Green Innovation, a major driving force

Over the 250 years since the first industrial revolution, the timelines of every new innovation cycle appear to be shrinking. After the last cycle dominated by digital innovation, we are entering a new one
where sustainability considerations are taking centre stage. Big drivers for this include the shared trauma of communities across the world as a result of the adverse impact of COVID 19, growing anxieties about unchecked global warming, and major new investments being made to solve these kinds of challenges.

Substantial new capital is being made available to address sustainability challenges through the actions of governments (for example, the European Union’s Green Deal, and the Biden administration’s Inflation Reduction Act in the US), recast mandates of financial institutions seeking to reduce risk and tap into emerging opportunities, as well as the endeavours of many private sector players including a host of start-ups determined to meet changing customer demands.  

With each innovation cycle, flag bearers of disruptions that become mainstream emerge, such as Tesla, which by virtue of its pioneering innovations in electric vehicle manufacture has been rewarded with a market cap greater than that of its four closest rivals put together. Alongside, we see other enterprises that fail to evolve and perish, famously like Kodak, a company that once controlled over 50% of the global market share for the photographic film industry but did not seize the digital innovations impacting its industry to architect a new future for itself. As one study, Stall Points by Matthew S. Olson and Derek van Bever argues, the greatest threat to an enterprise’s growth is posed by obsolete strategic assumptions that undermine market position, and by breakdowns in innovation and talent management.

With shortening innovation cycles, the pressure increases on enterprises to constantly innovate. A great example is Netflix, which started in 1997 as a disrupter to Blockbuster by delivering movie DVDs by mail. Recognizing the innovation cycle of digitisation, the company entered the digital streaming market in 2007 and is today one of the largest OTT content providers in the world.

In India as well, we are seeing business leaders taking note of the dramatic changes the new trend of sustainability will likely introduce in their businesses. From the announcement by Reliance Industries’ Mukesh Ambani at the company’s Annual General Meeting in 2020 that “The catastrophic impact of climate change calls for the legacy energy industry to reinvent itself on a war footing”, to last week’s observation at a CII Business Summit by Tata Group Chairman Chandrasekaran that “At the Tata Group, we are undergoing a massive transformation to become future-ready, a transition where we are tightly integrating or embedding digital data, AI and sustainability at the core of the business, building strategy, and most importantly, in the business model itself”, the country’s largest enterprises are gearing up for the new sustainability challenges they face.    

Sustainability is the new Digital

Climate change is clearly driving the latest innovation cycle of sustainability. Over the last decade, major fossil fuel companies such as BP, Statoil, and DONG have transformed. They are moving away from fossil fuels to become “energy” companies. Statoil has rebranded itself as Equinor, while DONG underwent a massive transformation from an oil and natural gas company to become a wind energy company, now known as Orsted.

Back home, we are seeing these themes play out as well. Reliance and Adani have announced pioneering forays into Green Hydrogen. In June last year, ANIL and TotalEnergies outlined a capex plan of $50 Billion to set up 2.5 million metric tonnes per annum of green H2 manufacturing capacity over the next 10 years. Reliance is investing $74 Billion in Green Energy and other projects in Gujarat over 10 -15 years. Tata Power has substantially pivoted away from coal-fired thermal power to become one of the country’s largest renewable energy providers. From the public sector, NTPC, traditionally a thermal power player, has entered the solar energy space. They have tripled their operational clean-energy capacity to 3.2 GW since 2020 with a target to reach 60 GW by 2032.  

These changes in business models and pivots are coming in good time. Three years earlier, we saw one of the first major corporate casualties of climate change, when Pacific Gas & Electric Company (PG&E), one of the largest electric utilities in the US, filed for bankruptcy. Due to the tragic wildfires in California in 2017 and 2018 for which it was assigned primary blame, it was hit with liabilities to the tune of $30 billion which led to its bankruptcy.

In India, over the past year, we have seen an increasing thrust towards a green transition. The BRSR became mandatory this year, and a recent update has introduced BRSR Core that will introduce assured reporting & disclosures. Companies are responding by creating ESG and Sustainability committees on their board to accelerate their transition. RBI recently raised funds at a greenium through sovereign green bonds and they have recently announced a framework for green deposits.

Yet, there are enterprises that continue to live in denial. Their extreme short-term thinking has led to disasters in the past, such as the Great Financial Crisis, and will continue to lead to disasters in the future. Such businesses that fail, like Kodak in the past, to read the writing on the wall and choose not to innovate, will be left behind and risk eventually perishing.