Over the 250 years since the first industrial revolution, the timelines of every new innovation cycle appear to be shrinking. After the last cycle, dominated by digital innovation, we are entering a new one where sustainability considerations are taking centre-stage. Big drivers for this include the shared trauma of communities across the world as a result of the adverse impact of Covid 19, growing anxieties about unchecked global warming, and major new investments being made to solve these kinds of challenges.

Substantial new capital is being made available to address sustainability challenges through the actions of governments (for example, the European Union’s Green Deal, and the Biden administration’s Inflation Reduction Act in the US), recast mandates of financial institutions seeking to reduce risk and tap into emerging opportunities, as well as the endeavours of many private sector players including a host of start-ups determined to meet changing customer demands.

With each innovation cycle, flag bearers of disruptions that become mainstream emerge. Think of Tesla, which by virtue of its pioneering innovations in electric vehicle manufacture has been rewarded with a market cap greater than that of its four closest rivals put together. Alongside, we see other enterprises that fail to evolve and struggle, famously like Kodak, a company that once controlled over 50 per cent of the global market share for the photographic film industry but did not seize the digital innovations impacting its industry to sustain its success.

With shortening innovation cycles, the pressure increases on enterprises to constantly innovate. A great example is Netflix, which started in 1997 as a disrupter to Blockbuster by delivering movie DVDs by mail. Recognising the innovation cycle of digitisation, the company entered the digital streaming market in 2007 and is today one of the largest OTT content providers in the world.

In India as well, we are seeing business leaders taking note of the dramatic changes the new trend of sustainability will likely introduce in their businesses. From the announcement by Reliance Industries’ Mukesh Ambani at the company’s Annual General Meeting in 2020 that “the catastrophic impact of climate change calls for the legacy energy industry to reinvent itself on a war footing”, to last week’s observation at a CII Business Summit by Tata Group Chairman Chandrasekaran that “at the Tata Group, we are undergoing a massive transformation to become future-ready, a transition where we are tightly integrating or embedding digital data, AI and sustainability at the core of the business”, the country’s largest enterprises are gearing up for the new sustainability challenges they face.

Driven by climate change

Climate change is clearly driving the latest innovation cycle of sustainability. Over the last decade, major fossil fuel companies such as BP, Statoil, and DONG have transformed. They are moving away from fossil fuels to become “energy” companies. Statoil has rebranded itself as Equinor, while DONG underwent a massive transformation from an oil and natural gas company to become a wind energy company, now known as Orsted.

Back home, we are seeing these themes play out as well. Reliance and Adani have announced pioneering forays into green hydrogen. Reliance is investing $74 billion in green energy and other projects in Gujarat over 10-15 years. In June last year, Adani New Industries Ltd and TotalEnergies outlined a plan to target a production of one million tonnes of green hydrogen per year by 2030, underpinned by around 30 gigawatts of new renewable power generation capacity.

Tata Power, meanwhile, has substantially pivoted away from coal-fired thermal power to become one of the country’s largest renewable energy providers. And from the public sector, NTPC, traditionally a thermal power player, has entered the solar energy space. The company has tripled its operational clean-energy capacity to 3.2 GW since 2020 with a target to reach 60 GW by 2032.

These changes in business models and pivots are coming in good time. Three years earlier, we saw one of the first major corporate casualties of climate change, when Pacific Gas & Electric Company (PG&E), one of the largest electric utilities in the US, filed for bankruptcy. Due to the tragic wildfires in California in 2017 and 2018 for which it was assigned primary blame, it was hit with liabilities to the tune of $30 billion which led to its bankruptcy.

India is witnessing broad-based stakeholder action to speed up the green transition. The Central Government in its Union Budget declared green growth as one of its seven priorities for the economy. The markets regulator, SEBI, is tightening disclosure norms by making the Business Responsibility and Sustainability Report mandatory for the top 1000 listed companies from this year. The Reserve Bank of India is urging lenders to build climate risk into their assessment of loan requests, and has recently announced a framework for green deposits.

More businesses are now creating ESG and sustainability committees of their boards to accelerate their green transition. Chief Sustainability Officers are moving into critical leadership roles in many organisations and commanding premium compensation packages. And a large number of start-ups are now emerging across areas like electric vehicles and batteries, high efficiency materials, more water and energy efficient agricultural techniques, meat alternatives, carbon credits trading and carbon capture and storage.

Yet, there are enterprises that continue to live in denial. Their extreme short-term thinking has led to disasters in the past, such as the Global Financial Crisis. Such businesses that fail to read the writing on the wall and ignore the new innovation cycle anchored around sustainability, will be left behind and risk eventually perishing.

The writers are with ECube, an ESG-focussed platform