How Green is your MBA?
Careers in Carbon Finance and Related Areas - Kavita Krishnamurthy Madiyal

As mankind takes higher leaps in progress and nations increasingly add to the list of “developed” countries, newer technologies and processes emerge across the globe. Inevitably, the new ranges of technology give rise to newer challenges. Perhaps the greatest challenge facing us today (and one that is being acknowledged by experts in all fields across the globe) is that of combating the threat of climate change that could well push all of humanity into disaster and destruction. More specifically, tackling global warming and controlling increasing emissions of greenhouse gases (GHG – see box) that can bring about climate changes are turning out to be key existential and sustainability issues for individuals, businesses and world institutions.

But as the wise would say, every threat gives rise to newer opportunities. Carbon dioxide and climate change have jolted the world into working out ways to control their releases into the air that destroy the earth’s atmosphere. Such regulatory controls have led to the birth of a whole new area in business called carbon management. Carbon management from a corporate organization’s point of view would include managing the eco-friendliness of the company to earn carbon credits (see box) and make the most of it by selling/ trading it at the right time. Evidently, therefore, this also creates a potentially vast and attractive area for managers of the current and future generations to operate in.

Opportunities for businesses
“Carbon credits are the emission reduction credits that a company gets for reducing any of the six greenhouse gases covered under the Kyoto Protocol,” explains Seema Unnikrishnan, Fellow (NITIE). “As far as India is concerned carbon credits are in the form of certified emission reduction units as we are participating in Clean Development Mechanism [CDM – see box] Projects under article 12 of the Kyoto Protocol.” Unnikrishnan, teaches CDM and Air quality for the PGDISEM batch at NITIE along with other subjects. She feels that CDM presents a good opportunity for companies, as it helps the bottom line of projects by bringing in cleaner technologies as well as getting carbon credits for each ton of emission reduction of green house gases that is implemented. “In many cases the crediting period will be around ten years or so, which means that throughout the crediting period, the company gets paid for the reduction of green house gases,” she explains.

According to former Union Minister for Power and Environment Suresh Prabhu, this is a growing area. “It is an evolving area and no business can be ignorant to it,” says Prabhu, who also takes a course on Business Environment in the Goa Institute of Management (GIM).

Damodaran A, Professor of Economies of Global Environment issues at IIM B, explains that we do not have an organized market in this field yet. “Europe is mostly full of developed countries and they follow the Cap and Trade system (see box), whereas the opportunities in India will be in CDM. We are turning out Certified Emission Reductions (CER - see box) and the commodity exchanges will also trade in CER.”

B-schools moulding Green graduates
Most B-schools today are realizing the need for green graduates and have introduced courses to help students realize the criticality of the issue and generate an interest in this area. NITIE has a full-fledged two year course – the Post Graduate Diploma in Safety and Environmental Management (PGDI-SEM). This course aims at redefining the relationship between business and environment on the basis of the cardinal principles of sustainable development. Students are fully geared to play this role and are aware of the situation. “India has the largest number of CDM projects under the Kyoto protocol wherein by implementing cleaner technologies, firms can earn multi-fold revenue,” says Anup Guruvugari, first year PGDISEM student. “In fact even if you consider the Railway budget announced a few days back, you will notice our minister has talked about the implementation of ‘green toilets’ which will fetch the government carbon credits!” he adds. Jayendran Panneerselvam, first year PGDISEM Student (class of 2009), adds, “Apart from providing opportunities in the field of carbon management, the course enables us to get  into fields like SHE (Safety, Health and Environment), supply chain management, audit and certification, consultancies etc.”

Many institutes have also made this a compulsory elective in the first year of management. “We have a business environment course, which is compulsory,” says Neha Arora, student, GIM. “20-25% of the course is focused on Carbon management.”

Damodaran, however, believes that this is not a new field coming up as such. “It’s all about integrating newer information within the existing curriculum,” he says. “You are moving with the times to upgrade, which is what any good B-school would continuously strive to do.” IIM Bangalore does not have a separate course, but as part of courses in finance, students are taught about carbon trading. “Awareness comes through various other course subjects,” adds Damodaran. “Also, most students are aware of this issue and the ones who are interested in the field do take special interest to learn more.”

Sandeep Kumar J, another first year PGDISEM student, says “A premier B- School equips the manager with knowledge of best practices in the industry; recent deals in carbon trading has garnered revenues upto Rs.1000 crore, highlighting the fact that Carbon Finance constitutes a sizeable revenue stream that no company can afford to ignore. Moreover diverse methodologies enable diverse companies from the service sector to the manufacturing sector to earn carbon credits.”

