‘Clean’ Company Index Trounced Peers Over Past Decade

Sorry, Kermit. Looks like it might actually be easy to be green.

An index of publicly listed US companies with over half their revenue coming from “sustainable” activities has significantly outperformed the broader market, even more so than companies with heavy ties to fossil fuels. Non-profit shareholder activist As You Sow’s Clean200 list of companies returned a gross total of 283% since it started on July 1, 2016, compared with 221% for the MSCI ACWI and 111% for the MSCI ACWI/Energy Index. “If you had bought into the Clean200 as an idea (in 2016) … you would outperform the ACWI considerably, and you’d outperform fossil fuels ridiculously,” As You Sow CEO Andrew Behar said.

American Exceptionalism

Sustainable funds including ETFs don’t beat the broader market in every environment, said Toby Heaps, cofounder of sustainable research organization Corporate Knights, which contributed to the report. The interest rate cycle is a factor, since cheap financing fuels sustainable projects, but companies in the index have been growing revenues at rates roughly double those of the larger economy, he said. The Trump administration’s pursuit of cheaper oil prices may not significantly change that, in part because electricity (such as for cars) remains affordable and because the US is not the global economy, which is broadly shifting toward sustainable energy, Heaps said.

Still, the holdings in many funds look a lot like those of other funds, sans Big Oil. As You Sow’s index is heavy on industrials, consumer discretionary, materials, information technology, utilities, health care and communications. The funds’ holdings include:

• Amazon, Apple, Microsoft, Tesla and Contemporary Amperex Technology Co. 
• Those overlap with many of the top positions in the $15 billion iShares ESG Aware MSCI USA ETF (ESGU), which has returned 13% on average over five years (it returned 17% last year, compared with 22% for the MSCI ACWI).

It’s Bigger: Renewable sources of electricity accounted for more than 90% of the world’s added capacity last year, Heaps noted. And that isn’t just a story about China, which is rapidly expanding cleaner sources of power. Texas, for example, is the top state for wind energy production, and one of the leading solar producers, according to government data. “In the US, even with all this noise … You still see states like Texas that are leading the way, adding thousands of megawatts of solar and wind,” Heaps said.