Less leads to more

On July 12, crowds celebrated the arrival of a train carrying 2.5 million litres of water at Chennai, India’s third largest city with a population of 7 million.  The city has been experiencing an acute water shortage in recent months after its four main reservoirs ran dry.  The new train service might help ease the crisis for a few days but is no solution to a deepening water challenge, caused by a shortfall in rainfall as well as irresponsible development.

A week earlier, Mumbai, India’s second most populous city, suffered floods after 16 inches of rain fell in a single night.  At least 32 people were reported dead across the state of Maharashtra as aconsequence of the unusually intense monsoon.

Even more concerning, in June it was reported that, as a result of rising temperatures, the pace of glacier melt in the Himalayas has doubled to 22 cm per year on average in recent years.Around a billion people depend on the rivers that flow into South Asia from these glaciers, some of which might disappear within a generation.

While fluctuations in the annual monsoons or individual storms cannot be ascribed to climate change, the overall pattern is clear and deeply concerning.Much of India and its regional neighbours are facing deepening water challenges as one manifestation of this phenomenon.

Indeed, India is the country facing the greatest risks from a dramatically changing climate.  In June, Delhi recorded its highest ever temperature at 48 degrees.  The country has also suffered unusually strong and frequent storms, including Cyclone Fani that struck Odisha, West Bengal,in May – the fiercest storm in 20 years. The implications of the climate becoming more extreme and monsoon patterns altering are enormous in this densely populated and largely poor nation.

Yet India has not so far been a major contributor to the increase in greenhouse gases that has triggered this upward trend in temperatures.  On average, Indians are responsible for emitting 1.8 tonnes of CO2 per head each year, compared to more than 16 tonnes for each American.  However, going forward, as India’s economy grows and its middle class expands, India is likely to become one of the largest carbon emitters.  Were Indians to emit per capita as much carbon as the Chinese currently do, global emissions would rise by 20 per cent; if it were to reach the US’s current average per capita emissions, global emissions would rise by 56 per cent.

On average, Indians are responsible for emitting 1.8 tonnes of CO2  per head each year

India’s role in responding to the issue of climate change is thus critical if there is to be any prospect of achieving outcomes close to the targets agreed at COP 21 in Paris in 2015.

The government’s policy response has been impressive and wide-reaching.  While not agreeing to target a reduction in carbon emissions, with potentially serious implications for economic growth, the government has set out ambitious plans to reduce significantly the carbon intensity of the economy.  When he was Chief Minister of Gujarat, Prime Minister Narendra Modi published a book on climate change entitled A Convenient Action, and over the past decade India has implemented well-conceived policies to encourage renewable energy. Renewables now account for 21 per cent of electricity generation capacity.  Solar capacity has reached 30 GWs, exceeding the initial target of 20 GW three years ahead of schedule; the revised target is 100 GW by 2022.

The re-elected Modi administration has quickly signalled further focus on sustainability.  The programme for the new government’s first 1,000 days included targets for solar power and the budget set out a number of measures to encourage renewable energy and electric vehicles.

But government action, however ‘convenient’, cannot alone mitigate the growing impact that India’s economic growth could have on the climate challenge we face.  What is now needed is genuine leadership on climate responsibility from India’s private sector.

More focused on the growth agenda, corporate India has, with a few exceptions, so far lagged behind in global best practice on sustainability.  India’s regulators have followed international best practice by introducing higher governance and reporting requirements.  Given the social realities of the country and a long history of philanthropy, a number of Indian companies have well-developed programmes of corporate responsibility.  But, without the consumer and investor pressure that is now common in developed markets, fewIndian companies have made environmental responsibility fundamental to their business strategy.

It would be in the interests of companies to get ahead of regulatory requirements by driving change to reduce their environmental impact. There is a growing body of research that demonstrates a clear correlation between corporate and stock price performance and higher standards of Environmental, Social and Governance (ESG) standards.  Such action reduces cost, mitigates risk and can provide a valuable differentiator in the marketplace.

Where boards and business leaders are slow to adopt best practice, in addition to regulatory and consumer pressure, investor focus on ESG standards has proven a critical factor in lifting ESG performance.  Globally, about a quarter of institutional money is now branded as ESG investment.  Many of the most sophisticated global investors are now advocating ESG performance, not just as the right way to run businesses but also as essential to deliver portfolio alpha.

The global trend towards ESG investment is now set to become a significant factor in the Indian markets.  International investors are increasing allocations to India, given its growth potential, and will expect high ESG standards.  Several ESG funds have been launched, focusing on India, including our own Q-ECube India ESG Fund.

My years working with the Tata Group taught me much. Most notably, all Tata employees are imbued with the conviction that running businesses well and doing the right thing are as intertwined as the double helix in DNA.  It is critical that such business philosophy extends to environmental responsibility and that carbon mitigation is embedded in everything companies do.  Corporate India must demonstrate leadership in blunting the environmental impact of economic growth.

This post was originally published in Asian Affairs dated August, 2019