Potential Use of Revenue Data for ESG Thematic Investments
Mitsubishi UFJ Trust Investment Technology Institute Co., Ltd. (MTEC)1

1. Introduction
Sustainable investment is increasing worldwide; according to the Global Sustainable
Investment Alliance (2023), as at 2022, $30.3 trillion had been invested in sustainable
investment assets worldwide. However, growing concerns about greenwashing have led tochanges in sustainable investment, such as stricter regulations and more conservative labelingguidelines, and it is expected that sustainable investments with more substance will be
undertaken in the future.
For investors to avoid greenwashing, it is necessary to employ funds that transparently
disclose information involved in stock selection to investors. One of the most effective ways
to avoid greenwashing is investing in environmental, social, and governance (ESG) indices.
There are various ESG indices—some of which actively invest in stocks with excellent ESG
ratings, while others focus on specific themes such as climate change or biodiversity.
Most of the indices focus on whether a company does not cause harm to the environment
or society (e.g., the Low Carbon Index in the case of climate change indices) or whether acompany is taking the right steps to prevent future harm to the environment or society (e.g.,
the Transition Index). Investing in a company that provides products and services thatproactively address environmental and social challenges requires a different investment

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The information contained in this report is provided "as is" and does not carry any

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Technology Institute Co., Ltd. shall bear no responsibility or liability for any actions taken
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obtained this document with respect to any loss or damage directly or indirectly arising out of
the use of all or any part of this report. ©2024 Mitsubishi UFJ Trust Investment Technology
Institute Co., Ltd. All Rights Reserved.
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approach from investing in a company that does not cause harm. Such an investment approach,unlike existing ESG investments, requires using information relevant to the investment
opportunity, such as information which reveals that a company’s revenue is gained via
providing goods or services that contribute to solving specific ESG issues.
A previous study that focused on investment opportunities and proposes a method forconstructing an index using quantitative data is that by Cheema et al. (2023). They
constructed an ESG index based on the ESG revenues that they independently surveyed basedon the business description disclosed by companies and investigated the characteristics of theindex. ESG revenues are performance figures derived from economic activities in which acompany’s products or services contribute to solving ESG issues, thus revealing the social
impact more directly than existing ESG scores.
A general extension of the data utilized by Cheema et al. (2023) to the various ESG
themes is the FactSet ESG Thematic Revenue Exposure & Product Involvement (FactSet
TREPI) provided by FactSet, Inc. FactSet analysts surveyed approximately 10,000 global
companies and compiled ESG revenue categories and information.
This study uses the FactSet TREPI data to identify the ESG revenues. As an ESG
thematic index, we focus on the battery and alternative energy business, which has garneredmuch attention in recent years, and construct an ESG index for its implementation, anddiscuss its characteristics. We examine the characteristics of the batteries and alternative
energy index through a case study. Although it is relatively easy to invest in ESG-relatedthematic indices, we discuss the risks associated with such ESG investments.
The rest of this paper is organized as follows: Section 2 introduces the FactSet TREPI
data and provides a quantitative introduction, including coverage. Section 3 explains why wefocused on the battery and alternative energy business index and how the index is constructed.
In Section 4, we analyze the fundamentals of the battery and alternative energy business index,
including performance, earnings, and capital expenditures, and discuss the risks of investingin thematic indices. Section 5 provides a summary and discusses future issues.

1. Overview of FactSet ESG TREPI Dataset
FactSet provides the FactSet ESG TREPI Dataset. The dataset includes revenues andbusiness segments involved in ESG activities and is based on research by analysts and others.
It covers approximately 10,000 global companies, primarily in North America and Asia, andthe data have been available since 2013. A unique feature of this dataset is that it is tied to
133 detailed ESG business segments, clearly revealing businesses that are responsible for ESG
revenues. Using this dataset, it is possible to identify companies that are operating ESG2

related activities and making an impact on society in their target businessFirst, we review the ESG revenue recorded in the data. Figure 1 depicts the total ESG
revenue of the recorded data for the cross-section at the end of December since 2013. For the
FactSet TREPI, we adopted the data recorded one year prior to the reference point,considering the lag period.
Figure 1: Transition of ESG Revenue (in billions of dollars)
20,00018,000ESG Revenue (Billion $)16,00014,00012,00010,000
8,000
6,000
4,000
2,000
0
2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

