ClimateChange:IsIndia

Inc.Prepared?
AKPMGStudy
KPMG IN INDIA
Foreword
Climatechangeisnowwidelyregardedasoneofthemostseriouschallengestheworld
faces,withconsequencesthatgofarbeyonditseffectsontheenvironment.Itisakey
economicissueandneedstobedealtwithaccordingly.Itisinthiscontext,thePrime
MinisterofIndiarecentlyreleasedtheNationalActionPlanonClimateChange,which
seekstopromotesustainabledevelopmentthroughuseofcleantechnologies.Theaction
plan,whileitdoesnotcommittoGHGemissionsreductiontargetsitdoespledgethat
India'spercapitagreenhousegasemissionswill"atnopointexceedthatofdeveloped
countries”inspiteofitdevelopmentimperatives.

WithaviewtofindingouthowIndianfirmsarerespondingtotheissuesandchallenges
aroundclimatechangeKPMGhascarriedthefirstmajorstudyamongbusinessleaderson
thisissue.Atotalofaround70businessleadersattheCEO/CXOlevelwereinterviewed
forthisstudy.Thestudybringsoutsomeinterestingfindings:

• 83%ofIndianbusinessleadersbelievetheyhavefairtogoodunderstandingonthe
issueofclimatechangeandasignificant48%regarditasimportantissuewhichneeds
tobenearthetopofIndia’sbusinessagenda

• However,thereissignificantgapbetweengoodintentionsandactionasonly21%have
measuredtheircurrentcarbonfootprint,whichisoneofthefirststepsindefininga
strategytodealwiththeissue

WebelievethatasIndiancompaniesconfrontthechallengesofclimatechange:

• First,theyshouldassessthedirectandindirectimplicationsofclimatechangeontheir
businessandtakecorrectiveaction

• Second,theyshouldseektobenefitfromopportunitiesbroughtbyclimatechange.
Forinstance,theglobalmarketforlowcarbonenergyefficienttechnologieswillbe
$3trillionby20501.
1
European Commission, November 26, 2007
Indiancompanieswillhaveanopportunitytoleverageclimatechangeasacompetitiveadvantage(ratherthana
threat)byplanningtheirapproach,measuringtheirimpact,adaptingtheirmodeltoalowcarbonbusinessand
reportingonperformanceaccurately.

AtKPMGwearecommittedtoaddressingclimatechangefirstandforemost,byactingasgoodcorporate
citizens.Theprincipalambitionof‘KPMG’sGlobalGreenInitiative’willbetoreduceourmemberfirms’
combinedcarbonfootprintby25percentbytheyear2010froma2007baseline,throughemissionreduction
schemesandtheuseofrenewableenergyinourmemberfirms.

Furthermore,wehavealwayssoughttobeattheforefrontofdevelopmentsthatshapebusinessbehavior.
Ourglobalsustainabilityandclimatechangeservicesnetworkhasmorethan15yearsexperienceinproviding
servicestoawiderangeofclientsfromglobaltonationalbusinessesandgovernmentagencies.Weoffer
businessfocusedadviceonawiderangeofissuesintheclimatechangesphere,fromcarbonfootprintingand
greenhousegasinventoriestocarbontradingandcorporatefinance.

Inaddition,weregularlyprovideinsightandindustryanalysisintotheroleofbusinessinrelationtosomeof
themostpressingsocietalissues.Ourthoughtleadershipinthesphereofclimatechangeiswellestablished,
withourmemberfirmspioneeringanalysisandprovidinginsightintosomeofthekeyquestionsthat
businessesmaybeasking.Thisstudyaddstoourextensiveknowledgebaseandprovidesinterestinginsight
intotheIndianbusinessleaders’appreciationoftheclimatechangecontext,itsimplicationsfortheeconomy
andtheirbusinesses,andtheirreadinesstorespondtotheimpendingchange.

Iamconfidentthatthisstudymakesameaningfulcontributiontotheunderstandingofclimatechangeasa
businessissueinIndia.

Arvind Mahajan
ExecutiveDirector,
AdvisoryandNationalIndustryDirector,Energy,InfrastructureandGovernment

NOTE: Unless otherwise noted throughout this publication, "KPMG" refers to "KPMG in India."
Contents
1Contextforthisstudy 1

2Aboutthestudy 5

3IsClimateChangeonthebusinessagenda? 6

4Whoisgoingtoleadtheresponsetoclimatechange? 8

5Motivatorsforrespondingtoclimatechange 14

6Howcanwerespondtoclimatechange? 24

7Conclusion:Bridgingthegapbetweenintentionandaction 29
 Page 1

Context for this study

The impact of human activities on the earth’s climate has been receiving increasing
attention with the recognition of the problem of global warming. The fact that a range of
initiatives need to be taken to arrest the pace and reverse the accumulation of Greenhouse
Gas (GHG) emissions is widely accepted. However, the implications of such initiatives – on
countries, economies, businesses and societies – are expected to be significant, and the
allocation of costs, risks and responsibilities is still under debate and negotiation.
The Challenge: Managing economic growth while reducing
the pace of emissions growth

Theeconomiccostsandbenefitsofaction(andimportantly,inaction)againstclimate
changehasbeenquantifiedwiththeSternReportpublishedin2006(commissioned
bytheUKgovernment).

Datasource:SternReviewReporton
EconomicsofClimateChange,2006
Thecostsoftakingactionnow,toreducegreenhousegas(GHG)emissionstoan
acceptedsustainablelevelareestimatedat1percentofglobalGDPwhichisa
significant,butmanageablefinancialcommitment.However,globalGDPlosson
accountofbusinessasusual(noactiontocontainGHGemission)isestimated
between5percent(attheleast)to20percent(atworst)annually,nowandforever2.
Whilethecostofactionislowerthanthatofinaction,itisstillasignificantcost,
moresoforrapidlygrowingcountrieslikeIndia,andhasimplicationsonchoicesfor
reducingtheenergyintensityofthegrowthtrajectory.

