When you are investing in a company next time, just do not go for cash-rich companies. Rather choose the corporates that are ?green? efficient. And there is help too, to guide you make this decision. Three months back, Bombay Stock Exchange(BSE) along with g-Trade, a privately held company in India, had come up with a Green Index called Greenex. This is India?s first carbon-efficient live index listing the top 20 companies which are carbon efficient. As of now, only the carbon emission of top 100 BSE companies is assessed by this partnership and the index is created. But the aspirations of Samir Saran, founder and CEO, g-Trade are high. ?We are in the process of creating a similar index across BSE 500 companies in the next six months,? he says.
The idea of creating something like Greenex came to Saran while he was studying in Cambridge and working on a project on energy efficiency. ?I knew that we needed to reduce carbon emission intensity in our country and corporates will have to do this first. Thus, this was the best way to measure how environmentally efficient companies are and how they can improve themselves,? he says.
Now, the fact sheet: India is fourth largest carbon emitter in the world, behind China, USA and Russia. The European Union put together would be above Russia. Japan is after India. And to add on, Indian corporates (business and industry as a whole) contribute almost two-thirds of carbon emissions, other major contributors are transport, agriculture and waste sectors.
Saran spent 16 years in the energy sector. For a long time, he was working with Reliance Industries in the policy space especially with oil and gas and petrochemical sector. He feels that the corporate behaviour towards climate and environment of top corporates needs to be checked. ?The main issue is that we need to manage emissions. Emission efficient and carbon efficient companies will manage the growth of our economy. And investment towards these companies should be encouraged. They should be given priority over companies that are less efficient by investors.? Even the government has committed voluntarily to improve the emission intensity of the country?s economy (GHG emissions/GDP) by 20-25% during 2005-2020.
Usually large companies come out with reports of disclosure of their carbon emissions under Form A of The Companies Act. The Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 mandates a company to disclose, in its Director?s report, the energy conservation, technology absorption, foreign exchange earnings and outgo.
Form A does not include sectors like retail and supply chain. The government has identified the high energy industries and included it for disclosures by companies. It does not include new industries which have come up.
It also does not include all energy intensive sectors like electric utilities and oil and gas exploration and production firms. Saran says, ?To derive a meaningful emission, we have derived our index by giving 50% weight-age to emission intensity and 50% to financial performance.?
Green effect on the balance sheet
Companies that are low on emission intensity (GHG/revenue) also generally perform well on financials?mainly due to their lower energy costs, better operational controls, better resource management, better general sensitivity, and better market image. This is a global trend. ?Companies that have less carbon emissions are more efficient and are likely to succeed in the future,? says Saran.
Sample this: IDFC, a financial services company, being least efficient in the low emission intensity group, has underperformed the BSE Sensex by 31% between January 2010 and January 2012. The Green Index does not include big names like Reliance Industries, Oil and Natural Gas Corporation (ONGC), cigarette maker ITC and even IT companies like Wipro and Infosys. However, the names topped in the list are BHEL, GAIL, DLF and L&T.
Companies must realise that there are many benefits to be on the Green Index. Saran says that based on this index, banks would lend to green efficient companies on better interest rates. It would also help the insurance sector in giving pension funds. In the west, insurance funds and pension funds usually invest in green stocks only. This trend could also be followed in India. And in Europe, this kind of an index was developed 11 years ago called FTSE4good. This means that our country still has a lot to catch up!
But, what would make revenues for g-Trade? Saran is clear on this front too. ?Some companies want us to create a customised index for them so that they know where can they invest. We also come out with exhaustive reports where we inform lenders and investors that where should they invest in India. This will help in foreign investment in India. We create structured products for big hedge funds etc who want to invest in different countries.?
Let us hope the Indian companies get green rich and realise that they will be incentivised on their efforts to reduce carbon emissions.