CB BureauThe Paris climate accord or climate agreement, which came out of the 21st Conference of the Parties (or COP 21, as it’s commonly known) in Paris 2015, recently made headlines thanks to America (and Trump) pulling out of it. The agreement was signed by 195 members of United Nations Framework Convention on Climate Change (UNFCCC) – the main environmental treaty of the UN – and has been ratified by 153 countries to date. It came into force in India on 4 November 2016 on the basis of this declaration: ‘The Government of India declares its understanding that, as per its national laws, keeping in view its development agenda, particularly the eradication of poverty and provision of basic needs for all its citizens, coupled with its commitment to following the low carbon path to progress, and on the assumption of unencumbered availability of cleaner sources of energy and technologies and financial resources from around the world, and based on a fair and ambitious assessment of global commitment to combating climate change, it is ratifying the Paris Agreement’ (italics are author’s).
Is Paris always a good idea?
While the details of the accord can be easily found online (the main goal is to cap the increase in the global average temperature to below 2 °C above pre-industrial levels), a few things must be kept in mind. One, it is a non-binding agreement and has no enforcing mechanism. Countries are free to set targets and dates as they please, facing no consequences should they fail to meet their self-imposed, voluntary commitments. This immediately makes the agreement quite toothless, with many critics observing (rightly so) that it does nothing to mitigate the urgent and calamitous issue of climate change. Two, the pledge to limit temperature rise to 2 °C is considered wholly insufficient as per the current commitments of the signatories. Also, it fails to meet the 1.5 °C threshold that was demanded by most activists and scientists as the best chance for preventing a climate-change catastrophe – the agreement merely refers to ‘pursuing efforts to limit the increase to 1.5 °C’.
In 2018, participating parties will take stock of the collective efforts toward the goals set in the agreement, with a global stocktake every five years to determine the progress made. Lastly, the burning question of how much money the developed countries (who are responsible for most of the carbon emissions) will be required to give to developing countries to help them tide over the costs of adaptation and mitigation is also non-binding. Issues related to colonialism, reparations and ‘historical’ debt are also baked into this sensitive topic. These open-ended questions and unresolved issues throw the declaration mentioned earlier into proper light.
The government – walking the talk?
As published in the journal Earth System Science Data, India contributed 6.3 per cent of all global CO2 emissions in 2015 (most of it from the energy sector), making it the fourth biggest emitter in the world after China, the United States and the European Union. India’s pledge, or Intended Nationally Determined Contribution (INDC), includes these (hardly) ambitious and deemed achievable targets:
1. Reduce energy-emissions intensity of GDP by 33″35 per cent from 2005 levels by 2030
2. Increase the share of non-fossil fuel-energy sources to 40 per cent by 2030
3. Create an additional carbon sink of 2.5 billion to 3 billion tonnes of CO2 equivalent, through increasing forest and tree cover (by five million hectares) by 2030
4. Climate-adaptation strategy of enhancing investments in development programmes in areas vulnerable to climate change, and building capacities for cutting-edge climate technology and R&D
The government has also made it clear that these targets will be achieved only if other countries give money to India, in addition to discounts on new technology – which brings us back to the issue underlined in the first section of this article.
All of this has a hefty price tag of $2.5 trillion between now and 2030 as per the Indian government’s own estimates. The government has also made it clear that these targets will be achieved only if other countries give money to India, in addition to discounts on new technology – which brings us back to the issue underlined in the first section of this article. However, the country has little choice in this matter. India happens to be most vulnerable to global warming, thanks in no small part to its population, poverty, geographical location, and huge swathes of coastal area. As has been well documented by reputed organisations including the UN, poor, developing countries such as India are at greater risk of being impacted by the devastating effects of climate change.
Some results of the implementation plan are encouraging. New coal capacity is being cancelled (for instance, 13.7 gigawatts of coal-fired power plants were cancelled in May 2017), annual production targets for coal mining have been reduced, and solar energy prices are rapidly coming down, resulting in doubling of solar installations every year since 2015. Renewable installed capacity is now 42.8 gigawatts and, as per current estimate, it is well ahead of the targeted 40 per cent. With the official Draft Electricity Plan stating that no new coal capacity, apart from the ones already under construction, will be needed after 2022, one can expect that the country’s fossil-free energy mix will reach 57 per cent by 2027. The full draft of the country’s INDC and planned strategies can be read here.
