A company’s ESG scores today may even override its balance sheet as investors look for sustainable alternatives to park their funds. Greenwashing, or deceiving the public into believing a company is environmentally friendly, has hence become commonplace. In a conversation with DH’s Anjali Jain, Godrej Industries Associate Vice President and Head of Environmental Sustainability Ramnath Vaidyanathan highlighted how companies can improve their decarbonization initiatives and the role of governance in this regard.
Edited excerpts.
How important is carbon offsetting in a company’s journey towards achieving net zero emissions?
I think offsets have a role to play, but they should not be the primary driver of decarbonisation. If you are looking to fulfill that last mile, which is not attainable through decarbonisation, you can try to fulfill that through offsets. The platinum standard for decarbonisation goals today is a science-based targets’ initiative, which doesn't take into account offsets if you talk about absolute reductions in emissions. So I think companies should look to use the approach of committing to science-based targets, which gives you an absolute reduction in carbon emissions and covers roughly about 80% of your reductions. And the last 20% can be made up of offsets.
What are some gaps that the carbon offsetting infrastructure is dealing with today?
The governance around them is a little loose. For example, there are some global best in class registries. But there are also a lot of registries, which nobody knows the validity or veracity of. Whether the actual offsets are being double counted, whether the verification is actually done in a proper way, or they're just giving credits on the basis of submissions, or is there any actual audit to the process happening. So we need to build a very strong assurance and verification system around offsets. And most importantly, you must also define a difference between buying certificates versus actually operationally executing offset projects. I think there's a difference between actually investing and having end-to-end traceability yourself of the carbon offset versus just buying a certificate from a market where you're buying it based on the veracity of the exchange and don't have traceability beyond that.
Should carbon governance be undertaken by nations individually or do we require a global approach?
I think it's a combination of that, mainly because the economics of requisition are very different in various places. So I think you'll have to have global standards, but you also have to have regions specific standards and pricing. What we don’t want is companies to continue emitting in another ecosystem and then sequestering it in a completely different geography. For carbon offsets, we must set laws around if you're emitting in a particular jurisdiction, you must offset in and around that jurisdiction. We always see a lot of the emissions we park in India and China and the offsets being claimed in the US. To prevent that, we need strong regulations around it.
What challenges do companies face while offsetting carbon emissions or investing in carbon credits?
I think it depends. If you are from a heavy sector like cement and steel, where it’s not so much about your energy but about direct emissions, the main investment has to be in carbon capture technologies, which is looking at capturing carbon at the point of emissions itself. But carbon capture comes at a cost, you have to pay for that capex, so that could be a deterrent, but the business case for this is quite good. The other challenge among the smaller players is having the capital to invest in dividends. Energy storage also continues to be quite expensive. Finding the right kind of offset projects has proven to be complicated for people as not everybody has the wherewithal, expertise, resources or bandwidth. So they look for easier ways, which is like buying carbon credits, which is where they have to be careful. They need to have good guidance from the government as to which are the correct kind of credits to buy, which registries to use. I think a whole advisory system around that would be very useful.
I don't see any major hurdles as such for decarbonisation, except for investments. And we need to stop looking at it as a cost, because at some point in time, the cost of not doing anything is far greater than the smaller cost of doing something.
Do you think greenwashing should be regulated?
It should be cracked down on severely. Because what we have to understand is that ESG credibility is not just a profile or marketing thing. It generally affects investment decisions. Investors base a lot of their decisions right now on ESG scores. So if financial fraud can be looked at so severely when it comes to the effect it has on indices and investments, why shouldn't this, because this is actually playing the same role.
Do you think the government is taking steps in this direction?
It's a bit slow, but they are doing it. The difficulty is also because, in this day and age, information flows so fast, it's very difficult. Sometimes a problem becomes too big before you can get a handle on it. There are steps being taken. But I think the government can do a better job of communicating it to the industry as well. Even though they don't have the do's figured out, they should at least have the don'ts figured out to start off. I would much rather companies didn't spend the money on decarbonisation, or offsets right now, rather than spend it the wrong way.