Indian Journal of Economics and Development, Vol 3 (3), 213-225, March 2015 ISSN (online): 2320-9836

Green index: Grading companies on sustainability initiatives

Sapan Thapar
Adjunct Faculty, Department of Energy & Environment, TERI University, New Delhi- 110070, India.
sapan.thapar@teri.res.in

Abstract

Background: Commercial entities are adopting sustainable business practices to show-case their ‘Green Quotient’ in
form of ‘Business Sustainability Reports’. However, these reports are difficult to comprehend and do not provide the
overall socio-environmental impact of the business operations of a company.
Methods: In this regard, a comprehensive ‘GREEN-INDEX’ has been developed to grade the sustainability initiatives
of a company. The index captures 30 performance parameters, categorized into six vertical heads, namely Green
Leadership, Resource Intensity, Externalities, Green Measures, Business Value Chain and Compliance & Reporting.
Three types of scoring options are employed to accommodate heterogeneous mix of variables and data-types.
Rationalization has been carried out by benchmarking a particular industry against the average sectorial values.
Findings: As per the scoring methodology developed, a company would be rated into four grades: ‘A’- Environmentally
Compliant, ‘B’- Environmentally Conscious, ‘C’- Environmentally Sensitive and ‘D’- Environmentally Inert.
Application/Improvements: The ‘Green Index’ is meant to facilitate stakeholders make an informed opinion about a
company in terms of its ‘Green Quotient’ and encourage sharing of best ‘green’ practices across the industries.

Keywords: Green Business, Green Index, Green Rating, Business Sustainability Reporting.

1. Introduction

The growth of world population and production combined with unsustainable consumption patterns places an
increasingly severe stress on the life-supporting capacities of our planet[1]. As per a study on resource intensity of
human lifestyle, it has been projected that “if everyone lives the lifestyle of an average American, we would need five
‘Planet Earths’ to provide the needed land and ecosystem goods and services”[2].
Governments and people across the globe have taken cognizance of the negative fallout due to the resource
intensive development path being pursued and initiated corrected actions to contain the environmental degradation.
It has been found that commercial establishments have been the major consumers of natural resources for
pursuing their business operations, which when accompanied by waste generation, causes significant impact upon
the environment.
To make the business houses more responsible towards the only inhabitable planet, i.e., Earth, there has been
a sustained campaign by environmentalists, social activists and many non-governmental organizations, who have been
questioning the profit-centric business models adopted by the companies.
One of the major work in this area, which came up in the latter half of eighties was coining of the term
‘Sustainable development’, defined as “The kind of development that meets the needs of the present without
compromising the ability of future generations to meet their own needs”[3].
On a similar note, the concept of ‘Business Sustainability’ commonly referred as the ‘triple bottom line’ or the
‘3P’ concept of “People-Planet-Profit” has evolved in recent years [4].
Under the ‘3P’ concept, a company can make its business sustainable by undertaking a holistic analysis of its
business strategy & operations to ensure equitable returns to all stakeholders, i.e., society, environment, and the
stockholders.
As per the Financial Times, Business Sustainability is defined as managing the triple bottom line - a process by
which companies manage their financial, social and environmental risks, obligations and opportunities.
Many large companies have established sustainability goals and targets, and it is becoming increasingly common
for these goals to address significant environmental challenges like climate change.

