Profitable growth and environmental stability
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By 2040, global temperatures are expected to increase by two degree Celsius—translating to rising sea levels that could cause significant damage to many major Indian cities such as Mumbai and Kolkata.
The period of economic development that followed India’s liberalization saw rapid urbanization, industrialization and motorization. The environment wasn’t always a key priority, and it has degraded sharply in the country: Four Indian cities—Gwalior, Allahabad, Patna and Raipur—are among the top 10 that have the worst air quality globally, with New Delhi following at 11th rank, according to data from the World Health Organization (May 2016). India is now one of the top five carbon dioxide-emitting countries globally. However, per capita emission in India is still low and likely to increase as the country develops.
Over the past few years, the Indian government has started to tackle the environmental challenge. Via its Intended Nationally Determined Contributions, it has committed to reducing the carbon intensity of its GDP by 33-35% (from 2005 levels) by 2030, increasing the share of non-fossil fuel-based electricity to 40% by 2030, and speeding up afforestation to create additional carbon sinks of 2.5–3 billion tonnes of carbon dioxide equivalent. Its ambitious plan to install 100GW of solar capacity by 2022 could also be a game-changer.
However, there is a lot more to be done—and lessons to be learnt, not only from developed, but also from emerging economies. China, for instance, has become one of the largest investors in renewable energy in the world. In addition, it now requires 15,000 factories to publicly report their air emissions and water discharges. And it is doing more. The Chinese government has pledged more than $275 billion over the next five years to address air pollution, and another $333 billion towards water pollution. Brazil enforced strict deforestation laws, which helped reduce its net carbon dioxide emissions.
Without the support of the corporate sector, however, there’s only so much that the government can do. Businesses can no longer afford to treat environmental sustainability as “good to have”. It needs to be part of their strategy and operations. One of the reasons is that environmental degradation represents a cost to business. According to India’s National Health Profile 2015, the cases of pollution-related illnesses increased 30% in just five years since 2010. That in turn meant employees took more sick days.
Interestingly, corporates with a focus on sustainability tend to do better over time on financial metrics than companies that do not. According to a Bain study, even as early as 2008, in 15 out of 17 analysed industries in developed markets, the share price of sustainability-focused companies outperformed their peers.
At first glance, this may sound counter-intuitive: But investment in environmentally sustainable practices is often good for business over the medium to long term. Reducing the environmental footprint often involves reducing wastage, becoming more energy efficient and logistically smarter—all of which reduces costs. Green products also appeal more to environmentally aware consumers, a trend already visible in developed markets.
Many companies are already rising to the challenge of growing in an environmentally sustainable manner. In 2010, Unilever launched the Unilever Sustainable Living Plan to, among other things, halve the firm’s environmental footprint by 2030. With their brand, Kissan, Hindustan Unilever committed to making ketchup from tomatoes grown sustainably by local suppliers. It launched a campaign to inspire children and parents to grow tomato plants. A competition found the best growers, and they were rewarded with personalized ketchup bottles made from their tomatoes. In 2014, this campaign reached 30 million people and helped propel Kissan ketchup to market leadership. Unilever also reduced wastage in energy, raw materials, manufacturing and logistics globally by, for example, compacting washing powder, compressing deodorant sprays and using lesser packaging material. In one instance, warehousing teams simply changed how they loaded pallets into trucks, adding more deliveries per truck, thus reducing the numbers of trucks on the road (reducing both costs and emissions).
Examples are not limited to consumer products alone. Founded in 1985, Shree Cements initially invested in a diesel-generating plant (similar to what competitors were doing). However, they soon began tweaking the production process to reduce energy consumption. Buoyed by some initial success, they intensified their energy conservation efforts—for instance, by replacing some of the “clinker” (an ingredient in making cement) with waste coal slag and recycled fly ash. These efforts helped both increase profits and curtail emissions: Shree now produces cement using 10-20% less energy than the global average.
Philips introduced Green Products—a line of environmentally friendly products—which, in 2015, made up more than half of its sales. Philips’ investment in green innovation also reduced its carbon footprint by 7% from 2014.
Environment and profitable growth for corporates can and must co-exist. This is an urgent priority—one that governments and corporates need to work on together. Environmental sustainability may have been one of the losers in the first 25 years of liberalization, but the next 25 years need to be different.
Sri Rajan is chairman of Bain & Co. India. Prateek Majumdar is a principal in the firm and a member of the technology, media and telecommunications practice in India.
This is part of a special Mint-Bain series on 25 years of economic liberalization. For more on 25 years of reforms go to www.livemint.com/liberalization