FOREWORD

** As You Sow and Corporate Knights are not investment advisors, nor do we provide financial planning, legal or tax advice. Nothing in the Carbon Clean 200 Report shall constitute or be construed as an offering of financial instruments, or as investment advice or investment recommendations.**

We are happy to present the 2017 Q3 Carbon Clean 200TM list of publicly traded companies that are leading the way with solutions for the transition to a clean energy future.

Since our first report was launched last summer, a great deal has changed in the world. The CEO of Shell announced he is going electric for his next car, and oil stocks flat-lined as global markets climbed to record levels. While some feared the change in the political climate in the U.S. would bode badly for clean energy at the expense of fossil fuels, the opposite has happened. After some initial market uncertainty following last year’s Presidential election, the Clean 200 stocks have dramatically outpaced the returns of fossil fuel stocks.

But the real takeaway continues to be that the clean energy story is global and it is no longer niche. Over 30 countries are represented by the Clean200, which have an average market capitalization of $8.3 billion and generate over $353 billion in clean energy revenues per year. While the stock market continues to break records in the short term, the long term clean energy economic expansion continues afoot, regardless of what happens in the White House.

Beyond America, global growth is now being driven by emerging economies, which account for 80% of economic growth. This was one of the points made by the Chinese President’s Xi Jinping in his keynote address/coming out party as emerging superpower this at the World Economic Forum in Davos earlier this year. While not widely picked up in press reports, President Xi also made a point emphasising “Our efforts to pursue green development are paying off.” Indeed they are. Among the 2017 Clean200 companies, Greater China takes the crown, with 71 companies versus 41 from the US, despite the US stock market being more than twice the size of Greater China’s.

Being on the vanguard of the clean energy transition is at once an economic, political (cleaner air), and geopolitical imperative as it relates to China’s role as a leading nation in the 21st century, a point made in a report by the Institute for Energy Economics and Financial Analysis, which found China’s dominance in renewables is rapidly spreading overseas, with the country accelerating its foreign investment in renewable energy and supporting technologies.

Over the past six years, and growing dramatically leading up to and post-Paris COP 21 and Marrakesh COP 22, a movement of institutional and individual investors representing more than $5tn in assets under management have divested a portion of their fossil fuel investments and committed to divesting the balance in the next five years. The corollary of divesting fossil fuels is re-investing in the clean energy future. As an invitation to a larger discussion of how we can invest in a clean energy future, we created the Clean 200 (Clean200™)—a list of the 200 largest companies worldwide ranked by their total clean energy revenues, including revenue associated with energy efficiency themes.

The moral case for divesting from fossil fuels has been well argued, but for many, the economic case is less clear. However, as clean energy growth rates take off and demand growth for fossil fuels flatlines, it is probable that divesting from fossil fuels in favor of a clean energy future does not have to come at a sacrifice to long-term investment returns. In its first full year of live performance, Clean200 companies generated a return of 16.5% versus a decline of 1.2% for its fossil fuel benchmark the S&P 1200 Global Energy Index.

On the risk side, divesting is about not getting stuck holding stranded fossil fuel assets that cannot be burnt if the world is to adhere to a given carbon budget, a topic on which Mark Carney, governor of the Bank of England, has expressed concerns in a landmark speech to global insurer Lloyd’s of London.3 On the opportunity side, investing in the transition from a high-carbon to a low-carbon economy represents “the largest economic opportunity of the 21st century,” according to John Doerr4 a major venture capitalist at Kleiner-Perkins in Silicon Valley. It might seem counterintuitive for an investor to sell their fossil fuel stocks when most people are still driving internal combustion cars and burning fossil fuels every day. However, the point and the power dynamic of investing is that, as an investor, you have the power to bet and capitalize on the creation of the world that you want to see. If you are wrong, you will lose money. If you are right, you will profit from and add momentum to the change you believe in. While many mission-driven investors believe that the arc of history bends towards justice—that companies which create positive rather than negative externalities will prevail —in the case of climate-friendly investing, it may actually be true. Many investors have found this out the hard way. Indeed, in a world of limited capital, every investment holds opportunity cost. When people vote with their investment dollars in favor of clean energy over dirty, it sends a message as powerful as any ballot box that the time has come to stop using the atmosphere as a free dumping ground.

