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Climatechange:Isindia Inc - Prepared?: Akpmgstudy
Climatechange:Isindia Inc - Prepared?: Akpmgstudy
Inc.Prepared?
AKPMGStudy
KPMG IN INDIA
Foreword
Climatechangeisnowwidelyregardedasoneofthemostseriouschallengestheworld
faces,withconsequencesthatgofarbeyonditseffectsontheenvironment.Itisakey
economicissueandneedstobedealtwithaccordingly.Itisinthiscontext,thePrime
MinisterofIndiarecentlyreleasedtheNationalActionPlanonClimateChange,which
seekstopromotesustainabledevelopmentthroughuseofcleantechnologies.Theaction
plan,whileitdoesnotcommittoGHGemissionsreductiontargetsitdoespledgethat
India'spercapitagreenhousegasemissionswill"atnopointexceedthatofdeveloped
countries”inspiteofitdevelopmentimperatives.
WithaviewtofindingouthowIndianfirmsarerespondingtotheissuesandchallenges
aroundclimatechangeKPMGhascarriedthefirstmajorstudyamongbusinessleaderson
thisissue.Atotalofaround70businessleadersattheCEO/CXOlevelwereinterviewed
forthisstudy.Thestudybringsoutsomeinterestingfindings:
• 83%ofIndianbusinessleadersbelievetheyhavefairtogoodunderstandingonthe
issueofclimatechangeandasignificant48%regarditasimportantissuewhichneeds
tobenearthetopofIndia’sbusinessagenda
• However,thereissignificantgapbetweengoodintentionsandactionasonly21%have
measuredtheircurrentcarbonfootprint,whichisoneofthefirststepsindefininga
strategytodealwiththeissue
WebelievethatasIndiancompaniesconfrontthechallengesofclimatechange:
• First,theyshouldassessthedirectandindirectimplicationsofclimatechangeontheir
businessandtakecorrectiveaction
• Second,theyshouldseektobenefitfromopportunitiesbroughtbyclimatechange.
Forinstance,theglobalmarketforlowcarbonenergyefficienttechnologieswillbe
$3trillionby20501.
1
European Commission, November 26, 2007
Indiancompanieswillhaveanopportunitytoleverageclimatechangeasacompetitiveadvantage(ratherthana
threat)byplanningtheirapproach,measuringtheirimpact,adaptingtheirmodeltoalowcarbonbusinessand
reportingonperformanceaccurately.
AtKPMGwearecommittedtoaddressingclimatechangefirstandforemost,byactingasgoodcorporate
citizens.Theprincipalambitionof‘KPMG’sGlobalGreenInitiative’willbetoreduceourmemberfirms’
combinedcarbonfootprintby25percentbytheyear2010froma2007baseline,throughemissionreduction
schemesandtheuseofrenewableenergyinourmemberfirms.
Furthermore,wehavealwayssoughttobeattheforefrontofdevelopmentsthatshapebusinessbehavior.
Ourglobalsustainabilityandclimatechangeservicesnetworkhasmorethan15yearsexperienceinproviding
servicestoawiderangeofclientsfromglobaltonationalbusinessesandgovernmentagencies.Weoffer
businessfocusedadviceonawiderangeofissuesintheclimatechangesphere,fromcarbonfootprintingand
greenhousegasinventoriestocarbontradingandcorporatefinance.
Inaddition,weregularlyprovideinsightandindustryanalysisintotheroleofbusinessinrelationtosomeof
themostpressingsocietalissues.Ourthoughtleadershipinthesphereofclimatechangeiswellestablished,
withourmemberfirmspioneeringanalysisandprovidinginsightintosomeofthekeyquestionsthat
businessesmaybeasking.Thisstudyaddstoourextensiveknowledgebaseandprovidesinterestinginsight
intotheIndianbusinessleaders’appreciationoftheclimatechangecontext,itsimplicationsfortheeconomy
andtheirbusinesses,andtheirreadinesstorespondtotheimpendingchange.
Iamconfidentthatthisstudymakesameaningfulcontributiontotheunderstandingofclimatechangeasa
businessissueinIndia.
Arvind Mahajan
ExecutiveDirector,
AdvisoryandNationalIndustryDirector,Energy,InfrastructureandGovernment
NOTE: Unless otherwise noted throughout this publication, "KPMG" refers to "KPMG in India."
Contents
1Contextforthisstudy 1
2Aboutthestudy 5
3IsClimateChangeonthebusinessagenda? 6
4Whoisgoingtoleadtheresponsetoclimatechange? 8
5Motivatorsforrespondingtoclimatechange 14
6Howcanwerespondtoclimatechange? 24
7Conclusion:Bridgingthegapbetweenintentionandaction 29
Page 1
The impact of human activities on the earth’s climate has been receiving increasing
attention with the recognition of the problem of global warming. The fact that a range of
initiatives need to be taken to arrest the pace and reverse the accumulation of Greenhouse
Gas (GHG) emissions is widely accepted. However, the implications of such initiatives – on
countries, economies, businesses and societies – are expected to be significant, and the
allocation of costs, risks and responsibilities is still under debate and negotiation.
