A convenient truth, Mr. Gore!
Are investments in eco-asset classes really as electrifyingly promising as they’re made out to be? Uhh, yes...

Going green sounds awesome; but can you make money out of it!?! Well, if you honestly feel bugged by the large and ever increasing hole in the ozone layer hanging over your head (!); if you really worry that a melting Arctic could flood your kitchen (!!); if you feel convinced that former US Vice-President Al Gore, the presenter of the mindboggling environment documentary An Inconvenient Truth (which documents how global warming is destroying the world) is not wasting his own and the world’s time and doesn’t need a new way to earn his living; then believe us, there’s a jackpot to be cracked while the Earth gets painted green!

Well, to make the job easy for those who are in a state of unconditional rumination against the fact that there’s money to be earned in the whole greening process, the world is already making billions out of it. First of all, a look at the most ancient tool of investment in global warming – carbon credits (see National Finance story ‘If you have it, fl aunt it’ for description) – shows that the value of the carbon credit market reached a jaw-dropping $21.5 billion for the first three quarters of 2006 (till October), dwarfing $11.5 billion for the whole of the previous year. Funds fl owing into carbon funds have also shown a considerable appreciation. According to New Carbon Finance, the amount of money fl owing into carbon funds has reached a towering $11.8 billion (cumulative) by the end of the first quarter of 2007. Secondly, even the growth of investments over the past decade or so done in the name of ‘social responsibility’ is quite promising. As per the latest Socially Responsible Investing Trends Report, by the Social Investment Forum, the ‘socially responsible’ investments, even considering only the US, were $2.29 trillion at the end of 2005 as compared to $639 billion during the end of 1995.

Interestingly, even the growth in the world’s recent and unprecedented addiction to uranium has far reaching reasons. The need for alternate fuels has made uranium a worthwhile investment option and has made the commodity enter an electrifying bull run. Uranium prices have shot up to their all-time highs in the recent past. Take this into consideration! Uranium prices only a year back (for U3O8) was $48/lb; and now, a whopping $125/lb.

The same thundering trend is seen in the rate of investment in agri-commodities; and clearly because corn and other products are being used to produce alternative fuel sources to meet tomorrow’s energy needs. If one browses recent history, one would find that there has been a significant surge in the prices of corn. One reason why the corn fields of Mexico are the geopolitical battle grounds for our diplomats is that ethanol, made out of corn, is seen to be the next crude oil for the future.

But then, going by the basic principles of investing for every dollar of return, is there any underlying risk in these eco-investments? Michael Lewis, Global Head, Commodities Research, Deutsche Bank Research, warns B&E, “Carbon credits do hold some risks, not least given the political framework of this market, as well as some of the project risk related to sourcing Certified Emission Reductions.” But what about seemingly sureshot top assets, like uranium? Lewis avers, “In the case of uranium, in reality the growth of nuclear power is not widely accepted. Countries like Germany are actually phasing out nuclear power.”

But still, the fact remains that despite the ubiquitous risks, investments in eco-asset classes do have their own share of Al-Gorean moolah hidden at the end of the rainbow. That’s the convenient truth, Mr. Gore. We guess you should be hyping up that too!

Environmental risks?!?! Grrmph!
Guess what! Companies are now refusing to reveal environmental risks!

(column by Deepak Ranjan Patra)

Now that the climate change discussions have moved from controversial to conventional, and economists expect the world to lose a mammoth 2.6% in terms of GDP this year due to extreme weather events (in fact, the loss in regional GDP will be a killingly massive 6% for the developing and South Asian nations by 2100 – see B&E issue dated February 22, 2007), the question that surfaces is how deep, financially, will the cut be in the global corporate world?

Digest this! The most famous and recent survey conducted on S&P 500 companies by US based Ceres, the leading coalition of environmentalists and institutional investors, found out that only a quarter of the respondents posses measurable emissions reduction targets and have decided specific time frames to accomplish the same. On the other hand, “Most companies in sectors with lower emissions, such as healthcare, retailers, and banks, have been largely unresponsive to the financial risks they face from climate change,” Ceres spokespersons bemoaned to B&E. In a benchmark fashion, by picking up the impact of hurricanes in 2005 as an example, while nearly half of S&P 100 companies reported definitely measurable impacts from these hurricanes, the losses related to ‘Katrina’ and ‘Rita’ in the third quarter of 2005 were estimated to be nearly $4.5 billion. Compellingly, top of the line companies like Bell South recorded a loss of $102 million for asset impairment and $136 million in other expenses.

