Why Wal-Mart Tops the DOW 30 in Cleantech

In 1896 Charles Dow created the Dow Jones Industrial Average to track the nation’s leading nine companies. Today the Dow Jones Industrial Average or Dow 30 is made up of 30 leading US companies. It is the world’s best known stock index and everyone has heard of it.

The components of the Dow 30 are a powerful, interrelated group. For example, United Technologies builds engines for Boeing, JPMorgan and Bank of America finance other Dow 30 firms and their stock analysts rate the stocks of their fellow Dow 30, AT&T and Verizon, compete but also lobby together for the wireless industry. Executive of Dow 30 corporations sit on each other boards and swap jobs all the time. In many ways, as goes the Dow 30 goes the world.

When Caterpillar and McDonald’s issued Yuan-backed bonds in China earlier this year, other firms started to notice. As a result there is a lot of interest in investing in these bonds.

Similarly, once the Dow 30 buys into the green-bonds market, it is expected to take off. In case you haven’t heard, Green Bonds are issued to raise capital to fund specific projects aimed at reducing climate change. Right now it is a relatively small market, less than $5 billion of them have been issued world-wide. You can bet that once the Dow 30 firms start instructing their asset managers to invest in Green Bonds, other institutional investors will follow.

The world is beginning to realize the truth of what economists have been preaching the past two decades: going green is good for the bottom line because it can improve customer satisfaction and the supply chain resulting in more market share.

There is increasing pressure on stocks exchanges across the world and regulators such as the U.S. Securities and Exchange Commission to require publicly traded companies to make more robust disclosures regarding their sustainability efforts.

Also, more and more analysts are asking for guidance about companies’ sustainability plans and progress toward their environmental, social and governance goals.

We looked at the cleantech efforts of the thirty companies that comprise the Dow Jones and have come up with the following conclusions.

All of the Dow 30 claims they are making progress in the cleantech area. Of course, it would be politically incorrect and bad for business to challenge the vision of a cleaner environment. We classify the cleantech efforts of the Dow 30 in two broad areas: (1) their internal efforts to become more environmentally responsible in their own manufacturing or service processes by wasting less, recycling more, and saving energy; and (2) their external efforts in making an affirmative change in the world by adjusting their products and services and supporting third parties in their cleantech efforts.

The primary use of energy in the world is the energy consumption of buildings. Every Dow 30 company we researched claims its buildings are becoming more energy efficient.

As far as reaching out to others, the Dow 30 have tremendous ability to use their vast amount of product and service distribution and investing and financing power to change global attitudes and practices. For example, recently Bank of America, JPMorgan Chase, Travelers and GE have made significant capital investments in cleantech businesses.

Recently, two Dow 30 companies suffered negative publicity regarding the sincerity of their commitment to the environment (besides oil companies Chevron and Exxon, and chemical giant DuPont, which are always getting negative environmental press). Coca-Cola refuted allegations that their use of bisphenol A in the lining of their cans caused environmental and health concerns. Coca-Cola opposed a shareholder proposal that would require Coke to study alternatives to BPA, saying BPA was safe, at the same time inconsistently stating it would study alternatives.

In May, Kraft Foods, Inc. agreed to pay $8.1 million to settle a class-action lawsuit brought by almost 130 families in 2009 who claimed that Kraft contaminated the groundwater beneath their homes and spread cancer causing vapors. As part of the settlement, Kraft agreed to clean up the plant site and groundwater and install mitigation systems.

Now for the good news. Our analysis found one company who stands out from the pack of Dow 30 in its dual commitment to internally clean up their own waste and conserve energy and at the same time changing the products they sell in order to externally improve the environment. More importantly, they quantify the savings and increased profits as a beacon to others considering making the same commitment to the environment.

The company we selected as the Number 1 Cleantech Company in the Dow 30 is Wal-Mart, the world’s largest retailer by revenue. Here’s why we chose them Numero Uno. Since 2004, Wal-Mart has saved over $3 billion a year by reducing packaging size on all its products. This also saves millions of tons of cardboard from being disposed in landfills. Wal-Mart rejects clothing made from materials full of chemicals in favor of organically grown cotton. It has installed electrical generators in its refrigerated trucks to cut down on engine idling. Most importantly, Wal-Mart requires their thousands of supplies to toe the cleantech line or else they get bounced. Wal-Mart’s detergents in many countries have no or little phosphates.