2
Department of Environment, Food and Rural Affairs, UK Government, 2007
Page 2

The Threat: Indian businesses would have to act within a foreseeable timeframe

India,alongwithChina,hasbeensubjectedtoincreasinginternationalpressuretoundertakebindingemissiontargetstolimitits
aggregatelevelofemissions.WhilstthegovernmentofIndiahaschosenanapproachbasedoncommonbutdifferentiated
responsibility,themountinginternationalcallfordemonstrableactionfromIndiaissignificant.Further,othercountriesare
consideringtrade-basedsanctionsonIndianbusinessesifthecountryfailstocommittobindingtargetsunderthenextinternational
collectiveagreementpost-2012.Anyfutureregulation,whetherbindingorvoluntary,canfundamentallyalterthedevelopmentpath
ofthecountryandhaveaprofoundimpactonthegrowthtrajectoriesofindividualindustriesandcompanies.Indiarecentlyreleased
theNationalActionPlanonClimateChange.ThisreportdoesnotsettargetsforGHGemissionsreductionbutseekstopromote
sustainabledevelopmentthroughuseofcleantechnologies.TheactionplancommitsthatIndia'spercapitagreenhousegas
emissionswill"atnopointexceedthatofdevelopedcountries”inspiteofitdevelopmentimperatives.

Corporationsacrossallindustrieswillcontinuetobesubjecttoincreasinglystringentenvironmentalregulation,aswellassustained
pressurefromcustomers,employeesandinvestorstodeliveronatriplebottomlineofeconomic,environmentalandsocial
performance.Thisconceptoftriplebottomlineisaframeworkwithinwhichstakeholderscanevaluatetheperformanceoffirms
acrossanexpandedspectrumofvaluesandcriteriathatgobeyondmereeconomicperformance.

The Opportunity

Atthesametime,Indiancompaniescanexploitnumerousbusinessopportunitiesthat
arelikelytoariseoutofclimatechangemitigationandadaptation.Theglobalmarketfor
low-carbontechnologiesisestimatedtoamounttoUSD3trillionperyearby
20503,throwingupsignificantcommercialopportunities.Already,itisestimatedthat
industriessuchasrenewableenergy,wastemanagementandwatertreatmentwillbe
worthUSD700billiongloballyby2010–onparwiththevalueoftheglobalaerospace
industry.4

3
European Commission, 26 November 2007
4
OECD Environmental Policy Committee, 22 Feb 2008
 Page 3

Further,theCleanDevelopmentMechanism(CDM)undertheKyotoProtocolaffordsbusinessesindevelopingcountrieslikeIndia
theopportunitytoreducetheiremissionswiththetechnologicalandfinancingsupportofentitiesindevelopedcountries.Also,
reducingemissionsatafirmlevelhasbeenestablishedtoresultinsignificantefficiencygainsinvariousbusinessprocesses.

Is India Inc ready?

ItisinthiscontextthatKPMGundertookthisstudytounderstandtheIndianbusinessleaders’appreciationoftheclimatechange
context,itsimplicationsfortheeconomyandtheirbusinesses,andtheirreadinesstorespondtotheimpendingchange.Our
discussionswiththebusinessleaderscoveredthefollowingareas:

• Isclimatechangeontheagenda:Howdobusinessesleadersperceiveclimatechangeasacurrentbusinessissueandhowisit
expectedtoinfluencetheirstrategygoingforward
• Whowillleadtheresponse:WhatroledoIndianbusinessesenvisageforIndiaintheglobalresponsetoclimatechangeand
withinIndia,whoarethemajorstakeholdergroupsthatarelikelytodriveaction
• Motivatorsforaction:WhatmotivatesIndianbusinessestotakeactiononclimatechangenowandhowdotheyperceivethese
actionspayingoff
• Howcanwerespond:Whatactionsandtools,ifany,dobusinessescurrentlyhaveinplacetorespondtoclimatechangeand
whatistheirfutureplanofaction.
Page 4
 Page 5

About the study

KPMGhasconductedastudytounderstandthecurrentlandscapeofopinioninIndian
industryontheissueofclimatechange.Seventybusinessleadersfromabroadrange
ofindustriesandsectorswereinterviewedonastructuredquestionnaire.

ThisstudyfollowsasimilarsurveyconductedbyYouGovonbehalfofKPMGintheUK
of73businessleadersinApril2007.Inthisreport,relevant,responsesofIndian
businessleadershavebeencontrastedwiththeresponsesofbusinessleadersinUK.
Page 6

Is Climate Change on the business

agenda?
The need for action in response to climate change issues is clearly appreciated by the
business leaders interviewed for this study.

