Adopting Environmentally Sustainable Project Finance

Within the Indian Capital Market

Working Paper

Centre for Development Finance

Environmental Sustainable Project Finance Group
Institute for Financial Management and Research
Chennai, India
By Sapna Mulki
August 2008
 Adopting Environmentally Sustainable Project Finance (ESPF)

Table of Contents

I. INTRODUCTION
1. Background………………………………………………………………………………..5
2. Stakeholders of Project Finance………………………………………………………….. 8
3. Current Initiatives Globally and Nationally……………………………………………….8

II. CASE STUDIES

4. Costs of Environmental Non-Compliance……………………………………………….11
5. Benefits of Environmental Compliance………………………………………………….16

I. THE WAY FORWARD

6. Conclusion……………………………………………………………………………….21

References……………………………………………………………………………………...23

APPENDICES:

Figure 1- The Project Finance Quadrant………………………………………............................28

Table 1- Stakeholder Analysis…………………………………………………………………...29

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 ACRONYMS

BB Bank of Baroda
BSE Bombay Stock Exchange
CETP Common Effluent Treatment Plant
CII Confederation of Indian Industry
CSE Centre for Science and Environment
FICCI Federation for India’s Chamber of Commerce and Industry
GRI Global Reporting Initiative
HLL Hindustan Lever Limited
IFC International Financial Corporation
ICICI Industrial Credit and Investment Corporation of India
IDBI The Industrial Development Bank of India
LSE London Stock Exchange
MoEF Ministry of Environment and Forestry
OECD Organisation for Economic Co-operation and Development
PPP Public- Private Partnership
RBI Regional Bank of India
RCCA Responsible Corporate Citizenship Advisory
SPCB State Pollution Control Boards
SSI Small Scale Industries
SRI Sustainable Responsible Investment
SIDBI- Small Industries Development Bank of India
SIV South Indian Viscose
TISCO Tata Steel and Iron Company
TNPCB Tamilnadu Pollution Control Board
UCC Union Carbide Chemicals
UCIL Union Carbide India Limited
UNEP FI United Nations Environmental Programme – Financial Initiative

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 Executive Summary

Emerging as one of the global economy’s leaders, India needs to realize its role and
responsibility in promoting sustainable financial practices. Responsibility in upholding social
and environmental values can promote sustainable economic growth and increase the resilience
of the local market. This report was compiled as a preliminary step to highlight the necessity for
and benefits of adopting environmentally sustainable financial principles in lending and
investment practices particularly towards the funding of extractive industries.

Case studies comparing and contrasting the losses and profits of extractive industries show that
there is a positive correlation between environmentally risks and financial investments. Ten case
studies have been presented to demonstrate how the financial prosperity of a business is
dependent upon its ability to uphold a set of values that respect societal needs, environmental
conservation and environmental laws, policies and standards.

Examination of the financial risks associated with environmental non-compliance and benefits
linked to environmental sustainability demonstrate to lenders and corporations that these factors
are worth monitoring in portfolios or in activities. There are other ethical reasons associated with
corporations and financiers going green, but the focus is on financial reasoning.

Integrating environmental concerns into project finance is not only an issue of ethical business
conduct but is also a matter of improving efficiency. Extractive industries have always been a
driving force in India as the revenue generated from the sector has contributed significantly to
the nation’s economic growth. However, the cost of pollution, waste generation, and resource
loss will be incurred by all stakeholders mainly by investors, thus limiting the expansion within
the sector.

Quantifying the impact of environmental degradation on business or overall economic

performance is difficult. Nonetheless, based on the best available knowledge, there is increasing
agreement amongst scholars and business professionals, on the substantive and noticeable
negative impact that environmental risks have on business performance in the long-run.

Therefore, lenders and investors should start paying heed to other factors that could affect profit
and performance. A way to account and avoid social and environmental threats is for a business
to integrate Environment Impact Assessments (EIA) and Environmental Audits (EA) into their
corporate strategy. Increasingly so, international lending authorities such as the Asian
Development Bank and International Finance Corporation are demanding that standards, rules
and norms based on socio-environmental values are adhered to.

This report is highly relevant at a time when global markets are demanding progressive ways of
taking businesses into an era where the sustainability of future generations is a prime concern. It
not only seeks to educate but also provide evidence in support for environmentally sustainable
project finance. There is a great need for clairvoyance and out-of-the box thinking from investors
and lenders because the current business as usual attitude, is threatening continuity of the
economy and the natural environment. As a result it will pose a gargantuan challenge to the
Indian economy, if not addressed soon.

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4
 I. INTRODUCTION

1. Background

Environmentally sustainable project finance (ESPF) is the integration of environmental risk

assessments into a company’s corporate strategy. International investment and lending groups
are increasingly demanding that their investee’s especially extractive industries adopt measures
to reduce their impact on the environment. Extractive industries tend to be high risk investments
because their activities have a greater impact on the environment. Furthermore, such industries
are often found in breach of environmental or civil laws which lead to closure or payment of
large amount of monetary compensation/fines.

There is an understanding that extractive industries will always dramatically alter the physical
properties of the environment negatively due to current technology and equipment limitations.
Despite its foreseen inadequacies, what matters the most is whether the company is doing its best
to mitigate environmental risks while catering to the market and reaching their profit margins. As
Merkl and Robinson (1997) have suggested in their report on financial investments in industries-
“Focus on risk, not liability (invest in the right risk)” (p.152).

The extractive industry sector in India is a critical element of the economy and a leading
international exporter of certain raw materials. But it is also associated with high social,
economic and environmental risk. Case studies presented in this document support the very
notion that companies that adhere to environmental standards are far more sound investments
than those that do not. Thus, in order to ensure continuity of the extractive industry sector a
drastic change is recommended to manage environmental risks with profit-making mind-set.

Industries are significant revenue generators for the Indian economy. The Indian National
Information Center reports that the industrial sector achieved a growth of 9.2 percent (measured
in terms of the Index of Industrial Production) during April- November 2007-2008 compared to
an overall growth of 11.6 percent achieved in 2006- 2007 (NIC, 2008, 182). Indian industries are
therefore leading in their own right. Clare D’Souza (2001) a lecturer at La Trobe University in
Australia states that “the importance of industrialization in economic development is crucial for a
growing economy with a large population like India, so prosperity through industrialization has
been a long-term strategy for the Indian government” (2001, para. 3).

D’Souza’s sentiments are also shared by Shilpa Kannan (2008) who reported in the BBC that,
“India’s textile industry employs nearly 85 million people overall, compared with just 2 million
in the IT sector” (para 10). Kannan’s statement shows that certain industries are still significant
contributors to the Indian economy because they provide a livelihood to the unskilled that make
up a large percentage of the population. Despite the fact that other new sectors are cropping up
the influence of industries is still far reaching.

