Welcome back to Outside Forces. The newsletter that explores the business of nature, market movers, science, climate and tech.
Today we look at the stock market performance of companies that have made a commitment to reducing GHG emissions using the Science Based Target initiative’s (SBTi) framework.
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Onward,
Sam
Right now, there is a widely held mental model by which to combat climate change permeating corporate America. And it's really simple: Stop emitting greenhouse gases or remove them completely. I still haven’t seen a better explanation of it than what Nan Ransohoff from Stripe published here.
Carbon reduction and removal seems to be a rational path but as many have pointed out, in the absence of government regulation, ahem, penalty, ahem, incentives or even compromise, there is no way of actually solving anything (so it seems). And, if given the option to remove carbon after the fact, are we really solving the core issue to begin with?
We are all doomed.
To be fair, many companies are also working at the root cause of this problem — like alternative agriculture and nuclear energy. Two of the biggies.
And many more corporations, to their credit, are voluntarily heeding the call to make a measurable difference in reducing carbon emissions. One organization in particular has made it easier for them to both, get started and, measure their progress. This outfit, aptly named, The Science Based Targets Initiative (SBTi) has been enrolling corporations across the world for a few years now and it’s one of the better frameworks out there in my opinion. They help companies, you guessed it, by setting science-based targets to monitor and collectively achieve this net-zero commitment.
But this post is not intended to compare the different “pledges” out there for corporations or “lists” of corporate climate champions from PR firms. While some may disagree on how we fight climate change, I think we all agree that corporations n̶e̶e̶d̶ ̶t̶o̶ must make major changes to their operations if we are to have any chance at all. Any commitment, under whatever framework that might be, does not hurt the cause at this juncture. However, commitments and pledges are just promises that are bound to be broken, even with the best of intentions. In the absence of a unified, global policy and regulatory framework, we must continue to chip away at the things we can control at the current “temperature”. The bolder the better.
So, science, through the SBTi, will measure their impact and track their progress on reducing carbon emissions. This is good. But is this good for business? How can we measure this?
The stock market? Maybe, maybe not.. but let’s have some fun, shall we.
Introducing the SBTi Index
Disclaimer: This in no way should be considered financial advice in any realm. The stock market is not the measure of anything other than the buying and selling of shares of a corporation. It *could* be an indicator of the health of a company based on metrics made available to the public, but in aggregate, it is not *necessarily* a reflection of the health of an economy. But, like everything, it’s complicated. Decide for yourself and do some more research if this fun but very unscientific exercise helps you in any way understand these companies better and their value in relation to your portfolio. I know not what I do.
A little methodology: I went to the SBTi website and exported the CSV file of all the companies that have registered their commitments with them (as of May 16, 2021). Then, I filtered for publicly traded companies based in the US and traded on US exchanges (n=166). Then, I created a real-time spreadsheet that tracked their stocks beginning 1/1/2021 to present. That’s it. No adjustments for anything, no fees and expense ratios, nothing. Just a hypothetical portfolio of $10,000 split equally across each company. As more get added, I will update that too. If I can figure it out, I will link my google sheet with real-time data for everyone to see. Until then, this is a snapshot from today.
Here are the big take-aways*
If you owned $10,000 of the new SBTi index on 1/1/2021 and never sold a share, your investment would now be $12,103, a YTD increase of +21.04%
For comparison, in the same time period, the DJIA is +13.53%, S&P is +12.63% and the NASDAQ is +6.35%
*as of the publishing of this post
📈Top gainers (YTD):
Farmer Bros. Co. (FARM) +177.48%
United Natural Foods, Inc. (UNFI) +116.65%
The Children’s Place, Inc (PLCE) +94.77%
Gap, Inc. (GPS) +70.60%
American Eagle Outfitters, Inc. (AEO) +64.77%
📉Top losers (YTD):
McDermott International (MCDIF) -43.04%
Hannon Armstrong (HASI) -22.52%
Advanced Micro Devices (AMD) -16.10%
The Clorox Company (CLX) -10.79%
VF Corporation (VFC) -10.00%
📊Comparison to the top index fund ETFs by AUM (YTD):
iShares S&P 500 (IVV) +13.65%
Vanguard 500 Index (VOO) +13.65
Vanguard Total Stock Market (VTI) +13.17%
🌎Comparison to the top* ESG ETFs (YTD):
iShares ESG Aware MSCI USA ETF (ESGU) +12.95%
Vanguard ESG US Stock ETF (ESGV) +11.86%
Xtrackers MSCI USA ESG Leaders Equity ETF (USSG) +14.27%
iShares ESG MSCI USA Leaders ETF (SUSL) +14.23%
*based on holdings of US companies and sorted by total AUM
💸Comparison to cryptocurrency (YTD):
BTC +23.79%, ETH +227.75%
What does all of this mean?
Who knows. But it reinforces the most important metric I use when investing in my personal portfolio. My gut. (see disclaimer again on taking advice from me)
Companies that are trying to make a difference in the battle with climate change are probably also making good decisions across their entire business, and this has to mean something.
Only 166 (public, US) companies? We have a lot of work to do.
Would you like to get regular updates on this index? Would you like to see other indexes of companies in the climate or outdoor economy space? Drop me a line and I will work on it.
👇Oh, and hit the like button. If you liked it!