Swiss-based Glencore plc (GLNCY) is a diversified company with three main segments: metals and minerals, energy and agriculture. The energy division owns mines in Australia, South Africa and Columbia that produced a combined 129.4 million tonnes of coal in 2018, including 118 million tonnes of thermal coal that was burned to generate electricity. The remainder is metallurgical coal that is mostly used to make steel, which makes it more difficult to replace – at least until new steel-making methods are mainstreamed. Overall, coal accounts for roughly 27% of Glencore’s overall profits.

Glencore, like all coal mining companies, is under pressure from investor groups like the Climate Action 100+ signatories to align itself with the low-carbon economy. The company released a statement early this year that showcased its support for the Paris Agreement and promised disclosure to ensure that “investments are aligned with the Paris Goals.” The company promised to limit coal production to 150 million tonnes per year, which is higher than current production levels, and to set a target of reducing greenhouse gas emissions intensity by 5% by 2020 compared to a 2017 baseline. Glencore has promised to release longer-term targets next year. Unfortunately, actions speak louder than press releases.

Glencore is moving ahead with its controversial United Wambo Coal Project in Australia, although the local Independent Planning Council (IPC) has stipulated that any coal exported from the mine can only  go to countries who have ratified the Paris Agreement. Glencore expects this mine to produce about 10 million tonnes of coal per year, which would keep the company below the self-imposed cap of 150 tonnes per year. A company spokesman told The Guardian that “as older mines in our portfolio come to the end of their economic life, all coal projects will be considered.” It’s hard to square these expansion plans with the promise to align investments with the Paris goals, so I’m going to have to rake Glencore over the coals for greenwashing.

Australia-based BHP Group (BHP), formally known as BHP Billiton, is the world’s largest mining company and owns coal mines in Australia and Colombia in addition to other sites that extract iron, copper, nickel and petroleum. BHP produced 72 million tons of coal in 2018, including 29 million tons of thermal coal. Thermal and steel-making coal account for 17% of BHP’s earnings.

Andrew Mackenzie, BHP’s CEO, hinted that the company might divest from coal during an earnings call in August. This followed reports in July that said BHP would be cutting thermal coal production next year. I wouldn’t normally give much stock to this sort of announcement, but I’m smitten by a speech that Mr. Mackenzie gave in London earlier this year about BHP’s response to global warming. “The evidence is abundant: global warming is indisputable,” he said. “The planet will survive. Many species may not.” These are striking words from a coal mining CEO.

BHP announced a short-term target to keep 2022 emissions at 2017 levels, and an ambitious long-term target of net zero operations by mid-century. The company has promised to release medium-term science-based targets next year. I like it when companies put money towards these targets, so I’m happy to see that BHP allocated USD $400 million to their Climate Investment Program with the goal of reducing emissions. A tangible example of this program is a project to replace gas with renewables at their Escondida copper mine in Chile. It’s too early to say how much of a leadership position BHP will earn as the mining industry grapples with climate risk, but I’m cautiously optimistic that they will live up to their promises and avoid the greenwashing trap that so many companies have fallen into. Time will tell whether or not my optimism is warranted.

Both BHP and Glencore extract minerals like nickel and copper that are used in clean energy technologies, so there is some potential upside to owning these mining companies as society transitions to a low-carbon economy. However, both companies have significant exposure to carbon risk (as the Guardian pointed out this week). That risk will keep most sustainable investors away. I’ll give this week’s challenge to BHP by a tiny margin since coal ­­– particularly thermal coal ­– ­­is a lower percentage of their profits. I’m hopeful that BHP will completely divest from their coal holdings and extend its lead, but I’ve been burned too often to take its announcements at face value.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write Tim an email.

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Which of these mining companies will survive the transition away from coal? appeared first on Corporate Knights.

Apple has been leading the charge on American tech companies pursuing the ambitious goal of sourcing 100% of their energy from renewable sources. It hit this target in 2018 at its global facilities and is working towards 100% renewable energy sourcing throughout its entire supply chain by 2020. Apple is now the leading purchaser of solar energy in the U.S, and according to its annual Green Bond Report, the company issued two green bonds in 2016/2017 that raised a total of $2.5 billion to pay for that renewable energy.

In addition to major investments in renewable energy, Apple has made some progress on electronic waste, but more work definitely remains. E-waste is a massive problem in the technology sector. Electronics often end up being recycled by rural communities in Asia and it can have devastating social and environmental impacts. To deal with this problem, Apple developed a recycling robot named Daisy that’s capable of dissembling 1.2 million phones a year. Though to put that in perspective, the company sold over 217 million new phones last year.

