Rushva Parihar is a Sustainability Coach for Indian companies. He has helped reduce more than 3500 CO2 from the Indian supply chain by helping companies transition to fossil-fuel-free supply chains. He has previously worked with the United Nations (ECOSOC, UNSG Climate Forum, Secretary-General’s Envoy on Youth), Government of India (Department of Science and Technology, Namami Gange Programme, Swachh Bharat Abhiyan) and the World Economic Forum.

In August 2021, the IPCC report confirmed what most of us in the climate space have been warning against for a few decades now – it is ‘Code Red for Humanity.’ The main message here is that the Earth is rapidly warming up and that it is due to anthropogenic causes. The warming planet poses a clear and imminent danger with a dramatic increase in catastrophic weather events (heat waves, floods, droughts, storms, rising sea levels, etc), changing cultivation patterns and the continued spread of diseases. Mahatma Gandhi wrote in 1938: “If India followed the western model of development, she would require more than one planet to achieve the progress they had attained.”[1]

Thankfully, India is looking at tackling this global challenge of climate change as an opportunity to drive growth in sectors that are still developing, including green energy, transportation, urban development and agriculture. Furthermore, India’s outlook on the developmental process is more harmonious with nature as it seeks to include the adoption of clean technologies, equitable distribution of resources and addressing the issues of equity and justice in its climate mitigation approach.

Climate change presents a growing threat to Indian businesses. Human activities have warmed the planet by more than 1°C since the 19th Century (IPCC 2021). Temperatures in India rose by 0.5°C in 50 years alone (Singh et all, 2014)[2]. During the second half of the 20th Century, monsoon rainfall became less frequent and more intense, causing water shortages, agricultural crop damage and other problems (Auffhammer et all, 2012)[3]. Though the IPCC report is purely science-based and silent on the role businesses can play. It is clear that if we hope to achieve the $5 trillion goal for the Indian economy, the private sector will have to play a key role in transforming the economy into a green one.

Indian companies are indeed taking the lead on this front by integrating climate risk with the overall risk framework for the company. According to Seshagiri Rao, Joint MD and CFO of the JSW Group, “Climate action has a direct correlation with cash flow in future, be it through the adoption of clean technology, decarbonisation or resource efficiency. Climate change has to be part of every decision-making to ensure business continuity. It is not only the physical risk (actual climate events) but also the transitional risks involving a change in government policy for a low-carbon economy or challenges in financing a project that impact business.”[4] JSW is not alone in its commitments. As many as 56 Indian companies have committed to reducing greenhouse gas emissions, according to the Science-Based Target Initiative[5], a global coalition that enables firms to set climate goals.

Small and medium-sized businesses form the backbone of the Indian private sector. They need to be incentivised and supported to make similar commitments to decarbonise like their large-cap counterparts. Given that SMEs are also more agile than larger companies, they also have the greatest opportunity to make this transition. Indian industry needs to undertake a systematic transformation, and SMEs can set the roadmap for this transformation by acting like case studies for larger companies to emulate, sectors like real estate, power, automobiles, aviation, oil, gas, steel, retail and IT. Given sufficient incentives, SMEs can indeed lead the way to meet national targets and bring the world closer to its net-zero ambition.

Here are six key takeaways for business leaders in this new era of climate action:

Net Zero Commitments are on the Way

The global trend toward net-zero is inevitable. India is already experiencing the devastating effects of extreme weather events, and we are already seeing the government take a proactive approach towards climate mitigation. India has already set a target of achieving 450 GW renewable energy by 2030. This is reflected in policy advances like the Green Hydrogen Mission and the shift in Business Responsibility and Sustainability Report (BRSR).

The recommendation for Indian companies (including mid-sized companies that are currently outside the purview of the regulations) is to start integrating ESG regulations and specific emission reduction targets in their strategies today to take advantage of the global movement towards combating climate change. Major Indian companies like HDFC Bank, Tata Consultancy, Mahindra and Mahindra Ltd, Wipro Ltd., all have commitments to be carbon-neutral by 2030 (Usmani, 2021)[6].

Delayed Action is a Business Risk

Companies that fail to take climate action soon are risking that their products and services will become unviable. As climate regulation is implemented, any business not already decarbonising will begin to lose market share and miss out on the time and opportunity to grow and innovate. Companies will find themselves unable to make a rapid transition without the necessary time taken to strategise and prepare. We have already seen this happen with the 4th Industrial Revolution as companies that failed were unable to adapt to digitisation. Even oil-based companies like Reliance Industries have set targets to be net-zero carbon by 2035 (Usmani, 2021) and are already looking to invest in the green energy space.

