For today’s investors, there is no more important question than this: How do you grow your capital in an economy that’s on the verge of drastic change?
Corporate Knights has been tracking the world’s largest companies and their commitment to sustainability for more than two decades. But only in the past five years have our researchers drilled down to calculate how much each company is actively investing in new, sustainable systems, such as renewable energy and green building materials.
The results: the best investments of the past three to five years turn out to be the companies that jumped feet-first into the green economy. “As the costs of renewable energy drop and countries begin their march to the better future of net-zero, we believe this pattern will become even more pronounced,” says Corporate Knights CEO Toby Heaps.
The numbers tell the story. Corporate Knights newly launched Sustainable Economy Intelligence (SEI) Database* ranks more than 2,800 public companies primarily by the percentage of revenues and spending derived from the green economy (as defined by Corporate Knights’ Sustainability Economy Taxonomy). In the most recent three-year period, the companies in the top 20% of the SEI outperform the most prominent index of global companies, the MSCI All-World Index, by a factor of three to one.
Between January 1, 2019, and March 22, 2023, the value of the top quintile of the SEI grew 146%, compared to 47% for the MSCI ACWI.
Through this period, the top-quintile companies on sustainable investment posted median annual returns of 14% – vs just 2% a year for the MSCI ACWI.
“Most investors used a diversified stock portfolio [such as the ACWI] to shelter their capital and hope for growth,” says Heaps. “Corporate Knights’ research indicates growth-oriented investors should be focusing on companies that are actively shaping the greener future.”
Over the coming months, Corporate Knights will release further analysis comparing the returns from the leading SEI companies to the performance of other investment classes, including U.S. and Canadian equities, and specific industry averages.
Heaps predicts the outperformance of sustainable companies is likely to last, even as the pace of change picks up. New incentives such as those contained in the U.S. Inflation Reduction Act (earmarking $369 billion for clean energy and climate change mitigation initiatives), and new green spending expected in next week’s federal budget, are designed to stimulate hundreds of billions in new investment from the private sector.
Talk about mega-trends. According to Bloomberg NEF, global investment in the energy transition surpassed US$1 trillion for the first time in 2022. To avoid the worst impacts of climate change and be on track to achieve net- zero carbon emissions by 2050, BNEF says global annual investment must more than triple for the rest of the decade.
“Now is the time to identify and stake out positions in the companies that are investing in a low-carbon sustainable future,” says Heaps. “Because they will be the ones who own it.”
*Sustainable investment scores are based on the percentage of each company’s capital expenditures, acquisitions, and research and development that align with the Corporate Knights Sustainable Economy Taxonomy (CKSET), percent-ranked against their industry peers. The database contains more than 18,000 individual records of sustainable revenue and investment and covers 2,872 global companies from all sectors of the economy.