Clean Tech

India Inc still not up to speed with climate action

M Ramesh | Updated on February 26, 2020 Published on February 26, 2020

Picture only for representational purpose   -  Reuters

Companies need to look far beyond renewable energy and water conservation, says M Ramesh

Every year, since 2001, a not-for-profit body called CDP (Carbon Disclosure Project) sends questionnaires to thousands of companies seeking information on how they measure and mitigate their environment impact and carbon footprint. The idea is to nudge companies to do so. Globally, over 8,400 companies disclosed information through CDP in 2019.

In India, the activity began only in 2012 and in 2019 CDP India sent questionnaires to the top 200 listed companies — top in terms of market capitalisation.

Only 59 of them responded. Following its gentle-nudge approach, CDP India does not express disappointment but celebrates the fact that the number of respondents was up 13 per cent over the previous year.

Yet, the data from the dipstick survey vindicates something that is generally known: Corporate India is still not up to speed with climate change.

Informal chats that BusinessLine has had with several companies have shown that to most companies ‘climate action’ is all about buying more of renewable energy, and conserving power and water; there is little awareness of the benefits of going beyond just buying more of wind and solar-derived electricity.

For sure, more and more Indian companies are increasingly aware of global warming. Chandrajit Banerjee, Director-General, Confederation of Indian Industry, says that since the Paris Agreement of 2015, “we are seeing a multitude of actions by Indian industry in terms of adopting clean energy, achieving higher levels of energy efficiency and (electric) mobility”. But, as a careful reading of the CDP India report shows, corporate climate action is confined to a bunch of outliers — groups such as the Tatas, the Mahindras, L&T; IT majors like Infosys and Wipro and even some medium-scale companies (MSMEs) like Velmurugan Industries of Tiruchi. Broad-based action is largely missing.

Corporate climate actions include (but are not limited to) having systems in place to measure carbon footprint of every activity (for large companies, this would include activities of their suppliers too), and getting the emissions independently verified; having an ‘internal carbon pricing mechanism’; fixing ‘science-based targets’ for emissions; instituting mechanisms so that the company is alive to the opportunities that would come via carbon markets; measuring impact on forests.

The CDP India report that was brought out in January 2020 shows how poorly India Inc fares on all these counts. And, if you look at MSMEs, the picture is even more dismal. “There is definitely a need for more corporate action; a lot more needs to be done,” observes Damandeep Singh, Director, CDP India.

Measuring climate risk

Take, for example, measurement of climate risk. Most companies have taken this as part of their broader, multi-disciplinary, company-wide risk identification and assessment, rather than as a separate and focused activity. For instance, IT major, Cognizant Technologies Ltd has told BusinessLine that it sees climate change “as part of our enterprise risk management system.”

Of the 59 companies that responded to CDP’s questionnaire, 51 said that assessing climate risk was part of their best practices; only six said that they have specific climate change risk identification, assessment and management.

Climate risk assessment is a specialised and new subject that calls for special attention. It is not enough, for instance, to assess the probability and impact of, say, extreme weather events; you’d need to also look at issues of technological shifts as a result of the transition to a low-carbon economy, how the financial sector views climate change, how the regulators would respond to it. Globally, CDP added up the monetary value of climate risks from disclosures of 215 large companies. It tallied $960 billion at risk. “The threats are largely seen to be coming from possible government regulation (such as carbon taxes), market shifts related to climate change (such as higher insurance premiums) or direct interference with operations,” says CDP.

Once risk assessment is done comes the issue of emissions verification. Most Indian companies look only at emissions from energy. However, emission measurements fall under three categories.

‘Scope 1’ emissions are those under the direct control of companies — such as combustion in boilers and furnaces, emissions from vehicles and emissions from chemicals. ‘Scope 2’ emissions are those that occur at the power plant that supplies electricity to the emissions measuring company. ‘Scope 3’ includes all emissions that occur as a consequence of the activities of the company, whether under its direct control or not, and includes emissions that happen right down the supply and sales chains.

Here, again, India Inc is found wanting. While most of the 59 companies that responded to CDP have said they measured Scope 1 and 2 emissions, they did not get them independently verified. Only 44 of the 59 measured Scope 3 emissions.

Note that these are of the 59 out of the 200 companies that came forward to respond to CDP — the record of the other 141, and the rest of Corporate India is anybody’s guess.

Internal carbon pricing

 

An important corporate climate action tool is the ‘internal carbon pricing’ mechanism, which places a monetary value on greenhouse gas emissions. Businesses can then factor it into investment decisions. Globally, businesses do this to prepare themselves for a transition to a low-carbon economy. “Companies use internal carbon pricing as a strategy to manage climate-related business risks; they use this to help themselves prepare for future policies restricting carbon emissions,” says the US-based Center for Climate and Energy Solutions, a not-for-profit, policy advocacy body.

Very few Indian companies have adopted internal carbon pricing. Of the companies that responded to CDP, only 20 had internal carbon pricing, though some more said they were planning to bring it in, including five from the Tata group, and three from Mahindra.

Singh notes that having an internal price of carbon prepares companies for carbon markets, which are not there today, but will most certainly come into being in the near future. Applying carbon costs to investment decisions supports better return on investments, he points out.

Science-based targets (SBT) is another climate action tool. Targets adopted by companies to reduce greenhouse gas emissions are said to be SBT if they are aligned with the global warming reduction target of ‘2 Degrees C’ and the ambition of ‘1.5 Degrees C’. (These are temperature increases from the pre-industrial era levels, which are targets adopted by all countries at climate talks.)

Forty Indian companies have adopted SBT. India ranks 5th in the world in terms of number of companies with SBT (and top developing country), but there is obviously need for more and more companies to clamber on to the bandwagon. A quote attributed to Anand Mahindra, Chairman, Mahindra group goes: “Taking on emission and carbon footprint reduction targets as per the SBT framework gives a sense that the organisation is on an ambitious and meaningful path to combat climate change.”

And, while Indian companies are doing a good job of shifting from fossil fuels derived power to renewable energy, there is an obvious need to do more. Just five Indian companies have signed up for the ‘RE100’, a joint initiative of The Climate Group and CDP. The companies that join RE100 pledge to go in for 100 per cent renewable energy by a year of their choosing. The five companies are Infosys, Tata Motors, Dalmia Bharat, Mahindra Holidays and Hatsun Agro.

If large companies have a long way to go, then what to say of MSMEs? “Individually, MSMEs do not have the capacity to act against climate change,” notes Banerjee. “Large companies, industry associations and regulators have a pivotal role to play.” CII, he says, has been running programmes for its MSME members.

So, what can accelerate climate action by corporate India? Acceleration will happen once the market incentivises climate action or penalises inaction. This is beginning to happen — global investors are demanding climate disclosures from their investee companies. We see access to and cost of capital impacted by climate action and disclosure. And, when carbon markets develop and companies start seeing rupees flowing in, there would be more action. But alongside, the government should also provide a policy push, say experts like Singh.

Concepts such as internal carbon pricing and science-based targets are new and difficult to implement, he says.

Only a regulatory push can propel companies to look beyond buying renewable energy, energy efficiency and water, deep into the complex world of climate change action.

Published on February 26, 2020
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