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ARTICLE AD BOX
Summary
Factory emissions need to be slashed. This is no longer just an environmental but a business imperative. Globally, administrations, investors and consumers are beginning to punish companies that fail to decarbonize their core operations.
Every year, some of India’s largest industrial companies publish sustainability reports that are full of details on the number of trees planted, villages electrified and water bodies restored. And every year, the factories that made those reports possible continue to burn coal, run furnaces and emit carbon at rates that have barely changed in a decade.
Both things are true. Neither cancels the other out. That is the uncomfortable part.
India’s corporate sector has spent the decade since the enactment of the Companies Act of 2013 perfecting a particular kind of environmental sincerity. The law required large companies to spend 2% of their profits on initiatives for social good.
The intention was sound. But for heavy industry like steel, cement, coal and chemicals, it created an unintended side-effect. It opened up a way to be seen as environmentally responsible without any change in how the business actually ran. Plant trees, fund solar panels in a village, restore a watershed, file the report and then move on.
The factory that was a source of emissions stayed exactly as it was. This was a compliance exit from the harder question of what to do about carbon coming out of the chimney.
Only a small fraction of large listed companies have set any targets to reduce emissions from their core operations, while environmental corporate social responsibility (CSR) budgets have grown steadily.
More troublingly, studies of corporate disclosure over the past decade suggest that heavier spending on environmental philanthropy has not translated to greater investment in an actual clean-up of industrial processes. In some analyses, the relationship ironically runs the other way. Therefore, philanthropy is not a complement to change. It is simply a pressure valve.
This pattern persists because the incentives made it rational. Afforestation is cheap, visible and easy to put in an annual report. Replacing a blast furnace process or retrofitting a cement kiln costs millions, carries technology risk and squeezes profits in the short term. As long as the rules reward the first and say nothing about the second, most companies will choose the first. This is not a moral failing. It is a predictable business response. Charity is not a first step. It’s a detour.
Three things are now changing that calculation faster than most companies realize. The European Union’s carbon tax, known as the Carbon Border Adjustment Mechanism (CBAM), has come into force this year. A few major goods exported to Europe are being charged for the carbon produced in making them. Indian steel and aluminium exporters, who have long competed partly by not paying for their emissions, are facing a direct price penalty. As much as 20% of India’s steel exports could be materially affected.
It is a straightforward commercial problem, with no reputational cushion.
At home, India’s carbon credit trading scheme is setting up a carbon market. Once carbon carries a price in rupees, the financial case for investing in cleaner processes will improve on its own, without any need for persuasion based on principle.
Moreover, the Securities and Exchange Commission’s Business Responsibility and Sustainability Reporting requirement asks India’s top 1,000 listed companies to disclose actual operational emissions alongside their CSR spending in the same document. For the first time, analysts and investors can put both numbers on the same page.
Estimates of unpriced carbon risk sitting on the balance sheets of India’s largest industrial emitters run into trillions. The tardy efforts of Indian industry to decarbonize require no new rules, but three fixes.
One, redirect about a quarter of all environmental CSR budgets towards cutting emissions within a company’s own supply chain—cleaner suppliers, less carbon-heavy logistics and energy efficiency in ancillary units. The money has already been set aside. It just needs to go elsewhere.
Two, apply an internal carbon price to every investment decision. Firms that apply a shadow carbon price of, say, $40-80 per tonne to investment decisions choose cleaner technologies more often when given the choice. A number in a spreadsheet changes the conversation in ways that a sustainability strategy document rarely does.
Three, tie executive pay to emission reduction targets. Companies that linked a meaningful share of senior pay to emission-reduction targets are found to have cut their operational carbon intensity much faster than those that did not. Incentives work—in finance, sales or decarbonization.
India’s industrial base is large enough for the handling of this transition to matter beyond the country’s borders. The companies that move early will find cheaper capital, open export markets and hold a stronger competitive position. Those that keep filing sustainability reports full of proclamations on saplings while leaving their furnaces untouched will eventually face a reckoning with irate regulators, investors or trade partners. These businesses should choose to act while they still can. That window will not stay open indefinitely.
The author is an independent expert based in New Delhi, Kolkata and Odisha. Twitter: @scurve Instagram: @soumya.scurve.
English (US) ·