"Carbon clean" companies outperform fossil fuel industry over 6 years

The top 200 "carbon clean" companies in the world have outperformed the fossil fuel industry in terms of "sustainable" revenue and share price over the last six years.

A new report by the shareholder advocacy group As You Sow and Toronto-based media and research company Corporate Knights showed that from July 2016 to January 2023, shares of the "cleanest" 200 companies generated a total return of 91.21%. That beats the 87.84% gain of the MSCI ACWI index, a broad benchmark that tracks large- and mid-cap stocks across 23 developed and 24 emerging markets.  

On average, 58.3% of the revenues earned by the top 200 companies are "sustainable," significantly above the 5% average at companies in the MSCI index.

Nearly half, or 44.4%, of the capital expenditure, acquisitions, and research and development expenses among the 200 companies were defined as sustainable, compared to only 7% among those in the MSCI index.

"The markets are shifting; it's a matter of investors getting smart to invest in companies that are going to be thriving in the next three to 15 years," said Andrew Behar, the CEO of As You Sow. "That's where all the capital is shifting." 

But the findings are unlikely to sway financial advisors, who remain reluctant to embrace environmental, social and governance (ESG) investments for clients, with nearly seven in 10 telling a recent Arizent survey they would probably not do so this year.

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Since 2016, As You Sow and Corporate Knights have tracked publicly traded companies across the world to find who is doing the most to transition to clean energy. The effort comes as many corporations engage in "greenwashing" that falsely burnishes their record on the environment and as some investment funds devoted to ESG practices distort their missions and holdings, confusing retail investors. 

The Carbon Clean 200 report lists 200 major companies from 35 countries that incorporated sustainability into their business and investments. Behar said 10 countries joined the list compared to last year, a sign that sustainability efforts across the globe are improving. The report used Corporate Knights' database to track "sustainable revenue" in areas including energy efficiency, low-carbon buildings and products primarily made of raw materials with a lower carbon footprint. The report also used As You Sow's Invest Your Values platform, which flags companies' investments in fossil fuels, weapons, private prisons, thermal coal and record of "systemically obstructing climate policy."

Apple leads the top 200 list with over $259 billion in sustainable revenue coming from "sustainably-certified" phones and laptops, according to the report. That represents 71% of the company's total revenue from its most recent fiscal year. Apple, Microsoft and other technology companies use so-called conflict minerals like tungsten and gold that can originate in poorly-regulated mines in the war-torn Democratic Republic of Congo.

Alphabet shows up in second place with $228.7 billion in sustainable revenue. Deutsche Telekom, Verizon Communications and Tesla close the top five 

The list is dominated by the U.S., with 42 companies, each with an average of $23 billion in "sustainable revenue." Next in revenue is Germany with $18 billion and South Korea at $17 billion. China had the second-largest share of companies,21, followed by Japan.

On average, 44.4% of the 200 companies' capital expenditure, acquisitions and research and development were defined as sustainable, compared to only 7% among MSCI ACWI constituents, the report showed. 

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Toby Heaps, the CEO of Corporate Knights and a report co-author, said that outperforming copanies combine a "good behavior" footprint with good products. "There's a lot of money being made, and a lot of growth," he said. "If you're active in that space, you're going to do well."

Global investment in low-carbon initiatives surpassed $1 trillion for the first time in 2022, according to Bloomberg New Energy Finance. Dollars poured into clean energy investments jumped 31% to $1.1 trillion, and matched investments in fossil fuels. Bloomberg's research, however, estimated that sustainable investments need to immediately triple "for the world to get on a 2050 'net-zero' CO2 emissions trajectory." Fossil fuel companies still receive $6 trillion in government subsidies annually despite accounting for two-thirds of global greenhouse gas emissions, according to As You Sow. 

Many companies have adopted net zero or carbon neutrality plans since the Paris Agreement in 2015 drew 194 countries plus the European Union to pledge to substantially reduce global greenhouse gas emissions to limit global temperature increases in this century to 2 degrees Celsius. 

But a 2022 analysis by the New Climate Institute found that 25 of the world's largest companies are committed to reducing their emissions by 40% on average, not 100%. 

For Alison Taylor, a clinical professor at NYU Stern School of Business and executive director at Ethical Systems, a nonprofit research group, labeling and rewarding companies on their practices actually encourages greenwashing. 

"We will score and rate their efforts and withdraw capital if their efforts aren't good enough, and then we're surprised when they exaggerate," she said. "That seems very naive to me."

Research by consulting firm Accenture found that while more than one-third of the world's largest companies have committed to neutralizing their emissions, 93% will fail to achieve their goals if they don't at least double their pace of emissions reduction by 2030. 

Taylor said it's necessary to have more realistic conversations and focus on improving practices, instead of labeling companies as "good" or "bad" or "clean" or "dirty." 

"There's a lot of incentive for a tech company to reduce its energy costs and move to renewables, but that's not the same challenge as an oil and gas company trying to move to renewables," she said. "It's very easy to oversimplify how difficult that transition is for some companies than others."

Jean-Marc Ollagnier, the CEO of Accenture for Europe, said in a statement that "reaching net zero will require urgent and profound transformations". "It is about embedding sustainability into everything organizations do, redefining their purpose, culture and business models."