By Karen Hube

Being a sustainable company is tougher to sustain these days.

Critics of companies' environmental, social, and governance programs have been emboldened by the election of President Donald Trump, who lauds the fossil-fuel industry and disparages diversity, equity, and inclusion, or DEI, programs.

The anti-ESG camp has accumulated high-profile wins lately. In January, a court ruled in favor of an American Airlines pilot who sued the airline for factoring ESG into retirement plan investments. Amazon.com, Lowe's, Target, McDonald's, and other big corporations have dismantled DEI programs. The first federal climate-disclosure rules for public companies were approved in March but were quickly put on hold due to legal challenges.

But while ESG critics have been cranking up the volume, the better barometer of the sustainability movement's strength comes down to a simple question: How committed are large companies to their sustainability goals? For now, most aren't backing off them, and many are making significant advancements. That's according to Calvert Research and Investments, which did a deep dive into the 1,000 largest U.S. public companies to find those that qualify for Barron's latest ranking of 100 Most Sustainable Companies.

"We're in this for the long game," says Walt Kozlowski, senior director of industrial sustainability solutions at Xylem, a Washington, D.C.--based water technology company that rose to No. 6 on this year's top 100 list from No. 15 last year. "Our path doesn't change based on anything going on from a regulatory standpoint or what the current administration is doing around ESG."

Xylem, which operates in 150 countries, is on track to meet 2025 goals to achieve 100% of renewable energy and water recycling at 22 major facilities, and to generate zero waste to landfills.

The 100 companies on our list this year span market capitalizations ranging from American States Water's $2.8 billion to Nvidia's $3.4 trillion -- companies that were ranked No. 73 and No. 74, respectively, on their sustainability. To evaluate all the companies, Calvert considered practices under five themes -- the planet, workplace, customers, community, and shareholders -- and assigned each company weightings for the categories based on what is most relevant to their business operations and risks.

For example, "planet" and "workplace" were given greater-than-average weightings for Waste Management (ranked No. 65) because handling waste involves a high level of environmental and employee-safety considerations. McCormick & Co. (No. 28), a spice and condiments company, got a heavy weighting for customer issues because product safety and quality are vital in the food business.

There are 36 newcomers on this year's list, more than any other year since Barron's began the survey in 2018, and six companies sprung up into the top 10 for the first time, including Prudential Financial, Interpublic Group, Xylem, Lam Research, MetLife, and S&P Global.

"It has become easier to drop down or off the list because the degree of difference between companies has narrowed as more data has become available to help companies take care of their ESG practices," says Chris Madden, a portfolio manager who manages ESG-related research at Calvert.

Clorox holds the crown for the No. 1 spot on the list for the third consecutive year. The consumer staples company, which owns household brands such as Burt's Bees, Glad, and Hidden Valley Ranch, scores high based on environmental factors, product safety and quality, and governance. While last year the company stood out for achieving gender pay equity, this year it gets kudos for linking executive compensation to how well they meet their sustainability goals, according to Calvert.

Other companies that remained in the top 10 this year are Owens Corning (No 4), Constellation Energy (No. 5), and Jones Lang LaSalle (No. 10).

The common thread for the diverse group of 100 companies is that sustainability is deeply embedded in their corporate strategies -- not for the singular goal of being do-gooders, but because sustainability is often synonymous with efficiency and good business.

"Renewable energy or low-carbon energy is often more economically viable, " says Rob Bernard, chief sustainability officer at CBRE Group, the world's largest commercial real estate services firm, which sits at No. 11 in this year's ranking. "If I look purely from a [profit and loss] perspective and consider a large Venn diagram showing sustainability activities and economic return, we see the intersection as a massive opportunity. Why would I want to continue with old lighting or HVAC infrastructure that costs me more than it should?"

Last year, LAM Research, which designs equipment used by semiconductor chip makers, launched new cryo etching technology that creates circuit patterns on thin slices of semiconductor material called wafers at higher speeds with near-perfect precision. This helps meet demand for advanced chips while lowering Lam's carbon footprint. The technology slashes energy consumption per wafer by about 40% and emissions on cryo tools by about 90%, and saves time and money, to boot.

The symbiosis between sustainability and efficiency at the top 100 companies often translates well for investors. In the first six years of Barron's ranking, the group outpaced the S&P 500. The 100 badly trailed the index's 25% and 26% returns including dividends in 2024 and 2023, respectively. But in those years, seven technology stocks fueled most of the S&P 500's return because the index is weighted by market capitalization.

Compared with the equal-weighted S&P 500 index, which removes the tech tilt, the 100 companies came out about even in 2024 -- with a 12.6% return including dividends compared with the index's 12.8% -- and ahead in 2023: 19% versus 14%.

But even though there is evidence that well-thought-out sustainability strategies produce results for businesses and investors, companies are keeping an eye on the ESG pushback and a series of ESG-related lawsuits. Republican lawmakers and recent lawsuits argue that prioritizing environmental and social considerations in business decisions can harm shareholders, cause discrimination, and violate fiduciary responsibilities.