Fortyonepercentofrespondentsregardthemselvesashavingagoodunderstanding
oftheissueandhavingaclearstrategyinplace.Afurther42percentclaimtobein
theprocessofdevelopingtheircarbonstrategy(Seefigure3).
 Page 7

Theawarenessofissuesrelatingtoclimatechangehasresultedinclimatechange
beinghighonthebusinessagendaofasignificantproportionoftherespondents
(seefigure4).Fortyeightpercentfeltthatclimatechangeisacrucialandurgentissue
andshouldbenearthetopofIndia'sbusinessagenda.Thisishigherthanthe
proportionofUKrespondentsintheMarch2007study(27percent)whobelievedthat
climatechangewasintheirtop9strategicpriorities.Afurther46percentofIndian
businessesindicatedthatclimatechangeisanimportantissue,buttherewereothers
thataremoreurgentonIndia’sbusinessagenda.
Page 8

Who will lead the response to

climate change?
While climate change issues appear to be high on the business agenda, and there is a desire
for India to be seen as a leader on this issue on the international arena, the leadership role
in bringing about change is largely left to the Government.
Indianbusinessesbelievethatinternationalcollectiveagreementswillbringabout
positiveincentivestochange,eveninthewakeofIndia’sstance(seebox2)tonot
acceptbindingemissionstargetsunderanysubsequentinternationalcollective
agreement.Eightysixpercentofrespondentsbelievethattreatiessuchasthe
Kyotoprotocolarelikelytoresultinbusinessestakingpositivestepstowardstackling
climatechange(seefigure5andbox1).
 Page 9

5
Box 1: International collective agreements
TheKyotoProtocol,whichcameintoforceinFebruary2005,isthemostdetailedbindinginternational
agreementtotackleglobalwarming.Aspartofthefirstcommitmentperiodexpiringin2012,developed
countries(Annex-1)arerequiredtoreducetheirGHGemissionsbelowlevelsspecifiedforeachofthemin
thetreaty,onanaverageof5.2percentbelowthe1990baseline.Mostofthemajordevelopedcountries
exceptUShaveratifiedthetreaty.Developingcountries(non-Annex1)includingIndia,donotfacebinding
emissiontargets.

Non-ratificationbyUS,lateratificationbyAustralia(December2007)andnon-bindingemissiontargetson
majorcurrentGHGemittersChinaandIndiaweresomeofthekeyissuesofdeliberationattheUnited
NationsClimateConferenceheldinBali,IndonesiainDecember2007.Itwasaimedatinitiating
negotiationsforanewinternationalcollectiveagreementtocomeintoforcepost-2012.ABaliRoadmap
wasadoptedanditsconstituentBaliActionPlan,whilstcontainingnobindingcommitments,providesfor
anewinternationalcollectiveagreementtobeinplacebytheendof2009andfortheexplicit
participationofcountriesthathavenotacceptedbindingemissiontargetsunderKyoto,includingUS.

Theofficiallaunchofnegotiationsandtheestablishmentofaconcretetimelinetookplaceatameetingof
theworkinggroupsestablishedattheBaliconventionfrom31March–4April2008inBangkok,Thailand.
Atthismeeting,aworkprogramforstructurednegotiationstowardsthisnewinternationalcollective
agreementwasconcluded.Importantly,inrespondingforcallsforgreaterclarityandcertaintyfrom
businesses,theUNFCCCconfirmedthattheuseofmarket-basedmechanismssuchasthemarketfor
carboncreditswouldbecontinuedandimproved.

Therewillbe3moremajorUNclimatechangemeetingsin2008andatleast4suchmeetingsin2009,
culminatingintheCopenhagenconferenceattheendof2009whereanewinternationalcollective
agreementisenvisagedtobesigned.Thisnewagreementwillcomeintoforceoncethecurrent
commitmentperiodexpiresin2012.

5
UNFCCC, 2008
Page 10

Box 2: India’s position on climate change mitigation efforts

Asanon-AnnexIcountryundertheKyotoProtocol,Indiaisnotsubjecttobindingemissiontargets.Ithasunequivocallyrejected
takingonquantitativerestrictionsunderanysubsequentinternationalcollectiveagreement,buthascommittedtopreventingits
percapitaemissionsfromeverexceedingthoseofdevelopedcountriesthrougharangeofmitigationandadaptationtechniques
adopted.

ThePrimeMinister’sCouncilonClimateChangewasconstitutedinJune2007todevelopIndia’sfirstevernationalactionplanon
climatechange.Thepolicywaspublishedon30thJune2008andthesailientfeaturesofthispolicyanditslikelyimpactonIndian
industryareillustratedinBox6.

Simultaneously,negotiationsonIndia’sroleintheglobalresponsetoclimatechangeareunderwaywithChinaandIndiabeing
partofthe16-membergroupof‘MajorEconomies’thatconstitutetheleadingemittersoftheworld.The‘MajorEconomies
Meeting’(MEM)waslaunchedinSeptember2007,andhasheld3meetingssofar,thelatestbeinginApril2008.TheMEMis
workingona'leaders'declaration'tobepublishedattheG8summit.
Source:TimesofIndia,June162008;“Indiafightsoffpressuretoalterclimateagenda”–mostrecentsource.

IndianbusinessesarepositiveintheiroutlookfortheroleofIndiaintheglobal
responsetoclimatechange,asreflectedin65percentofrespondentsindicatingthat
Indiashouldbeleadingtheway.(Seefigure6)
WhilethereisakeendesireforIndiatotaketheleadinrespondingtoclimatechange
issuesontheinternationalarena,theresultsrevealthatbusinesseswantthe
governmenttotaketheleadineducation,leadingbyexample,andinadoptionof
technology.However,theyareoftheopinionthatthegovernmentisnotdoingenough
intheseareasatpresent.
Page 12

Box 3: Government as a key driving force in the UK

AsinthecaseoftheIndiansurveyresults,theKPMGintheUKMarch2007studyfoundthatUKbusinessesattributedprimary
responsibilitytothegovernmentintheareasofeducation,leadingbyexampleandadoptionoftechnology.Further,nearlyathird
(32percent)regardedthegovernmentastheirkeyinfluenceronclimatechangepolicy.Whenconsideredagainstthebackdropof
theUKClimateChangebillbeingtheworld’sfirstlegalframeworkforthetransitiontoalowcarboneconomy,theleadingrolefor
thegovernmentadvocatedbyUKbusinessesisunderstandable.

