Energy management and efficiency by far the biggest green sector out there: FTSE Russell

ENERGY management and efficiency has set itself apart as the biggest green sector, after having more than tripled in size between 2016 and 2021 to almost US$3 trillion in market capitalisation.

The next biggest green sector is transport equipment, which is at half its market capitalisation even though the sector – bolstered by a growth in green solutions across road, rail, shipping and aviation – more than quadrupled in value between 2018 and 2021.

This is according to a green economy investment report which global index provider FTSE Russell published this month. It tracked the growth of 10 green sectors, including renewable energy generation and waste and pollution control.

The report stated that the growth in the energy management and efficiency sector was driven by recent growth in cloud computing, which alone accounted for 61 per cent of the sector’s growth in the period.

Other fields that FTSE Russell considers to be part of the energy management and efficiency sector are building and property; controls; energy management logistics and support; industrial processes; IT processes; lighting; power storage; smart and efficient grids; and sustainable property operator.

The other green sectors – renewable energy generation; renewable energy equipment; and waste pollution and control – experienced more modest growth, and now hover at around US$500 billion in market capitalisation, it also found.

Among these 3 sectors, renewable energy equipment grew the most since 2016 though. The report stated that solar now makes up more than 50 per cent of its market capitalisation, having gained an additional 20 per cent share since 2018.

The report said this was mainly driven by growth in the market capitalisation of solar companies, namely Chinese solar panel maker LONGi Green Energy Technology, and US solar company Enphase Energy.

Zooming out, FTSE Russell found that while the green exposure of most industries is growing, the green share in some sectors is either plateauing or remains marginal. 

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The sectors where green exposure is plateauing are chemicals; construction and materials; and industrial goods and services, having fluctuated around 10 per cent over the past 5 years, it pointed out.

The green share of the media and telecommunications sectors is under 1 per cent of the respective sectors’ market capitalisation.

Industries where green exposure is growing are automobile and parts; technology; and utilities. 

The report highlighted that green revenue within the utilities industry grew from 19 per cent in 2016 to 32 per cent last year. This was driven by growth in the market value of renewable energy generation and technologies, it noted.

Nevertheless, FTSE Russell said the green economy outperformed the wider market and the oil and gas sector “by some margin” over the past 5 years.

The FTSE Environmental Opportunities All Share Index, which measures the performance of companies with at least 20 per cent of their revenues derived from environmental products and services, outperformed the FTSE Global All Cap by 9.7 per cent over the last 3 years, and 5.9 per cent over the last 5 years, the report stated.

When compared to oil and gas, the green economy’s outperformance is even more significant, generating returns that were 26.3 per cent and 19.8 per cent larger than those of the FTSE Global All Cap Index (Oil and Gas) over the last 3 and 5 years respectively, it added.