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Home / Opinion / Views /  Shareholders, it's time to press companies on sustainability

It was once said that when businesses think green, they see red. So vast was the task, so modest the means to decarbonize. We’ve come far, most recently to Glasgow, where, from my vantage, one idea stood out: Shareholders must not just care about business sustainability, they must demand it.

Sustainability and financial return is the new orthodoxy, and a groundswell of evidence is its firepower. We are in a virtuous cycle of capital enabling and following businesses with sustainability at the core of their model of operation. In time, businesses that protect our environment will be rewarded with better valuations, which is what matters to investors.

In India, whose dilemmas are shared by many others countries, I see three broad themes shaping the relationship of business with the environment. First, there’s a quiet revolution in ‘hard to abate’ corners of Indian industry. Next, systemic business transformations such as digital pivots are underway. And third, climate-technology capital is no longer niche, but at scale and global. In each of these scenarios, investors are the alchemists pressuring managements to adapt, or imposing exacting conditionalities on grants of capital. What should investors, typically untutored in judging non-financial disciplines such as the environment, be looking for? In my view, investors should:

One, quantify the risks of business as usual, and the business case for sustainability.

Two, ensure they have adequate technical depth to make technology choices.

Three, encourage leaderships to take calculated but substantive bets on innovations.

And four, facilitate the investments in technology and innovation required for this green transition.

In the first scenario, I’ve seen evidence of climate mitigation activity that suggests even the most conservative businesses are moving (though not with speed). In north India, cement manufacturers are voluntarily using fly ash, a waste product from thermal power plants, in their mix of materials. This is as remarkable as it is surprising because there is no obvious consumer, regulatory or even investor pressure behind the adoption. But cement manufacturers, hardly an advertisement for progressive climate practices, recognize that using fly ash is a cheaper and cleaner substitute for other dirty fossils, and, by recycling this mass of ash particles, they are adopting sustainable practices that point towards green cement.

Sustainability is not just about processes, but also people. Take farming. As weather patterns change, reducing emissions will become even more critical, not just for sustainable farming but for its very survival. That is an important statement, given that about 40% of all jobs in India are in agriculture. Scientists at the Environmental Defence Fund (which I advise in India) support a project in Bihar that secures farm incomes and is also climate compliant. We call this ‘climate-smart’ agriculture. More than 350,000 farmers are enrolled in a digital platform that gives them tips on better ways to farm. The results have been startling: incomes increased by up to 50% and the programme is now expanding into Maharashtra. Science is at the heart of EDF’s work, which makes our research on emissions from rice cultivation (notably methane, a potent greenhouse gas) of fundamental relevance to India. The United Nations’ Intergovernmental Panel on Climate Change database now includes EDF’s study data.

Second, systemic transformation is evident at multiple levels, most obviously in technology innovation but also in regulation. Consider the humble light bulb, whose technology has barely changed in a century. Yet, over the past decade, India has shifted largely to more-efficient LED bulbs. This has happened with a mix of political will and enabling regulation leading to an aggregation of demand and local manufacture. This is the route that electric vehicles and fintech players are taking, and both promise a systemic impact on our lives and environment.

Third, climate technology is arguably the only force that can ensure India achieves its economic targets (sustained 9% output growth, implying an immense rise in carbon-emitting steel and cement) without doubling emissions. At the same time, regulation is maturing alongside a deepening environment-social-governance (ESG) ecosystem. The Securities and Exchange Board of India has mandated global standard ESG compliance for the largest listed firms from mid-2022. The Reliance and Adani groups have announced spectacular clean-tech initiatives, which amounts to a declaration that there is no other way but to do business sustainably.

Climate technology’s enabler is finance. In asking rich ‘legacy emitters’ to compensate developing nations, Prime Minister Narendra Modi made a moral as well as development point at Glasgow. India needs an estimated $1 trillion for its economic transition. Green financing may be growing sharply, but its numbers, and the pledges behind them, still ring hollow. Recent bilateral initiatives (UK-India) and multilateral/public private partnerships, such as the Glasgow Financial Alliance for Net Zero (which commits financial intermediaries from 45 countries to lend, invest and judge in line with UN climate targets), are significant tests of our common commitment to bind business and climate.

For now, the pay-offs will go to investors who in the near term see the long-term value of a portfolio bias towards sustainable business. As an EDF credo goes, sustainability is no longer about emotions, it’s about business. Investors would do well to pay attention.

Hisham Mundol is chief adviser for India, Environmental Defense Fund

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