State of Green Business

Investment analysts conclude that greener businesses rule

Investment analysts conclude that greener businesses rule

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The greener, the better ROI?

Investment returns on firms driving the transition to a green economy are easily outstripping those of their fossil fuel competitors, new analysis suggests, adding to mounting evidence of an accelerating investor shift away from carbon intensive assets.

A group of 200 publicly traded "carbon clean" companies has outperformed its fossil fuel counterpart by a factor of four since launching in July 2016, the new data shows.

The analysis comes from the sixth update on the performance of the Carbon Clean 200, a list of 200 companies spearheading the journey towards a clean energy future.

The Carbon Clean 200 was first compiled by campaign groups As You Sow and Corporate Knights in July 2016. Between then and Jan. 31, the Clean 200 easily outperformed the MSCI ACWI Global Energy Index, with a return of 29.58 per cent compared to 6.68 per cent.

"In 2016 people were saying, 'If we divest fossil fuels, there is nothing to invest in,'" recalled Andrew Behar, CEO of As You Sow and report co-author. "We created the Clean200 to show investors around the world that the clean energy future is actually the clean energy present. Since then, we have been tracking and sharing the emergence of this economic paradigm. Clearly there are a broad spectrum of companies making the transformation that is our greatest hope to control climate change a reality."

The 10 top-performing Clean200 companies by absolute revenue earned from low-carbon products and services are: Taiwan Semiconductor Manufacturing Co Ltd.; Alphabet Inc.; Siemens AG; Toyota Motor Corp; HP Inc.; Iberdrola SA; Cisco Systems Inc.; Tesla Inc.; Schneider Electric SE; and Unilever PLC.

The Clean200 uses the Corporate Knights Clean Revenue database, which tracks the percentage of revenue companies earn from clean economy themes such as energy efficiency; green energy generation; electric vehicles; banks financing low-carbon solutions; real estate companies focused on low-carbon buildings; forestry companies protecting carbon sinks; responsible miners of critical materials for the low-carbon economy; food and apparel companies with products primarily made of raw materials with a significantly lower carbon footprint; and Information and Communications Technology companies leading the way on renewable energy while also being best-in-sector according to currently accepted privacy benchmarks.

Some of the world's biggest investors recently have signalled intentions to curb capital flows into fossil fuel firms. Since the start of this year, Lloyd's and BlackRock have introduced measures that will limit investments, while Barclays is considering a similar move. This month RBS announced it would stop lending to firms that lack a credible climate strategy and planned to fully phase out coal financing by 2030.

Part of the shift is driven by mounting pressure from investors, regulators and the public, as well as concerns that carbon intensive businesses risk becoming stranded assets. But at the same time the body of academic work exploring how and why greener businesses outperform the market is expanding all the time, providing further evidence that so-called environmental, social, governance (ESG) investment strategies deliver more attractive and stable returns. Meanwhile, the disruption caused by the clean energy transition has seen valuations for energy utilities in many mature markets plummet, as they are forced to retire carbon intensive assets early and massively increase investment in new technologies.

A similar recent analysis from the investor-backed CDP group highlighted how the cohort of firms that provide the most comprehensive climate disclosures and governance measures and thus make its annual A-List outperformed their competitors on the stock market by an annual average of 5.5 per cent over a seven-year period, according to the STOXX Climate Leaders Index. Equally, last year's Carbon Clean 200 showed how since 2016 Clean200 firms enjoyed an average 1.29 percent growth in value, outperforming the S&P Global 1200 energy index at negative-2.49 percent.

Advocates of greener business practices have long argued that the combination of improved efficiency, risk management, governance and reputation that comes from pursuing sustainability best practices and opportunities inherently helps drive improved commercial performance. Now they have plenty of data to draw onto back up their hypothesis. 

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