Bombay Stock Exchange launches BSE Greenex sustainability index

Asia’s oldest bourse, the Bombay Stock Exchange launched its carbon index – the BSE Greenex – a new index of sustainability stocks that help investors looking for green companies. Green companies, or companies that have the best environmental practices to reduce their carbon footprint, are now increasingly seen as more sustainable in the long run.

Global investments in green energy grew by nearly a third to $211 billion in 2010, the latest year for which figures are available, according to data from the United Nations Environmental Program More than half of those were in developing countries.

Here are pointers on how this could benefit you:

• Greenex has 20 companies from the broader BSE 100 index that meet energy efficiency norms, allowing investors to derive benefit from the related cost savings. The company with the biggest weightage in this index is Tata Steel at 6.7 per cent. ICICI Bank, State Bank of India, HDFC, Sun Pharma and BHEL are the other major constituents of the Index. The exchange says that these companies are good in terms of carbon emissions, free-float market capitalization (non-promoter holding) and daily turnover.

• The index will allow investors to track companies that invest in energy efficient practices. Energy-saving practices allow companies to save money, thus improving profitability as well as having an environmental impact. "There are many socially aware investors willing to pay a premium to invest in green companies in the hope of getting better returns," said Ashishkumar Chauhan, BSE's deputy chief executive officer.

• The Greenex will allow asset managers to create products to help investors put their money in green enterprises.

• The Greenex is targeted at retail, as well as institutional investors such as pension funds looking for investments in companies with strong long-term prospects and develop green financial products.

• Investors can invest in a mutual fund that invests in companies that form this Greenex.

The Greenex index includes stocks that meet energy efficiency norms, allowing investors to bet on securities that are best placed to benefit from the related cost savings.

The index will have 20 companies selected from the BSE-100 index and will help institutional and retail investors evaluate a particular stock on the basis of the amount of money these firms save by being energy efficient, said a person involved with the matter.

Corporate affairs minister Veerappa Moily will on Wednesday make an announcement to this effect.

He confirmed that he will be part of the function at BSE.

The Greenex gauge has been developed by gTrade, a local firm working on financial innovations in energy efficiency, and BSE Ltd. While BSE provides the financial analytics, the carbon analytics are provided by gTrade.

“One of the parameters for measurement of efficiency performance used in Greenex calculation is emissions intensity, total emissions upon total revenue (which is assumed to be a close proxy for energy efficiency),” the person said on condition of anonymity. “Mandatory disclosures on energy usage by assessed companies make it possible to estimate these numbers for listed companies.”

Currently, groups such as the Confederation of Indian Industry collect and publicize voluntary disclosures made by companies of their environmental performance.

Several similar indices, such as the Dow Jones Sustainability Index, list companies based on their environmental peformance. However, the same person said that the Greenex will be different and will assess companies relative to others in its sector and not a generic set of performance indicators, “thus, if for example, one measures ONGC (Oil and Natural Gas Corp. Ltd) against other such firms, one can know the relative efficiency levels,” the person said.

The approach is in line with a relatively recent push by government to get companies to become less polluting by eschewing penalties for poor performance, and instead provide monetary incentives for outperformance.

“It’s certainly in the larger vision of how government intends to move forward on getting companies to be more energy efficient. But I can’t really comment on the specifics of this,” said Ajay Mathur, director-general, Bureau for Energy Efficiency (BEE). BEE is a nodal government wing that promotes energy efficiency schemes by government.

India, which has refused to adopt a legally-binding cap on its emissions, has announced a national action plan on climate change to tackle the challenge. One of these is a scheme called the perform, achieve and trade (PAT) mechanism by which industries that achieve energy-efficiency targets, over and above stipulated limits, can trade their surpluses with those that fail to meet targets using energy certificates.

As much as 100 million tonnes of carbon dioxide emission is expected to be curbed by this scheme, according to the government’s estimate.

Independent analysts say that this initiative could be helpful for PAT. “It could be very useful, however, it would require quality disclosures by companies on how well they’ve managed their emissions,” said Seema Arora, a top official in the environment unit of CII.

“This is a responsible form of doing business and adds to the brand image of the corporation,” said Arup Roy Choudhury, chairman and managing director of NTPC Ltd. “We as a company have been looking at ways and means to be environmentally sustainable, which is also a good way to do business.”

The power producer said it has improved the efficiency of its boilers and has brought it up to around 41% from 32%. This is because for every percentage improvement in boiler efficiency, the coal consumption and carbon dioxide emissions come down by 2.5%.

Similarly, India’s largest car maker Maruti Suzuki India Ltd has taken steps to save energy.

“We look at how can we conserve energy on producing a particular car,” said Ajay Seth, chief financial officer, Maruti Suzuki.

Maruti Suzuki has been able to reduce per vehicle electricity consumption by 32% and 38% at its Gurgaon and Manesar plants, respectively. Similarly, per vehicle water consumption has reduced by 62% and 61%, respectively.

Both facilities are zero water discharge outside factory premises.


Sources: http://profit.ndtv.com/News/Article/five-facts-about-the-bse-s-greenex-298372, http://www.livemint.com/2012/02/21220919/BSE8217s-Greenex-index-to-b.html?atype=tp

As China construction falls off, oil prices will follow

In January in China, the bulldozer sales volume is 460 sets, declines by 66.64% year-on-year and 18.73% month-on-month, becoming the worst since January 2010. The sales volume in domestic market is 226 sets, declining by 79.25% year-on-year. The export volume is 234 sets, declining by 19.31% year-on-year.