However,theUKgovernmentseemstobeperformingbetterinitsrole(s)indomesticclimatechangemitigationeffortsas
comparedtotheIndiangovernment.FortytwopercentofUKbusinessesfeelthatthegovernmentisdoingenoughtoeducate
businessesand49percentregarditasdoingenoughtoeducateindividuals,ascomparedto13percentand5percent
respectivelyforIndianrespondents.ThisisnotsurprisinggiventhehighimportanceallocatedtoclimatechangebytheUK
government,whichwasfurtherreinforcedbytheinclusionoftheissueinMarch2008asoneofthetopthreethreatstonational
security.

Source:KPMGintheUKClimateChangeBusinessLeaderSurvey,2007

Box3providesaninterestinginsightintotheroleattributedtothegovernmentbyUK
businessesanditsperceivedperformanceascomparedtotheIndiansituation.
Intermsofleadershipstructureonagloballevel,thereareinterestingdynamicsat
playintherolesthatdifferentcountriesarelikelytoplayinthefutureglobalactionto
combatclimatechange.Figure7providesatimelineofsomeoftheimportant
milestonesintheglobalactionagainstclimatechangeandBox4exploressome
recentglobalsocio-politicaldevelopmentsinthisareaandtheirlikelyfutureimpact.
 Page 13

Box 4: Impact of recent global socio-political developments on international efforts to combat

climate change

The EU will play a key role in shaping the next set of international collective agreements. TheEU’sleadershipofclimate
changemitigationeffortsisevidencedbytheircommitmenttotakestepstoreducetheiremissionsby20percentby2020(from
1990levels)irrespectiveofwhatothercountriesdo,andanoffertoincreasethatgoalto30percentifanacceptablepost-Kyoto
internationalcollectiveagreementisconceived.TheEUexpectstoconcludenegotiationsonanambitiousclimatechangeaction
planforthe27nation-block,byendof2008,aimedatmeetingthisgoal.ThiscouldplaceEuropeinastrongpositiontosetthe
standardinCopenhageninlate2009.

US’ involvement is also expected to increase. Respondingtomountinginternationalpressureforbindingemissiontargetsas

theworld’sleadingemitter,theUSislikelytochangeitsstanceandtakeongreatercommitmentstoreduceitsemissions,
independentofpoliticaloutcomes.Bothpresidentialcandidatessupportreductionsinemissions,withJohnMcCainsupportinga
figureof65percent,whilstBarrackObamafavours80percentfrom1990levelsby2050.Further,bothsupporttheinstitutionofa
cap-and-tradesystemalongthelinesoftheEUEmissionTradingScheme.

TwentyeightUSstateshaveformed,orareabouttocreate,mandatorygreenhouseemissionlimitsintheabsenceoffederal
regulations.ThirteenclimatechangebillsarecurrentlyunderdiscussionintheDemocrat-ledCongress,mostofwhichcontain
plansforsomesortofmarket-basedmechanism.ThemostpublicizedoftheseistheClimateSecurityAct(Lieberman-Warner
Bill),abi-partisancompromisethatissupportedbyMcCain.WhilstthisbillwasrejectedbytherulingSenateinJune2008,itis
likelytobereconsideredinsomeformundernewpoliticalleadershipin2009.
Source:Councilforforeignrelaions,“Economicchallengesforclimatechangepolicy”,April142008;Reuters,‘GovernorstoplotclimatefightatYale
meeting’,April162008;andInternationalDailyNewswire,‘McCainoutlineshisplantoconfrontclimatechange’,May12,2008.
Page 14

Motivators for responding to

climate change
Indian businesses’ desire to respond to climate change issues appears to be driven largely
by the need to comply with expected regulations, and in the course of corporate social
responsibility initiatives. The lack of stakeholder pressure on Indian companies is in sharp
contrast with other countries where preferences of investors, employees, and customers
typically convince companies to plan to reduce their carbon impact.

Risks of inaction

Stringencyinregulatoryrequirementsisperceivedtobetheprimaryrisktobusiness
arisingoutofclimatechangeissues.(Seefigure8&box5).Further,theneedto
prepareforexpectedregulationsemergedasthemostimportantfactorinthe
formulationofthecompany’scarbonstrategy.Thegovernment’scurrentpointofview
 Page 15

Box 5: Regulation as the primary driver of change across the

globe6
Areviewofthebusinessrisksandeconomicimpactsofclimatechangeatasector
levelconductedbyKPMGintheNetherlandsin2008alsoshowedthatregulatory
riskwasthemostoftencitedconcernamongst50authoritativepublishedstudies
onthesubject.

Thereportidentified4typesofrisksthatbusinessesacross18sectorswouldface
asaresultofclimatechange-regulatory,physical,litigationalandreputational,and
foundthatamajority(72percent)ofthestudiesdiscussedtheregulatoryrisksthat
businessesface.Companiesandsectorsthatfailtoadjusttoachangingbusiness
environmentcreatedbynewlawsandregulationsfacecompetitivedisadvantages,
whileregulatoryuncertaintiesmakeitdifficultforcompaniestoplanahead.

isdefinedbythenationalactionplanonclimatechange,preparedbythePrime
Minister’scouncilonclimatechange.Salientfeaturesofthisplanaresummarizedin
box6.

WhilstthedomesticregulatoryenvironmentisclearlyimportanttoIndianbusinesses,
theywouldbewellservedtoassestheimpactofthepoliciesofforeigncountrieson
theirownoperation.Inparticular,theoperationofexport-orientedIndianfirmsinGHG
intensiveindustriessuchasiron,steel,aluminum,cement,glassandpapercouldbe
fundamentallyimpactedbytheproposalsofUSandtheEUtouserestrictionsand/or
taxestoraisethecostofimportsfromlessenvironmentallystringentcountrieslike
IndiaandChina(seebox7).Further,theparticipationofcountrieslikeIndiaandChina
inthereformedemissionstradingschemeinCDMprojectsmayberestrictedbynew
EUproposals(seebox8).

