Is there any relationship between a company's environmental reputation and the performance of its stock?
On the one hand you can make an argument that relatively green-friendly energy companies - those that are investing in renewable resources, recognizing the importance of climate change and doing something about their greenhouse gas emissions - might have more forward-thinking management teams. As well, their stocks might be embraced by more investors, including socially responsible investment funds.
On the other hand, going green comes with a price. Building windmills and plowing big bucks into carbon capture aren't necessarily the most profitable business strategies - not yet, anyway. In other words, getting a green-friendly label could send profit-seeking investors running in the opposite direction.
In our search for an answer, we took a highly unscientific approach that nonetheless yielded some interesting results.
First, we sought out a ranking of energy companies. Greenopia, a website for green-conscious consumers, did our work for us. While you might quibble with their methodology, they at least provided us with a list of what environmentalists deem to be green and non-green companies.
The list gave us 10 energy companies, nine of which trade on the New York Stock Exchange. We then looked at the five-year returns on these nine stocks to see if any patterns emerged. They did: Green is not good.
BP PLC, Sunoco Inc. and Royal Dutch Shell PLC were the top three companies, meaning that they were the most green in the eyes of Greenopia researchers. Unfortunately, their five-year returns, after factoring in dividends, probably won't inspire a green revolution: They averaged just 9.4 per cent over the five-year period, which isn't much when you consider that the price of crude oil has risen more than 66 per cent over the same period. (No wonder BP and Shell now appear to be shelving their green initiatives.)
The bottom three stocks - ConocoPhillips Co., Chevron Corp. and Valero Energy Corp. - performed better, with an average return of 52.1 per cent. These companies may have received low grades by Greenopia, but the stock market rewarded the stocks with far better grades.
What's most interesting, though, is that the middle three companies - Hess Corp., Marathon Oil Corp. and Exxon Mobil Corp. - had by far the best performances, with five-year returns of nearly 129 per cent on average. These companies aren't exactly green, but nor are they hostile to green-friendly approaches. Instead, they are in neutral territory.
Admittedly, our approach has some big flaws, not least of which is the notion that stocks move on more than their approaches to environmental sustainability. But we can't help conclude: If you want to make money with an energy stock, go with an agnostic.
David Berman