In an era where Environmental, Social, and Governance (ESG) factors are increasingly influencing investment decisions, identifying truly ethical companies requires some digging.
Companies with an ethical approach to how they do business are becoming increasingly popular with investors. First of all, they have a feel-good factor that is increasingly important to many.
There has been a seismic change in terms of the weight given to ethical concerns when selecting stocks. It’s not just retail investors who are being selective. Huge institutional investment firms are also considering ESG and CSR factors, and the trend looks set to continue.
Individual preference plays a big part in determining what element of ethics each investor might consider. Some may want to buy cruelty-free stocks, while others may be interested in clean energy stocks.
While none are explicitly marketed as “ethical investments,” a closer look reveals varying degrees of alignment with ESG principles, offering investors a spectrum of options.
Ecolab (ECL)
Ecolab, a global leader in water, hygiene, and infection prevention solutions, presents a straightforward ethical narrative. Its products and services help businesses reduce water consumption, improve hygiene standards, and prevent infections, contributing directly to public health and environmental protection.
The company’s extended collaboration with Microsoft to enhance water data visibility, integrating its ECOLAB3D™ platform with Microsoft’s Cloud for Sustainability, further solidifies its commitment to data-driven sustainability solutions. This initiative aims to help organizations unify water and sustainability data, reduce water consumption and costs, and identify energy savings opportunities.
Ecolab’s recent investment in Fingermark, a company specializing in AI solutions for foodservice operations, demonstrates its proactive approach to addressing operational challenges and enhancing customer experiences through innovative technology. Furthermore, Ecolab’s 2025 commitment to water conservation in the AI era, reporting over 226 billion gallons conserved in 2024 and aiming for 300 billion annually by 2030, reinforces its dedication to sustainable water management.
Analyst ratings remain in line with current pricing, with Wells Fargo & Company reiterating a price target of $260.00 in May 2025. With the ECL stock price having gained 14% since the start of the year, the company has managed to outperform the market on the period whilst holding true to it’s ethical standing.
While its dividend yield of approximately 1.1% is slightly higher than others on the list, its P/E ratio of around 38x indicates a similar valuation based on future earnings potential.
Microsoft (MSFT)
Microsoft presents a complex ethical profile. On one hand, its commitment to carbon neutrality, investments in renewable energy, and initiatives to bridge the digital divide are commendable. Furthermore, the appointment of Judson Althoff, Microsoft’s Chief Commercial Officer, to Ecolab’s board in early 2024 signals a deeper commitment to collaborative sustainability efforts.
Microsoft’s cloud services, especially Azure, are increasingly utilized by companies striving for greater efficiency and reduced environmental impact. The company’s proactive stance on AI ethics, though still evolving, demonstrates a willingness to address the potential societal implications of its technologies.
The stock’s impressive 20% YTD return and a consensus analyst price target of $475 reflect market confidence in its financial stability and future growth, primarily driven by its cloud and AI segments, making it one to keep on shortlists.
However, concerns remain amongst some quarters when it comes to Microsoft’s market dominance and potential anti-competitive practices. The company’s vast global supply chain also presents ethical challenges, demanding rigorous oversight to ensure fair labor practices and environmental responsibility across its manufacturing partners.
While Microsoft offers a modest dividend yield of around 0.7%, its high P/E ratio of approximately 36x suggests a premium valuation reflecting its growth potential rather than a focus on immediate shareholder returns. The company’s low debt-to-equity ratio underscores its financial strength, allowing it to invest heavily in research and development and pursue ambitious sustainability goals.
United Natural Foods (UNFI)
United Natural Foods’ stock (UNFI) has pulled back ~15% this year, although remains firmly higher over the past 12 months, with a gain of more than 70%. The company, a leading distributor of natural, organic, and specialty foods, presents the most challenging investment case with the recent cyber incident causing a sharp pullback in the stock. This could in fact be an opportunity.
UNFI’s relatively high debt load and volatile earnings make it a riskier investment compared to Microsoft and Ecolab. While its revenue has grown through acquisitions, profitability remains a significant challenge.
The company’s supply chain, spanning numerous farms and producers, requires rigorous oversight to ensure fair labor practices and sustainable agricultural methods.
Unlike Microsoft and Ecolab, UNFI does not offer a dividend, reflecting its current financial constraints. Its low P/E ratio of around 8x suggests a deeply discounted valuation, reflecting the market’s skepticism about its turnaround prospects.
Recent earnings on July 16 beat expectations however, and the stock is on the move with an 8% gain immediately off the back.
What Is Ethical Investing?
Ethical investing is being more widely discussed, but the truth is that it is a trend that has been steadily building for decades. The resulting upward momentum in ethical stock prices has been long lasting and consistent, which is what makes the sector so appealing. There’s little sign of the trend reversing anytime soon.
Picking the most ethical stocks is made more difficult by the fact that there are various criteria used to rate firms. All of them are informative. However, investors looking to buy ethical stocks need to start out by evaluating what they really want to achieve.
Corporate social responsibility (CSR) criteria can be used to gauge the extent to which a company’s business model helps it be socially accountable to itself, its stakeholders and the public.
Environmental, social, and corporate governance (ESG) protocols are a set of standards that measure a company’s impact on the environment and society. This factors in externalities, which are costs such as pollution that are incurred by communities rather than the company creating them.
ESG and CSR reports are created by firms themselves and independent third parties, so it’s possible to see that getting an accurate picture of a firm’s operations can be harder than it should be. Then, there are the issues of ‘greenwashing’ and ‘sportswashing’, where corporations artificially improve their reputations by associating themselves with a high-profile and worthy cause.
Ethical Investing – How to Avoid Firms That Engage in ‘Greenwashing’
The proliferation of different ranking systems, and third-party tables that rank ethical credentials of different firms, can sometimes confuse rather than clarify the situation.
There is also a sense that unscrupulous corporations with large budgets can invest in schemes that mislead investors. Given the extra public scrutiny of the sector, it is certainly possible for firms to create an impression of being ethically orientated, without necessarily being so.
As a result, regulators are beginning to step in. The FCA, for example, has recently announced plans to introduce consumer-friendly labels on ethical funds. Its statement highlights concerns about the extent of greenwashing in the markets. The question remains whether the introduction of another ranking system will make it easier for mindful investors.
One inside tip on how to filter out the ‘noise’ is offered by Tariq Fancy, who once held the title of Head of Sustainable Investment at BlackRock. He was speaking with the BBC when he explained that after spending much of his career trying to run comparisons on different firms around the globe, he started basing decisions on a simple proposition.
“Having spent years digging through ESG data and trying to understand and disaggregate it, I would actually say that sometimes the level of work going into it is almost counterproductive. It tries to put precision onto things which are quite hard to measure.”
He continued:
“The simplest thing is to run a test that if this company doubles in size, is it good or bad for the world? Well, if it’s an electric vehicle maker, it’s probably good for the world… and if ExxonMobil doubles in size, it’s probably not good for the world.”
Final Thoughts
Making money never goes out of fashion, but ethical investing has demonstrated that returns don’t need to come at any cost.
It’s true that adopting ethical work practices means that firms incur extra costs. However, investment in doing things the right way can pay off in the long term, and that outlook ties in with buy-and-hold investors who are willing to wait for their investment to come good.
The call for firms to carry out business with a social conscience is building momentum. Whether you are fully on board with the ethos or more interested in spotting trends, ethical investment is something well worth considering, for financial as well as moral reasons.
