Is the green economy the new ‘tech’ sector?

By William Nicol, Analyst, Sustainable Investment Research

Few industries can rival the growth of the technology sector, which has seen its investment-friendly market value grow fivefold over the past decade.[¹] – But as the investment landscape becomes more blurred, more than the wind Interest rates increase on the horizon, the green economy emerges as a candidate. The development of the green economy parallels the technology sector as fast-growing, diversified and green products and services are proliferating in all markets.

Growing fast

As mentioned in our recent article. Investing in a green economy 2022, The capitalization of green stocks grew from less than USD 2 trillion in 2009 to more than USD 7 trillion in 2021, doubling its share of the global investment market from 4 percent to 7 percent (Figure 1).

Figure 1. The green economy has doubled its global market share over the past decade.

Given this, the green economy is now equal to the fifth largest industrial sector by market value (Figure 2) – bigger than oil and gas, recently overtaking retail and closing banks. The technology sector was at the same level in 2008 and then became the largest sector in 2015.[²]

Figure 2. Size of ICB supersectors versus the green economy.

Multifaceted

Like the various tech subsectors, from demand streaming to fintech, green subsectors are equally diverse, spanning green areas such as renewable energy to energy efficiency, recycling and pollution reduction.

Some are rapidly expanding (Figure 3) markets for green products and services, particularly disrupting the electric vehicle sector with significant growth in transport electrification and companies such as Tesla. There are many other, less headline-grabbing areas too – take energy efficiency, whose rocketing market prices are driven mainly by cloud computing, benefiting the tech giants, but also wider trends in energy demand and the need to cut costs.[³]

Figure 3. Market value growth in selected green sub-sectors.

Wide

As with technologies, green goods and services are entering various industrial sectors (Figure 4). For example, two-fifths of the auto sector is already green by value, and the rise of electric vehicles will drive growth in the value chain – including EV charger suppliers, battery manufacturers and lightweighting – in other sectors. Utilities and industry also have sizeable green components, driven by the competitiveness of renewable energy and the demand for products and services that reduce pollution.

Figure 4. The green economy is spreading across other sectors of the economy.

Internationally diverse

The green economy is globally diverse, although it is found in certain countries such as the US (54%), followed by China (12%). When we look at the green exposure, the picture is different, that is, how is the green economy. For example, despite their relatively small size, Japan and European countries such as France and Germany are highly exposed to the green economy. Indeed, many countries are making green development and green jobs a central pillar of their post-Covid growth strategies – another parallel the sector has with technology. Evidence shows that dollar for dollar, capital-intensive green investment creates more jobs than polluting alternatives.

Figure 5. As with the technology sector, the US and China dominate the green economy by market size.

As the low-carbon transition accelerates, the green economy may continue to follow in the footsteps of the technology sector – green products and services will continue to permeate the economy and secure a place in the new industrial growth sector.[⁴]

[1] The technology sector has more than quintupled its investable market value over the past decade. Total market value of companies included in the Technology ICB supersector in the FTSE Global Equity Index Series between 2012 (USD4.0 trn) and 2022 (USD19.2 trn).

[2] The total invested market capitalization (year-end) of all companies included in the ICB supersector classification as ‘Technology’ in the FTSE Global Index Equity Series (end 2021) has grown from US1.9 trn in 2008 (5th largest ICB supersector at investable market value) to USD21.8 trn by 2021 (the largest ICB supersector).

[3] Green sectors defined under the FTSE Russell Green Income Classification; For more details, see FTSE Russell (2020). Green Income Classification System 2.0.

[4] FTSE Russell (2022); The green economy in troubled waters?

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