Author : Nilanjan Ghosh

Expert Speak Terra Nova
Published on Apr 21, 2023
As per the theme for Earth Day 2023, Indian businesses should invest in green solutions and embark on sustainable and green business models
Investing in the Planet: Climate literacy as ESG enabler for Indian corporates ESG (Environmental, Social, and Governance) parameters have become popular with businesses across the globe with their increasing recognition of the need for imbibing sustainability concerns in their core operational strategy. This is not only an occidental phenomenon, but also a noticeable phenomenon in the Global South including among Indian corporations. The myopic perception of “profit” in the corporate sector, therefore, is changing with the notion of “sustainable business”. This is because businesses have begun appreciating three crucial points: a)  The long-term survival of their endeavours depends upon the natural resource base that is subject to degradation and depletion due to short-term rent-seeking behaviours; b) There is a need to invest in future human capital to create more sustainable value-chains; c) Businesses that invest in the four forces of capital, namely, human capital, social capital, physical capital, and natural capital, thereby, embarking on the path of “sustainable and green” business models, will be more competitive in the medium and long run, with the results reflected in their long-term bottom lines. Yet, we need to face the reality: This is not a ubiquitous phenomenon among Indian businesses.
Addressing SDGs help in diminishing long-term “transaction costs” through the reduction of risks emerging from future shocks that may impact the environmental, political, and social dimensions of their endeavours, thereby, helping their competitiveness.
While we argue that ESG entails firms investing in the four forces of capital without compromising the fundamental natural ecosystem’s structure and functions, this is akin to investing in the SDGs that also acknowledge this “inclusive wealth” of the planet delineated by the four capitals. Rather, the important consideration here is that businesses need to understand if they are addressing the UN SDGs while talking about ESG parameters. In the process, one needs to appreciate that there is a two-way causality between business performance and SDGs. While, for businesses, ESG is the avenue through which they address the SDGs, research has shown that SDGs create enabling business conditions through the following ways. First, addressing SDGs help in diminishing long-term “transaction costs” through the reduction of risks emerging from future shocks that may impact the environmental, political, and social dimensions of their endeavours, thereby, helping their competitiveness. Second, addressing SDGs helps in better governance practices due to the inherent transparency in sustainability risks and impacts, which further helps in reducing information asymmetries. Third, while addressing SDGs, new business solutions and opportunities are created, helping market expansion, benefiting bottom lines, and leading to eventual job creation through partnership creations at various levels. This also brings in company goodwill and helps corporate branding. Eventually, investing in ESG parameters and addressing SDGs is tantamount to Creating Shared Value (CSV), as conceived by Michael Porter and Mark Kramer.

Why climate literacy is important among Indian businesses? 

