Corporations with the highest sustainable capital expenditure and R&D in the ‘green economy’ outperform the benchmark by a ratio of three to one, according to new research conducted by Corporate Knights.
The media and research company based in Canada tracked the world’s largest companies’ commitment to sustainability for more than two decades and over the past five years calculated how much each company is investing in new sustainable systems, such as renewable energy and green building materials.
The research found the best investments of the past three to five years were companies that jumped feet-first into the green economy. “As the costs of renewable energy drop and countries begin their march to the better future of net zero, we believe this pattern will become even more pronounced,” said Corporate Knights CEO Toby Heaps.
Corporate Knights newly launched Sustainable Economy Intelligence (SEI) Database ranked more than 2,800 public companies by the percentage of revenues and spending derived from the green economy (as defined by Corporate Knights’ Sustainability Economy Taxonomy). In the most recent three-year period, the companies in the top 20% of the SEI outperformed the most prominent index of global companies, the MSCI All-World Index, by a factor of three to one.
Between January 2019 and March 2023, the value of the top quintile of the SEI grew 146%, compared to 47% for the MSCI ACWI. Through this period, the top-quintile companies on sustainable investment posted average annual returns of 14% – vs just 2% a year for the MSCI ACWI.
“Most investors used a diversified stock portfolio to shelter their capital and hope for growth,” added Heaps. “Corporate Knights’ research indicates growth-oriented investors should focus on companies that are actively shaping the greener future. Now is the time to identify and stake out positions in the companies investing in a low-carbon sustainable future because they will be the ones who own it.”
Heaps predicts the outperformance of sustainable companies is likely to last, even as the pace of change picks up. New incentives such as those contained in the U.S. Inflation Reduction Act (earmarking $369 billion for clean energy and climate change mitigation initiatives), and new green spending expected in next week’s federal budget, are designed to stimulate hundreds of billions in new investment from the private sector.
This announcement follows Corporate Knight’s annual global list of the 100 most sustainable companies for 2023. The ranking, based on an assessment of more than 6,000 companies, scored on metrics relative to their peers. After analysing the data for 25 key performance indicators, the report found rising oil prices had encouraged growth in renewables, smart buildings, electric vehicles and other climate solutions, including circular economy measures. Highlighted by the number one ranked company, Schnitzer Steel, which is a metals recycler.