Small-scale industries (SSI) contribute significantly to the spreading influence of

industrialization; and although not often the recipients of private funding, they are major
financial beneficiaries of the Indian Government (D’Souza, 2001, p.8). While SSIs are wide
spread and vital they are also least regulated in terms of pollution emission and creating a safe

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work environment for employees. Therefore, the responsibility falls upon the government to
create the right kind of financial services that will help SSIs grow sustainably while increasing
output.

The extractive sector is labor and resource (labor, land, capital and technology) intensive and
therefore, closure of any industry creates a domino effect resulting in loss of jobs, social unrest,
and negative economic performance (Roy, 2008). Clearly, the industrial sector is a crucial
element of the Indian economy. The only way it can continue to contribute significantly to the
economy is if it is regulated so that it benefits both human livelihoods and the environment.

The reality is that the challenge of enforcing regulation has been overwhelming, and as a result it
has created a shameful environmental and social rights record for the entire nation. According to
a report published by the United States-Asia Environmental Partnership (1996), industrial growth
taking place between 1963 and 1991 resulted in a six-fold increase in toxic releases and
depletion of natural resources.

“Industrial effluent largely comes from the 3 million small- and medium-sized units that
are scattered throughout the country, particularly in the production of paper, sugar,
leather, and chemicals. Unfortunately, only about half the medium - to large-scale
industries have partial or complete effluent treatment” (para 8).

Authorities recognized the scale of the problem and hence identified and targeted 17 highly
polluting industries and 24 environmental problem areas with a focus on chemical and
engineering industries because they are at the top of the list as major contributors to air, water,
and waste pollution (OECD, 2006, p.7). Engineering industries such as iron and steel plants,
textiles, pulp and paper, tanneries and chloralkali units have also been identified as needing the
most reform. Although they recognize the problem, the will to tackle it is lacking.

The Indian government has exercised judicial power to straighten out some the most notorious
industries. The number of public litigations and human rights abuses caused by industries
coincides with the expansion of the sector (Roy, 2004, para 4). The Supreme Court has played a
pivotal role in preventing further environmental degradation and human related losses - “Judges
have tremendous power, in particular in PILs, to design innovative solutions, direct policy
changes, catalyse law-making, reprimand officials and enforce orders” (Rajamani, 2007, p.296).

One of the landmark moments environmentally related to PILs was in the case M.C. Mehta v.
Union of India (Delhi Vehicular Pollution) case, where the Supreme Court held that air pollution
in Delhi caused by vehicular emissions violates right to life under Article. 21 and therefore
directed all commercial vehicles operating in Delhi to switch to CNG fuel mode” (Oak, 2009,
para. 4). The M.C. Mehta Foundation website reports that the case also required relocation of
over 9,000 industries within the city to a designated industrial zone (Oak, 2003, para. 3). Another
case M.C. Mehta v. Union of India (Ganga Pollution [Tanneries] Case) where upto 50,000
industries within the Ganges basin were required by the Supreme Court to close down area
operations and relocate (M.C. Mehta Foundation, 2003, para. 3). Many of these industries were
tanneries which emitted their effluent into is the Ganges, the most revered and most polluted
rivers in the world.

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Despite the successes in implementation of environmental law the risky disposition of industries
persists. It is clear that policing industries over so vast an area is a challenging task and is not
successfully changing the sector to become more sustainable. As a result environmental pollution
and loss of business/employment becomes a persistent threat to society and to future generations.

Therefore, other solutions need to be explored. The promotion of ESPF provides a number of
advantages to industries and to those that fund them. The gains to an extractive resource industry
from investment in environmentally sound technologies will ensure continuity and higher
productivity in the long run. Some advantages gained from switching to greener practices are:

Risks are mitigated.

Costs are reduced in production and waste management.

Consistent performance and ability to withstand market competition is attained.

Product marketability is increased as consumers opt more for “green” products.

Creating financial incentives could be a viable alternative as they will satisfy every business’
need to reduce costs. A new set of influential players such as banks, lenders and investors would
benefit in creation of financial incentives and norms that promote sustainability in the sector, as
they will increase the profitability of their portfolios – thus, sustaining their business for the long
term.

In India, lenders and investors are driving forces for most large-scale industries as they are the
sole sources for large amounts of capital. “The Industrial Development Bank of India (IDBI),
and Industrial Credit and Investment Corporation of India (ICICI) are the major financial
institutions that may provide capital for industrial development, including mining” (Chatterjee,
2003).

Lenders and investors are losers/beneficiaries of the losses/profits generated by their investees
depending on business performance. Performance in the industrial sector is dependent on
innovative technology that is energy efficient, environmentally sound, ensures resource recovery
and at the same time achieves optimal production capacity. In spite of that, what are the reasons
for the low response in switching to greener practices and how can we overcome the barriers?

There are three possible reasons for the lack of commitment towards achieving government
issued environmental standards. Firstly, monitoring and enforcement of environmental impact
assessment regulations which would lend to more environmentally cautious investment are
limited in India. Secondly, there are little to no incentives within the system to integrate the triple
bottomline (people, planet and profit). Thirdly, education and awareness targeting investors and
lenders about environmental risk and liability is limited.

Instead, accountability towards environmental risks has tended to be voluntary. Furthermore, it

has often been limited to big industries allowing them to gain an edge against their international
competitors. The fact that there are a few Indian industries who have achieved some degree of
internationally accepted environmentally sustainable standards is proof that the issue is on their
radar screen.

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 2. Stakeholders of Project Finance

Clearly, industries, government, lenders and investors are not the only stakeholders in the issue
of project finance, though, they are the highly influential conduits in the process of change to
greener practices (see Appendix I). Other stakeholders such as environmental interest groups,
research think tanks and the media (See Appendix II) promote and define standards of ESPF.
The non-traditional stakeholders in ESPF play a role as information providers and apply pressure
for change to the stakeholders higher in the hierarchy of financial decision-making.

The power of information is demonstrated in the means of redress it creates for workers and local
communities affected by industrially inflicted environmental disasters. Yet, often the final
decision for compliance is left upon a judicial or environmental implementing authority (e.g.
Supreme Court, Pollution Control Board (SPCBs) and the Ministry of Environment and Forestry
(MoEF) and/or the leaders of the industrial and financial institutions (e.g. banks, fund managers
and multilateral agencies). Such cases often do not reach the court or are quickly swept under the
rug.

Information in this case can be a friend or a foe. Industries are often presented in a negative light
in the media and by NGOs for lack of upholding social and environmental values. As a solution
to the long lasting acrimony, extractive industries could work with both the media and NGOs to
promote transparency and to encourage dialogue between all stakeholders. Through an open
forum (with the media as an intermediary) it would attract more ideas on how to create
mechanisms that effectively integrate sustainable project finance.

