Emerging economies told to go green or risk losing inward investment

Sustainability is increasingly important to investors targeting Brazil, Russia, India and China, according to new report

Tom Young, BusinessGreen, 09 Feb 2009

Large emerging economies such as Brazil, Russia, India and China will put their long-term growth prospects at risk if they do not accelerate efforts to develop more environmentally sustainable infrastructure, according to a report from asset management giant F& C Investments.

The study argues that measures to protect coastal cities, agriculture and water suppliers from pollution and the impacts of climate change, as well as to develop low-carbon infrastructure capable of supporting increased urbanisation and industrialisation while cutting emissions, will become vital for retaining the confidence of foreign investors.

The report says that how companies operating in BRIC countries address climate change will have a major impact on investment decisions, concluding that "investors will increasingly reward BRIC companies that spot and act on sustainability opportunities and risks".

The report analyses each of the four BRIC countries and finds that environmental issues are already shaping investors' economic risk assessments and spending decisions.

For example, while Brazil leads the BRIC countries on renewable energy, with more than 80 per cent of its electricity consumption coming from hydropower and a large number of cars being powered by sugarcane ethanol, the country is still suffering widescale deforestation due to logging and agriculture.

The F&C report notes that an EU-commissioned study last year found that the global economy is losing more money through the disappearance of forests than through the banking crisis, and predicts that companies operating in Brazil will have to become increasingly aware of how their activities can contribute to deforestation.

For instance, a raft of multinationals, including Archer Daniels, Midland, Bunge Carrefour, Marks & Spencer, Tesco, Ahold, Brasil Ecodiesel, Petrobas, Shell, BP and Neste Oil, all recently signed up to roundtables that aim to reduce deforestation arising from soy or biofuel products.

Similarly, the report notes that while most firms looking to exploit Russia's crude oil, natural gas and coal reserves have typically paid only cursory attention to the sustainability agenda, there have been instances of firms being pressured into undertaking pollution clean-up operations, while some businesses, such as mining group Nickel and steel firm Evraz have developed climate change policies.

The study also warns that the governments of India and China now have climate change strategies in place and as such, firms operating in both countries are likely to face growing regulatory pressure to cut emissions and increase use of renewable energy, as well as calls from investors to embrace sustainability.

It says that while progress is patchy, some leading Indian and Chinese firms have embraced sustainability. For example, Indian car giant Tata Motors has agreed to report emissions, while Reliance Industries has engaged in dialogue with the government on the issue. Meanwhile, China Mobile, the world's largest phone company, has announced a target to improve energy efficiency by 40 per cent by 2010, while extractives giants China Shenhua and CNOOC have participated in the carbon disclosure project, though have not yet made explicit commitments to reduce emissions.

F&C's conclusions echo those of Goldman Sachs, which last year also released a report arguing that "it is in the BRIC's interests to rescue their emissions and pollution, and to pursue a cleaner path of development".