Overview:

The Climate Index contains our filtered list of every company building solutions to climate change traded on US stock markets. This 2021-2022 update took over 1,500 hours of research, writing, and analysis to compile.

We began with an inclusionary ethical filter, finding every publicly traded company that is building a climate change solution listed in Project Drawdown or the IEA’s Net Zero 2050 Report. Next, we applied an exclusionary filter, removing the companies that make more revenue from sales to the fossil fuel industry than from their climate solution. We also removed companies who have been credibly accused of fraud. For some sectors, we passed companies through a set of stricter inclusion criteria, specifically: utilities, yieldcos, and waste management, biofuels, carbon capture, water distribution, LED, and reproductive health companies.  

Finally, we passed the remaining companies through a simple financial filter. The remaining companies get weighted based upon their current market caps with a ceiling at 5% of the total index and a floor of 0.01%. We go through this process annually, and will be adding new companies that come onto the market and removing any who no longer meet our ethical criteria for inclusion in the 2nd half of 2022.

Jump to:

• Inclusionary filter: All companies building Drawdown solutions
• Exclusionary filter: Remove all companies who generate more revenue from the fossil fuel industry
• Refine: Specific criteria for utilities, waste management, and more
• Financial filter: Weight by market capitalization
• Annual update criteria
• Notable companies that were excluded

Step 1: Inclusionary filter.
Find every publicly traded company building a climate solution.

We build the Climate Index and include it in our portfolios because we believe sustainable impact investing must go further than just being “less bad” and reducing the harm. It also has to actively support and encourage the companies who are actively building solutions. 

More companies every day are building the climate solutions found in Project Drawdown. 

There is no single solution to climate change. From now until 2050, we must dramatically transform our global infrastructure to run without fossil fuels while preserving and protecting as many natural ecosystems as possible. Luckily, more and more companies are stepping up to build these critical solutions. The first part of building the Climate Index is to aggregate all of them that are trading on US public stock exchanges: large and small, pure-play and conglomerate.

It’s more than just solar and wind companies. 

When people think of companies building climate solutions, the first thing that often comes to mind is renewable energy. That’s because we’re going to need to transition our entire global electrical system to running without emitting carbon dioxide. Most of this transition will need to happen from 2020 - 2030. 

But to solve climate change and remain below 1.5ºC of global warming, humanity must implement far more solutions than just clean energy. We need our global fleet of buildings to be energy retrofitted, our electrical grid infrastructure to be significantly expanded and reinforced, our cars and trucks to run on electricity and green hydrogen, and much more. This is why we use comprehensive frameworks like those built by Project Drawdown and the International Energy Agency. They present clear paths on how we solve climate change.

Step 2: Exclusionary filter.
Of them, which companies also make products for the fossil fuel industry?

Just because a company is building a Drawdown solution does not mean that they are oriented towards solving climate change. In our second step of building the Climate Index, we dig into each company to analyze the extent to which they are supporting the transition to a zero-carbon world. 

Separate out the “pure-play” companies.

First, we make it easy on ourselves by separating out the “pure-play” companies. If a company is just manufacturing solar panels or selling electric cars, we label them pure-play and include them in the index. After this is done, what remains are the companies who have multiple product lines and sources of revenue. For these, we dig further into the numbers. 

Look closer at the companies who make products/services for many industries. 

For these remaining companies, we dig into their financials to find the answers to the following questions: 

• Do they sell products/services explicitly to the oil and gas industry?
• Do they sell products/services that depend on fossil fuels?
• If so, what % of their revenue do such activities generate?
• What % of revenue does the company make from its Drawdown solutions?
• Which is higher? 

We only use the past year's revenue in this calculation. We do not take stock of any future projects around climate commitments as actions are far more powerful than words. 

For some companies, their revenue reporting was not detailed enough to make a distinction between their fossil-fuel based revenue and that from their Drawdown solutions. These companies are excluded from the index, using the 'Lacks Proper Information' tag.   

One note: Many companies sell a given product line to multiple industries and can include oil and gas. For example, an LED lighting manufacturer makes industrial lighting. Some of its customers own warehouses, some are from the fossil fuel industry. We generally do not count such industry agnostic products against a potential Climate Index company. Even fossil fuel companies are installing solar panels on their offices. 

Exclude the companies who make more revenue from sales to the fossil fuel industry. 

First, we make it easy on ourselves by separating out the “pure-play” companies.  After gathering the above data and running our analysis, we exclude the companies that generate more revenue from directly servicing and/or building products that depend upon oil and gas. GE is a good example of a conglomerate we apply this filter to. They are one of the largest manufacturers of wind turbines in the world, so they pass our first filter. But they made more revenue from producing jet engines and natural gas turbines, so we excluded them from the 2022 Climate Index. 