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It has been observed that companies undertaking environmentally sustainability measures in their value chain
are likely to experience sustainable growth in their business operations as well[5].
In the book ‘The Sustainability Advantage’, Bob Willard has highlighted seven business case benefits foradopting
‘Triple Bottom Line’, including increase in employee productivity, reduction in risks & expenses and increased revenue
& market share[6].
A survey carried out by MIT Sloan[7] highlights similar benefits for a company to undertake sustainability
measures – improved company image, cost savings, competitive advantage, employee satisfaction, risk management,
innovation etc.
In response to consumer preferences, some companies are also taking steps to reduce the environmental impact
of their products and services as well as their supply chains[8].
One of the important objectives of following the ‘Sustainability Mantra’ is reaching out the stakeholders
(including consumers, social organizations and regulators) by showcasing the sustainability measures undertaken by
an organization in form of Business Sustainability Report’.
The United Nations Environment Programme (UNEP) defines ‘Sustainability Reporting’ as the practice of
measuring and disclosing sustainability information alongside, or integrated with, companies’ existing reporting
practices’[9].
These reports generally cover measurement, reporting, and evaluation of corporate sustainability practices
and performance of a company. These are either submitted on a voluntary basis (on public forums), or, on account of
legal/ statutory requirements (reporting to the regulators).
The Carbon Disclosure Project (CDP) and Global Reporting Initiative (GRI) Guidelines are the two main
institutions involved in collecting & analyzing sustainability reports submitted voluntarily by the companies[10].
These initiatives collect data on a large number of parameters from companies across the world and share
them across public platforms.
However, there have been issues with regard to coverage of parameters and ease of understanding of these
reports.
‘The Future of Sustainability Reporting’[11], observe that Sustainability Reporting faces a number of challenges.
There are questions about the accuracy and completeness of data reported, and its relevance to financial performance.
In the report titled ‘On the Horizon: Big Changes Loom in Sustainability Reporting’[12], it has been bemoaned
that people are hard at work attempting to get at the crux of what makes a company “sustainable.”
There also appears to be large sectoral differences in sustainability reporting (in context of India), with significant
variance in reporting across sectors as well as on the variables reported [13].
Efforts have also been made for an objective accounting of environmental costs to account for environmental
externalities[14]. However, there is lack of clarity on the weightage assigned to the variables and its use across different
sectors [15].
In this regard, a ‘Green Index’ has been developed to grade a company using 30 sustainability indicators with
different weightages assigned and categorized under 6 verticals/ heads.
The ‘Index’ intends to facilitate collection of relevant data its analysis & presentation to enable the stakeholders
make an informed opinion about a company in terms of its business sustainability and encourage sharing of best ‘green’
practices.
Due to the difference in the type (manufacturing, services etc.) and scale of companies (production levels), the
‘Index’ may require improvisation both in terms of identification of parameters and assigning weightage. As such, there
can be discussions to improvise the ‘Index’ for a particular set of industry like iron & steel, textile, information
technology, automobiles, banks, transportation and commercial establishments etc.

2. Materials and Methods

2.1. Sustainable business for business sustainability

Numerous research studies indicate a strong link between sustainable practices and profitability.
Companies like Infosys[16]&Google[17]have deployed captive solar rooftop systems to replace conventional grid
power. Others like Microsoft are purchasing energy generated from cleaner sources of power like wind farms, which
has now become cost competitive with conventional electricity[18].

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Hospitality chain ITC is harvesting rainwater and treating wastewater to cater to water demands at their
properties[19]. Large electronic-retailers & fast food delivery chains like Domino’s pizza[20] are experimenting with
electric vehicles to cut down their fuel based emissions as well as expenditure.
Retail giant Wal-Mart earned $231 million by diverting 80% of its waste from landfill. It sold the materials within
this waste stream to earn a profit that is typically achieved by its 50 superstores[21]. Carrefour implemented an energy
efficiency programme across its stores due to which the Group’s energy requirement dropped by 22% in 2011
(compared to 2004 levels), resulting in savings of almost € 110 million per year, which was more than three times the
project cost[21].
Information Technology major Tata Consultancy Services (TCS) has adopted several green practices in its
facilities, including energy efficient LED lighting, building design for cooling efficiency, rain water harvesting digesters
for bio waste and promoting car-pooling[22].
Similarly, Wipro has been using green office buildings to make the work environment conducive & productive
for its employees[23].
Standard Chartered Bank had set a target of 50 per cent reduction in paper consumption target and is
encouraging the use of information technology to minimize paper consumption as well as transaction time for its
customers[24].
Some other notable sustainable initiatives include GHG reduction goals by Alcoa, developing metrics to factor
social and environmental impact of suppliers by Natura, ensuring sustainability evaluation in decision making by
AkzoNobel and developing new financial products for energy efficiency by CITI[6].
The aforementioned measures & resulting outcomes indicate a positive correlation between sustainability
initiatives and improvement in top line (profits) as well as bottom line (reduction in expenditure) for a company.

2.2. Sustainable reporting platforms

With a heightened interest in the area of sustainable development and their disclosure, the reporting formats
have been simplified, structured and standardized in order to solicit active participation from the companies, quick
assessment by the evaluators and ease of comprehension by consumers.
As enunciated above, some of the notable global forums which have been working to facilitate collection and
analysis of business sustainability reports include the Carbon Disclosure Project (CDP) and Global Reporting Initiative
(GRI) Guidelines.
CDP collates standardized information from companies through annual questionnaires to evaluate the
environmental risk with an objective to drive investment flows towards a low carbon and sustainable economy[25].
Similarly, GRI provides companies and organizations with a comprehensive sustainability reporting framework[26].
In addition there is the UNEP- Finance Initiative, encouraging the financial institutions to fund environmentally
benign projects[27]. Likewise, there are ‘Equator Principles’ guiding the financial institutions towards assessing and
managing environmental and social risks in their funding[28].
Besides these initiatives, there are several country specific platforms/ programs facilitating submission of
business sustainability reports.
In India, there is the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of
Business initiated by the Ministry of Company Affairs, Government of India towards mainstreaming the concept of
business responsibilities encompassing social, environmental and economic responsibilities of business[29]. In line with
the above, the Securities and Exchange Board of India (SEBI) has come out with the Business Responsibility Reporting,
which has been made mandatory for the top 100 publicly listed companies.
The Bombay Stock Exchange (BSE) has initiated BSE GREENEX, wherein the top 25 performer companies are
tracked and highlighted in terms of carbon emissions reductions for the investor community[30].
The reports submitted on these platforms pertains to several non-financial parameters including work ethics,
business transparency, employees’ well-being, stakeholder engagement, environmental impact, greenhouse gas(GHG)
emissions and inclusive growth.

