An emerging opportunity in the ever-evolving sustainable finance ecosystem is green equity designations. These indicate how well aligned a company's business model and financial flows are with a low carbon, climate resilient future. Only a small number of stock exchanges and companies are currently engaged in this area, but interest is rising.

S&P Global Ratings sees a strong likelihood that use of this voluntary issuance-transparency mechanism may rise significantly over time, mirroring the trajectory of the green bond market. Shades of Green, now part of S&P Global, has been a reviewer of these designations since the market began in 2021. Here, we answer questions from investors about green equity designations.

Frequently Asked Questions

What is green equity and what is a green equity designation?

Green equity refers to shares in companies that demonstrate they contribute to the green economy. There are various definitions of a green economy; the U.N. Environment Program defines it as one that is low carbon, resource efficient, and socially inclusive.

A green equity designation is the label for shares in companies that demonstrate their contribution to the green economy by meeting a stock exchange's green equity principles. Currently, only a few stock exchanges in Europe and South America have published green equity principles but interest in this concept appears to be growing.

Which institutions offer green equity designations?

The first to do so was Nasdaq Nordics, when it launched its Green Equity and Green Transition Designations for the Nordic markets in 2021. Then, in 2023, the World Federation of Exchanges (WFE) published Green Equity Principles, which provide a framework for individual stock exchanges to establish a green standard for listed equities. This year, two additional exchanges--B3 and SIX--have launched green equity designations (see chart 1).

Chart 1

However, stock exchanges have other ways of providing transparency on companies that contribute to the green economy. The London Stock Exchange has the Green Economy Mark, a data-driven way to identify companies where the majority of revenue contributes to the green economy based on the FTSE Russell Green Revenues Classification System. In New York, a Green Impact Exchange has been established with the goal of providing a dual listing platform for companies committed to a high level of sustainable governance.

What information do green equity designations provide to the market?

They confirm the link between a company's financial flows and sustainable activities, signalling that the business model contributes to a low carbon, climate resilient future. Through green equity designations, stock exchanges can indicate which companies they consider to be already contributing.

Although the green equity market is still developing, there has long been demand for transparency on how companies finance activities that support the green economy. If backed by robust criteria, a green equity designation can allow companies to communicate their green activities, while creating transparency for investors and other stakeholders. It can also potentially reduce the incidence of issuers overstating their green credentials and the sustainability of their operations.

What are the key requirements for green equity designations?

The requirements vary across the three stock exchanges that currently offer such designations (see chart 3). But the core concept is that the majority of revenue and investments are green. All stock exchanges require an independent reviewer to assess companies' performance and published reports against their principles, on an annual basis, ensuring updated information is provided to the market.

Chart 3

What types of companies have obtained a green equity designation and does this typically relate to a market event?

Currently, only 13 companies worldwide have a green equity designation, and they vary in size, region, and sector. Echoing the start of the green bond market, clean technology and Swedish real estate companies are currently among the first adopters of green equity designations. Swedish real estate companies have historically been among the first movers in green finance, with Vasakronan issuing the first corporate green bond.

Table 1

Several companies have chosen to pursue a green equity designation at the same time as an IPO, equity raising, or other market event. The first example of a green labelled IPO is that of NX Filtration in 2021. Although this Dutch water filtration company did not pursue a green equity designation, it marketed its IPO as green on the basis of an assessment by CICERO Shades of Green, now a part of S&P Global Ratings. The first IPO with a green equity designation was that of Rebelle on Nasdaq Nordic in 2022; the company has since been acquired by Vinted and is no longer listed. SolarFoods also went public with a Nasdaq Green designation earlier this year, having first obtained a private company designation. Brazilian water utility SABESP obtained the B3 Ações Verdes designation just before its privatization in 2024.

How do you assess green equity designations?

S&P Global Ratings is an approved reviewer of the green equity designations issued by Nasdaq, B3, and SIX. Our Climate Transition Assessment (CTA) is the core component of our green equity designation assessment. It is a qualitative opinion on where a company is on its transition journey and where we expect it to head in the future, based on our evaluation of planned transition activities and implementation drivers.

For companies undertaking a CTA as part of a green equity designation application, we include additional sections in the report, tailored to each stock exchange's specific requirements for any aspects that are not already part of our CTA.

How does the green equity market compare with the green bond market?

We see several similarities. In both markets, issuers provide additional information on environmental performance to investors on a voluntary basis. Companies with green activities can elect to participate, and there is a market standard of external reviews, which support issuers' green credentials and market confidence.

In addition, the green equity label first materialized in 2020, when Swedish real estate company K2A marketed its shares as "green" based on an assessment by CICERO. Likewise, the green bond market began with self-labelling. The establishment of green bond principles and market practices (including external reviews) followed, and green equity seems to be developing in a similar way.

Stock exchanges were also key players in the early phase of the green bond market, as they are today in the green equity market by providing principles and designations. In 2014, Oslo Stock Exchange was the first to establish a separate green bond list with specific requirements for green issuances. Today, green bond lists are commonplace.

How do sustainability indices and green equity designations differ?

Sustainability indices and green equity designations differ in their scope and focus (see table 2). However, both play a role in helping investors align their strategies with their sustainability objectives.

Table 2

Sustainability indices either measure the performance of a broad range of companies based on environmental, social, and governance (ESG) scores or focus on a single sustainability theme, such as the climate or sustainable bonds. These indices are tracked through various financial products and are generally based on quantitative methodologies using mainly publicly available information.