The Challenge: Managing economic growth while reducing
the pace of emissions growth
Theeconomiccostsandbenefitsofaction(andimportantly,inaction)againstclimate
changehasbeenquantifiedwiththeSternReportpublishedin2006(commissioned
bytheUKgovernment).
Thecostsoftakingactionnow,toreducegreenhousegas(GHG)emissionstoan
acceptedsustainablelevelareestimatedat1percentofglobalGDPwhichisa
significant,butmanageablefinancialcommitment.However,globalGDPlosson
accountofbusinessasusual(noactiontocontainGHGemission)isestimated
Datasource:SternReviewReporton between5percent(attheleast)to20percent(atworst)annually,nowandforever2.
EconomicsofClimateChange,2006
Whilethecostofactionislowerthanthatofinaction,itisstillasignificantcost,
moresoforrapidlygrowingcountrieslikeIndia,andhasimplicationsonchoicesfor
reducingtheenergyintensityofthegrowthtrajectory.
2
Department of Environment, Food and Rural Affairs, UK Government, 2007
Page 2
The Threat: Indian businesses would have to act within a foreseeable timeframe
India,alongwithChina,hasbeensubjectedtoincreasinginternationalpressuretoundertakebindingemissiontargetstolimitits
aggregatelevelofemissions.WhilstthegovernmentofIndiahaschosenanapproachbasedoncommonbutdifferentiated
responsibility,themountinginternationalcallfordemonstrableactionfromIndiaissignificant.Further,othercountriesare
consideringtrade-basedsanctionsonIndianbusinessesifthecountryfailstocommittobindingtargetsunderthenextinternational
collectiveagreementpost-2012.Anyfutureregulation,whetherbindingorvoluntary,canfundamentallyalterthedevelopmentpath
ofthecountryandhaveaprofoundimpactonthegrowthtrajectoriesofindividualindustriesandcompanies.Indiarecentlyreleased
theNationalActionPlanonClimateChange.ThisreportdoesnotsettargetsforGHGemissionsreductionbutseekstopromote
sustainabledevelopmentthroughuseofcleantechnologies.TheactionplancommitsthatIndia'spercapitagreenhousegas
emissionswill"atnopointexceedthatofdevelopedcountries”inspiteofitdevelopmentimperatives.
Corporationsacrossallindustrieswillcontinuetobesubjecttoincreasinglystringentenvironmentalregulation,aswellassustained
pressurefromcustomers,employeesandinvestorstodeliveronatriplebottomlineofeconomic,environmentalandsocial
performance.Thisconceptoftriplebottomlineisaframeworkwithinwhichstakeholderscanevaluatetheperformanceoffirms
acrossanexpandedspectrumofvaluesandcriteriathatgobeyondmereeconomicperformance.
The Opportunity
Atthesametime,Indiancompaniescanexploitnumerousbusinessopportunitiesthat
arelikelytoariseoutofclimatechangemitigationandadaptation.Theglobalmarketfor
low-carbontechnologiesisestimatedtoamounttoUSD3trillionperyearby
20503,throwingupsignificantcommercialopportunities.Already,itisestimatedthat
industriessuchasrenewableenergy,wastemanagementandwatertreatmentwillbe
worthUSD700billiongloballyby2010–onparwiththevalueoftheglobalaerospace
industry.4
3
European Commission, 26 November 2007
4
OECD Environmental Policy Committee, 22 Feb 2008
Page 3
Further,theCleanDevelopmentMechanism(CDM)undertheKyotoProtocolaffordsbusinessesindevelopingcountrieslikeIndia
theopportunitytoreducetheiremissionswiththetechnologicalandfinancingsupportofentitiesindevelopedcountries.Also,
reducingemissionsatafirmlevelhasbeenestablishedtoresultinsignificantefficiencygainsinvariousbusinessprocesses.
