enter The green rating project
Indian industry is huge and powerful. Most environ mentalists believe that it has done little to reduce pollution. Is there, therefore, anything that the civil society can do to change the situation? I am delighted to present to the readers of Down to Earth ( dte ) the results of an exercise carried out by the Centre for Science and Environment ( cse ) to rate the environmental performance of Indian companies, which we hope will go a long way in bringing about adequate public pressure on the companies as well as the regulatory and financial agencies to take better care of the environment.
This exercise started nearly four-and-a-half years ago. During a visit to the United States, I had come across a magazine which had carried a feature on a non-governmental organisation ( ngo ) called the Council of Economic Priorities ( cep ) based in New York. A key activity of cep , the article said, was to rate the social and environmental performance of us companies. As several us businesspersons now want to invest only in socially-responsible and environment-friendly com panies, cep ’s ratings are used by financial companies handling these investments to decide which units meet these criteria.
This sounded like an interesting idea even for India where little is known about the environmental performance of industrial firms. I, therefore, asked my colleagues at cse to study the possibility of undertaking an environmental rating programme for Indian companies. A paper was prepared which showed that a large part of the funds for industrial investment come from government financial institutions instead of the stock-market unlike the us . As government agencies are duty-bound to protect the environment, whereas the stock market has no such responsibility, one would expect these agencies to be interested in the environmental ratings of the firms they invest in. Many meetings were held, which included eminent economists like Dr Raja Chelliah. All participants heartily endorsed the concept, but we still had to work out the strategy and rating methodology, all of which looked extremely daunting. It was clear that if the rating exercise meant a detailed environmental audit of each company before it was rated, then the exercise would be so monumental and time-consuming that it would become an almost impossible exercise.
A key activity of cep , the article said, was to rate the social and environmental performance of us companies. As several us businesspersons now want to invest only in socially-responsible and environment-friendly com panies, cep ’s ratings are used by financial companies handling these investments to decide which units meet these criteria.
This sounded like an interesting idea even for India where little is known about the environmental performance of industrial firms. I, therefore, asked my colleagues at cse to study the possibility of undertaking an environmental rating programme for Indian companies. A paper was prepared which showed that a large part of the funds for industrial investment come from government financial institutions instead of the stock-market unlike the us . As government agencies are duty-bound to protect the environment, whereas the stock market has no such responsibility, one would expect these agencies to be interested in the environmental ratings of the firms they invest in. Many meetings were held, which included eminent economists like Dr Raja Chelliah. All participants heartily endorsed the concept, but we still had to work out the strategy and rating methodology, all of which looked extremely daunting. It was clear that if the rating exercise meant a detailed environmental audit of each company before it was rated, then the exercise would be so monumental and time-consuming that it would become an almost impossible exercise.
Soon thereafter, my cancer recurred and I had to go back to the research hospital in Washington, where I had been treated earlier. On one of those days when I was out of the hospital and not feeling down and out, I decided to find out cep ’s phone number and then sent a fax to the head of cep saying that I would like to see her, if possible, in New York to seek her help for setting up an environmental rating programme in India. Within a few hours, I got a return fax from an excited young man named Paul Hilton who had read my earlier writings on forestry and who would even be happy to take leave and come to India to help me set up the programme. I was really surprised. How does somebody who works with the Wall Street? Curious, I picked up the phone and spoke to Paul and it turned out that he was a young anthropologist who had once worked with an ngo in Udaipur called Astha and had read cse ’s publications on Indian tribals and their relationship with their environment. I explained to Paul that we needed help from someone who could work out an rating process for us. “I will do anything to come and help,” said Paul with a sense of excitement that was truly infectious. I immediately sent a message to cse in to start putting together a small team with which Paul could work on his arrival in Delhi. After my treatment ended, about six months later, Paul took leave from his organisation, at the risk of losing his job, to join us in Delhi.
Weighing the options
But talking to Paul, we soon realised that it was not possible for us to adopt the cep strategy. cep simply uses the Toxics Releases Inventory, a database carefully maintained by the United States Environment Protection Agency ( usepa ), which has year-wise information on the wastes and emissions of companies and is openly accessible. Once this data is available, it is easy to set up benchmarks and rate accordingly. In India, the Central government does not maintain such a centralised database and even the data that it has on companies, is not easily available to the public.
Moreover, we felt that even if we went to the courts to seek access to the data available with the government and undertook a rating exercise on the basis of this data, the environmental community would simply laugh at us because there is little credibility in the data being supplied to the government. As many companies do not meet air and water standards, for which they can be prosecuted and even closed down, there is a tendency to report false data. Even if the companies report correct data, nobody believes them. This is totally contrary to the credibility enjoyed by usepa ’s Toxics Releases Inventory.
This realisation totally stumped us. Undertaking an environmental rating exercise in India literally meant creating a new database on Indian companies. How were we to attempt such a massive task, especially one which was cost-effective and manageable by an ngo ? Then a thought struck us. Why don’t we go to the companies themselves and ask for data on their environmental performance, get the data reviewed by technical experts and then further assessed through field visits which would include discussions with the local pollution control boards, local communities, ngo s and the media?
Carrot and stick policy
But why would companies be prepared to cooperate with this exercise? Our argument was simple. Let us not mix apples and oranges. In other words, let us not rate automobile companies together with paper companies. Let us rate one sector at a time. And within any sector, we felt that there would always be some firms which are making an effort and they would have an incentive to seek a public pat on their back. This itself will separate the good ones from the bad.
In order to push this ‘reputational incentive’ further, we decided to use the carrot and stick policy. The stick was a ‘default option’ under which we would automatically rate any com pany which does not disclose infor mation as the worst company. The logic being that whereas a company can legitimately argue that its financial dealings are its private business, its environmental impact is a public matter simply because the environment belongs to the public. Therefore, non-disclosure of its environmental is just not acceptable. This argument is also supported by global trends. More than 1,000 companies in the West voluntarily publish an annual environmental report. So voluntary disclosure in the case of environment is today an accepted business practice. The carrot, on the other hand, we thought could be a certain weightage in the ratings given to companies who are trying to make a difference. In other words, let us begin by assuming that all Indian companies have been performing badly on the environmental front