$47 billion swept into 'ESG' stocks last year — and here are Wall Street's favorites

Published Tue, Feb 16 20211:54 AM EST

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Wall Street's biggest banks have listed their top stocks for environmental, social and governance (ESG) factors in a sector that has soared in popularity in recent years. In the U.S. last year, investors pumped $47 billion into investment strategies that take ESG features into account, as well as financial metrics, according to Goldman Sachs . That's almost double the amount of the previous five years combined. Analysts from Credit Suisse listed several "high quality" U.S. ESG stocks that investors are currently "missing," and Morgan Stanley , meanwhile, chose top picks in oil and gas as companies face a "reckoning with climate-related risks." Wells Fargo listed food stocks it believes are ahead of tougher European ESG regulations. Goldman listed household names with high environmental and social scores in entertainment, food and beverage, financial services and tech. Here's the complete list of the investment banks' top ESG picks. Goldman's analysts warned that the definition of ESG can be unclear and the data "unchallenged." It has created its own scoring system for companies — the GS SUSTAIN framework — ranking firms based on 73 environmental and social factors such as greenhouse gas emissions, flexible working policies, waste recycling, diversity targets and the management of labor in supply chains. Based on this framework, its top U.S. stocks include firms in the consumer discretionary, IT, energy and health care industries. Top of Goldman's picks in the communications services sector is Interpublic , while auto supplier BorgWarner ranks first in consumer discretionary. Food group General Mills comes first in consumer staples and Phillips 66 is Goldman's only energy pick. Investment manager Principal Financial Group comes first in the finance sector, while health insurer Cigna is Goldman's top pick in healthcare. Manufacturing firm Rockwell Automation leads the industrials category and software business Nvidia is first in IT. Packaging firm Ball Corp is Goldman's only pick in the materials sector, while Regency Centers is the solo choice under real estate. NextEra Energy ranks first in utilities. Missing ESG picks Credit Suisse has listed the most popular U.S. stocks appearing in ESG funds, and those with the highest ESG scores are Microsoft , Amazon , chemicals company Linde and water tech firm Xylem , with ratings of 80 or above. The bank uses ESG ratings from data company Refinitiv, which takes into account more than 180 measures per sector to create an overall score. However, the bank also noted several "missing" stocks that are ESG "leaders" and that are not in the current top holdings of its ESG funds, but have high ESG scores, including seven U.S. companies. They are rated "outperform" by Credit Suisse and are "strong candidates" in ESG, per a recent note written by analysts led by Eugene Klerk. These are Target , Walmart , Lowes , PVH — owner of brands including Tommy Hilfiger and Calvin Klein — life sciences company LabCorp , heating equipment firm Trane Technologies and data center real estate investment trust Digital Realty . All seven have ESG ratings of 75 or above above, and all companies on the list have "a very long period of above average and stable cash flow returns." "ESG investors' top holdings have largely been made up of large- or mega-cap stocks that score well on ESG with the ESG rating companies. Given the strong performance seen by many of these companies during the past year or two, we expect ESG investors to cast a wider net when looking for new investment opportunities," Klerk said in an email to CNBC. Top food ESG stocks Wells Fargo, meanwhile, has listed its top food stocks for "progressive thinking and execution," saying that the sector "restored volume growth" and is more likely to be able to deal with environmental issues than airlines, industrials or energy. It warned that as most of the governments that have signed up to the Paris Agreement are not yet meeting their commitments, there is a "very real" risk of tighter regulation from the EU, including higher carbon taxes than the current €33/ton. But its stock picks are "ahead of the regulatory curve," choosing French company Danone for its stance on emissions, packaging and accounting, General Mills (also a Goldman pick) for its packaging and regenerative agriculture, and Mondelez , Hershey and frozen food company Nomad Foods for sourcing. "As companies struggle to reinvent in a world increasingly driven by millennial/Gen Z consumers, we believe corporate values will be increasingly impactful in purchase decisions," Wells Fargo's analysts led by John Baumgartner wrote in a note. Morgan Stanley's picks Jessica Alsford, global head of sustainability research at Morgan Stanley, said health tech company Philips and certification company Bureau Veritas stood out as ESG picks. "From airline emission certifications to lab tested factory effluence to renewables capex inspection services, Bureau Veritas is an integral second pair of eyes for businesses on their sustainability credentials," she said in an email to CNBC. Philips' telehealth services focus on improving lives and making health care affordable, she added. Separately, Morgan Stanley's analysts said in a recent note that U.S. oil and gas stocks are at a "pivot point," as companies reviewed their business models in light of the coronavirus pandemic "including a reckoning with climate-related risks." It noted that U.S. major oil companies are behind their European peers when it comes to sustainability. Its picks, based on analysis of emissions, climate strategy and ESG disclosures, are majors Chevron and Exxon Mobil , global exploration and production companies ConocoPhillips and Occidental Petroleum , and smaller firms Hess and EQT .

A Wall Street street sign is displayed in front of the New York Stock Exchange (NYSE) in New York, U.S., on Thursday, Feb. 11, 2021.

Bloomberg | Getty Images

Analysts at Wall Street's biggest banks have listed their top stocks for environmental, social and governance (ESG) factors in a sector that has soared in popularity in recent years.

In the U.S. last year, investors pumped $47 billion into investment strategies that take ESG features into account, as well as financial metrics, according to Goldman Sachs. That's almost double the amount of the previous five years combined.

Analysts from Credit Suisse listed several "high quality" U.S. ESG stocks that investors are currently "missing," and Morgan Stanley, meanwhile, chose top picks in oil and gas as companies face a "reckoning with climate-related risks." Wells Fargo listed food stocks it believes are ahead of tougher European ESG regulations.

Goldman listed household names with high environmental and social scores in entertainment, food and beverage, financial services and tech.

Here's the complete list of the investment banks' top ESG picks.