What are we looking for?
Companies that will be leaders of the future’s new green economy.
The screen
Last October, the United Nations Intergovernmental Panel on Climate Change released a report saying the world will have to cut global carbon emissions in half by 2030 if we hope to avoid catastrophic consequences.
Policy-makers, with some notable exceptions, are starting to mobilize with increasing support for a “Green New Deal." Business leaders are also starting to speak up, talking about the private sector’s responsibility to take the lead in driving toward a “new green” or “circular” economy.
However, cutting emissions is only one part of the task at hand. The world’s demand for energy is increasing as populations grow and hundreds of millions enter the middle class. A second part of the problem is the need to develop alternative sources of energy to meet these energy needs in a sustainable way. The third is to do this in a profitable way, because companies can only lead us into a long-term sustainable world if they are also financially sustainable. We use these three aspects – reducing emissions, developing alternative energy and profitability – to identify companies trending in the right direction to power the world in a sustainable way and be the leaders of the future.
We start with all companies headquartered in Canada or the United States and screen for those whose total carbon dioxide and carbon dioxide equivalent emissions have decreased by at least one million tonnes and 15 per cent over the past three years.
Among these we screen for those whose total renewable energy produced has increased by at least one million gigajoules and 15 per cent over the same three-year period.
Finally, we look at the three-year percentage change in earnings a share and require at least 15-per-cent growth.
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What we found
The screen yields only three companies, all utilities, which is perhaps not surprising given the large thresholds involved. (Interestingly, had the screen not been limited to North America, Nestlé SA would have made the cut.)
The one Canadian-listed company – St. John’s-based Fortis Inc. – generates electricity from hydroelectric, biofuel, wind and solar sources, with solar generation increasing 42 per cent since 2015. Fortis is also an industry leader in renewable natural gas (RNG) and recently worked with the city of Surrey, B.C., on its recently commissioned biofuel facility, which is producing RNG for the city’s natural gas-fuelled vehicle fleets.
The company with the most impressive increase in renewables production, both from a relative and absolute standpoint, is NRG Energy Inc., but the company has recently changed its approach to renewables. NRG has divested its renewable energy business and now essentially outsources the production of renewable power in order to meet the clean energy demands of its customer base.
Ameren Corp. serves 2.4 million electric customers across Missouri and Illinois. Its latest integrated resource plan, or IRP, filed with the state of Missouri details very clear goals for how it plans to meet future energy demands. These include: the addition of 700 megawatts of wind generation and 100 MW of solar generation by 2020 and 2027 respectively, retirement of half of its coal-fired capacity over the next 20 years, and carbon dioxide emissions reductions of 35 per cent, 50 per cent and 80 per cent by 2030, 2040 and 2050, respectively, from 2005 levels.
Investors are advised to do their own research before trading in any of the securities shown here.
Hugh Smith, CFA, MBA, is manager of Refinitiv’s Investment Management business for the Americas, and is a director on the board of the Responsible Investment Association of Canada.
Hugh Smith, CFA, MBA