Reporter’s Notebook: High Valuations Go To Those With Low Carbon Footprints

With wildfires and acrid smoke along the West Coast, and hurricane-unleashed flooding in the Southeast, it’s timely to be worried about climate change. But against the backdrop of sky-high fossil fuel consumption, more dramatic evidence of glacial melting, and all-too-apparent failures and limitations of governments, it’s tough to find much to be positive about.

Subscribe to the Crunchbase Daily

This week I managed to find small solace in an unlikely place: A review of valuations for major companies. It’s not much against the wrath of Mother Nature. But here it is: Markets have been rewarding companies with low carbon footprints, and penalizing those with high fossil fuel consumption.

This is true in private markets, which we cover here at Crunchbase, as well as the public ones.

In major exchanges, large fuel producers and consumers that once dominated the markets (think Exxon, GM, Chevron) are now worth a tiny fraction of tech behemoths like Google and Apple, companies with core offerings of software and power-efficient gadgets.

Meanwhile, in private markets, it’s hard to find a single member of the Crunchbase Unicorn Leaderboard that’s a heavy fossil fuel producer or consumer. Rather, companies like payment tech provider Stripe, electric truck maker Rivian, and video game and software company Epic Games top the ranks in our list of private companies valued at $1 billion and up. The closest any get to a big carbon user are platforms like Instacart and DoorDash that make deliveries. But often they are just offsetting trips customers would otherwise make themselves.

In the tech press, we tend to closely follow the rise of valuations among industry leaders in our sphere. One thing that’s noteworthy is Big Tech’s upward ascent over the past few years, which comes as much as Big Oil is in a drawn-out decline. That means the two have drifted further apart.

Here’s a case in point. Seven years ago, ExxonMobil had a market capitalization of about $420 billion. Google, meanwhile, was valued around $340 billion.

Fast-forward from 2013 to 2020, and the picture is radically different. Google now has a market cap of roughly $1 trillion(!), while Exxon’s is around $160 billion. So Google went from being worth less than one Exxon to being worth six Exxons.

And Google isn’t even the most valuable of the tech behemoths. Apple is now worth $1.9 trillion–six times more than Exxon and Chevron combined. Microsoft is at around $1.5 trillion.

The valuations investors are willing to attach to low carbon-footprint software companies are lofty enough that this summer Exxon saw itself booted after a 92-year reign on the Dow Jones Industrial Index to make way for Salesforce1. Heck, even Snowflake, the deeply unprofitable data warehousing company that went public last week, now has a market capitalization worth well over one-third that of Exxon.

If we look at hot areas for venture funding and IPOs, we see more evidence that low carbon footprints deliver returns. Investors are putting record sums into plant-based protein startups, seen as a more humane and environmentally sound alternative to meat. The first big IPO of the batch, Beyond Meat, is now worth over $9 billion. Other low-carbon sectors, including connected fitness, sustainable packaging, telemedicine and distance learning are all seeing a surge in deals. While some of that may be pandemic-related, it’s likely we’ll also see longer-term shifts.

So, does this change of financial fortunes mean we can ease our climate worries? No. I’m not a staunch believer in the power of markets to single-handedly cure societal ills. Certainly for a problem as global and vast as climate change, the overwhelming consensus is that it will require cooperative efforts of companies, governments, citizens and NGOs.

But for those of us who think following the money tells us something about where we’re headed, much about the current direction looks positive from a climate perspective. Because the money is certainly moving away from the purveyors and power users of fossil fuels. And it’s heading to those for whom going carbon neutral can be a minor extra cost in a very profitable business.

Illustration: Li-Anne Dias.