ItisinthiscontextthatKPMGundertookthisstudytounderstandtheIndianbusinessleaders’appreciationoftheclimatechange
context,itsimplicationsfortheeconomyandtheirbusinesses,andtheirreadinesstorespondtotheimpendingchange.Our
discussionswiththebusinessleaderscoveredthefollowingareas:
• Isclimatechangeontheagenda:Howdobusinessesleadersperceiveclimatechangeasacurrentbusinessissueandhowisit
expectedtoinfluencetheirstrategygoingforward
• Whowillleadtheresponse:WhatroledoIndianbusinessesenvisageforIndiaintheglobalresponsetoclimatechangeand
withinIndia,whoarethemajorstakeholdergroupsthatarelikelytodriveaction
• Motivatorsforaction:WhatmotivatesIndianbusinessestotakeactiononclimatechangenowandhowdotheyperceivethese
actionspayingoff
• Howcanwerespond:Whatactionsandtools,ifany,dobusinessescurrentlyhaveinplacetorespondtoclimatechangeand
whatistheirfutureplanofaction.
Page 4
Page 5
KPMGhasconductedastudytounderstandthecurrentlandscapeofopinioninIndian
industryontheissueofclimatechange.Seventybusinessleadersfromabroadrange
ofindustriesandsectorswereinterviewedonastructuredquestionnaire.
ThisstudyfollowsasimilarsurveyconductedbyYouGovonbehalfofKPMGintheUK
of73businessleadersinApril2007.Inthisreport,relevant,responsesofIndian
businessleadershavebeencontrastedwiththeresponsesofbusinessleadersinUK.
Page 6
Fortyonepercentofrespondentsregardthemselvesashavingagoodunderstanding
oftheissueandhavingaclearstrategyinplace.Afurther42percentclaimtobein
theprocessofdevelopingtheircarbonstrategy(Seefigure3).
Page 7
Theawarenessofissuesrelatingtoclimatechangehasresultedinclimatechange
beinghighonthebusinessagendaofasignificantproportionoftherespondents
(seefigure4).Fortyeightpercentfeltthatclimatechangeisacrucialandurgentissue
andshouldbenearthetopofIndia'sbusinessagenda.Thisishigherthanthe
proportionofUKrespondentsintheMarch2007study(27percent)whobelievedthat
climatechangewasintheirtop9strategicpriorities.Afurther46percentofIndian
businessesindicatedthatclimatechangeisanimportantissue,buttherewereothers
thataremoreurgentonIndia’sbusinessagenda.
Page 8
5
Box 1: International collective agreements
TheKyotoProtocol,whichcameintoforceinFebruary2005,isthemostdetailedbindinginternational
agreementtotackleglobalwarming.Aspartofthefirstcommitmentperiodexpiringin2012,developed
countries(Annex-1)arerequiredtoreducetheirGHGemissionsbelowlevelsspecifiedforeachofthemin
thetreaty,onanaverageof5.2percentbelowthe1990baseline.Mostofthemajordevelopedcountries
exceptUShaveratifiedthetreaty.Developingcountries(non-Annex1)includingIndia,donotfacebinding
emissiontargets.
Non-ratificationbyUS,lateratificationbyAustralia(December2007)andnon-bindingemissiontargetson
majorcurrentGHGemittersChinaandIndiaweresomeofthekeyissuesofdeliberationattheUnited
NationsClimateConferenceheldinBali,IndonesiainDecember2007.Itwasaimedatinitiating
negotiationsforanewinternationalcollectiveagreementtocomeintoforcepost-2012.ABaliRoadmap
wasadoptedanditsconstituentBaliActionPlan,whilstcontainingnobindingcommitments,providesfor
anewinternationalcollectiveagreementtobeinplacebytheendof2009andfortheexplicit
participationofcountriesthathavenotacceptedbindingemissiontargetsunderKyoto,includingUS.
Theofficiallaunchofnegotiationsandtheestablishmentofaconcretetimelinetookplaceatameetingof
theworkinggroupsestablishedattheBaliconventionfrom31March–4April2008inBangkok,Thailand.
Atthismeeting,aworkprogramforstructurednegotiationstowardsthisnewinternationalcollective
agreementwasconcluded.Importantly,inrespondingforcallsforgreaterclarityandcertaintyfrom
businesses,theUNFCCCconfirmedthattheuseofmarket-basedmechanismssuchasthemarketfor
carboncreditswouldbecontinuedandimproved.
Therewillbe3moremajorUNclimatechangemeetingsin2008andatleast4suchmeetingsin2009,
culminatingintheCopenhagenconferenceattheendof2009whereanewinternationalcollective
agreementisenvisagedtobesigned.Thisnewagreementwillcomeintoforceoncethecurrent
commitmentperiodexpiresin2012.
5
UNFCCC, 2008
Page 10
ThePrimeMinister’sCouncilonClimateChangewasconstitutedinJune2007todevelopIndia’sfirstevernationalactionplanon
climatechange.Thepolicywaspublishedon30thJune2008andthesailientfeaturesofthispolicyanditslikelyimpactonIndian
industryareillustratedinBox6.
