Thanks to a bull market in news coverage on ESG investing, finding under-the-radar stocks with top ESG credentials is as challenging as meeting net-zero emission goals. But it's not impossible.
Take a look at Worthington Industries. Driven by green products and fair hiring, Columbus, Ohio-based Worthington Industries ranks No. 1 on IBD's 100 Best ESG Companies for 2022. It's also No. 1 in industrials, one of IBD's eight categories for 2022.
The $2.1-billion industrial manufacturing company is a small- to mid-cap stock. It makes propane tanks found in backyard barbecue grills, garden and construction tools. And it sells electrical steel laminations used in electric vehicle (EV) motors.
Worthington Industries is proof that a smaller company can make a big impact when it comes to protecting the planet, promoting diversity and practicing good corporate governance.
It was the best ESG company out of 2,208 U.S. public companies based on a combination of a top-ranked ESG score (75.8) from rating agency Dow Jones and a strong IBD Composite Rating (88), as well as other IBD ratings, which gauge a company's financial strength. To see its current ratings and the WOR stock chart visit IBD's Stock Checkup page.
Coming out at No. 1 on the list, it topped J.B. Hunt Transport Services and Verisk Analytics. And it beat technology behemoths Texas Instruments and Apple, which finished fourth and fifth respectively on this year's Best ESG Companies list.
Top ESG Company: Green Products Power Worthington
Founded back in 1955, Worthington recently released its 78-page 2022 Corporate Citizenship and Sustainability Report. But its first goal remains generating returns for shareholders.
"We've always practiced good corporate citizenship," said Sonya Higginbotham, vice president of corporate communications. She's leading the company's sustainability efforts. "And we have become more and more focused on that in recent years. (As an ESG company), we've identified our ability to make a better impact on the world through our products and services."
She added: "From a growth perspective, we have a sustainability mindset."
Worthington plans to reach net-zero greenhouse emissions by 2050.
Another program: Worthington's Green Star Initiative. It rewards manufacturing facilities that show improvements in energy usage, waste production and water consumption and motivates workers to buy-in.
Installing solar panels at its corporate headquarters, leading a recycling effort for residential gas cylinders used for grilling and camping and making more products with longer life spans, also help reduce the company's environmental footprint.
"We want to demonstrate that we're committed to making an impact on climate change," Higginbotham said.
Expanding Into Environmentally Friendly Businesses
Worthington also is moving aggressively into environmentally friendly businesses, such as the electrification of transportation. Its products and services include ones focused on so-called "light-weighting." That means building car components that are stronger and lighter, and thus help improve fuel efficiency and driver safety.
Used in EV charging stations and wind turbines, its electrical steel laminations help generate clean and renewable electricity.
Plus it's new SmartLid monitoring system for heating-system propane tanks enables remote tracking of tank levels. The technology lowers emissions by reducing the need for service reps to drive around and see if tanks need to be refilled.
"It's a gamechanger," Higginbotham said. "You don't have all those trucks on the road needlessly."
This year, it has also created a Sustainable Energy Solutions business segment focused on the development of green hydrogen and natural gas fuel sources.
Company Split Will Create Two ESG Investing Options
Soon Worthington will provide two ESG investing opportunities. In late September, it announced plans to separate into two different companies and stocks. Worthington says splitting in two will enhance growth by allowing it to focus on more specialized businesses.
Its steel processing business will become a stand-alone company. The second company will focus on fast-growing markets in its consumer products, building products and sustainable energy solutions businesses. Each company will keep Worthington in its name.
Worthington says the split should be completed by early 2024.
Over time, the split should "simplify the Worthington story and unlock value," BMO Capital Markets analyst Katja Jancic noted in a research report. BMO currently has a $52 price target for WOR.
Diversity In Product And Workers
The company's continued push to diversify its product line and move into higher-growth markets, such as electrical steel in the EV business, as well as higher-margin building and consumer products businesses is bullish, Jancic said.
"It should translate to higher earnings resiliency versus peers over time," Jancic said.
Worthington Industries' ESG focus goes well beyond protecting the environment. Worthington puts "people first," earning it high marks when it comes to the "S," or social part of ESG.
Its adheres to the Golden Rule. "We treat our customers, employees, investors and suppliers as we would like to be treated," said Higginbotham.
Diversity and an inclusive workforce are also Worthington goals. In 2022, it hired its first-ever director of diversity, equity and inclusion, a job tasked with attracting more diverse workers and suppliers.
Broader recruiting can help. The company taps a pipeline of talent in local high schools as well as traditionally black colleges like Central State University in Wilberforce, Ohio. Half of the company's interns this past summer were minority applicants, Higginbotham says.
Diversity is a goal and an ethical imperative. But it also boosts the company's bottom line." Diverse thought drives better innovation, and better innovation brings us better results," Higginbotham said.
When it comes to corporate governance, the "G" in ESG, Worthington's board of directors is on deck. "ESG commitment starts at the top," Higginbotham said.
Undoubtedly, an independent board offers more diverse views. Ten of Worthington's 11 directors are independent.
