© Ryan Hyde
Nearly 2,500 Publicly Traded Companies Profit From Eco-Friendly Operations
Companies around the world increasingly acknowledge the growing role that sustainability initiatives play in business strategies. However, corporate executive are struggling to quantify how to turn a green ethos into green dollars. FTSE Russell’s new Green Revenues data model and Green Revenues Index Series, released earlier this week, may have the answers profit-driven environmentally-conscious business leaders and investors are looking for.
The model assesses business operations of over 13,400 publicly traded companies representing roughly 98 percent of global financial assets. The model’s findings suggest over 2,400 companies are currently profiting from green products and services.
“We identified a significant gap in the ability of portfolio managers to track exposure to the increasing shift towards a green economy,” said FTSE’s Chief Executive, Mark Makepeace, in a recent press release. “We calculate that the green opportunity is equitable in size to emerging markets and the launch of our Green Revenue data model, and related indexes, provides the missing piece for investors, with a framework that captures the full picture of their green revenue exposure for the first time.”
FTSE Russell uses a measure they call the Low Carbon Economy Industrial Classification System (LCEICSTM) to distinguish products and services that “enable society to adapt to, mitigate or remediate the impact of climate change, resource depletion and environmental erosion.” The LCEICS categorizes these products and services into eight sectors and 60 sub-sectors to give decision-makers and investors specific information on companies and industries of interest.
To help users further analyze corporate sustainability, the model’s maker created a factor, the Low Carbon Industrial Indicator (LOWCII), which represents the percentage of revenue generated from green activities compared with total revenue for each company assessed.
Somewhat surprisingly, FTSE’s All-World Green Revenues Index maintains 6.57 percent of its investment strategy in the oil and gas, according to a recently released factsheet. That doesn’t quite match the carbon mitigating mentality the new financial products are hoping to inspire. However, the index’s most heavily weighted sectors include financials (21.27 percent), consumer goods (13.96 percent) and industrials (12.39 percent), which, if done right, could help the planet transition into a greener economy.
The insights gained from the Green Revenues model and related tools will hopefully funnel more money to eco-friendly companies. As Christiana Figueres of the UNFCC put it, “The long term success of the Paris climate agreement will hinge on the greening of trillions of dollars of investment over the coming years and decades. Initiatives like this can, if widely used, play a real role in assisting asset managers and owners to accelerate the necessary transition to a green economy.”