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Monday, February 27, 2012

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

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