Unfortunately, Daisy’s work is meant to keep all Apple product repairs in-house. Apple has actually been a vocal opponent to the Right to Repair movement (in sharp contrast to its support of climate action). It has successfully lobbied to stop California’s Right to Repair legislation by claiming that customers would harm themselves if they fixed their own iPhones and it went so far as to sue independent iPhone repair shops for using aftermarket iPhone parts.

Embarrassingly, both Apple and Samsung were fined €10m and €5m respectively in Italy in 2018 for deliberately slowing down phones with operating system updates that caused “serious malfunctions and significantly reduced performance, thus accelerating phones’ substitution,” according to Italy’s competition authority. It’s a big deal since keeping old phones around longer significantly reduces your phone’s environmental footprint.

Labour issues are another major concern. Investors have long known about worker rights violations in Apple’s supply chain, many of which stem from Taiwanese electronics company Hon Hai Precision Industry Co., Ltd. (ticker: HNHPF), better known as Foxconn. In 2010, 18 Foxconn employees attempted suicide by jumping off the roof of a facility. The suicide attempts were blamed, in part, on horrendous working conditions in the factory that assembles iPhones and other consumer electronics. The situation hasn’t improved: Apple’s 2019 Supplier Responsibility Progress Report detailed 27 core labor and human rights violations. These included 24 working hours falsification violations, two debt-bonded labour violations, and one underage labour violation.

How about Samsung? Samsung Electronics is a major South Korean electronics manufacturer that doesn’t just make smartphones, it also makes semiconductors, TVs, home appliances and more. Samsung hasn’t had as many flashy green announcements as Apple over the last few years, but that’s because Samsung was doing corporate sustainability before it was cool. According to its 2019 Sustainability Report, Samsung established its first e-waste take-back and recycling centre in 1998 and started building sustainability into its design process in 2004. The company reduced its CO2 emission intensity by 59% from 2008 to 2013 and plans to source renewable energy for 100% of the energy used by its factories, office buildings and operational facilities by next year.

Note: the use of renewable energy by both companies doesn’t boost their clean revenue scores (see scorecard below), since Corporate Knights considers it the equivalent of a mining company offsetting its pollution with renewable energy generated onsite. While commendable, both Apple and Samsung would need to up their recycled content to avoid the impacts of mining their components.

Like Apple, Samsung discourages repairing its products by making them hard to repair. According to the iFixit’s Smartphone Repairability Score, most EPEAT Gold iPhones have an average score of six or seven out of ten, while Samsung EPEAT Gold mobile phones average a three or four out of ten.

As well, Samsung did poorly on Greenpeace’s last electronics guide from 2017. Case in point: it scored a D- on hazardous chemical elimination while Apple earned a B.

Samsung also flounders when it comes to doing right by its employees. Samsung’s CEO makes 478 times more money than average worker, and an investigation by the Associated Press in 2016 found more than 200 cases of Samsung factory employees contracting illnesses like leukaemia, lupus, lymphoma, and multiple sclerosis. When families sought more information about how these employees got sick, Samsung asked the South Korean government to not disclose types and volumes of substances for fear of revealing trade secrets. Last year, Samsung finally apologized and committed to compensate former and current employees suffering from work-related illnesses.

From a financial perspective, it’s a bit of a toss-up. Both companies have performed well over the past five years with more potential growth as new innovations emerge that keep consumers lining up for product launches.

Sustainability-wise, while Samsung may have been ahead of the curve ten years ago, it’s starting to fall behind on a few fronts. Meanwhile, Apple still has more to do, but it’s been more aggressive about some of its environmental goals.  I would consider the companies tied for now but it won’t be long before Apple takes the lead if it continues on the current trajectory.

Either way, tech news and review site Engadget was right when it declared that “you can’t buy an ethical smartphone today” in North America. I think I’ll just get my phone’s screen repaired and wait until the Fairphone finally comes over from Europe.

The following scorecard is based on 2017 data.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Which smartphone is more ethical, Apple or Samsung? appeared first on Corporate Knights.

Ethical investors are starting to turn away from the largest gun and ammo manufacturers and retailers: Sturm, Ruger & Co., Inc. (RGR); Olin Corporation (OLN), American Outdoor Brands Corporation (AOBC), and Vista Outdoor Inc. (VSTO). It’s challenging to get the full list of holdings for mutual funds (they only publish a snapshot twice per year), but ETFs are much more transparent so it’s easy to verify whether they’re firearm free.

 What is the Canada Pension Plan packing?

Unfortunately, there’s no way for Canadians to completely avoid them since the Canada Pension Plan Investment Board (CPPIB) owns $US27 million in shares in three of these companies, according its most recent public disclosures. When contacted by Corporate Knights, CPPIB emphasized these investments were caught up in its passive holdings and are not part of a specific investment strategy to own guns, although the CPPIB along with the Public Sector Pension Plan Investment Board are the only two of Canada’s ten largest pension funds that continue to own any of these gun stocks. Considering the gun stocks comprise less than 0.02% of the pension’s equity investments, they’re not exactly critical to CPP profits and could easily be dumped, if enough Canadians complain.