Simultaneously,negotiationsonIndia’sroleintheglobalresponsetoclimatechangeareunderwaywithChinaandIndiabeing
partofthe16-membergroupof‘MajorEconomies’thatconstitutetheleadingemittersoftheworld.The‘MajorEconomies
Meeting’(MEM)waslaunchedinSeptember2007,andhasheld3meetingssofar,thelatestbeinginApril2008.TheMEMis
workingona'leaders'declaration'tobepublishedattheG8summit.
Source:TimesofIndia,June162008;“Indiafightsoffpressuretoalterclimateagenda”–mostrecentsource.
IndianbusinessesarepositiveintheiroutlookfortheroleofIndiaintheglobal
responsetoclimatechange,asreflectedin65percentofrespondentsindicatingthat
Indiashouldbeleadingtheway.(Seefigure6)
WhilethereisakeendesireforIndiatotaketheleadinrespondingtoclimatechange
issuesontheinternationalarena,theresultsrevealthatbusinesseswantthe
governmenttotaketheleadineducation,leadingbyexample,andinadoptionof
technology.However,theyareoftheopinionthatthegovernmentisnotdoingenough
intheseareasatpresent.
Page 12
However,theUKgovernmentseemstobeperformingbetterinitsrole(s)indomesticclimatechangemitigationeffortsas
comparedtotheIndiangovernment.FortytwopercentofUKbusinessesfeelthatthegovernmentisdoingenoughtoeducate
businessesand49percentregarditasdoingenoughtoeducateindividuals,ascomparedto13percentand5percent
respectivelyforIndianrespondents.ThisisnotsurprisinggiventhehighimportanceallocatedtoclimatechangebytheUK
government,whichwasfurtherreinforcedbytheinclusionoftheissueinMarch2008asoneofthetopthreethreatstonational
security.
Source:KPMGintheUKClimateChangeBusinessLeaderSurvey,2007
Box3providesaninterestinginsightintotheroleattributedtothegovernmentbyUK
businessesanditsperceivedperformanceascomparedtotheIndiansituation.
Intermsofleadershipstructureonagloballevel,thereareinterestingdynamicsat
playintherolesthatdifferentcountriesarelikelytoplayinthefutureglobalactionto
combatclimatechange.Figure7providesatimelineofsomeoftheimportant
milestonesintheglobalactionagainstclimatechangeandBox4exploressome
recentglobalsocio-politicaldevelopmentsinthisareaandtheirlikelyfutureimpact.
Page 13
The EU will play a key role in shaping the next set of international collective agreements. TheEU’sleadershipofclimate
changemitigationeffortsisevidencedbytheircommitmenttotakestepstoreducetheiremissionsby20percentby2020(from
1990levels)irrespectiveofwhatothercountriesdo,andanoffertoincreasethatgoalto30percentifanacceptablepost-Kyoto
internationalcollectiveagreementisconceived.TheEUexpectstoconcludenegotiationsonanambitiousclimatechangeaction
planforthe27nation-block,byendof2008,aimedatmeetingthisgoal.ThiscouldplaceEuropeinastrongpositiontosetthe
standardinCopenhageninlate2009.
TwentyeightUSstateshaveformed,orareabouttocreate,mandatorygreenhouseemissionlimitsintheabsenceoffederal
regulations.ThirteenclimatechangebillsarecurrentlyunderdiscussionintheDemocrat-ledCongress,mostofwhichcontain
plansforsomesortofmarket-basedmechanism.ThemostpublicizedoftheseistheClimateSecurityAct(Lieberman-Warner
Bill),abi-partisancompromisethatissupportedbyMcCain.WhilstthisbillwasrejectedbytherulingSenateinJune2008,itis
likelytobereconsideredinsomeformundernewpoliticalleadershipin2009.
Source:Councilforforeignrelaions,“Economicchallengesforclimatechangepolicy”,April142008;Reuters,‘GovernorstoplotclimatefightatYale
meeting’,April162008;andInternationalDailyNewswire,‘McCainoutlineshisplantoconfrontclimatechange’,May12,2008.
Page 14
Risks of inaction
Stringencyinregulatoryrequirementsisperceivedtobetheprimaryrisktobusiness
arisingoutofclimatechangeissues.(Seefigure8&box5).Further,theneedto
prepareforexpectedregulationsemergedasthemostimportantfactorinthe
formulationofthecompany’scarbonstrategy.Thegovernment’scurrentpointofview
Page 15
Thereportidentified4typesofrisksthatbusinessesacross18sectorswouldface
asaresultofclimatechange-regulatory,physical,litigationalandreputational,and
foundthatamajority(72percent)ofthestudiesdiscussedtheregulatoryrisksthat
businessesface.Companiesandsectorsthatfailtoadjusttoachangingbusiness
environmentcreatedbynewlawsandregulationsfacecompetitivedisadvantages,
whileregulatoryuncertaintiesmakeitdifficultforcompaniestoplanahead.
isdefinedbythenationalactionplanonclimatechange,preparedbythePrime
Minister’scouncilonclimatechange.Salientfeaturesofthisplanaresummarizedin
box6.
