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January 31, 2022

New indices to track finance sector & real economy sentiment of the green recovery

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1in1000, the long-term risks research program of 2° Investing Initiative, has launched the Green Market Sentiment Indices (GMSI) to track corporates’ and financial institutions’ sentiment around the green recovery from Covid.

Targeted towards investors and policymakers, the GMSI are the first sentiment indices tracking both corporate and investor trends around the green recovery. Inspired by Purchasing Managers’ Indices (PMI), forecasting indicators that track market sentiment around economic growth, the GMSI will act as forward-looking early warning signals on the greening of the economy. The indices bring together a combination of data based on forward-looking production and investment plans of companies in the auto, power, and oil & gas sectors, as well as key financial variables that show financial market sentiment as to the future performance of climate leaders and laggards. The GMSI thus fills a critical gap, helping us monitor the anticipated, actual greening of the economy.

The indices are also unique in that they can identify early in what sectors corporations and investors are likely to provide mutual support towards decarbonization. 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.

2DII first launched the GMSI for the European market, with plans to expand to Latin America and other markets in the first half of 2022. In addition, in partnership with the Inevitable Policy Response consortium, 2DII plans to develop a policy sentiment index tracking climate policy experts’ views around progress on the green transition.

Access the GMSI here.

Insights from Europe

According to our initial application of the framework, EU companies and investors in the auto, power, and oil & gas sectors anticipate a “pale green” recovery in the European Union. Throughout 2020 and 2021, companies increased their low-carbon production plans, especially in the auto sector. Compared to before Covid, investors expect green firms to perform more strongly, and are slightly less confident about the future of high-carbon firms.

Access the EU results dashboard here.

A sector-by-sector analysis

Taking a closer look at three climate-critical sectors helps us better understand the extent to which the EU is recovering green and where action is needed.

  • Auto manufacturing: Corporates anticipate rapid greening of the sector, while investors are less optimistic about such prospects
  • Power sector: Corporates and investors anticipate slightly more low-carbon opportunities, but the phasing out of high-carbon power is overlooked
  • Oil & gas: Corporates anticipate a slow recovery of the sector, while financial markets appear strongly pessimistic concerning future profits of the sector

About our funders

This project is part of the International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundestag. It has also received funding from EIT Climate-KIC. This work reflects the authors’ views only, and the funders are not responsible for any use that may be made of the information it contains.

      

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