Pressure mounts on retailers

Weapons makers aren’t the only ones facing scrutiny. There are growing calls for big retailers like Walmart (WMT) to stop selling guns in their stores after 22 people died in the El Paso Walmart shooting in early August. Although Walmart stopped selling assault rifles in 2015 and raised the age limit to buy a gun from 18 to 21, the retailer still accounts for about 20% of ammunition sales in the U.S. with no plans to stop. Additionally, Walmart allows customers to openly carry firearms in its stores in states where it’s legal to do so. Walmart has said that it won’t be making any policy changes and continues to support Republican lawmakers who tend to be against stricter gun controls.

Sustainable Stock Showdown: Walmart vs Dick’s

Investors looking to ditch their shares in Walmart and actively encourage a chain that’s moving away from guns should take a closer look at Dick’s Sporting Goods (DKS). Before last year, Dick’s Sporting Goods had a large hunting department that sold all kinds of guns, including assault rifles. But that changed after CEO Edward Stack learned that the school shooter that killed 17 people in Parkland, Florida had purchased a shotgun at Dick’s. Even though the shotgun wasn’t used in the mass killing, Stack took decisive action and followed Walmart by removing assault rifles from stores and raising the minimum age from 18 to 21.

Going further, Dick’s removed the entire hunting department in 10 stores as a pilot project and hired three Washington lobbyists to push for stricter gun controls. Sales in these stores actually improved, leading the company to pull the hunting department out of an additional 125 locations (roughly 20% of stores) last week. If current trends persist, it’s easy to imagine that Dick’s will stop selling guns altogether.

From a purely financial perspective, Walmart is tough to beat. It is, by far, the largest bricks and mortar retailer in the world with a market cap over 100 times larger than Dick’s Sporting Goods. Walmart has outperformed Dick’s over the last five years, so investors should be cautious in dumping it altogether. But if your goal is to own companies who are more progressive on gun issues, then Dick’s Sporting Goods is a more attractive purchase.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet.

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Is it time for Canadian pension, Walmart to unload gun makers? appeared first on Corporate Knights.

Even with all the buzz around Amazon Prime Day’s discount blitz earlier this month, I didn’t join the legions shopping online. It was hard to click “proceed to checkout” while workers and employees protested in Germany, the U.K., and the U.S. A petition with 270,000 signatures was delivered to Amazon CEO Jeff Bezos calling for better worker rights and for the company to cut ties with U.S. Immigration and Customs Enforcement (ICE), the federal agency responsible for rounding up and deporting undocumented immigrants. Although these protests didn’t amount to much action, they certainly shone a light on Amazon’s many problems.

There’s no denying Amazon’s growth has been astounding. From its humble beginnings as a book reseller, the company has grown to dominate online retail. Although it’s expanded into other areas including entertainment, robotics and cloud computing, about 85% of Amazon’s revenue still comes from online retail. Understandably, it wants people to keep buying stuff we don’t need as it corners the market on overconsumption.

Moving all this stuff around from warehouses to homes around the world comes at a large environmental cost. Amazon hasn’t publicly disclosed its carbon emissions but recently promised to start providing this information to investors later this year. It also launched a “Shipment Zero” strategy, committing to make all shipments net zero carbon with a 50% target by 2030. But will that be enough for investors and employees? Over 8,100 Amazon employees have signed a letter asking tough questions about the Shipment Zero strategy and calling for Amazon to do more.

Amazon factories are notorious for their unrelenting pursuit of efficiency. Employees have strictly timed quotas and are paid low wages to do strenuous work. There are stories of cheated overtime, limited bathroom breaks and mental health challenges leading to suicide attempts. The corporation is quickly moving towards automation, replacing workers with robots and drones while spending $700 million on employee training its workforce into more technical positions. It will take time to transition its workforce, and there are few assurances that Amazon won’t continue to treat people like robots while they perform tasks that robots currently can’t. According to thelogic.co, Amazon staff also “held closed-door meetings with Toronto delivery companies on how to identify and prevent union-organizing attempts.”

If all that’s not enough to get you to return your shares of the retail giant, employees and protestors are concerned that Amazon is selling web services to companies helping the U.S. Immigration and Customs Enforcement (ICE) identify and deport undocumented immigrants. Amazon isn’t the only company profiting from these activities, but it certainly doesn’t help employee morale or Amazon’s public relations.

Amazon clearly has no qualms about working with controversial U.S. departments, as they are competing for a $10 billion U.S. military contract called JEDI — Joint Enterprise Defense Infrastructure. When asked about doing business with the military, CEO Jeff Bezos seemed to get somewhat defensive saying “If big tech companies are going to turn their back on the U.S. Department of Defense, this country is going to be in trouble.”