As depicted in Figure 1, the total ESG revenue does not indicate constant growth, butsince 2017, it has been mostly upward, approaching $18 trillion in recent years2. This indicatesthat the business of solving ESG issues is growing.
To confirm the coverage of the data, Figure 2 depicts the number of companies includedin the MSCI ACWI index, the percentage of companies included in the MSCI ACWI index,
and the total weight of MSCI ACWI companies. From this figure, the number of companies
included in the index has increased significantly since 2015, with approximately 12,000
companies having ESG-related revenues. The percentage of companies included in the MSCIACWI, which many institutional investors use as an investment benchmark, is about 30% of
the companies in the index or about 25% in the total weight.
Table 1 summarizes the number of companies included in the dataset as of December
2023 by country in descending order. Table 1 indicates that most of the companies in thedataset are in the Asia-Pacific region, with China having the largest number of companies.
This is the reason for the low composition of the MSCI ACWI. The composition of companies

2

Note that ESG revenue is assessed by the FactSet TREPI, and the increase or decrease of

the total revenue is also dependent on whether the data identifies a segment of revenue as
the ESG revenue.
3

is similar to the dataset analyzed by Cheema et al. (2023), who obtained their data themselves.

14,00035%

12,00030%

10,000

25%

8,000

20%

6,000

15%

4,000

10%

Number of Firms
Number of Firms in ACWI

2,000

WeightNumber of Firms

Figure 2: Number and Weight of Firms in the MSCI ACWI Index

5%

Weight in ACWI
0%201301
201306201311
201404
201409201502
201507201512
201605201610201703
201708
201801
201806201811
201904
2019092020022020072020122021052021102022032022082023012023062023110

Table 1: Country List of Companies Included in the Dataset
Rank

RegionCountry

Number of Firms Revenue (Billion$)1

Asia Pasific

China

1,753

2

North America

Canada

1,709

583

3

North America

United States

1,152

4,254

4

Asia Pasific

Australia

826

294

5

Asia Pasific

Japan

660

1,170

6

Asia Pasific

India

620

599

7

Asia PasificSouth Korea

497

718

8

EuropeUnited Kingdom

324

1,034

9

Asia PasificHong Kong

321

295

10

Asia Pasific

Malaysia

295

94

2,789

Figure 3 depicts the business segments in order of ESG revenue as of December 2023.3
This shows that businesses related to the environment, such as oil and gas, transportation,and chemicals, dominate the list, indicating that products that improve or mitigate theseenvironmental issues have become more important in recent years.
Using the FactSet TREPI, we identify businesses that have focused on ESG in recent
years, and how they are growing. In addition, we can recognize the contribution of eachbusiness to its company’s total revenue by focusing on individual companies.

3

Business segments are defined by Factset.
4

Figure 3: Business Segments with High ESG Revenue

Oil and Gas: Downstream

2.7%

28.5%

11.9%

3.7%

Oil and Gas: Upstream
Potentially Hazardous Chemicals

3.9%

Animal Goods and Services

4.2%

Oil and Gas: Midstream
Mineral and Ore Resources

4.4%

Processed Foods
Alternative Energy

6.9%
16.4%
8.6%

2.

Transport

Coal
Other

8.8%

Example of an ESG Thematic Index Construction
In this section, we construct ESG thematic indices using the FactSet TREPI. The data

covered in this study include various ESG-related themes, and in principle, an index can beconstructed for each of these themes. However, when evaluating the characteristics of theindex, it is important to consider that most of the themes often involve certain segments of acompany that provide products or services that solve problems, while other segments areengaged in businesses that have negative impacts on the environment and society. For themes
where the existing negative impact business is larger than the segment revenue, it is difficult
to evaluate whether it is due to the effect of the negative impact business or the effect of the
problem-solving business when trying to understand various characteristics, including stock
price. Therefore, we focus on themes that clearly and directly contribute to resolving issues
related to ESG. Specifically, we construct an index focusing on batteries and alternative
energy, which have attracted the most attention in recent years for their high growth potential.
The method of constructing the thematic index is as follows:
Step 1: To ensure liquidity, target companies are limited to stocks included in
the MSCI ACWI. Additionally, as in the study by Cheema et al. (2023), they are
constrained to stocks filtered, requiring that prices be equal to or greater than
$1 for observations in developed markets and $0.10 for observations inemerging markets.
Step 2: Calculate the percentage of revenue of “Alternative Energy” and5

“Batteries and Charging” in the FactSet TREPI business category (Level 1)
Step 3: Select companies whose revenue ratio of “Alternative Energy” and“Batteries and Charging” (ESG revenue as a percentage of total revenue of thecompany) is 10%, 20%, or 30% or more of the total revenue of the company.
Step 4: Construct the index portfolio using the market value-weighted weights.
The higher the revenue ratio in Step 2, the more the business is involved in “Alternative
Energy” and “Batteries and Charging.” If you want to understand the effect of a single
business, you may want to select stocks with a revenue ratio of 100% or equivalent, but if you
make the conditions more stringent, the number of stocks included in the index will decrease,and individual specific factors, regional characteristics, and characteristics of small stocks will
become stronger, making it difficult to understand the characteristics of a portfolio that cangenerally be invested in. Therefore, this study compares three patterns of revenue ratios andexamines the relationship between the number of stocks and performance. Further, this study
uses market value weighting to facilitate comparison with the MSCI ACWI as a market
benchmark.
Table 2: List of Stocks in ESG Thematic Portfolio
Rank

Name

Country

Business

ESG Revenue Ratio

ESG Revenue(Million$)

Weight1

Shell Plc

United Kingdom

Diversified Alternative Energy

13.9%

53,190

23.3%

2

LG Energy Solution Ltd.