World crude steel production fell 7.8 percent to 117 million tonnes in January, compared with the same month last year, World Steel Association data showed. China's crude steel output fell 13 percent in the same period to 52.1 million tonnes.

China's four biggest state-owned banks extended about 70 billion yuan ($11.1 billion) in new local-currency loans from Feb. 1-19, suggesting a big drop in lending, the Shanghai Securities News reported on Wednesday.

Chinese Premier Wen Jiabao is expected to target growth of less than 8 percent for the world's second-biggest economy in his report to the National People's Congress on March 5, according to 8 of 15 economists surveyed by Bloomberg News. The government had an 8 percent goal from 2005 to 2011, however, even a return to that level of growth may be difficult in a real estate downturn.

Look for oil prices to peak in coming weeks and then retreat below $90.

Green Mutual Funds provide value to communities

The Value In Socially Responsible Investing

Marc L. Ross, Investopedia

Once considered a niche area of investment practice, socially responsible investment (SRI) now embraces a wide investment audience that includes individuals, high net worth and otherwise, and institutions such as pension plans, endowments and foundations. Religious tenets, political beliefs, specific events and the broad remit of corporate responsibility (i.e. green investing, social welfare) all drive this investment practice.

Indeed, the professional association USSIF: The Forum for Sustainable and Responsible Investment, estimates in its "2010 Report on Socially Responsible Investing Trends" that around $3 trillion in assets under management subscribe to one or more of the aforementioned approaches to socially responsible investing.


$316 billion in socially responsible mutual funds alone

Over 250 mutual funds in the United States alone, utilize a social screening process, with assets of approximately $316 billion. There are hedge and exchange-traded funds (ETFs) that adopt a socially conscious approach to investment, as well.

Socially responsible investing expresses the investor's value judgment of which several approaches may be used. One example is when an investor avoids companies or industries that offer products or services the investor perceives to be harmful. The tobacco, alcohol and defense industries are commonly avoided by people who try to be socially responsible investors.

In the 1980s, divestment of American companies doing business with South Africa was highly publicized. Another is a performance ranking in terms of how well a company achieves on not only financial metrics, but also on social, environmental, governance and ethical issues.

Yet another involves active engagement between the company's shareholders and its management. Finally, there is the activist tack that involves the investor advocating specific issues. Any one or a combination of these approaches is a critical driver in the process of portfolio management and fiduciary oversight.

Moreover, the practice is global, with different approaches emphasized in various countries as a function of their culture, government, business environment and their interrelationship. What obtains as socially responsible or not has led to differing opinions on whether these approaches yield competitive returns.


For Whose Benefit?

Socially conscious investors may assume a more holistic view of a company when making investment decisions, looking at how it serves its stakeholders, a rubric under which are subsumed not only shareholders, but also creditors, management, employees, the community, customers and suppliers. Within this context, socially responsible investment seeks to maximize welfare while earning a return on one's investment that is consistent with the investor's goals.

On the surface, these two notions may appear contradictory. For example, there may be an implicit cost of such an approach to the extent that it eschews profitable companies and sectors. Tobacco, alcohol, firearms and gambling have been lucrative industries.

However, to a socially conscious investor, their inclusion in a portfolio would fail to serve the investor's objectives of living in a world void of conflict and legal stimulants and depressants. As with any investment approach, the socially conscious investor needs to:

- Define his, her or its risk and return objectives and constraints.

- As to the latter, the investor needs to determine what its socially conscious constraints are. These may differ considerably, depending upon the investor. Muslims who wish to be compliant with Shari'a law would exclude any companies connected with the production, sale and distribution of alcohol, any financial institution that lends and any business that profits from gambling. Investors opposed to armed conflict as a means of dispute resolution may avoid any company or industry associated with defense, national security or firearms.

- Once the investor defines its constraints, it must decide upon an approach to implement them, be it the use of inclusionary or exclusionary screens, best practices criteria or advocacy. The type of investor may determine the most suitable approach. For example, advocacy and dialog with a company or industry would be better suited to a large public pension fund.

Consider the work of CalPERS or the Swiss billionaire activist Martin Ebner, the latter more an example of individual shareholder activism. By contrast, an individual investor working with an advisor would find the screening process more feasible.

- Social investing has implicit costs - the returns potentially foregone through the exclusion of companies with unacceptable products or business practices - and explicit costs.

For those considering an active approach, fees for exchange-traded and mutual funds tend to be a bit higher. For investors seeking a passive management, there are fewer indices to replicate and the funds that do typically bear higher costs.

- Diversification is always an important consideration. Screens may hamper this process, unintentionally or otherwise.
Utilizing this type of traditional investment framework would appear to make the process manageable, so long as the investor weighs the costs and benefits of this type of investment approach carefully.

However, there could appear to be a dilemma upon whose horns the investor invariably would be impaled. For example, if investment in such "vice" products as alcohol and tobacco is anathema to a socially conscious investor, what about the transport and energy industries?

After all, the products have to be shipped to the point of sale which requires various means of transport which, in turn, require fuel. These types of considerations make the precise definition of one's socially responsible investment goals all the more crucial. The practice is often a gray area.

Depending upon the perspective of the individual, companies may display characteristics that are both irresponsible and responsible.

The Bottom Line
Socially responsible investment reflects an investor's values. While the opportunities in this realm of investment management have grown considerably, one may not ignore best practices of investing.

The investor must clearly define their goals when undertaking this sort of approach, recognizing its potential trade-offs and clearly articulating a policy that considers all the variables when looking to maximize the good over the plentiful and abundant.

Risk management and attention to costs are essential. Research seems to indicate that results from socially conscious investing are not statistically significant from a more conventional approach.