With our Railway minister announcing plans to earn carbon credits for the Railways in his budget speech, the awareness, if anything, is bound to increase. Moreover, CRISIL has announced its sustainability ratings and the BSE its sustainability index. Thus, a company today has no option but to consider managing its environmental footprint and Carbon Finance. The largest banks in India have dedicated Carbon Finance cells to enable funding opportunities.

Roles for Indian Managers
There are many roles for young managers in this field. Damodaran gives a broad overview of related areas in which a young management graduate may be interested:

- Management graduates with an interest in the areas of hydel power and fertilizer will find this field a good area for growth
- MBAs can specialize in Carbon Finance or CER trading
- Consulting in investment banking companies as an investment advisor, or in carbon funds, derivatives or spot trading would be a good prospect
- At a strategy level, they can work in the image makeover of a company
- At an operational level, they can work in the area of sustainability reporting

Upon review, the three main areas where young managers would be required are:

CDM
This would include carbon trading profiles, where it is all about carbon credits – how to go about a CDM project and sell resulting credits for the best price. This would primarily be a consulting role. A regular growth path would typically begin with the post of Assistant Consultant and thereafter graduate successively to that of Consultant, Senior Consultant, Project Manager and Project Head. You could work with various banks or with consulting companies. When with a bank, you analyze the client’s role, evaluate proposals and give him loans. As a bank representative, it’s about how to gauge a client’s value on the basis of carbon credits that he may earn. Will the company crumble in 20 years?

EHS – Environmental Health and Safety
This is in a manufacturing role. Here, you will take care of manufacturing health and safety issues. At the fresher level, it could be at the plant level and later you could graduate to a strategic role.

CSR – Corporate Sustainability Reporting
This is mainly a consulting role on financial reports. It’s a complete reporting system where you work with a company or a client to figure out whether a company is focused on EHS, the people who are affected or benefited, and so on.

So how or what is the work on-the-job? Rajesh Singla, consultant at Ernst & Young (E&Y), who works on the CDM domain talks about carbon finance/trading and creating portfolios. “My profile relates to the execution part,” he explains. “It primarily involves facilitating companies to give carbon credits. So basically you go to a particular client site and try to reduce his carbon emission, and in this way increase efficiency. Then you find out ways and means to convert credits into money over a period of time.” The job also involves paperwork concerning registration with the UN. “Let’s suppose the company has a process in place for saving credits – but until it is registered with the UN, it is of no use. Every project has to be certified by the UN. So it involves an entire process – audit-paper work and then finally, securing certification.”

What would be the qualification required to work in this field? “A basic engineering degree is sufficient, coupled with management and knowledge of Environmental Health and Safety (EHS) issues,” says Singla. “Consulting in this field is about making a strategy for companies and telling them what comes in their kitty and how to convert the certificate into money. Then, you would have to locate the money for them and spot selling opportunities,” adds Singla, a chemical engineer and an alumnus of NITIE.

Sabyasachi working as an EHS manager (Strategy) in the Asian Paints Corporate office tells us more about his role. He believes that the basic strategy of EHS comes into play in design. “When you are coming up with a paint plant, strategy begins right at the stage of designing the plant,” he says. “We need to obtain permission for the plant from the ministry, ensuring that it meets the minimum legislative requirement. As of now, EHS laws are pretty stringent in India.” His role also includes evaluating the opportunity of CDM and building a bridge between the technical and managerial aspects. “Designing a green building is good,” he says. “And the strategic decision – to build the plant in such a way that the cost of consumption of power is low – may be worked out by the engineer. But he wouldn’t be able to think of the amount he may earn in carbon credits by doing so. So a manager’s role is all about knowing how much that would be and maximizing resources.”

Future of Carbon Trading
“The clean development mechanism is a golden opportunity for Indian business houses to make carbon credits, as well as to become an environmentally committed organization,” says Unnikrishnan. “The future of carbon trading will continue to be attractive even when India becomes a developed country. In fact, at that stage we will be able to participate in emission trading and joint implementation projects with the developed countries.”

“Considering the fact that India will trade differently as opposed to other developed countries, nothing can be predicted as of now,” says Damodaran. “There is some risk if CDM fails, thus creating greater challenges for management students concentrating on this field.” So what would be his advice in terms of walking the tightrope? “Students have to be aware and fully conscious of what they are getting into. Not only should they be aware of Indian circumstances but also be aware of what’s happening globally. They have to channelize and customize it for India. So it’s complex and challenging and therefore, very interesting indeed,” he concludes.

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