Wal-Mart issues an annual report on sustainability. Its 2010 report claims it significantly reduced its use of plastic bags. It also saved $20 million a year by reducing printouts of store report (it is the only major US retailer that doesn’t report monthly store sales), and it claims to have reduced its overall carbon emissions rate by 16% from ’05 to ’08. It also donates annually over a million pounds of food to food banks. Wal-Mart also has been lauded for its announcement in July 2009 that it would develop a Worldwide Sustainable Product Index. Sure, Wal-Mart has been criticized for negatively impacting the environment, for example, by replacing pristine open lands with their big box stores. They have also been fined for violating the Clean Water Act several years ago. But on balance, Wal-Mart is a model for other corporations in the cleantech area. Wal-Mart’s cleantech efforts are the focus of an excellent book, recently published, “Force of Nature” by Edward Humes (Harper Business). We recommend it.

The following is a synopsis of recent cleantech efforts of the 30 companies that comprise the Dow Jones Industrial Average in alphabetical order by name followed stock symbol. In all cases, the shares are traded on the New York Stock Exchange with the exception of Microsoft and Intel, which are traded on NASDAQ. This is not a Research Report and no investment recommendations are made herein.

AT&T (T) earlier this year was selected by Ford to connect the wireless information technology systems for its electric cars. Ford’s first electric card is expected to be the Ford Focus Electric. AT&T was also tapped by Nissan to connect the Nissan’s environmentally friendly LEAD vehicle.

Alcoa (AA) was one of the first corporations to recycle old aluminum cans into new ones. In March it became a minority investor in Electronic Recyclers International. Alcoa’s chief sustainability officer, Kevin Anton, expects to see a 30% increase in growth in aluminum content in laptops over the next two years. Since 1999 Alcoa has been reducing energy consumption in its aluminum plants and claims over $100 million in savings due to reduced operations costs as a result of these efforts.

American Express (AXP) like all of the other Dow 30 corporations has designated IR person or unit in charge of environmental issues. In Amex’s case, it is called the Office of Environmental Responsibility which is charged with the goal of reducing carbon emissions by 10% from 2006 levels. American Express also invests in environmentally friendly projects.

Bank of America (BAC) has been under heavy fire due to their disastrous purchase of Countrywide Mortgage and their portfolio of toxic mortgages. It has been trying to neutralize the slew of bad press by publicizing its environment friendly mortgage discount program whereby Bank of America will offer homebuyers a $1,000 credit towards the closing costs of their homes if the house meets certain energy efficiency requirements.

Boeing (BA) designs and builds its planes around its engines. It is on the verge of deciding whether to upgrade its best selling 737 planes in favor of a more fuel efficient single aisle aircraft which would be based on its efficient 777 aircraft. Boeing makes the best planes in the word as one of your co-authors knows firsthand (having co-founded a small airline in the 1980’s that flew nine Boeing 727s.) Boeing is responsible for creating more products and improvements that increases fuel economy and decreases carbon emissions than any other aviation manufacturer. For example, its 747-8 passenger jet has 16% less carbon emissions per passenger, 16% better fuel economy, and 30% reduction in noise pollution than the 747-700. Its 747-8 freighter is equally environmentally friendly. In addition, its new 787 will be the first passenger plane made substantially with light weight carbon composites which increases its fuel efficiency.

Caterpillar (CAT) like the other Dow 30 components claim their buildings are becoming more environmentally friendly. In Caterpillar’s case, they recently retrofitted their headquarters in Peoria, Illinois decreasing energy use by 46% and saving almost $1 million in annual operating costs. More importantly, Caterpillar is improving the hydraulic systems in the products they sell which will minimize metering losses.

Chevron (CVX) is consistently under attack by environmental activists. Chevron is currently alleged to be a potentially responsible party at about 250 Superfund toxic waste sites in the United States. In 2007 Chevron paid $1 million to settle civil charges that had been brought against it by the state of New Jersey in connection with a spill of more than 100,000 gallons of crude oil into Arthur Kill off Perth Amboy in 2006. In 2009 Chevron paid the United Kingdom Environment Agency a fine of £11,500 in connection with a diesel spill at the company’s Poole Harbor oil terminal three years earlier. Chevron is involved in a number of EPA actions at any given time.

On the plus side Chevron has created the position of Corporate Energy Coordinator who oversees all energy efficiency efforts and oversees projects to help others reduce energy use. Since 2000 Chevron has assisted schools, utilities and other public entities update their buildings for increased energy efficiency.

Cisco (CSCO) does one better than the corporations who improve the fuel efficiencies of buildings. Cisco actually replaces traditional brick and mortar buildings with modular containerized data centers that allow their customers to obtain quick access to information technology services in remote areas or even after a disaster. Cisco’s new system is in a weatherproof container that yields power usage efficiency (PUE) of less than 1.26. The lower the PUE the more efficiently it delivers power to IT equipment.

