“Mitigating Carbon Emissions in India: The Case for Green Financial Instruments”

New Delhi, 18th of February 2013
Please find here the link to download the report.

Executive Summary
With the sun gradually setting on the Kyoto Protocol (Phase One), it has become quite apparent that the global response to resource scarcity and climate change is going to be variable and disaggregated. Increasingly, countries and businesses across the globe are adopting various financial mechanisms and policies in order to manage such challenges. However, many such responses are restricted to advanced, developed countries, whereas the effects of climate change and the increasing cost of resources such as fossil fuels are likely to be more severe for developing countries. This dichotomy in response measures needs to be urgently addressed, and this report is an attempt to highlight the benefits of an inclusive growth oriented financial response mechanism with particular focus on India.

In its first chapter the report briefly outlines the relevance of GHG emissions mitigation through in- clusive market based mechanisms in India. With shifting patterns of economic growth and increased global demand volatility companies and investors in emerging economies, such as India, need to rec- ognise the value created through the supply chain of business deliverables by mitigating emissions. Mechanisms which exclude companies that do not meet global benchmarks, whether by way of share- holder advocacy and investment exclusion, or regulatory policies, will have a significant impact on the way that these companies choose to grow.

Low carbon strategies can only be implemented if the emissions landscape and its effects on sustainable growth are clearly defined and understood. The second chapter outlines emissions trends in India in order to map the carbon landscape and set the context for the rest of the discourse. Chapter 3 examines the trends of energy consumption and emissions at a sector specific and firm specific level (within the assessed sector). It is found that firms in the assessed sector (cement) are operating in sub optimal con- ditions, along with a lack of policy frameworks and market based emissions reduction incentives – there are no indigenous market based mechanisms to incentivise and stimulate change.
A firm level case study of one of the bigger private players in the Indian cement sector has revealed that the firm’s financial performance could have been better. At the same time, capacity additions and increased output have caused the total emissions of the company to increase, which is not sufficiently offset by the revenue gains. As a result, the firm’s emissions intensity has been rising consistently for clinker production. However, enhanced use of additives has kept the overall GHG intensity of cement based revenue lower. The average emissions intensity of the company was higher for three years than the sector average for the same period. The high correlation between the firm’s environmental perfor- mance and its financial performance has been highlighted.
The results of chapter 3 are aligned with the philosophy that environmental performance must not be excluded from the range of parameters that are used by investors while choosing a stock, especially a long term investment. This is true since the two concepts are inherently interlinked under the overall aegis of sustainable growth. It highlights the need for developing market based mechanisms to signal investment opportunities based upon carbon efficiency and financial performance, as both tend to complement each other in the medium to long term.

Chapter four concludes that; companies preparing for risk are not risk averse, but rather are risk prepared. The difference is subtle but important. Market based mechanisms which incentivise good performance by channelling investments to firms that respond to risk better than their competitors in a given environment, help investors realise this distinction clearly. For “green” market mechanisms and investment vehicles to be viable and effective, they must efficiently ensure that the transmission mecha- nism works and only performance based, credible signals are relayed to the open markets. This becomes even more important in the context of a developing country due to the nascent capital markets, and urgent need for scaling up sustainability initiatives – both at the firm and policy levels.

Capital generation should not be looked at as the problem. Rather, redirecting existing and planned capital flows from traditional high-carbon to low-emission; resilient investment is the key challenge of financing transition to a low-emission economy. In order to facilitate such transitions, a universally replicable model will be used – a multipronged approach to achieve the above objectives. This would involve creation of innovative financial products based on purely quantitative data, create and publish sector wise and cross sectoral market reports, and facilitate progressive policy advocacy in order to en- able market realisation for its products. It will further seek to replicate the model in other developing countries through a hub and spoke approach to expansion.

In the News

Samir featured in the Financial Express: “Watch the Green Ticker”

New Delhi, 29th of May 2012
Please find here the link to the original article and the website of g-Trade.

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.

Water / Climate

India Market and Environment Report (IMER)

Please find here the original link to the g-trade-website.

Volume 1 of the IMER captures the financial performance and energy use efficiency of the top 100 Indian and Global companies for FY 2011. The report also details in brief, the market and environment performance metrics of 9 sectors of the Indian economy – Financial, Automotive, Machinery and Capital Goods, Pharmaceutical and Biotechnology, Textiles, Apparels and Accessories, Steel, Utilities, Cement and Oil and Gas. Volume 1 is the first in a series and a context setting precursor to sector specific corporate carbon performance reports by gTrade, which will aim to build greater ethical and sustainable investment sensibility in India, to steer businesses and investors towards an efficient market based framework which prices carbon risk appropriately.

gTrade is delighted to announce the launch of Volume 1 of the IMER. To purchase a hard copy now, click here

(Discounted rates are available for bulk orders/institutional buyers)

For the detailed Table of Contents, click here

For a snippet from Volume 1 of the IMER, click here

For institutional/bulk buying, email: reports@g-trade.in

Why you should purchase a copy:

Cutting edge business specific energy analytics developed at India’s premier research labs
Provides information on the carbon offset potential among the largest corporations in India for CDM and other substitution projects.
Provides data points and analyses outlining scope for renewable energy generation.
Ideal for businesses interested in profiting from increasing efficiency of operations, production or governance

A great tool for investors to immediately identify potentially undervalued stocks relative to sustainability performance

An instrument of verification of investment decisions for large institutional investors – both foreign and local,

A benchmarking and knowledge building tool – for entities involved in the business of carbon – through global carbon schemes such as CDM

An unparalleled learning tool for those looking to understand sectoral efficiency performance landscapes in India, for investment, research, capacity building, energy management and policymaking