Every year, since 2001, a not-for-profit body called CDP (Carbon Disclosure Project) sends a questionnaire to multiple organizations in various nations seeking information on how they measure and mitigate their environmental impact and carbon footprint. Globally, over 8400 companies disclosed information through CDP in 2019.
In INDIA, the activity began in 2012, and in 2019, CDP India sent questionnaires to the top 200 listed company’s (in terms of market capitalization). Disappointingly, only 59 companies responded. However, the CDP India was ecstatic about the number since it was up by 13 companies last year.
Climate change is no longer an abstract notion, and it is one of the top issues for policymakers, investors and CEO. Acting on climate change is not just political leadership, but it also defines business leadership in today’s carbon-constraint world. An ambitious carbon sustainable plan is a route to better financial performance, making perfect business sense for the world at large. Improving efficiencies and adopting best practices enables competitive advantage while reducing GHG emissions. Many informal chats with several A-list companies and their CEO’s indicate that most companies “climate action” is all about buying more renewable energy and conserving power and water. However, there is very little awareness of the benefits of going beyond just buying more wind and derived solar electricity.
The understanding that climate sustainability and environment conservation involves a lot more steps of maintaining a green supply chain or creating eco-friendly processes and production lines is missing. Though an increasing number of organizations are aware of climate changes and their impacts on the world, a lot more efforts are needed at this hour by corporate India to achieve the overall net-zero target. The CDP India further mentions that the climate action is subjected to the organizations like TATA, Mahindra & Mahindra, L&T, Infosys and many such organizations; the list needs to add multiple names in multiple sectors to achieve the overall sustainability.
In addition to the above, the CDP report 2020 mentions that companies fair rather poorly on corporate climate actions and lack qualitative and quantitative targets on fixing its science-based targets, creating an internal carbon-price mechanism, verifying the emissions independently and many other such parameters. The report further mentions the MSME’s fair exceptionally badly on the climate action and suggests that such companies need more corporate action to achieve overall sustainability.
The CDP India further discusses the performance of Indian companies based on the measurement of climate risks. Climate Risk, an essential component, has been taken as a broad multi-disciplinary company-wide risk identification rather than individual-focused activity. According to the questionnaire sent to the 59 companies, 51 companies acknowledged the assessing climate risk had been a part of their best practices, though a handful reciprocated that they have dedicated climate risk identification, assessment and management process in their companies.
CDP added the monetary value of climate risks from disclosures of 215 large companies, which tallied to about $960 billion being at risk. These risks are primarily assessed from government regulation or market shifts related to climate change or direct interference with the operations.
The risk assessment is followed by the emission verification, which is done under four major categories:
1. The emissions under the companies’ control; include combustions from boilers and furnaces, emissions from vehicles and chemicals
2. Emissions that occur at the power plant that supplies power to the emission measuring company
3. Activities that occur as a consequence of company policies, whether under the direct control of the company or not
4. Emissions due to supply chains
Understanding the climate risk, most companies look only for emissions from energy and other options are overlooked. The CDP 2020 clarified that most of the 59 companies that responded only assessed up to the second scope of the climate risks but never independently verified any of the four mentioned scopes. These figures indicate that India’s Inc. is aware of the risks arising from climate instability; little has been done in this regard. The corporate must strategize in such a fashion that emission from all levels gets assessed and subsequently gets verified to achieve the collective net-zero target.
Another CDP measure on which Indian companies fails is “carbon pricing”. There have been very few companies that adopt the internal carbon pricing structure. Again, the 2020 CDP report mentions that just 20 companies had internal carbon pricing.
Of the many, another toot that describes how the Indian Inc is preparing itself for the net-zero emissions is adopting “science-based targets.” This is a progressive area where the Indian companies have succeeded. The report mentions that 40 Indian companies have adopted the science-based targets, and India ranks at the fifth spot in adapting to such targets to achieve the goal of 2°C global warming reduction. However, it is essential to mention here, despite being the top developing nation in aligning the overall goals with the science-based targets, Indian companies have a long way ahead to achieve the net-zero emissions target.