Coca-Cola (KO) on the positive side gets high marks for its successful efforts in recovering 36% of all aluminum and plastic its puts into the global market. Since 2004, it has improved water use efficiency by 13% and cut emissions by over 8%. Its fleet of 366 hybrid trucks is the largest in the world. It used to take up to 70 liters of water to make one liter of soft drink beverage. This has been significantly reduced. Coca-Cola still has a way to go in improving water use efficiency.

On the negative side, Coca-Cola is under attack in its home state of Georgia by State Senator. Scott Holcomb who, during the most recent legislative session, introduced a bill in the Georgia Senate which would ban the use infant formula stored in plastic containers that contain biphenyl A. The bill never came to a vote. Although not directly aimed at Coca-Cola it has consequences for Coke, which uses BPA in some of its containers. Senator Holcomb claims there are studies linking BPA with infertility, weight gain, behavioral changes, early onset of puberty, prostate cancer and breast cancer, and diabetes. At Coke’s most recent annual meeting, a shareholder proposal that would require Coke to issue a report disclosing how it is responding to concerns about the safety of BPA, received 26% approval up from 22% for a nearly identical proposal last year.

Disney (Dis) since 2009 has invested almost $16 million to develop renewable energy sources in order to lower its electricity consumption by 10% from 2006 levels. It is also trying to achieve zero net direct greenhouse gas emissions and get to the halfway point of this goal by 2012.

DuPont (DD) is a favorite target of environmental activities due to its production of sulphur dioxide, leaded petrol, CFC’s and Teflon. The Interfaith Center for Corporate Responsibility has criticized it for using environmentally unsafe compounds in its building products. DuPont has a string of civil and regulatory actions alleging that it covered up medical records relating to asbestos exposure and falsifying air samples relating to a coal company it once owned.

On the positive side, DuPont recently received the American Chemistry’s Council Energy Efficiency Award for its work of its Sustainable Solutions Unit which assists its customers to become more energy efficient and environmentally sustainable. DuPont’s has established expertise in the area of safety resources, sustainable operations, clean technologies and training solutions.

ExxonMobil (XOM) ExxonMobil is a frequent target of Greenpeace and others due to Exxon’s stance on global warming. The Political Economy Research Institute ranks ExxonMobil sixth among corporations emitting airborne pollutants in the United States. On the plus side, Exxon has been a contributor to environmental causes donating close to $10 million a year since 2007.

In 2007 it partnered with QuestAir Technologies, Plug Power, and Ben Gurion University in Israel to develop a hydrogen production on-vehicle system that can be used in a fuel cell-powered lift truck. This would not require storage and would be an improvement over other hydrogen vehicle systems by reducing the overall environmental impact.

General Electric (GE) has received a lot of favorable publicity for its GE Ecomagination Challenge that encourages innovate environmental ideas. Since 2002 GE has invested almost $1 billion in renewable energy technologies research and development. GE has invested in cleantech efforts across the world including Poland, Brazil and Russia.

Hewlett-Packard (HPQ) is a good example of a company that not only has reduced its own energy usage, having met its target of improving energy efficiency in its own operations by 40%, but it has improved its products’ energy efficiencies. Every one of its computers have been replaced with new energy efficient models that save energy costs and reduce carbon emissions.

Home Depot (HD) is similar to Wal-Mart in that it has improved its own environmental impact at its stores while also selling environmentally safe products. It sells a number of Energy Star appliances, LED lights and other energy efficient household items. Home Depot recently introduced home energy audits for customers and has started installing solar power in homes.

Intel (INTC) deserves credit for continuing to improve the energy efficiency of their chips, having announced another major chip breakthrough earlier this year. All Intel personal computers use the Intel Core processor that met Energy Star requirements. Intel’s Turbo Boost Technology allocates additional processing power to various applications most in need thus reducing overall power consumption.

IBM (IBM) is well known for its Big Green Initiative which designs energy efficient data centers. IBM has consistently been a leader in developing innovations that decrease environmental impact by their products especially in the area of global intelligent utility networks and smart grid developments.

JPMorgan Chase (JPM) was the only major bank to come through the financial crisis with consistent profits. JPMorgan Chase’s Energy Investments group is a leading lender and investor for renewable energy projects. JPMorgan has been a leader in wind farm investing and it currently has investments in approximately 70 wind farms and two solar projects. It recently entered into a new project with SunEdison to finance a photovoltaic energy development project.

