On Wednesday, BSE-Greenex, the 25th dynamic index on the Bombay Stock Exchange (BSE), is being unveiled. Besides the BSE, Greenex will be run by gTrade Carbon Ex Ratings Services Private Limited (gTrade; http://www.g-trade.in), the structure involving Indian Institute of Management-Ahmedabad researchers, think-tank Observor Research Foundation, and private investors.
Does India Inc need to be told its ‘carbon performance’ based on quantitative, performance-based criteria? “Yes,” is the simple answer. An economy of our size and aspiration needs to green flag by way of an inclusive market-based mechanism. If I may go a step further, large business entities in India need to offer themselves for deeper probing, way beyond mandatory disclosures. A new index is merely a way to harmonise and discipline.
Green ethos is a tool of soft diplomacy. It interests global industries, investors and Governments. That said, moving beyond tokenism, printing an annual report of recycled paper being the cliche, makes real green flagging a pain that those who sit on the BSE100 must bear. I did some checks on whether Greenex is treading on territory already covered by global indices. It is not (links** to the Dow Jones Sustainability Index, the S&P Environment, Social and Governance Index and the FTSE4Good Index are flagged below). Its basis, as per gTrade chairman Samir Saran, a London School of Economics alum, is publicly-disclosed energy and financial data, not subjective parameters. With this, Saran aims to promote sustainable investing in India. His is a multi-pronged approach of increasing investor awareness, advocating progressive regulatory reform, and targeting energy intensive industrial sectors. “gTrade seeks ethical investments in green technologies and follows a first of its kind business model, and aims to launch ethical financial products in the carbon markets,” he says.
With an interest in nine sectors, pharma and biotech, steel, cement and cement products, fertilisers and agri chemicals, textiles, financial services, utilities, machinery, and oil and gas, is gTrade is aiming to compare energy guzzlers within, say, cement or steel, as also inter se with, say, financial services. Here trust evoked by IIM-A may be crucial. Sector-specific proprietary algorithms must sensibly compare energy efficiency performance of various companies/sectors.
gTrade will employ index constituent weight capping. Index constituent weights will be capped at 6 per cent during dynamic rebalancing, in an effort to increase the diversification within the index and ensure greater compliance with international regulatory and statutory investment guidelines.
Greenex’s nirvana lies in providing a tool for use by “green” retail and institutional investors to track the performance of India’s largest and most liquid, energy efficient stocks. Also, license beyond familiar territory and help in the development of green financial products including mutual funds, ETFs and structured products.
How the “winners” are incentivised might determine the success of green flagging. I include here, how the “losers” are punished. Social media activists must watch this space. You, not just gTrade, drive social expectation. Your questions will keep India Inc mindful of their social contract, in the instant case with green flagging.