Even still, investors do need to think about the financial cost of trading in their Amazon shares. Amazon Prime day set sales records last month, despite the protests. Online retail is incredibly popular but accounts for only about 12% of all retail sales globally. That means there’s still lots of room to grow despite failed Amazon ventures like the recent discontinuation of its food delivery service.

For some worker and planet-conscious investors, Amazon’s antics make it a hard no. So, we present a more sustainable alternative to Amazon: eBay. EBay is the next largest online retail company and is a much better performer when it comes to sustainability metrics. With a focus on selling pre-owned products, about 16% of eBay’s revenues are estimated as green. EBay also owns Kijiji, an online marketplace for secondhand goods which, last checked, was more popular than eBay itself in Canada. (I always make a point of checking to see if I can buy something used on Kijiji before buying new since it’s better for both my wallet and the planet.) EBay publishes a detailed Impact Progress Report that charts its progress on sustainability goals such as growth of sellers in “less-advantaged communities” and a 50% absolute reduction in Scope 1 and 2 greenhouse gas emissions by 2025.

eBay headquarters in San Jose, California. Photo by Leon7

EBay’s business model is tightly focused on connecting buyers and sellers, rather than dealing with logistics or providing web services. This focus removes many of the pitfalls around warehouse labour and services provided to odious organizations. However, it does remove many of the biggest revenue growth drivers. Amazon’s growth strategy has paid off over the past five years, outperforming eBay significantly. Amazon’s market capitalization — the size of the company as measured by the stock market — is more than 25 times larger than eBay’s. EBay pays a small dividend, while Amazon continually reinvests all of its profits into growing the business. But eBay has been less volatile with a lower beta, great for those investors who want less of a ride.

Bottom line: Sustainable investors will want to consider the financial trade-offs involved in walking away from a stock with Amazonian growth, but they’ll sleep better at night owning eBay and knowing its carbon footprint won’t swallow the planet at the click of a button.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Sustainable Stock Showdown: Amazon vs. eBay appeared first on Corporate Knights.

The following day as a firestorm raged in response to the controversial tweet, Lockheed Martin CEO Marillyn Hewson was the only major corporate chief to appear on stage with Trump at a White House business summit, lending the president an imprimatur of blue-chip legitimacy.

Given that Lockheed Martin is at the heart of the military industrial complex as the Pentagon’s number one supplier, this may not be surprising, but the especially cozy relationship between the White House and the company prompted the national security trade publication Defense One to label Hewson as Trump’s favourite Defense CEO. “Lockheed CEO Marillyn Hewson is now clearly ‘all-in’ on 2020 Trump re-election,” Jim McAleese, who runs the Virginia-based McAleese and Associates consulting firm, wrote in a July 15 note to investors.

Politics aside, Lockheed Martin is the largest weapons company in the U.S., with a history that includes making the bomber that dropped Little Boy, the first nuclear weapon that decimated Hiroshima during the Second World War. Many people consider Lockheed Martin the antithesis of responsible investment. Some of the world’s largest investors who do invest in other major weapons companies—such as the US$1 trillion Norwegian Sovereign Fund and US$564 billion Dutch pension APG—will not touch Lockheed Martin with a ten-foot pole, because of its one-third interest in the company that runs the U.K. Government’s nuclear weapons program.

Can weapons be sustainable?

Corporate Knights also excludes Lockheed Martin from consideration on our annual Global 100 Most Sustainable Corporations in the World list, as the company derives more than half its revenue from weapons. Lockheed Martin’s director of sustainability Matthew Swibel expressed his discontent with this decision in a note to me in 2014 in which he wrote:

“The irony is thick today with regards to your list’s exclusionary scheme. During today’s 3Q14 Earnings Webcast, our CEO boldly talked about the mark of Lockheed Martin’s ESG performance. It is self-evident to sophisticated investors that the Aerospace & Defense sector, and LMT in particular, plays an important and critical role in industrial-scale solutions for sustainability in the realms of energy, cyber, corruption controls, climate science, safety and more.  And there’s a widely held belief that core weapons platforms counter perilous security threats to the free world and the fiercest challenges to sustainable development.”

To be fair, Lockheed Martin, through its Skunk Works division,  is a significant investor in emerging clean technologies such as compact fusion and blimp-like hybrid airships, which have breakthrough potential to decarbonize the economy.

But the company’s main bet is on the F-35 fighter jet, which generated 27% of overall revenues in 2018, and the company guidance suggests it will make up an even greater portion of revenues in years to come.

Therein lies a big political risk for investors. A sizable chunk of its international sales prospects have been derailed in recent years from Turkey to Canada. Remember when Stephen Harper’s government announced the planned purchase of 65 Lockheed Martin F-35 fighters back in 2010 – with promised delivery by 2020. This became an election issue in 2015, drawing criticism over the high costs, the lack of public competition and the fact that F35s are single-engine fighters. It’s 2019, and there are still no F-35s in Canada, with a new procurement process delaying any final order decisions until 2020.