However, unlike other developing countries such as China, India has not yet announced when its GHG emissions will peak. Also, considering that most of the targets are slated to be achieved before the due date, many experts believe that these can be made more ambitious to help us achieve the goal of limiting warming to 2 °C. Right now, the government is playing it safe but when the worst effects of climate change will come to pass, there will be no place left to hide and definitely not in India.
Climate change and business – risks and opportunities
So what role does business have in this new normal? It can either turn a blind eye towards these irreversible developments or choose an active participatory role with a smart, well-managed transition towards a (hopefully) carbon-free future. As a report by the non-profit Business for Social Responsibility (BSR) notes, ‘private sector is recognised as an integral part of the global solution to address climate change. There is a clear policy signal for businesses and investors across all jurisdictions to make low emission or emission-neutral investments, whether through financing projects or investing in new technologies.’ The implications for business are straightforward – low carbon emissions while conducting business as usual, reduce energy and water consumption, rapid shift from carbon-high assets to carbon-neutral ones, and create new products and jobs for this exciting new future. Clean energy is what business needs to start internalising, even for green projects and CSR initiatives. The era of carbon has to be over and it is imperative for business to understand and welcome these changes.
For instance, real estate and construction companies can invest in energy-efficient buildings and housing. By 2050, more than 6 billion people of the world will live in urban areas and 400 million homes are expected to be built by 2020 – this is a potential windfall for construction companies that can make use of green technology and ecofriendly materials and resources. The building sector represents one-third of final energy use worldwide and it is ripe for attractive returns once energy cost savings and increased real estate value are baked in. Solutions like thermal insulation, efficient lighting, solar panels, recycling of waste and water, smart appliances, etc., can and should become the norm for these companies.
Carbon-emissions trading is another opportunity area for businesses. Carbon-pricing policies are set to become the norm in the post-COP 21 world and businesses can take advantage of this through savings from reduced carbon emissions, business models that rely on lower carbon usage, and internal carbon pricing (that is, assigning a financial value to both emitted and avoided emissions). The auto industry is a great example of rapid climate-induced changes. Electric cars have already become a staple with Tesla becoming its most well-known champion. Earlier this year, Volvo announced its plan to build only electric and hybrid vehicles starting in 2019, ditching fuel-driven engines altogether. It won’t be too fanciful to state that other auto companies will follow suit within the next decade. In India, the government’s Faster Adoption and Manufacturing of Hybrid & Electric Vehicles (FAME India) initiative should be enough incentive for auto companies to shift gear to ecofriendly business plans and processes.
Expect increased R&D funding for clean technology and renewables – this should be a clarion call for established businesses as well as start ups. Products and processes that rely on recycled material are also ripe for exploration and investment. The Indian government had already set up the National Clean Energy Fund (NCEF) in 2010 to support companies ‘investing in green technology, and environmentally supportive enterprises’. Private sector banks are also getting into the fray. In 2015, Yes Bank issued the country’s first-ever green infrastructure bonds for green projects, resulting in a total subscription of Rs 10 billion. While financing is one part of it, technology transfer and innovation will require collaboration with other companies, governments and institutions.
A report by University of Cambridge notes that ‘companies such as GE, Unilever, Nike, IKEA, Toyota and Natura are already reaping the benefits of offering “green†products and services, a market that has grown to over $100 billion. Unilever’s purpose-driven brands are growing at twice the rate of the rest of their portfolio, and if GE’s Ecomagination was a standalone business, it would be a Fortune 100 company.’
It’s a myth that switching to renewables means lower revenues. As a 2016 report by Carbon Disclosure Project (CDP) noted, companies like J. Sainsbury, Walmart de Mexico, Idacorp (which is in utilities sector) and Givaudan in Switzerland (materials) had managed to cut emissions while increasing growth. Others like Royal Philips have already committed to becoming carbon-neutral by 2020. As of now, few Indian companies have followed suit, Infosys and Tata Motors being the exception – they have committed to a 100 per cent renewable-energy consumption target by 2018 and 2030, respectively.