In contrast, a green equity designation is not an index, but a label. It signifies that a company contributes substantially to the green economy and therefore its equity is considered green. Unlike an index, a green designation does not encompass a basket of companies. Rather, it focuses on an individual corporation and whether its business model is aligned with a stock exchange's green equity principles. These include whether business activities promote a low-carbon economy, for example because the company is purely a renewable power generation business or a real estate company whose portfolio comprises only properties with energy efficiency that exceeds regulatory requirements, with limited fossil fuel cooling or heating systems. An external reviewer assesses alignment with the designation's principles, a process that is initiated by the company seeking the green equity designation. This includes the reviewer evaluating whether the business activities promote a low carbon economy.

Another key difference is that green equity designations are relatively new in the sustainable finance market. The first was introduced by Nasdaq Nordics in 2021. By contrast, S&P Dow Jones Indices has been involved in sustainability indexing for more than 20 years, having launched the Dow Jones Sustainability World Index in 1999.

What is the relationship between green equity principles, green taxonomies, and reporting requirements?

The WFE allows stock exchanges to either adopt an existing green taxonomy or develop their own criteria and definitions for green activities, as long as they are clear, objective, and transparent. Among the exchanges offering green equity designations, both B3 and Nasdaq refer to the EU Taxonomy. Specifically, Nasdaq requires companies to report their share of EU Taxonomy-aligned revenue, operating expenses, and capital expenditure. For B3's designation, only activities eligible for the EU Taxonomy can count toward its green thresholds.

Reporting requirements vary among the stock exchanges. SIX requires detailed sustainability disclosures. Nasdaq requires companies to report their energy mix and greenhouse gas emissions (scope 3 at a minimum). In many cases, reviewers can use companies' sustainability reports to assess against these requirements. In the EU, the upcoming Corporate Sustainability Reporting Directive (CSRD) requires companies to report--from 2025--on the impact of corporate activities on the environment and society, as well as obtain an audit to verify the information disclosed. We expect information reported to comply with the CSRD can become a source of sustainability disclosures.

In assessing a company's eligibility for a green equity designation, as part of our CTA, we use our Shades of Green analytical approach, which can be applied to a variety of activities, regardless of whether they are covered by, or aligned with, the different taxonomies.

Does having a net zero target qualify a company for a green equity designation?

Climate targets are not sufficient on their own to achieve a green equity designation. Setting net zero targets is often an important part of a company's climate transition plan and can indicate positive forward-looking goals. However, they may not tell the market about a company's current impacts on the environment and society, and those targets might not be fully achieved.

In contrast, green equity designations place more emphasis on green activities currently in a company's business model and financial flows. As a company works toward its climate targets, its share of green activities may increase or non-green activities may be phased out, making it easier to achieve a green equity designation. For example, specific short-, medium-, and long-term greenhouse gas emissions-reductions targets, backed by a transition plan, is a requirement for the SIX 1.5°C Climate Equity Flag, the Swiss stock exchange's green equity designation.

Chart 4

Is there a similar concept for companies transitioning toward green business models?

Yes, though this is still in the early stages. For example, the Nasdaq Transition Designation is available to companies that do not yet meet the revenue requirements for Nasdaq's Green Equity Designation but are investing in green activities. The uptake of this designation has been modest so far, mirroring the trend of the transition finance label in the bond market. We understand the WFE plans to develop a green equity transition classification once global progress has been made on transition methodologies.

In some regions, particularly in Asia, there is some momentum regarding transition bonds frameworks. The ASEAN Taxonomy, first launched in 2021, provides a common system for identifying and classifying sustainable projects and activities, financed by fixed-income instruments, in Southeast Asian nations. Indonesia and Singapore have also developed a transition taxonomy to help guide companies in sectors like energy and heavy industry as they shift toward greener practices, while Japan published the world's first sovereign transition bond framework in November 2023.

Do green equity labels influence the terms and conditions for equity raising and IPOs?

With green equity labels still in their infancy, there is limited analysis on whether green equity yields a measurable premium (greenium) compared to conventional equity. Further research is needed to understand the dynamics and market impact of green equities. Nevertheless, historical prices of stocks with a green equity label in Brazil, Finland, and Sweden show an interesting trend (see charts 5, 6, and 7). Regardless of the existence or absence of greeniums in green equities, green labels can provide greater visibility into business activities that contribute to a low-carbon economy in the global equity markets.

Chart 5

Chart 6

Chart 7

Related Research

• FAQ: Applying Our Analytical Approach For European Green Bond External Reviews, Oct. 31, 2024
• Climate Transition Assessment Description For B3 Ações Verdes, Sept. 3, 2024
• Climate Transition Assessment Description For The SIX 1.5°C Climate Equity Flag, Aug. 22, 2024
• Climate Transition Assessment Description For The Nasdaq Green Designations, Aug. 22, 2024
• S&P Paris-Aligned Climate Select Indices Methodology (S&P Dow Jones Indices), August 2024
• Analytical Approach: Climate Transition Assessments, July 18, 2024
• S&P ESG Index Series Methodology (S&P Dow Jones Indices), May 2024
• Analytical Approach: Shades Of Green Assessments, July 27, 2023

External Research

• SIX 1.5°C Climate Equity Flag – Framework, SIX Swiss Exchange, version 31.7.2024
• Nasdaq Green Equity Principles, Nasdaq, 2024
• B3 Ações Verdes, B3, OFÍCIO CIRCULAR 002/2024-VPE, May 7, 2024
• Indonesian Taxonomy for Sustainable Finance, Sustainable Finance Indonesia, Feb. 20, 2024
• Singapore-Asia Taxonomy for Sustainable Finance 2023 edition, December 2023
• Is there a green premium in the green bond market? Systematic literature review revealing premium determinants, MacAskill et al., Jan. 20, 2021
• ASEAN Taxonomy for sustainable finance, ASEAN taxonomy board, November 2021