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Business case for carbon mapping and carbon roadmap development by Indian Businesses

RSM GC, Mumbai

Climate change is a reality

The Intergovernmental Panel on Climate Change (IPCC) is the leading international body for the assessment of climate change. It was established by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) in 1988 to provide the world with a clear scientific view on the current state of knowledge in climate change and its potential environmental and socio-economic impacts. It reviews and assesses the most recent scientific, technical and socio-economic information produced worldwide relevant to the understanding of climate change. Thousands of scientists from all over the world contribute to the work of the IPCC on a voluntary basis.

IPCC released its latest report ‘Climate Change 2014: Impacts, Adaptation, and Vulnerability’ in March 2014[1]. The report starts with restating the conclusion from its earlier editions ‘Human interference with the climate system is occurring and climate change poses risks for human and natural systems’.

The observed impacts of climate change include

  1. changing precipitation or melting snow and ice are altering hydrological systems, affecting water resources

  2. impact on many terrestrial, freshwater, and marine species

  3. reduced yields on of crops across regions

  4. impact on human health – increased deaths due to heat; local changes in temperature and rainfall have altered the distribution of some water-borne illnesses and disease vectors

  5. increase in the frequency and severity of climate-related extremes, such as heat waves, droughts, floods, cyclones, and wildfires

  6. Climate-related hazards affect lives of most vulnerable people directly through impacts on livelihoods, reductions in crop yields, or destruction of homes and indirectly through, for example, increased food prices and food insecurity

  7. Possible large scale violent conflicts due to large scale displacements/ relocation etc. for access to infrastructure, institutions, natural resources, social capital, and livelihood opportunities.

[1] http://www.ipcc.ch/report/ar5/wg2/

India’s response to climate change

Indian Government acknowledges climate change as global challenge and has formed a ‘Climate Change Division’ in The Ministry of Environment, Forests and Climate Change to deal with this issue. Also, in 2008, Dr. Manmohan Singh (then Prime Minister) released ‘India’s National Action Plan on Climate Change’[1]. Through this, India has identified specific sectors for the GHG emission mitigation. In 2014, the ‘Expert Group on Low Carbon Strategies for Inclusive Growth’[2] under the Planning Commission has also published pathway to reduce the emission intensity of country’s GDP by 20 to 25 percent, over 2005 levels, by 2020.

Further, India has started many policies and programs to reduce the GHG emissions including renewable energy promotion, energy efficiency rating and market mechanism scheme like PAT for energy intensive sectors such as Thermal Power plants, Iron & Steel, Cement, Fertilizer, Aluminum, Textile, Pulp & Paper, Chlor-alkali[3]. Many Indian companies have also started voluntary GHG emission reduction plans under corporate pledges to CDP[4] and India[5] GHG Program.

[1] http://pib.nic.in/release/rel_print_page.asp?relid=39898

[2] http://planningcommission.nic.in/reports/genrep/Inter_Exp.pdf

[3] http://www.pib.nic.in/newsite/erelease.aspx?relid=85182

[4] https://www.cdp.net/en-US/WhatWeDo/Pages/India.aspx

[5] http://indiaghgp.org/

Why carbon emission calculation and reporting?

The link between greenhouse emissions and global warming is scientifically established. The global warming contributes to and accelerates, aggravates the climate change impacts. Thus, as responsible businesses, it is desirable to monitor and take efforts to reduce the GHG emissions from business operations.

Ministry of Corporate Affairs, Government of India has notified the “National Voluntary Guidelines for Business Responsibility” and expects the businesses to follow these guidelines. National Voluntary Guidelines (NVG) for Business Responsibility are based on nine principles covering Business ethics, Product responsibility, Well being of employees, Stakeholder engagement, Human rights, Environment, Public policy, Inclusive development and Customer relations.

Keeping with the NVGs, demands of transparency and accountability of business by the investor community in general and calls by UN Principles for Responsible Investment  and Rio+20, Securities and Exchange Board of India (SEBI) has amended the listing agreement and made Business Responsibility practice and disclosure mandatory for top 100 companies listed on the security exchanges[1]. Business Responsibility Reporting is applicable to all types of companies including manufacturing, services etc.[2]

A survey published in 2012[3] concluded that 64% of the top affected companies were not prepared to submit their reports in line with the requirements of this SEBI circular. The survey further analysed reporting by companies on their climate change initiatives (a principle 6 requirement as per NVG guidelines). Only 36% of affected companies had disclosed their baseline carbon footprint and 20% of the companies had stated their carbon emission reduction targets. Non compliance with such regulatory requirements can affect business adversely.

