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Best Sustainable Companies to Own: 2023 Edition

We believe these companies’ strong ESG management practices give them a long-term advantage.

Editor's Note
A previous version of this article appeared on Aug. 11, 2022.

Companies with wide moats are difficult to compete with. And this advantage is especially appealing when paired with solid management of environmental, social, and governance risk.

In other words, durability and sustainability, or what's called ESG, are natural partners. ESG keeps a close eye on long-term risks that aren't articulated by traditional finance.

All companies faces some sustainability risk, not least because of the industries in which they operate. For example, an oil and gas company will be highly exposed to potential environmental problems, while a consumer technology business will be exposed to social risks like data privacy violations.

Indeed, Morningstar research finds that the biggest ESG risk is in energy and utilities, with the smallest in technology and real estate.

A company’s approach to sustainability demonstrates how it anticipates and addresses these long-term risks. Companies that mishandle ESG issues could incur significant economic costs that jeopardize their ability to earn long-term, sustainable profits.

Morningstar Sustainalytics measures this with the Sustainalytics ESG Risk Rating. It considers two main factors—exposure, or a company’s vulnerability to ESG risk, and management, which describes actions taken by a company to manage a particular ESG issue—and blends them into a single score. The lower the number, the lower the risk.

In the table below, we refined our Best Companies to Own in 2023 list to highlight the ones with Morningstar ESG Risk Rating Assessments of Negligible or Low. This rating is based on the ESG Risk Rating.

We didn’t include valuations for these companies. Rather, we focused on the criteria that set a company up for success in the long term. So, while not all of these names can be considered a buy today, this can serve as a great watchlist.

Here are the 53 companies that made the cut, ranked by the risk score.

Table showing the 53 companies that are on Morningstar's Best Companies both and also have Negligible or Low ESG Risk Ratings.

You can explore the ESG Risk Rating score of each company under Morningstar coverage in the Sustainability tab of its stock quote page on Morningstar.com.

Keysight Technologies KEYS

Keysight Technologies is the leader in communications testing and measurement solutions. We think it has the strongest and broadest communications testing capabilities in the market across hardware, software, and services. Its wide Morningstar Economic Moat Rating, according to analyst William Kerwin, is due to “intangible assets in the design of test and measurement equipment and software and switching costs for its portfolio of solutions.”

Because of Keysight’s strong ESG reporting and oversight of ESG issues, Sustainalytics gives the company an ESG Risk Management rating of Strong. Sustainalytics notes that the firm has implemented a strong whistleblower program, has an adequate policy governing environmental issues, and employs solid social supply chain standards.

Keysight’s greatest material ESG issue is the risk of losing human capital to competitors, but we don’t think this is likely to happen, and we think the firm’s strong variable compensation program helps retain talent.

The only recent controversy attributed to Keysight is an investigation into alleged patent infringement practices. Still, this incident had minimal impact on Sustainalytics’ broader analysis of the firm’s ESG practices.

Accenture ACN

Consulting firm Accenture has the lowest Sustainalytics ESG Risk Rating of all the high-quality companies on our list. The firm’s risk is mainly related to its exposure to cyberattacks and its dependency on specialized talent, such as IT consultants and engineers, as it tries to keep up with client demand.

Clearly, Accenture is taking sustainability considerations seriously. Accenture CEO Julie Sweet noted during a quarterly call that sustainability “is a critical area for which technology is still evolving. … We believe that every business must be a sustainable business, and yet companies are at very early stages of figuring out how to make this shift.”

Sustainalytics gives Accenture an ESG Risk Management rating of Strong. The board has a comprehensive data privacy policy. To attract and keep employees, Accenture has set gender and racial diversity targets and provides same-sex and gender-transition benefits. It is building employee skills in high-demand technologies like the cloud.

Morningstar analyst Julie Bhusal Sharma is a fan, citing Accenture’s strong reputation for reliability and its “treasure trove of institutionalized industry expertise and experience.” Accenture’s technological and strategic know-how, paired with its attention to sustainability considerations, is helping bolster profits. In fiscal-year 2021, Accenture’s operating margin widened to 15.1%, having expanded steadily over the previous decade.

Moody’s MCO

Moody’s, along with S&P ratings, is the market leader in providing credit ratings on fixed-income securities. The company earns a wide moat rating because of its intangible assets and the network effects in its rating business. In regard to its network effect, Morningstar analyst Rajiv Bhatia says that “credit ratings provide value to bond issuers as well as bond investors. … Bond issuers value credit ratings from Moody’s and S&P because of their wide acceptance among asset owners and asset managers.”

Moody’s management of material ESG issues also nets a ESG Risk Management assessment of Strong from Sustainalytics. Moody’s has strong management of its human capital and ethical and cybersecurity risks, according to Sustainalytics. Some of its strengths are offset by limited disclosure on gender pay, third-party data policies, and lack of disclosure on the nature, volume, or resolution of whistleblower reports received.

One controversy around business ethics did reach the level of “moderate.” In March 2021, the European Securities and Markets Authority issued a EUR 3.7 million (USD 4.3 million) fine against five Moody’s Investors Service branches over allegations that they negligently breached conflict-of-interest regulations.

Sustainable Companies Can Still Have Controversies

Clearly, a spot on this list doesn’t mean that a company’s sustainability efforts are flawless.

For example, in 2021, several shareholders called for Berkshire Hathaway BRK.A to publish an annual assessment of how it manages climate risks and handles diversity and inclusion efforts. CEO Warren Buffett and Berkshire’s directors recommended against it, saying that its subsidiaries “are already making sound climate-related decisions” and that its decentralized businesses are “individually responsible” for their own diversity initiatives. And indeed, the resolution ultimately did not pass.

That said, Berkshire’s energy division has a Morningstar Portfolio Carbon Risk Score that places it in the High category. Coal and natural gas generation accounted for 33% and 30%, respectively, of 2020 owned power generation.

Even so, Berkshire holds a spot in our catalog of sustainable companies because it is on the right track to transition the bulk of its power generation to renewable and noncarbon sources by 2050. As Morningstar sector strategist Greggory Warren observes, “While [Berkshire Hathaway Energy] has not declared a net-zero emissions target, it has already seen a nearly 40% decline in carbon emissions over the past 15 years, with management recently noting that it will have reduced emissions 50% below 2005 levels by 2030.”

Sustainable Companies Will Continue to Be Sustainable

Remember, this list is about long-term sustainability—not valuations. For guidance in that area, you can look to the Morningstar US Sustainability Moat Focus Index.

From that perspective, not all the names on this catalog of low-ESG-risk companies with wide moat ratings can be considered a buy at the moment. Still, for investors interested in managing long-term ESG risks, they’re worth keeping a close eye on.

This article is based on the 2023 edition of Morningstar’s Best Companies to Own. Find the full list of companies and read about our selection methodology.

Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. Please click here for a list of investable products that track or have tracked a Morningstar index. Morningstar, Inc. does not market, sell, or make any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.

Leslie Norton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.