93: Mapping India's journey to Net Zero: A conversation with Shailesh Haribhakti

The Elephant in the Room

In November 2021 Indian announced its updated NDC - to achieve net zero carbon emission by 2070. And to meet 50% of its electricity requirements from renewable energy sources by 2030. This was a bold and significant moment not just for India, but for the fight against climate change.

India is the third largest emitter of CO2 in the world, though CO2 emissions per person put it near the bottom of the world’s emitters. The numbers are lower still if historical emissions (per person) are taken into consideration. Ditto for energy consumption - average households in India consume a tenth of what is consumed in the US (according to an IEA blog). The good news is that India has overachieved it’s commitments made at COP21 Paris Summit by meeting 40% of its power capacity from non-fossil fuels.

As the most populous country in the world, India has a long road to growth and energy demand as it speeds up its development agenda. India’s climate adaptation and mitigation efforts if successful, will be transformational for the world. The country’s private sector has a pivotal role to play towards Net Zero, by embedding sustainable strategies in their operations, identifying, deploying and adopting innovative technologies that accelerate the that journey.

India Inc. is being nudged in the right direction by SEBI's mandatory ‘Business Responsibility & Sustainability Reporting’(BRSR) rules, that will see the top 1000 companies disclose their ESG journey publicly for the first time at the end of FY23. The BRSR is framed around three aspirations: Adapting to and mitigating climate change impact; inclusive growth and transitioning to a sustainable economy.

My guest on The Elephant in the Room podcast this week is Net Zero evangelist Shailesh Haribhakti. We spoke about the drivers for ESG reporting in India, BRSR, India’s energy sector, changes in how renewable assets are owned in India, ’just transition’, EPA laws, Integrated reporting, challenges for the India Inc. and many other issues around climate change, net zero, and sustainability….

Memorable passages from the podcast:

👉🏾 I'm absolutely delighted to be in this podcast with you and conversing with you such a delight. And I'm looking forward to our conversation.

👉🏾 Well, I'm seeking to be a co-traveler on many journeys with individuals or organisations who want to achieve net positive. All my work and all my energies and my thinking and everything that I do is revolving around how can we get people to believe that if they become net positive they will also be much better scaled, very much more profitable and will certainly be green.

👉🏾 Tremendous question and I think our Prime Minister gave the world what he called "Panchamrit" which was largely focused on decarbonisation in every which way, through energy transition, through making sure that everybody gets onto the path of reducing the usage of fossil fuels and all of that. And he has followed it up by carrying that conviction into his leadership role at the G20. This is a fantastic move by the Prime Minister and by the country. It just reestablishes India's credentials that we want to be part of the solution, we do not wish to add to the problem.

👉🏾 And as proof of that, the extent to which we have built up renewable capacity is way ahead of our commitments, at least by five years. We are five years ahead in the race to establish the capacity for renewables. Now it's a matter of bringing all that capacity into the energy, make sure that the grid becomes active. Make sure that we can have continuous power through a mix of renewables based on solar, wind, bioenergy, nuclear, that is also very much now in the news and which is likely to get reactivated. And very importantly, we have a whole lot of hydro which we need to harness. So we will have this entire bunch or bouquet of renewables, which can ultimately make us confident that we can run the grid at some point in time in the future, purely on renewables.

👉🏾 Let's first talk about tractability and timelines. So we are hearing that the next budget statement itself will plug in India's commitments on climate. So we will see that not only the national budget but also the state-level budgets will start reflecting the commitment on the 17 SDGs. So that's the first point that is important to hold in our minds about India's commitment.

👉🏾 The next point, which is important, is that the people who are producing this energy are completely connected. There is a comprehensive change in the ownership patterns of these very large projects. I'm seeing that each one of them is now being held by extremely long-term patient capital, which has no exit line.

👉🏾That is a crucial thing to note about India and the way that India is changing the way its renewable assets are owned. This also gives us a tremendous scaffolding to make sure that we are in it for the long run. Capacities are being enhanced through use of the latest technologies. So that is also happening. The productivity of solar is improving quite well, the productivity of wind is improving. Bioenergy is taking off, it's a nascent state, but it's taking off very well. Hydro, we had a wrong kind of ownership pattern on the hydro projects, and that is being corrected. And nuclear is purely in government hands and it's likely to stay that way. So we have all of these constructs in place to make sure that we can meet and exceed our targets.

👉🏾And there is no going back because these are long-term investments, which will continue to produce the desired returns because we are still working on a cost-plus basis so far as our energy industry is concerned. So that is a comprehensive way to look at how India is dealing with making this sustainable, making it look long term and actually making it happen.