After analyzing the parameters that serve as a base for studying the health of Indian companies that
aim to achieve climate sustainability, it can be safely concluded that the process has begun, but the pace is plodding to achieve the target in the desired period.
Another factor that restricts Indian companies from achieving climate sustainability measures is the cost constraint. Though many measures are low in cost, the initial implementation involves substantial cost implications to adopt such measures. Initiatives on the part of the governments are essential to ensure that the organizations, irrespective of their operations’ size, can adapt to sustainable climate measures.
Having discussed some of the critical reasons for corporate inaction, another significant factor that can be treated as crucial for corporate lack of interest is the poor legal mechanism at the national and international levels. When levied upon due to inaction or complete ignorance, the legal penalties will ensure corporate prompt replies and climate sustainable actions within their organization. A regulatory push can ensure swift and crisp action on behalf of the corporates.
Apart from the regulatory push, another crucial criterion must be given an equal push to enhance the corporate sustainable models within each organization, i.e., the investor interference and their demand to incorporate climate sustainability within the Company Board. Investors demand to create a clean and green company supply chain, and the process lines will force the corporates to reduce their carbon footprints and maintain a green channel within their organization. In the Indian Context, to enable the investors to put a firm foot in front of the corporates, SEBI, the Indian Stock Market Regulator, creates guidelines termed as Business Report and Environment Reporting (BRSR).
The new ESG reporting will apply to the top 1000 listed companies on Indian exchanges. Under the BRSR guidelines, companies have to declare the R&D spends on improving environmental and social outcomes. It will be mandatory for these companies to disclose their energy and water consumed to turnover ratios. Also, it will be mandatory to report the percentage of recycled and reused input materials along with many other social and government disclosures such as CSR, employee skilling and gender diversity.
To achieve climate sustainability, the investors and the lenders must align with SEBI to add further value to the entire BRSR system. Once the ratios mentioned above are finalized, the investors and lenders can keep the ratios as the base for lending and investing criteria. Companies that do not intend to adopt the clean infrastructure and process line must be denied further investments.
After understanding the impacts of climate change, and to make climate leadership a norm, Indian corporates must focus on collaborations that are either B2B (Business to Business) or B2G (Business to Government) collectively to forge ahead on ambitious plans on climate action in order to achieve the targets of the Paris Agreement. The collaborations will spur growth by catalyzing international trade, finance and technology transfer. All that is needed is to make it happen quickly, and that too, at a larger scale, brings about quick changes.
To bring the changes mentioned above, the Indian philanthropists have launched India ClimateColloborative (ICC) to strengthen the Indian Climate Community. The plan to launch the ICC was initiated in 2018, and it launched on 1st January 2020. The ICC has been the first-ever response the Indian Inc. to combat climate change. It aims to build a compelling India focused climate narrative and drive solutions to achieve climate objectives. The ICC further aims at curating opposition for those who plan to invest in climate change initiatives and intend to connect such companies with broader eco-systems so that such organizations are in a position to future proof their plans.
The ICC intends to launch its first air pollution programme, followed by other initiatives on land, water and various fields impacted by climate change. The ICC has been the first of its kind, and a lot is required on the part of Indian Inc. to achieve climate sustainability.
To conclude, it can be easily said that India and Indian corporates have started taking actions, but it is a long road ahead. The climate is changing and changing rapidly and tackling it has never been more urgent than now. It is necessary to remember that both business and government have to join hands and take coordinated measures on combating fossil fuels use and increasing renewable energies in the business lines.
Time is running out, and India must begin focusing on renewable sources at an exceedingly fast pace to achieve its Paris Summit objectives and achieve environmental stability to provide a green environment for generations to come.
LET’S DO IT TOGETHER!