WhilstthedomesticregulatoryenvironmentisclearlyimportanttoIndianbusinesses,
theywouldbewellservedtoassestheimpactofthepoliciesofforeigncountrieson
theirownoperation.Inparticular,theoperationofexport-orientedIndianfirmsinGHG
intensiveindustriessuchasiron,steel,aluminum,cement,glassandpapercouldbe
fundamentallyimpactedbytheproposalsofUSandtheEUtouserestrictionsand/or
taxestoraisethecostofimportsfromlessenvironmentallystringentcountrieslike
IndiaandChina(seebox7).Further,theparticipationofcountrieslikeIndiaandChina
inthereformedemissionstradingschemeinCDMprojectsmayberestrictedbynew
EUproposals(seebox8).
6
Climate Changes Your Business: KPMG's Review of the Business Risks and Economic Impacts at Sector
Level
Page 16
Thereare8nationalmissionswhichformthecoreoftheplananddictatethedirectionoffutureaction.Thesecoverthefollowing
areas:
8Sustainableknowledgeforclimate
2Energyefficiency 4Water 6GreenIndia
change
Importantlyforbusinesses,thepolicymandatesthesettingupofenergybenchmarksforeachindustrysectorandallowsfor
tradeinenergyefficiencycertificates.Alongthelinesoftheinternationalmarketfortradeincarboncredits,theaimofsucha
‘cap-and-trade’schemeistofacilitatetheleast-costmethodofachievingtheoveralltargetofsector-wideefficiency.Nineenergy
intensivesectorssuchasthermalpowerplants,iron&steelandcementhavebeenidentifiedandwithinthesesectors,bands
havebeencreatedwhichclassifyindividualunits(businesses)onthebasisofenergyintensitylevels.
Eachbandisgivenatarget(whichisperiodicallyrevisedupwards)toreducetheirfuelconsumptionoverafixedperiodoftime.
Theindustrialunitswhosurpasstheirtargetswillbegivenenergyefficiencycertificateswhichcanbetradedontheopenmarket
orbankedforthenextroundofefficiencytargets.Industrialunitsthatsurpasstheirallocatedstandardwouldbeforcedtobuy
suchcreditsfrommoreenergy-efficientunits.
Inthismanner,businesseshaveamonetaryincentivetobecomemoreenergyefficientandfacerisksoffinanciallossiftheydo
not.Further,thegovernment’sexpandedactionsinthe8missionsarelikelytocreateand/orsignificantlyexpandthemarketfor
energy-efficientgoods,servicesandtechnologiesacrossarangeofindustries.
Source:PrimeMinister’sCouncilonClimateChange:NationalActionPlan;June30,2008,TimesofIndia,July1,2008;“Stageissetfordomestic
tradinginenergycredits”,TimesofIndia,July1,2008;“Newclimateplan:Ironplantsmayfacebrunt”
Page 18
Such‘carbonequalization’measurescouldtaketheformofeitheracarbontaxorofrequiringproducersintheexportingcountries
topurchaseinternationalreserveallowancestoselltheirproductsintheEUorUS,bothofwhicheffectivelyraisethepriceof
importedgoodstothelevelofsimilargoodsproducedby‘cleanertechnologies’withintheEUorUS.
Besidesprotectingdomesticindustry,suchmeasuresarealsointendedtoprovideanincentivetoemergingeconomiestoreduce
theemission-intensityoftheirindustrythroughmarket-basedmeasuressuchasacap-and-tradesystem.Further,theyaredesigned
togiveimpetustonegotiationsforarrivingatanewinternationalcollectiveagreementenvisagedtocontaingreatercommitmentfor
mitigationeffortsfromdevelopingcountries.TheEUhasindicatedthattheimpositionofsuchmeasuresiscontingentuponan
internationalcollectiveagreementfailingtomaterialize,andassuch,itwilltakeadecisiononthematteronlyin2011.
However,thelegalityofsuchunilateralmeasures,inthecontextofWorldTradeOrganisation(WTO)traderules,isbeingquestioned.
Further,evenifsuchmeasuresaredeemedtobelegal,theprospectoftraderetaliationfromtheaffectedcountries,whomight
perceivethemasdisguisedprotectionism,maybeasignificantobstacleintheiruptake.Nonetheless,theseproposalsaresignificant
indicatorsofthepatternofthinkingofdevelopedcountriesmovingforwardtowardsanewinternationalcollectiveagreement.
