By Yilin Zhang, sustainable investment manager
The United States’ stance in addressing the climate crisis shifted dramatically in 2021 as the incoming President Joe Biden immediately rejoined the Paris Accord, issued an Executive Order on Climate-Related Financial Risk, and secured a bi-partisan Infrastructure Plan with a focus on low-carbon infrastructure and transportation.
But the direction of travel of the US has been green for longer than casual observers might think. The US remains the second largest emitter of greenhouse gases but we calculate that it is also the largest market in the global green economy with over $3 trillion of revenues generated from green products and services.
This is a cross asset story. For example, from a fixed income perspective, during the first half of 2021, Green bond issuance totaled US$259.3 billion, nearly three times first half 2020 levels and all-time first half record.
Mergers & Acquisitions activity involving sustainable companies totaled US$84.3 billion during the first half of 2021, 13% of mergers or acquisitions and 68% of the total value of these deals were US based.
But from an equity perspective where the trend is most pronounced, and where green economy outperformance is most striking.
Our FTSE Russell’s Green Revenues 2.0 data model looks at over 98% of the global public equity market, identifies companies with green products and services, and classifies them across 10 green sectors, 64 subsectors, and 133 micro sectors focusing on the whole value chain of the green economy.
This analysis reveals a US green economy, which is the world’s largest but relatively concentrated in the Energy Management & Efficiency sector.
This sector, comprising of companies that provide energy efficient IT products and services such as cloud computing, drives almost 40% of the US green economy.
The size of the second largest sector, Transport Equipment, has grown significantly in recent years driven by the expanding global market for hydrogen-powered, electric and hybrid road vehicles.
The $1.2 trillion bipartisan infrastructure bill passed by the Senate on August 10, 2021 focuses on transforming investment in healthy and sustainable transportation options, including the largest federal investment in public transit in history.
This includes electrifying buses and railways and building infrastructure for electric vehicles. Currently, the Transport Solutions sector makes up only 2% of the US green economy and is likely to grow boosted by the Infrastructure Bill spending, as well as other green activities including clean water infrastructure and renewable and alternative energy.
Investors tracking the US green story over the past five years have been rewarded. The US green economy has outperformed the US equity market as a whole, as well as more carbon intensive sectors.
This post first appeared on September 21 on the FTSE-Russell blog.
Photo Credit: Chris Jones via Flickr Creative Commons
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