Therefore, considering the immense opportunities brought by the SDGs, that businesses can handle through their ESG initiatives, Indian businesses cannot remain blind to this emerging phenomenon. However, the force that has emerged as the perennial stressor for the social-ecological system at all levels, in the attainment of the SDGs, is definitely global warming and climate change. The intersectionality of climate change and SDGs is complex and multifaceted and occurs with a bi-directional causality. On the one hand, climate change affects the achievement of the SDGs, while on the other hand, SDGs offer a promising framework for addressing climate change, as many of the targets are related to climate change mitigation and adaptation. Rather, SDG 13 is all about climate action.
The intersectionality of climate change and SDGs is complex and multifaceted and occurs with a bi-directional causality.
This is what Indian businesses need to take into consideration. Their ESG parameters can be severely affected by climate change, thereby, affecting their long-term business prospects and competitiveness. This makes climate literacy important for Indian businesses. Climate literacy refers to the understanding of climate change’s (if not the science) impact and the solutions to this in the form of adaptation and mitigation. Such literacy will play a crucial role in helping businesses make informed decisions and take meaningful actions to address future risks. There are many advantages to this.
  1. Identifying and managing climate-related risks: Climate literacy equips businesses with the knowledge and tools to identify and assess climate-related risks, such as physical risks (e.g., extreme weather events, sea-level rise), transition risks (e.g., policy and regulatory changes, market shifts), and reputational risks (e.g., public perception, stakeholder expectations). By understanding these risks, appropriate strategies can be devised to combat the consequences and impact and safeguard the long-term viability and resilience of businesses.
  1. Integrating climate considerations into business strategy: Climate literacy enables businesses to integrate climate considerations into their overall business strategy, thereby, aligning their operations with sustainability goals. This includes setting targets for reducing greenhouse gas emissions, adopting sustainable supply chain practices, promoting circular economy principles, and integrating climate risk management into financial planning and investment decisions. By integrating climate considerations into their business strategy, businesses can improve their overall ESG performance and create long-term value for their stakeholders.
  1. Engaging stakeholders on climate issues: Climate literacy empowers businesses to engage with stakeholders—including investors, customers, employees, local communities, and regulators—on climate-related issues. This includes communicating climate-related risks, opportunities, and actions in a transparent and credible manner, seeking stakeholder input on climate-related initiatives, and responding to stakeholder concerns and expectations.
  1. Building climate-resilient operations: Climate literacy helps businesses build climate-resilient operations by adopting measures to adapt to the impacts of climate change. This includes implementing climate risk assessments, developing contingency plans for extreme weather events, diversifying supply chains to reduce dependencies on vulnerable regions, and investing in climate-resilient infrastructure and technologies, thereby helping business continuity.
  1. Enhancing reporting and disclosure on climate performance: Climate literacy can enable businesses to enhance their reporting and disclosure practices on climate performance, which is a crucial aspect of ESG reporting. This includes transparently reporting on greenhouse gas emissions, climate-related risks and opportunities, climate mitigation and adaptation strategies, and progress towards climate targets.
  1. Implementing environmental management systems: Indian businesses can adopt internationally recognised environmental management systems such as ISO 14001 to systematically identify, manage, and reduce their environmental impacts. This includes conducting regular environmental audits; setting targets for reducing resource consumption, waste generation, and emissions; and implementing measures to comply with environmental regulations.
  1. Investing in renewable energy: Indian businesses can transition towards renewable energy sources as a way to mitigate their carbon footprint and reduce their environmental impact. With India's proactive renewable energy initiatives and favourable regulatory environment, businesses can leverage opportunities in renewable energy, such as setting up solar or wind power plants, investing in green energy technologies, or procuring renewable energy through power purchase agreements (PPAs). This not only helps in reducing greenhouse gas emissions but also contributes to India's renewable energy goals and can result in long-term cost savings.
  1. Adopting circular economy principles: Indian businesses can embrace circular economy principles, which aim to minimise waste and optimise resource use throughout the value chain. This can involve adopting practices such as designing products for durability and recyclability, implementing waste reduction and recycling programmes, and promoting sustainable procurement practices. Indian businesses can also leverage regulations such as the Plastic Waste Management Rules, 2016, which mandate extended producer responsibility, to implement circular economy practices in their operations. By adopting circular economy principles, businesses can reduce their environmental impact and create a more sustainable business model.
  1. Investing in employee training and development: Indian businesses can invest in employee training and development programmes to build climate and environmental literacy among their workforce. This can involve providing training on sustainability concepts, best practices, and regulations, as well as fostering a culture of sustainability through awareness campaigns, workshops, and employee engagement initiatives. By building the capacity of employees to understand and address environmental issues, businesses can foster a culture of sustainability and empower their workforce to contribute to the company's ESG goals.
  1. Value-chain resilience and sustainability: Addressing climate issues and investing in sustainability will also help businesses create value-chain resilience and help create sustainable value-chains. It needs to be noted that the existing supply chains are configured for more benign business environments than the presently unfolding hostile and uncertain global economic backdrop caused by the pandemic and the Ukraine crisis. The existing supply-chain frameworks can hardly withstand the uncertainties brought about by global climate change. Indian businesses, therefore, need to think about newer pathways to bring about efficiency and create more resilient supply chains by enhancing their sustainability standards.

To sum up 

It becomes imperative for Indian businesses therefore to invest in the planet. Investing in nature-based solutions, green energy transitions, low energy-consuming technology, and creating less resource-consuming practices will only help in combating the “global commons” of climate change which has long-term impacts on the business’ bottom lines through various avenues. The faster Indian businesses acknowledge and address these, the better for them and the broader society. By investing in the planet, corporations will be investing in their own business continuity process, while simultaneously creating shared value for the society at large. On the Earth Day of 2023, therefore, Indian businesses should ideally redeem this “green pledge”.
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Author

Nilanjan Ghosh

Nilanjan Ghosh

Dr Nilanjan Ghosh is a Director at the Observer Research Foundation (ORF) in India, where he leads the Centre for New Economic Diplomacy (CNED) and ...

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