Source:AkinGumpStraussHauer&FeldLLP,Washington,D.C,‘Tradelawandclimatechange:convergenceorconflict?’March13,2008
Source:EuroCorrespondent,“ETSexpectsmorestabilityinsecondphase”,16July2007.
Euractiv,“EUunveilsplantobeefupcarbontradingscheme”,January23,2008
Page 19
Benefits of action
Fortyfivepercentoftherespondentsmentioned‘benefitofthewholecommunity’as
theirmainmotivatortoreducetheircarbonimpact,while32percentmentionedthe
desiretoalignwiththeglobaltrendofclimatefriendlybusinesspracticesasthemain
motivator(Seefigure9).
Only17percentoftherespondentsseethegrowthinthemarketforlowenergy/
carbonproductsandservicesasamotivatorforreducingtheircarbonimpact.
However,inthecontextofinvestmentdecisions,considerationoftheenvironmental
impactandavailabilityofgreeneroptionsappearstobeplayingagreaterrole.Eighty
eightpercentoftherespondentsconsideritimportanttoevaluatetheircarbon
footprintforinvestmentsinupgradationofexistingtechnologyandequipment.
Similarly,87percentbelieveittobeimportantforinvestmentsinnewplantsand
technology.
Ontheotherhand,thebusinesspotentialarisingoutofthisisalsobeingrecognized.
EnergyEfficiency(75percent),CleanTechnologies(74percent)(Seebox9)andCDM/
CarbonMarketbusiness(59percent)(SeeBox10)aretheareasinwhichrespondents
areplanningorworkingtowardsbuildingbusinesses(seefigure10)
Page 20
Source:TimesofIndia,May22,2008,“Nokiatolaunch40greenphones’
Page 21
ThereformedEUEmissionTradingSchemepost2012isexpectedtocoverawiderrangeofindustries,furtherraisingthedemand
forCERs.Similarly,ifUSintroducesacarboncap-and-tradesystem,itcouldresultinthecreationofaUSD150billionmarket,
with5.7billionallowancestradedasearlyas2012.Thisisalsolikelytotranslateintoincreaseddemandforenvironmentally
benigntechnologies,productsandservices.
Source:TimesofIndia,‘Carboncreditsmaygetdearer,Indiancostogain’,April212008
Thestudyresultsshowthatinfluenceofemployees,customersorinvestorsisnota
strongdrivingforcebehindfirms’decisionstorespondtoclimatechange.
Compulsionsfrominvestors/shareholderswasthesecondleastimportantfactor
influencingafirm’scarbonstrategy,withcustomerexpectationsintargetmarkets
achievingnearlythesamelevelofimportance(orlackthereof).Employeeexpectations
tomeetglobalstandardsinbusinesspracticeswereperceivedasslightlymore
important,butonlyasthethirdmostinfluentialfactor.
Thisisreflectiveofthelackofpressurethatthesestakeholdergroupshaveexertedon
thisissueinIndia,inthepast.However,giventheinfluencethatthesestakeholders
haveexertedasdriversofchangeinvarioussocialandenvironmentalissuesin
general,andclimatechangeinparticulararoundtheworld,thesepressuresare
expectedtobesignificantdriversofchangeinthefuture(Seebox11and12).
Further,thisexpectedincreaseininfluenceisaccentuatedbythehistoricalrecordof
socio-economicissues,whichdemonstratesthatawarenessandcallsforactiondo
notincreaseatasteadyrate,butgrowexponentiallyoncethecriticalmassis
achieved.
Page 22
Respondingtothecallsfrominvestorsforareliablesourceofinformationona
company’ssocio-environmentalperformanceuponwhichtobaseinvestment
decisions,theJohannesburgStockExchangelaunchedtheSociallyResponsible
Investment(SRI)indexinMay2004.Thepolicy,management/performanceand
reportingofeligiblecompanies(theyhavetomeetcertaincriteriatobeeligiblefor
inclusionintheindex)areevaluatedagainstthecriteriaoftriplebottomline
(environmental,social,economy)aswellassocialgovernance.Theirresulting
individualandtotalscoresarethencomparedwiththeperformanceofotherfirms
toproducearelativeranking.
Withintheenvironmentalcriteria,companiesareclassifiedashigh,lowormedium
impactbasedontheiractivities.Importantly,moredetailedcriteriaspecificto
climatechangewillbeintroducedinthenearfuture.Interestingly,thetop10
environmentalperformersfor2007belongedtotraditionallyenergyandemission
intensiveindustriesofmining,construction,steel,resourcesandoilandgas,with
thetopperformerforthepast3yearsbeingAngloAmerican(mining).These
companiesconstitutesomeofthebiggestandmostprofitableSouthAfricanfirms;
therebydemonstratingthatenvironmentalsustainabilityiscompatiblewith
economicgainandwouldverylikelyenhanceitmovingforward.
