In Episode 3 of the Climate Podcast Thomas Streater, CFA, Climate Change Content Working Group is talking to Lee Clements, Head of Sustainable Investment Solutions, FTSE Russel about the green economy. Here's the brief, but you can find more details in the transcripts or alternatively just have a listen here Link 26 min audio
I thought I'd bring this to your attention as we hear a lot about significant investment opportunities in the space of green economy and sustainable investing. That interest is driven by regulations and client demands.
What does the data tell us though? What are the risks and niches in this space? Thomas and Lee talk about this and more.
Summary/Transcripts doc is attached to a post as a word doc and uploaded into library - 5 pages
Brief:
There is a significant opportunity for investment in the space of green economy and sustainable investing. FTSE Russel identified 3,000+ companies involved in the green economy, representing around USD 4 trillion market value. FTSE Russel’s approach to classifying green products and serves is based on 7 environmental objectives. There is a growing interest in green investing due to regulations and client demand. FTSE Russel incorporates green revenue data into some of their indices, such as Smart Sustainability Index. This includes carbon emissions and green revenues as a tilt factor alongside more traditional metrics. Still early days to say that there is a definitive relationships between traditional factors and green revenues that may not necessarily yet hold through investment cycles.
Investors can apply various tilt strategies to traditional indices (FTSE World or FTSE Share) to create a more sustainable portfolio. This may involve tilting towards companies with lower carbon emissions and higher green revenues. There is no clear definition of what constitutes a “green revenue” stock. Thresholds can be used to determine which companies quality. The liquidity of green bonds may not necessarily be lower than other instruments. Sometimes investor enthusiasm impacts liquidity and the fact that these companies tend to be smaller. Environmental markets family of indices focus on companies involved in green products and services and have performed well over the last 5 years.
The host and the guest discus various aspects of green investing. It is important to define your universe of green companies and understand their different sub-themes, as well as to identify and manage risks associated with investing in the rapidly changing world of green and sustainable investment regulations. It is important not to underestimate the diversity of the green economy, ranging from renewable energy companies to water utilities to recycling businesses. Further discussion is around specific sub themes and elements in the green economy universe, their relationship with traditional metrices (size, momentum, value …), the ability of green companies to raise capital and lower the cost of capital and the potential for the growth of green bonds and loans.
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Aya Pariy
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