An analysis of patent filings has shown that companies generally considered to be less environmentally friendly are the ones filing the most patents for low-carbon technologies, suggesting they could lead the way in green innovation, according to the company that carried out the analysis.
Published by The Wall Street Journal
By Dieter Holger
Big companies that don’t yet earn much money from green technologies could play a key role in tackling climate change in the coming decade, patent filings suggest.
An analysis of patent filings between 2013 and 2017 from the European Patent Office by index and research titan MSCI Inc. (MSCI) found that the top 10% of companies filing low-carbon patents had an average market value of $47 billion, compared with $11 billion for the bottom 10%.
Companies that filed the most patents often aren’t those earning a sizable revenue from green technology. Some of the top filers included Daimler AG, General Electric Co., Royal Dutch Shell PLC, Toyota Motor Corp, and LG Chem Ltd.
The patents included technologies such as hydrogen power, batteries, renewable energy and carbon capture and storage.
The findings show that investors should perhaps look to big, established companies for green innovations rather than centering on specialized environmentally-focused businesses such as Tesla Inc. or Vestas Wind Systems AS, said Linda-Eling Lee, head of environmental, social and governance research at MSCI, in an interview.
“We realized that many of the larger players that typically you don’t think of as being very focused on low-carbon related technologies actually do in fact have a fair bit of potential,” she said.
Companies are racing to develop solutions to climate change as they face looming environmental regulations and carbon taxes. As of Nov 2019, there had been more than 1 million patents filed to the European Patent Office aimed at reducing emissions.
This could also be a massive investment opportunity.
Solutions to global warming could generate $26 trillion through 2030, according to a 2018 report from the Global Commission on the Economy and Climate.
“It’s not necessarily that the technologies that are going to take off, but the investments and the investors are going to have to scale up their search and their identification of these types of opportunities.” Ms. Lee said.
Most of the patents come from companies that still need to transition to greener business models, in sectors such as automotive and energy, said David Mazaira, carbon impact specialist at ResponsAbility Investments AG, a Zurich-based investment firm focused on non-listed companies in developing economies.
He said big companies are also investing in startups through their venture capital arms, such as Toyota AI Ventures. They could end up making acquisitions down the road to solve issues arising from climate change.
“These companies feel the pressure from markets and consumers to develop green technologies,” he said.
But Mr. Mazaira cautioned that the world’s transition to clean energy won’t be fast enough to combat climate change “unless investors also increase bets in early stage cleantech startups.”
Investors should also question whether some patents are really green, said Garvin Jabsuch, chief investment officer at Green Alpha Advisors, a firm focused on eco-friendly investments.
He said that MSCI’s analysis includes patents that his firm wouldn’t consider greentech, such as Shell’s carbon capture and storage technology which would maintain dependence on fossil fuels.
Mr. Jabusch said International Business Machines Corp is a more innovative large company because it files many patents around advanced materials, batteries and works in areas such as artificial intelligence that could be key to building a more sustainable economy.
Still, just because big firms might put more money into patents doesn’t mean investors should turn away from smaller, innovative companies, he said.
“We think that within sustainability investing, a ‘go anywhere’ strategy makes sense, so the best innovations coming out of large, mid, and small caps can be owned by our clients,” Mr. Jabusch said. “No cap size has a monopoly on greentech innovation.”
At the time this article was published, Green Alpha did not hold any firm or client positions in MSCI, Daimler, General Electric, Royal Dutch Shell, Toyota Motor Corp, LG Chem, or Shell. At the time this article was published, Green Alpha did hold firm-level and/or client positions in Tesla, Vestas Wind Systems, and International Business Machines. Please read additional important disclosures here: https://greenalphaadvisors.com/about-us/legal-disclaimers/