22 BARRON’S February 15, 2021
I
t was a year marked by a public
health catastrophe, a plunge in
economic output, and wide-
spread social unrest—crisis
upon crisis that ultimately chal-
lenged individuals and institu-
tions to find their conscience.
And American companies stepped up.
Fifty years after Nobel laureate
Milton Friedman famously declared
that the sole “social responsibility
of business is to increase its profits,”
corporations are abandoning the dic-
tum. “We’ve seen a demonstrable and
well-articulated pivot of Corporate
America in terms of how they’re aim-
ing to please,” says Savita Subrama-
nian, a strategist at Bank of America.
“They’ve gone from shareholder to
stakeholder returns. That’s huge.”
Companies, Subramanian says,
pumped more than a $1 trillion into
the economy last year through cash
gifts, free masks, loan forbearance,
and other forms of generosity. It was
on the scale of the federal govern-
ment’s stimulus programs.
Institutions such as the Business
Roundtable and World Economic Fo-
rum are pushing corporations to report
on how they take care of all stakehold-
ers—including their employees, cus-
tomers, local and broader communities,
and the environment—and not just
shareholders. As a result, “this group of
executives has a completely different
level of understanding” of their respon-
sibilities than in 2018, whenBarron’s
published its first list, says John Streur,
CEO of Calvert Research & Manage-
ment, the sustainable investment shop.
“It’s almost a sea change.”
This reorientation includes in-
creased efforts by corporations to
mitigate their impact on the environ-
ment, as well as bolstering employee
welfare, community health, and cus-
tomer satisfaction. The firms inBar-
ron’slatest ranking of most sustain-
able companies scored high in several
of these areas in 2020. Several mem-
bers of our top 10 are there for the
first time, and there are 28 new
companies on this year’s overall list.
“We added ‘society’ as a stakeholder
two or three years ago, as we thought
about our purpose,” says Matt Ellis,
chief financial officer of No. 9-ranked
Verizon Communications(ticker:
VZ), up from No. 30 in 2020. “Ignor-
ing our environmental and social foot-
prints doesn’t create a long-term
sustainable organization. The invest-
ments we make in our [wireless] net-
work don’t have a one-yearpayback.
They will only be good investments if
we have customers and employees.”
Shareholders have been pushing
companies to evolve, too. Money has
flooded into sustainable funds and
other accounts, with assets exceeding
$17 trillion at the beginning of 2020,
up 42% from $12 trillion at the begin-
ning of 2018, according to US SIF,
the trade group for the sustainable
investment industry. The number rep-
resents about a third of the $51.4 tril-
lion in U.S. assets under management.
InBarron’sfourth annual list of the
most sustainable companies, created
for us by Calvert Research & Manage-
ment, a unit ofEaton Vance(EV),
the top companies includeBest Buy
(BBY), at No. 1;Agilent Technolo-
gies(A), No. 2;Ecolab(ECL), No. 3;
Autodesk(ADSK), No. 4;Voya Fi-
nancial(VOYA), No. 5; Tiffany, No.
6;Robert Half International(RHI),
No. 7;V.F. Corp.(VFC), No. 8; and
ON Semiconductor(ON), No. 10.
Tiffany, which was purchased by
LVMHMoët Hennessy Louis Vuitton
(MC.France) this year, will no longer
be evaluated as an independent com-
pany. Five of those companies are
newcomers to the top 10 this year.
Sustainability means many things,
but companies usually are judged on a
series of environmental, social, and
corporate governance metrics, known
as ESG, that measure how a company’s
managers make decisions and plan for
the future in areas beyond profitability.
These have been codified by a number
Sustainable
Investing
Has Grown
At the beginning
of 2020, there
was more than
$17
trillion
invested according
to sustainable
principles. That’s
up 42% from the
$12 trillion at the
beginning of 2018.
Patrick T. Fallon/AFP/Getty Imagesof organizations, including
the Sustainability Account-
ing Standards Board,
which stresses that inves-
tors look at factors that are
particularly material to spe-
cific industries.
T
o create our ranking, Calvert
started with the 1,000 largest
publicly traded companies by
market value, then ranked
each by how they performed for five
key constituencies: shareholders,
employees, customers, community,
and the planet.
Specifically, Calvert looked at more
than 230 ESG performance indicators,
such as workplace diversity, data secu-
rity, and greenhouse-gas emissions.
Based on the indicators, Calvert
assigned a score of zero to 100 in
each stakeholder category. Then, it
created a weighted average of the
categories for each company, based
on how financially material each cat-
egory was for its industry peer
group. To be on our list, a company
had to be rated above the bottom
quarter in each of the material stake-
holder categories. If it performed
poorly in any key one that was finan-
cially material, it was disqualified.
(You can find the methodology at
Barrons.com.)
The top 100, ranked by the weighted
average, appear in the nearby table.
Another table ranks the firms by stock
market performance in 2020.
As a group, the companies
performed well. In 2020, the
ones on our new list re-
turned 21.9%, on average,
beating theS&P 500index’s
18.4%. It was the fourth year
in a row that our top 100 out-
paced the market.
Does our list have predictive value?
To assess this, we looked at how the
companies on prior lists, published
early each year, performed for all of
that year. The results are compelling,
but require an explanation.
On average, companies on the list
we published in early 2018 lost 4.2%
for the year, a hair better than the
S&P 500’s 4.4% loss. In 2019, the
average stock on our list returned
30.9%, a shade below the index’s
31.5%. In 2020, our average stock
returned 16%, underperforming the
index’s 18.4%. But the S&P 500 is
weighted by market capitalization,
with the largest companies having
the most sway. Our list is a simple
average. When you take a market-
weighted version of our list, our
stocks beat the S&P 500, as the table
on page 26 shows.
“Covid-19 was a major ESG risk,”
Streur says. The risks mitigated in-
cluded companies’ efforts to reduce
pollution, because the virus struck
harder people with respiratory is-
sues; the way companies addressed
health and safety risks for workers;
and supporting communities ravaged
by the disease.
For instance, No. 1-rated Best Buy
barred in-store shopping for six
weeks in favor of a curbside-delivery
model, boosted workers’ pay early in
the pandemic, instituted a $15 per
hour minimum wage, and granted
paid sick leave. High-level executives
took a 20% pay cut and used the sav-
ings to create an emergency fund for
furloughed workers. By September,
Best Buy had brought back half of its
furloughed employees. (Best Buy re-
cently announced that it will be cut-
ting some jobs and reducing hours as
more people shop online.)
Meanwhile, No. 2-ranked Agilent,
which makes laboratory instruments
and software, guaranteed jobs and
protected base pay.
And No. 3 sanitation company
Ecolab, hit hard by steep declines in
its key customer base of hotels and
restaurants, still protected the hourly
pay of its employees.
Some companies went further. In
2020, software maker Autodesk,