Business Today

The green advantage

Rajiv Bhuva        Print Edition: August 21, 2011

What it is: If you are an investor who feels strongly about eco-friendly business practices, you could consider migrating to a 'green' portfolio based on the Verdurous India Index, or Verdurous 25. This is a modified market capitalisation-based index comprising 25 companies listed on the National Stock Exchange, or NSE. Conceptualised by Mysore-based Verdurous Solutions, a consultancy on clean-tech initiatives, the index aims at assessing the 'greenness' of the Indian economy, and hence goes beyond the pure-play renewable energy companies like Suzlon Energy, Praj Industries and Indowind Energy, to old economy manufacturing companies like Bajaj Hindustan, ITC and Shree Renuka Sugars, which have adopted extensive green practices.

How it works: The companies in the index have been handpicked based on their environmental impact. So while the first category includes those that help the planet heal itself, the second comprises firms whose operations have a minimal negative impact on the planet. That includes about 10 companies that have had their green footprint audited by New Delhi-based Centre for Science and Environment, under the Green Rating Project sponsored by the United Nations Development Programme and the Union Ministry of Environment and Forests. The base date for index computation with a base value of 1,000 is June 5, 2009. The index keeps track of stock-splits, bonus share issues, changes in revenue mix, and adjustments are made on the exdate (usually two days ahead) of the corporate action. The market value of the firm is updated to provide for the revised number of shares outstanding. Daily returns are available from January 1, 2010.

Advantages: The Verdurous 25 stocks have not only delivered superior returns on investment during the past year but are also less volatile relative to the broader, more generalised S&P CNX 500 index. For the year ended June 5, 2011, the index delivered returns of 12.40 per cent compared to 6.39 per cent for CNX 500. Also, since the market peak on January 7, 2008, the Verdurous India Index has lost 7.94 per cent (annualised) at a lower price of risk, compared to CNX 500 which has lost 8.16 per cent (annualised), computed on a daily return basis. But is the comparison with the much larger CNX 500 fair? Sunderasan Srinivasan, Economist at Verdurous Solutions, thinks it is. "A larger portfolio is intended to even out disturbances in specific sectors through conscious diversification. In theory, a larger index should be less volatile,"he says.

Global experience: Internationally, there is a similar index called S&P/IFCI Carbon Efficient Index, which measures the performance of investable emerging market companies with relatively low carbon emissions while closely tracking the returns of the S&P/IFCI LargeMidCap Index. There is also the Cleantech Index, or CTIUS, a growth stock index comprising 77 companies across sectors that are global leaders in clean tech.

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