At the PRI (Principles for Responsible Investment) in Person conference in September, the former head of the UN Framework Convention on Climate Change and architect of the Paris Climate Agreement, Christiana Figueres, called on PRI signatories to commit to investing 1% of their assets into green and clean technology by 2020. This Green Investment Challenge by Figueres highlights the increasing focus on companies that are contributing to the green economy through environmental products and services.
Using its Green Revenues data model that captures the exposure to the green economy of over 13,000 listed companies, index provider FTSE Russell believes that an additional 1% investment in green is very achievable for mainstream investors and, in fact, can actually improve performance relative to the broad benchmark, and has the index returns to back it up.
FTSE Russell examined five of its climate indexes which already meet or exceed the additional 1% green and clean technology threshold and found that all of them have outperformed their parent benchmark over the last five years:
Dan Carson, Head of Green Solutions, FTSE Russell, said:
"Christiana laid down an imposing challenge to global investors, but the good news is that it can be done. Not just that, by increasing exposure in the biggest global industrial transition of our generation, our green indexes at FTSE Russell help demonstrate the potential investment benefit as well. We have shown that it is possible for global investors to improve their long-term investment performance whilst playing their part in meeting ambitious climate targets."
FTSE Russell has been helping investors track the green transition since the launch of the FTSE Environmental Markets indexes back in 2008. More recently, two distinct routes have emerged to integrating green into a benchmark with different risk/return profiles. Those looking for deep thematic exposure to green, such as the New York State Common Retirement Fund, can create dedicated green portfolios that contain only those companies that generate the highest level of revenue from green businesses. Others, such as HSBC Pension Fund, who are looking for a lower tracking error compared to the underlying benchmark, can take a tilted approach towards companies that have green revenues.
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