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2.3. Issues & Challenges

The ‘Business Sustainability Reports’ provide information about the sustainable measures adopted by an
organization. However, they do not provide complete information on the sustainability initiatives of a company so as
to make an informed opinion about its operations. Though the assessment exercise under the available programmes
takes into account the credibility and authenticity of the data and the completeness of reports, the overall socio-
environmental impact of the business operations of a company is not captured. For example, the India 200 Climate
Change Report 2014 was highlighting the disclosure score for 22 large companies[31]. However, the impact of these
companies on the environment cannot be ascertained from this report.
Though some attempts have been made to undertake green rating of companies, these are sector specific
initiatives (mostly focusing on energy intensive industries), capturing limited parameters [32].
And, even for a company which files its sustainability report, it may happen that the sustainability measures
undertaken it may not suffice to address its overall impact on the society & environment. In simple terms, it means
that a company submitting its sustainability reports regularly (as per the required formats) may not be actually
sustainable due to its negative externalities on the society & environment.
One of the Business Sustainability Report submitted to the Securities and Exchange Board of India (SEBI) by a
reputed Indian information technology company highlights only the green activities undertaken without going into the
merit of actual requirements[16].
There have also been issues related to accounting of external environmental costs of a company and the same
has been cited as a challenge which companies need to address in order to create business value while reducing
environmental impact[12].
Further, most of the reporting requirements are voluntary in nature and the onus on filing the report and its
authenticity lies with the company. As per a research report, less than 20% of the companies in India surveyed disclosed
information on sustainability issues related to their supply chain[13].
In specific cases where reporting is required as per law (like energy returns by large industries to BEE[33],
renewable power procurement by utilities & large industries to State Electricity Regulatory Commissions), the reports
do not provide a holistic view of the impact of a company on the environment & society.
As such, there is a need to conceptualize, design, simplify, standardize and regulate the sustainability reporting
formats covering the sector variables holistically.

3. Results and Discussion

A comprehensive ‘GREEN INDEX’ has been developed to grade the sustainability activities undertaken by a
company in a holistic manner.
Under the proposed ‘Index', companies would be required to submit verifiable data on 30 sustainable
parameters, categorized under 6 vertical heads: green leadership & management support, resource intensity,
externalities, mitigation measures, green business value chain and compliance & reporting; each parameter being
assigned a certain weightage (based on its significance). Refer table 1 for the parameters and the respective weightage
assigned to each of them.
The results shall be put up on public platform to enable the key stakeholders (investors, regulators, consumers,
citizens and shareholders) make an informed opinion about the ‘Green Quotient’ of a company. A company shall be
required to submit data annually, based on which its grade would be revised.
The system shall inculcate a spirit of healthy competition among the companies to improve upon their rankings
in their peer group.
The overall intent of the Index is to enable ‘Green Branding’ of a company, in order to facilitate increase in its
business / market share, thereby, encouraging it to strive for incorporating sustainability ethos in its business
operations.

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Table 1. Green Index Computation

