IMPACT OF THE GREEN RATING PROJECT

The green rating project is not a theoretical exercise which stops at rating companies. The goal of the project is to improve the environmental impacts of industry in India, and to guide industry to move towards this goal. Therefore, at the end of each rating process, the green rating project (GRP) lays down clear guidelines for the industry to improve its environmental performance. Experience in all the three rating processes has shown that the companies rated have taken initiatives to improve their environmental performance along the guidelines laid down by GRP.

Besides the companies, GRP’s work has also influenced the policymakers in the government and the local communities. Both the electronic and print media have covered this innovative process extensively, highlighting the achievements of the rating process.

GREEN RATING PROJECT-ITS IMPACT AND INFLUENCE ON KEY STAKHOLDERS

A. Impact on public disclosure

Transparency is not a concept which can be usually associated with operations of the Indian industry. Therefore, it was of little surprise that when the project started, the response of the companies was very poor. Till about one year of the start of the project only two companies out of 28 in the pulp and paper sector – the sector that was being rated – sent their performance details. However, when the companies became aware of the seriousness with which GRP was conducting the rating process, all of them got involved in the process.

Clearly the ratings have provided a reputation incentive to the companies. All companies want a good rating and a clean public image in an economy that is moving towards globalisation. More so when concern about environmental issues among investors and regulatory authorities is increasing. There is a clear incentive for companies to improve environmental performance and share information, which can be the most powerful force in a democratic country.

This was evident while rating the automobile, chlor-alkali and the cement sectors. Almost all companies in these sectors have disclosed their profiles and performance details to GRP. Thus, GRP has been successful in introducing public disclosure in a big way in the Indian industry.

In so doing, the project has virtually created an information bank in the public domain -- state-of-the-art reports, which cover all technical and environmental aspects for each sector.

Another indicator of the voluntary disclosure and the intent of the companies is the involvement of the top management in the rating exercise. Previous efforts in India to improve industry’s environmental performance were limited to lower management levels, and only dealt with technical issues pertaining to waste treatment. There was no effort to involve the top management that takes all the crucial decisions in a company. During the first phase of the pulp and paper ratings, top-level managers of 71 per cent of the companies interacted with the GRP directly. In the second phase of pulp and paper rating the number increased to 86 per cent. Even the automobile and chlor-alkali rating process saw high level of participation of the top-level management. Chief executive officers and senior managers of 83 per cent of the automobile companies, 95 per cent of the chlor-alkali companies and 85 per cent of the cement companies interacted directly with GRP.

That the green ratings have been able to impress the importance of environmental performance on the companies is evident from the fact that now the ratings have become a feature of their annual balance sheets. The companies report their participation in their Annual Reports, thereby enhancing the stakeholders’ confidence in company’s environmental performance.

B. Impact on industry

The rating process has influenced the environmental performance of the companies in a number of ways, many of which are difficult to be documented.

The impacts are most directly measurable in case of pulp and paper industry since GRP is rating this sector for the second time. However, post-rating interactions with other industry sectors – automobile and chlor-alkali – also clearly show that GRP has been able to motivate them to improve their environmental performance.

GRP benchmarks the environmental performance of a company on the basis of theoretical best practice. Even the best available technology does not fetch full marks for a company, as there might be scope for further improvement. Based on the assessment, GRP proposes concrete recommendations for each industry sector after the rating is over. These recommendations provide the basis for selecting the parameters on which improvements made by industry can be monitored and measured.

The results of the first phase of ratings were released in July 1999. To monitor the progress made in the sector, GRP initiated the second phase of assessment in 2002. The impact of GRP on paper industry has been quite significant and perceptible.

Sourcing of wood

India’s forest cover is decreasing year after year and pulp and paper industry has played a major role in this deforestation. Indian rural economy is a biomass subsistence economy in which forest plays a major role in supporting rural livelihood. Paper industry has huge potential to improve the rural economy of India by shifting its wood sourcing practice from forest to the farmland. This is quite feasible considering that India has large tracts of barren land owned by poor and marginal farmers. Pursuant to this, one of the major focus of GRP was to ask paper industries to move towards farmland sourcing of wood (farm forestry). This was also made a major indicator for rating the companies.