Canadian pensions invested in Lockheed Martin

Think you don’t have anything to do with Lockheed Martin? Not the case if you are members of any of the following major pension funds, which all invest millions of dollars in Lockheed Martin.

 

INVESTORS	LOCKHEED MARTIN SHARES (US$)
Caisse de Depot et Placement du Quebec	$61,455,359
Canadian Pension Plan	$59,476,404
British Columbia Investment Management Corp.	$15,534,180
PSP Investments	$8,273,610
Vestcor Investment Management Corporation*	$1,866,396
Ontario Teachers’ Pension Plan Board	$1,530,816

Source: Most recent SEC 13F filings

*Jointly owned by the New Brunswick Public Service Pension Plan and the New Brunswick Teachers Pension Plan.

That said, it’s not like Lockheed Martin is hemorrhaging cash. Revenue has increased in each of the past three years, and the company recently raised earnings estimates for the year.

As Lockheed Martin makes up a scant 0.21% of the MSCI ACWI, the global benchmark of blue-chip stocks, investors can afford to look elsewhere without dire risks of reducing their investable universe.

What should you invest in instead?

One interesting stock with less potential of blowing up the world or your portfolio is Dassault Systèmes, which ranked number one overall on our 2018 Global 100 Most Sustainable Corporations in the World list.

Founded in 1981 as a spinoff from another major military contractor France’s Dassault Aviation, Dassault Systèmes has a mission “to help industry make products that help to harmonize production, nature and life.”

Its 3D Experience software platform allows customers to “virtualize” the design process for products by creating 3D designs and simulating their use on screen before they are made in the physical world, obviating much waste from building physical prototypes.

Among the aircraft that Dassault Systèmes’ software has helped design is the ground-breaking Solar Impulse 2, the first aircraft to fly around the world using only solar power.

Although the company started out creating design tools for aircraft manufacturers, aerospace now makes up only 13% of its sales. The industries it currently serves include automotive, energy, consumer goods and construction. Its products can now even model, simulate, visualize and experience entire cities as they become increasingly connected, integrated and smart.

From a shareholder perspective, Dassault Systèmes has generated a total return of 160.85% over the past five years through to July 18, besting Lockheed Martin’s 153.45% result over the same time period, albeit with slightly higher volatility and lower dividend yield.

Beyond returns and its products and services, Dassault Systèmes stacks up favourably against Lockheed Martin on carbon footprint (two thirds lighter), CEO-to-average worker pay (10x lower ratio), board gender diversity (42% versus 25%) and percentage of taxes paid (27% versus 20%).

Bottom line: With Dassault Systèmes, you can invest in clean solutions rather than bombs and still get bang for your buck.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

The post Are Lockheed Martin’s nuclear weapons fueling your retirement? appeared first on Corporate Knights.

Few Canadian companies have ever captured the imagination of a U.S. president quite like TC Energy (formerly known as TransCanada Corp). Trump has tweeted about the company’s Keystone XL an astonishing 44 times. Despite the White House’s enthusiasm for the 1,897 km pipeline that would deliver oil sands down to the Gulf of Mexico, investors are still waiting for the ribbon to be cut. Keystone XL has been mired in a years-long legal battle with landowners and environmental organizations and, last month, environmental groups filed a fresh lawsuit to further block/delay the project.

While TC Energy has a new de-Canadianized name and has renamed its energy business “energy and storage,” its capital investment plans tell the same old story: it’s still largely focused on transporting oil and gas, and instead of boosting its renewable business it’s selling it off to help pay off some of its hefty debt load.

In comparison to oil and gas extraction companies, companies like TC Energy are better insulated against fossil fuel price shocks, relying instead on long-term shipping contracts. That means steady cash flows as long as the fossil fuel business is in business, but it does spell some clear long-term risk as the economy transitions away from fossil fuels.

More immediately, when you stack up TC’s $36 billion planned spending on system upgrades and new pipelines alongside its huge existing debt pile, it’s not hard to see why both Moody’s Investors Service and Standard & Poor’s both downgraded the company’s debt.

If you are looking for an energy company aligned with a low-carbon future whose name doesn’t autocomplete on the U.S. President’s tweet deck, Brookfield Renewable Partners could be a nice option. The Toronto-based power utility—technically headquartered in Bermuda for tax reasons—is one of the world’s largest pure-play renewable energy companies.

Brookfield Renewable Partners is majority owned by Brookfield Asset Management, and therefore has access to plenty of capital to grow. They recently announced that they are  acquiring a 50% stake in X-ELIO, a Spanish solar project developer with lots of growth protentional.