At this stage we also remove any companies who have been credibly accused of committing fraud. There are companies out there that are capitalizing on the global rush to build climate solutions. Those that have been caught making clearly fraudulent claims will also be removed at this stage. 

Question: Why would companies that make anything for the fossil fuel industry be included at all? The world unfortunately still runs on fossil fuels. The process of Drawdown necessitates a transition away from them, which won’t happen overnight. We want to support the companies who are leading that transition while acknowledging that some of their customers may still be fossil fuel companies.

Step 3: Refine.
A number of sub-sectors need more specific criteria.

Some categories of companies are harder to classify and need more specific criteria. For each of these, we pass the companies through additional exclusionary filters specific to their industries. 

Criteria for a “green utility” and yieldcos

There are dozens of investor-owned utilities traded on the New York stock exchange (such as Duke, NextEra, Dominion, Xcel, PG&E, etc.). While practically all of them have some form of carbon reduction/neutrality commitment, there is a broad range of historical investment in renewable energy and follow through on these commitments.

In order to be included in the Climate Index an investor-owned utility must:

1. Generate (or purchase) more than 50% of its energy from carbon neutral sources (wind, solar, hydro, and nuclear).
2. Have closure dates for any coal plant they own in the next three years.
3. Assuming they are not yet carbon neutral (or very close to it), they must be investing in renewable energy at a rate that exceeds state and federal mandates. In other words, we want to invest in the utilities leading the parade towards carbon neutrality, not those merely being forced to.
4. Have a clear track record of carbon reductions to make their claims of future reductions believable.

Given that Yieldcos operate similarly to utilities in that they make money from generating electricity, we process them through the “green utility” exclusionary filter, as well.

Criteria for waste management companies

There are three Drawdown solutions related to waste management: recycling, composting, and landfill methane capture. All of the publicly traded waste management companies collect materials for recycling. Municipalities, not waste management companies, decide to collect compost. Therefore, we opted to use the landfill methane capture as the deciding factor. In order to be included in the Climate Index, a waste management company must capture methane at over 50% of the landfills it operates.

Criteria for biofuel companies

Biofuels are combustible fuels that can be used in internal combustion or jet engines but are not derived from fossil fuels. Instead they are produced from fermenting biological matter. While burning them does release emissions, biofuels can emit far less, and more importantly, they can exist as part of the natural carbon cycle of annual uptake and release, instead of emitting previously sequestered carbon. Most biofuels though, are not necessarily better for climate, at least not yet. Most are ethanol based, which are often mixed with gasoline. The emissions reductions from these are fairly marginal.  

Advanced biofuels, on the other hand, are made primarily of crop waste/and used cooking oils offer a complete drop in replacement for fossil fuels and can offer significant emissions reductions. For a biofuels company to be included in the Climate Index, advanced biofuels must make up more than 50% of its biofuel production.

Criteria for carbon capture & sequestration companies 

For humanity to truly solve climate change it will need to capture historic atmospheric carbon emissions and secure them in some form. There are many methods of doing this, but one is to separate CO2 from the air and sequester it as a gas underground or in other secure places. Up and coming, non-public companies like Climeworks are working to scale such technologies for ambient air. There are a number of publicly traded companies that provide carbon capture services, but for a different industry: fossil fuels. Companies like Fuel Cell and Babcock & Wilcox generate a significant amount of their revenue from generating “blue hydrogen” be separating hydrogen and carbon from methane (natural gas). 

We classify revenue from such activities as “fossil fuel revenue” for two reasons. 

1. There have been no at scale demonstrations of any company’s ability to sequester such captured CO2 from fossil fuels despite significant investments in it. 
2. This lack of viable sequestration has led to significant greenwashing, enabling fossil fuel companies to paint themselves as part of the clean energy transition without taking real steps to curb emissions from their products. 

For a company to be included in this sector it must generate more revenue from a Drawdown solution that does not service the fossil fuel industry than the revenue it generates from generating blue hydrogen for the fossil fuel industry.

Criteria for water companies and water utilities

Water conservation and moving water more efficiently are important climate solutions. There are many companies in the water industry, from monitoring, to treatment, to distribution, but not all are helping advance climate solutions related to water. For a water company to be included in the Climate Index it must do at least one of the following:

• Create and/or deploy technology that detects leaks
• Improve energy efficiencies for transporting water (pumps, etc.) 
• Create and/or deploy water recycling technologies

Criteria for plant-based diet companies

Plant-based foods can create the same number of calories with far fewer emissions than those produced from animals (with some rare exceptions). So which companies should be included in the Climate Index? Beyond Meat seems obvious, but what about Dole? They make the vast majority of their revenue from selling canned plant-based foods (beans, pineapples, etc.). 