During the first phase of pulp and paper sector rating only about 20 per cent of total wood consumed by the paper industry came from farmers land. The rest was procured from the government forests. Very few companies were involved in farm forestry. However, five years down the line the situation has changed. During the second phase of the rating as much as 50 per cent of the total wood consumed by the Indian paper industry is being sourced from poor and marginal farmers. Almost all wood-based companies have started farm forestry programmes. This has been the single most important impact of GRP on the pulp and paper industry.

Water consumption

Consumption of water and consequently discharge of effluent is a major issue for the pulp and paper industry, since it is highly water-intensive. Thus, a reduction in water consumption means not only more efficient resource utilisation, but also cutting down on effluent discharged. GRP had put major stress on water consumption during the first phase rating and had given individual recommendations to companies for reducing their water use.

The average water consumption in the pulp and paper sector has reduced from 212 tons to 157 tons during last five years – from first phase rating to the second phase rating. The water conservation of 12.4 million tons by the Indian paper industry is sufficient to meet the daily water requirement of 3.4 million people in the country.

During the first phase rating, GRP found that most companies had not even formulated their environment policy. Only about one-third companies had some sort of policy on environment. GRP has witnessed a total turnaround during the second phase; about 96 per cent companies now have formal environment policy signed by the CEO of companies.

Similarly, among the companies that participated in the first phase of rating, only 4 per cent (1 company) were certified to the ISO 14000 EMS. Five years down the line, the percentage of companies with ISO 14000 certification has gone up to 50 per cent (13 companies). Seven more companies have given time-bound commitments to GRP to get EMS certifications.

Use of chlorine

Indian industry was notorious for its use of elemental chlorine in paper bleaching. It used as much as 10 times higher chlorine than their developed world counterparts. GRP had recommended companies to move away from elemental chlorine bleaching and go for environmental friedly substitutes. It also asked the government to set standard for adsorbable organic halides (AOX – a group of potent carcinogens) standards for the paper industry. This combination seems to have had a major impact on the paper industry chlorine consumption trends.

Whereas during the first phase rating less than 10 `per cent companies were substituting chlorine with chlorine dioxide (an environmental friendly substitute), during the second phase this substitution has increased to almost 90 per cent companies. The elemental chlorine consumption has come down from 75 kg per ton paper to less than 48 kg per ton paper. Also, during this period India got its first elemental chlorine free paper plant.

The major impact of GRP on the automobile sector has been its success in introducing transparency and public disclosure within the sector. The success can be gauged by the fact that the companies came forward and submitted even their emission certificates to GRP for public disclosure – something unheard-of even in developed world.

The next most important impact of GRP has been on the supply-chain management of companies. Before GRP, companies were sourcing their material and components from small and medium scale sector, which had neither resources nor intent to control pollution. This was a clear case of transporting pollution from one place to another. GRP had criticised the industry on this front and had recommended them to green their supply chain. There has been a positive impact of this on the industry with companies like Ford, Mercedes, General motors, Hero Honda etc. setting clear policy on outsourcing, keeping environment performance of the supplier in mind. Ford and General Motors has gone to the extent of asking its suppliers to get ISO 14001. Greening of supply chain has become a buzzword within the industry.

There has been other impacts of GRP, but are limited to individual companies. After the rating release, in which GRP has criticised MNCs for selling outdated technology in India, Hyundai Motors publicly committed to supply the similar technology to India as it does to Europe or America.

Companies like Hero Hero Honda, General Motors and Eicher Motors started rainwater harvesting within their plants to reduce their water demand on external sources. Hero Honda went to the extent of commissioning study to analyse its Green Rating and asked for specific recommendations to improve their rating in the second phase.

Environmental regulations on industrial pollution in India have traditionally taken a segmented approach. The green rating project’s analysis of environmental performance of industry, based on lifecycle analysis showed for the first time in the country that environment management requires a more holistic framework than the regulations ask for.

GRP has brought in a paradigm shift in environmental governance in India. From introducing the AOX standard for pulp and paper sector to changing the entire regulatory system for mercury pollution, GRP has provided cutting-edge recommendations to the government of India to improve the environmental governance.

