Stocks of companies that focus on clean energy and efficiency are now outperforming a global energy benchmark heavily tied to fossil fuels, according to new research from a pair of groups focused on corporate social responsibility.
In a report released on Tuesday, researchers with Canadian "clean capitalism" media company Corporate Knights Inc. and U.S. non-profit As You Sow revealed the performance of a curated group of the world's 200-largest companies ranked by clean-energy and energy-efficiency revenues. German conglomerate Siemens AG tops the "Clean 200" list, followed by Toyota Motor Corp. and Schneider Electric SE – with five Canadian companies, including No. 7-ranked Bombardier Inc., in the mix.
The companies generated a return of 16.9 per cent during their first full year of measurements, compared with the S&P Global 1200 energy index's decline of 1.2 per cent in the same period, according to the researchers. This, they say, demonstrates that the "well argued" moral case for divesting from fossil fuels is now joined by a strong economic case, too.
"There's a lot of people looking at the markets and having doubts about the future of fossil fuels," says Toby Heaps, chief executive of Corporate Knights. "But if you're going to take your money out of fossil fuels, where are you going to put it?"
That's how the Clean 200 was conceived. The researchers began measuring the stock performance of the 200 energy and energy-efficiency companies as of July 1, 2016. To make it on the list, companies must have a market capitalization greater than $1-billion (U.S.), must earn more than 10 per cent of total revenues from clean-energy sources and must pass a number of screens for environmental and ethical behaviour.
Rankings were determined by multiplying each company's most recent fiscal year's revenue by a Bloomberg New Energy Finance metric that's based on the proportion of their revenue that comes from clean energy.
The total market cap of all companies is $1.8-trillion. The list includes large hydro companies, manufacturers of energy-efficiency products, geothermal and carbon-capture firms, and smart-technology businesses, among others. The Clean 200's specific definition of clean energy and energy-efficiency companies, Mr. Heaps says, resulted in it outperforming the S&P Global Clean Energy Index, which was effectively flat over the same period.
The top-ranked Canadian-based company is Bombardier, which Mr. Heaps says might surprise some observers.
"They're not on the list for their aviation revenues or corporate governance – they're on the list because they have a pretty large rail and transportation [division]," Mr. Heaps says. With public transportation an important part of the transition away from combustion engines, he says Bombardier's transportation division has some "real jewels. … It's a world-class asset."
Environmental track records are increasingly in investor and regulator crosshairs. Earlier this year, the Canadian Securities Administrators – representing provincial financial regulators including the Ontario Securities Commission and Quebec's Autorité des marchés financiers – said it was reviewing how the country handled disclosures of climate-change-related risks and financial impacts.
The returns from the Clean 200 list did not significantly outpace global stock benchmarks over the year ending June 30, 2017. The MSCI ACWI index and the S&P Global 1200 index – both broad measures of world-equity-market returns – each returned about 16 per cent in the same period.
But the Clean 200's first full-year performance is an indicator that fossil fuel-dependent companies may not be able to keep pace, Mr. Heaps said.
"The medium- to long-term forward picture for clean-energy stocks versus fossil-fuel stocks – the picture is pretty clear there," he says. "If you're looking for energy exposure, clean energy … is going to look a lot more attractive for investors."
At first, Mr. Heaps wasn't even expecting a strong first-year performance for green companies in the study – but now points to the crucial date when the clean-energy companies began significantly diverging from the fossil fuels-laden S&P Global 1200 energy index. It was Jan. 20, when Donald Trump was inaugurated as U.S. President. "The new president is considered a champion of coal," he says. "The markets may be based in worse expectations."
Canadian companies on the Clean 200
7. Bombardier Inc.
27. Brookfield Renewable Partners LP
138. New Flyer Industries Inc.
183. Innergex Renewable Energy Inc.
193. Transalta Renewables Inc.
Top 10 companies on the Clean 200
1. Siemens AG
2. Toyota Motor Corp.
3. Schneider Electric SE
4. ABB Ltd.
5. Panasonic Corp.
6. Vestas Wind Systems A/S
7. Bombardier Inc.
8. Innogy SE
9. Johnson Controls International PLC
10. SSE PLC