Ethical investing involves choosing investments based on ethical principles, such as environmental, religious, or social values. Unlike socially conscious investing, which follows a specific set of guidelines, ethical investing is more individualized. Investors typically avoid being involved in gambling, alcohol, or firearms, and carefully research to make sure their investments align with their values.
Other stocks that are avoided by ethical investors include the shares of companies where employees are mistreated, have high gender parity, or discriminate against employees due to their race, religion, or sexual orientation. Environmentally conscious companies are also a huge part of ethical investing.
Is Ethical Investing the Future?
A 2022 report by Stamford University noted that the younger generation considers ethical investing quite crucial. A 2022 survey of 2,470 individual investors, conducted by Stanford University's Rock Center for Corporate Governance, found significant differences in Environmental, Social, and Governance (ESG) preferences based on age and wealth. Younger and wealthier investors are more likely to support ESG initiatives, even at the expense of returns, while older and less wealthy investors are generally opposed.
Over recent years, support for ESG proposals has surged, with average support among S&P 500 companies increasing from 18% in 2012 to 35% in 2021, and the number of proposals passed rising from 0 to 28. The survey found that 70% of young investors (18-41 years old) are very concerned about environmental issues, compared to only 35% of older investors (58+ years old). Similarly, 65% of young investors are very concerned about social issues, versus 30% of older investors. When it comes to governance, 64% of younger investors express significant concern, while only 28% of older investors do.
Moreover, 86% of older investors would not give up any or only a trivial amount of returns for carbon emission reductions, while 64% of younger investors would give up moderate or large amounts. Additionally, 91% of older investors are unwilling to sacrifice returns for workplace diversity improvements, compared to 62% of younger investors who are willing to do so.
The survey also found that investor attitudes towards ESG differ across fund companies. Investors in State Street and Invesco funds exhibit nearly twice the concern for environmental issues compared to those in Fidelity funds. A significant percentage of investors in Fidelity (40-45%) and Vanguard funds are unwilling to forfeit returns for ESG, while a smaller percentage in American Funds and BlackRock (25-30%) share this reluctance.
Despite these differences, 83% of investors across all demographics believe that fund managers should consider their views when voting on ESG issues. The results suggest that fund managers might need to allocate votes on a proportional basis to reflect the diverse preferences of their investor base.
Our Methodology
For this article, we scoured through several threads to discover which companies were considered ethical according to the users. We narrowed down the list to 7 stocks that were most widely mentioned and used the hedge fund sentiment of each stock as a tie-breaker. The companies are listed in ascending order of the number of hedge fund holders as of the second quarter of 2024. The hedge fund data was taken from our database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician wearing a protective suit in a water treatment plant.
Ecolab Inc. (NYSE:ECL) is a leading global provider of water treatment, purification, and hygiene solutions. Initially, the company focused on innovative cleaning products but has since become a major player in the water, hygiene, and energy sectors. The company serves various industries, including food processing, healthcare, hospitality, and manufacturing, by offering technology and services that ensure water quality and safety.
Ecolab’s (NYSE:ECL) commitment to sustainability and innovation has solidified its position as a trusted partner in improving operational efficiencies and environmental outcomes for businesses worldwide. In 2024, it was recognized as one of the World’s Most Ethical Companies by Ethisphere for the 18th consecutive year. It is one of the best ethical companies to invest in.
Ethisphere Institute is a for-profit organization that specializes in defining, measuring, and promoting corporate ethical standards. The firm is well-known for its annual "World’s Most Ethical Companies" awards, which recognize organizations excelling in ethical business practices.
Moreover, Ecolab’s (NYSE:ECL) history is marked by key developments, from early sustainability efforts in the 1920s to pioneering initiatives like the Water Risk Monetizer and 3D TRASAR Technology. The company remains committed to diversity, equity, and inclusion, and has set ambitious 2030 Impact Goals to further its positive impact on the environment and society.
By 2030, the company aims to conserve 300 billion gallons of water annually, which is equivalent to the daily drinking water needs of over 1 billion people. It plans to reduce its greenhouse gas emissions by 50% while helping customers avoid 6 million metric tons of CO2 emissions each year.
Ecolab (NYSE:ECL) is also focused on enhancing food safety and reducing hospital-acquired infections and has a goal to prevent 1.7 million foodborne illnesses and 10 million hospital-acquired infections annually. Additionally, the company is committed to nurturing diversity, equity, and inclusion. It is striving to increase the representation of women and black, Indigenous, and other people of color executives by 50% and ensuring that 35% of all new hires are people of color.
As of the second quarter of 2024, 42 hedge funds held Ecolab (NYSE:ECL) shares worth $2.82 billion. As of June 30, the Bill & Melinda Gates Foundation Trust is the company’s most significant shareholder with 5.22 million shares worth $1.24 billion.
Overall ECL ranks 6th on our list of best ethical companies to invest in. While we acknowledge the potential of ECL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ECL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
