In the last few years, understanding about the impact of climate change on businesses has increased manifold. Business today is far more aware of risks, the need for measuring emission footprints and the importance of taking strategic initiatives to reduce emissions by implementing long-term, programme-based approaches. Businesses are getting aware about opportunities being thrown up by climate change as global economies get transformed into low-carbon economies.
Conducted by AC Nielsen-ORG MARG, the FE-EVI Green Business Survey – 2008 is a step in this direction. It has tried to assess the perceptions of the senior management of 213 companies from the FE 500 list on pursuing the green path as a business opportunity. The survey is the first of its kind in terms of the spread of the number of top Indian companies interviewed and the results achieved.
This survey has attempted to assess the climate change awareness and preparedness of Indian businesses. Business leaders were asked about the level of understanding related to the general concept of climate change, their knowledge about the Kyoto Protocol and whether they had taken the first step of measuring their greenhouse gas emissions to better understand impacts and challenges they may face from climate change.
It was followed up with questions to know the drivers of change and whether they are external players like regulators, investors and consumers or internal players like senior managements and employees. The next set of questions sought to weigh climate change challenges and differentiate between physical, operational and regulatory risks and how they impact different sectors and categories.
Finally, it was followed up with questions to understand how to turn climate change risks into business opportunities and find out who is shouldering the responsibility and leading from the front.
The survey findings suggest that most companies are aware about climate change and its impact on their businesses. Though their perceptions about the nature of risk vary depending upon the sector and businesses, but a majority of them believe that taking measures to fight climate change is good for their reputation and shareholder value.
Accordingly, companies have started thinking and acting in this direction and view this as a strategic issue. While some are in favour of deploying clean technology, others are taking initiatives to qualify for carbon credits and trade in them or are planning to do so. Most importantly, companies admit that they have more responsibility than the governments in taking the lead, but they call for clear-cut government policies and incentives to enable them to make a move.
Climate change awareness
The concern of climate change is spreading rapidly among businesses all over the world. It has been one of the major pressing political issues for the last few years. Climate change is defined as long-term significant change in the average weather conditions in a region1 primarily due to anthropogenic greenhouse gas (GHG) emissions. It is predicted that in the next few decades the average temperature will rise by 2-3? C.
Sustained climate change initiatives begin with measuring the GHG footprint and reporting it. It helps in detailing the sources and levels of emissions from production, administration, transportation and travel in a given year for an organisation, or for the duration of an event. The standard procedure for footprinting is defined under the International Greenhouse Gas Protocol.
Once the footprinting is done, the opportunities to reduce emissions can be recognised. It can also help in identifying particular products that have more emissions than others. In some cases, it may be necessary to check emissions in the supply chain. Companies like Tata Power and Jindal Steel and Power Limited have made complete GHG inventories as per the International GHG Protocol.
During the course of the survey, it was also found that a few Indian businesses are going even beyond and taking far-reaching actions, which are a testimony to their deep understanding of the climate change issues.
For example, one of the largest private sector conglomerates in India, ITC Limited, has been a water-positive and carbon-positive corporation for the last few years. The company has harvested three times more water than it has consumed and has sequestered almost twice the amount of carbon it emits. Some of its operations recycle 100% of solid waste.
Voltas is a member of the UN Global Compact and is following its ten key principles on human rights, labour standards and the environment. The company has also adopted Global Reporting Initiative?s framework for corporate sustainability reporting. Kirloskar Brothers Limited has been felicitated by UNESCO for its water management initiatives.
While most of the world is focused on reducing carbon emissions, Chennai Petroleum Corporation has set up a facility at its Manali refinery to reduce nitrous oxide emissions. It?s the first of its kind in India. Nitrous oxide is both natural and man made and contributes 6% of GHGs.
Drivers of change
Although the awareness about climate change and India?s position in international climate change debate is quite high, the survey indicates that Indian companies lag in taking actions to address climate change issues. Since neither international treaties nor domestic policies bind India or Indian businesses to make emission cuts, the initiatives so far are voluntary. So, it?s up to direct stakeholders like investors, consumers, and employees to drive such initiatives.
The Indian government is an important external factor for companies in the country. The National Action Plan on Climate Change prepared by the Prime Minister?s Council on Climate Change briefly outlines existing policies and describes how future policies and programmes would shape up to address climate change mitigation and adaptation.
International bodies like the World Steel Association (WSA), Cement Sustainability Initiative (CSI) and Carbon Disclosure Project (CDP) are putting significant pressure on industries to disclose their risk and GHG management plan.
Godrej Industries Limited, one of the largest industrial groups in India, has not only integrated conservation of natural resources in its business operations, but has also diversified into renewable to minimise its carbon footprint. The company?s windmills have brought down carbon emissions, earning it carbon credits. Besides, the CII-Sohrabji Godrej Green Business Centre has formulated a Code for Ecologically Sustainable Business Growth, which has been adopted by companies like Ashok Leyland and Tata Steel.
Climate change challenges
Climate change can pose many types of business risks. These can range from physical and operational to regulatory risks, according to Indian businesses. Physical risk is perceived to have direct impact on some businesses that are vulnerable to extreme weather events like droughts, floods and the rise of sea level. The risk perception of these extreme weather events by investors and insurers can impact the financial performance of businesses. Operational risk refers to availability of resources like fuel, water and land, which is becoming vulnerable to the impacts of climate change. The scarcity of these resources may result in high energy costs and affect the operations of businesses.