It’s a myth that switching to renewables means lower revenues. As a 2016 report by Carbon Disclosure Project (CDP) noted, companies like J. Sainsbury, Walmart de Mexico, Idacorp (which is in utilities sector) and Givaudan in Switzerland (materials) had managed to cut emissions while increasing growth.
Another less explored facet of the deleterious effects of climate change is the multiple risks that it poses to business – operational risks affecting facilities, offices and supply chains, financial losses, regulatory risks, reputation loss, etc. For example, supply-chain disruptions due to inclement weather-related disasters are projected to go up with increased temperature. It is imperative that companies invest in the right infrastructure, technology, insurance as well as social projects that help those most vulnerable to the pernicious effects of global warming.
Sustainable disclosures
An easy way for companies to become more carbon-conscious is to issue regular and reliable sustainability reports. This helps in not only having specific targets to strive for but also gives companies a clear idea of where they are right now and the path forward to where they want to be in the short and long terms. Companies like Mahindra, ITC, Infosys, Tata Motors, L&T, Dr Reddy’s, and Idea Cellular are some of the big names that have started issuing annual sustainability reports. However, right now very few Indian companies have adopted these reports as a key part of their annual disclosures. This is especially surprising considering that some of the biggest companies in the world have been doing it for years now and countries such as Australia, Japan, the UK, the EU and Brazil have made corporate reporting on carbon emissions mandatory (even if it’s for certain sectors in some cases). A 2016 study by IIM Udaipur, Futurescape and Economic Times found that only 25 per cent of the in-scope 217 companies had GRI-based sustainability reports. CauseBecause’s own investigation in this matter had little to cheer for.
Companies like Mahindra, ITC, Infosys, Tata Motors, L&T, Dr Reddy’s, and Idea Cellular are some of the big names that have started issuing annual sustainability reports. However, right now very few Indian companies have adopted these reports as a key part of their annual disclosures.
There are a few voluntary carbon-disclosure programmes such as the CDP and the India GHG Programme, and companies are slowly coming on board. As per the latest CDP report, Indian industries have achieved a reduction of 165 million metric tonnes of CO2 equivalent. Another study of 100 companies over a 5-year period covering 12 sectors indicates that Indian companies have, on an average, been reducing their specific water consumption by 2.8 to 3 per cent per year, while there are 2.68 billion sq. ft. of registered green building space across the country. However, both numbers need to go up drastically.
A 2016 CDP India report had participation from 58 Indian companies with combined total emissions of 272 million tCO2e. Some big names were Tata, Tech Mahindra, Wipro, and Godrej. The energy, materials and IT sector led the way with the highest average number of emissions-reduction initiatives. Crucially, companies reported a 57 per cent jump in estimated monetary savings year-on-year from these initiatives.
Irrespective of what that actual number turns out to be, what’s clear is that CSR projects cannot remain isolated from the realities of climate change. In fact, they need to be specifically designed and implemented keeping in mind the fact that when the warming chickens come home to roost, all other considerations won’t even matter.
CSR is, of course, going to be vital for meaningful contribution towards climate change-related adaptation and mitigation measures. By the government’s own estimate, a ‘fair share’ of the available CSR funding of about Rs 220 billion ($3.5 billion) annually will be invested in environment initiatives. Irrespective of what that actual number turns out to be, what’s clear is that CSR projects cannot remain isolated from the realities of climate change. In fact, they need to be specifically designed and implemented keeping in mind the fact that when the warming chickens come home to roost, all other considerations won’t even matter. Companies need to start baking in climate change adaptation strategies in all their CSR initiatives. Considering that the poor will be the hardest hit, their investments can help attenuate the worst of its effects. For instance, livelihood training in jobs for the post 2 °C world, educating people about disaster management (expect weather-related disasters to go up), providing ecofriendly housing and resources, funding innovative, carbon-free products, etc., are some areas that can be explored.