Multilateral agencies such as the Federation for India’s Chamber of Commerce and Industry
(FICCI) and the Confederation of Indian Industry (CII) already provide forums for dialogue and
a platform for broader reforms. In the case of project finance, multilateral agencies have the
ability to facilitate harmony between production goals and the promotion of environmentally
conscious decisions by bringing all stakeholders together.

3. Current Initiatives Globally and Nationally

Part of this report seeks to present existing ESPF initiatives for the purpose of demonstrating that
more can be done to strengthen this particular aspect of financial diversification; therefore, it is
not unrealistic to be having such a discussion. The issue of project finance and environmental
standards is on the tables of some financial institutions and extractive industries, although the
number is very small.

Having recognised the importance of ESPF, in 2007 the Regional Bank of India (RBI) released a
memo encouraging local Indian banks to consider integrating sustainable project finance into
their portfolio assessments. But it is yet to be seen if any stakeholders have fully followed suit.
The memo stated that “The contribution of financial institutions including banks to sustainable
development is paramount, considering the crucial role they play in financing the economic and
developmental activities of the world” (RBI, 2007, p.1). Certainly, RBI’s announcement is proof
of a higher body willing to serve as a platform to explore the application of sustainable project
finance.

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At the global level several international banks have signed on to the Equator Principles (EP). The
EP is the first real effort implemented by the International Finance Corporation (IFC) to ensure
that the projects financed by banks are “socially responsible and reflect sound environmental
management practices” (IFC, 2006).

According to a recent journal article in Ecological Economics “A growing body of research

points to the fact that capital markets react to environmental news and thus create incentives for
pollution control in both developed and emerging market economies” (Dasgupta and Goldar,
2005, p. 81). The article continues to state that the market generally penalizes environmentally
unfriendly behaviour by up to 30 percent (Dasgupta and Goldar, 2005, p.81).

International financial regulatory organizations certainly have caught on with the rhetoric and are
also making their own contributions. IFC Executive Vice-President, Mr Peter Woicke states:

“The adoption of the Equator Principles confirms that the role of global financial
institutions is changing. More than ever, people at the local level know that the
environmental and social aspects of an investment can have profound consequences on
their lives and communities- particularly in the emerging markets where regulatory
regimes are often weak. And if financial institutions want to operate in these markets,
there is a bottomline value in having clear, understandable, and responsible standards for
investing” (Ravindran, 2003, para. 6).

Adoption of the EP is a ground breaking step in project finance. The EP has underwritten
approximately “USD 14.5 billion of project loans in 2002, representing a whopping 30 percent of
the project loan syndication market globally” (Ravindran, 2003, para. 6). Despite the fact that the
EP has garnered immense support from 13 internationally leading banks we are yet to see a
similar effort in India, which has an equally impressive portfolio. Even though Indian banks still
have a long way to go until they fully integrate ESPF, there are still few existing project finance
initiatives, which are briefly described below.

Public Government Institution Initiatives:

 Bank Guarantees: Under this scheme, a state board requires the non-complying firm to
post a bank guarantee to ensure the implementation of corrective actions in accordance
with the negotiated compliance schedule. Normally, 10 percent of the estimated total
compliance cost is required as a bank guarantee. If the non-complying firm fails to
comply in time, the SPCB forfeits a portion or all for the bank to use at its discretion. The
forfeiture is a powerful monetary penalty for a violator and a significant deterrent against
future non-compliance. However, this instrument may not be applicable to SMEs which
operate on small profit margins and cannot afford such a deposit (OECD, 2006, p. 22).

 Subsidies for Pollution Control Installations: The central and state governments have
introduced a number of subsidies for pollution control equipment and treatment
installations. The Common Effluent Treatment Plant (CETP) subsidy scheme is
undertaken by the MOEF to enable cluster of small-scale industries to establish or
upgrade CETPs. The central and state governments subsidize each 25 percent of total

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 project costs, 30 percent is secured through loans from financial institutions, and the
remaining 20 percent is covered by the participating small industries themselves (OECD,
2006, p. 22).

Private Financial Institutions Initiatives:

 Global Reporting Initiative (GRI): this methodology quantitatively scores a company in
two categories: Performance and Disclosure. To evaluate performance, this methodology
assesses five areas; energy intensity, use of recycled materials, use of recycled water,
greenhouse gas emissions, and management of hazardous substances. GRI has annual
competitions where financial institutions with transparent reporting tools are utilized.

 Bank of Baroda (BB): has a started a scheme for financing energy efficiency projects.
The primary recipients of this scheme are small and medium enterprises for financing
SMEs for acquisition of equipment, services and adopting measures for enhancement of
energy efficiency/conservation of energy. Up to 75 percent of the total project cost. This
scheme is a promising option for the thousands of leather tannery factories that are spread
throughout India. Owners of leather tanneries are small businessmen who often find it
very difficult to install efficient technologies to control carbon emissions and treat waste
as they are mostly financed through personal loans.

 YES Bank: is a private Indian bank that was awarded Best Emerging Markets Sustainable
Bank of the Year Award for “providing responsible financial services, minimizing their
environmental impact, supporting local communities, launching a Sustainable
Responsible Investment (SRI) fund in India and engaging in microfinance” (Fernando,
2008, para. 7). The awards event is organized by the Financial Times and IFC. The Bank
has Responsible Corporate Citizenship Advisory (RCCA) team that provides advice on
promoting social entrepreneurship to private and public businesses of all sizes and NGOs
involved in the environmental, education and health sectors. YES Bank also gives special
attention to the creation of initiatives in microfinance, Sustainable Investment Banking
(SIB) and agribusiness and rural banking.

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 II. CASE STUDIES

4. Cost of Environmental Non-Compliance

As of September 2000 there were approximately 3,500 cases pending on polluting industries
(See Appendix III). Gujarat had the highest number of pending cases at 1,600 (IndiaEnvironstat,
2000). In 2005 the United States Environmental Protection Agency found that there were 1,551
initially non-complying industrial facilities, of which 1,351 facilities complied with subsequent
SPCB orders and 178 were shut down, with 22 units defaulting. The trend shows a negative
compliance in large industries in India in recent years (OECD, 2006, p.12). Companies that were
shutdown eventually went bankrupt and had to default on their loans for which banks and
investments firms needed to pick up after. Furthermore, the loss of jobs and reduced standard of
living resulting from shutdown non-compliant industries is a reality that affected entire societies.

