Beyond PR: How sustainability became serious business

“This is my third corporate responsibility gig today, so who wants to disappoint me first?" Mother Nature asks, condescendingly.

A few minutes later, she calms down after the Apple team briefs her on the steps taken to make its operations less damaging to the environment. Eliminating plastic packaging by end-2024, using 100% recycled aluminium in its products, running on clean electricity, and transporting more products by ocean rather than air which reduced transport emissions. Plus, the promise that all Apple devices will have a net zero climate impact by 2030.

A product is considered net zero when greenhouse gases emitted during production and distribution is negated by adopting emission reduction measures, in addition to steps like planting trees which offsets emissions by absorbing carbon dioxide from the atmosphere.

“Ok! Good! See you next year," a pleased Mother Nature says before walking towards the exit. The team members breathe a sigh of relief.

The promotion by Apple underlines that environment, social and governance (ESG) objectives are no longer only about regulatory and legal compliance. Mindful consumers, especially in developed markets, are pushing for cleaner and greener products. Investors, too, are keen to see businesses take steps to reduce their carbon footprint and prepare for a rapidly warming world, though they are less willing to accept lower returns.

“Sustainability has become extremely important because of a well-informed global consumer base. In some industries like healthcare, the consumer is paralysed by the complexity and opacity. But in others like cosmetics, fabrics, fashion, automobiles, the loud voice of consumers can no longer be ignored. Firms have been quick to listen," said Urvashi Bhatnagar, co-author of the book, The Sustainability Scorecard: How to Implement and Profit from Unexpected Solutions.

Large corporations and their investors care about ESG metrics also because of material risks. For instance, when a soda company uses large volumes of water, it can lead to a water shortage and affect future business operations, besides opening the door for litigation and penalties.

“In the venture capital space, sustainability is viewed as a route to innovative products. Air Company (New York-headquartered), which makes carbon-negative vodka and sustainable aviation fuel by drawing carbon dioxide from air, is an example," Bhatnagar added.

By 2030, the world needs to cut emissions by 28% to limit temperature rise to 2% above pre-industrial levels, or reduce emissions by 42% for the 1.5°C goal, as per the Paris Agreement signed in 2015, the latest Emission Gap Report by the United Nations said last month. Crossing the temperature threshold means more severe climate disasters, including droughts, heatwaves, and excess rainfall.

The ongoing COP28 (UN’s climate change conference) is about turning things around but national governments cannot do it alone, Antonio Guterres, the UN secretary-general said a few days back. “Businesses, financial institutions, civil society, cities, states and regions are all critical in the race to net-zero."

Besides, the cost of inaction is high. For instance, according to the CDP India Disclosure report 2022, of the 122 companies which responded to a survey, 104 confirmed climate-related risk and opportunities in at least one of their key business areas. The financial impact reported by these companies from climate-related risks was estimated at ₹2.8 trillion.

CDP is a charity that runs a global disclosure system for investors, companies and states.

Survival of the greenest?

India has targeted net zero emissions by 2070. A part of its low-carbon development strategy rests on decoUPLing growth from emissions, by nurturing a low-emission industrial system. Which means businesses must step up. But are they?

Only about a fifth of the 586 Indian companies surveyed had a good sustainability disclosure, and most did not have a road map to achieve Net Zero, found the Crisil Sustainability Yearbook, an annual publication based on the ratings company’s ESG framework, released last year. Sustainability disclosures include data on emissions, energy mix , water use, waste disposal and recycling, among others.

But it’s not all gloomy. Some large conglomerates have successfully turned water positive (returning more water to the environment than they use, say, by investing in watershed development projects), and increased use of renewable energy, setting themselves on a cleaner growth path.

Also, 131 companies have set a target to reduce emissions by joining the global Science-based Target Initiative (SBTi). The SBTi provides a path to reduce emissions in line with the Paris agreement goals. Six Indian companies are now part of the Dow Jones Sustainability Index (DJSI), which comprises 500 global sustainability leaders.

For instance, UPL Ltd, a manufacturer of agrochemicals and seeds, has positioned itself a ‘sustainable agriculture solutions’ company. “Our DJSI score is the highest among agrochemical companies globally. Our sustainability performance also enabled us to get a $1.5 billion green loan," said a spokesperson for the company.

Corporates exposed to ‘hard-to-abate’ sectors like steel, cement, energy—they use carbon as an integral part of the production process or, where emissions are an integral part of production—see climate action as an opportunity to raise funds at attractive rates, said Rahul Prithiani, global head of consulting at Crisil Market Intelligence and Analytics.

“Some of the bigger corporate groups started quite a few years back. They have a strategy on sustainability. Mid-tier corporates are a few years behind but smaller companies are largely driven by compliance requirements," Prithiani added.