Investors are Looking to Shift to Greener Companies

Institutional investors are already moving their portfolios towards more green and sustainable businesses. Today, the world’s largest banks, insurers, pension funds and asset managers are calling for disclosure of climate-related financial risks before investing (Ray, 2021)[7]. BlackRock CEO Larry Fink wrote a letter to all their companies to set net-zero by 2050 targets and has indicated that they would divest if those are not met[8]. According to Jolly (2020)[9], investing in firms with better ESG ratings seemed to have better returns in the pandemic, making it more likely for investors to start looking for ESG compliance while investing.

Corporate Disclosure on ESG Will Become Mandatory

The Securities and Exchange Board of India (SEBI) has already made it mandatory for the top 1000 companies to prepare and submit a Business Responsibility and Sustainability Report. This is based on nine principles of the Indian Government’s “National Guidelines on Responsible Business Conduct” (RBC Guidelines). The Principles address a range of sustainability matters including business ethics and transparency, human rights, environmental safety and fair labour practices. Companies looking to list in the 2-5 year timeline must start looking at ESG as a serious consideration in their business strategy as these disclosures are only likely to get more stringent.

Solutions to Reducing Emissions and Sustainability Already Exist

As companies are thinking about the challenges, solutions are already being created. Plastic-free packaging, AI-based energy monitoring, recycled water solutions and many alternatives to fossil fuels already exist in solar, wind, biogas, etc. The Indian startup ecosystem is filled with companies that have developed unique solutions to these challenges. Larger companies can take advantage of these solutions rather than work on reinventing the wheel.

Public Investment in the Clean Energy Economy Will Rise

The Modi Government is committed to meeting the targets set in the Paris Climate Agreement. It has already launched programmes like National Solar Mission, Green Hydrogen Mission, Policy on Energy Storage and a push towards EVs. This investment is expected to rise as India hopes to meet its 450 GW renewable energy target by 2030. Companies and industries that rely on fossil fuels should transition to renewable energy sources and infrastructure as quickly as possible, or else they risk being left with stranded energy assets (World Economic Forum Report, 2020)[10].

Finally, companies will have greater opportunities for public-private dialogue and collaboration on climate action. This means that business leaders have the opportunity to push for an ambitious climate policy and green recovery that will help support their business goals while also supporting the planet. In a noisy democracy like ours, the way to lead companies towards something whose impact we do not necessarily understand needs legislation. In sharing their challenges and successes, industries will help drive policy outcomes and ensure a smooth transition to a green economy.

References:

[1] The Collective Works of Mahatma Gandhi, Volume 29

[2] Singh, D., Tsiang, M., Rajaratnam, B. et al. Observed changes in extreme wet and dry spells during the South Asian summer monsoon season. Nature Clim Change 4, 456–461 (2014). https://doi.org/10.1038/nclimate2208

[3] Auffhammer, M., Ramanathan, V. & Vincent, J.R. Climate change, the monsoon, and rice yield in India. Climatic Change 111, 411–424 (2012). https://doi.org/10.1007/s10584-011-0208-4

[4] Excerpt is taken from ‘BQ Conversations with Seshagiri Rao’ published on BloombergQuint YouTube page. Link: https://www.youtube.com/watch?v=OI1ZQ7JbAVg

[5] https://sciencebasedtargets.org/companies-taking-action?country=India#table

[6] Usmani, Azman, 2021, ‘What Net-Zero Means and How Indian Firms Plan to Meet Targets’, BloombergQuint, Published on June 17, 2021. Accessed 3rd October, 2021. Link: https://www.bloombergquint.com/business/what-net-zero-means-and-how-indian-firms-plan-to-meet-targets

[7] Ray, Suchetana, 2021, ‘India Inc and the Risky Business of Climate Change’ published in The Economic Times on February 16, 2021. Accessed on 3rd October, 2021. Link: https://economictimes.indiatimes.com/news/company/corporate-trends/india-inc-and-the-risky-business-of-climate-change/articleshow/80936657.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

[8] https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

[9] Jolly, Jasper (2020), ‘Investing in firms with a better record on social issues pays, study finds’ published in the Guardian on 18th May 2020. Accessed on 3rd October 2021. Link: https://www.theguardian.com/business/2020/may/18/investing-in-firms-with-better-record-on-social-issues-pays-study-finds

[10] World Economic Forum Report. ‘A Decade Left’ Link: https://reports.weforum.org/global-risks-report-2020/a-decade-left/?doing_wp_cron=1635250682.8027410507202148437500