6
Climate Changes Your Business: KPMG's Review of the Business Risks and Economic Impacts at Sector
Level
Page 16

Box 6: India’s national action plan on climate change

India’snationalactionplanonclimatechangeisaconsolidatedaccountofthecountry’spositiononclimatechangemitigationand
adaptationefforts.Inlinewiththegovernment’sadoptedpolicyofsharedbutdifferentiatedresponsibility,theplandoesnot
imposequantitativeemissiontargetsonthecountry,butratherfocusesonefficiencytargets.

Thereare8nationalmissionswhichformthecoreoftheplananddictatethedirectionoffutureaction.Thesecoverthefollowing
areas:

1Solarenergy 3Sustainablehabitat 5SustainingtheHimalayanecosystem 7Sustainableagriculture

8Sustainableknowledgeforclimate
2Energyefficiency 4Water 6GreenIndia
change

Importantlyforbusinesses,thepolicymandatesthesettingupofenergybenchmarksforeachindustrysectorandallowsfor
tradeinenergyefficiencycertificates.Alongthelinesoftheinternationalmarketfortradeincarboncredits,theaimofsucha
‘cap-and-trade’schemeistofacilitatetheleast-costmethodofachievingtheoveralltargetofsector-wideefficiency.Nineenergy
intensivesectorssuchasthermalpowerplants,iron&steelandcementhavebeenidentifiedandwithinthesesectors,bands
havebeencreatedwhichclassifyindividualunits(businesses)onthebasisofenergyintensitylevels.

Eachbandisgivenatarget(whichisperiodicallyrevisedupwards)toreducetheirfuelconsumptionoverafixedperiodoftime.
Theindustrialunitswhosurpasstheirtargetswillbegivenenergyefficiencycertificateswhichcanbetradedontheopenmarket
orbankedforthenextroundofefficiencytargets.Industrialunitsthatsurpasstheirallocatedstandardwouldbeforcedtobuy
suchcreditsfrommoreenergy-efficientunits.

Inthismanner,businesseshaveamonetaryincentivetobecomemoreenergyefficientandfacerisksoffinanciallossiftheydo
not.Further,thegovernment’sexpandedactionsinthe8missionsarelikelytocreateand/orsignificantlyexpandthemarketfor
energy-efficientgoods,servicesandtechnologiesacrossarangeofindustries.

Source:PrimeMinister’sCouncilonClimateChange:NationalActionPlan;June30,2008,TimesofIndia,July1,2008;“Stageissetfordomestic
tradinginenergycredits”,TimesofIndia,July1,2008;“Newclimateplan:Ironplantsmayfacebrunt”
Page 18

Box 7: Possible import restrictions in US and EU

TheEuropeanUnionandUSareconsideringusingtrade-basedmeasurestoprotectthecompetitivenessoftheirdomesticindustries
whichoperateunderdomesticregulationsfromsimilarindustriesindevelopingcountriesthathaveweakerenvironmentalregulation.

Such‘carbonequalization’measurescouldtaketheformofeitheracarbontaxorofrequiringproducersintheexportingcountries
topurchaseinternationalreserveallowancestoselltheirproductsintheEUorUS,bothofwhicheffectivelyraisethepriceof
importedgoodstothelevelofsimilargoodsproducedby‘cleanertechnologies’withintheEUorUS.

Besidesprotectingdomesticindustry,suchmeasuresarealsointendedtoprovideanincentivetoemergingeconomiestoreduce
theemission-intensityoftheirindustrythroughmarket-basedmeasuressuchasacap-and-tradesystem.Further,theyaredesigned
togiveimpetustonegotiationsforarrivingatanewinternationalcollectiveagreementenvisagedtocontaingreatercommitmentfor
mitigationeffortsfromdevelopingcountries.TheEUhasindicatedthattheimpositionofsuchmeasuresiscontingentuponan
internationalcollectiveagreementfailingtomaterialize,andassuch,itwilltakeadecisiononthematteronlyin2011.

However,thelegalityofsuchunilateralmeasures,inthecontextofWorldTradeOrganisation(WTO)traderules,isbeingquestioned.
Further,evenifsuchmeasuresaredeemedtobelegal,theprospectoftraderetaliationfromtheaffectedcountries,whomight
perceivethemasdisguisedprotectionism,maybeasignificantobstacleintheiruptake.Nonetheless,theseproposalsaresignificant
indicatorsofthepatternofthinkingofdevelopedcountriesmovingforwardtowardsanewinternationalcollectiveagreement.

Source:AkinGumpStraussHauer&FeldLLP,Washington,D.C,‘Tradelawandclimatechange:convergenceorconflict?’March13,2008

Box 8: Possibility of restricted access of India to reformed EU ETS

Whilstcurrentlyaround10percentofcarboncreditspurchasedbyEUcompaniesareCDMorJointImplementationcredits,thereis
asuggestiontolimitthisto5-6percent.Further,theEUhasalsoindicatedthatitisopentoprovidingfreeemissionallowancesto
thoseindustriesthatareparticularlyvulnerabletocarbonleakages,whilstrequiringforeignfirmsinthoseindustriestopurchase
creditstooperateintheEU,therebyerodingthecompetitivenessdifferentialcurrentlyenjoyedbyfirmsinIndiaandChina.