Johnson & Johnson (JNJ) has suffered a rash of negative publicity recently due to a string of recalls of its products. This bad publicity has overshadowed its creation of a Climate Friendly Energy Policy, that will reduce facility and transportation related emissions. Johnson & Johnson has also launched a project to reduce carbon dioxide emission from its facilities. All of its new construction projects will become LEED certified by the U.S. Green Building Council.

Kraft Foods, Inc. (KFT) recently was in the news as a result of its conduct regarding the alleged pollution from a former Kraft factory in Attica, Indiana. In May, Kraft agreed to pay $8.1 million to settle a class-action lawsuit brought by almost 130 families in 2009 who claimed that Kraft contaminated the groundwater beneath their homes and spread cancer causing vapors. As part of the settlement, Kraft agreed to clean up the plant site and groundwater and install mitigation systems.

On the positive side, Kraft is trying to make its factories sustainable by using energy and carbon management software in all their plants to monitor energy use and carbon emissions…

McDonald’s (MCD) in May at their annual meeting was embarrassed by protestors demanding that McDonald’s scuttle Ronald McDonald saying it encouraged childhood obesity and health problems. Interestingly, CEO James Skinner did not rebut the charges by saying McDonald’s food was healthy, rather he said parents should have a choice and that Ronald McDonald stays. McDonald’s has pledged to encourage its franchisees to become LEED certified and is teaching them other environmentally friendly methods to operate.

Merck (MRK) recently received the Energy Star Sustained Excellence Award from the U.S. EPA as a result of its increased efforts for energy efficiency and environmental protections. Merck has developed a number of new technologies for sources of renewable energy, including LED technologies and lithium ion batters. Merck’s plants are increasingly able to reduce energy consumption.

Pfizer (PFE) has announced a goal of reducing carbon emissions in its plants by 20%. It has already reduced carbon footprints through a number of efficiency and conservation projects. Each plant manager must reduce energy usage by 5% this year.

Procter & Gamble (PG) recently announced that its facility in Auburn, Maine which makes feminine care products is the company’s first in North America and its ninth globally to send zero waste to landfills. Procter & Gamble’s goal is to power all of its plants with 100% renewable energy and to use 100% renewable or recycled materials for all of its products and packaging. Under its PUR brand, P&G distributes packets that purify ten liters of water, no matter how contaminated. These packets have been used in disaster recovery areas and in the developing world.

3M (MMM) in 2009 received the energy Star Sustained Excellence Award for Energy Management from the U.S. EPA. It has been an early leader in developing energy efficient projects through its Energy Management Department that was created in 1973. Through its Lifecycle Management Program, product development teams develop energy efficiency products or improve existing products. In the past two years, it has developed over 200 energy efficiency project saving over $10 million.

Travelers (TRV) has been commended for its Travelers Energy Project Financing which has provided millions of dollars of capital for entrepreneurs to develop a new product or service in the renewable energy sector. Travelers also provides financial and advisory services to assist businesses to develop sustainability practices.

United Technologies (UTX) has been at the forefront in developing energy efficient jet engines at its Pratt & Whitney subsidiary and for helicopters at its Sikorsky unit. Earlier this year it partnered with the U.S. Department of Energy to save energy by creating the Hamilton Sundstrand plant. United Technologies has also reduced greenhouse gas emissions and energy use in all of its facilities worldwide.

Verizon (VZ) and Wal-Mart are two Dow 30 companies that have developed a Sustainability Index for the use of others. Verizon created the Telecommunications Equipment Energy Efficiency Rating that is expected to set the standard for every telecom product. Internally it has created its own standards to reduce energy consumption and cost energy. Verizon applies these standards to its video, data center, broadband, network and equipment used by it and sold to customers.

Wal-Mart (WMT) is the best for last on our list as it has the best record on the environment of all Dow 30 companies as discussed at the beginning of this article.

Article by Shawn Lesser and Daniel Kolber.

Shawn Lesser is Co-founder & Managing Partner of Atlanta-based Watershed Capital Group – an investment bank assisting sustainable fund and companies raise capital, perform acquisitions, and in other strategic financial decisions. . He is also a Co-founder of the GCCA Global Cleantech Cluster Association ”The Global Voice of Cleantech”. He writes for various cleantech publications and is known as the David Letterman of Cleantech for his “Top 10″ series. He can be reached at shawn@watershedcapital.com

Daniel Kolber blogs daily on the thirty companies that comprise the Dow Jones Industrial Average at www.DowJonesMonitor.com. He is the President of Intellivest Securities Research, Inc., a Georgia RIA, and a securities attorney licensed in the states of New York, Fla, Ga. and Virginia.

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