As noted by Semenova and Hassel (2008), “polluting industries typically have higher
environmental regulations and constraints than clean industries” (p. 3). The following case
studies are presented to demonstrate that industries with poor environmental records increases
the likelihood of a fate of either shutting down or spending large sums of money to upgrade
systems as per environmental standards. Companies with the least environmental concern have
incurred huge financial losses from regulatory penalties, temporary or permanent shutdown, poor
stock performance and negative media reports. All of which have resulted in narrowed pools of
fund sources, credit and collateral.

Union Carbide: Bhopal Gas Tragedy

Location: Bhopal, Madhya Pradesh (MP)

On December 3, 1984 a highly toxic Methyl Isocyanate (MIC) gas leaked into the homes of
millions in Bhopal, MP – instantly claiming the lives of 18,800 people through suffocation
according to official estimates from the Government of India (GOI). The events that unfolded
from that night made it one of the largest industrial disasters in world history. Even after 25
years, the intensity of the tragedy is as great. The Christian Science Monitor reports,
“Contamination levels in soil and water samples at the plant were more than 10 times higher than
in surrounding areas, indicating that the plant was the source of the contamination. Mercury and
lead contamination have even found their way into samples of breast milk” (Baldauf, 2004, para.
15).

The lethal gas originated from the Indian subsidiary of Union Carbide Chemicals (UCC), Union
Carbide India Limited (UCIL) plant after a large volume of water was introduced into the MIC
tank and triggered a reaction that resulted in the gas’ release (UCC, 2008, p.1). There are
conflicting reports as to the causes of the reaction however, what should have been certain to
such an industry is that all risks were accounted for in every way possible.

UCIL was a subsidiary of the U.S. Company UCC, which had been a major multi-national
chemical corporation since its formation in the 1930s. “UCIL was a diversified manufacturing

11
company, employing approximately 9,000 people and operating 14 plants in five divisions.
Annual sales were nearly USD 200 million, and UCIL shares were publicly traded on the
Calcutta Stock Exchange” (UCC, 2008, p.1). Closing stock value for the company in 1983 was
valued at USD 62.750 and following the public announcement of the disaster the stock value
plummeted to USD 45.875. The stock values had dropped by USD 16.875, which for a USD 3
billion company was a significant loss (UCC, 2008).

UCIL’s loss was also felt by the government and stakeholders who had investments in the huge
company. UCIL was one of the first major foreign investments made in India during a campaign
initiated in the 1960s by the Indian Government to attract foreign investments to drive the
country’s green revolution. When UCC India was created in 1963, 50.9 percent of the company‘s
stocks were owned by the U.S. subsidiary while the remaining shares were sold to Indian
financial institutions and thousands of private investors in India (UCC, 2008, p.1).

When Dow Jones Chemical eventually bought UCIL it was barely hanging on. In 1994 the UCIL
was isolated as the events from that night unfolded against its favour. The Company tried to
mitigate any further risks by utilizing the media to reassure all those concerned about the
companies attempt to contain the risks from the toxic gas leak i.e. employees, suppliers,
customers, and shareholders.

Following the disaster, UCIL was required by the Supreme Court to pay a penalty of USD 470
million to cover the medical expenses, rehabilitation and rejuvenation of damaged infrastructure
and the natural environment. Ultimately, the company was absorbed into DJC and their factories
were shutdown. Rehabilitation operations were taken over by the Indian government from
monetary dispersal to project monitoring.

Not only was the Bhopal tragedy the worst in India’s environmental history, but it also led to
significant losses of one of the largest companies in India and MP’s economy. Jobs were lost as
were lives and the community fabric was damaged. Events from that tragedy within minutes
incapacitated those who could earn an income for their families and contribute to the local
economy. Based on the Bhopal case study the direct link between economic loss and
environmental degradation has never been clearer.

SIV Industries (formerly South India Viscose)

Location: Coimbatore, Tamilnadu

A news report published on September 4, 2005 described South Indian Viscose (SIV) Industry as
“A closed chemical factory in Tamilnadu waiting to be another Bhopal” (Blacksmith Institute,
2004, para. 1). Located in Sirugumalai village, Tamilnadu on the banks of the Bhavani River
SIV experienced a gradual shutdown of its various units starting from 1997 until 2001. The
primary cause for the cessation of manufacturing and production was due to illegal dumping of
effluents into the Bhavani River and non-compliance with environmental standards for its
production facilities and equipment.

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The SIV industry manufactured and marketed rayon, wood pulp, rayon yarn, VSF and other
industrial chemicals. Owned by Shapoorji Pallonji Group, it is a well established group of
entrepreneurial ventures within the Indian market and abroad. As one of the oldest companies in
India it has stakes in various sectors of the economy ranging from construction to real estate
acquisition. One such significant holding it has is within the Tata Sons Limited where it is the
single largest private stock holder of about 18.5 percent (Shapoorji Group, 2008, para. 1). The
group therefore has a reputation amongst its peers of being a major economic player. In the
global arena, the group understands the benefits of conforming to international standards
concerning the promotion of responsible business decisions as it demonstrated by being the first
company in India to receive an ISO 9001 certification in the construction industry.

Even though the Shapoorji Pallonji Group claims to conduct itself in an environmental and
socially responsible manner, such is not reflective of SIV Industries, which has a tainted history
of environmental negligence. Disposal of untreated effluent from its wood pulp, rayon and VSF
plants caused various serious chronic illnesses in residents living nearby its premises. Though the
company did start off on a good note with 1,00,000 shares out of which 25,000 shares were
issued to directors etc. 85,500 shares to foreign collaborators, and 1,39,500 shares offered to the
public (ICICI, 2008, para. 2).

Between 1987-88 and 1995-96, SIV’s bottomline swelled by almost 9 times - from INR 7.21
crore to INR 63.80 crore (Revathy, 2001, para. 1). Profits quickly took a turn in the opposite
direction in 1997 when the Tamilnadu Pollution Control Board (TNPCB) shut down their wood
pulp division due to environmental misconduct, despite a massive programme for modernisation
and upgrading of the plants between 1994 and 1995 (Revathy, 2001, para. 4). “Sales and profits
were adversely affected that year. Turnover dipped to INR 291.80 crore from INR 421.34 crore
in 1996, and the company incurred a net loss of INR 31.64 crore against a profit of INR 70.80
crore at the end of the previous fiscal year, the reason being suspension of production for nearly
three months (January-March 1997)” (Revathy, 2001, para. 4).