But now comes the most worrisome of all the findings of the Ceres survey. Analysts forecast that the impact on investors is going to be disastrous, especially for the long term ones, as most of the companies still do not provide any kind of climate risk disclosure to their investors, clearly ignoring the investors’ right to know the environmental risks attached with the company they are investing in. Astoundingly, nearly one third of the respondents of the Ceres survey did not even allow their responses to be made public. Unless global regulators make the inclusion of such details as mandatory, and unless such clear double-speak (of hiding details of environmental risks) invites legal action, Enron could well be the most ethical firm this side of the 21st century!

(End of Deepak Ranjan Patra column)

If you have it, flaunt it
‘Carbon’ and fashionable?...Of course!

(column by Gynandra Kashyap)

Paper and plastic money are for the laymen, you cavemen! India Inc. is betting heavily on carbon money. Carbon here refers to credits (one carbon credit is equal to one tonne of CO2) that companies can earn by reducing emissions of greenhouse gases and selling them to those who need it, especially developed countries.

No doubt, emissions reduction can foster sustainable development, create clean technology in a carbon-less economy and produce local benefits among others. But really, carbon credits have signify cant monetary value for India Inc.. Companies like Reliance Energy, Jindal Steel, Gujarat Ambuja, Grasim Cement and a few others have joined the race for earning emission reduction benefits, which has the potential of bringing in annual flows of as much as $300 million into India, and all simply by incorporating technological changes, which will lower carbon emissions and will enable these firms to sell those reduced emissions (read, credits). A report by Tata Energy Research Institute (TERI) states that companies in the power business can tremendously benefit given that power transmission in India comes with a large percentage of transmission & distribution losses, which, if reduced, can automatically qualify for credits. Similarly, fertiliser companies too are suffering notional losses to the tune of 20 to 30 million euros. Firms like Tata Chemicals, Chambal Fertilisers et al have failed to take carbon advantage.

But then, which countries can Indian firms sell these credits to? “India is not amongst the Annexure 1 nations (as per Kyoto Protocol), which means that India is eligible to sell credits to those nations that are in Annexure 1,” remarked TERI’s Dr. P. P. Bhojvaid to B&E. To the chagrin of the US, India, as also China, South Korea and some others, are currently exempted from adherence to Kyoto Protocol’s emission limits! And the ‘fashionable’ philosophy visibly running around is, “If you have it, why not flaunt it?” Of course!

(End of Gynandra Kashyap column)

No rain, no gain?
Will the real insurer please stand up?

Does anyone care if it rains in the first week of June or the third? Obviously, millions of Indian farmers do. As weather conditions become more unpredictable, the chances of not repaying the loan by a farmer are also becoming more evident. And now, most disappointing statistics from the government reveal that while 65% of Indian agriculture is dependent on natural factors, particularly rainfall, any discrepancy in rainfall accounts for over 50% of variability in crop yields. Then there are the most inane insurance schemes set up under the aegis of National Agricultural Insurance Schemes for farmers’ future.

The present schemes illogically settle claims based on actual area yield. Worse, the settlement process is generally delayed, in some cases up to 6-12 months from the occurrence of the event, till which time the farmer is bankrupt many times over. Besides, only notified crops, not all, are eligible for the above crop insurance schemes. Wonder why it’s no wonder that the number of farmer suicides is increasing!

Fortunately, the government has taken a whisper of a logical step in this year’s budget by announcing a comprehensive insurance scheme, the compensation of which will be based on weather derivatives, rather than on making tedious calculations of crop damage. But aren’t derivatives extremely miniscule currently? M. Parshad, CMD of Agricultural Insurance Company, which has been asked to carry out the scheme on a pilot basis in few states, accepted to B&E, “At the moment, weather derivatives take up only a very small fraction of the rural insurance market, but since weather derivative contracts are easier and much faster to settle, we expect it to change.”

Whatever it is, it’s a great start. But the government should now focus on making such schemes compulsorily linked to all crop loans and to attach maximum number of farmers, and even other fi rms whose fortunes depend on weather, to it. Really, why can’t the thumb rule for Indian farmers one day change from ‘No Rain, No Gain’ to ‘No Rain, No Pain’