[1] http://www.sebi.gov.in/cms/sebi_data/attachdocs/1344915990072.pdf

[2] http://www.sebi.gov.in/cms/sebi_data/attachdocs/1368184343037.pdf

[3] http://www.eco-business.com/press-releases/are-top-indian-companies-ready-for-sebis-business-responsibility-reporting/

Changing international climate change regulation

The international community is negotiating an international climate change agreement for post 2020 world[1]. Here, developing countries including India are under pressure from developed countries to take active role and reduce their GHG emissions. Some of the international experts believe that developed countries will have to take emission reduction targets in some or other form under this deal[2].

The emission reduction targets / plans of any country will percolate to individual emission intensive industries and those businesses with capacity (financial or otherwise). Thus, businesses that start early with the GHG emission measurement and identifying pathways to move ahead in the carbon constrained economies will be at an advantage.

[1] http://unfccc.int/meetings/lima_dec_2014/meeting/8141.php

[2] http://www.theguardian.com/environment/2014/dec/15/lima-deal-represents-a-fundamental-change-in-global-climate-regime

Impacts of climate constrained economy on businesses

The likely impacts of carbon constrained economy (in case of carbon tax or voluntary GHG emission reduction plans are taken by Governments), on businesses include

  1. Emission intensive fuels like coal, oil will go up and future energy mix will favour cleaner and renewable fuels

  2. Transportation modes will be regulated and choice of modes will shift to greener and sustainable ones

  3. Impact of potential national / international carbon tax and emission trading plans on production and export

This, in turn, will affect the business advantages and costs significantly. Also, if the predicted impacts of climate change come into reality in future, it will also affect businesses including

  1. increase in the energy cost (fuel and electricity)

  2. access to and cost of some raw materials

  3. potential physical impacts on operation (manufacturing plant/s, raw material suppliers and export infrastructure like port)

  4. availability of water for process / plant operations

  5. as impacts of climate change increase, the demand for some products will increase (e.g. those related to adaptation, micro irrigation, climate control, renewable and hybrid energy generation, storage etc.). Similarly, with increasing global temperature, demand for some products may decrease e.g. infrastructure projects in low lying coastal areas

Thus, businesses will have to prepare in advance for regulations addressing mitigation and adaptation preparedness (including accessing international funds available for mitigation and adaptation).

Increasing stakeholder awareness and pressure from NGOs

There is increasing awareness among the stakeholders and company shareholders about climate change. The consumers demand green, environment friendly products[1]. The rise of electric and hybrid cars; demand for environmentally / socially certified products from local / sustainable sourcing are a testimony of this fact. From 2010, Walmart requires all its suppliers to measure their carbon footprint and publish / communicate that to Carbon Disclosure Project (CDP)[2]. About 30 companies including L’Oréal, Sodexo and Unilever have committed, through CDP, to set emissions reduction targets[3]. Many companies have started encouraging internal carbon pricing / trading to prepare for future regulated carbon tax. Some pension funds are divesting from fossil fuel based projects due to uncertainty over their operations in carbon constrained world[4]. This trend will continue with increasing media coverage on products and environmental education in colleges.

Similar trend is observed in the shareholders and major lenders preferring sustainable product lines. The likely impact of carbon taxes in developed countries is already included in the project appraisals. Few examples of such cases are recent campaigns against lending to coal mines in Australia[5] and international funding to coal based supercritical power plants[6] in India, China.

[1] http://blog.walmart.com/top-10-eco-friendly-features-of-walmart-stores

[2] http://blog.walmart.com/cdp-and-walmart-a-partnership-to-reduce-suppliers-greenhouse-gas-emissions

[3] http://www.theguardian.com/sustainable-business/2015/jan/02/business-needs-to-play-the-long-game-on-climate-action?CMP=share_btn_tw

[4] (a) http://www.telegraph.co.uk/finance/newsbysector/energy/11277546/Fossil-fuel-investing-a-risk-to-pension-funds-says-Ed-Davey.html

(b) http://blueandgreentomorrow.com/2013/07/05/norwegian-pension-fund-divests-from-financially-worthless-fossil-fuels/

[5] http://www.theguardian.com/environment/2014/nov/25/big-four-banks-under-pressure-to-rule-out-funding-queensland-coal-projects

[6] (a) http://focusweb.org/content/citizens-groups-and-peoples-movements-stall-world-banks-civil-society-consultations

(b) http://action.foe.org/t/3877/content.jsp?content_KEY=4168

#ClimateChange #CorporateSocialresponsbility

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