South Korea

Diversified Batteries

100.0%

20,244

1.7%

3

LG Chem Ltd.

South Korea

Diversified Batteries

49.3%

20,2342.1%

4General Electric Company

United States

Wind

20.4%

15,62014.9%

5E.ON SE

Germany

Diversified Alternative Energy

12.1%

14,971

3.2%

6

OrstedDenmark

75.2%

14,267

1.1%

Samsung SDI Co., Ltd

South Korea

Diversified Batteries

87.3%

13,892

2.2%

China

Solar

66.8%

12,3940.2%

7
8

LONGi Green Energy Technology
Co., Ltd. Class A

Alternative Energy Distributed
Generation Systems

9

Vestas Wind Systems A/S

Denmark

Wind

78.2%

12,093

3.4%

10

Jinko Solar Co., Ltd. Class A

China

Solar

98.3%

11,694

0.1%

Table 2 presents the top 10 ESG revenue stocks as of December 31, 2023, and the index
is composed of companies with revenue related to alternative energy and batteries. Shell Plc,
which is an example of a company with a negative impact on the environment, has been
rapidly increasing its revenue in the alternative energy sector in recent years and is now
included in the list for December 31, 2023. As it accounts for 13.9% of total revenue, ouranalysis of the portfolio does not include companies such as Shell under our criteria of 20%
or 30% or more of revenue.
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Next, we indicate the number of stocks and constituent countries of the thematic indices.
The number of stocks is depicted in Figure 44, revealing that the number of stocks held in2015 was about 10 to 20, while in the most recent year, it was about 60 to 90. Raising the ESG
revenue threshold in Step 2 reduces the number of stocks held, with the most recent year
having a difference of approximately 30 stocks. Table 3 presents the percentage of constituent
countries, the top 10, and the industry composition in December 2023. The table indicatesthe composition of portfolios with ESG revenue of 10% or more.
Figure 4: Transition of the Number of Stocks

Number of Stocks

100
90

10% or more

80

20% or more
30% or more

70
60
50
40
30
20
10

201501
201505201509201601
201605
201609201701
201705201709201801
201805
201809201901
201905
2019092020012020052020092021012021052021092022012022052022092023012023052023090

Table 3: Country–Industry Composition
Country

RegionNum. of Firms

WeightSectorNum. of Firms

WeightUnited States

North America

6

38.0%

Producer Manufacturing

30

29.5%

United Kingdom

Europe1

24.6%

Utilities

36

28.2%

South Korea

Asia Pasicfic

7

7.6%

Energy Minerals

3

26.5%

Denmark

Europe4

7.3%

Electronic Technology

26

10.8%

China

Asia Pasicfic

59

6.5%

Process Industries

8

4.0%

India

Asia Pasicfic

4

2.5%

Non-Energy Minerals

1

0.4%

Japan

Asia Pasicfic

1

2.1%

Finance1

0.3%

FinlandEurope1

1.7%

Consumer Durables

1

0.2%

Spain

Europe3

1.2%

Industrial Services

1

0.0%

New Zealand

Europe3

1.2%

Table 3 indicates that the U.S. has a high share of holdings because of its market value

4This figure is depicted since 2015 as the number of MSCI ACWI companies with nonzero

ESG revenue increased since then, as seen in Figure 2.
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weighting, but the number of stocks is dominated by China and other Asian countries, which
is a characteristic of the composition. The industries are mainly those that have an impact on
the environment, such as manufacturing, utilities, and energy.
3.

Performance and Fundamental Characteristics of the ESG Thematic Index

In this section, we review the performance of the constructed ESG thematic indices and thendiscuss their characteristics from a fundamental perspective. First, Table 4 and Figure 5 show
the summary and the cumulative excess returns of the constructed indices over the MSCIACWI. Figure 6 depicts the excess returns of the index by year.
Table 4: Summary Statistics of Excess Returns for Alternative Energy and Batteries Indices

10% or more

20% or more

30% or more

Return (%/ann.)

1.92

2.96

1.51

Risk (%/ann.)