Unfortunately, Brookfield Renewable Partners doesn’t produce an annual sustainability report so its disclosure is lacklustre. While it has an awesome portfolio of green energy, the company’s gender diversity and average CEO-to-Worker Pay ratios are nothing to write home about.

It wouldn’t take much for Brookfield Renewable Partners to become an all-round sustainability leader, but with the cash rolling in, it doesn’t seem to be a top priority for senior management. Still, with a much cleaner business model and lower exposure to carbon risk, Brookfield Renewable Partners is this week’s winner of the Sustainable Stock Showdown.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Tim Nash’s Sustainable Stock Showdown: Why profits aren’t flowing through Keystone XL appeared first on Corporate Knights.

Instead of looking at individual company stocks this week, we’re comparing two exchange-traded funds (ETFs). ETFs are like mutual funds in that they are a bundle of companies wrapped up in a fund. However, they trade directly on the stock exchange, instead of through a sales network, which makes them less expensive than mutual funds. There are a lot of socially responsible ETFs on the market right now, including two with opposing takes on LGBTQ+ issues.

Inspire Global Hope ETF (BLES) aims to invest in “the most inspiring, biblically aligned large companies ($5 billion+ market cap) from both the U.S. and around the world.”

Companies that work on cancer treatment and provide clean water are some of the ones considered inspiring and biblically-aligned. About 5% of the fund’s total holdings are exposed to “clean revenue” (like Danish wind turbine manufacturer Vestas), meaning that revenue is aligned with the UN’s Sustainable Development Goals (SDGs). BLES also sinks a chunk of your money into companies with decidedly less sustainable goals, like Kinder Morgan, the contentious pipeline maker, and Jacobs Engineering Group, which produces nuclear weapons.

At the core of the BLES fund’s “biblically responsible investing” are negative screens against companies engaged in activities it considers immoral, such as abortion, pornography, and yes, LGBTQ activism. If a company sponsors a gay pride parade or signs a letter in support of gay marriage BLES would immediately exclude it from the fund. In an open letter to the LGBT community, BLES CEO Robert Netzly writes, “We respect investors who desire to invest in pro-active support of LGBT marriage, and we ask for the same respect for our investors who are investing according to their faith-based convictions to invest in support of what they understand as the Bible’s teaching and advocacy for one-man, one-woman marriage.”

Okay, Mr. Netzly Since you respect pro LGBTQ+ investors, let’s look at the InsightShares LGBT Employment Equality ETF (PRID) mandate to “invest in companies that respect, protect and encourage their LGBT employees.” PRID leans heavily on the Human Rights Campaign’s Corporate Equality Index, which provides corporate ratings based on three key LGBTQ pillars: non-discrimination policies across all of a company’s business entities, equitable benefits for LGBTQ workers and their families and an inclusive culture as well as corporate social responsibility. Companies must earn a score of at least 85 on this index to be included in PRID.

I love the idea of investing only in companies with proactive LGBTQ+ policies. Unfortunately PRID doesn’t screen out companies based on other social or environmental issues. Peer into PRID’s holdings and you’ll find eyebrow-raising companies like Exxon Mobil (which I wrote about last month) and American weapons manufacturer Lockheed Martin. Although they may support their LGBTQ+ employees, I can’t in good conscience encourage you to invest your money in these companies.

You can see why the ethical ETF market is rife with greenwash. So many stocks get bundled together to make it easier for everyday investors to buy according to their values, but there are often questionable companies tucked in the mix. Always be sure to take a close look at the full list of holdings before you buy.

From a strictly financial perspective, PRID has outperformed BLES considerably since it launched in January 2018, but I’d like to see a longer time horizon before I’m ready to declare its approach to be the winner. One helpful metric I track for ETFs is how much money investors have put into the fund, called assets under management (AUM). BLES has attracted an impressive $140 million, while PRID has attracted a paltry $2.5 million. Perhaps PRID would be appealing to more investors if it implemented proper ESG (environmental, social and governance) methodology and ditched the nastiest holdings.

Despite having some very controversial companies inside the fund, PRID wins this Fund Face-off by a (rainbow-coloured wig’s) hair.

Beta is a measure of a stock or fund’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock or fund that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Fund face-off: Are your investments LGBTQ-friendly? appeared first on Corporate Knights.

The General Electric Company (GE:NYSE) was founded in 1892 by American icons including Thomas Edison and J. P. Morgan in upstate New York. It was initially famous for producing light bulbs and rapidly expanded into home appliances, aviation and power generation. The company’s market value peaked just shy of $600 billion in 2000 but has steadily declined to less than $100 billion today.

