Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below.
If you want high returns in the stock market, you may want to stay away from ESG stocks. The Kiplinger ESG 20 returned an average of 4.3% over the past year. That’s less than one-third of the S&P 500’s 15.9% return over the same stretch.
Kiplinger added that only six of its 15 stocks outperformed the index, and only one of the company’s favorite ESG funds outperformed the S&P 500.
ESG investing faced several hurdles last year due to social media pressure that caused companies to retreat from their previously stated ESG objectives.
Don’t Miss:
Although DEI has lost considerable steam, especially with President Donald Trump’s re-election, it’s not the main culprit for ESG’s underperformance. This investing strategy has been struggling for a few years. Morningstar (NASDAQ:MORN) reported last year that 2023 was the worst calendar year ever for ESG stocks.
Morningstar had been tracking ESG stocks and funds for more than a decade at that point, and “lagging performance” was the first cited reason for 2023’s lackluster performance. Morningstar also said that ESG stocks had underperformed regular stocks in 2022 and 2023.
Morningstar cited “high interest rates and supply chain disruptions” as reasons for underperformance, but every stock, small business, and consumer endured those same challenges.
Trending: Earn While You Scroll: The Deloitte-Ranked #1 Software Company Growing 32,481% Is Opening Its $0.50/Share Round to Accredited Investors.
It’s fair for investors to seek assets that can maximize their returns, but ESG has to remove several high-growth stocks from consideration due to ESG issues. However, it is shocking that multiple AI stocks made their way on the Kiplinger ESG 20 list, which can cast further confusion on what makes an ESG stock.
The issue with AI stocks from an ESG perspective is that computing power eats up a lot of energy. However, that didn’t stop the company from adding Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA) to its list.
Kiplinger said that Microsoft’s goal to be carbon negative and water positive by 2030 kept it on the list. The company cited Nvidia’s board and compensation practices to justify its place in the Kiplinger ESG 20 list. It’s hard to say that ESG played a critical role in the company’s success. Nvidia’s independent board may not have achieved the same success if it were running a clothing store instead of an AI chipmaker.
