The index that measures companies’ shades of green

The Sunday Times
June 28, 2009
Tricia Holly Davis

COMPANIES in energy, chemicals, manufacturing and engineering have emerged as Britain’s unlikely low-carbon leaders, according to a set of new environmental investment indexes launched by FTSE Group this month.
The market-information specialist has created 18 new green indexes. The main international index, the FTSE Environmental Opportunities index comprises 472 companies from around the world, 30 of which are listed in Britain. Among them are Oxford Instruments, the technology group, Ricardo, the automotive engineer, and Spice, which provides services to power and water firms.
Companies are ranked by a new classification system aimed at helping investors identify companies that have significant exposure to environment-related markets. They are judged on the percentage of revenues generated from the sale of environmental goods and services, and then by stock-market value.
To make the list, companies must generate at least 20% of revenues from areas such as renewable energy, waste, pollution, water, and energy efficiency. There are 18 indexes covering different sectors and geographical regions.

Critics of the indexes say the FTSE has mixed high-emissions construction, engineering and manufacturing firms with renewable-energy companies in the solar and wind sectors.
But Ian Simm, head of the specialist environmental investment bank Impax, defended the choice. “This has nothing to do with ethics. The FTSE index is about getting more investors in the areas of waste, water, pollution and renewable energy.” In the separate UK index, the firms included are Charter International, Halma, IMI, Johnson Matthey, Oxford Instruments, Invensys, Spirax Sarco, United Utilities, Severn Trent, Eaga, PV Crystalox Solar, Scottish & Southern, WSP Group, Hyder Consulting, and Pennon Group.
Novera Energy and China Shoto, a battery maker, rank in the top five of UK environmental companies listed on the junior Alternative Investment Market (AIM).
Conspicuously absent from the international index are companies such as General Electric, which failed to meet the 20% revenue threshold, despite being perceived as a low-carbon leader.
Last year the firm reported that sales of products from its “Ecomagination” portfolio reached $17 billion (£10.4 billion), up 21% over the previous year.
FTSE Group said the objective of the index was to clarify what is meant by the “environmental” sector.
This should boost investment, creating new derivative products and investment funds. FTSE estimates there is about €2.5 billion (£2.1 billion) invested in funds that track environmental indexes. This compares with roughly €10 billion that it estimates is tracking the FTSE4Good ethical series, created in 2001.
Since 2004 companies listed in the UK index outperformed the FTSE All-Share by 78% (see chart on right), while the index covering AIM, London’s junior stock market, beat the FTSE AIM All-Share by 6%.
“The impact of climate change is set to alter the shape of the global economy over the coming years,” said Will Oulton at FTSE Group. “We expect to see rapid growth in those companies and sectors.”