Take coal, which accounts for over 40% of global greenhouse gas emissions.5 The industry is declining rapidly in value, especially in the United States. In the words of Jim Barry, the global head of BlackRock‘s infrastructure investment group: “Coal is dead,…The thing that has changed the whole picture fundamentally is that renewables have gotten so cheap.” Oil companies are facing similar problems, as the automotive industry begins to accelerate into the electric-age reducing our reliance on oil. The cost of owning an electric car will fall to the same level as petrol-powered vehicles next year, according to bold new analysis from UBS which will send shockwaves through the automobile industry.

Major investment indices are now only half as exposed to the fossil fuel sector (1.5% to coal, 7% to oil and gas) as they were five years ago. This is not due to any active decision to divest, but rather because fossil fuel stocks have lagged while other sectors have produced healthy returns.

While fossil fuel stock performance stagnates, clean energy is taking off. The world is currently adding twice as much clean power capacity as coal, oil, and gas combined, according to Bloomberg New Energy Finance (BNEF).9 Wind’s market share of power generation has doubled four times in the past 15 years, and solar has doubled seven times. It’s also getting cheaper to make power from wind and solar, thanks to technology, better financing and economies of scale. Increased demand for a technology generally reduces prices, whereas increased demand for a commodity increases prices. This basic calculus has driven the price of a renewable kilowatt of energy ever downward, making the choice of energy an economic one. Companies which make a significant amount of their revenue from environmental solutions now make up 5% of global investment indices; the Clean200 list of companies have a collective value over $1 trillion.

In the next 10 years, McKinsey10 expects oil demand growth to flatten due to growing fuel efficiencies and competitive technologies such as the electric car. Battery prices fell 35% last year, and electric car sales rose by 60%. By 2022, BNEF estimates electric vehicles will cost the same as their internal combustion counterparts, and if growth continues at the current pace, oil displacement by electric cars will reach 2 million barrels per day by 2023 — the size of the current oil glut and enough to drive global oil prices to record lows. Factoring in autonomous cars and ride-sharing services, electric cars could reach 50% of new car sales by 2040, according to BNEF, 50 times higher than what OPEC is projecting.11, 7

None of this portends an imminent conclusion to our fossil fuel age, but it does suggest an end to fossil fuels as a long-term growth market and the beginning of a long run expansion of clean energy demand. This sentiment has been ratified, sanctified, and tallied by the political, moral, and financial bellwethers of our time, from the Paris climate talks (195 countries committed to phase out fossil fuels this century) to the Vatican (Pope Francis has made moral invocations to drastically reduce use of fossil fuels in the encyclical Laudato Si’12) to the Bank of England (the bank’s governor Mark Carney has warned not to get stuck holding a bag of stranded fossil fuel assets).

The Clean200 Methodology

The Clean200: The biggest 200 public companies ranked by green energy revenues, was first calculated on July 1, 2016 and publicly released on August 15, 2016 by Corporate Knights and As You Sow and now updated with data through the end of 2016.

The Clean200 are listed by their estimated green revenues in USD. The dataset is developed by multiplying a company’s most recent year-end revenues by its BNEF New Energy Exposure Rating mid-point. In cases where companies disclosed their clean energy revenues, this number was verified to ensure consistency and, in some cases, used to override the BNEF data. In order to be eligible, a company must have a market capitalization greater than $1 billion (end of Q3 2017) and earn more than 10% of total revenues from New Energy14 sources.

The Clean200 uses negative screens. It excludes all oil and gas companies and utilities that generate less than 50% of their power from green sources, as well as the top 100 coal companies measured by reserves, top 100 weapons producers, as well as laggards on tropical deforestation15, and child or forced labor and companies who engage in negative climate lobbying.