With the growing stress on climate change, foreign institutional investors (FIIs) and private equity investors will soon take investment decisions based on the socio-environmental performance of domestic companies.
Globally, the trend is already visible with the Carbon Disclosure Project with nearly $60 billion assets under management evaluating companies against the criteria of triple bottom line (environmental, social and economic parameters).
Responding to calls from investors, the Johannesburg Stock Exchange launched the first of its kind exchange in an emerging market, the Socially Responsible Investment (SRI) index where it lists companies, which meet certain socio-environmental criteria, and are also evaluated on these parameters.
The top 10 environmental performers for 2007 belonged to traditionally energy and emission-intensive industries of mining, construction, steel and oil and gas. Developing countries like India and China are under increasing international pressure to undertake measures to limit their aggregate emission levels.
Says KPMG national industry director (energy, infrastructure and government), Arvind Mahajan, “When considered in the context of expanding energy labelling programme for appliances launched in 2006 in India, these developments indicate a shift in the role played by different stakeholders in developing countries, which companies do not currently pay much attention to. Though companies are aware of climate change issues, most of them to do not have a clear strategy in place to tackle them. What is needed is a structured and measurable plan”.
Domestic companies should put in place a four-step programme starting with the process of planning for and then measuring the current carbon footprint, adapting the business model to low-cost carbon technology and then reporting the performance to investors. (A business carbon footprint is the total amount of greenhouse gases emitted over the full life cycle of a process or product.)
Global conglomerates such as Proctor & Gamble, Hewlett-Packard, PepsiCo and Unilever have initiated action to assess the total carbon footprint of their supply chain in an attempt to inform various stakeholders and investors.
“Companies should also seek to benefit form opportunities brought by climate change,” he adds. For instance, the global market for low carbon energy efficient technologies is estimated to be $3 trillion by 2050.
The earnings to India from carbon credit is pegged between $0.5 billion to up to $1 billion per annum depending on how the carbon prices move, for the next 10-15 years, he says. However, domestic companies desire to respond to climate change issues appears to be largely driven by the need to comply with expected regulations.
Source: Economic Times