Source:EuroCorrespondent,“ETSexpectsmorestabilityinsecondphase”,16July2007.
Euractiv,“EUunveilsplantobeefupcarbontradingscheme”,January23,2008
 Page 19

Benefits of action

Fortyfivepercentoftherespondentsmentioned‘benefitofthewholecommunity’as
theirmainmotivatortoreducetheircarbonimpact,while32percentmentionedthe
desiretoalignwiththeglobaltrendofclimatefriendlybusinesspracticesasthemain
motivator(Seefigure9).

Only17percentoftherespondentsseethegrowthinthemarketforlowenergy/
carbonproductsandservicesasamotivatorforreducingtheircarbonimpact.
However,inthecontextofinvestmentdecisions,considerationoftheenvironmental
impactandavailabilityofgreeneroptionsappearstobeplayingagreaterrole.Eighty
eightpercentoftherespondentsconsideritimportanttoevaluatetheircarbon
footprintforinvestmentsinupgradationofexistingtechnologyandequipment.
Similarly,87percentbelieveittobeimportantforinvestmentsinnewplantsand
technology.

Ontheotherhand,thebusinesspotentialarisingoutofthisisalsobeingrecognized.
EnergyEfficiency(75percent),CleanTechnologies(74percent)(Seebox9)andCDM/
CarbonMarketbusiness(59percent)(SeeBox10)aretheareasinwhichrespondents
areplanningorworkingtowardsbuildingbusinesses(seefigure10)
Page 20

Box 9: Nokia to tap market for green technologies

Nokiaplanstorollout40greenphonesin2008.Thecompanyplanstouse
biodegradablephonecoversandrecyclablebatterydesigns,whichcontainsmall
amountsoftoxicmaterialsuchascadmiumandlithium.Thecompanyalsohas
planstoreducetheenergyconsumedbymobilechargersbyupto50percent.The
companyalsoplanstoopenup‘GreenBins’acrossallNokiadealersinIndia,
wherecustomerscandisposeoftheiroldmobilephonesforrecycling.

Source:TimesofIndia,May22,2008,“Nokiatolaunch40greenphones’
 Page 21

Box 10: Future opportunities in the carbon market

Thevalueoftheglobalcarbonmarketgrewby80percentin2007,withsome2.7billiontonnesofCO2credits,worthGBP40.4
billion,changinghands,withfurtherincrementalgrowthbeingpredicted.VerifiedemissiondatafortheEUshowedthatCO2
emissionsactuallyincreasedby1percentin2007ascomparedtothepreviousyear.Thisisexpectedtoleadtoincreased
demandforCertifiedEmissionReductions(CERs)fromCDMprojects,andCERprices.

ThereformedEUEmissionTradingSchemepost2012isexpectedtocoverawiderrangeofindustries,furtherraisingthedemand
forCERs.Similarly,ifUSintroducesacarboncap-and-tradesystem,itcouldresultinthecreationofaUSD150billionmarket,
with5.7billionallowancestradedasearlyas2012.Thisisalsolikelytotranslateintoincreaseddemandforenvironmentally
benigntechnologies,productsandservices.

Source:TimesofIndia,‘Carboncreditsmaygetdearer,Indiancostogain’,April212008

Currently, stakeholder pressure is not an important driver of

business’ carbon strategy

Thestudyresultsshowthatinfluenceofemployees,customersorinvestorsisnota
strongdrivingforcebehindfirms’decisionstorespondtoclimatechange.
Compulsionsfrominvestors/shareholderswasthesecondleastimportantfactor
influencingafirm’scarbonstrategy,withcustomerexpectationsintargetmarkets
achievingnearlythesamelevelofimportance(orlackthereof).Employeeexpectations
tomeetglobalstandardsinbusinesspracticeswereperceivedasslightlymore
important,butonlyasthethirdmostinfluentialfactor.

Thisisreflectiveofthelackofpressurethatthesestakeholdergroupshaveexertedon
thisissueinIndia,inthepast.However,giventheinfluencethatthesestakeholders
haveexertedasdriversofchangeinvarioussocialandenvironmentalissuesin
general,andclimatechangeinparticulararoundtheworld,thesepressuresare
expectedtobesignificantdriversofchangeinthefuture(Seebox11and12).
Further,thisexpectedincreaseininfluenceisaccentuatedbythehistoricalrecordof
socio-economicissues,whichdemonstratesthatawarenessandcallsforactiondo
notincreaseatasteadyrate,butgrowexponentiallyoncethecriticalmassis
achieved.
Page 22

Box 11: Johannesburg Socially Responsible Investment Index7

Respondingtothecallsfrominvestorsforareliablesourceofinformationona
company’ssocio-environmentalperformanceuponwhichtobaseinvestment
decisions,theJohannesburgStockExchangelaunchedtheSociallyResponsible
Investment(SRI)indexinMay2004.Thepolicy,management/performanceand
reportingofeligiblecompanies(theyhavetomeetcertaincriteriatobeeligiblefor
inclusionintheindex)areevaluatedagainstthecriteriaoftriplebottomline
(environmental,social,economy)aswellassocialgovernance.Theirresulting
individualandtotalscoresarethencomparedwiththeperformanceofotherfirms
toproducearelativeranking.

Withintheenvironmentalcriteria,companiesareclassifiedashigh,lowormedium
impactbasedontheiractivities.Importantly,moredetailedcriteriaspecificto
climatechangewillbeintroducedinthenearfuture.Interestingly,thetop10
environmentalperformersfor2007belongedtotraditionallyenergyandemission
intensiveindustriesofmining,construction,steel,resourcesandoilandgas,with
thetopperformerforthepast3yearsbeingAngloAmerican(mining).These
companiesconstitutesomeofthebiggestandmostprofitableSouthAfricanfirms;
therebydemonstratingthatenvironmentalsustainabilityiscompatiblewith
economicgainandwouldverylikelyenhanceitmovingforward.

