG stock.

Side with a winner

Howard Smith (Brookfield Renewable Partners): Sometimes investors can use a little help with the leg work. Adding a conglomerate like Berkshire Hathaway to your portfolio and letting an investor like Warren Buffett make the decisions isn't a bad way to go.

Another diversified holding company with proven capital allocators is the Brookfield Group. Parent company Brookfield Asset Management funnels capital to several of its publicly traded entities, including Brookfield Renewable Partners, which should be of interest to ESG investors.

Brookfield Renewable has an investment portfolio of over 5,300 power-generating facilities globally. Its ownership and investments consist of hydroelectric, solar, and wind power. Having the capital of parent Brookfield Asset Management has led to solid returns for the Brookfield infrastructure asset businesses over the last decade.

BAM data by YCharts

But it's not too late for investors looking to benefit from the green energy movement. In a recent investor presentation, the company highlighted several high-profile corporations that have plans to be using 100% renewable energy or be at least carbon neutral between 2025 and 2050. Those names include Amazon, Walmart, and Microsoft.

The trends toward renewable power generation have remained intact throughout the recent pandemic. While U.S. electricity generation was down 5% through the recession, fossil fuel generation over the same period was down 10%, while renewable generation was up 14%.

While Brookfield Renewable already has over $50 billion in operating renewable generation, it recently announced a shuffling of executive responsibilities, aiming to drive the next phase of growth in the renewable energy group.

With the talent in place at Brookfield Renewable, as well as a capital-rich parent in Brookfield Asset Management, investors looking to benefit from ESG investments can side with a proven winner by investing in Brookfield Renewable Partners.

Surprise! This steelmaker is a top ESG stock

Jason Hall (Steel Dynamics): Oftentimes, ESG investors simply eschew sectors that have bad environmental, health, or labor histories. To some extent this makes sense: Why invest in an oil stock when there are plenty of wonderful renewable energy companies out there? But on the other hand, conscious capitalism also requires investors put their money in companies making dirty industries cleaner and more sustainable.

Steel Dynamics hits the mark:

• 83% of the inputs are recycled or internally generated.
• 77% of inputs are sourced within 250 miles of a mill, lowering transportation emissions.
• Energy intensity and emissions are 11% and 13%, respectively, of global steel production averages.
• 99% of water is reused and 99% of mill byproducts are recycled.

Look, steel production is immensely important and necessary; investors can't just ignore this sector and hope for the best. A better approach is to invest in leaders like Steel Dynamics, which utilizes newer, cleaner steelmaking technologies to unlock many of the environmental benefits noted above, and also focuses its operations on minimizing transportation distances and other operational inefficiencies that cause environmental and economic harm.

It's not just about being a do-gooder in a bad industry, either: Steel Dynamics makes investors money. Since going public over 20 years ago it has trounced the S&P 500, and has held its own over the past five years:

STLD Total Return Level data by YCharts

It's also a good value now, with shares down about 7% from the high, and a dividend yield near 3% after more than a decade of yearly double-digit increases. If you really want to make money while making a better world, investing in Steel Dynamics is an excellent way to do it.

3 ways to look at ESG stocks

ESG stocks can be found in a number of industries, but the common theme is that these companies are thinking about and operating businesses differently than their competitors. That's what differentiates these companies and could make them long-term winners for investors.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Howard Smith owns shares of Amazon, Apple, Berkshire Hathaway (B shares), and Microsoft. Jason Hall owns shares of Brookfield Renewable Partners L.P. and Steel Dynamics. Travis Hoium owns shares of Apple and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), Brookfield Asset Management, and Microsoft and recommends the following options: long January 2022 $1920 calls on Amazon, short December 2020 $210 calls on Berkshire Hathaway (B shares), short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.