Since its founding in 1970, Earth Day has been observed globally each year on April 22 as a day of education and action surrounding environmental issues. Bringing together policymakers, researchers, environmental advocates, and various other stakeholder groups for a series of events and discussions, Earth Day serves as a call to action and a reminder of the need for a widespread, coordinated response when it comes to averting ecological disaster.
This year’s observance comes at a time when a series of troubling events—including (but certainly not limited to) a global pandemic, devastating wildfires and weather disasters—have served as a stark reminder of the delicate balance between humankind and the natural world. Most recently, power crises in U.S. states such as Texas and California have spurred conversations about the need for greater grid resiliency and, subsequently, the role that renewable energy sources might play. It is then, perhaps fitting that the theme of this year’s Earth Day is “Restore Our Earth”, focusing on the “natural processes, emerging green technologies, and innovative thinking that can restore the world’s ecosystems.”
While energy production is, of course, essential to our modern, “always on” society, most primary sources (such as coal and oil) are simply unsustainable in the long term. The fuels that we’ve traditionally relied upon are associated with a plethora of environmental impacts, including climate change, pollution, and deforestation. As part of a diversified energy infrastructure, renewable energy has the potential to meet consumer demand with a much smaller environmental footprint, while simultaneously helping to address other pressing problems, such as energy security.
As with many bold initiatives, expediting the transition toward renewable energy will require the engagement of—and significant investment from—large multinational corporations. With that in mind, and in recognition of Earth Day, we at Ethic thought it prudent to take a closer look at how companies in the S&P 500 are prioritizing adoption of alternative energy and “clean” technologies such as green buildings, sustainable water infrastructure, and pollution prevention solutions. Here’s what our analysis shows:
By the numbers
1. Just six companies in the S&P 500 get more than 10% of their revenues from alternative energy production.
2. Fifteen energy sector companies in the S&P 500 get 0% of their revenues from alternative energy production or related business. It seems that industry participants are recognizing the need to diversify and future-proof their businesses: this time last year, 24 such companies had no stake in the alternative energy space.
3. 165 companies, or 39% of the S&P 500 by market-cap weight, earn at least some revenues from "clean" technologies. This time last year, it was 160 companies, and 37%— this certainly represents a step in the right direction, but not at the pace that’s necessary.
Why it matters
Beyond the obvious risk to the environment, energy companies simply cannot afford to ignore the transition toward renewable sources, which stands to significantly disrupt their business models and threaten future revenues. Energy companies that don’t diversify their offering through the incorporation of renewable sources are failing to future-proof their businesses, and may find themselves disproportionately exposed to longer-term transition risks associated with carbon regulations and diminished demand for fossil fuels. This means that oil, gas, and coal companies could find themselves with stranded assets, i.e., resources and equipment that can no longer generate revenue, on their hands. In fact, one 2018 study estimated that stranded fossil fuel assets could wipe between $1-4 trillion from the global economy by 2035.
Major energy companies are coming under increased pressure from activist shareholders to commit to reduce greenhouse gas emissions—a trend that shows no signs of slowing, as the latest proxy season resolutions attest. Institutional investors, recognizing their formidable role in accelerating the shift toward a greener economy and the financial risks associated with inaction, are applying pressure to expedite change. Even the largest banks are gradually reducing their overall financing of oil, gas, and coal companies, although there remains a significant gap between their public commitments and portfolio holdings. Meanwhile, an ambitious tax plan from the Biden administration seeks to do away with subsidies claimed by the fossil fuel industry, instead incentivizing the adoption of clean energy alternatives.
As the energy sector confronts a new set of realities, and various governments across the globe double down on their efforts to create low-carbon economies, the case for corporations to embrace clean energy becomes ever clearer. Increasingly, the prospect of transitioning to a low-carbon economy transcends the obvious need to preserve our planet—it’s just good business sense.