GE’s story is the cautionary tale of a company that started a move towards sustainability in 2005 (remember former CEO Jeffrey Immelt’s Ecomagination exhortation that “green is green?”) but nearly collapsed thanks to legacy businesses in the financial and power sectors. A lot has been written about how GE Capital dragged down the once dominant behemoth after the 2008 financial crisis. But the main reason GE’s financial performance reeks is that the company bet that gas power would be a golden egg, and it turned out to be a rotten one.

As recently as 2016, GE’s power division (which is separate from its renewable energy division) accounted for half of the company’s pre-tax profits. It had doubled down on gas power with its late 2015 acquisition of Alston, a major French industrials company, for $13.7 billion – GE’s largest industrial acquisition ever. Soon after, orders for gas turbines cratered, forcing the company to slash order projections by 75% (from 160 turbines to “somewhere around 40”) in early 2017. By 2018, the power division had slipped into the red, losing $800 million, as detailed in a recent report by the Institute for Energy Economics and Financial Analysis.

Number of all large gas turbines (>100MW) sold worldwide

As the IEEFA writes, “Investors lost billions when the (once) most valuable company in the world, General Electric Company (GE) and its largest shareholders – BlackRock, Vanguard, State Street and Fidelity – misjudged the pace of the global energy transition and subsequent collapse of the gas turbine and thermal power construction market.”

Yes, GE is still, astonishingly, betting big on coal. Not only has it been a “leading supplier of coal-fired power plants worldwide,” in early May it announced it was building Kosovo’s new $1.3 billion 500-megawatt power plant. I agree with the IEEFA that the move is “deeply puzzling.”

Back when GE first announced its Ecomagination campaign (with a pledge to put US$1.5 billion into green R&D), ethical investors such as myself were excited to see such a large company make such a bold green commitment. After all, in the ’90s GE was better known among socially responsible investors for its nuclear weapons parts production which made it the subject of a successful boycott. (It’s still the world’s 22nd largest weapons maker, according to 2017 data, with US$3.8 billion in arms sales representing 3% of its revenue, it’s just not the nuclear kind).

By 2015, Ecomagination had generated over $200 billion in cumulative revenues, and Fast Company wrote that Ecomagination had “become the lynch pin of a remarkably successful reinvention of GE, the foundation of the company’s future, and the vanguard of the global movement towards corporate environmentalism.”

A 2008 print ad campaign for GE’s Ecomagination.

Unfortunately, management saw things differently, and, as the IEEFA put it, “GE assumed wrongly that demand for natural gas and coal would continue to track global economic growth” – an assumption that  cost GE and its investors as much as $193 billion over the past three years.

Its financial woes could get even worse since GE is currently facing a Securities and Exchange Commission investigation into the conglomerate’s “aggressive” accounting practices at both its capital and power divisions.

GE was a great investment throughout the 20^th century, but lacking a clear forward-looking strategy to transition into a low-carbon future, it’s no wonder that sustainable investors are turning out the lights on GE shares.

As an alternative, I present to you Schneider Electric (SGBSY:OTC). Schneider Electric is a French energy management company making hardware and software that helps companies improve their energy efficiency. It’s set ambitious targets, such as 80% renewable energy and 200 zero-waste-to-landfill sites by 2020 as well as full carbon neutrality across its extended supply chain by 2030. The company reports on its progress towards these goals every quarter with a non-financial disclosure document that I wish other companies would emulate. I’m not surprised at all to see Schneider Electric at #60 on the 2019 Corporate Knights Global 100 Most Sustainable Corporations in the World list, and #13 on the 2019 Corporate Knights and As You Sow Clean200 list.

Schneider Electric has been reliably profitable over the last five years, and has outperformed GE while paying a higher dividend. I expect demand for its energy-efficient products and services to increase as companies and governments around the world get more serious about climate change.

If you want to keep the lights on sustainably in the 2000s, forget GE. Schneider Electric is a better investment.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Tim Nash’s sustainable stock showdown pulls plug on GE appeared first on Corporate Knights.

Pry open your investments and you may find you’re coated in plastic, particularly if you’ve got consumer packaged goods companies like these two buried in there somewhere. In global beach waste audits, Greenpeace found Coca-Cola and PepsiCo were the top two brands contaminating shores on six continents. While PepsiCo hasn’t yet disclosed its plastic use, Coca-Cola recently divulged that it churned out a staggering 3 million metric tons of plastic in 2017 – that’s about 200,000 plastic bottles each and every minute.

© Justin Hofman / Greenpeace

I will give Coca-Cola credit for setting goals to design packaging that’s 100% recyclable globally by 2025, use at least 50% recycled materials by 2030, as well as collect and recycle the equivalent of 100% of every bottle and can sold by 2030. They have their work cut out for them. According to the company’s most recent sustainability report, the percentage of bottles it refilled or helped recover is stuck at 56%, down from 59% in previous years.

