9 Emerging-Market, Clean-Tech Plays

Companies Marrying Sustainability and Profitability

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Emerging economies have been moving into clean technology and green energy at a pace that would surprise many. A recent , produced with the Boston Consulting Group identified some profiting handsomely from sustainability. For example, Brazilian cosmetics giant Natura awards bonuses based on contributions to the company’s financial, environmental and social targets. Indian agriculture manufacturer Jain Irrigation Systems encourages farming practices that maximizes crop yields with less water. "N
Photo: Thomas Vogel | Vetta | Getty Images

Emerging economies have been moving into clean technology and green energy at a pace that would surprise many. A recent World Economic Forum report, produced with the Boston Consulting Group, identified some 1,000 companies profiting handsomely from sustainability.

For example, Brazilian cosmetics giant Natura awards bonuses based on contributions to the company’s financial, environmental and social targets.

Indian agriculture manufacturer Jain Irrigation Systems encourages farming practices that maximize crop yields with less water.

"Normally, you wouldn't expect to find these kinds of advanced sustainability strategies in emerging markets," says Knut Haanaes, a BCG partner. “But these companies truly are sustainability driven and impressive.”

The ascension of emerging markets is putting additional pressure on global resources, as food, energy and water consumption rise. Rapid economic and population growth are also contributing to the carbon challenge.

“These kinds of companies teach us something that will be important everywhere for the big, multinational Western companies. We have to be very efficient in using resources,” Haanaes says.

The WEF report scoured the emerging markets for companies that were profitable and practicing sustainability. The pool of more than 1,000 companies was whittled to 16 companies creating innovative solutions, which could be replicated to reach many customers over nations, and in some cases, continents. And lucky for investors, 13 are publicly traded. For U.S. investors, they’re predominantly accessible through exchange traded funds.

Here are nine of the companies and some of the funds that own shares in them, based on data provided by Morningstar senior research analyst Annette Larson. (Annual revenue figures are in U.S. dollars.)

By Heesun Wee
Posted 12 March 2012

Jain Irrigation Systems (India)

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Photo: Universal Images Group | Getty Images

Sector: Manufacturing and agriculture
Revenue: $820 million

Business model: India’s population boom and exploitation of freshwater reserves have created water scarcity in some regions. That’s why Jain Irrigation developed micro, drip irrigation systems, which considerably reduce water consumption for smaller farmers. The company also helps customers buy its products by helping them apply for government subsidies and banks loans.

Some 1,000 employees travel widely to teach farming techniques that yield more crops with less water. Jain Irrigation also promotes its clean-tech products and sustainability through singing and dancing events at local bazaars, appealing directly to consumers.

Funds: iShares MSCI India Small Cap (SMIN), SPDR S&P Emerging Markets Small Cap (EWX), Vanguard FTSE All-World ex-US Small Cap Index ETF (VSS).

Suzlon (India)

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Source: Suzlon.com

Sector: Wind power
Revenue:  $4.6 billion

Business model: Despite improvements in the 1990s, reliable electric power remains elusive for many companies, with some of them off the grid entirely. Initially in the textiles business, Suzlon installed two wind turbines to secure power for its operations. The experiment worked so well it abandoned textiles to focus exclusively on the clean energy technology. Suzlon today operates in more than 28 countries and has a 10-percent share of the global wind power market.

The company also invests in research and development for new wind-power solutions. One prototype windmill produces electricity and taps into the air’s humidity to produce water for drinking and agricultural use. Suzlon partners with other high-tech firms and has established R&D facilities in China, Germany, India and Holland.

At Suzlon’s headquarters in Pune, India, water and solid waste are recycled. Power is supplied solely by zero-carbon wind and solar sources. The company’s comprehensive efforts have brought more affordable electricity to communities, which could not afford it.

Funds: Vanguard MSCI Emerging Markets ETF (VWO), Vanguard Total Intl Stock Index ETF (VXUS), iShares MSCI Emerging Markets Index (EEM), SPDR S&P Emerging Markets Small Cap (EWX), EGShares India Infrastructure (INXX).

