In this content I am presenting my personal opinion as an active private investor. This content is not intended to provide investment, financial, accounting, legal, tax or other professional advice and should not be relied upon or regarded as a substitute for such advice.

How climate-friendly are the Carbon Clean 200 companies?

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None of us can resolve climate change on our own. But our investment decisions can support the technologies and business practices that point the way to a greener, more sustainable future. You know that much, since you’re reading this post. So do companies that support retail investors. That’s both a blessing and a curse, as we’re about to discover.

A growing number of resources promise to help investors steer their money toward climate-friendly companies. Some of them live up to that promise, while others fall short. Let’s look at one of the most prominent guides to sustainable investments: the Clean200 list, an annually updated publication of shareholder advocates As You Sow.

The Clean200: A closer look

The dataset behind the latest Clean200 list is built by multiplying a company’s most recent year-end revenues by its clean revenue estimate. This method produces a list of companies headed by the following five:

Company Name

 GICS Sector

Country

FY 2019 Clean Revenue Estimate %

 Clean Revenue, USD, 2019

Alphabet Inc

Communication Services

USA

83.33%

 $135,000,000,000

Siemens AG

Industrials

Germany

44.21%

   $56,136,165,286

TSMC

Information Technology

Taiwan

60.75%

   $46,230,440,967

SAP SE

Information Technology

Germany

83.52%

   $33,640,766,551

Iberdrola SA

Utilities

Spain

59.97%

   $31,944,101,887

As impressive as these companies are at generating revenue, do they make the best, most impactful green investments? I think not. While it provides some interesting information, the Clean200 list suffers from three significant flaws.

Firstly, the study offers no clear definition of “clean revenue,” nor does it include any provisions for confirming the validity of claims made by the companies it lists. Alphabet, for example, is credited with generating an estimated 83.33% of its revenue (a perfect 5/6, as it happens) through “clean” practices. But we never learn precisely what these clean practices are, or how they relate to Alphabet’s actual business operations. This isn’t to pick on Alphabet. The same question can be asked of TSMC, which produces semiconductors for Apple, Intel, and other technology giants.

Just as importantly, the list’s ranking scheme is intrinsically biased towards larger companies. The more revenue a company generates, the better its ranking, regardless of factors that are deeply important to green investors. Siemens, for instance, manages to place second although it alone among the top five generated less than half its revenue through clean practices. This may be because Siemens has failed to incorporate sustainable procedures in its operations. But since Siemens is the lone industrial stock in the top five, it may be a remarkably green company after all, relative to its peers, and worthy of support. On its own terms, the Clean200 list fails to provide the context and detail that would let us address these issues.

By the same token, other companies that rank high on the Clean200 may be doing less than they can to address climate change. Siemens earned its low clean-revenue mark in part because its subsidiary Siemens-Energy sells technology used to explore for oil and gas, and for use in conventional fossil fuel-fired power plants. For the sake of argument, let’s pretend that the Clean200 list uses a sound definition of “clean revenue.” Even so, the 45% of Siemens’ revenue earned this way may be merely climate-friendly, while the remaining 65% may be highly damaging to the environment. This possibility is somewhat in Siemens’ case, but it exists for every one of the companies listed in the Clean200.

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A better way?

In all fairness to As You Sow and the researchers behind the Clean200, it is extraordinarily difficult to develop guides of this sort. Retail investors need clear guidance on their terms: heavily researched and amply documented, but presented in a manner that quickly rewards the attention of intelligent, motivated, and otherwise busy professionals.

I applaud the work that goes into such guidance, but I find that the Clean200 and too many lists and indexes of its type err on the side of oversimplification. That’s why I spent years developing and testing the Pure Climate Stocks Methodology. This approach has helped me identify more than 200 publicly listed companies that I consider to be pure climate plays.

Here are the criteria I use to screen for pure climate stocks:

Net Zero by 2050. A near-consensus among reputable climate scientists tells us that by 2050, the total amount of carbon emitted worldwide will need to be balanced by at least an equal amount of atmospheric carbon removal. Pure climate plays do their part to achieve this goal.

Technology Analysis. The Pure Climate Stocks Methodology documents the products and services each company offers and reviews their contribution to net zero by 2050 against research and analysis by established scientists and researchers.

Company Analysis. To qualify as a pure climate play, only those companies that generate 100% of their revenue from products or services based on net-zero technologies are eligible for recognition as pure climate plays.

For more details, please visit my website’s methodology section.

Which stocks are pure climate plays?

The complete list of pure climate plays is subject to change based on our constant analysis of company reports and related information sources. For now, here is an overview of six critical areas in which net-zero technologies are currently making a difference, and of a company in each area that makes 100% of its revenue from business surrounding those technologies.

  • Renewable energy: Vestas
  • E-mobility: Tesla
  • Hydrogen power: Plug Power
  • Alternative proteins: Oatly
  • Carbon removal: Aker Carbon Capture
  • Circular economics: Carbios

Green investing is more achievable than ever

Experienced retail investors know that with a few good research tools, it is possible to cut through the chatter and make sound financial decisions. The same is true of climate-impact stocks. It may be fashionable for companies to tout—and often to inflate—their green credentials, and not every guide to responsible investing bears up under serious scrutiny. But with a healthy dose of skepticism toward the stocks you buy and the tools you use to identify them, you can build a diverse, financially strong, environmentally friendly portfolio of stocks whose prospects stand to grow even brighter in the years to come.

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