June 28, 2023

Weighted Average Green Revenue (WAGR): Integrating climate solutions into portfolio construction

Transitioning to a green economy requires innovative climate solutions that enable and accelerate the decarbonisation of the real economy. To systematically identify and measure these solutions, we examine four metrics including green revenue, green capex, green patents and avoided emissions in a portfolio management context. We then focus on green revenue and WAGR as metrics to integrate climate solutions into portfolio construction, as they are more readily available, easier to interpret and directly linked to companies’ cash flows.

What our research means for investors

While the availability of climate disclosures, especially for private assets, continues to be limited, WAGR offers a valuable tool for investors to apply in different ways including climate reporting, target setting, thematic investing and corporate engagement. As data and calculation methodologies for WAGR and other green metrics evolve and mature, together they can provide a comprehensive suite of indicators to measure a portfolio’s exposure to climate solutions.

Points of differentiation:

  • Building on the unique FTSE Russell Green Revenues data, which is broad and highly granular, its modular nature allows investors to measure portfolio exposures to individual climate solutions. The data also enables investors to measure portfolio alignment with other taxonomies and classification systems such as the EU Taxonomy
  • We discuss how to integrate climate solutions – investment opportunities during the low carbon transition into portfolios, whereas currently the main focus for investors is to measure and manage climate-related risks in their portfolios
  • This paper is co-authored with GIC and GMO