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iClima Investment’s Green Revenue – Methodology and Findings

April 21, 2021

Gary Hart, Albina Stukalkina

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At Clima we believe that the real winners in the transition to a net zero emissions world will be the companies providing the most substantive climate change solutions, the companies that are “doing more good” by providing the solutions to help their customers to “do less bad” by reducing their impact on the environment. The strength of Clima’s approach is that it will shine a spotlight on the climate change solution innovators and implementors, helping them to attract further investment which in turn, will aid them to pull us towards a net zero world, promoting and accelerating the pace of development and scaling of climate change solutions as their cost of capital decreases.

One of the metrics that we use to indicate a company’s exposure to climate change solutions is our Green Revenue Assessment which is the part of our vetting process where we quantify the percentage of a company’s revenues that came from climate change solutions in the previous year. In order for a company to be selected as part of Clima’s universe and become part of the group of companies that we call our Climate Champions, each company must first pass through our selection, materiality test and vetting processes which ensures that:

  1. Qualifying companies offer a product or service considered to be a climate change solution

Inspired by the Project Drawdown and the EU Taxonomy for sustainable activities, Clima selects companies which provide climate change solutions that help directly avoid GHG emissions, enable direct reduction of GHG emissions and energy efficiency, and/or contribute to carbon sequestration based on 5 segments and 29 subsegments.

  1. Qualifying companies do not partake in significant levels of controversial activities

We set thresholds on activities such as armament, nuclear energy, fossil fuels, alcohol production, adult entertainment, gambling and tobacco, which if exceeded, result in exclusion for Clima’s universe of companies.

  1. Clima can assess the how much of the company’s revenue comes from climate change solutions

To help to give investors a quick and easy way to assess and compare the percentage of each company’s revenues that come from climate solutions, Clima uses a visualise-to-analyse approach (see table below), placing each company within one of the following four categories:

  • Pure Play: More than 90% of revenues from climate solutions
  • Majority Player: 50% to 90% of revenues from climate solutions
  • Partial Player: 20% to 50% of revenues from climate solutions
  • Upcoming Player: Less than 20% of revenues from climate solutions but the growth rate of their climate solution is high

The numbers for each company are based on analyst assessments using information from company and industry reports as well as contact with investor relations teams. In the table we highlight numbers that have been directly disclosed with a ‘D’ and those that have been estimated with an ‘E’ in order to reflect that not all green revenue numbers are directly disclosed by companies – A fact highlighted by research from FTSE Russell which found that:

“less than 30% of companies with green revenues provide disclosures that are granular enough to allow investors to systematically break out and quantify companies’ green business activities”

Two common reasons cited for lack of granular disclosure are that: companies do not want to give away too much information about the sales of key product lines to their competition and that it is easier for large companies selling many green and non-green products to report on high-level segments rather than break each product out separately. However, it is hoped that as more investors demand this granularity and regulations such as the EU Taxonomy come in to force in the coming years, company disclosure will improve.

Clima Universe – Green Revenue Assessment

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