Investors don't need to look hard to find sustainable companies commanding decent returns, a recent report found.
The 2023 Clean 200 from nonprofit shareholder activist As You Sow and research firm Corporate Knights leveraged the Corporate Knights Sustainable Economy Taxonomy to rank the top 200 publicly-traded companies, out of a pool of 6,720 global firms, "based on rigorous assessment of the amount of revenue each company earns from products and services."
Apple (AAPL) topped the list with $259 billion in sustainable revenue, with an estimated 71% of the tech giant's revenue coming from sustainable sources, after not even making the list two years ago.
Google-parent Alphabet (GOOG,GOOGL) ranked second with $228.7 billion in clean revenue, followed by Deutsche Telekom AG (DTE.DE) ($89 billion), Verizon Communications (VZ) ($80 billion), and Tesla (TSLA) ($53 billion).
“The spread of the great transition that we're in the middle of is spreading out even further globally — that every country in the world will soon have major companies making major money employing major numbers of people as part of this global transformation,” As You Sow CEO Andrew Behar told Yahoo Finance.
Apple topped this year's Clean 200. (As You Sow)
What began in 2016 as a list of companies leading in clean energy has since expanded to encompass revenue that meets a range of sustainability certifications from electric vehicles to sustainable loans. The list excludes companies with exposure to controversial business practices such as investments in fossil fuels, weapons, and prisons or otherwise "having a record of systemically obstructing climate policy."
"These are the companies that are leading the way by putting sustainability at the heart of their products, services, business models and investments, helping to move the world onto a more sustainable trajectory," the report stated.
This year's Clean 200 list also spanned 35 countries, with the most companies listed in the U.S., China, and Japan. And with the exception of energy, there was broad sector representation: Industrials companies were prevalent as were information technology, materials, and utility companies.
“It's not just clean energy,” Toby Heaps, CEO of Corporate Knights, told Yahoo Finance. "It’s the entire economy, from Google's advertising that comes from sustainability-focused companies to plant-based milks.”
Employees wear green shirts near Apple's familiar logo displayed with a green leaf at the Apple Store timed to coincide with Tuesday's annual celebration of Earth Day in Sydney, Tuesday, April 22, 2014. (AP Photo/Rick Rycroft) ·ASSOCIATED PRESS
Apple gets serious about its supply chains
Apple has made strides in recent years in using recycled materials and rare earth minerals.
"Over time, they've really kind of gone to town on their whole supply chain," Heaps explained. "They're getting zero-carbon or almost zero-carbon aluminum and making the iPhone... We've looked at about 300 eco-labels, certifications, and Apple now builds... a large enough chunk of its products that they qualify for the high standards."
Apple's sustainable revenue primarily comes from the sale of iPhones, iPads, and Macs, all of which have been awarded EPEAT Gold certification. Criteria for the Electronic Product Environmental Assessment Tool (EPEAT) global ecolabel considers hardware products' materials, supply chain greenhouse gas emissions, product longevity, energy conservation, and end-of-life management, among other factors.
The company offers eight devices with more than 20% recycled material, according to its 2022 sustainability report. The 2020 MacBook Air with an M1 chip has the highest amount of recycled materials — 44% of the laptop is recycled, including a 100% recycled aluminum enclosure.
As of 2021, Apple began using recycled gold and tungsten in all of its iPhones. Apple shipped roughly 225 million iPhones in 2022.
At the same time, Apple is far from perfect when it comes to selling sustainably-sourced products at scale. The tech giant has come under pressure from consumers and governments who have argued the company makes it too difficult to repair its devices, leading to shorter life cycles for its electronics.
Despite launching Self Service Repair, a platform that lets customers order parts and browse instructions for repairing devices, Apple has thrown its weight against state right-to-repair laws, including a watered-down law passed in New York in 2022.
What Google and Tesla also get right
Google has consistently ranked among the top two Clean 200 companies over the past several years.
Google's clean revenue primarily derives from advertising on Google Maps, which has features aimed at reducing carbon emissions in transportation, as well as cloud services powered by renewable energy.
And Tesla, Elon Musk's electric vehicle company, has been a pioneer in increasing the adoption of EVs and decarbonizing the transportation sector. At the same time, the company has underperformed on other ESG metrics, such as taxes paid and labor controversies.
"Tesla is a poor discloser of operational metrics, and where it does disclose, it scores bottom quartile performance on waste and taxes paid (just 4.7% of EBITDA paid in cash taxes over the past five years)," Matthew Malinsky, research manager at Corporate Knights, told Yahoo Finance."But Tesla has excellent products focused on EVs. So when you apply 50% weight to products and 50% to operations, Tesla is the most sustainable car company in the U.S., and one of the most sustainable companies on the planet."
Tesla electric vehicles are lined up and charging their batteries in this outdoor public charging station just north of Santa Barbara on March 18, 2022, in Goleta, California. Photo by George Rose/Getty Images) ·George Rose via Getty Images
Microsoft and Amazon missing from list
Two big corporate names with ambitious climate pledges were noticeably absent from the Clean 200 list.
So why aren't Microsoft (MSFT) and Amazon (AMZN) among the sustainable giants? It mostly comes down to disclosures.
Microsoft's actions have primarily focused on its operations, such as renewable energy projects and managing water usage. However, Malinsky noted, the company doesn't provide enough detailed information about product revenue to determine the portion coming from technologies that are supporting the low-carbon economy transition.
Likewise, Amazon shoppers may recognize the "Climate Pledge Friendly" label when shopping online, but the actual level of sustainability varies widely for the self-reported eco-label.
For instance, Heaps said that some products may receive the label if they have eco-friendly packaging, regardless of what the product is, whereas other products may qualify under more rigorous standards.
Amazon CEO Jeff Bezos announces the Climate Pledge, setting a goal to meet the Paris Agreement 10 years early, in Washington, Thursday, Sept. 19, 2019. (AP Photo/Pablo Martinez Monsivais) ·ASSOCIATED PRESS
Research shows that overall, companies with stronger ESG risk management practices tend to outperform benchmark peers over the long run.
Since July 2016, when the list was created, Clean 200 companies have outperformed the MSCI ACWI broad market index by 3.36%, the report stated, despite being underweight U.S. equities and energy stocks in 2022, a year when oil and gas companies benefitted from higher prices.
Heaps stressed that this demonstrates that even when investors use a "fine tooth comb" to weed out greenwashing — the practice of overstating sustainability credentials — there is no shortage of investable companies.
“This transformation that many have said is the equivalent of the Industrial Revolution is in full swing,” As You Sow's Behar said. “It’s not a clean energy future, it is a clean energy present — and it is scaling rapidly.”
(As You Sow)
Grace is a special projects editor for Yahoo Finance.
