[ad_1]
It has been 30 years since the Rio Summit that brought countries together to solve climate change, then considered a challenge, now evidently a crisis. Since then, two things have changed: The climate has transformed faster than originally predicted, and two, it has become an economic development issue, not just an environmental one. A deeper insight emerges, namely that the response to climate risks has to be nothing short of an economic transformation. In this disruption — as it happened with economic liberalisation in India in the 1990s — there will be winners and losers. Inaction, however, will catch businesses off-guard.
Take 2023, for instance. It is going to be the hottest year on record. At the same time devastating floods have hit Libya, India, Greece and China. Brazil, meanwhile, is seeing one of the worst droughts. And Canada and Hawaii saw raging wildfires. All these have left governments, insurers and companies struggling to find a response that catches up with the speed of calamities and facing a monster that doesn’t adhere to historical patterns and predictions.
The climate crisis is no longer a problem “out there”. In fact, India Inc. now calls it the “single biggest business risk” according to a recent report. It impacts our rainfall, agriculture, food security and economic productivity. And don’t think just about cities. Related to this is the substantial impact on rural incomes and fluctuating rural demand for FMCG companies. Then there is heat stress and its impact on outdoor labour productivity, especially for a fast-growing economy like India where the construction and infrastructure industry is a big source of employment.
The impact on hard infrastructure is worse with billions of dollars at stake that might not be insured against non-linear climate risks. Just in the first half of 2023, natural catastrophes caused losses of $120 billion, of which only $50 billion was insured. This manifests as a “protection gap” or the share of infrastructure that is not insured against climate risks. The implication is that for economic managers, climate impacts become a drain on limited fiscal resources when disaster relief diverts money from productive investments.
Fiscal budgets are drawn up based on expectations of rainfall and global energy prices, two variables over which governments (state and central) in India have limited control. A good year of rain and low or stable energy prices give governments the fiscal room to spend on other development priorities. Government should have an interest in anticipating climate risks better — at a minimum, to improve disaster preparedness. Ideally, government procurement of infrastructure and new projects must demand that it is more future-ready to withstand the scale and intensity of shocks not experienced as “normal” in the past. For businesses, the priority now has to be adapting to this new world. While it might make wise business sense, this is a hard task. The level of granularity needed to make sound investment decisions is often missing. But that does not mean that businesses can simply hope for the best. They should, instead, prepare for the worst using a calibrated approach via three broad strategies.
First, become more climate focused. Net zero is an economic transformation. Large businesses need to start defining their transformation strategies short-, medium- and long-term. Aligning business strategy with climate is not the same as planting some saplings for a photo-op. Companies must disclose implementable near-term and long-term emissions reduction plans that go beyond transacting in carbon credits. This will include scope 2 and eventually scope 3 emissions. Further, given the rate of the climate crisis, these plans must be updated every five years to be on a clear and credible path to net zero.
Second, become more climate ready. Invest in localised geography-specific climate-risk assessments, especially when making plans for new capital expenditure. No business would want to spend hundreds of millions of dollars on a new factory, only for it to be flooded a few years later resulting in lost output and increased downtime. More importantly, investors and regulators should ask for disclosures of climate risk exposure upfront. SEBI has already included environmental risk and emissions disclosure in its Business Responsibility and Sustainability Reporting (BRSR) format for top-listed companies. There must be periodic climate stress tests for businesses, especially in vulnerable geographies.
Profit now means focussing on the resilience of infrastructure for business continuity. This must include the well-being of local communities to save their lives and livelihoods in areas where businesses have their operations. This is not corporate social responsibility but strategic corporate responsibility.
Third, become more climate friendly. Align products and services to tap into climate tech opportunities, which is now a booming market and not a seedling. According to research by the Council on Energy, Environment and Water (CEEW), the number of Indians employed in clean energy sectors increased by 47% between FY21 and FY22. For renewables, electric mobility and green hydrogen, there is an investment opportunity of at least $500 billion until 2030. Further, there is a market worth $50 billion for distributed renewables in the country. This is a clear economic opportunity.
And this goes well beyond the energy transition. India now has the third-largest start-up ecosystem, contributing to over 7.46 lakh jobs. Businesses, institutions and policies must empower climate-motivated younger thinkers to solve the problems of tomorrow and build businesses that can adapt to the future better.
Ultimately, climate is impacting everyone, but few are factoring it into their balance sheets, growth plans and insuring their futures. To be future-ready, business models must change with climate change.
Arunabha Ghosh is CEO, Council on Energy, Environment and Water. The views expressed are personal
Subscribe today by clicking the link and stay updated with the latest news! Click here!
[ad_2]
Source link