Preamble: this is an experiment. We are trying to measure the return differential between listed companies that are predominantly exposed to the green economy (clean tech, green buildings, green solutions provider) to those mostly exposed the brown part (coal, tar sands, oil and gas). The current indicator is not a full index that links cleanly a long history, it is an equal-weighted basket of stocks from companies that are pure plays as of today.
Why trying to measure the green to brown premium?
The necessary transition to a low carbon economy will necessitate a massive reallocation of capital to fund the development and deployment of a wide range of climate efficient solutions. As this reallocation occurs, there will be money flowing out of the stranded area of the economy - the “brown” side - towards the green side. Our assumption is that reallocation will impact the price of those assets. This is what we are trying to measure.
What is in the Green and Brown baskets?
For Green: companies with 50% or more revenues from environmentally friendly products or services (alternative energy, energy efficiency, green building, pollution prevention, or sustainable water). These companies are mostly in the Industrials, Utilities, Technology and Real Estate sectors. There are roughly 200 of them globally. The majority of them are listed in the US or China.
For Brown: companies with 50% or more revenues from thermal coal mining, generation of power from fossil fuels (thermal coal, liquid fuel, natural gas) and/ or extraction and production of conventional and unconventional oil & gas. These companies are mostly in the Energy and Utilities sectors. There are also roughly 200 of them globally. Lots of them are listed in the US, Canada, China or Australia.
Please give us feedback on the approach and how you would use this indicator.
