By Shelburne, Vermont Financial Advisor Josh Kruk
August 11, 2020
A small number of huge companies have come to dominate the U.S. stock market. As of June 30th, Microsoft, Apple, Amazon, Facebook, and Alphabet (a.k.a. Google) represented a combined 21.7% of the S&P 500 index1. It's a matter of debate whether having such a large portion of both the market and the broader economy concentrated in so few companies is a good thing.
It's less debatable that both the public focus placed on these companies and the downstream influence they wield grows with their size. This in turn may create dynamics that can magnify their impact in areas like climate change.
All of these firms have announced plans to improve their environmental profiles. Apple recently outlined its intent to have each device it sells produce a net-zero climate impact by 20302. This encompasses everything from the initial sourcing of materials for the production process through disposal by the end user. Amazon has also pledged to reach net-zero emissions, although it has targeted 20403. Microsoft has been the most aggressive among this group, pledging to be carbon-negative by 2030. It has also pledged that by 2050, it will have completely removed from the atmosphere all of the carbon it has emitted since its founding in 19754.
The way these large companies are influenced and the way they influence others help inform their actions. Public perception is an important driver of business risk to large companies. In the case of Amazon in particular, employee and activist pressure appears to have been one key driver behind its commitment3. Peer pressure also plays a role. Large companies (and their CEOs) often use each other as measuring sticks in ways that transcend financial results.
Then there is old fashioned business leverage. Any company has some control over its direct carbon footprint. Larger companies can take it a step further by exerting pressure on suppliers and other service providers. If you are a parts supplier to Apple, Apple is probably your most important customer. When your most important customer "asks" you to help them make their products carbon-neutral, it's probably a good idea to get on board.
Whether some of these climate commitments are driven by purely altruistic motives is obviously open to question. Whether the pledges are as comprehensive as they sound and whether they will ultimately be achieved is also fair game. But the fact that explicit climate goals are being publicly released by the largest companies in the U.S. is worth noting. It helps raise the bar for the private sector as a key contributor to the world's overall emissions reduction efforts, and perhaps is a more positive aspect of corporate size.
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