It’s often claimed the green economy provides a significant investment opportunity, but the data to support this has thus far been scant.
A new report by FTSE Russell, Investing in the global green economy: busting common myths, gives investors the details they have been missing and shows green indexes outperforming the broader equity market.
A growing market
As a starting point, the report says the green economy represents 6 per cent of the market capitalization of global listed companies. That is approximately US$4 trillion, and similar in size to the fossil fuel sector.
The report states that: ‘It [the green economy] has grown as a proportion of the total market, while the fossil fuel sector has shrunk. If it continues its current trajectory it could represent 7 per cent of global market capitalization by 2030. If green investment accelerates to ~$90 trillion level suggested it could reach ~10 per cent, a similar size to global health care.’
The report shows that in recent years, as the sector has grown, large cap companies have come in to the market. It says that they now make up two thirds of the green economy.
Despite this, the number of small and mid cap companies remains high and the report suggests that these are the organisations driving innovation.
Waste management and environmental resources both account for 5 per cent of the current market, transport solutions are 4 per cent and environmental support and services represent 2 per cent.
When it comes to green revenues, the report highlights the US as having the largest exposure. This, it says, is a result of leadership in areas such as cloud technology. Japan and Europe also have good green revenues while China is underweight.
In Europe, Germany and France have higher than average green exposure.
Importantly, the report shows that over the last five years green companies generated higher returns than the broader equity market.
‘FTSE Russell’s broadest green indexes have outperformed their parent benchmarks over the last five years to March 2018.’