From a financial perspective, I’m worried about Coca-Cola’s opportunities for future growth. With more than half of its revenues from soft drinks, the company has failed to diversify away from high-sugar drinks that health-conscious consumers are shying away from. Coca-Cola continues to pay a healthy dividend, but I don’t think it’s well-positioned for growth in the years ahead.

Since sustainable investors might want to dump Coca-Cola from their portfolios, it’s worth asking whether long-time rival, PepsiCo (PEP:NYSE) is really the taste of a new generation. Pepsi is more diversified than Coca-Cola, with more than half of its revenues coming from packaging-heavy food products, like snack company Frito Lay. Investors tend to like this diversification since the food business has been generating higher profit margins and offers decent protection against the falling demand for sugary drinks.

Like over 250 major companies to date, Pepsi has committed to making 100% of its packaging recyclable, compostable, or biodegradable by 2025. Of course, with the global recycling system in disarray and municipal composting systems refusing a good deal of “compostable” and “biodegradable” packaging, the pledges need to be taken with a grain of salt. I remember when Sun Chips introduced a compostable bag back in 2009 only to face consumer backlash because the bag was too loud, on top of the fact that it wasn’t accepted in most municipal composting programs, like Toronto’s. Although Pepsi is innovating in this direction, there isn’t much to report on its progress.

More encouraging is that Pepsi, a company with over US$64 million in annual revenue, has expanded into refillable products with its 2018 acquisition of SodaStream (the popular at-home soda maker) for US$3.2 million. It’s part of Pepsi’s Beyond the Bottle strategy to reduce  the need for single-use bottles. Although still in early development, PepsiCo’s new Hydration Platform and Drinkfinity system would let people customize their own drinks out of a dispenser (along the lines of a Nespresso machine but with refillable cartridges similar to the Soda Stream). They’re aimed at slashing bottle use in schools, offices and hospitality centres.

Coca-Cola and Pepsi are very similar when it comes to most sustainability metrics, but I’ll give Pepsi the edge thanks to its broader diversification and the disruptive potential of refillable dispenser technologies like SodaStream. Both companies have a long way to go, but Pepsi is this week’s winner of the Sustainable Stock Showdown.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Tim Nash’s sustainable stock showdown: Pepsi vs. Coke plastic challenge appeared first on Corporate Knights.

Kimberly-Clark is an American consumer products company that makes personal care products like diapers, tissues, and yes, toilet paper. Some of its brands include Huggies, Kleenex, Kotex and Cottonelle. I was quite skeptical of Kimberly-Clark going into my research. The forestry sector, in general, has a chequered past with impacts on biodiversity loss, climate change, and indigenous rights.  As far back as 2005, Greenpeace vocally accused Kleenex of blowing our noses on the Boreal forest.

Earlier this year, Natural Resources Defense Council (NRDC) and Stand.earth released a damning new report: The Issue with Tissue: How Americans are Flushing Forests Down the Toilet. You may have also read about how disposable wipes are creating costly sewage systems clogs or ‘fatbergs’ – giant clumps of unflushable waste mixed with grease. How could I forget learning about the epic fatberg found in London, England that was 250 meters long and weighed 130 tonnes in 2017.

It’s worth noting that, since Greenpeace’s early campaign, KC developed a sourcing strategy that dramatically increased its recycled content (anywhere from 24 to 28% of its total fibre usage is currently recycled). And the vast majority of its virgin tissue fibres are certified by the Forest Stewardship Council (FSC). FSC certification isn’t perfect. The NRDC calls FSC certification a floor, not a ceiling for responsible sourcing. But it’s the most respected forestry certification out there.

No matter how stringent FSC certification becomes (it’s just announced comprehensive new Canadian standards), some environmentally conscious investors may not want to flush trees down the toilet. Lucky for them, there is a Canadian company that produces a line of toilet paper from 100% recycled fibre. Cascades is a Quebec-based paper company that produces tissues and packaging, with a long history of sustainability leadership.  Across its entire product line, 82% of its fibres come from recycled sources, and any virgin (non-recycled) source material comes from FSC-certified sources. Cascades has also hired a third-party firm EcoVadis to assess suppliers on sustainability criteria. With all of these initiatives, it’s no surprise that Cascades is a common sight on Corporate Knights’ ranking of the best 50 Corporate Citizens in Canada list (the 2019 list will be released June 4^th).

From an investment perspective, Cascades is a much smaller company than Kimberly-Clark and pays a smaller dividend. Cascades could see higher revenue growth from expansion into areas like 100% recycled food packaging, and may provide better growth over time as the anti-plastic wave picks up.

Both companies have good sustainability scores, but I’ll give Cascades the win for this week’s Sustainable Stock Showdown since it is the Canadian king of virgin tree-free paper products.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

The post Tim Nash’s sustainable stock showdown: Kimberly-Clark vs. Cascades appeared first on Corporate Knights.