‘ESG framework must for organisations to mitigate risks of climate change’
Climate change has grave consequences on people and the planet. A robust industrial infrastructure, which aims to fulfill the demand of a growing population, puts significant pressure on the environment and the resources available to us. Hence, the role of industries in mitigating these climate risks is going to be critical and organisations must develop an ESG (environment, social and governance) framework, which is truly integrated into their business strategies and processes.
With ever-increasing concern about environment and society amongst consumers and investors alike, ESG is set to portray the shared values between a company and its stakeholders. Many companies have been following innovative and sustainable pathways towards long-term business sustainability, forming an inherent connection between the people, planet, and profit. Today, companies are moving beyond traditional silos and integrating ESG policies and initiatives into a corporate strategy to reinforce commitments that are important to customers and other potential stakeholders. Interacting with the Hindustan Times, Nyrika Holkar, the executive director of Godrej & Boyce offered insight into the need for integrating ESG targets with financial goals of a company to address the global challenges such as climate change.
Why are companies rapidly looking at re-organising their businesses and shaping their strategies around ESG norms?
As the hope of restricting global warming to 1.5 degrees Celsius recedes rapidly, there is a dire need for companies to reorganise their business processes to contain the worst excesses of climate change. In addition, companies are also realising the value that ESG creates for businesses as consumers become more aware of their carbon footprint and its potential positive impact on business performance. Studies prove that a focus on ESG helps organisations increasingly access new pools of capital, build a strong reputation among consumers and ensure a sustainable growth path — from policymakers, consumers to investors, ESG matters to all.
At Godrej & Boyce, we have always been extremely focused on sustainable and inclusive growth through unique, scalable initiatives. We focus on four key strategic pillars — employability, innovating for good and green products, creating a greener India and creating shared value through community development. This shared value approach has helped us to not just do our bit towards a greener planet but also to create business value. Today, one-third of our revenues are derived from good and green products.
How challenging would it be for companies to branch out to newer sectors?
Companies will have to make strong commitments towards achieving net-zero emissions targets and also integrate it with their business goals. This will require a significant amount of transformation within organisations. This can be achieved by setting science-based targets for reducing carbon emissions and improving energy efficiency.
Voluntary initiatives and actions by individual companies or industries can have a far-reaching cumulative impact on society, whether it is by reducing emissions, improving energy efficiency, or ensuring proper waste management and zero water wastage. We need to do much more than meet compliance requirements for ESG goals. Larger corporations can further provide guidance and expertise to not only their supply chain partners but also various small and medium enterprises as well. By encouraging sharing of knowledge, resources and offering incentives, there are synergies that can be created to collectively work towards a common goal.
What challenges companies may face in meeting their net-zero emissions targets?
In an economy which is highly carbon-constrained, achieving a net zero target is a challenge for most companies, especially the small and medium enterprises. For generations now, our economic growth has been closely linked to fossil fuel and hence a transition from being overly reliant on coal as a source of energy will require some very decisive long-term policies.
It must be ensured that the transition to renewables is an equitable one. Incentivising the use of renewables or low-carbon power sources like solar panels might encourage smaller enterprises by addressing some financial constraints.
Access to finance is also a major hurdle faced by MSMEs. For decarbonisation, it is necessary to increase the energy efficiency of industrial equipment, however, smaller enterprises might face constraints in making these investments. Hence, it is important for the financial industry and large corporations to catalyse investments in newer and more efficient technologies. As large corporates we must also encourage our supply chain partners towards this transition and instil a ‘green thinking’ mindset. At Godrej & Boyce, we have been actively developing our vendor partners towards this mindset through trainings and technology support, enabling them to adopt best practices for energy and water use.
Can companies take longer to meet net-zero targets than anticipated, considering they have not been as ESG conscious for years now?
The concept of ESG as an integrated business practice is recent but accelerating trend replacing the endless debates on climate change of yesteryear. There is a scope to use policy also to drive industry and shape consumer choices. Take for example, Energy Star-rated products (that are used to rate the energy consumption of air conditioners) or the BEE star label, have been around since 2006 and Godrej & Boyce was one of the first to adopt this rating system. These are not new concepts and given their acceptance by consumers should be immediately extended and mandated for all other energy-based appliances and gadgets from laptops to washing machines.
Furthermore, to promote efficient lighting solutions, the Indian government launched the Unnat Jyoti by Affordable LEDs for All (Ujala) scheme in 2015. Under a demand-aggregation model, Energy Efficiency Services Limited distributed light-emitting diode lamps to households at a significantly lower price than the prevailing market rate by lowering the LED cost through bulk procurement. Nearly 90% of Indian homes now have switched to LED bulbs. Moreover, two-thirds of the total lighting stock of 1 billion lamps and tubes in Indian homes is now LED-based.
Such policies will force the industrial sector and consumers to understand, adapt and start acting in accordance with a common goal — to reduce energy intensity in society, for example. Most importantly it will incentivise choices that help to conserve the scarce natural resources of the planet.
Similarly, the conversations and efforts to increase renewable energy, recycling plastics, and to promote a circular economy for raw materials like concrete have been underway for many years now. Now is the time to mandate usage of recycled materials like concrete or steel in our ambitious infrastructure building program poised to attract investments worth ₹50 trillion by 2022. Given this frenetic pace of activities (the country wants to build 40km of roads every day), there is an urgent need to increase the quantity of recycled core materials like concrete and steel that are used for infrastructure projects.