TheSRIindexwasthefirstofitskindinanemergingmarketandthefirsttobe
launchedbyanexchange,whichisanimportantindicatoroftherisinginterestand
concernofenvironmentalissuesindevelopingcountriesandinparticular,the
increasingdemandfrominvestorsforcompaniestobeenvironmentallyandsocially
responsible.Whenconsideredinthecontextoftheexpandingenergylabeling
programmeforapplianceslaunchedbytheBureauofEnergyEfficiencyin2006in
India,thesedevelopmentssignaladefiniteshiftintheroleplayedbydifferent
stakeholdersindevelopingcountrieswhich,asthestudyresultsindicate,Indian
companiesdonotcurrentlypaymuchattentionto.

TheAdvisoryservicesfortheestablishmentofthecriteriaagainstwhichfirmswere
selectedtobepartoftheSRIindexin2007wereprovidedbyKPMGSustainability
Services.

7
Johannesburg Stock Exchange, 2008
 Page 23

Box 12: Thermal power plants facing popular pressure in the US

Apowerfulindicatorofincreasingpublicawarenessoftheissueofclimatechangeisreflectedinthevetooftheexpansionofa
coal-basedpowerplantinKansas,USonenvironmentalgroundsinMay2008.Thegovernorofthestatesuccessfullyvetoedabill
allowingtheexpansionofthepowerplantaftertheprojectfailedtosecureanairqualitypermitfromthestateDepartmentof
HealthandEnvironmentonthegroundsthatitwouldproduce11milliontonsofCO2everyyear.Despiteattemptsbythe
legislaturetooverridetheveto,thedecisionstandsandtheprojectdoesnothavetherequiredclearancetocommence.
Source:OfficeofKansascitygovernor,April2008
Page 24

How can we respond to climate

change?
There seems to be a significant gap between good intentions and appropriate actions to
back up the intentions. While a number of companies expect to contribute to mitigating
their impact on climate change, few seem to be approaching this in a structured, measurable
manner. The credibility of achievements may therefore remain under question. Employing a
larger range of tools, and developing capabilities to implement them, requires a deeper
understanding of the linkages between climate change and business issues.

Current carbon footprint: Do we know where we are

Adetailedcarbonimpactmitigationplanofacompanywouldtypicallystartwithameasurementofthecompany’spresent‘carbon
footprint’(seefigure11andbox13),whichwouldbethebaselineagainstwhichimprovementscanbemeasured.Inabsenceof
this,theimpactofanyinitiativeswouldnotbemeasurable,andwouldthereforelackcredibility.

WhileanumberofIndianbusinessesclaimtobeawareofthe
needtoreducetheircarbonimpact,andbelievethattheyare
takingstepstowardsit,mostcompanieshavenottakenthis
firststepofmeasuringtheircurrentcarbonfootprint.Only21
percentofrespondentsindicatedthattheyfullymeasuretheir
carbonimpact.Importantly,16percentofrespondentsdon’t
seetheneedforsuchananalysis(Seefigure11).
 Page 25

Box 13 – Global Carbon Footprint Initiatives

Abusiness’scarbonfootprintisthetotalamountofgreenhousegasesemittedoverthefulllifecycleofaprocessorproduct.
Whilstthereisconsiderabledebateabouttheexactscopeofactivitiescoveredundersuchamethodology,itiswidelyaccepted
thatitmustgobeyondconsideringonlythedirectactivitiesinvolved,toalsoconsidertheindirectinputs,outputsandproduction
processesinordertoprovideamorerealisticdepictionofthetotalimpact.

Inrecognizingthatmeasuringtheirtotalcarbonfootprintisthefirststeptomanagingandreducingit,numerousglobalbusiness
conglomerateshaveinitiatedactiontoassesthetotalcarbonfootprintoftheirsupplychain.Inanattempttoinformvarious
stakeholdersandinparticular,investorsontheircarbonfootprint,globalcompaniessuchasProcter&Gamble,Hewlett-Packard,
PepsiCoandUnilever,amongothershavepickedasmanyas50oftheirsupplierstoassestheircontributiontothefirm’stotal
footprintaccordingtoastandardizedmethodology.

Source:WashingtonPost,‘11Multinationalstoassestheircarbonfootprint’,January21,2008
Page 26

Targets: Where do we want to be?

Manycompaniesinthedevelopedworldhavemeasuredandannouncedtheirbaselinecarbonfootprint,andalsotheirreduction
targetsover5to10yearperiods.Surprisingly,41percentoftherespondentsinthisstudyindicatehavingatleastsomequantified
goalsforcarbonreductiontobeachievedby2010,evenintheabsenceofgovernmentregulations.However,itissignificantthat38
percentofrespondentshavenogoalswhatsoever.

Tools and Capabilities: How can we get there?

Whilealargeproportionofbusinessesclaimtohavequantifiabletargetsforemissionreductions,anappreciationofthetoolsand
capabilitiesrequiredtoachievethem(includingmeasurementoftheircurrentcarbonfootprint)ismissingatpresent.

Outofallthemeasurespresentedthatbusinessesengagein,orplantoengagein,totackleclimatechange;themostwidespread
wasusingenergyefficientappliances(94percent),followedbyeducatingandtrainingemployeesonenvironmentfriendlypractices
(77percent)(Seefigure12).Whilstenergyefficiencyisanimportantsourceofsubstantialreductionsincarbonintensityandthus,
thehighproportionofbusinessesengaginginthisactivityisencouraging,muchfewerbusinessesareengagedinotherprimary
driversofemissionreductions.Only29percentoffirmsreviewandupdatetheirglobalsupplychaintoachieveenergyefficiency
andonly25percenthavediscontinuedhighenergyservices(Seebox14).