Companies also need to stop taking over pristine lands for mining, production or other extractive purposes since these harm the environment and trample over the rights of the indigenous people. Green forest cover and oceans act as carbon sinks and their role in limiting global warming to a manageable level cannot be emphasised enough. By focusing on short-term revenues, companies will only hasten the process of climate-change disaster.
Case studies
Mahindra Group is one of the top-performing Indian companies in all matters green and sustainable, as per multiple surveys. This is also evident through its stated long-term goal of doubling the Group’s energy productivity. Three of its group companies – Mahindra & Mahindra (M&M), Mahindra Finance, and Tech Mahindra – have featured in the Dow Jones Sustainability Index 2015. M&M also has a Level 1 Rating for governance and value creation from CRISIL for three years in a row, and both Tech Mahindra and M&M are among the top 10 companies in the CDP. Mahindra Group is also one of the few companies to achieve reduction in ozone-depleting substances, GHG emissions, and energy and material consumption, and provide numbers to back up the assertions. The company spent Rs 63 million in FY 2015 on environment management which included waste disposal, treating chemical waste, and controlling air pollution as well as achieving water-positive status. This CB article covered Mahindra’s CSR and sustainability in detail.
The same CDP report mentioned earlier used Dalmia Cement (its competitor UltraTech isn’t doing too bad either, sustainability-wise) as one of its case studies. The company has incorporated climate change into its core business strategy and has set both energy- and emission-reduction targets, which are compliant with India Low Carbon Technology Roadmap. The emission figures for carbon and other pollutants are also published. The company has partnered with World Bank’s Carbon Pricing Leadership Coalition (CPLC); unsurprisingly then, it has set up a shadow internal carbon-pricing mechanism to help drive decision making on low-carbon technology projects. This has helped in establishing a sound business case for a capital-intensive waste-heat recovery project for its subsidiary, OCL India Limited – a great example of why more companies need to adopt internal carbon-pricing policies. Dalmia’s sustainability report is fairly detailed and adheres to the ‘core’ option of the Global Reporting Guidelines (GRI G4).
The way forward
While there is no dearth of incentives for corporate India to embrace ecofriendly practices, many are still in denial mode. Others are dragging their feet in the hope of avoiding scrutiny and deferring action to a later time. However, some of India’s biggest companies have made climate-change action an integral part of their business philosophy. This is quite heartening. Even though the very nature of business (as we currently know it) is to aim for short-term profits, companies should realise that revenues and profits will mean little when there is no planet to profit from. Nations and their people have spoken, and it is only fair that companies follow suit.
Organisations will need to internally ensure the right culture and structures for implementation of low-carbon projects, benchmark and accordingly set long-term targets with timelines, partner with other organisations to exchange ideas and technology, and ensure transparency through regular public disclosures on their emissions and initiatives.
While there are some green start-ups in India (D&D Ecotech, Banyan Nation, Graviky Labs, etc.), there has been little research into the sustainability practices of small and mid-sized companies. Though clearly not the biggest polluters or carbon emitters, it’s imperative that they too join this revolution. While the government should provide enough incentives for them to go green, it’s in their interest as well to adopt smarter, better measures that don’t mess up the planet’s health. Investors and corporates should likewise look to encourage, partner with, and fund these green start-up warriors.
The recent news that the government diverted the tax collected on production and import of coal – which hitherto was used to invest in the National Clean Energy and Environment Fund (the cornerstone of the government’s environmental efforts) – to the GST schedule is extremely regressive and short-sighted. Even the unspent money amounting to Rs 56,700 crore lying in this fund has been diverted to appease the states on GST. Incidentally, this coal cess was one of the pièce de résistance in the government’s own official report submitted as part of the Paris accord. Considering that this fund is responsible for realising a significant chunk of India’s INDC, it won’t just be sceptics who will start questioning the government’s commitment towards its climate obligations. Corporates are bound to take note of this lacklustre performance. However, that is no excuse for them to take the foot off the climate pedal. Whether business likes it or not, climate change is an irreversible reality. The question is whether they want to play a constructive role in warding off its worst effects or be the (proverbial) ostrich hiding in the warming sand.