MTR Corp. (Hong Kong)

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Sector: Transportation and propertyRevenue: $4.3 billion Business model: In densely-populated Hong Kong, sustainable land use is essential. That’s why MTR Corp, a major rail operator, minimizes impact to the natural environment when developing new rail lines. The company also retrofitted an existing rail station to improve energy efficiency, and hopes to use it as a model for future projects. MTR Corp was the first company in China to publish annual sustainability, and has created international
Photo: Getty Images

Sector: Transportation and property
Revenue: $4.3 billion

Business model: In densely populated Hong Kong, sustainable land use is essential. That’s why MTR Corp., a major rail operator, minimizes impact to the natural environment when developing new rail lines. The company also retrofitted an existing rail station to improve energy efficiency and hopes to use it as a model for future projects.

MTR was the first company in China to publish annual sustainability and has created international benchmarks for the railway sector.

Funds: Vanguard Total International Stock Index ETF (VXUS), iShares MSCI Hong Kong Index (EWH), iShares MSCI EAFE Index (EFA), iShares MSCI Pacific ex-Japan (EPP), Vanguard FTSE All-World ex-US ETF (VEU), iShares MSCI All Country Asia ex Japan Index (AAXJ).

New Britain Palm Oil (Papua New Guinea)

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Sector: FoodRevenue: $470 million Business model: Palm oil production usually is associated with slash-and-burn development of forests, which releases significant carbon emissions. New Britain, which adopted a no-burn policy in 1963, avoids planting on primary rainforest while developing plantations on degraded forests and grasslands, and limits its use of chemicals. The company relies on small farmers for one third of palm-fruit supply. Fostering close ties with its growers has enabled New Brit
Photo: Eightfish | Image Bank | Getty Images

Sector: Food
Revenue: $470 million

Business model: Palm oil production usually is associated with slash-and-burn development of forests, which releases significant carbon emissions. New Britain Palm Oil, which adopted a no-burn policy in 1963, avoids planting on primary rainforest while developing plantations on degraded forests and grasslands. It also limits its use of chemicals.

The company relies on small farmers for a third of its palm-fruit supply. Fostering close ties with its growers has enabled New Britain to develop one of the world’s first sustainable and fully traceable palm oil supply chains.

Funds: PowerShares Global Agriculture (PAGG), First Trust Europe AlphaDEX (FEP).

Suntech (China)

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Photo: China Photos | Stringer | Getty Images

Sector: Solar power
Revenue: $2.9 billion

Business model: The largest solar panel maker in the world, Suntech designs, develops and manufactures photovoltaic (PV) panels. It invests heavily in innovation, with more than 400 researchers and engineers around the world. Used PV panels are recycled.

Suntech also promotes solar-power education among schoolchildren. The initiative is being expanded to middle and high schools and universities. The company’s solar panels are used in more than 80 countries.

Funds: PowerShares WilderHill Clean Energy (PBW), Guggenheim Solar (TAN), Market Vectors Glb Alternative Energy ETF (GEX). Suntech Power Holdings (STP) is also traded on the NYSE.

Manila Water Co. (Philippines)

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Sector: Water utilityRevenue: $415 million Business model: Amid higher populations, cities including Manila have some of Asia’s oldest water and sewage systems. In 1997, the company won a 25-year contract to provide water, sewage and sanitation services to about 6 million people. Its strategy includes protecting groundwater sources by halting use of deep wells, and encouraging customers to use only surface water. To prevent water theft, the company teams with local leaders to monitor and maintai
Photo: Fuse | Getty Images

Sector: Water utility
Revenue: $415 million

Business model: Amid higher populations, cities including Manila have some of Asia’s oldest water and sewage systems. In 1997, Manila Water Co. won a 25-year contract to provide water, sewage and sanitation services to about 6 million people. Its strategy includes protecting groundwater sources by halting use of deep wells and encouraging customers to use only surface water. To prevent water theft, the company teams with local leaders to monitor and maintain regional infrastructure. Flexible payment options are available for its customers.