Soon after, the rayon and VSF divisions were also shut down for three months for the same
reason. The year 1999 was a trying one for SIV Industries as government regulators pounded on
their doors for late payments on electricity bills and unsatisfactory environmental standards.
From a Business Line Report in March 2001, SIV had an outstanding debt of over INR 447 crore
as of March 31 including an unsecured loan of INR 368 crore (M. Sabarinath, 2001, p. 6).
Inability to withstand the myriad of environmental problems and inadequate production capacity
its stock was traded in the range of INR 8 for the most part of 1999 except for December when it
rose to INR 18 fuelled by takeover rumours (M. Sabarinath, 2001, p. 9). Huge losses were
incurred as a result. In 2006 the company’s assets, totalling 122 crore, were liquidated as per the
High Court ruling. The assets were 683 crore short of how much the company owed.

A multitude of factors based on environmental and human safety concerns promoted the ultimate
closure of the company. Due to non-conformity to TNPCB standards the company sustained high
production costs, which made it vulnerable to the poor market conditions in 1999. In addition,
the company came under pressure from public activist groups and NGOs that represented the
interests of local farmers and fishermen whose livelihood depended on a healthy Bhavani River.

13
SIV’s failure could have been avoided had its business stakeholders given more attention to
social responsibility on the basis that the local communities depended on healthy fish
populations from the river. Extractive and chemical industries fail to realize that there is an
innate relationship between humans and the environment. For every factory that is constructed
human lives and the environment will be impacted. For that reason constant independent
environmental impact assessments are critical in order to prevent accumulation of environmental
violations and eventual closure.

Hindustan Lever Limited (HLL) now Hindustan Unilever

Location: Kodaikanal, Tamilnadu

Hindustan Lever Limited (HLL) was a subsidiary of Unilever Plc an Anglo-Dutch multinational
corporation (MNC) that owned approximately 50.9 percent of the HLL shares. Before it was
closed down by the TNPCB in 2001 HLL was the largest mercury producing factory in the world
(Zwart and Tuder, 2006, p.2). Unilever Plc’s products have become household names all over
the world – Omo, Blue Band, Lipton and Dove are just few examples from the popular and
diverse product line.

In 2001, Hindustan Lever’s thermometer factory in Kodaikanal (Tamilnadu, India) was found
(by Greenpeace India and Palni Hills Conservation Council) to have dumped 7.4 tonnes of
mercury waste in surrounding areas. An enquiry was carried out by independent environmental
consultants and the government. Investigations concluded that Greenpeace India and the Palni
Hills Conservation Council were founded on many of their claims.

Mercury is a toxic chemical when it comes in contact with water. Mercury’s compound bio-
accumulates in the food chain, even in fish, and can cause severe neurological, physical, and
kidney-based disorders (Sharma, 2003, p. 1050). According to R K Singh, a member of the
Indian People’s Tribunal that investigated the health and environmental impacts of the mercury
from the thermometer factory at Kodaikanal stated, “We found several cases of kidney failure
and nervous breakdown among workers of the closed factory” (Sharma, 2003, p. 1050).

In 2006, victims of mercury poisoning from the factory source took to the streets of Mumbai to
protest the social injustices and to discourage shareholders from investing in Unilever for quick
profits. They also appealed to shareholders to insist that investees uphold high social and
environmental standards within company structures (Bio-Medicine, 2007, p.1). Findings on the
impact of the mercury were at both ends of the spectrum. “The board investigations revealed that
some chemical emitting odour was dumped at two places along the State Highways, where the
water supply pipeline was laid at four feet below the ground” (Dinakar, 2003, para. 7).

Another study carried out by the Department of Atomic Energy found extremely high levels of
mercury outside the factory and deep inside the Pambar Shola forest- a critically threatened
canopy forest protected under Indian law. This eventually led to the state courts decision to close
the HLL factory. A major investment of the firm had gone down the drain and it emerged as a
risky business to interest groups and the general Indian public.

14
Ironically though, HLL’s closure did not directly impact Unilever’s international stocks. In fact,
the average market value in Amsterdam increased by four percent from the day of the media
reports about the subsidiary’s shutdown. On the London stock exchange it was almost 5 percent
higher. This was equivalent to a market value increase of approximately 1.5 billion euros (Zwart
and Tuder, 2006, p.6).

This particular case-study brings to question whether investors and lenders are sensitized to the
negative impact that their investments have in other countries granted. It also raises the
importance of investor education and awareness. Access to unbiased information that will help
investors make educated decisions on the most ethical way to invest their money is a much
needed tool in India. Furthermore, company transparency would not only have protected the
environment, but also its domestic investors.

Vedanta Resources Plc

Location: Niyamgiri Hills, Orissa

Vedanta Resources Plc is a major British metal and mining company operating iron ore,
aluminium, copper, zinc and lead sites all over the world. In 1986 Vedanta acquired Vedanta’s
Sterlite Industries (India) Limited (“Sterlite”) as a subsidiary. During acquisition of Sterlite
financial lenders such as JP Morgan and HSBC, and Citigroup - the world’s biggest financial
services company, Australia’s Macquarie Bank, and India’s home-grown ICICI Securities reaped
about 13 million pounds in fees (Nostromo Research Centre, 2005, p.28). Sterlite was at that
time a profitable investment. However, that has changed in subsequent years.

Sterlite has been embroiled in several court cases on issues pertaining to mining in ecologically
sensitive areas to violation of factory codes. The latest battle in 2003 with various activist groups
began when the company wanted to obtain approval from the Indian Supreme Court to mine
bauxite in the Niyamgiri Hills in Orissa. The court case led to the negative portrayal of Vedanta
which ended up significantly diminishing their fund pool.

Investors such as the Martin Currie Investment Management based in Edinburgh, Scotland,
withdrew its shares worth USD 2.3 million (NDTV Profit, 2008). By the end of 2007 the world's
second largest sovereign pension fund, operated by the Norwegian government, sold all its
Vedanta shares (worth around USD 13 million). The Government’s Council on Ethics Fund
(2007) stated that they sold its shared because Vedanta was associated with an “unacceptable risk
of contributing to severe environmental damages and serious or systematic violations of human
rights [in India]” (para.1).

On November 23, 2007 the Indian Supreme Court barred Vedanta from mining bauxite in the
Niyamgiri hills (The South Asian, 2008). However, the court ordered Vedanta’s Indian unit,
Sterlite, instead to provide a new proposal that addresses human rights and environmental
concerns which would then be reviewed by the court.1 On August 8, 2008 the Indian Supreme

1
Since Vedanta is a foreign based company which does not have stocks in the Indian market the Supreme Court
refused to address the case.

15
Court consented bauxite mining activities as per the environmental guidelines and safeguards
laid down in Sterlite’s report (not made public).

