THE SOLUTION
Solution: FTSE Russell’s Green Revenues data model
To help identify the cross-asset-class climate change investment opportunities that most aligned with its objectives, ASI turned to FTSE Russell’s Green Revenues 2.0 data model.
This model measures the green revenue exposure of more than 16,000 listed companies across 48 developed and emerging markets, covering over 98% of the total global equity market capitalization.
FTSE Russell identifies any company with revenues derived from environmental products and services, classifies the green revenues based on FTSE Russell’s Green Revenues Classification System (GRCS), and calculates a green revenues percentage, representing the portion of green revenues generated in a single fiscal year as a percentage of the company’s overall revenues.
The Green Revenues 2.0 data model was launched in 2020 to offer enhanced granularity and usability, featuring:
- An expanded taxonomy based on a broad range of green products and services, covering 10 sectors, 64 subsectors, and 133 micro sectors.
- A green tiering system to assess the level of net environmental impact over seven environmental objectives, assigned to three tiers.
- An estimation methodology for all companies that do not disclose this data based on additional non-revenue disclosures and modeling of available data at the industry sub-sector level.
Green revenues data can be mapped over time, calculated across any of the green sectors, subsectors, and micro sectors, and aggregated by company size, traditional industrial classifications, country, region or globally.
A detailed corporate financial history, dating back to 2008, allows users of the model to identify and analyze the structural shift to a green economy across public companies.
Meeting new regulatory reporting requirements
Under a new action plan on sustainable finance, adopted in 2018, the European Union (EU) took steps to integrate sustainability considerations into its financial policy framework and to mobilize future financial flows to support sustainable growth.
The plan included ten key actions, the first of which was to establish a clear EU taxonomy—a formal classification system for sustainable economic activities. This taxonomy will come into force at the end of 2021 and will impose a number of obligations on companies that offer investment products for sale within the EU. Soon, providers of financial products focused on sustainability will be required to disclose how, and to what extent, the underlying investments support economic activities that are aligned with the taxonomy. And companies within the scope of the EU’s Non-Financial Reporting Directive, which came into effect in 2018, now have to disclose whether and to what extent their activities are associated with environmentally sustainable economic activities.
The proposed EU taxonomy and FTSE Russell’s Green Revenues Classification System are similar in structure and highly aligned on core activities. Although the GRCS is somewhat broader in scope than the EU taxonomy, its modular structure allows GRCS users to exclude these elements when calculating taxonomy-aligned revenues.
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