1in1000, the long-term risks research programme of think tank 2° Investing Initiative (2DII), has launched a set of indices aimed at enabling forward-looking monitoring of the greening of the economy in the wake of the coronavirus pandemic.
Targeted at investors and policymakers, the Green Market Sentiment Indices (GMSI) are intended to track corporates’ and financial institutions’ sentiment around the green recovery from COVID-19.
The indices bring together a combination of data based on forward-looking production and investment plans of companies in the auto, power and oil and gas sectors, as well as financial variables – stock returns, price-earnings ratio, and weighted average cost of capital – that show financial market sentiment about the future performance of climate leaders and laggards.
“The GMSI thus fills a critical gap, helping us to monitor the anticipated, actual greening of the economy,” 2DII claimed.
It also said the indices were unique because they could identify early in what sectors corporations and investors are likely to provide “mutual support towards decarbonisation”.
“After all, to ensure we recover green, corporate and investor sentiment needs to converge so that new green projects can be financed, and so that capital redirected towards green activities can find new projects,” it said.
Although the GMSI only cover three sectors, these are responsible for about 80% of global CO2 emissions, according to the think tank.
“We chose them because of the importance of their decarbonisation for mitigating global warming and because of data availability for these sectors,” a 1in1000 methodology document stated.
According to an initial application of the GMSI framework, EU companies and investors in the auto, power, and oil & gas sectors anticipate a slightly green recovery in the EU.
Throughout 2020 and 2021, companies increased their low-carbon production plans, especially in the auto sector. Compared with before COVID, investors expect green firms to perform more strongly, and are slightly less confident about the future of high-carbon firms.
2DII has launched the GMSI for the European market but plans to expand to other markets in the first half of this year.
It also said it had plans to develop a policy sentiment index to track climate policy experts’ views around progress on the green transition. This would be in partnership with the Inevitable Policy Response consortium.
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