A recently published outlook for stock exchanges in terms of global scores shows that the Netherlands is ranked as the world’s most sustainable stock market – for the fourth year in a row. Hong Kong is now third after overtaking France. The US and UK are ranked 16th and 20th respectively.
Investors looking for the best ESG-related stocks can check out the latest Sustainability Report for 48 National Stock Indices recently published by Morningstar for insight.
It may be good for due diligence to note that the risk is inherently high in the energy sector, which is at the top thanks to carbon risk and fossil fuels. Other economic sectors at significant risk include utilities, industry, and basic materials.
Morningstar’s portfolio sustainability Score represents the overall scores of the country-specific index, measured across the companies that make up the index.
The score includes both developed and emerging markets that together account for 97% of global market capitalization.
Ranking only applies to a stock market if more than 67% of the market capitalization is in companies that reflect the ESG (Environmental, Social and Governance) Risk Scores. According to Morningstar, the UAE market has the lowest score in ESG risk with coverage of 85.3%.
While Europe is at the forefront of corporate sustainability, as highlighted in Morningstar’s Sustainability Atlas, the Hang Seng Index in Hong Kong has overtaken France for third place after Finland.
The Netherlands leads the ranking thanks to ESG scores from companies such as the payment processing company Adyen, the global internet group Prosus and the semiconductor industry giant ASML Holding. In Finland, this is due, among other things, to the multinational telecommunications company Nokia and Insurance Company Sampo.
Hong Kong’s rise in the ranking as of 2022 has seen it overtake France and finish in third place, as most of the portfolio names returned with very low exposure to ESG risks. according to Morningstar, the AIA Group leads the benchmark.
French voters with excellent ESG risk scores that have helped France stay in fourth place in the top five include luxury brand LVMH, electrical equipment and technical services provider Schneider Electric, and L’oréal, a household name in the personal care sector.
The Taiwan Semiconductor Manufacturing Company (TSMC), a global leader in ESG, has helped Taiwan move into fifth place – up from eleventh place in 2022. According to Morningstar’s report, Portugal and Italy close the top 10, sixth and ninth respectively.
The Portfolio Sustainability Score for global indexes places the U.S. benchmark 16th out of 48, unchanged from 2022. Meanwhile, the British index drops three places to 20th place.
The US global sustainability ranking in the second quintile is helped by Apple, Microsoft, Berkshire Hathaway, Nvidia, Visa and UnitedHealth Group. While most companies are moving towards a more sustainability-focused approach, Amazon, Meta, and Exxon Mobil’S ESG risk assessments are classified as high.
In other statistics, the U.S. ranks quite high in carbon statistics, ranking 19th out of 48, despite being the second largest in the world for carbon dioxide emissions after China. According to the report, only 4.6% of the index portfolio is made up of energy stocks – which is the case with the US stock market massively dominated by technology, health pharmaceuticals, financial institutions and cyclical consumer stocks.
In China, market giants Tencent and Alibaba both have an average ESG risk score, but are the largest components of the Chinese index. Industrial and Commercial Bank of China and Bank of China maintain high levels of risk, with China dropping to the fourth quintuple, ranking 39th (the country index has dropped nine positions since 2021).
While Singapore is in the second quintile, Japan and South Korea are in the third and India are in the bottom quartile alongside other markets in the Middle East and Latin America. Eastern European emerging markets also belong to this latter group, including Turkey.
The stock exchange of Pakistan has about 60% of the market capitalization in stocks with high carbon risk scores. These include energy supplies, utilities, and basic materials supplies. Other energy-heavy equity markets with substantial portfolio Carbon Risk Scores include Saudi Arabia, the Czech Republic, and Qatar.
