Green revenues, profitability and market valuation: Evidence from a global firm level dataset

Abstract

Substantial private investments in low carbon technologies and capital assets are necessary to meet climate change mitigation targets. This paper examines how diversifying and specialising production towards environmental goods and services is associated with the profitability and market valuation of firms. We use a new green revenue dataset of global listed firms covering approximately 98% of global market capitalisation for the period 2009-2016.Revenues from environmental goods and services is growing rapidly and totalled US$1.6trillion in 2016, representing around 4% of turnover. The utilities sector including green electricity and water contributes the most to global green revenues. In these sectors, we find evidence that incentives already exist so that orienting production towards green goods and services simultaneously enhances firms’ economic performance, suggesting that existing policy interventions are encouraging the provision of public goods by creating a “win-win”.For other sectors, there are currently insufficient market incentives to shift radically into the environmentally friendly market space. While early movers have been able to increases operating profit margins, increasing the share of green activities has not necessarily increased the accounting rate of return on investment, suggesting that capital costs are high. Additional policy support is likely needed to create a clear investment case for making climate friendly production choices throughout the economy.

Publication
GRI Working Paper Series. No. 331.
Date
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