Ethical Markets Media has revealed a stunning new total for its Green Transition Scoreboard® (GTS), a metric that tracks private investments and commitments in creating more sustainable economies globally, showing the weight investors place on clean technologies driving the future of business and finance. The GTS’ goal is to see $10 trillion privately invested in the clean economy by 2020 to effectively scale innovations and reduce costs in sustainable technologies. As of Q4 2015, the GTS totals $7.13 trillion in non-government investments and commitments in the global “green transition” now underway – up from $6.22 trillion the previous year.
The 2016 report, Ending Externalities: Full-Spectrum Accounting Clarifies Transition Management, focuses on the top priority: ending “externalities,” which the IMF estimates at $5.3 trillion annually worldwide. Companies tracked since 2007 by the GTS are those avoiding negative externalities and focusing on transition management to low-carbon economies, as agreed by 195 member countries of the United Nations’ Sustainable Development Goals (SDGs) and the COP21 climate agreement in Paris in 2015.
Each GTS sector covers substantial capital investment in areas that Ethical Markets’ president and founder Hazel Henderson's years of research as a science advisor, and the Ethical Markets Advisory Board’s expertise, indicate are strongly contributing to the growing clean economy: Renewable Energy, Energy Efficiency, Life Systems, Green Construction and Corporate Green R&D. This year, Life Systems gained a new category: Fintech for sustainability, which includes peer-to-peer lending and crowdfunding, in addition to other subsectors tracking the system-wide interconnections among information and digitization, water, food, education and health.
- Renewable Energy – Growing strongly as fossil fuel becomes less appealing in light of cost parity of renewables, the need to limit carbon emissions, and driving evolution to sustainable societies.
- Energy Efficiency – Widespread ripple effects positively impact jobs creation, manufacturing and other metrics tracked by traditional GDP and integral to transition management, quality-of-life metrics reported in Life Systems.
- Life Systems – Encompasses broad areas systemically linked, including water, remediation, waste and recycling, green infrastructure and info-structure, education, community investing and the myriad of digitization opportunities and obstacles, investments often overlooked as too small, such as the Fintech 100, 2015.
- Green Construction – This sector ranges from “low-tech” such as passive solar buildings to “high-tech” flow 3D printing. For consistency, the category omits labor, thus under-counting a form of capital that intrinsically increases the value of green construction.
- Corporate Green R&D – Powered by the automotive industry, this sector is also heavily weighted in favor of energy generation, conservation and distribution with a precipitous decline in fossil fuels P&E.
“The upward trend in investments since 2007 aligns with our recommendation to invest at least 10 percent of institutional portfolios directly in companies driving the global Green Transition,” Henderson says.
Updating strategic asset allocation models serves both as an opportunity and as risk mitigation. Excluding government investments to the extent possible, the $7.13 trillion in private investments and commitments as of 2015 puts private investors on track to reach $10 trillion in green sector investments by 2020.
Ethical Markets’ definition of 'green' omits technologies such as nuclear, so-called “clean coal” and most biofuels, while carefully assessing rapidly advancing technologies such as nanotech and IoT (Internet of Things). Sources of financial data are screened by rigorous social, environment and ethical auditing standards.