Despite the approval given by the Indian Supreme Court the tribal communities and
environmental organizations strongly protest the decision. The tribal communities that depend on
the Niyamgiri Hills are in uproar because they believe their lands have been unjustly taken away
from them. A company questioned by the international community on its business ethics should
raise a red flag to investors and lenders. Messy land acquisitions for industrial purposes have
caused a lot of upheaval in communities throughout India. In such situations investors and
lenders may consider ethics. Associations with companies who fail to address their social and
environmental short comings not only diminish reputational benefits but it also reduces sources
of capital, as seen in this case study.

5. Companies Performing within Environmental Standards

Empirical findings generally suggest that there is a positive but weak relationship between
environmental conservation and financial performance (Semenova and Hassel, 2008, p. 3).
Positive correlations show that Dowell et al. (2000) that companies in environmentally sensitive
industries that adopt more stringent environmental standards have higher market values.

Industries that do not comply with environmental standards are not only susceptible to judicial
action but they are also most likely not functioning at optimal capacity due to inefficient energy
consumption, and outdated facilities and technologies. The performances of companies that have
made the switch to greener practices definitely surpass those that do not. The appeal of a
sustainable business is that there are fewer surprises, and thus, fewer losses. A company that is
able to strike a balance between sustainable resource extractions and meet market demand is one
that will continue its legacy in the market.

Additional benefits are not only to the company but to those it depends on. It is always easier to
run a company when employees are happy about their treatment. When an extractive company
has respect for its environment it will more likely to best manage the resources. Since natural
resources are finite, industries need to bear in mind that their businesses will be directly affected
by that very fact. In order to ensure continuity the industry must extract with least possible
impact to the environment, increase efficiency, reduce/prevent costs and mitigate any other risks.

The following case studies are presented to demonstrate that companies have more to offer the
average lender and investor than a company that has a poor environmental compliance record.
The case studies will show that complying companies display all the benefits that have been
discussed in the previous paragraph.

16
 MSPL Limited (Baldota Group)

Location: Karnataka and Maharashtra

MSPL is one of India’s largest iron-ore and steel companies with exports going largely to China.
The company is committed to reducing costs and increasing savings through environmentally
sustainable practices and installation of green technologies. Narendrakumar Baldota, Chairman,
of the Baldota Group stated, “We firmly believe that effective and efficient generation of green
power coupled with responsible environmental care considerations as a corporation is vital for
maintaining a competitive edge” (IndiaPRwire, 2006, p. 1).

The company is a leader in its arena partly because it has shown commitment to integrating
environmental sustainability into their business practices. Implementation of a “Zero-Waste
Management” plan involves more investment in research and development to create production
processes and technologies that consume less energy and generate less waste.

Given that the challenge of global climate change is a proven threat to every aspect of human
livelihood and biodiversity, MSPL has created its own renewable energy source from wind farms
for their operations in the Indian states of Karnataka and Maharashtra. As a result, MSPL has
become less dependent on other costly sources of energy such as grid power. The wind energy
project contributes to 10 percent of the company’s total revenue. In 2006, the company sold the
2.5 million carbon credits valued at INR 200-250 crore (Business Line, 2006). Sustainable
environmental practices are now lending to their favour in generating profits to expand their
business, thus, a good sign for investors and lenders.

Very few companies or industries in the Indian market and even around the world have
demonstrated efforts to promote sustainable development and environmental conservation.
However, MSPL are wary of any consequences to their mining activities. In recent years to
offset their carbon footprint and ecological damage from excavation of large expanses of land for
mining, they planted millions of trees on company owned land (MSPL, 2007). Additionally,
MSPL has put in place an OHSAS 18001, Occupational Health and Safety Management System
for its employees.

Clairvoyance and effective corporate governing in every aspect of their triple bottomline has
allowed for the company to expand. As the company improves its environmental preparedness it
is promoting them to become more cost-effective and creating sustainable sources of revenue.
Because of a fairly good environmental performance the company’s reputation is boosted and it
reduces its risk factors as a viable recipient of funds.

Tata Iron and Steel Co. Ltd (TISCO)

Location: Jamshedpur, Jharkhand

Tata Iron and Steel Limited (TISCO) is the sixth largest producer of steel in the world and a
pioneer of CSR projects in India. The company has significantly contributed to environmental

17
and resource conservation, reducing its green house emissions and preserving water. TISCO is
the ideal example of a company that has managed to meet market demand, and minimize its
impact on local communities and the natural environment.

Its commitment to environmental sustainability has enabled the company to develop state-of-the-
art pollution control systems to prevent and control pollution. For example, Tata Steel is making
major upgrades to their facilities by phasing out the use of the highly polluting coke, a primary
fuel source for melting iron. Switching to coal tar, which is a by-product of steel manufacturing
and less harmful to the environment, has saved them over INR 9.1 million (CII, 2007).

Tata steel seems to be ready for the forthcoming challenges. In 2000, it completed a project
costing INR 7,000 crore (USD 1.5 billion) to completely modernize its 90-year old steel plant.
This spurred much optimism in the market as lender and investors predicted better efficiency and
high product quality which would in turn lead to greater returns.

Because of its commitment to improving its environmental performance it has also increased
TISCO’s appeal as a fund recipient. The International Finance Corporation (IFC) in 2005 loaned
TISCO over USD 300 million for expansion of its Jamshedpur plant given its successful
sustainability record in a highly risky sector. Iyad Malas, IFC’s director for South Asia, said
during an announcement of the loan that “This is an excellent example of IFC’s support for a
world-class company in a key industry in the Indian economy… particularly because of its
leadership role in, and commitment to, sound environmental and corporate social responsibility
practices” (Shanahan, 2005, para. 5).

Investment in greener technologies is helping the company increase its production, and at the
same time withstand intense competition from international players. In India alone, demand for
steel is five to six percent and is expected to rise in the coming years (IRIS, 2005, para. 9).
Therefore, if the company is to sustain itself in the iron sector, it must boost energy savings and
ensure sustainable resource management.

According to the IFC sustainability determines how reliable and profitable an investment will be
in paying back the loans. The TISCO case study proves that environmental sustainability is a
viable investment as it boosts reputation which in turn attracts investment. The IFC’s decision
exhibits current trends in the financial arena towards reducing environmental impacts in industry.

Madras Cement Limited (MCL)

Location: Chennai, Tamilnadu

The Alathiyur plant of Madras Cement Limited (MCL) has been rated the “greenest” cement
plant in the country by the Centre for Science and Environment (CSE) as part of its Green Rating
Project for the cement industry. The rating criterion is based on over 25 factors from waste
management to corporate governance, and is one of the few available ratings in the world.

18
MCL is one of the few large-scale energy intensive industries in India that has found a way to
become profitable by re-focusing operations towards renewable energy. The company owns
large wind mill farms with a capacity of 33 Mwh at two locations in Tamilnadu (Energy
Manager Training, 2005, p. 1). As a result of adopting wind energy projects power consumption
has reduced by 10 percent between 2000 and 2007 which saved the company INR 2.96 million
per year. It has also achieved an operating efficiency of equipment from 100 to 115 percent
(Energy Manager Training, 2005, p. 2).

