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| Green technologies can be profitable, say global CEOs |
| Pallavi Aiyar / Copenhagen Oct 30, 2009, 00:44 IST |
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A survey of 40 firms suggests that there’s money to be made fighting climate change
The public discourse on climate change has tended to frame the issue as a tradeoff between development and greening; as a choice between generating wealth and creating a less carbon-intensive environment.
With United Nations talks in Copenhagen aimed at negotiating a global deal to replace the Kyoto protocol round the corner, it is the governments and political leaders of the world’s nations that have taken centre stage in the discussion.
But one crucial actor missing from much of the climate change conversation is business. If society is to make any fundamental changes in the model of growth, then business must not only be on board but must be a driver of innovation.
So, what does business have to say about the fight against global warming? How is the debate being framed by the wealth generators of society? Can climate change in fact be a money spinner?
Increasingly a number of businesses, both from traditional as well as newer, green-tech sectors, are answering that query in the affirmative. And unlike in the political sphere, the private sector’s response reveals a surprising unanimity between operators in the developed and developing world.
A recent report by Dalberg, an international consulting firm, titled ‘Champions of the Low Carbon Economy — Why CEOs are ready for a global climate agreement,’ undertook a survey of 40 global companies to conclude that business was eager for the opportunities an ambitious deal at Copenhagen would engender.
Three Indian groups were included: the Tatas, the SUN group and Praj Industries.
The common conclusion of the interviewed CEOs was that fighting climate change could be profitable, but a global deal would be necessary to secure the regulatory certainty required by business to truly commit to a new model of growth.
Pramod Chaudhari, Executive Chairman of Praj Industries, for example, envisioned a “2-3 times worldwide growth (for Praj) in the subsequent four- to five-year period, once a strong agreement and roadmap is in place.”
“The energy revolution is one of the greatest economic opportunities of our time,” added SUN Group’s Uday Khemka. “It will make the tech sector’s growth seem like a minor economic boom.”
Khemka warned however that “the failure to establish certainty and a price on carbon could result in a categorical disaster, because this could fundamentally undermine the confidence in clean energy investing and move the sector back a generation.”
Even companies without a specific focus on the environment underscored the need for a strong climate agreement, often in terms of protecting their customer base. Peter Foyo, who heads the wireless carrier Nextel Mexico, for example, claimed his business interest lay in the fact that, “My customer tomorrow needs to be a healthy person in a healthy world.”
The profits of fighting climate change are, moreover, not only a thing of the future. Many companies have already experienced how greening can be good for business. S M Trehan, Managing Director of the Indian power sector heavyweight Crompton Greaves, told Business Standard the company’s foreign subsidiaries survived the financial crisis by converting their manufacturing units to making transformers for wind turbines rather than the thermal power equipment they traditionally focused on.
“Climate change is the business opportunity of the twenty-first century,” said Trehan. “We need to focus on renewables and also energy efficiency. The opportunities lie in working out how to lower the losses during electricity transmission.” Crompton Greaves is part of the Avantha Group whose other main focus is on thermal power plants.
“If we envision the India of 2040, then 80 per cent of that country is yet to be built,” pointed out Richie Ahuja, the Indian representative of the Environmental Defence Fund (EDF). “This begs the question - do we follow the old growth paradigm or do we shift and develop a new growth paradigm that not only creates jobs but in the long run places us at a competitive advantage in the global economy?” Ahuja alluded to the fact that China has already seized the business opportunity inherent in low-carbon technologies. From being the poster-child for environmental degradation, China has managed to turn its image around in a few short years, primarily because there is money to be made from it.
The country already produces some 50 per cent of the world’s solar water heaters and nearly a third of the global solar photo voltaic (SPV) units. The world’s largest SPV manufacturer, Suntech, is Chinese.
Suntech’s CEO Zhengrong Shi, also interviewed in the Dalberg Report, holds 11 patents and grew his business from a startup to its current size of $2 billion, in just eight years.
The Suntech story has encouraged a slew of companies to join the solar power sector, including Sunvim, a Zhejiang-based textile maker better known for one of the country's popular towel brands. According to a China Daily newspaper report entire towns in Zhejiang province, the heart of the country’s light manufacturing region, are turning from textile production, in which China has long been a world-beater, to polysilicon manufacturing, a key component of the SPV industry.
The report quoted Shen Fuxin, the General Secretary of the Zhejiang Solar Energy Industry Association as saying that the average profits made by companies in the sector were reaching 20-30 percent.
China is also set to become the world’s leading manufacturer of wind turbines, with production capacity already at 13 GW, way ahead of the 10 GW by 2010 target set by the government. Chinese firms are aggresively competing in other global, low carbon markets as well, including energy efficient home appliances, and rechargeable batteries.
According to the UK-headquartered Climate Group investment in renewable energy in China - almost $12 billion in 2007 - is almost level with world leader Germany as a percentage of GDP.
Pan Jiahua, Deputy Director of the Research Center for Sustainable Development at the Chinese Academy of Social Sciences told the Business Standard that green businesses in China were benefiting from a government that had realised that fighting climate change and economic development could go hand in hand rather than being seen in terms of a trade off.
“At the moment our power is coal based. But this is very dirty and we suffer from terrible pollution. Clean technologies will have a huge, positive health impact. What’s more they create jobs,” explained Pan.
“Looking at China,” EDF’s Ahuja concluded, “the question arises: Is this not the story we want to replicate in India based on the local context?”
Crompton’s Trehan answers with optimism. “It’s just a matter of time. India already has the fifth largest installed base for wind energy. As a business we are bullish on climate change.”
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