The intensifying chorus on green financing and sustainability has jolted Indian corporates into a new reality over the past few years. The result: Buzzing activity around the adoption of environmental, social, and governance (ESG) principles. “Three years ago, it was a buzzword. Now, every firm wants to get materiality assessments done,” says Priyanka Dhingra, ESG Analyst at SBI Mutual Fund. Adds Anil Choudhary, Head of ESG and Climate Change at PE firm True North: “In 2018-19, most of our investee firms were asking ‘why’. Now it’s ‘how’ to integrate ESG in their businesses.” Significantly, the end of FY23 will see the top 1,000 listed Indian firms disclose their ESG journey publicly for the first time as per Sebi’s mandatory Business Responsibility & Sustainability Reporting rules.
Also Read: India's hundredth birthday: Here's how it can power its multi-trillion dollar dream
Of ESG’s three pillars, ‘E’ is where most of the activity is happening. Climate change, particularly, is the big focus. Studies show that of the $400 trillion capital available globally, about $130 trillion is owned by signatories to the UN Principles of Responsible Investing (UNPRI). “That means those funds won’t invest in fossil fuel companies and will withdraw from weak ESG firms. That’s the first pressure corporates are responding to,” says Sambitosh Mohapatra, Partner and Leader of ESG at PwC India. True North’s Choudhary says PE investors used to ask whether the firm has an ESG policy. “Now they ask: How do you govern your ESG policy? How is the head of your organisation committed to it? How often do you meet?”
At 2.9 billion tonnes, India is the world’s third-largest carbon emitter annually, although our per capita emissions are lower than other major economies. We have pledged to become net carbon-neutral by 2070. The goal requires $17.77 trillion by 2070, according to a Standard Chartered study.
“A lot of money is going to come into developing countries. India has to be ready because multilateral agencies will have structures about how to disburse the money,” says Preeta Misra, Senior Director – Credibility & Business Insights Group, ESG, and SME, Dun & Bradstreet India. Experts say most of the urgency for India Inc. is driven by risk-mitigation strategies, but value creation potential will also drive their adoption. Studies show that six sectors—power, steel, automotive, aviation, cement and agriculture—account for about 70 per cent of India’s CO2 emissions. They face the maximum pressure, experts say.
Let’s take cement. JSW Cement’s EVP and Chief Sustainability & Innovation Officer Manoj Rustagi says 30 per cent of the carbon emission in an integrated cement plant comes from the use of fossil fuels and 10 per cent is from electrical energy use. “But 60 per cent is due to the inherent cement-making process of breaking down limestone (calcium carbonate) into calcium oxide and CO2.” He says cement companies are working to cut down the first two, but the third one requires carbon capture, utilisation & storage (CCUS)—a suite of technologies to remove carbon from the atmosphere and lock it back into the earth.
Other sectors such as oil & gas, steel, energy and chemicals will also need CCUS for India to truly become carbon net-zero. A developing nation like India needs these very sectors to fire, in order to become a $5-10-trillion (or a $26-trillion, per EY’s estimates) economy over the next few decades. “Our resource requirement will only go up till we reach the peak. So, most companies are focussing on reducing the intensity of CO2 emissions,” says Dhingra. “If you produce a tonne of cement and it emits 500 units of carbon, your trajectory will be to reduce that emission year-on-year through energy efficiency.” Having that plan in place is critical.
The recently announced National Green Hydrogen Mission envisions India as one of the global hubs for making alternate fuel. Says Minister for Petroleum and Natural Gas Hardeep Singh Puri: “What you are dealing with is not an idea whose time has come, but an idea that has already translated into a national project.” But industrial plants typically operate for 30-40 years before they have to be phased out. Adopting alternative fuels will require substantial and expensive re-engineering of machines and processes. “A lot of capacity addition is yet to happen in India unlike in the US or Europe. It’s an opportunity to design plants with a lower carbon footprint from the get-go,” says Rustagi. For a nation that imports over 85 per cent of its energy requirements every year but is rich in renewable energy sources, “the risk of climate change is indeed a huge opportunity”, says Choudhary.