The world is increasingly depending on companies to make sustainable choices. Companies undertake measures to decouple growth from their environmental footprint and focus on eco-friendly operations, manufacturing facilities and activities, with the objective of minimising the impact of operations on and nurturing the biodiversity.
Usually, retail investors, distributors of financial products or financial advisers focus on returns. But now, society wants to associate with businesses that are more responsible towards sustainability. This is already visible in the global lending and investing practices. Companies, despite generating high profits, could lose prominence or importance in the investment horizon if they have low ESG scores and thereby risk losing capital flows.
Havells India and Godrej Consumer Products are among the 12 Indian companies that are going to be included in the Dow Jones Sustainability Index (DJSI) 2019, used for assessing environmental, social and governance (ESG) performances.
Havells eliminated the use of trace Kr-85 radioactive isotope from the entire CMI (ceramic metal halide) lighting range a few years back. No product of Havells now has radioactive components. In addition to this, the conpany has four zero water discharge facilities, two renewable energy initiatives — biomass and solar lamps — and four resource conservation initiatives across all its plants.
Godrej has successfully increased its renewable energy portfolio to 30 per cent, achieved 37 per cent reduction in specific greenhouse gas emissions, diverted 99.5 per cent waste from landfill and reduced specific water consumption by 32 per cent.
The company is focusing on making 100 per cent of the packaging material recyclable, reusable, recoverable or compostable by FY2025.
P&G introduced Fairy Ocean Plastic bottles, which are made of 10 per cent ocean plastic and 90 per cent post-consumer recycled plastic. The 100 per cent recyclable bottles were launched to show what can be done to prevent plastic waste from reaching the ocean.
UltraTech has been ranked among the top 10 companies, internationally, on Dow Jones Sustainability Indices (DJSI) in the ‘Construction Material’ Industry sector. Since cement is a carbon-intensive industry, UltraTech has integrated low carbon strategy into its business roadmap to address SDG 13 (climate change goal) based on COP21 of the United Nations Framework Convention on Climate Change. Initiatives like cooler upgradation, calciner modification, voltage variable frequency drive installation and burner modification across their manufacturing plants have drastically improved the company’s energy productivity.
Launched by Asian Paints, Project NEW (N- natural resource conservation, E- energy and emission reduction, W- waste reduction) focuses on eco-friendly manufacturing facilities and activities, with the objective of minimising the impact of operations and nurturing biodiversity.
Maruti Suzuki awards scholarships to meritorious students from underprivileged and economically weaker communities. Maruti Suzuki has partnered with a number of states to adopt several Industrial Training Institutes (ITIs) and also set up the first Japan-India Institute for Manufacturing (JIM) in Gujarat.
PI Industries has made efforts to communicate the latest scientific advancements in the field of agriculture across its manufacturing locations. It helped change rice cultivation practice to direct seeding of rice (DSR) technique across 675,000 hectares of land, thus conserving 355 billion gallons of water and saving 25-30 per cent costs related to irrigation and energy.
HUL was awarded the top corporate leadership ranking in the 2019 Sustainability Leaders Survey, for the ninth year running (2011-2019). HUL started the Suvidha Centre, which is located in Mumbai’s most challenging slums, to cater to issues of lack of personal hygiene, non-availability of safe drinking water and poor sanitation.
Dabur India launched Sundesh, a registered voluntary organization with the objective of developing rural areas.
And there are more.
So how do these activities impact businesses, profits and stock performance? We have compiled financial, investment data of ESG-compliant companies in India and selected the top performers from among them in terms of 10-year returns.
Asian Paints holds over 35 per cent (majority) of the market share in the paints and varnishes Industry, thus making it the largest player in the industry. Besides being almost debt free and maintaining a healthy dividend payout, the company has a good return on equity (ROE) track record with a three year ROE of 26.39 per cent.
Kansai Nerolac Paints, also from the same industry, is almost debt-free and enjoys a steady dividend payout.
HUL, India’s largest FMCG company, has recorded the highest sales volumes in the industry and has the highest EPS in the FMCG sector while also commanding the highest 10-year return on equity (ROE) of 82.99 per cent and the highest 10-year return on capital employed (ROCE) of 113.87 per cent.
Procter & Gamble Hygiene and Health Care has experienced the highest growth in sales and the highest year-on-year quarterly profit growth in the industry. The company has also offered the highest 12-month trailing EPS value of Rs 133.42 to its shareholders.
Both HUL and Procter & Gamble Hygiene and Health Care have zero debt-to-equity ratio and a price to earnings ratio higher than the industry average. Dabur India and Marico have debt-to-equity ratios, which are lower than 0.1 per cent.
PI Industries is an agrochemicals company involved in the manufacture and marketing of agrochemicals, industrial chemicals, chemical intermediates and speciality chemicals. It has a strong presence in both domestic and export market.
Page Industries is a manufacturer and retailer of innerwear, loungewear and socks. The company has a three-year ROE of 45.44 per cent. It also has a strong return on equity (ROE) track record while maintaining a steady dividend payout. Currently, it’s paying the highest dividend in the industry.
Significant investment is expected to flow into these companies from various funds over the next few years.
(Ajit R Sanghvi is Director of MSS Securities. Aishwarya Giridhar, Anushree Sawalka assisted in this study, which was done only for academic purposes and should not be construed as recommendatiions to invest.)
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