Box 14: Case Study – ITC8

ITC’sendeavortobecomethefirstorganizationofitssizeandscopeintheworldtobecomecarbonpositive,waterpositiveand
zerosolidwastedischarge(ithasalreadyachievedthefirsttwoandisclosetoachievingthethird)demonstratestheenormous
breadthofmitigationeffortsthatvisionarycompaniescanengagein.

Apartfromensuringenergyefficiencyindailyoperationsthroughenergyefficientappliances,thecompany’sbroad-based
mitigationeffortsincludeproducingrenewableenergyinternallythroughsolarsystemsandrecyclingby-products,wasterecovery,
andodorabatementsystems,amongothers.

Importantly,theorganizationhasdemonstratedhowrespondingtoclimatechangedoesnothavetocomeattheexpenseofloss
ofbusiness,registeringa1.73percentreductionintotalenergyconsumptiondespitesignificantgrowthinallitsbusinesses.

8
ITC Sustainability Report, 2007
 Page 27

Legend(Figure12)

Label Response
1 Installing/usingenergyefficientappliances(suchaslighting,heating,andairconditioning)

2 Educatingandtrainingemployeesonenvironmentfriendlybusinesspractices

3 Recycling/usingrecycledproducts

4 Reviewingandupdatingglobalsupplychaintoimproveenergyefficiency

5 Achievingcarbonneutralstatus

6 Discontinuinghighenergy/carbonservices

7 Donatingtoorganizations/charitiesworkingtowardscombatingclimatechange

8 Reducingairtravelandusingvehicleswithcleanertechnologies

9 Noneofthese,butintendtoimplementsimilarpracticeswithinnextyears

10 Noneoftheseandnoneapplicable
 Page 29

Conclusion: Bridging the gap

between intention and action
In summary, this study found that Indian businesses regard climate change as an important
business issue. However, an appreciation of why it is important and how it can affect
business appears to be relatively low. This, coupled with little stakeholder pressure, results
in lack of structured approach to responding to climate change.
ThereissomedegreeofjingoisminthebeliefthatIndiashouldleadtheway,thoughtheleadershiproleislargelylefttothe
Government.Atthebusinesslevel,whileanumberofcompaniesbelievetheyhavetargetsforreducingtheircarbonimpact,the
abilitytomeasuresuccessseemstobelow,whichwouldresultincontinuedskepticismaroundtheseriousnessofsuchmeasures.

Why companies should be thinking more actively about actions

Thethreatofclimatechangemitigationbecomingadirectcostforbusinessisreal.Ahighlevelinvestmentcommissionunder
Mr.RatanTatahasreportedthat“whilelong–termenergysecuritywouldrequireIndiagetsalargeshareofpowergeneratedfrom
domesticresourcesofcoal,increasedconcernabouttheimpactofcarbonemissionandglobalwarmingwilllikelytoresultina
globalefforttotakeconcretestepsuchasintroductionofcarbontax”.EconomicTimes,2008

Developingcountriesareexpectedtoplayanincreasedroleinthenewinternationalcollectiveagreements.WiththeIndian
economygettingincreasinglyintegratedinglobaltradeandbusiness,thepressurefromEuropeanUnionandUSAcouldgetdifficult
toignore.

What should businesses be asking themselves, and doing

ThefocusoftheGovernmentandofleadingindustryassociationshaslargelybeenattheeconomylevelissuesandimpacts.
Sectorspecificassociationsandindividualcompanieswouldneedtoaskquestionsspecifictothem.Theimpact,risksand
opportunitiesneedtobeunderstood,andactionsprioritized,atthemicrolevel.

Anexampleofthislevelofanalysisisprovidedinfigure13below,throughaframeworkdevelopedbyKPMGintheNetherlandson
theriskprofilesofvarioussectorsasaresultofclimatechange.
Page 30

A criticalsuccessfactorislikelytobetheabilitytoincorporatemitigationinitiativesintoacoherentbusinessstrategythatenables
fullutilizationoftheopportunitiespresentedbyclimatechangeandminimizesitsexposuretotherisks.Businesseswouldthus
needtocomplementtheirownsectorexpertisewithdeep-rootedandbroad-basedknowledgeofthemacroenvironment.Inorder
tolendcredibilitytothemitigationstrategydevelopedinthisway,businesseswouldwanttousegloballyacceptedmethodologies
toevaluatethetruestateofafirmorindustry’slevelofemissionsandcarbonfootprint,andapplysystemsandprocessesto
validatetheresultsoftheiractions.AnexampleofthislevelofanalysisisprovidedinFigure13below,throughaframework
developedbyKPMGNetherlandsontheriskprofilesofvarioussectorsasaresultofclimatechange

Hence,astructuredresponseatindividualbusinessleaders’
levelwouldtypicallyinvolvethefollowingcomponents:

1 Measurementofthecarbonfootprintofthebusiness

2 Projectingthelikelycarbonfootprintifthebusiness
continuestogrowunderthe‘BusinessAsUsual(BAU)’
scenario

3 Analysisoftheriskofclimatechangeissuestothesector
andthebusiness

4 Identificationofopportunitieswithinthebusiness,and
beyond(CDMprojects,cleantechnologies,renewables,etc)
tomaintaingrowth,butwithadifferentapproach

5 Preparationofatimeboundactionplanforreducingthe
Source:ClimateChangesYourBusiness:KPMG'sReviewofthe carbonfootprintcomparedtotheprojectedcarbonfootprint
BusinessRisksandEconomicImpactsatSectorLevel,2007"
6 Institutionalizetheactionplaninbusinessprocesses

7 Institutionalizeameasurementandverificationsystemto
monitorprogressagainsttheplan

8 Periodicallyreportprogresstostakeholders.
Page 32

About KPMG in India

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