👉🏾 The first thing that to note is that we came in with our environmental protection laws way back. They're on the statute book for decades and so that has been a very good trial run, if you like, for Indian industry to be sure that they get aware of what are the obligations they must meet to keep the rivers clean, to not have discharges which are toxic, to not contaminate soil, all of those regulations have been fed into the psyche of Indian industry over years and years, over decades of EPA laws. The enforcement of those laws has also improved significantly.

👉🏾 There's a whole lot of public process surrounding permissions, environmental permissions, so there is a whole gamut of regulations which you need to be in compliance with if you want to start a project which has the danger of either contaminating a river body or affecting a forest or doing anything that would violate environmental norms. So that is the first big stake that we put in the ground. Then we started tightening the incentive structure around renewables. So renewables, India is one of the few countries which has a separate ministry for renewable energy. It's a completely independent ministry, which is supporting all of these projects by financing, by good regulation, by making sure that costs get correctly calculated by making sure that the tariff is fair, by making sure that the grid will accept the power.

👉🏾 And while we are not fully there, there is a whole lot of regulatory support to make all of this happen. That is the way, and now we have the regulators of the listed environment, namely the Securities and Exchange Board of India, and the Reserve Bank of India and the IRDA, the insurance regulator, all getting into the act.

👉🏾: Okay. Lovely. So first of all, let me say that Indian industry was prepared, like in everything else, we had the trial run. So we had Business Responsibility Reporting, which is BR, which has been in place for the last seven years. So BR actually transitioned and moved into BRSR. Which is 151 different parameter-driven frameworks, which enables corporate India to actually measure what is happening in their environment. So everything has a measure, whether it is DEI, or it is your human rights practices. I’m taking the tougher things first, whether it is the way you can show that you are well governed, whether it is your environmental footprint, your carbon, your GHG gases.

👉🏾All of that will now be positively measured because what you don't measure can never be improved, and therefore this realisation is very much there. As soon as this framework became visible, and perhaps even before that, there were many people who actually converted this framework into a set of parameters and a set of algorithms, which will, in a digital manner, support the implementation by corporate India. So what has happened is that there are at least 10 different digital platforms available. One which we support strongly is what is called GovEVA, which is governance leading to economic value add, and that is a framework that now covers the entire spectrum of sustainability issues.

👉🏾 So that is the other enabling and useful thing that has been put into place in to support corporate India. Of course, initially, people saw it as an additional regulatory burden, but a lot of people had already issued what are called integrated reports. And there was this whole transition and this whole ambassadory happened over many years.

👉🏾 Personally, I was an ambassador for integrated reporting for the last many years. So wherever I could have an influence, I pursued companies to actually go out and put out their report on six capitals as opposed to just the financial capital. And that got people ready. And then when these regulations came about, people sought out digital platforms help from organisations, which were geared to make sure that this can happen. Today we can automate completely digitally, the production of the BRSR report. And very interestingly, what we have also done is made whole framework capable of being expressed in any global framework that a company needs to report on. So let's say an Indian company has a large European footprint, then we can convert the same data, which will produce the BRSR report into GRI-compliant reporting, and we can tweak it to meet any regulatory standard.

👉🏾 Good news for the world is that the ISSB is working very hard, to actually bring about harmony, and India is a very strong supporter of ISSB. There is a committee formed by the Institute of Chartered Accountants of India on which I serve, which is actually actively supporting the creation of the global standard.

👉🏾 So from every pathway, the attempt is to make sure that we make it as easy and as empowering to Indian industry as we possibly can. That's the approach and attitude that people have taken in India.

👉🏾 You know, the first thousand listed companies by market cap, are the ones who are obligated to do this reporting. So they have all started dusting out their frameworks and formats and are making whatever attempts. Everybody's on a different path in the curve. Some people are already there. Many, about 65 companies have already done before the due date compliance with BRSR.

👉🏾 So you can imagine the enthusiasm BRSR has because it's pulled out of GRI. If you were to compare GRI and BRSR, you'll find tremendous overlap. And so people have taken this BRSR very positively. That is this voluntary compliance, which is getting engendered. What SEBI is also doing is it is working on what is called BRSR Lite. So there will be a lesser rigorous framework, not this 151 variables that I talked about, there will be far less variables for the small and medium enterprises. So that we can build in the scope three as well. So BRSR will address the needs of Scope three and of the MSME population in India.

👉🏾 So you can see that we are trying to cater to different sizes, different complexities, make sure that the framework will enable computation and bring out meaningful data that analysts and others can actually accept. And all of this is a like that India will be amongst the first countries to require mandatory reassurance of the BRSR.