8.93

12.18

14.63

Sharpe Ratio

0.22

0.24

0.10

Figure 5: Cumulative Excess Returns for Alternative Energy & Batteries Indices80
70

Cumulative Excess Returns (%)

60

10% or more

20% or more

30% or more

50
40
30
20
10
0
-10

201501
201505201509201601
201605
201609201701
201705201709201801
201805
201809201901
201905
201909202001202005202009202101202105202109202201202205202209202301202305202309-20

As presented in Table 4 and Figure 5, the stock returns of alternative energy and batteries
over the past nine years have outperformed the MSCI ACWI. Thus, the index, which iscomposed of issue-solving companies related to alternative energy and batteries (one of the
ESG themes), had achieved over performance by solving issues. It indicates that the8businesses are recognized as businesses concerned about environmental or social issues andthat an index composed of such businesses, which provide solutions to such issues, canoutperform the benchmark.
We also discuss the risks of investing in the thematic index by considering the excess
returns by year. As depicted in Figure 6, the current thematic index experienced large negative
returns in 2021 and 2023. Figure 7 depicts the results of the market value weighted total sales
growth of the portfolios—a performance indicator from the perspective of the fundamentals.
Figure 6: Excess Returns by Year for Alternative Energy & Batteries Indices
50
40

Excess Returns (%)

30
20
10
0
-10
-20
-30
-40

10% or more

20% or more

30% or more

-50
2015

2016

2017

2018

2019

2020

2021

2022

2023

Figure 7: Total Sales Growth Characteristics for Alternative Energy & Batteries Indices80%
70%

10% or more

20% or more

30% or more

ACWI

2016

2018

Sales Growth

60%
50%
40%
30%
20%
10%
0%
2015

2017

2019

9

2020

2021

2022

2023

Figure 7 depicts that total sales growth in 2021 and 2023 were at the same level, but total
sales growth in 2021 was higher than that in 2020, while total sales growth in 2023 waslower than that in 2022. This implies that the decline in stock prices in 2021 was a reaction
to the large stock price increase in 2020, whereas the stock price decline in 2023 reflecteda slowdown of the sales growth from the large growth in 2022.
To analyze further, we focus on the investment perspective and depict the characteristics
of capital investment and free cash flow in Figures 8 and 9.
Figure 8: CAPEX Sales Ratios for Alternative Energy & Batteries Indices35%
10% or more

20% or more

2016

2018

30% or more

ACWI

CAPEX Sales Ratio

30%
25%
20%
15%
10%
5%
0%
2015

2017

2019

2020

2021

2022

2023

Figure 9: FCF Asset Ratios for Alternative Energy & Batteries Indices
10%

FCF Asset Ratio

8%

10% or more

20% or more

30% or more

ACWI

6%

4%

2%

0%
2015

2016

2017

2018

-2%

10

2019

2020

2021

2022

2023

Figures 8 and 9 depict that from an investment perspective, FCF significantly reduced
until 2022, and the cash flow was used for capital investment to further increase total sales.
However, in 2023, FCF suddenly increased and capital investment decreased significantly. As
depicted in Figure 7, the sales growth rate slowed down significantly, and the excess return ofthe constructed thematic indices decreased.
For thematic investments, including ESG investments, it is necessary to pay attention to
the underlying fundamentals when investing in a particular theme. In this case, businesses
that require sufficient investment, such as alternative energy and batteries, experienced
significant index declines in 2021 and 2023. In 2021, which experienced the same level of total
sales growth as that in 2023, the capital investment did not decrease and the stock pricesubsequently recovered. On the other hand, in 2023, when capital investment reduced, thestock price was sluggish, and the companies included in the index were behaving differently
than they had in the past.
4.

Conclusion and Future Directions

This study provides an overview of ESG revenue information using the FactSet ESG TREPI
Dataset and constructs an ESG thematic index. The FactSet TREPI contains ESG revenue
data for approximately 12,000 global companies in 133 business sectors defined by FactSet,
making it easy to identify companies that are engaged in businesses of interest from a global
perspective.
As a specific example, we constructed an ESG thematic index for the battery andalternative energy business, which has received much attention in recent years, and confirmed
its stock, performance, and fundamental characteristics. Due to their importance, battery andalternative energy companies have received much investment and achieved rapid growth interms of total sales and stock price until 2022. However, in 2023, FCF increased, investment
was reduced, and total sales growth was restrained. The companies’ different behavior fromthe past requires caution in terms of future performance and stock price.

References
Global Sustainable Investment Alliance (2023) “Global Sustainable Investment Review 2022,”
https://www.gsi-alliance.org/wp-content/uploads/2023/12/GSIA-Report-2022.pdf
Cheema, F. A., Serafeim, G., and H. S. Wang “Climate Solutions Investments,” The Journalof Portfolio Management (2023) Vol. 49, No. 3, pp. 1-25.

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