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Shrinking Carbon Impact is Good for Business

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Will companies continue to address the environmental problems that have created rapid changes in the earth’s climate? What incentives do they have to further reduce their carbon footprints?

Emission-Cutting Initiatives by Major Companies

U.S. companies are voluntarily stepping up to reduce the amount of carbon emissions created by their activities:

  • According to the 2016 Power Forward report1, 190 Fortune 500 companies—including Intel, American Express and IBM—reported a total of nearly 80,000 emission-reduction initiatives in 2016.
  • Alphabet (Google), eBay and Apple are among over 100 companies globally that have raised the bar even higher, aiming to power their businesses with 100% renewable energy as part of the effort to limit rising temperatures to two degrees Celsius2.
  • Risk Avoidance in the Era of Climate Change

    Not every company is participating in this effort. Notably, 90% of energy sector companies have no publicly disclosed targets to increase energy efficiency, downsize CO2 emissions or switch to renewable sources of energy. Yet there is reason to believe that increasing numbers of companies across sectors will continue to downsize their carbon impact, regardless of governmental policies, because it is in their best interest to limit the negative effects of climate change. Some of the risks to businesses that don’t act include:

  • Litigation risks as class action lawsuits, similar to those against the tobacco industry, become more common
  • Reputational risks as more and more consumers, especially millennials, look for companies that are climate friendly
  • Inefficiency risks as company bottom lines are negatively impacted by energy waste
  • Physical risks as extreme weather and rising sea levels threaten company facilities and production processes
  • The Competitive Edge of Innovation

    A few highly proactive companies are already turning climate risks into opportunities. For instance, in 2016, Apple launched Apple Energy, a subsidiary that can power Apple and sell the excess renewable energy it generates. Apple Energy allows Apple to limit its exposure to volatile energy prices and carbon regulations. But the most important reason that Apple is taking this aggressive stance on eliminating its carbon footprint is to meet customer demands for strong measures to address CO2 emissions.

    Investing for a Sustainable Future

    Investments are another avenue for consumers to support companies that take steps to reduce their carbon emissions. The latest analytics from MSCI (graph below) confirm that the carbon intensity of the Parnassus Funds continues to be lower than the carbon footprints of their benchmarks.

    Source: MSCI. The carbon intensity of the funds is measured as metric tons of CO2 emissions by portfolio companies divided by company revenue expressed in millions of dollars.

    1 https://www.worldwildlife.org/publications/power-forward-3-0-how-the-largest-us-companies-are-capturing-business-value-while-addressing-climate-change

    2 http://there100.org/re100

    As of 06/30/2017, percentage of the Parnassus Fund represented by the companies in this article are as follows: INTC is 2.4%, IBM is 3.5%, GOOGL is 2.7%, and EBAY is 1.7% of TNA. Percentage of the Parnassus Core Equity Fund represented by the companies in this article are as follows: INTC is 4.1%, GOOGL is 1.9%, GOOG is 3.0%, and AAPL is 3.0% of TNA. Percentage of the Parnassus Endeavor Fund represented by the companies in this article are as follows: INTC is 3.4%, AXP is 4.4%, IBM is 4.9%, GOOGL is 3.2%, and AAPL is 0.5% of TNA. Percentage of the Parnassus Mid Cap Fund represented by the companies in this article are as follows: EBAY is 3.2% of TNA. Percentage of the Parnassus Asia Fund represented by the companies in this article are as follows: IBM is 2.1% and AAPL is 1.4% of TNA. Percentage of the Parnassus Fixed Income Fund represented by the companies in this article are as follows: Intel Corp. Conv. due 12/15/35 is 0.4%, Alphabet Inc. due 8/15/26 is 1.4%, Apple Inc. due 5/13/45 is 0.7%, and Apple Inc. due 2/23/23 is 2.4% of TNA.

    Mutual fund investing involves risk, and loss of principal is possible.

    The views expressed are subject to change at any time in response to changing circumstances in the markets and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or the Parnassus Funds. Current and future portfolio holdings are subject to risks.