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2017-05-17

Climate Change: Time for businesses to bring innovation to meet environmental sustainability norms

Republished from blogs.economictimes.indiatimes.com

 


By R R Rashmi



Everyone was surprised, at the beginning of the year, by the unabashed love expressed by the new US administration for a growth strategy based on coal, oil and gas. This stumped many who were hoping that the Paris Agreement had closed such routes for those who wanted to be global leaders in the clean energy drive.

 

Given this backdrop, many companies have begun to believe that everything is hunky-dory for those countries that are going to depend on energy derived from fossil fuel as the drivers of growth in the longer term. However, the reality may be different.

 

The Donald Trump government has not concealed its preference for the use of broader measures when its economic interests are challenged. Also, none of the US oil majors has openly spoken against the Paris Agreement. One can assume that corporates have begun to look at climate change more as a business opportunity than a challenge.

 

India’s corporate sector has not expressed any expectation or conditions for its involvement in achieving India’s Nationally Determined Contributions (NDCs). Policymakers are yet to signal the terms on which India’s corporate sector would be expected to work for environmental integrity.

 

Given the nature of India’s NDCs, is there a need or scope for corporate involvement in managing the NDCs at the sectoral or entity level? India’s NDCs (set for 2030) are defined, not at the sectoral level but at an economywide level, leaving the question of sectoral actions or measures undefined.

 

Policymakers have treated sectoral actions with circumspection as such actions fail to differentiate between different levels of technology and development at which industrial units or projects operate. Moreover, there is a presumption that the NDCs may be achieved by the industry and business in the usual course. Hence, policy for specific sectors is considered burdensome and unnecessarily costly.

 

Several low-carbon growth models have, however, suggested that targetbased actions by Indian corporates not only introduce predictability and consistency in domestic planning but also reduce the long-term economic cost of actions. For example, under the Montreal Protocol for eliminating ozonedepleting substances, the industry has been working with some multilateral support since 2003, for phasing out, or phasing down. The Perform, Achieve and Trade (PAT) scheme for enhancing energy efficiency through limited trading among major identified units is another example of economically valid environmental action.

 

Many international corporations have been insisting on voluntary standards for sourcing or procuring goods from India. While there is no case or excuse at all for carbon footprinting or standardisation of carbon emissions embedded in products, the efforts of MNCs in this direction are not likely to die down. The talk of a border adjustment tax that has resurfaced in the EU and the US is a pointer to the emerging challenge of protectionism in the name of climate.

 

The WTO is likely to be the next battleground for governments against trade actions disguised as environmentalism. Trade standards based on environmental parameters clearly transgress the boundary of environment and tread into the realm of trade. But there is no other way to fight this pernicious trend except to raise one’s own standard of environmental compliance.

 

The track record of compliance of Indian companies leaves a lot to desire.

 

Advance actions for environmental protection at the sectoral level may help insulate the industry from unilateral trade measures imposed in the name of climate change. The Indian airline industry, which may be exposed to emission caps because of the International Civil Aviation Organisation (ICAO) decision to force aviation emissions to peak from 2027 is a case in point. No doubt, a more articulate and overarching legal regime is useful in ensuring uniformity and perhaps eliminating unfair cost disadvantages. But it may be more useful for industry to look at its decision-making process and reengineer it in favour of sustainability.

 

This is easier said than done. Corporate governance is not designed to take environmental sustainability into account. There is no law to mandate disclosure of information on actions taken to meet environmental sustainability norms. The industry gives assurances to regulators when it seeks environmental clearances. But it follows them more in breach than in practice. This may be the first test case of a legal measure needed to achieve the NDCs.

 

Corporate boards may have to start by making the management accountable through a proper and regular environmental audit of the business turnover. There is enough headroom available for business in this exercise. Businesses grow by innovation. This appears to be the latest field of innovation.