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Infrastructure Development and Green Policies – The Panacea That Greenex and Carbonex Purport

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Abstract: Infrastructure, the physical structures that provide the underpinnings for modern society, is a necessary part of the development associated with a growing human population. However it can also have devastating impacts on the environment. With India poised for economic growth projecting a need of Rs 31 trillion (US$ 454.83 billion) to be spent on infrastructure development over the next five years, majority being in power, roads and urban infrastructure segments, the Green policies including direct and indirect regulations, financial incentives and funding of demonstration or research projects in India necessitates scrutiny in terms of the carbon footprints of infrastructure development. The S&P BSE-GREENEX Index is a veritable first step in creating a credible market based response mechanism in India, whereby both businesses and investors can rely upon purely quantitative and objective performance based signals, to assess “carbon performance”. S&P BSE CARBONEX, the first of its kind index in India that takes a strategic view of organizational commitment to climate change mitigation, is a world class index that holistically incorporates strategies, disclosures, performance and action in areas of carbon emission to create a comprehensive benchmark that identifies a company’s commitment to mitigate risks arising from climate change. The companies with the highest and lowest weightage in BSE- Greenex i.e. Tata Steel and Reliance Industrial Infrastructure are analysed in terms of variations in excess returns from their securities to the extent to which they can be explained by variation in returns from BSE sectoral indices of which these companies are constituents, namely BSE- infrastructure, Greenex and Carbonex. The variations in Greenex and carbonex could explain the variations in returns of Tata Steel and Reliance Industrial infrastructure more than the infrastructure index. The study thus highlights the fact that investors who are environmental friendly may track greenex and carbonex than infrastructure index for explaining the variations expected in the returns of infrastructure company securities.

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