Across the Pond, the London Stock Exchange’s Green Economy Mark Gains Traction

The London Stock Group (LSEG) published its 2020 green economy report last week and unveiled a number of new issuers receiving the bourse’s Green Economy Mark. This LSEG certification process, which recognizes sustainable businesses across eight industry pillars, acknowledges securities issuers that derive more than 50 percent of their revenues from sustainable products and services. The total value of companies that have received this certification from LSEG stood at over $83 billion (or 67 billion British pounds) by the end of June 2020.

A certification investors can readily understand

Eight new issuers have now received the LSEG’s certification, which is based on a data model developed by the index provider FTSE Russell. The total number of issuers that are licensed to use this certification is now at 86, up 16 percent since the Mark’s launch last October. There are 46 issuers to be found on the exchange’s Main Market, with another 40 on the LSEG’s Alternative Investment Market (AIM).

Furthermore, the LSEG’s report underlines its stated commitment to support sustainable finance and investment. And it has been shown to make financial sense when investing in companies that are taking sustainability issues seriously. Indeed, investment in these stocks can provide investors with a broad, cross-sectoral and international exposure — rather than a much narrower focus on, for instance, renewable energy infrastructure and “pure-play” clean technology companies.

As such, the Green Economy Mark offers a solution to the challenge of identifying investments within the equities of companies that are focused on a more sustainable economy, according to the LSEG. Though not tracked by an index yet, over the last 24 months, companies assigned the LSEG’s Mark outperformed the FTSE All-Share index — comprising 615 companies in the blue-chip FTSE 100 index, FTSE 250 and FTSE Small Cap — by 36 percent.

Companies certified with the Green Economy Mark demonstrate resilience

While the markets have experienced significant volatility during the COVID-19 pandemic, equities with the Green Economy Mark certification have, in aggregate, demonstrated greater resilience and subsequently recovered faster than the rest of the market. The Mark also “helps navigate and make use of the current green finance tools and stimulate new ideas,” according to the exchange.

Between the launch of the Mark in October 2019 and the publication of this latest report, Calisen Plc, a company based in Manchester that procures, owns, installs, and manages electricity and gas meters for energy retailers, floated in February 2020 on the exchange, raising $418 million. In doing so, it became the first company issuing an initial public offering (IPO) to earn this LSEG certification.

Highlighted as a case study in the report, Calisen was the top Green Economy Mark issuer in terms of capital-raising activity this year, ahead of National Express in second place with $291 million.

At the time of the Green Economy Mark’s launch last year, a total of 74 London equity issuers qualified and were equivalent to an aggregate market capitalization of over $70 billion. At that time, 38 of them represented Main Market issuers with a total market cap of $65 billion and 36 alternative market issuers with a total market cap of $4.6 billion.

Denzil Jenkins, the interim CEO of LSEG, commenting in the wake of the new report, said: “The Green Economy Mark underlines our commitment to finding innovative solutions to support the growing investor demand for actionable climate related financial information. As a leader in green finance, LSEG is ideally placed to support issuers and investors in the transition to a sustainable, low-carbon economy.”

Sustainable investing is here to stay

That said, today the sustainable business economy represents around 6 percent of the market capitalization of global listed companies, equating to approximately $4 trillion. Globally, over $30 trillion in assets under management (AUM) are now linked to sustainable investment strategies, according to the 2018 Global Sustainable Investment Review survey.

LSEG’s analysis reflects what is occurring on the other side of the pond: Sustainable investing is here to stay despite the global COVID-19 pandemic, and now institutional investors are starting to give notice to companies that they expect more disclosures related to environmental, social and governance (ESG) impacts.

The 33-page report accompanies news of other issuers to the Mark. Five of them are from the LSEG’s Main Market (Cairn Homes, National Express Group, SIG, SQN Asset Finance Income Fund, and TI Fluid Systems) and three from alternative market (Gresham House, TP Group, Water Intelligence), joining other Green Economy Mark issuers in highlighting how they are supporting transition to low-carbon economy. 

Among the report’s key findings is that while Green Economy Mark issuers represent 8 percent of total capital raised on London equity markets over the past 24 months, this figure is four times their market cap representation, which stands at 2 percent. And so far in 2020, a group of 18 issuers among the segment’s ranks have raised about $1.24 billion in follow-on capital to support balance sheets, growth and fund innovation.

Overall, industrials represent the largest sector of the green economy both by number of issuers (24) and market capitalization ($31.6 billion) on the LSEG, followed by financial companies in the second spot with 23 companies with a market cap of $12.5 billion.

In addition to what is now a total of 86 companies with the Green Economy Mark, an additional 110 issuers on London’s equity markets are reported by FTSE Russell to be generating some level of green revenues below the 50 percent threshold for the mark, most being within the industrial sector.

Image credit: LSEG Media Center