Other initiatives include capturing rainwater to sprinkle on roads to reduce dust generation; water
recycling to maintain plantations near-by; bituminous roads in and around the plant and mines to
suppress fugitive emissions. Such small efforts not only save the company millions of rupees
every year but it also reduces the burden on the natural environment.

Chemfab Alkalis Limited

Location: Pondicherry, Tamilnadu

Chemfab Alkalis Limited (CAL) was incorporated as a public limited company in 1983. It is the
first Chlor-Alkali industry in India to adopt environment-friendly and energy-efficient ion
exchange membrane electrolyser technology in India for the manufacturing of caustic soda and
chlorine, which initially required a more potent element, mercury (Energy Manager Training,
2004).

Chemfab has a research and development unit that explores ways to optimize its energy
efficiency with the aim of increasing its operational utility and thereby achieving one of its many
commitments to sustaining natural resources. One way by which it achieves this goal is by using
hydrogen to power major processes at its plants. The company has also installed simple filter
technologies to recover and reuse water. In total the Chemfab has invested INR 33.44 lakhs in
eco-friendly projects within its plant, which has saved them INR 20.04 lakhs (Energy Manager
Training, 2004, p. 2).

Chemfab is progressive because it has significantly integrated environmental sustainability into

its business plans. Much of Chemfab’s managerial decisions are based on careful budgetary
analysis geared towards making significant investments in clean and efficient technologies and in
turn ensure greater returns to their shareholders and their continuity.

Until 2003, when Chemfab was experiencing low competitive stock value, (INR 54 with a PE
multiple of 5.72) due to high power costs, which jumped to 58 percent when it was dependent
completely on the power grid (Rao, 2003). Though that has gradually changed in recent years.
whereas now it has switched mostly to cleaner hydrogen gas for fuel.

19
 Shriram Food and Fertilisers Ltd. (now DCM Shriram Consolidated Ltd)

Location: Delhi

Shriram Food and Fertilisers Ltd. (Shriram Ltd) was at the bottom of the ranks in the stock
market only two decades ago but is now rated as one of the most environmentally safe
companies in the country according to CSE. Shriram Ltd experienced difficulty when it
encountered a judicial case in 1985. In the Shriram Gas Leakage Case v. Union of India (1985)
the former was accused of releasing toxic oleum gas fumes from its plant killing one person and
hospitalizing hundreds. The plant was closed and given only 10 weeks to reopen contingent upon
creating a reparations agreement (Towards Sustainability, p.27).

Because the incident took place a few months after the Bhopal gas tragedy it served as a
reminder that India’s people and environment were still vulnerable from industrial
pollution/accidents. Furthermore, it also brought to light the importance of moderating a sector
that provides huge employment and is notorious for not adhering to environmental standards.
The closure of the plant affected 4,000 employees (UNESCAP, 2003, para. 1). The plant was re-
opened ten weeks later by the Supreme Court with the fear that jobs would be lost and a critical
export would be greatly impacted.

Governmental proviso was applied through weekly inspections, periodic health checks for the
workers, setting up of safety committees comprising workers’ representatives, training of
workers in safety measures etc. The court also expressed the need to set up an Environment
Court since the number of cases involving industries, and disasters and public litigations were
rapidly increasing. The Environment Court was not seen through. Despite this, Shriram Ltd
learned an important lesson, which emphasized the responsibility of companies to manage their
risks and recognizing their liability in human-caused industrial disasters. Shriram Ltd, in
response revamped their entire organizational structure and focused on environmental
sustainability.

To mitigate any further risk the company constantly monitors energy consumption, effluents,
carbon emissions and resource management. Today, company officials value human safety and
ensure it through the ongoing training and development of operating staff and workmen. Having
taken extraordinary leaps in their business Shriram Ltd has gained a reputation of being one of
the most eco-safe industries in the country. At the same time its new business strategy in
environmental sustainability has revived confidence in the market.

The company’s turn around tremendously improved its reputation. In 2004 IFC loaned the
company USD 54 million in 2004 for its expansion and modernisation plans. In that same year
the company raked in over INR 1,400 crore in profits (The Financial Express, 2004, para. 2).
Shriram Ltd successfully acquired a large loan amount because it took a “number of steps to
make its operations fully compliant with local environmental and social regulations as well as to
start aligning them with international best practices” (IFC, 2006, para. 14).

20
 III. THE WAY FORWARD

6. Conclusion and solutions

According to Colin Monks, Head of European Equity Research, HSBC:

“It is becoming clear that sustainable development will be one of the major drivers of
industrial change over the next fifty years and that there is a growing demand from both
companies and institutional investors to understand its financial impacts. It
followstherefore that the successful brokers will be those that anticipate this demand,
respond to it with robust financially relevant research and thereby differentiate
themselves in an increasingly crowded marketplace” (UNEP FI, 2005, p. 3).

Monks’ statement is a reflection of the increasing reference that business leaders are making on
the relationship between environmental performance and financial success. ESPF may be a new
concept that most businessmen are still trying to grasp, but there are those whose increased
success has been due to realizing the importance of taking into account the triple bottomline
which has in turn made them attractive recipients for large loans.

The direct relationship between social/environmental performance and financial

performance/risk of companies has been proven in several empirical studies (Griffin and Mahon,
1997, Orlitzky and Benjamin, 2001, Orlitzky et al., 2003, Dowell et al., 2000, Konar and Cohen,
2001, and King and Lennox, 2002). At the same time there are an increasing number of
consumers and investors who are scrutinizing environmental performance of industries (Afsra,
2006). A company that takes into consideration the triple bottomline is an indication to investors
and lenders of a business that is able to maximize profit by using a limited amount of natural
resources (Guenster et al., 2006), and reduce its production costs by investing in alternative
sources of renewable energy and reduce waste (Dowell et al., 2000).

Although the links between environmental risk and performance have been confirmed it is not
necessarily inclining companies to act in accordance. Private lenders and investors in India may
not yet be ready to consider ESPF but some well-respected and clairvoyant financial leaders are
of the opinion that only good will result in such a change. Nachiket Mor, President of ICICI
Foundation for Inclusive Growth believes that banks would be safer in their investments within
industrial corporations if environment cell/team, policy and systems were created within the
banking system (2008, slide 4). If banks could reasonably quantify environmental risks with the
help of environmental consultants or by building teams in fiscal terms, it would make it easier to
determine the worth of an investment that tends to have a high environmental and social risk.