Regulatory risk refers to future regulation and policies that regulators and government bodies may enforce to fight climate change. India?s National Action Plan on Climate Change lays down the basis for formulating a climate change regulation that may affect GHG emission intensive industries in the country. Developed countries are also proposing to impose carbon tax and permit systems on countries that export emission intensive products to them.
Turning challenges into opportunities
Climate change is not only a problem, but also an opportunity for businesses. Better reputation among customers/ investors, operational efficiency and employee motivation are some of the benefits arising out of climate change management. These benefits can also lead to increase in shareholder and market value of businesses. More importantly, there are opportunities in new businesses like clean technologies and trading of certified emission reduction (CER) and verified emission reduction (VER). Forward looking companies are going beyond their operations and are factoring in their supply chains too.
Clean technology: Clean technology represents a diverse range of products, services and processes, all intended to provide superior performance at lower costs, improve the productive and responsible use of natural resources, but at the same time greatly reduce or eliminate negative ecological impact, according to the Cleantech Group, which is a global network of investors and companies representing more than $3 trillion in assets. Clean technology spans industry segments like energy generation, energy efficiency, intelligent construction, sustainable transport, air and water management, new materials and recycling.
Energy efficiency: Improving energy efficiency yields more tangible benefits for others. Biscuit manufacturer Britannia Industries Limited has achieved higher burner efficiency by using magnetic resonance energizers for fuel. The Paper Products Ltd has improved performance of its air compressors by undertaking more checks. A reduction in the air pressure in the plant has also improved the generation efficiency and reduced leakages. Picture tube manufacturer Samtel Colour Limited has cut down on its energy consumption by installing a more efficient vapour machine. Prakash Industries Ltd has replaced two steam turbines (each with capacity of 7.5-mw with one 25-mw energy efficient steam turbine. The new turbine also recovers waste heat from the boiler.
Construction and building retrofit: The building sector also offers scope for reduction in energy consumption. The sector consumes 30-40% of the global energy used, according to UNEP. Experts have estimated that it?s possible to achieve emission reductions of 1.8-2 billion tonne of CO2 in this industry, which is about thrice the carbon emission reduction targeted through the Kyoto Protocol. Indian companies are seizing the opportunity. Companies like ITC Limited have constructed green buildings and companies like Kirloskar Brothers Limited are in the process of doing so. Selecto Systems Ltd is in the process of setting up a notified economic zone, GreenSpaces, on the outskirts of Delhi.
Clean Development Mechanism: Clean Development Mechanism (CDM) is another opportunity for Indian companies. It enables Indian companies to take up clean technology projects with external assistance. The nationally approved CDM projects till mid-2007 offered an investment potential of about $15 billion (Rs 60,000 crore) at business as usual prices. These projects have the potential to secure carbon credits worth $4.2 billion by 2012, according to the Indian ministry of environment and forests.
Green products: Innovation is the name of the game. Forward looking companies are launching green products. Breathe Easy Luxury Emulsion from Berger Paints uses organic colour pigments. The portfolio of JK Tyres includes indigenously developed eco-friendly and fuel-efficient tyres, which are the first of its kind in India. These tyres use eco-friendly silica instead of traditional carbon black. Hero Motors has set up a separate business vertical for alternative fuels.Tube Investments of India Ltd, a manufacturer of cycles, automotive and industrial chains and steel tubes is planning to launch electric scooters. Agricultural biotech company Monsanto plans to develop better seeds of corn, soybeans and cotton that will double the crop yield by 2030 and reduce by one-third the amount of key resources required to grow these crops. Leading products and Infrastructure solutions IT company HCL Infosystems claims to offer green features in its PCs. Besides, the hardware major has an elaborate e-waste management programme to promote recycling and reuse of its products.
By-products and waste: Even by-products are put to good use. Carborundum Universal Ltd, a manufacturer of coated and bonded abrasives, has set up a microgrit manufacturing facility to cater to producers of solar wafer cells. Birla Corporation Ltd uses fly ash at its cement plants. Rain Calcining Limited (RCL), a maker of calcined petroleum coke, which is used by aluminium manufacturers, collects fly ash and promotes its reuse in the local construction industry. The company has also set up a power cogeneration facility. GMR Industries Limited, a sugar producer, has also set up cogeneration facilities at Sankili and Haliyal. An exporter of basmati rice, KRBL, uses the by-product of husk for generating power.
The way forward
The overall findings of the survey suggested that the global concern about climate change has percolated well into the minds of India?s top business leaders. While some of them have already taken initiatives in this regard, others are gearing up to tackle the problem. In all, Indian businesses are thinking about the impact of the climate change on the planet more than ever before.
It is only the beginning. India has one of the lowest per-capita emissions in the world, but it?s the fourth-largest emitter in absolute terms. Today there is no immediate regulatory pressure on India to abate emissions, but there are physical and operational business risks. India is not burdened with old investments. The country has a large and growing market and can make new technologies affordable by leveraging low cost of manufacturing in the country. Indian businesses have a choice. It?s between being a leader today or a follower tomorrow.