Parameters Units Value Data options Weightage Score

C I W [C / I] * W
(I) Green Leadership 20
i. Sustainability Policy Level (Board/ 100 Binary 2.5 2.5
Branch)  Yes-100%
 No-0%
ii. Designated CSO & Level (Director & 50 Binary 2.5 1.25
Sustainability Group Above)  Director-100%
 Mid-Management-50%
 Others/ No-0%
iii. Expenditure on % of turnover 88 Interval Score 5 2.2
Sustainable  >5%-100%
Development  2-5%-50%
 Upto 2%-25%
 Nil-0%
iv. Employee % of employees 100 Interval Score 2.5 2.5
sensitization and  >50%-100%
training  20-50%-50%
 Upto 20%-25%
 Nil-0%
v. CSR Policy Comprehensiveness 100 Binary 2.5 2.5
& Effectiveness  Yes-100%
 No-0%
vi. CSR Expenditure % utilization of CSR Interval Score 2.5 2.25
funds/ budget  >70%-100%
 30-70%-50%
 Upto 30%-25%
 Nil-0%
vii. New and Proposed Significant/moderate 60 Interval Score 2.5 1.5
Measures / minimal  Significant -100%
 Moderate -50%
 Minimal -0%
12.45
(II) Resource Intensity 20
i. Energy Consumption KgOE/ revenue 75 Percentile on sectoral industrial 5 3.75
(Non-electricity) KgOE/ capita benchmark
ii. Electricity kWh/ revenue 25 Percentile on sectoral industrial 5 1.25
Consumption kWh/ capita benchmark
iii. Water Consumption KL/ revenue 70 Percentile on sectoral industrial 5 3.5
KL/ capita benchmark
iv. Mineral SEC 80 Percentile on sectoral industrial 5 4
Consumption benchmark
12.5
(III) Externalities / 12.5
Impact
i. Pollution – Air Significant/moderate 75 Interval Score 2.5 1.75
/ minimal  Minimal-100%
 Moderate-50%
 Significant-0%
ii. Pollution – Water Significant/moderate 75 Interval Score 2.5 1.75
/ minimal  Minimal-100%
 Moderate-50%
 Significant-0%
iii. Pollution – Land Tons/ revenue 25 Percentile on sectoral industrial 2.5 0.625
(Waste Generation) Tons/ capita benchmark
iv. Carbon Footprint TCo2eq/revenue 50 Percentile on sectoral industrial 5 2.5
TCo2eq/ capita benchmark

6.625

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(IV) Green Measures 27.5

i. Water recycling % of total water 70 Interval Score 2.5 1.75
consumption  >50%-100%
 20-50%-50%
 Upto 20%-25%
 Nil-0%
ii. Rain Water % of technically 80 Interval Score 2.5 2
Harvesting available land area  >30%-100%
 10-30%-50%
 Upto 10%-25%
 Nil-0%
iii. Clean energy use % of total power 80 Interval Score 5 4
(including consumption  >50%-100%
Renewables)  20-50%-50%
 Upto 20%-25%
 Nil-0%
iv. Energy Conservation % of Energy savings 100 Interval Score (on SEC basis 5 5
(including over previous year)
 >10%-100%
 5-10%-50%
 Upto 5%-25%
 Nil-0%
v. Green Building Green Rating 100 Interval Score 2.5 2.5
features (GRIHA, LEED)  Rating 4&5-100%
 Rating 2&3-50%
 Rating 1-25%
 No Rating-0%
vi. Rooftop Solar % of technically 80 Interval Score 2.5 2
Systems (both PV & available rooftop  >10%-100%
Thermal) space covered  5-10%-50%
 Upto 5%-25%
 Nil-0%
vii. Biomass Compost % of compostable 70 Interval Score 2.5 1.75
Plants waste utilized  >30%-100%
 10-30%-50%
 Upto 10%-25%
 Nil-0%
viii. Waste Management % waste recycled/ 90 Interval Score 2.5 2.25
reused  >30%-100%
 10-30%-50%
 Upto 10%-25%
 Nil-0%
ix. Reuse & Recycle % of consumables 100 Interval Score 2.5 2.5
(technically possible)  >10%-100%
 5-10%-50%
 Upto 5%-25%
 Nil-0%
23.75
(V) Business Value Chain 10
i. Supply Chain- Significant/moderate 100 Interval Score 2.5 2.5
Sustainability / minimal  Significant -100%
Measures  Moderate -50%
 Minimal -0%
ii. Deliverables/ Significant/moderate 50 Interval Score 2.5 1.25
Outreach- / minimal  Significant -100%
Sustainability  Moderate -50%
Measures  Minimal -0%
iii. Use of Information Significant/moderate 100 Interval Score 5 2.5
Technology / minimal  Significant -100%
 Moderate -50%
 Minimal -0%

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6.25
(VI) Compliance & 10
Reporting
i. Environmental % of Projects 85 Interval Score 2.5 2.12
Compliance (ESIA/ undertaken  >10%-100%
EMP)  5-10%-50%
 Up to 5%-25%
 Nil-0%
ii. ISO 14001/ ISO 50001/ Yes/ No 100 Binary 2.5 2.5
Related  Yes-100%
Standards  No-0%
iii. Sustainability Yes/ No 100 Binary 5 5
Reporting- (GRI/  Yes-100%
CDP/ BSE Greenex/  No-0%
Others)
9.62
TOTAL 100 58.69

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