Microsoft, IBD's Best ESG Company for 2023, is a member of the "Magnificent Seven" club of tech titans and one of the best-performing stocks on the planet. But the gargantuan company with a $2.4 trillion market cap isn't just a stock market leader. Microsoft also leads in sustainability and ESG and has earned street cred for prioritizing people and the planet.
It's a first mover in cutting carbon emissions in the fight against climate change. Microsoft also is using its digital technology to help its thousands of corporate customers achieve their own sustainability goals. Moreover, it is supporting the White House's AI Bill of Rights, and confronting workplace issues.
Microsoft, headed by CEO Satya Nadella, is committed to delivering returns to shareholders and helping both the company and the entire globe forge a path to a more sustainable future.
Microsoft, the software company that has emerged as a leader in cloud computing and a major player in AI, ranks No. 1 as the best ESG company in IBD's fifth annual 100 Best ESG Companies for 2023 list.
Read Our Full Special Report On IBD's 2023 100 Best ESG Companies, Our Feature Story On Green Patent Innovation And See The Full List Of Winners.
Microsoft not only was named Best ESG Company for 2023, it also leads the industry category rankings in the computer sector. Plus, it leads our list of winners in sustainability dimensions for business model and innovation.
Following Microsoft in the list of Best ESG Companies are Applied Materials in second place and Woodward in third place.
Read our profiles of the other top stocks:
- At Applied Materials, Cutting Carbon Emissions Is A Team Effort
- Woodward's Focus On Energy Pays Off with High ESG Score, Strong Stock Performance
Best ESG Companies Methodology
Public companies that made our Best ESG Company list for 2023 combine high Dow Jones sustainability scores with superior IBD technical and fundamental stock ratings. They are standouts for ESG investing.
To build the 2023 100 Best ESG Companies list, we started with each company's environmental, social and governance (ESG) sustainability score created by Dow Jones Newswires, an IBD affiliate. These scores capture a broad spectrum of information on the ESG profile of more than 6,000 global companies.
On Aug. 24, IBD asked Dow Jones for an ESG-scored list of all the U.S.-traded companies it tracks, a total of 2,067. We then cut the list to 1,559 companies on Aug. 25 by removing nonpublic companies and companies with stock prices below $10 a share. We also removed any companies that lacked sufficient data to create an IBD Composite Rating.
We further qualified the list by removing those companies that did not meet or beat the S&P 500 in the past five years. We selected the 100 with the highest IBD Composite Rating — all with scores of 81 or better. To break any ties, we looked at companies' Relative Strength Rating and then, if needed, their EPS Rating. Finally, we ranked the 100 companies by Dow Jones' ESG score.
Microsoft earned the top spot on IBD's list as best ESG company based on a combination of a top-ranked ESG score (72.76) from Dow Jones, a very strong IBD Composite Rating (98), which gauges a stock's strength, as well as posting a better return than the S&P 500 over a five-year period (202.5% vs. 55.3% for the benchmark index).
Microsoft's Pursuit of Sustainability
Microsoft, which went public in 1986 under then-CEO Bill Gates, views its pursuit and push for sustainability as a win-win for both its bottom line and the planet.
"Our company can only do well if the world is doing well," Melanie Nakagawa, chief sustainability officer at Microsoft, told IBD. "So, we see our work on sustainability for the planet and people as inextricably linked to the success of our business. (We) have embedded sustainability into everything our company does."
When thinking about environmental sustainability, though, Microsoft doesn't just focus on getting their own house in order. The company takes a three-pronged approach. It's working to reduce its own environmental footprint. It's helping its customers build sustainable solutions and reliably measure and report on progress. It's also advocating for global policies that it believes will benefit the environment and combat climate change.
Best ESG Company: Microsoft In The Cloud
To that end, the company has launched Microsoft Cloud for Sustainability, a platform of digital tools that helps its customers and other organizations measure and manage their environmental impact as well as better prepare them to meet new reporting requirements.
"No single company, organization or government can do this alone," said Nakagawa. "This isn't a Microsoft-only challenge."
Microsoft's commitment to sustainability has not been lost on the investment community that incorporates ESG and sustainability into its investing framework.
