Tahoe-Truckee Market Beat: The 100 most sustainable corporations in the world
June 10, 2015
I recently had the pleasure of interviewing Toby A.A. Heaps on my radio show. Toby is the CEO and co-founder of the Corporate Knights. In 2007 he coined the term, "clean capitalism."
The Corporate Knights publish a magazine on sustainable living, and for the last 10 years have been putting together a global ranking of the 100 most sustainable corporations in the world, known as the Global 100 Index.
Every year at the World Economic Forum in Davos, Switzerland, they release the annual list of the 100 most sustainable companies. The way they put the list together is interesting. They start all publicly traded companies in the world with a market cap of at least $2 billion.
Then, they screen them based on their sustainability disclosure. Next, they are all screened based on what's known as the Poitroski F-score, which has nine different tests for financial stability and profitability. They measure things like net profit, operating cash flow, long-term debt and more.
The third screen is the product category where tobacco stocks and weapons manufacturing stocks are eliminated.
The fourth screen is for sanctions. They evaluate a company's history of environmental related fines and penalties.
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The top 100 companies are ranked and scored. This year, two US-based companies, Biogen and Allergan, topped the list, being ranked Nos. 1 and 2, respectively.
Other US-based stocks that made it included, Johnson and Johnson, Coca-Cola, General Mills, General Electric, Campbell Soup, Cisco, Intel and others. A total of 19 US companies made the cut.
They benchmark the portfolio to the MSCI ACWI, which is an all country world index consisting of 2,400 stocks and is considered to be one of the most comprehensive global indexes.
The Global 100 Index has performed fairly well. From its inception through the end of 2014, it had returned 90.76 percent vs. 96.98 percent for the MSCI ACWI index.
Last year was the first year the Global 100 has fallen behind its benchmark and the underperformance was mostly due to the rise in the US dollar.
About half the companies in the MSCI ACWI index are denominated in the US dollar and 81 percent of the Global 100 stocks trade in non-US denominate currencies.
If you're interested in socially responsible investing, the Global 100 might be a good starting point for some investment ideas in sustainable equities.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.