What are these compliances? The stock market regulator, Securities and Exchange Board of India, introduced ESG related non-financial information disclosure back in 2012. This was meant for the top 100 listed companies, which was later extended to unlisted entities in 2020. In 2021, Business Responsibility and Sustainability Reporting (BRSR) was made mandatory for top-1,000 listed companies from 2022-23.

The new CSO

So how has the role of a chief sustainability officer (CSO) evolved for large businesses?

In India, about two to three decades back, sustainability was linked to social and philanthropy-oriented work. Then, in 2013, the Corporate Social Responsibility (CSR) Act came in and it mandated that companies spend 2% of their net profits on CSR activities. Around the same time, India also put in place ESG based reporting standards. The reporting was then mostly done by the CSR, environment or the corporate communications team. “2015 was a landmark year due to the Paris Agreement and adoption of sustainable development goals (SDGs) at an United Nations summit. Investors started asking questions and those were deeper than the voluntary reporting done by companies," said Madhulika Sharma, CSO at ITC Ltd, a conglomerate with business interests ranging from consumer goods and agribusiness to hotels, paper and tobacco.

“That is how sustainability got mainstreamed and integrated across corporate functions. Globally, if you listen to CEO speeches in annual general meetings, a quarter of it is on sustainability aspects. For us, it is an integral part of our corporate strategy, she added.

Sharma said that the position of a CSO has evolved into a strategic role. It is no longer about a good-to-have, once in a year public relations (PR) engagement. Sustainability is being integrated in an organization across functions—so much so that in some organizations, the strategy and sustainability teams often sit together.

A CSO’s primary task now is to set targets and arrange resources, find the right set of people to implement the sustainability policy, ensure monitoring, and report the progress to the management. “You are not doing it all alone. A CSO’s role is to cascade the sustainability strategy across divisions. Also, to see if they have the right resources to move the needle," Sharma said.

At ITC, in addition to business performance, sustainability aspects are now taken into cognizance while deciding the variable pay of employees in different divisions. “We are now on a Sustainability 2.0 framework with focused operational targets," the CSO added.

The focus areas include scaling up iniatitives in renewable energy, responsible water use, climate-resilient agriculture, social farm forestry and sustainable packaging of consumer goods.

“Globally, the CSO role is going to be a strategy function. Essentially, the role of this strategy person will be to set forth the direction, what the firm is going to be in the future," said Urvasi Bhatnagar, the author of the book, quoted earlier. “For instance, Philips is known as a consumer electronics company but it now regards itself as a healthcare and circular medical devices company. They know what they want to be in the future," she added.

In fact, at Novelis, a producer of flat rolled and recycled aluminium, the chief strategy officer—Pierre Labat—is also the CSO.

Novelis is a subsidiary of Hindalco Industries Ltd, the flagship company of the Aditya Birla Group. Apart from aluminium, the group’s businesses span sectors such as cement, chemicals, mining, fashion, and retail. Decarbonization (lowering emission intensity), recycling, biodiversity conservation, water risk management, and reaching net zero by 2050 are among its key sustainability targets.

According to Deeksha Vats, group sustainability officer at Aditya Birla, the vision of a company defines how it uses its sustainability head. In mature organizations, the sustainability officer works closely with investor relations, the chief financial officer’s office, and technology, procurement, legal and logistics teams.

“The role requires hard skills like an understanding of the regulatory environment, operations and technology, and the soft skills of being a collaborator," Vats said.

Beyond the usual

At Eicher Motors, makers of the popular Royal Enfield bikes, sustainability is closely linked to its work with local communities in the Himalayas—which it calls the spiritual home for its riders. “As a consumer brand, Royal Enfield has a power of influence. We look at the whole sustainability piece with a strategic lens going beyond regulatory mandates," said Bidisha Dey, executive director at the Eicher Group Foundation.

Dey elaborated that the work in Royal Enfield involves onboarding its supplier and dealer ecosystem on the sustainability journey (such as zero effluent discharge in service centres), beyond the usual targets around water use and renewable energy. On circularity, its new Meteor cruiser-style bikes are manufactured with more than 90% recyclable or reusable parts.

Interestingly, to prepare its sustainability strategy, Royal Enfield partnered with the Forum for the Future, an international sustainability organization that works with businesses and governments to help them transition to a ‘just and regenerative future.’

Anna Biswas, India managing director at Forum for the Future, pointed to a recent report that flagged how sustainability heads, at times, struggle for resources to realize commitments made on paper.

“Unfortunately, sustainability is still one of those business areas that is the first to get its funding frozen during a crisis," she said.

Nonetheless, the Indian landscape is different from other countries, Biswas added. CSR spending in India is mandatory. So, even during a crisis, these funds would be available to meet sustainability targets.