The company’s comprehensive approach has led to water savings equivalent to that held by a medium-sized dam, which would cost about $750 million to build today.

Funds: Vanguard Total Intl Stock Index ETF (VXUS), WisdomTree Emerging Markets SmallCap Div (DGS), iShares MSCI Philippines Investb Market Index (EPHE).

Natura (Brazil)

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Sector: CosmeticsRevenue: $3 billion Business model: Natura makes cosmetics composed mostly of natural and organic ingredients; many of the company’s product bases are derived from Brazilian plants. The company has closely working ties with rural communities, which have expertise in local raw materials. The sustainability strategy extends to cosmetics packaging that promotes re-use, refill and recycle. Natura’s staff is also motivated by bonuses based on environmental, social and economic perfor
Photo: Moment | Cultura | Getty Images

Sector: Cosmetics
Revenue: $3 billion

Business model: Natura makes cosmetics composed mostly of natural and organic ingredients; many of the company’s product bases are derived from Brazilian plants.

The company has close working ties with rural communities, which have expertise in local raw materials. The sustainability strategy extends to cosmetics packaging that promotes re-use, refill and recycle. Natura’s staff is also motivated by bonuses based on environmental, social and economic performance measures.

Funds: Vanguard MSCI Emerging Markets ETF (VWO), iShares MSCI Brazil Index (EWZ), IShares MSCI Emerging Markets Index (EEM), Vanguard Total Intl Stock Index ETF (VXUS).

Masisa (Chile)

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Sector: Forestry and wood board manufacturingRevenue:  $1.1 billion Business model: Forests throughout Latin America risk are vulnerable to exploitation, partly because high demand for wood (used for furniture) has brought deforestation. A key part of Masisa’s sustainability strategy is the creation of a network of 30,000 carpenters by 2013. As there’s buying power in numbers, the association gives carpenters access to sustainable raw materials at affordable prices. Masisa operates more than 10
Photo: Kathy Collins | Digital Vision | Getty Images

Sector: Forestry and wood board manufacturing
Revenue:  $1.1 billion

Business model: Forests throughout Latin America are vulnerable to exploitation, partly because high demand for wood (used for furniture) has brought deforestation. A key part of Masisa’s sustainability strategy is the creation of a network of 30,000 carpenters by 2013. With buying power in numbers, the association gives carpenters access to sustainable raw materials at affordable prices. Masisa operates more than 10 industrial sites and trains local carpenters, who tend to be low-paid and isolated in rural areas.

Funds: Vanguard Total Intl Stock Index ETF (VXUS), iShares MSCI Chile Investable Mkt Indx (ECH), SPDR S&P Emerging Markets Small Cap (EWX).

Woolworths (South Africa)

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Sector: RetailRevenue: $3.1 billion Business model: Woolworths was the first major South African retailer to offer a range of clothing containing organically-grown cotton. By training and maintaining close relationships with its farmers, the company is able offer organic clothing on a mass scale. Chemicals are used at a minimum and its transport fleet is fuel-efficient. Woolworths’ holistic approach to sustainability includes rewarding employees for innovative ideas. The company works with the S
Photo: Yoshikazu Tsuno | AFP | Getty Images

Sector: Retail
Revenue: $3.1 billion

Business model: Woolworths was the first major South African retailer to offer a range of clothing containing organically grown cotton. By training and maintaining close relationships with its farmers, the company is able to offer organic clothing on a mass scale. Chemicals are used at a minimum, and its transport fleet is fuel-efficient.

Woolworths’ holistic approach to sustainability includes rewarding employees for innovative ideas. The company works with the South African government on agricultural standards, labor markets issues and education.

Funds: Vanguard MSCI Emerging Markets ETF (VWO), Vanguard Total Intl Stock Index ETF (VXUS), iShares MSCI Emerging Markets Index (EEM), iShares MSCI South Africa Index (EZA), WisdomTree Emerging Markets Equity (DEM).