The 21st edition of the Conference of the Parties (COP21) has been a landmark event of 2015. Governments world over, after 21 years of intense negotiations and debate, have finally come to a legally binding agreement aiming to contain the increase in the global average temperature to “well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels” – a more ambitious goal than had been expected. This new climate deal will come into force in 2020.
Leading companies in India have been watching the negotiations with interest. The implications of the treaty are not just in terms of the new business environment but about the larger impacts on how businesses will be run five, ten and fifteen years from now. The cost of environmental damage can no longer just be passed on to the community, as businesses will increasingly be expected to bear this cost and infact undo the damage. The Paris accord has significant impact on climate finance and enabling technology as well.
Corporate India is not new to Climate Risk. In fact, India has reeled under the impact of increased supply risk in 2015. Floods in several parts of the country, drought in others and extreme pollution in almost all our cities are important signals that business as usual is no longer an option. Conversely though, if one were to examine corporate disclosures around sustainability, we find that only just about half the companies actually release sustainability reports and even fewer are externally certified. Both the release and external verification is highly variable across industries.
Examination of India’s sustainability reports has also revealed that while almost all oil and gas, materials, IT and telecom companies have programs on GHG emissions, yet, the focus on emissions appears to be uneven.
Our study finds that 23% of the companies studied give specific targets to their suppliers to reduce their carbon footprint. However, only 24% of the companies studied conduct environmental audits of new suppliers before they are brought on board or conduct ongoing periodic audits of existing suppliers on their environmental impact.
A more sustainable corporate India?
So is corporate India not serious about climate change? Not really, the winds of change are already hitting Indian managers hard. Extreme weather events have disrupted supply chains and almost every company that has an export business is facing international regulatory and compliance issues around sustainability and emissions.
This is trend is only like to gather momentum in the light of the Paris accord. The Paris Agreement offers clear direction with long-term goals and signals, the need for transparency and regular interventions to make the change.
Business Resilience is key
The trend of Investors, consumers and governments requiring greater transparency from the private sector is nothing new, but today, business is trying to derisk itself. More resilient supply chains, greater diversity and higher flexibility are perhaps now, no longer long term goals but urgent requirements that need immediate investments. The coming year will present an opportunity for companies to align efforts around intergovernmental initiatives such as COP21. Additionally, frameworks such as the Sustainable Development Goals (SDGs) will put increasing pressure around very specific targets.
What do Indian businesses need to do to move towards a more sustainable path?
Adopt science-based carbon reduction targets based on emissions budgets
Put a price on carbon. Implement an internal pricing mechanism for carbon that is “high enough to materially affect investment decisions” and also advocate publicly for policies that would require other businesses to do the same
Procure 100 per cent of electricity from renewable sources
Contribute to faster results by eliminating short-term climate pollutants, like methane, black carbon and HFCs
Engage on climate policy by internally auditing all activities related to climate. Follow this up with communicating subsequent actions and outcomes
Help close information gaps by including climate change information in mainstream reports as a “fiduciary duty”. This has been outlined by the Climate Disclosure Standards Board
Focus on reduction of deforestation. Commit to weeding commodity-driven deforestation out of supply chains
Written by: Namrata Rana and Utkarsh Majmudar