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June 8, 2000

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Devangshu Datta

Environment activism to the fore

Two decades ago, Glaxo commissioned a study focused on "ethical corporations". The results were startling. Glaxo discovered that corporations and indeed industries, that were regarded as being green, ethical, and socially responsible, got significantly higher market discounts over long periods (1950 was the base year). The difference compounded to as much as 3.5 per cent per annum over three decades.

Once multinationals digested the implications, things started to change. The 1980s were indeed the era of Ivan Boesky and his motto of "Greed is good". It also saw the launch of Ben & Jerry Ice Cream; and the decimation of the fur industry and South African fruit exports.

There are all sorts of anecdotes that illustrate the gradual change in business mindsets when faced with a new form of activism. General Electric was fined for doling out cash overseas in pursuance of contracts. When Burroughs Wellcome first launched the new AIDS wonder-drug AZT it was priced very high. After a week of stock market hammering and black flag demonstrations from gay activists, the price was slashed. When Dominos gave money to a Catholic anti-abortion campaign, US college students boycotted it so effectively that the pizza giant ended up making equivalent donations to pro-abortion groups!

Even big mining, oil rigging and power corporations started to make accommodations with the new brand of green power activists. Punitive judgments were handed out after a couple of oil spills. The Exxon Valdez marked a turning point. After that, Lloyds and other marine insurers simply refused to certify tankers that did not have two hulls to minimise chances of spill. Of course, a lot of birds and seals died before that happened.

Through that decade, India dwelt in a cocoon. We started waking up only after 1991. But both corporate governance and environment are now becoming serious issues here. At the risk of sounding absurd, I would suggest that the era of unethical Indian business is drawing to a close. Consider the evidence.

In the recent past, Zee Telefilms and Satyam Computer have seen their stock prices hammered. Zee took a hit because it did sleight of hand with inter-group transfers. Satyam got the treatment because of a preferential allotment to a group company. Both actions were everyday occurrences merely three years ago. Strike one for corporate probity or, at least for the appearance of corporate probity.

Remember the aquaculture industry? In 1994-95, it was the new "brand new" export driver, which would open up the Asia Pacific rim and double yen-denominated exports. Half of the Coromandel coast was taken over by shrimp farms. Even groups like Thapars launched aquaculture initiatives. What happened? Environmental pollution and legal action relating to the discharge of effluents and prawn-killing epidemics closed the industry down. It's making a slow comeback now. The units that have gone back into the business are extremely careful about staying clean. It's good business practice.

Kanpur used to be the best place in the country for prime beef. This was a by-product of the leather industry. If you've been there recently, beef isn't as freely available and is a good deal more expensive. Most of the tanneries have closed down. The few that still operate have seriously higher overheads because of the costs of bribing officials in order to stay open. Again, environmental pollution and court orders relating to the same have made a difference.

Have you ever bought a carpet from Mirzapur, Uttar Pradesh? It wasn't environmental activism that created problems for that industry. It was squeamishness on the part of First World importers about the use of under-age labour. Nowadays, all carpet exporters swear on whatever they consider holy that they don't employ under-age labour, or even if they do, they don't do it knowingly and, in any case, child or greybeard, they treat their employees far better than before.

The leather industry is being targeted all over again. This time by PETA (People for the Ethical Treatment of Animals). PETA's beef is that Indian beef is slaughtered with the utmost callousness. You may laugh, or you may shudder, but sooner or later, the brighter leather exporters will figure out that being demonstrably compassionate in their methods of slaughter would be the best chance to stay in business. It doesn't even matter whether PETA's protests trigger legal sanctions. The bad publicity will ensure that many buyers in the First World will simply steer clear of Indian leather.

Indian infrastructure projects have been held up, for decades in the case of the Sardar Sarovar, by environmental activism. Sooner or later, some bright infrastructure group is going to do the numbers. For any big infrastructure project to go through without delays, it has to happen with the consent of both the local people and the environmental activists. It would actually be cheaper to address concerns about environmental damage and voluntarily award generous rehabilitation packages to the displaced than to fight stay orders in court.

What's the next Indian industry that is likely to feel the heat of angry activists? I guess it will be the jewellers of Surat. They worked hard to engineer a huge 20 per cent growth in exports in this fiscal. But the diamond-cutting industry is liable to come under the microscope.

The new global activist campaign is directed against the trade of blood-stained "conflict diamonds". There are at least three African civil wars being fought and financed by the sale of diamonds. In one of them, Sierra Leone, there are 3,000 Indian troops at risk, including 21 hostages being held by the rebel forces. In each case, the battle is at least partially over the control of diamond producing areas.

The international pressure on De Beers to refuse to do business with "conflict diamond" sellers is building up. In fact, the mega-diamond cartel has already agreed to stop sourcing from the war-torn areas. Cut diamonds can't apparently be easily classified as to point of origin. But De Beers deals in uncuts, which can. It may soon be pushed into creating a system of independent certification to ensure that its diamonds don't come from war-zones.

Indian and Israeli jewellers haven't felt the pressure yet but they could soon be forced to take similar measures or come under sanction. For that matter, I doubt that the Indian troops who are trying to maintain an UN-Mandated peace in Sierra Leone would feel terribly happy if they knew the rebels they are fighting are financed by diamonds sold to Indian jewellers.

Is this activism a good thing? Well, it may or may not be, but it is also as inevitable a product of globalisation as McDonald's or Infosys. To put it bluntly, if India's First World markets collapse, due to either ignorance or inability to address these concerns, we can kiss our 1991 gameplan goodbye.

Devangshu Datta

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