In the latest episode of FTSE Russell Index Ideas, Lee Clements, Director of Applied Sustainable Investment Research at FTSE Russell, explains how indices can help guide those investing in the green economy.
In the podcast, Clements describes FTSE Russell’s green revenues data, how it's organised and overseen and how the data feeds into our environmental equity indices.
To listen to the FTSE Russell Index Ideas episode with Lee Clements
“The green economy is green products and services, those that are providing a solution to environmental challenges, be it renewable energy, high-efficiency semiconductors to reduce the amount of energy use or recycling services,” Clements says.
“It's really about the opportunity side: things that can have an impact, rather than the risk side of climate investment.”
FTSE Russell estimates the size of the green economy as just under $8trn in market capitalisation, Clements says, a figure that’s grown 15% a year for the last ten years.
“It's been a great place for investors to be, but it's also quite opaque in terms of its definition and hence can be difficult for investors to access it,” Clements goes on.
In the podcast, he describes FTSE Russell’s green revenues taxonomy and how the classification system has evolved over time.
“We’re looking at energy efficiency, at recycling, we're looking at clean water, we're looking at pollution. We're looking at it from a mitigation point of view. We're looking at it from an adaptation point of view,” Clements says.
“So the breadth of capture is very important as a starting point. But then also we have an independent governance committee which looks across our sustainable data. And we're always looking at that data as it's being collected to look for changes, to see how things are evolving.”
The green revenues data feed into several of FTSE Russell’s sustainable investment index series, including the FTSE EU Climate Benchmarks Index Series and the FTSE Environmental Markets Index Series.
The latter contains two sub-series: the FTSE Environmental Opportunities Index Series, where constituents are required to have a green revenue share of at least 20%, and the FTSE Environmental Technology Index Series, where the green revenue threshold is 50%.
What about the returns of green economy stocks? What about the performance of global green economy stocks? Investment performance may not be their primary objective, but how do their risk-return statistics compare with those of the broader market?
“The Environmental Opportunities All-share index, which is our broadest global index to capture the green economy, has performed extremely well since its launch in 2008,” Clements says in the podcast.
“It's 85% ahead of the broader market, which would be the FTSE Global All-Cap, measured up to the middle of 2025. There have been some periods where it's underperformed, and there's been one period where it performed extremely well, in 2020-2021. The performance, whilst a bit more volatile than the broader market, has been consistently positive,” he says.
“The reason investors are coming back to the Environmental Opportunities index is that one, they want to try and have a positive impact, and these companies are making products and services that will have a positive impact,” Clement goes on.
“And, second, the investment impact, the fact that it's diverse and it's done very well through a diverse range of the economic cycle, they're looking at those things.”
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