As the London Stock Exchange's Green Economy Mark enters its fifth year, Claire Dorrian, head of sustainable finance for LSEG Markets, explains how the cohort has evolved over the years.
Environmental Finance (EF): Could you give us an introduction to the Green Economy Mark and the data that drives the mark?
Claire Dorrian (CD): The Green Economy Mark takes a data-driven approach and considers the revenue-generating activities from products and services that contribute to the global green economy of all the companies and funds listed on the London Stock Exchange, including both AIM and the Main Market.
At the core of how we identify those businesses sits the FTSE Russell Green Revenues Classification System, which identifies green products and services from listed companies across the whole value chain covering 10 green sectors, 64 subsectors and 133 micro sectors. It measures products and services against seven environmental objectives – climate change mitigation, climate change adaptation, pollution prevention and control, protection of healthy ecosystems, transition to acircular economy, waste prevention and recycling, and sustainable and efficient agriculture – to give a clear indication of what these businesses are doing and must demonstrate that at least 50% of their revenues are derived from these types of activities.
EF: What changes in corporate approaches to sustainability have you seen since the Green Economy Mark was launched?
CD: There has been quite a big shift since we introduced the Green Economy Mark in 2019 when sustainability wasn't such a strategic and business focus throughout an entire organisation including the boardroom.
Five years since launching the Green Economy Mark, sustainability is a topic that has been embraced by companies, particularly as a way to engage with investors. We have also seen how the landscape has matured, not just from a regulatory perspective but also in the types of businesses that comprise today's green economy.
The Green Economy Mark cohort no longer consists of just immediately identifiable, pure play businesses that you typically expect to see. The green economy is large, diverse and multi-faceted.
Companies and funds that have met the criteria for the Green Economy Mark range from renewable energy to the circular economy, from cloud computing to vertical farming, from infrastructure to withstand climate impact to smart agricultural practices.
EF: What has been the biggest driver of growth in the number of issuers achieving the Green Economy Mark?
CD: When we launched the Green Economy Mark in 2019, we had 74 issuers with a combined market capitalisation of approximately £55 billion. Today, the Mark held by 108 issuers with a combined market capitalisation of approximately £172.8 billion. If it were classified as a sector, the Green Economy Mark cohort would comprise the fifth largest in terms of capital raised on the London Stock Exchange over the past two years – larger than sectors such as real estate and industrials. That growth has been achieved through a combination of different factors.
Primarily, there has been demand for sustainable investment options among retail and institutional investors who are increasingly allocating capital to companies with strong green credentials and transitioning to a low-carbon economy.
In the technology sector, for example, the market capitalisation has increased considerably since 2020 and now stands at about £1.6 billion, representing about 7% of the Green Economy Mark cohort. There has been greater growth in sectors like consumer discretionary, which covers a wide range of companies – from energy-efficient car parts to green homes – and that sector's representation has grown by more than 300%.
EF: What trends have you seen among the cohort over the past five years?
CD: We have seen several themes emerging in recent years. Firstly, we have seen substantial growth in the market capitalisation of the Green Economy Mark cohort, representing the growth in the market of companies achieving 50% of their revenue through green environmental products and services. And that has been driven by strong investor interest. There is also greater diversity in the composition of the cohort and the types of businesses, from well-established funds to early-stage businesses. Finally, we have seen a growing number of international companies(those based outside the UK) achieving the Green Economy Mark, representing around one-fifth of the cohort, which demonstrates the global appeal of London's capital markets across different asset classes.
EF: What is the appeal of a Green Economy Mark to investors?
CD: The Green Economy Mark is a valuable tool for investors to identify companies with green credentials and helps to provide transparency in a diverse space. Due to the approach being grounded in data, it provides investors with a valuable tool when looking to allocate capital to green companies.
The data focus comes from the FTSE Russell Green Revenues Classification System, which is independent of the Green Economy Mark and was launched in 2008 to identify companies having a positive impact on the environment. According to the 2023 FTSE Russell Sustainable Investment Asset Owner survey, 80% of asset owners were considering implementing sustainable considerations into investment strategies, demonstrating how important sustainability and initiatives like the Green Economy Mark are to investors.
EF: What does the Green Economy Mark mean to companies today?
CD: The Green Economy Mark allows companies to communicate their green credentials with investors, employees, customers, and suppliers. It recognises that the substantial commitment of companies to how they generate revenues and that those revenues come from green products and services. The Green Economy Mark helps to differentiate and highlight the green credentials of London-listed companies from their peers around the world.
We are now shifting to a stage where companies speak to us before an IPO because they want to understand whether they would be eligible for the Green Economy Mark. The recognition of the Green Economy Mark can help inform the roadshow process and potentially help to secure capital from sustainable investors. It can also help companies to showcase the environmental impact of their business on the wider green economy and facilitate greater dialogue with policymakers and other key stakeholders.
London Stock Exchange is very committed to its role and how it convenes its markets to enable companies to access capital and help them with their reporting. While the Green Economy Mark has seen significant success and growth over the last five years, we continue to think about what future cohorts look like, so we will continue to evolve and develop the market in consultation with participants in the market ecosystem.
Claire Dorrian is head of sustainable finance for LSEG Markets at London Stock Exchange Group.
Click here to learn more about Green Economy Mark.
To download the 2024 edition of the Green Economy Mark Report, click here.