TheSRIindexwasthefirstofitskindinanemergingmarketandthefirsttobe
launchedbyanexchange,whichisanimportantindicatoroftherisinginterestand
concernofenvironmentalissuesindevelopingcountriesandinparticular,the
increasingdemandfrominvestorsforcompaniestobeenvironmentallyandsocially
responsible.Whenconsideredinthecontextoftheexpandingenergylabeling
programmeforapplianceslaunchedbytheBureauofEnergyEfficiencyin2006in
India,thesedevelopmentssignaladefiniteshiftintheroleplayedbydifferent
stakeholdersindevelopingcountrieswhich,asthestudyresultsindicate,Indian
companiesdonotcurrentlypaymuchattentionto.
TheAdvisoryservicesfortheestablishmentofthecriteriaagainstwhichfirmswere
selectedtobepartoftheSRIindexin2007wereprovidedbyKPMGSustainability
Services.
7
Johannesburg Stock Exchange, 2008
Page 23
Adetailedcarbonimpactmitigationplanofacompanywouldtypicallystartwithameasurementofthecompany’spresent‘carbon
footprint’(seefigure11andbox13),whichwouldbethebaselineagainstwhichimprovementscanbemeasured.Inabsenceof
this,theimpactofanyinitiativeswouldnotbemeasurable,andwouldthereforelackcredibility.
WhileanumberofIndianbusinessesclaimtobeawareofthe
needtoreducetheircarbonimpact,andbelievethattheyare
takingstepstowardsit,mostcompanieshavenottakenthis
firststepofmeasuringtheircurrentcarbonfootprint.Only21
percentofrespondentsindicatedthattheyfullymeasuretheir
carbonimpact.Importantly,16percentofrespondentsdon’t
seetheneedforsuchananalysis(Seefigure11).
Page 25
Inrecognizingthatmeasuringtheirtotalcarbonfootprintisthefirststeptomanagingandreducingit,numerousglobalbusiness
conglomerateshaveinitiatedactiontoassesthetotalcarbonfootprintoftheirsupplychain.Inanattempttoinformvarious
stakeholdersandinparticular,investorsontheircarbonfootprint,globalcompaniessuchasProcter&Gamble,Hewlett-Packard,
PepsiCoandUnilever,amongothershavepickedasmanyas50oftheirsupplierstoassestheircontributiontothefirm’stotal
footprintaccordingtoastandardizedmethodology.
Source:WashingtonPost,‘11Multinationalstoassestheircarbonfootprint’,January21,2008
Page 26
Manycompaniesinthedevelopedworldhavemeasuredandannouncedtheirbaselinecarbonfootprint,andalsotheirreduction
targetsover5to10yearperiods.Surprisingly,41percentoftherespondentsinthisstudyindicatehavingatleastsomequantified
goalsforcarbonreductiontobeachievedby2010,evenintheabsenceofgovernmentregulations.However,itissignificantthat38
percentofrespondentshavenogoalswhatsoever.
Whilealargeproportionofbusinessesclaimtohavequantifiabletargetsforemissionreductions,anappreciationofthetoolsand
capabilitiesrequiredtoachievethem(includingmeasurementoftheircurrentcarbonfootprint)ismissingatpresent.
Outofallthemeasurespresentedthatbusinessesengagein,orplantoengagein,totackleclimatechange;themostwidespread
wasusingenergyefficientappliances(94percent),followedbyeducatingandtrainingemployeesonenvironmentfriendlypractices
(77percent)(Seefigure12).Whilstenergyefficiencyisanimportantsourceofsubstantialreductionsincarbonintensityandthus,
thehighproportionofbusinessesengaginginthisactivityisencouraging,muchfewerbusinessesareengagedinotherprimary
driversofemissionreductions.Only29percentoffirmsreviewandupdatetheirglobalsupplychaintoachieveenergyefficiency
andonly25percenthavediscontinuedhighenergyservices(Seebox14).
Apartfromensuringenergyefficiencyindailyoperationsthroughenergyefficientappliances,thecompany’sbroad-based
mitigationeffortsincludeproducingrenewableenergyinternallythroughsolarsystemsandrecyclingby-products,wasterecovery,
andodorabatementsystems,amongothers.
Importantly,theorganizationhasdemonstratedhowrespondingtoclimatechangedoesnothavetocomeattheexpenseofloss
ofbusiness,registeringa1.73percentreductionintotalenergyconsumptiondespitesignificantgrowthinallitsbusinesses.
