Market analysts find green economy market cap matches fossil fuel sector

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Green finance is being used to align business goals with the U.N.'s Sustainable Development Goals.

The growing body of work detailing how green investments tend to outperform the market has gotten a little larger with the release of a new report from FTSE Russell.

The market analysts last week published a study titled "Investing in the Global Green Economy: Busting Common Myths (PDF)," which explores the current scale and performance of green economy investments.

It concluded that while the green economy previously has been regarded as a "loose concept rather than a defined, investable, industrial system," investors are wrong to assume it is a limited, small cap-dominated market where they have to "give up performance in exchange for environmental benefits."

"[The report] finds a large investment opportunity, backed by global efforts to combat climate change and broader environmental challenges," the report stated. "The opportunity is diversified across company size, geography and sector and has delivered outperformance of the global equity market."

Specifically, the firm said the green economy represents 6 percent of the market capitalization of global listed companies, amounting to about $4 trillion. "This represents a significant investment opportunity, approximately the same size as the fossil fuel sector," the report stated.

It also stressed that the green economy's share of global market capitalization is growing, while the fossil fuel sector shrinks, and that green indexes consistently have outperformed their parent benchmarks over the past five years. In addition, it said that the green economy is global in its reach and highly diversified in terms of industry and company size.

"While small and mid-cap companies have a greater green exposure and represent a larger number of green companies the market is by no means small and mid-cap dominated; large-cap companies represent approximately two-thirds of green market capitalization," the report stated.

The report came ahead of a semi-annual update from the company on the latest changes to its FTSE4Good Environmental, Social and Governance (ESG) indices.

The company said 82 new companies were added to its FTSE4Good Developed Index and 34 new companies were added to the FTSE4Good Emerging Index, after demonstrating strong ESG practices.

A number of high profile names were added to the FTSE4Good Developed Index, including Emerson Electric, Fedex Corporation, Mitsubishi Corp and T-Mobile US Inc.

"Since launching the FTSE4Good Index Series back in 2001 the world and the investment landscape has changed dramatically and sustainable investing, climate risk, the transition to a low carbon economy and ESG integration into benchmarks are now an important focus for investors, policymakers and companies alike," said David Harris, head of sustainable investment at FTSE Russell.

"Benchmarks can be a powerful lever to catalyze positive market-wide changes... FTSE4Good has influenced companies globally and we are delighted to see more companies step up to meet the criteria and gain inclusion."

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