Global investors are increasingly seeking green assets as they become more concerned of the potential financial cost of climate change, but in emerging markets such as India, inadequate disclosure standards make such assets difficult to find.
Companies reporting emissions, demonstrating readiness for sudden change in the weather, and assessing climate-related risk on a regular basis will attract overseas investment, finance executives and asset managers said at the Reuters Global Climate Change Summit.
Climate change has become a major consideration in investment decisions because it has an immediate impact on a range of sectors, from resources to food and beverages. Last year, the World Bank said the global economic cost of extreme weather events over the past decade neared $200 billion a year.
But companies’ and countries’ responses are varied.
“India is one of the nations where we often see companies not reporting sustainability information; it’s not universal by any means,” said Julie Gorte, head of sustainable investing at US-based green fund Pax Worldwide.
“Development without carbon intensity is going to be a huge challenge for both India and China,” said Gorte, whose fund has invested in China and other Asian economies such as Hong Kong, Singapore and Japan.
Green companies
Asset managers had $13.6 trillion in environmental, social and governance investing strategies at the end of 2013, showed a study by tracker Global Sustainable Investment Alliance.
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The impetus (for companies) to look at carbon footprints and doing business in a more sustainable way comes from investors
Ashishkumar Chauhan, chief executive, BSE Ltd
But only a fraction reached emerging markets as they are seen as less strict about conservation and have lax regulation and emissions disclosure standards, analysts said.
Five companies from India and just one from greater China - which includes Hong Kong, Taiwan and Macau - made it to this year’s Climate Performance Leadership Index from the Carbon Disclosure Project (CDP). There were 34 from the United States.
The index lists major companies based on environmental practices and disclosure standards, and is used by global funds with a combined $92 trillion in assets when making investment decisions.
The 2014 index featured Indian information technology services providers Tata Consultancy Services Ltd, Wipro Ltd and Tech Mahindra Ltd. Greater China’s sole entrant was Taiwan’s Delta Electronics Inc.
CDP said some of India’s biggest companies including state-owned Oil & Natural Gas Corp (ONGC) and Coal India did not respond to requests for emissions data.
A spokesman for ONGC declined to comment. A spokesman for Coal India did not have immediate comment.
Barriers
Inadequate reporting on climate-related issues and a lack of regulation on the matter are likely to keep investors wary of putting money into emerging markets, analysts said.
“There are a number of difficult barriers to investing in low-carbon projects in emerging markets,” said partner Jon Williams of consultancy PwC’s sustainable finance, biodiversity and ecosystems division.
“Just simply taking political risk for some investors, particularly more cautious pension funds and longer-term asset managers, is difficult,” he said at the Reuters summit in London. “A lack of clear regulation is a problem.”
But the barriers are not stifling the rising demand for green investments in emerging markets. India’s BSE Ltd, formerly the Bombay Stock Exchange, is trying to tap that demand with an exchange-traded fund tracking its S&P Carbonex - a share index which places greater emphasis on greener companies.
Having large institutions invest in such funds could push companies in emerging markets to pay closer attention to their environmental policies, finance executives said.
“The impetus (for companies) to look at carbon footprints and doing business in a more sustainable way comes from investors,” BSE Chief Executive Ashishkumar Chauhan said at the Reuters summit in Mumbai.
“They look at the annual reports in more detail, they also have some influence over company decisions, so they tend to influence companies in a more ethical, environmental and socially acceptable direction.”
