16 October 2011:
Many would agree that we are entering a world of peak oil and rising energy prices. There are pending fresh water and food shortages and price increases in many parts of the world, coupled with theoretically unsustainable—yet inevitable—increases in population. Other effects of climate change threaten, from warming seas to shortages of arable land and biodiversity loss. Yet the majority of investors do not take such things into consideration.
Increasingly, evidence suggests they should. Companies that actively manage environmental risks—and take advantage of associated opportunities—increasingly seem to outperform those who don’t in the stock market. That could be a very good thing, both for shareholders and the planet.
Take NEWSWEEK’s Green Rankings, for example: companies that ranked in the top 100 of the 2009 ranking, weighted equally, outperformed the S&P 500 by 4.8 percent over the last two years. These companies are collectively up 15.2 percent, compared to 10.4 percent for the S&P 500. The case gets even stronger when you look for undervalued companies using an analysis of financial metrics, as Value Line performed for us recently. Looking at 30 of the financially strongest of NEWSWEEK’s top 100 finds a two-year return of 24.1 percent, outperforming the S&P by 14 percent.
An example of such a company is IBM, whose stock is up more than 100 percent over the last 5 years, while the S&P 500 has been flat. IBM is a poster child for a company evolving with the times—first from hardware to software, and now through sustainability solutions across energy and water efficiency, smarter cities, etc. as categories of opportunity to drive future revenue. IBM not only looks for such environmentally focused revenue opportunities, they are also now demanding environmental reductions from their suppliers. Leaders in the rankings this year in other sectors have not only survived the financial woes their direct industry peers have otherwise suffered, they also have emerged healthier. Ford, for example has come out with a suite of efficient vehicles that are much more attractive to consumers facing higher gasoline prices; Ford’s stock price is up over 50 percent in the last two years.