8
ITC Sustainability Report, 2007
Page 27
Legend(Figure12)
Label Response
1 Installing/usingenergyefficientappliances(suchaslighting,heating,andairconditioning)
2 Educatingandtrainingemployeesonenvironmentfriendlybusinesspractices
3 Recycling/usingrecycledproducts
4 Reviewingandupdatingglobalsupplychaintoimproveenergyefficiency
5 Achievingcarbonneutralstatus
6 Discontinuinghighenergy/carbonservices
7 Donatingtoorganizations/charitiesworkingtowardscombatingclimatechange
8 Reducingairtravelandusingvehicleswithcleanertechnologies
9 Noneofthese,butintendtoimplementsimilarpracticeswithinnextyears
10 Noneoftheseandnoneapplicable
Page 29
Thethreatofclimatechangemitigationbecomingadirectcostforbusinessisreal.Ahighlevelinvestmentcommissionunder
Mr.RatanTatahasreportedthat“whilelong–termenergysecuritywouldrequireIndiagetsalargeshareofpowergeneratedfrom
domesticresourcesofcoal,increasedconcernabouttheimpactofcarbonemissionandglobalwarmingwilllikelytoresultina
globalefforttotakeconcretestepsuchasintroductionofcarbontax”.EconomicTimes,2008
Developingcountriesareexpectedtoplayanincreasedroleinthenewinternationalcollectiveagreements.WiththeIndian
economygettingincreasinglyintegratedinglobaltradeandbusiness,thepressurefromEuropeanUnionandUSAcouldgetdifficult
toignore.
ThefocusoftheGovernmentandofleadingindustryassociationshaslargelybeenattheeconomylevelissuesandimpacts.
Sectorspecificassociationsandindividualcompanieswouldneedtoaskquestionsspecifictothem.Theimpact,risksand
opportunitiesneedtobeunderstood,andactionsprioritized,atthemicrolevel.
Anexampleofthislevelofanalysisisprovidedinfigure13below,throughaframeworkdevelopedbyKPMGintheNetherlandson
theriskprofilesofvarioussectorsasaresultofclimatechange.
Page 30
A criticalsuccessfactorislikelytobetheabilitytoincorporatemitigationinitiativesintoacoherentbusinessstrategythatenables
fullutilizationoftheopportunitiespresentedbyclimatechangeandminimizesitsexposuretotherisks.Businesseswouldthus
needtocomplementtheirownsectorexpertisewithdeep-rootedandbroad-basedknowledgeofthemacroenvironment.Inorder
tolendcredibilitytothemitigationstrategydevelopedinthisway,businesseswouldwanttousegloballyacceptedmethodologies
toevaluatethetruestateofafirmorindustry’slevelofemissionsandcarbonfootprint,andapplysystemsandprocessesto
validatetheresultsoftheiractions.AnexampleofthislevelofanalysisisprovidedinFigure13below,throughaframework
developedbyKPMGNetherlandsontheriskprofilesofvarioussectorsasaresultofclimatechange
Hence,astructuredresponseatindividualbusinessleaders’
levelwouldtypicallyinvolvethefollowingcomponents:
1 Measurementofthecarbonfootprintofthebusiness
2 Projectingthelikelycarbonfootprintifthebusiness
continuestogrowunderthe‘BusinessAsUsual(BAU)’
scenario
3 Analysisoftheriskofclimatechangeissuestothesector
andthebusiness
4 Identificationofopportunitieswithinthebusiness,and
beyond(CDMprojects,cleantechnologies,renewables,etc)
tomaintaingrowth,butwithadifferentapproach
5 Preparationofatimeboundactionplanforreducingthe
Source:ClimateChangesYourBusiness:KPMG'sReviewofthe carbonfootprintcomparedtotheprojectedcarbonfootprint
BusinessRisksandEconomicImpactsatSectorLevel,2007"
6 Institutionalizetheactionplaninbusinessprocesses
7 Institutionalizeameasurementandverificationsystemto
monitorprogressagainsttheplan
8 Periodicallyreportprogresstostakeholders.
Page 32
TheIndianmemberfirmsaffiliatedwithKPMGInternationalwereestablishedin
September1993.Asmembersofthecohesivebusinessunittheyrespondtoaclient
serviceenvironmentbyleveragingtheresourcesofaglobalnetworkoffirms,
providingdetailedknowledgeoflocallaws,regulations,marketsandcompetition.
Weprovideservicestoover2,000internationalandnationalclients,inIndia.KPMG
hasofficesinIndiainMumbai,Delhi,Bangalore,Chennai,Hyderabad,Kolkataand
Pune.ThefirmsinIndiahaveaccesstomorethan2000Indianandexpatriate
professionals,manyofwhomareinternationallytrained.Westrivetoproviderapid,
performance-based,industry-focusedandtechnology-enabledservices,whichreflect
asharedknowledgeofglobalandlocalindustriesandourexperienceoftheIndian
businessenvironment.
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