One of the major impacts of GRP has been the setting of AOX standard for the pulp and paper sector. Before GRP, this parameter was neither monitored nor regulated in India. The result was very high chlorine consumption and very high organochlorine emissions from the India paper industry. Today, pollution control authorities strictly regulate AOX emissions and paper companies now regularly monitor their AOX loads.

GRP has also changed the way environmental certification for operating the plants were given by the pollution control authorities. Before GRP, the government of India had a clause of deemed certification by virtue of which companies were able to operate without any valid certificates. This loophole was bought to the attention of the public by GRP and this was later amended by the government.

The other major impact of GRP has been the setting of water consumption guidelines for the paper industry and the setting of standards for colour in wastewater. After the ratings, the Andhra Pradesh and Tamil Nadu state pollution control boards set standards for colour of the treated effluent from paper manufacturing units.

Chlor-alkali Sector

The Green Rating of Chlor-alkali sector has fundamentally changed the way volatile pollutants are regulated across the world. GRP rated the chlor-alkali sector and found to its surprise that more than half the mercury consumed in this sector is lost unaccounted. It checked the same across the world and found similar patterns in other countries as well. GRP undertook extensive research of the subject and came to the conclusion that the traditional system of regulating mercury pollution by monitoring end-of-the-pipe emissions is not suitable. This is because of the high mobility of the volatile pollutants like mercury which escapes literally from everywhere; so much so that even the product produced carried significant mercury. GRP proposed that the only way mercury can be regulated from chlor-alkali industry is by regulating the input of mercury to the plant and by regulating the mercury concentration in the products and known point emission sources. The regulation of input mercury and mercury in the products is a paradigm shift in the regulation of mercury pollution from the Chlor-alkali industry. Government of India supported GRP’s assessment and it has now put in place guidelines to regulate input mercury. GRP also received support from the United States Environment Protection Agency (USEPA) on this issue.

GRP also for the first time in India was able to introduce market instruments to control pollution. On its recommendation the Finance Ministry of the government of india introduced subsidies for the import of membrane technology for the chlor-alkali sector. "There is need to support cleaner and environment-friendly technologies. With this end in view, I propose to reduce the customs duty on components of membrane cell technology used in the caustic soda industry from 15 per cent to 5 per cent," the Union Finance Minister said while presenting the Union Budget 2003-04. This has facilitated the switchover to membrane technology from highly polluting mercury cell technology.

The findings of GRP are actively discussed and debated in the Indian Parliament too. The issue of multinational automobile companies bringing in outdated technology in India was taken up as an issue of serious concern in the Parliament in 2001. The GRP study had raised the issue of unaccounted mercury losses in the process of caustic soda and chlorine production. Being of critical importance to public health, this issue was debated in the Indian Parliament in 2002, soon after the release of the chlor-alkali ratings.

C. On the Judiciary

GRP has become a source of credible information for the judiciary.

When a public interest litigation on industrial pollution was filed against Tamil Nadu Newsprints Limited (TNPL), the Chennai High Court set up Committee to look into the matter. The committee requested GRP to provide the detailed environmental profile of TNPL, which had been rated by GRP in 1999. The committee came up with some 14 recommendations in 2002 based on GRP profile and case was disposed amicably.

Similarly the National Human Rights Commission of India approached GRP to assess the environmental performance of Shreyans Paper Mills in Punjab, which was destroying the groundwater of the local area – the only source of drinking water for the community. GRP investigated the plant in detail and gave guidelines and recommendations to the commissions. The commissions fully adapted GRP’s point of view and asked the company to implement major technological changes.

The findings of GRP have also influenced the market standing of the participating companies. A study by the Delhi School of Economics and the Institute of Economic Growth, New Delhi has found that the stock prices of companies performing poorly in all the three sectors saw a fall in their stock price after the results of the rating were released. As the authors of the study, named ‘Do Stock Markets Penalise Environment-Unfriendly Behaviour? Evidence from India’ say, "We find that the market generally penalizes environmentally unfriendly behaviour in that announcement of weak environmental performance by firms leads to negative abnormal returns of up to 43 per cent. A positive correlation is found between abnormal returns to a firm’s stock and the level of its environmental performance." They further point out that "This result is not driven by disparate ‘events’ … but by a comprehensive and consistent green rating. Thus, an important policy implication of the research would be institutionalising such public disclosure programmes as a tool for environmental management in developing countries."