3 ESG Names That Might Surprise You

Environmental, social, and governance investments have been a hot topic over the last few years as investors are looking for companies that are doing good for the world. That’s helped push money into wind, solar, energy storage, recycling, and companies being run in a sustainable way. 

We asked three Fool contributors for their top ESG picks and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Nucor (NYSE:NUE), and Waste Management (NYSE:WM) bubbled to the top of the list. 

Image source: Getty Images.

The tech giant that’s big in ESG

Travis Hoium (Alphabet): Big tech stocks may not be the first place you would think to look for ESG ideas, but Alphabet has been a leader in the space for more than a decade. There are two main ways the company invests in ESG. The first is through making its global operations clean. Since 2007, Google has been carbon-neutral and it has a goal of being completely carbon-free by 2030. 

The second, and potentially more impactful, investments are through building companies that have a positive impact on the world: 

• A company called Tidal is building a “camera system and machine perception tools” that will bring visibility to the ocean. This aims to drive sustainable fishing and ocean management around the world. 
• Malta is building a molten salt system to store renewable energy. Wind and solar energy are inherently volatile and don’t necessarily produce energy when customers need it and this company aims to bridge that gap by storing energy at a grid-scale in heated salt. 
• Dandelion is developing geothermal systems that can heat and cool homes more efficiently than previous designs. This will use the heating and cooling power under our feet, rather than natural gas or electricity to heat and cool homes.

Not every bet in new technology works out, like solar thermal power plants or a project to build kites that captured wind energy. But the fact that ESG is core to Alphabet’s business should be seen as a great thing long-term. 

A big player on both sides of renewables

Howard Smith (Nucor): When you think of industries leading the push for sustainable manufacturing, the steel sector probably isn’t the first to come to mind. But with its use of scrap-based electric arc furnaces, Nucor is a leading steel producer that is also North America’s largest recycler. Its finished products are 100% recyclable, and Nucor’s production contained more than 70% recycled content in 2019. 

Nucor CEO Leon Topalian took the helm in January 2020, and he’s made it clear he wants to do a better job telling the company’s sustainability story. Topalian is also actively moving to add power purchase agreements, or PPAs, in which the company uses the renewable power being generated on long-term supply contracts, and also intends to supply steel for the solar and wind projects under construction in some cases. 

A Nucor steel mill in Texas. Image source: Nucor.

Nucor currently has two long-term contracts for PPAs in Texas using both solar and wind totaling 350 megawatts of generation. The company also has a 10-year contract with its energy provider in part of the Midwest for a 55 MW allocation of energy from a new wind farm being built in Clark County, Kansas. Nucor’s new rebar micro-mill in nearby Sedalia, Missouri, will receive the contracted power. Nucor’s participation will allow it to receive renewable energy credits to offset its carbon emissions.

The company also recently entered into a supply agreement with solar power technology company Array Technologies (NASDAQ:ARRY) where Nucor will add to its growing customer base in the renewable energy sector. It also announced a $1 billion acquisition of an insulated metal panels business in June. The business provides building solutions using an energy-efficient foam core sandwiched between two layers of steel or aluminum. 

Even though Nucor says its greenhouse gas intensity is already less than one-third the global industry average, it has also committed to further reduce the greenhouse gas emissions intensity of its steel mills to 77% less than that average by 2030. The steel market is strong right now, and Nucor believes it will continue to earn record profits for the balance of this year. Investors who want a part of an ESG-focused company might be surprised that there is one very profitable such company in the steel industry. 

Managing a major responsibility

Daniel Foelber (Waste Management): “Reduce, reuse, recycle” has long been a slogan for environmental advocacy. As the largest waste collection, transportation, and storage company in the U.S., Waste Management is at the forefront of tackling the environmental consequences of residential, commercial, and industrial trash. The company deserves credit for being America’s largest recycling company. However, the reality is that its landfill volumes are much higher. Proper landfill management can be a key driver to limit landfill gas emissions. Landfill gas is produced as organic material decomposes. According to the U.S. Environmental Protection Agency, landfill gas contributed 15% of America’s 2019 methane emissions. 

Aside from reducing landfill gas altogether, technologies like nitrogen removal units can remove nitrogen from landfill gas so that the gas can be used as a renewable energy source — hence the term “renewable natural gas.” Similar to sustainable aviation fuel, biofuels, and other alternative energy types, the market for renewable natural gas remains unproven. But it’s something companies like Waste Management can explore as the world becomes increasingly invested in adopting ESG practices throughout the energy and industrial sectors.

Another category Waste Management has been exploring is the reuse of organic compounds for mechanical and chemical processes. The company sees a lot of potential in the sustainability industry, so it promoted longtime executive Tara Hemmer to lead its new sustainability division. Waste Management could serve as a partner for companies that are looking for ways to reduce their carbon footprint or convert more of their trash toward recycling.

Waste Management’s specific ESG endeavors are impressive, but it’s worth mentioning the strength of the underlying business has never been better. The company proved its resilience to the COVID-19 pandemic and is off to a great start so far this year, too. Given its track record of dividend raises and the multi-decade tailwind of a growing population that consumes more stuff (and therefore produces more waste), Waste Management is an ESG stock worth buying for the long haul. 

A future in ESG

Each of these companies has a different angle on ESG, but that’s what’s great about the investing trend. Investors can find companies that fit their view of environmentalism, sustainability, and governance and invest accordingly. Right now, Alphabet, Nucor, and Waste Management are our top picks.