In order to qualify for the climate index, a plant-based food company must only sell plant-based products and must be accelerating the adoption of plant-based foods. Then need to offer some kind of replacement or expansion of the menu to make it easier to switch, not just provide the raw ingredients for it. We also exclude a company in this section that generates revenue from selling flavor enhancers to cigarette companies. They make other plant-based foods as well, but this fails our consumer staples tobacco filter.  

Criteria for LED companies

LEDs are an important climate solution. They enable us to do the same thing (create light) with significantly less electricity than incandescent or fluorescent. But not all LEDs are used for lighting. LED components are used in the screen for your smartphone, computer, TV, and even stadium "jumbo-tron." To be added into the Climate Index, an LED company must both pass our revenue filter and also explicitly create products and/or components used to create light and replace existing energy-intensive options. 

Criteria for reproductive health companies

Many companies make reproductive health products, so who should be considered in the climate index? Should Arm & Hammer, the owners of Trojan condoms get in? We define this category more narrowly. For a company to be considered, it must generate at least 50% of its revenue from its reproductive health and contraception products. 

Criteria for defense filter

Many companies build products that are used in the defense industry. We exclude those that sell a product to the defense industry that is not in a Drawdown solution category.  

For example: CREE makes LED lighting, a Drawdown solution. They also make products used in RF communication (not a Drawdown solution) which are used for military communications. Therefore CREE is excluded from the 2022 Climate Index. 

Criteria for telepresence

Many companies are engaged in making virtual work and telepresence possible, from the internet provider to your email platform.

To be included in the Climate Index, a company must be a "Pure Play" and develop and sell a technology that directly enables decreased commuting and travel. 

For example: 100% of Zoom and DocuSign's revenue comes from products that enable work to be done virtually that previously would have required physically moving people and things.  

Step 4:
Apply a financial filter, then weigh by market cap.

The final step of creating the Climate Index is to apply a light financial filter. Using our Smart Investing 101 principles, we want to invest broadly across sectors without picking winners and losers. Therefore, we don’t exclude companies on a financial basis, outside of a few broad rules:

A company must be traded on the New York Stock Exchange.

No pink slips or over the counter companies. Also (for now), we don’t include companies that trade on international exchanges, although we are excited to include them in the future. 

It must have IPO’d at least six months earlier. 

The first six months of a company’s journey on public markets can be quite volatile. After six months is when employees can generally sell stock, so we wait until this point for a company to be able to be included in the Climate Index. 

It cannot be a SPAC. 

The Climate Index invests in companies solving climate change, not Special Purpose Acquisition Companies that will wait to take such companies public.

It must be trading above $0.50 per share. 

We exclude penny stocks from the Climate Index. The growth potential for such companies is generally not very high and we want the companies in the climate index to scale and grow their respective businesses as much as possible. Therefore, we remove any companies that are trading at $0.50 per share or below at the time when we update the Climate Index.

Then, we weight the remaining companies by market cap. 

For the remaining companies, we simply let the market decide how much of the Climate Index they should get. We add up all of the market capitalizations of each company (share value * number of shares) to get the total market capitalization of the climate index. From here we divide the market cap of each company by the total to get what % of the Climate Index the given company should be allocated. 

Then we add a ceiling of 5.00% and a floor of 0.01% per company and re-run all the numbers again. We add this ceiling and floor because we don’t want any company to take up too much of the Climate index (ahem, Tesla) and likewise, the smaller companies to not get enough representation.  

Step 5: Update annually.

It seems like new companies building climate solutions are coming onto the market every day. How often do we update the Climate Index? For now we update it annually, just like we do with our Core portfolios.  

Updating it more often would lead to more regular buying and selling of the index, which could lead to high short term capital gains taxes.

Some notable companies that didn’t make it

If you look through the Drawdown list of climate solutions, you will find some solutions that don’t have companies associated with them in the Climate Index. These publicly traded companies made it through the first, inclusionary filter, but not the second exclusionary. We hope this changes overtime as companies increase the revenue they generate from these divisions. These solutions are exciting and we personally are excited to invest in them. Here’s some examples of categories we’re excited to include in the future:

Alternative refrigerants 

Chemours and Honeywell are both working on alternatives to freon and other highly polluting refrigerants, but the majority of their refrigerant revenue still comes from the old, polluting variety.

Hybrid cars 

All traditional car companies still make a majority of their revenue from selling non-hybrid, fossil fuel-burning cars. We could not find a traditional car company that met criteria for inclusion.  The closest was Toyota who sold 15 million hybrid vehicles between 1997 and 2020. This is impressive, but Toyota sold 10.6 million vehicles in 2019 alone.

Bicycle infrastructure 

Uber and Lyft both own urban bike sharing companies and “last mile” electric scooter companies that help people in cities quickly go short distances without using cars. The problem is Uber and Lyft’s core business do the opposite from a climate-perspective. In 2020, the Union of Concerned Scientists published a report claiming that the two companies' ride-sharing systems generate 69% more pollution than the transportation they replace.