"Not every company can be like Microsoft when it comes to ESG; they set the bar for other companies," said Marian Macindoe, head of ESG stewardship at Parnassus Investments, which specializes in sustainable investing. "They are first movers on climate change. When people saw they were going carbon negative, people were like, 'I didn't even know that was a possibility.'"
What sets Microsoft apart from other companies is it identifies the issues that are material to the long-term success of its business, or which pose risk. It then spends the time and energy to address how it's going to manage those risks. "They're just not playing Whack-a-Mole," said Macindoe.
Carbon Negative, Water Positive, Zero Waste
For its own part, Microsoft is striving to achieve the ambitious sustainability goals it laid out for itself in 2020. It's working to be a carbon negative, water positive, zero waste company by 2030. (A carbon negative company is one that removes more carbon dioxide from the atmosphere than it emits.)
Microsoft has also pledged to remove from the environment by 2050 all the carbon the company has emitted since its inception in 1975. Microsoft's pledge has earned it a UN Global Action Award in 2021 for being the first company "to commit to recovering historic emissions."
The company says it's working hard to turn pledges into progress.
"We are firmly focused on achieving what we've laid out and making the right long-term investments that support the sustainability of our business for decades to come," said Nakagawa.
As part of that push, Microsoft, which is one of the largest corporate buyers of renewable energy, is advocating for clean energy policies, supporting the development of carbon accounting standards, and helping realize the potential of next-gen AI to accelerate sustainability solutions, says Nakagawa.
Best ESG Companies: More Than Green, Going For Good
But Microsoft isn't just a leading voice in addressing climate change or so-called green issues. It's also a leader on the S and G pillars of ESG, says Jason Qi, a research analyst at responsible investing firm Calvert Research and Investment. The tech company, he says, earns high marks when it comes to human capital management, data security and privacy. "We've seen a very consistent and solid track record from Microsoft on ESG," said Qi.
Macindoe cites a situation in which Microsoft exhibited its commitment to social issues within its own walls. When Microsoft shareholders voted in late 2021 to make the company more transparent about harassment and gender discrimination issues, the company rolled out a report less than a year later that included an action plan to prevent future harassment cases.
"I mean, that is just above and beyond," said Macindoe. "When you do the report, then you make public the things you've done wrong, and then strive to improve. I mean, that's authenticity and humility that makes a good ESG investment or any investment."
Backing Voluntary AI Principles
Similarly, the fact that Microsoft is joining forces with lawmakers and other tech leaders to ensure AI is safe, secure and trustworthy is another sign that the company recognizes that AI poses a potential risk to its business. AI, of course, poses risks related to data privacy, business ethics, and job security.
"As one of the first companies to come out and back these voluntary AI principles, they're acknowledging, 'Hey, look, this is something we need to think about on the front end,'" said Macindoe.
To be sure, Microsoft, as a tech company, has a smaller environmental footprint than, say, oil and gas companies and natural resource companies, says Qi. Still, Microsoft is using its core strength and its technological innovation to help achieve sustainable solutions.
"Technology is the core enabler of many sustainability (initiatives)," said Qi. "And Microsoft is playing a very important role to help society and the world become a better place."
Microsoft puts its money where its mouth is, too. Its $1 billion Climate Innovation Fund makes investments to help build new markets for sustainable solutions. It also funds climate innovators and provides capital to new growth areas such as energy storage and carbon removal. AI is also emerging as a powerful accelerant for producing solutions to the climate crisis, the company says.
"A lot of the climate technology the world will need is still nascent," said Nakagawa. "That's why we are investing and driving market growth as an early adopter of solutions like carbon removal technology, low carbon building materials, and sustainable aviation fuel."
Room For Improvement With Regulators
Microsoft, of course, isn't perfect. One area the tech giant can improve on from an ESG perspective, says Qi, is bettering its relationships with regulators around the world. Microsoft's biggest risks, for example, could come from increasing scrutiny from international regulators on antitrust issues and emerging technologies.
Challenges aside, when it comes to ESG, Microsoft is all-in and takes its leadership position seriously, says Macindoe.
"I've been doing this for 19 years, and Microsoft is always at the table," said Macindoe. "They always show up. If there's an ESG leaders' meeting with 10 people, Microsoft is going to be there. Because they want to learn, they want to share and they want to be responsive."
