‘Clean’ blue chips outperform dirty ones globally

Compared with the MSCI ACWI, the top 200 global stocks picked by As You Sow and Corporate Knights have had higher returns over five years

Investing in some of the cleanest 200 large- and mid-cap stocks in the world yields higher returns those with low sustainability scores, a report from As You Sow and Corporate Knights found.

Those stocks had a total return of 107% compared with 103% for the MSCI ACWI Index between July 1, 2016 and the end of January 31, 2022 – and that is after the 60% surge in oil markets and 40% plunge in clean energy securities over the past year.

“Even amid the turbulence, the Clean 200 index is still ahead of its broad blue chip index, the MSCI AWCI,” said Toby Heaps, CEO of Corporate Knights, during a presentation Wednesday of the findings with As You Sow.

In dollars, the difference is slight. An initial investment of $10,000 during that timeframe would have led to a balance of $20,709 for the Clean 200 and $20,315 for the MSCI index, the groups noted.

However, despite demand there are no plans to create a mutual fund or ETF exposed to the clean securities: “We’ve been talking to several groups that want to turn it into a fund that you could invest in,” As You Sow CEO Andrew Behar said. “Part of the problem is that the companies are across 35 countries.”

Clean economy criteria

The two groups published their latest list, now in its ninth iteration, a roster of global publicly traded companies that rivals the MSCI index. A key difference is that the Clean 200 is built with companies whose revenue sources fits with Corporate Knights’ clean economy criteria and are not on the wrong side of certain social and environmental issues – the list excludes weapons makers, private prisons operators and others screened out by As You Sow.

On average, 58% of revenue from companies in the Clean 200 list come from “clean” sources, an increase from 39% in the 2021 list. Companies listed in the MSCI ACWI have an average of 20% of revenue coming from clean sources, according to the report.

“The Clean 200 was created to show that the clean energy future was the clean energy present,” Behar said. “The idea is: How do you get the capital to flow into this clean energy future, and to reward investors who are willing to do that.”

Over the past year, 72 companies on the list were replaced with others, a turnover rate of 36%.

Big names

The top 10 companies on the Clean 200 are quite familiar to investors – the list is led by Apple, Alphabet and Intel.

“Apple has really made great strides. Historically, they have had a lot of issues with right to repair, with renewable energy,” Heaps said. The company uses renewable energy sources for all of its operations, has started incorporating recycled materials in some of its products and has pledged to be fully net zero by 2030.

“These are the companies that are making the most money and providing solutions for a clean carbon economy,” Heaps said.

Human rights is not currently a factor in the list, due to a lack of reliable data on abusive or forced labor practices, he said.

“We’re evaluating right now how we can do a better job of incorporating the full array of information that is out there,” he said. “We want to do this in a fair way that is not singling out a particular country.”

The organizations welcome input on that subject, he noted.

How the list breaks down

By sector, about 29% of companies on the Clean 200 are in industrials, the most common category. Following that is information technology (24%), utilities (14%), materials (12%), consumer discretionary (8%) and consumer staples (6%).

The US has the most companies by country, at 26%, but it is underrepresented compared with its 40% presence in the global stock market. Canada, with the second highest number of companies on the list, 18, is overrepresented.

Further, countries that have made public investments to give clean companies an edge have a bigger presence on the list compared with their weight in the global stock market, Heaps said.

Finland, Spain and Denmark together represent about 2% of the global stock market but account for 9% of the companies on the list, for example, he said.

A big unknown

While a list of “clean” companies can help guide retail investors who want to put their assets into businesses with plans for the energy transition, most people have no idea what they are invested in.

That is particularly the case of participants in retirement plans, both defined-contribution and traditional pensions, Behar said. Amazon workers, for example, might own stock through their 401(k)s in companies that are burning down the Amazon rainforest, he noted.

“This is a big problem. There are literally tens of trillions of dollars that the underlying shareholders don’t know how is invested,” he said.

Private equity is a contributor to that, especially because some firms are snapping up chunks of old business that energy companies want to offload as they pursue net zero goals, he said. It doesn’t help that private equity portfolios tend to be opaque.

“We’re seeing oil companies really wind down,” he said. “Are they selling off these assets that are still being produced from?”

A potential way to solve that would be a global effort to buy up those old, carbon-intensive lines of business and mothball them, Heaps said.

“We probably need to create a global fund that has the clout of the central banks,” he said. “From a political perspective it works … I think it will come to pass in this decade.”