The market cap of the green economy would need to double to align with 1.5 degrees temperature rise
There’s good news for the green economy and those who are focused on sustainable investing as 2023 has seen a considerable improvement.
While 2022 proved tough for this sector of the global economy as interest rates, inflation, and geopolitical tensions dampened enthusiasm, and data from FTSE Russell shows underperformance of green equities, 2023 has seen a rebound and last year’s underperformance has been recovered.
The firm’s latest sustainable investment report also highlights that green revenues for listed companies should exceed US$5 trillion this year, twice where they were in 2015 when the Paris Agreement was concluded.
The market cap of the green economy is nearing 10% of the equity market. If it were a separate sector, it would rank ahead of banks, energy, retailers, and financial services, and would be nipping at the heels of health care, which is ranked third behind industrial goods and services, and technology.
But if this sounds good, context will take the shine off the stats. The report states that to align with keeping the global temperature increase to 1.5 degrees the market cap of the green economy needs to more than double to 20% of global equity markets by 2030.
While the United States makes up the largest share of the green economy by market capitalization (60%), with Canada in the top 10 but way behind at 4%. However, the US is not in the top 10 for green economy by market exposure (9%, roughly the global average) whereas Canada equals Germany on 14% behind top-placed Taiwan at 28%.
More investable
The report says that the maturing green economy is proving more investable as opportunities diversify and companies in the space grow bigger.
By December 2022 (the latest available data), green revenues accounted for 7.2% of total revenues across 15,000 listed companies in the FTSE Russell Green Revenues universe. For those firms that derive 100% of their revenue from green activities, the average market cap was more than $7 billion, a six-fold increase since 2016.
Achieving net zero is estimated to require US$109–275 trillion of investment by 2050.
