Written By: Emma Websdale
Three hundred in the HSBC Global Climate Change Index (CCI) have outperformed the MSCI All Countries World Index (ACWI) by 2.7%, marking the first year since 2007 in which the climate sector has outperformed global equities.
Results from HSBC’s latest Quarterly Index Review show that its Global Climate Change Index (CCI) outperformed its MSCI All Countries World Index (ACWI)—a market capitalization weighted index that measures equity-market performance throughout the world.
The performance of CCI, which has delivered a 19.9% return rate to date this year, is a clear sign of the growing demand from investors in clean technologies and other solutions for fighting climate change.
HSBC, the world’s third largest bank, first released its CCI in 2007. The CCI tracks the success of 300 companies globally who obtain revenue through green systems, such as wind turbine and solar manufacturers.
The report, written by HSBC analysts Joachim de Lima and Vijay Sumon, notes that 2013’s public market deals and investment flows in the climate sector, particularly initial public offerings (IPOs) and secondary offerings, demonstrate the growing confidence of investors in the climate-change sector.
“On a risk–reward basis, the Climate Change theme has outperformed global equities across all regions except North America in the year to date”, reads the report. “The excess returns in Asia Pacific, Europe, and globally have more than compensated investors for the additional risks they have endured.”
The report also states that companies producing over 50% of their revenues from climate-relevant activities were the strongest performers in the HSBC Global CCI, which has doubled its 2012 return rate of 16.1% to this year’s 30.7%.
The strongest performers in the HSBC 2013 Quarterly Index fall into the Energy Efficiency & Energy Management (EEEM) sector, which had a 29.3% return rate. Next was the Low Carbon Energy Production (LCEP) sector, with a 15% return, which saw returns on wind increase up to 72% and returns on solar to increase up to 65%. The Environment and Land-Use Management (ELUM) sector ranked third with a return rate of 14.8%.
According to The Financial Times, this is not the first time the 300 companies in the HSBC Global Climate Change Index have outperformed other stocks. Since January 2004, companies in the GCCI have produced nearly twice the profits or return rates of stocks in the MSCI, including markets in the United States, United Kingdom, Japan, and Germany.
As the demand for electricity increases and the threats of climate change continue, the HSBC report documents how the competitiveness and urgent need for clean technologies have produced strong return rates for public market investors, increasing overall investor confidence in the climate-change sector.