Earlier this month, the Missouri attorney general filed a discrimination suit against Starbucks, claiming its DEI policies favored women and minorities to the detriment of others. The company refutes the allegation as "inaccurate."

Late last year, BlackRock, Vanguard, and State Street were sued by Texas, Alabama, Arkansas, Montana, and seven other Republican-controlled states claiming that by investing according to ESG principles, the firms reduced coal production and raised energy costs for consumers, thus violating antitrust laws. State Street and BlackRock called the suit "baseless."

In January, BlackRock settled a different lawsuit brought by Tennessee alleging that the firm misled investors about its use of ESG factors. The judge found no violations and issued no fines. BlackRock commented that it "has consistently acted in the best interests of our clients." It agreed to adjust disclosures.

The threat of further legal action is having an impact. In January, BlackRock along with Goldman Sachs, Wells Fargo, JPMorgan Chase, Bank of America, Citigroup, and Morgan Stanley backed out of a global financial network with a net-zero greenhouse-gas emissions goal by 2050 -- though they say their commitments to net zero haven't changed.

In a subsequent letter to clients, BlackRock CEO Larry Fink noted that "our departure does not change the way we develop products and solutions for clients or how we manage portfolios." But the firm, formerly outspoken about its ESG business, has stopped using the term to describe it.

"We're finding companies are still doing the work but they're being careful about how they communicate about it, using different ways to describe their efforts," says Ellen Weinreb, founder of the Weinreb Group, a recruiting firm focusing on sustainability executives.

At 71th-ranked Hewlett Packard Enterprise, where work on reducing emissions and building a diverse and contented workforce goes back decades, management has learned to roll with the times. "We were laughing that we went from using the term 'efficiency' to 'sustainability' and now we're back to 'efficiency,' " says John Frey, the company's senior director and chief technologist.

Multinational companies are at crosscurrents when it comes to ESG. While in the U.S. at the federal level, there are no environmental disclosure rules and the political climate is anti-ESG, other jurisdictions require disclosures and the sentiment is more supportive of sustainability efforts.

For example, California passed a law requiring emissions reports for large companies operating within its borders beginning next year, and lawmakers in New York proposed a similar law earlier this month. The European Union passed even broader reporting requirements, also including human rights disclosures, kicking off this year. Certain cities -- New York and London, for example -- have their own laws.

For many companies, the path toward sustainability goals isn't always linear, but those with good governance are more likely to navigate challenges. Companies may have to pivot due to cyberattacks, natural disasters' impact on supply chains, and other factors. Trade wars under President Donald Trump risk disrupting sourcing and raising costs. Trump has already imposed 10% tariffs on Chinese imports, has threatened tariffs on Canada and Mexico, and has set a combative tone with other trading partners.

These challenging factors are what make governance an important priority in the top-100 rankings. "Overall strong governance leads to a strong company. We look at board structure, financial responsibility, ethics, and executive compensation," says Helen Mbugua, Calvert's director of research.

Companies scoring high on governance are more likely to be able to navigate issues related to human capital, which includes workplace issues. "DEI is a component of human capital, but the way we think about it is how companies are able to attract and maintain their employees and create a culture to maximize productivity, because that leads to long-term strong performance," says Jade Huang, Calvert's chief investment officer.

Ingersoll Rand, which makes air compressors, pumps, blowers, and other industrial equipment, was scored by Calvert with a heavy weight on workplace issues, which includes worker safety. New to the list at No. 94, the firm has an injury rate 72% below the industry average. "The secret sauce to our strong safety record is the commitment to safety procedures by our management," says the firm's vice president of sustainability, Mary Betsch.

The tight labor market in recent years has put a premium on excelling on sustainability measures. "We're trying to bring in the best and brightest, and many want to work at a company that cares about things that are important to them," says Kevin Tubbs, vice president and chief sustainability officer at 40(th) -ranked Oshkosh, a manufacturer of vehicles for the military, waste collection, and emergency services. The firm runs a local program to reduce hunger and a fund to help employees impacted by natural disasters or other crises.

Calvert whittled the 1,000 largest publicly traded companies, not including real estate investment trusts, down to 100 by looking at five weighted categories -- planet, workplace, customer, community, and shareholder -- according to 230 performance indicators from rating companies including Institutional Shareholder Services, MSCI, Sustainalytics, and Thomson Reuters Asset4. It then used sector experts to refine the rankings by analyzing how well companies are moving toward their sustainability targets.

A total of 28 topics are considered across the five categories. For example, "community" includes access to medicine, food sourcing and supply chain, human rights, and animal welfare. "Planet" covers toxic reduction and elimination, resource efficiency, energy use and efficiency, and greenhouse-gas emissions. Calvert assigned a score of zero to 100 in each category, based on company performance. All companies on the list scored above the bottom quartile in each category that is relevant to their businesses.

Now if they can just sustain it.

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February 21, 2025 01:00 ET (06:00 GMT)

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