Additionally, lenders and investors alike can make project finance based decisions on the EIAs
and EAs conducted by the government before getting approval for operations. However, those
certificates are not always a guarantee for safety. In fact as learned from case studies on non-
compliance, a significant number of companies that get the green light even after government
approval end up being taken to court for breach of environmental laws. Therefore, lenders and
investors need to ensure that such risks are mitigated by conducting their own independent
assessments and regular monitoring. Ultimately, independent investigations ensure safety for all

21
stakeholders. Abiding by government regulations is an incentive for every business. As shown in
the case studies it reduces costs ad most of all mitigates risks.

While environmental legislation is an incentive to regulate the industrial sector, it does not do so
to the extent that it halts environmentally destructive behavior in the sector. However, the
government as the highest authority in the country has the ability to bolster laws and regulations
by increasing salaries of environmental auditors/inspectors to increase the quality of
investigations and frequency of policing. An additional incentive that can be created by the
government is providing reasonably attractive tax breaks for companies that demonstrate
commitment to the environment.

The public services that local governments and related parastatal agencies offer can aid
tremendously in furthering the cause of project finance. Parastatal agencies could provide
services in the form of impact assessments and evaluations to determine how environmentally
safe industrial projects are. The advantage to increasing the role of parastatals is that it serves as
a standard and trustworthy source of information for all project finance stakeholders.
Furthermore, such agencies would help to build the public-private partnership.

Within the private sector, a lot can be done to encourage EPSF – for example raising awareness
amongst lenders and investors to have a more socially and environmentally inclusive lending
criteria/outlook is a solution to alleviate the backlash from bad investments. The relationship
between investors and lenders and companies is such that pressure from the former would most
likely have a significant influence over a company’s environmental performance.

However, we have seen in some case studies that due to lack of education in ESPF, many
investment and lending firms have failed to recognize the loss when a company’s subsidiary has
been closed down. By raising awareness of the link between market value and environmental
performance it may encourage the development of voluntary efforts with the help of industrial
consortiums and organizations such as the CII, UNEP FI and so on. The point is that there is
enough information and channels to distribute relevant information to stakeholders and therefore
there is no reason why lack of awareness should be an issue. Furthermore, there are existing
networks and support systems that can facilitate such information sharing and partnerships.

A growing concern regarding the impact that businesses have on the environment is
commensurate to the information gathered thus far from case studies and scholarly research. As
we move further into the 21st century, we are finding ourselves running into greater turmoil
including environmental problems due to an accumulation of decades long of bad decisions.
Therefore, it is time that leaders recognize that they are significant players in the global struggle
to creating sustainable communities supported by socially and environmentally responsible
businesses. The concepts under which ESPF are founded are germane to our current socio-
economic, political and environmental situation. Therefore, we must alleviate the problem before
it gets out of control.

22
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 IV. APPENDICES

Figure 1.

The Project Finance Quadrant: Relationship between stakeholders

Government (Supreme Court of India,

parastatal agencies, PCBs and
MoEF)

Media
Local and Tribal Communities
Research think tanks
Investors Interest Groups Extractive Industries
& Lenders International Financial Organizations (High environmental risk
companies e.g. Chemical and
(Banks, fund mining)
managers, private
equity groups)

Environment
(Flora and Fauna)

In the figure above, the arrows represent the existing/missing links between the four main
stakeholders in project finance. The red arrows indicate existing relationships between
stakeholders while the dotted arrows represent the gap between stakeholders. As demonstrated,
an understanding amongst investors and lender and extractive industries on the importance of
ecosystem services is lacking in the Indian context. The relationship between investors and
government is also lacking in terms of public- private partnership projects (PPP).

The stakeholders in the centre contribute to the entire dynamic through information sharing,
raising awareness and creating platforms for discussion on project finance issues. The
stakeholders in the centre are highly influential in either building or destroying the reputation of
government, investors and lenders and companies through media. Therefore, the role of the
centred stakeholders is vital to act as agent to facilitate better communication and understanding
between all stakeholders.

28
Stakeholder Analysis
Stakeholder How affected by lack of appropriate
measures for environmentally sustainable
project finance
Extractive industries - Risk of closure
- Risk of incurring penalties
- Threat of natural resource depletion.
- Reputation affected by high risk factor and
violation of environmental laws
- Limited capital base due to high risk
investment.
Government of India - Natural resource degradation
(Supreme Court of India, - High public cost of running court cases.
Pollution Control Board, - Inability to arrest the problem threatens the
MoEF, and RBI) community’s trust in government.
Investors and Lenders - Monetary losses from investing in risky
(International fund businesses
managers, Private equity) - Bad reputation from funding failed projects
Consumers - Consumers who prefer to buy products from
environmentally responsible companies have
a limited range to choose from
Rating Agencies - Impact of ESPF is minimal
29
Capacity/motivation to participate in promoting
environmentally sustainable project finance
- Low motivation; high influence
- Reduction in cost for manufacturing and waste
management.
- Within fiscal capacity to install pollution control
equipment; and research renewable energy sources.
- Increase company’s market value
- Low motivation; high influence
- Legislation is influential in controlling industrial.
- Government has ability to provide incentive to
public and private entities to implement ESPF.
- It is in the government’s interest to uphold the
interest of its people and the environment.
- Low motivation; high influence
- Little interest to impose environmental impact
standards
- Ability to revoke funding
- Competition between banks
- Low motivation; high influence
- Increasing number of consumers are becoming
environmentally conscious and willing to spend the
extra buck for green product
- Low motivation; low influence
- Ratings are influential in raising awareness on
company performance and reputation

Tribal/ Local community - Loss of livelihood
- Employment opportunities
- Access to better infrastructure
Interest Groups - Loss of biodiversity
(environment and human - Human rights abuses
rights)
Industrial consortiums - Industries represented are vulnerable
Research think tanks - Impact of ESPF is minimal
Media - Impact of ESPF is minimal
30
- Competitive companies are concerned about ranking
high as it will attract more funds and profits
- Highly motivated; low influence
- PILs have influenced closure of companies
- Access to judicial process is limited
- Highly motivated; high influence
- Influential in raising awareness and denigrating
reputations of polluting industries
- Motivated by interest to represent interests of
marginalized
- Highly motivate; high influence
- Consortiums allow for the sharing of ideas and
resources which can be helpful in creating
incentives for the integration of ESPF by companies
and their investors
- From a business perspective there is a need to
promote energy conservation
- Highly motivated but high influence
-thorough research and analysis can provide
mechanisms to adopt ESPF
- Low motivation but high influence
- Although media is highly influential in reporting
stories of non-complying companies the former tend
not to continue reporting on the issue
- If reporting was consistent and made public it would
help build awareness and support for ESPF