👉🏾 Yeah. No let me share with you what's happening in one of the largest groups in the country. So they have taken exactly what you are talking about, the S part of the ESG and they're building a framework for the whole group, which will be rolled out for individual entities in the group to make sure that they will achieve best practice in the world.

👉🏾 They're not aiming to be best in India. They're aiming to be globally benchmarked against the best. So what are they wanting to benchmark against? They want to benchmark against the company which received the highest ranking in their particular industry, to which one of the group companies belongs, on the DJSI index.

👉🏾 So that's where the efforts are being made, through benchmarking, through double materiality, concept deployment, through rigorous frameworks of measurement, the DEI, the human rights, the workplace neutrality, the entire set of S issues, health, safety, all of that are being benchmarked to the best in the world. And this is being linked with the HR function so that the HR function supports all of this because the data resides largely in HRMIS systems. And therefore this integration is being attempted. So you can see that the attempt is to get to benchmark level as opposed to let's just make sure that this is compliant and you tick the box. That is a very interesting insight that I am seeing from the largest groups in the country.

👉🏾 Brilliant question. So let's take S, let's stay with S. How will I demonstrate that I've implemented S well? If I can be in the top five companies in every industry that I have a foothold in the five best places to work in India, or if I aspire to be the best place to work in the world, that is the price worth going after because that's going to attract the best in class employees to my table.

👉🏾 And that is the attempt that this particular group that I have in mind is wanting to achieve and many people are along the same path. Everybody wants to make sure that they have the best human resources that they can find and deploy and keep and harness to make sure that they feel comfortable, feel that they can be part of this whole missionary approach to making sure that you are doing things which are world class in every which way.

👉🏾 Way down. Absolutely. A brilliant question again. Let me put it this way. From the highest levels, I have heard conversations on what quantum of GDP can be enhanced simply by getting women into the workforce. Let's park that for a minute, let's look at the greatest, fastest-growing segment of the finance market. It is the MFs, which is the funding which happens to self-help groups, micro-finance it's called. And which is taken in by groups of women who cross-guarantee the repayment of this money. Now the company that I sit on the board of is the number one disperser of micro-finance, and you'll be very happy to know that our collection record on the day on which the collection is due is about 99.78%, and this is in rural India. So this is where we are beginning to reach out. See, India should not be viewed only in terms of statistics. A large part of the women in India are instinctively entrepreneurs, and they instinctively need flexibility in working hours and working time and working habits and all of that.

👉🏾 This is very important because even today, the woman is seen to be the protector and the curator of the home. Which is a role that has shifted from that part of the population in other parts of the world, it has not shifted out from India. And therefore the attempt that India is trying to make is to make this workplace neutrality a reality.

👉🏾 So the S part of ESG in India will depend for its success to bring in the diversity and to bring in all the other factors to show that women power will be actually harnessed, which it must be. We need to be sensitive to these issues and our computation must change. We must look at all these women entrepreneurs.

👉🏾 I went to a village and I was interacting with the self-help group and it's leader, and what was the work that they were doing? They were creating brooms with which we sweep homes, the part of India where they were operating in has a lot of dust flying around cause there's factories and there's cement, dust and whatever.

👉🏾 So they were making brooms, and this woman proudly tells me that she has become a lakhpathi, that means a person who owns more than 100,000 rupees. So proudly they said it. From entrepreneurship, that was their next surplus in that period that we were discussing. So this part of India is not well documented, is not in anybody's imagination, but this is a very important part of India.

👉🏾 I think it's the biggest myth that we need to blow on this podcast right now, right here, . It's amazing. You know If you put on the lens of sustainability, you can actually envision a far more profitable, far more scaled-up future. And I have seen it time and again. For example, the cost of renewable power, marginal cost is about a eighth of the cost of fossil fuel power. Nobody in their right minds would not want to see a future where all power is renewable if your cost is going to drop so dramatically, so how is it in anybody's conception a cost? It's actually a phenomenal reduction in cost.

👉🏾 Energy transition in India when it is fully complete, as I had described earlier, the cost of power will come crashing down. We will have amongst the lowest cost of power, competing with the places where everybody's moving because they want power at cheap price. That is the future we can look forward to. How can that be a costly future? Costs have to be democratised and they will be. That's only in this area. Look at EV, the cost of patrol versus the cost of maintaining a EV car, It's just on two different planets. Therefore for anybody to have this conception that being green or practising ESG is costly, is simply not knowing what they're saying and therefore we need to blow the myth.

👉🏾 So one be sincere, very important. No greenwashing should be permitted from the beginning,...