The recently published global scores outlook for stock exchanges reveals that the Netherlands has maintained its ranking as the world's most sustainable stock market for the fourth consecutive year, while Hong Kong has overtaken France to claim the third position. The USA and UK, on the other hand, are ranked 16th and 20th, respectively.

Investors seeking information on the best ESG-related stocks can refer to Morningstar's latest sustainability report for 48 national equity indexes, which cover 97% of the global market capitalization, to conduct due diligence.

It's important to note that the energy sector, which has high carbon risk and fossil fuel exposure, poses inherent risks for investors conducting due diligence. Other economic sectors, such as utilities, industrials, and basic materials, also carry significant risks.

Morningstar's Portfolio Sustainability Score evaluates the overall scores of country-specific indexes based on the companies that comprise them, including both developed and emerging markets, which together account for 97% of the global market capitalization.

The rankings of stock markets are based on whether more than 67% of their market capitalization is represented by companies with environmental, social, and governance (ESG) Risk Scores. According to Morningstar, the UAE market has the lowest ESG risk score with 85.3% coverage.

The Netherlands secures the top spot in the rankings due to the high ESG scores of companies such as Adyen, Prosus, and ASML Holding. Meanwhile, Hong Kong has overtaken France to claim the third position, with the Hang Seng Index being led by the AIA Group. Finland's ranking is attributed to companies like Nokia and Sampo.

The Taiwan Semiconductor Manufacturing Company (TSMC), a global ESG leader, has contributed to Taiwan's rise to the fifth position from 11th in 2022. According to Morningstar's report, Portugal and Italy are also among the top 10, ranking sixth and ninth respectively.

The US benchmark retains its 16th position out of 48 in the global sustainability ranking for indexes, with companies like Apple, Microsoft, Berkshire Hathaway, Nvidia, Visa, and UnitedHealth Group driving the country's performance. However, high ESG risk ratings for companies like Amazon, Meta, and Exxon Mobil impact the overall ranking. Despite being the world's second-largest emitter of carbon dioxide after China, the US ranks 19th out of 48 in carbon metrics.

China's market giants Tencent and Alibaba have medium ESG risk ratings but remain the largest components of the Chinese index. However, Industrial and Commercial Bank of China and Bank of China have high risk levels, causing China to drop to the fourth quintile and rank 39th overall. This represents a nine-position drop since 2021.

Singapore is ranked in the second quintile, while Japan and South Korea are in the third quintile, and India is in the bottom quartile, along with other markets in the Middle East and Latin America. Emerging markets in Eastern Europe, including Turkey, are also part of this last group.

Pakistan's stock exchange has approximately 60% of its market capitalization in stocks with high carbon risk scores, including energy stocks, utilities, and basic materials stocks. Similar trends can be observed in energy-heavy stock markets like Saudi Arabia, Czech Republic, and Qatar, which also have substantial Portfolio Carbon Risk Scores.

To view and compare company ESG Ratings and Sustainability Reports across sectors, follow our Company ESG Profiles page.

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Source: Invezz