Perspectives from ISB

Introduction

India is currently one of the fastest-growing economies in the world. Its efforts to sustain this growth while prioritising environmental sustainability are commendable, even as the challenge becomes increasingly complex with each passing day. The country’s commitment to achieving net-zero emissions by 2070, announced at the UNFCCC COP 26, underscores its focus on sustainable development.

The NSE 500 index, also known as Nifty 500, comprises the leading 500 publicly listed companies in India. Collectively, these firms produced an emissions footprint of 1.78 billion tonnes (Bt) of carbon dioxide equivalent (CO₂e) in the fiscal year 2022-23. The World Bank’s estimates indicate that India’s total GHG emissions reached 3.9 Bt CO₂e in 2021. Even considering an increase in India’s total emissions between 2021 and 2023, it is obvious that a significant share comes from the corporate sector. In order to incentivise decarbonisation by corporate companies, the Government of India mandated the Business Responsibility and Sustainability Report (BRSR) framework and also plans to institutionalise a Carbon Market soon. These initiatives indicate that India is committed to striking a balance between economic growth on one hand and environmental sustainability on the other.

Corporate Emissions Disclosure Framework in India

The Government of India mandates that publicly listed companies report their Environmental, Social, and Governance (ESG) performance as per the format prescribed by the Business Responsibility and Reporting (BRSR) framework. Most companies in India follow the Greenhouse Gas (GHG) protocol, which is a globally accepted methodology, to account for and report their emissions. The GHG protocol classifies an organisation’s emissions into three categories. Scope 1 emissions are direct emissions. The organisation owns or controls the sources of scope 1 emissions. Some examples include emissions from boilers or furnaces used in the manufacturing process. Scope 2 emissions are indirect emissions resulting from the use of electricity purchased from the grid. Scope 3 emissions include all other indirect emissions that occur due to the organization’s upstream or downstream activities. These include upstream and downstream transportation of materials and goods and emissions due to the use of products sold by the organisation.

This categorisation is crucial as it can help in identifying the diverse sources of emissions, allowing for targeted decarbonisation initiatives to be implemented accordingly. By addressing each scope, organisations can develop comprehensive strategies to reduce their overall carbon footprint effectively.

India’s Unique Challenge – Balancing Industrial Growth with Emissions Control

The Nifty 500 companies can be broadly categorised into two sectors–the manufacturing and service sectors. Out of these, 60% are from the manufacturing sector, and 40% are from the service sector. However, as a share of emissions of the Nifty 500 companies, the manufacturing sector stands at 97.8%, while the service sector stands at just 2.2%. Industries with the highest emissions within the manufacturing sector are power, oil and gas, cement, iron, metals, and automobiles. The disproportional contribution of the manufacturing sector towards emissions is because the emissions from these industries are ‘hard to abate,’ as the nature of the processes is inherently energy intensive. India faces a challenge as manufacturing industries are generally more labour-intensive compared to the service sector. This presents a unique dilemma—accelerating manufacturing is essential for job creation, but it must be achieved while keeping emissions in check, a challenge that other major industrial economies such as the United States, Germany, and China did not have to contend with during their industrial expansion in the 20th and early 21st centuries.

An organisation-level analysis of the reporting by Nifty 500 companies provides interesting insights. In the year 2022-2023, 415 out of the 500 companies accounted for their scope 1 and scope 2 emissions. However, only 140 companies reported their scope 3 emissions. This is an important observation as it suggests that while a large majority of the Nifty 500 companies have begun accounting for their emissions, they face challenges in collecting data on emissions across their value chain. The possible reasons for this gap include the large number of suppliers and distributors who do not collect or maintain emissions data, as well as limited engagement with Small and Medium Enterprises (SMEs) that often lack proper record-keeping systems.

Corporate Climate Action–A Positive Outlook

It is encouraging that, as of 2023, more than 114 companies within the Nifty 500 have set net-zero targets before 2050, and many more are expected to follow. Corporate companies are increasingly adopting global standards and benchmarks for reducing emissions. Large corporations have already begun disclosing their targets and plans to reduce emissions through the Business Responsibility and Sustainability Reporting (BRSR) framework and to international organisations such as the Carbon Disclosure Project (CDP). According to a CDP survey of 122 Indian companies, which are predominantly large corporations, 50% are promoting energy efficiency measures, and 35% have set renewable energy targets. Companies are also actively engaging with their supply chain partners, including Small and Medium Enterprises (SMEs) which form a major part of it. Notably, 26% of the companies surveyed collaborate with suppliers in their value chain through green procurement initiatives.

Conclusion

The active adoption of climate action strategies by large Indian companies is a positive sign, as it could potentially encourage their value chains to adopt sustainable practices as well. Some state governments, such as Andhra Pradesh, have launched policies that incentivise less emission-intensive production, aligning with the union government’s plan to establish a carbon market, which will provide a detailed roadmap for emission reduction in the corporate sector. Decoupling emissions from economic growth is crucial for India, and the corporate sector will have a pivotal role to play in advancing both objectives.

Author’s bio: Devana Varshith is a public policy professional currently working as a Team Lead at the Foundation for Democratic Reforms (FDR), a public policy think tank. He holds a postgraduate Diploma in Cities and Governance from Tata Institute of Social Sciences and a B.Tech in Electrical and Electronics Engineering. Previously, he worked as an Engineer at the Confederation of Indian Industry (CII) – Green Business Centre (GBC). His areas of interest include Public Finance, Climate Change, and Urbanisation.

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