#15 Environment, Sustainability, and Climate Change - An Alternative Primer and Beginner's Guide
Systems approach to environment and sustainability, framework for adaptation and mitigation strategies for businesses, & key components of Materials, Energy, Water, Waste and Effluents, and Emissions.
Hi there! I am back from a long hiatus of three months. A lot happened on my personal as well as professional front. However, I aim to be a bit regular in publishing, and have chalked up a new writing plan for the same. Some of the focus areas in the next couple of editions will include more on a systems approach on climate change, Facebook and Metaverse, evolving business models to build sustainable businesses, ESG and CSR outlook for companies, critical thinking for business case analysis, a larger primer on systems thinking, and some hot-takes on current issues pertaining to businesses, technology, platforms, and eCommerce.
This edition comes at the heels of the COP26 summit ending on the 12th of November. The main task for COP26 was to finalise the rules and procedures for the implementation of the Paris Agreement. Most of these rules had been finalized by 2018, but a few provisions, like the one relating to the creation of new carbon markets, had remained unresolved. This is the best of what the global responses on the deepening climate crisis brought about, with over 100 heads of states attending the summit. The result, was, as some suggest, a watered-down “Glasgow Agreement” (full text can be accessed from here), which almost sank at the last moment (read here). While the media coverage (an excellent overview of the achievements can be found in this Indian Express article) reporting from the talking points and summary, a lot is left to be done in terms of providing a proper primer that evolves the layperson in understanding the importance the Glasgow Agreement, how it impacts them in real everyday life, and more importantly what is the whole hullabaloo about.
I aim to answer a part of it through this edition, talking exclusively about the fundamental basics and building blocks of what might be considered as a primer, to understand the broader aspects of the environment, sustainability, and climate change discourse.
This is a slightly denser, preachy, and definitely frustrating rant on some evident mistakes, shortcomings, and sheer lunacy of activities on the topics of this domain (environment, sustainability, and climate change) that have almost zero coverage in mainstream or alternative media. I write this from my own need to structure my thoughts on something that I have been working on for the past four years, and get feedback on how can this be sharpened.
Grab a coffee, and let’s get down this rabbit hole, together.
Annexure: The Analysis Matrix - Boundary Conditions
It is important to start with the building blocks of what I call the “analysis matrix”, which provides you with a holistic view of understanding the information available, and asking the pointy questions that need to be asked. It is also a great filter in understanding the various components of environment, sustainability, and climate change that fit together in the larger narrative.
Questions for Critical Thinking
The rule of thumb goes like this: When you read some announcement on a new climate change initiative, either by the government, or a think tank, or a funding organisation, or a startup, or a company, or a regulator, or any of the bigwigs, ask these following five questions:
Who pays for it?
How do you, and how much do you pay for it?
Who owns it, who operates it, and who is responsible for it?
How do you accurately measure the performance of it, which actually translates into impact on the environment and climate change?
Who keeps the people responsible for it, accountable?
What are the payoffs for everyone involved in the entire ecosystem? (I just cannot resist bringing Game Theory into the equation! Taking the leaf out of the Nobel Prize Lecture by William D Nordhaus in 2018, and some work by Nobel Laureates Paul Milgrom and Robert Wilson)
The next step involves understanding the system’s perspective of Climate Change.
Climate Change - A Systems Perspective
One of my favourite in-depth works on providing a systems perspective of climate change has been the 6th edition of the Global Environment Outlook report published in 2019. This report is rightly the most comprehensive report on the global environment since 2012. It shows that the overall environmental situation globally is deteriorating and the window for action is closing. The full text of this 745-page report (it makes up for an excellent weekend read) can be found here.
The following diagram provides a base for understanding the three main jargon used widely in the world of climate change - mitigation, adaptation, and transition.
The bottom of the diagram shows at an abstraction the key drivers of environmental change. Economic development in the past has been a driver of increased resource use and environmental damage. This coupled with the rise in human population bears an unforeseen burden on the existing natural and man-made resources. Unchecked development of infrastructure and industrialisation to meet the growing demands of the increasing number of people is leading to unknown impacts on the environment, which cumulatively over a period of the last 200 years has led to climate change.
Climate change poses risks to human societies through impacts on food, and water security (established but incomplete), and on human security, health, livelihoods and infrastructure. These risks are greatest for people dependent on natural resource sectors, such as coastal, agricultural, pastoral and forest communities; and those experiencing multiple forms of inequality, marginalization and poverty
are most exposed to the impacts. Climate change has become an independent driver of environmental change and poses a serious challenge to future economic development. There is an important need to limit the potential negative sustainability impacts of drivers of population, economic development and climate change.
This can be done in two ways:
Mitigation: Reducing emissions of and stabilizing the levels of heat-trapping greenhouse gases in the atmosphere. In simple terms, think about this as reducing the “Intervening Dynamics” provided in the large circular diagram in grey in the aforementioned image. This includes efficient waste management systems, reducing dependency on polluting sources of energy and material, thoughtful urban development, reduction of resource wastage (read water and land) in agriculture, and other climate change projects such as mangrove conservation, addressing human-animal conflict, etc.
Adaptation: Adapting to life in a changing climate – involves adjusting to actual or expected future climate. In simple terms, think about this as the promotion of the “Lifeway Transformations” provided in the large circular diagram in orange in the aforementioned image. This includes shifting to clean energy alternatives, EV (electric vehicle) mobility solutions, climate-resilient agriculture value chains, EPR (extended producer’s responsibility) solutions, and other adaptation solutions like afforestation, social forestry, watershed development, rainwater harvesting, etc.
An important definition that comes into play while talking about this is also a term called “Just Transition”. The movement on efforts in mitigation towards more adaptation strategies will require a “just transition”, taking into account the human, economic, and social welfare for sustainable development. An easy example of this will be the shift from coal-based power plants to cleaner alternatives will require investments in “just transition”. The key focus will be to minimise the loss of livelihoods of those communities engaged with coal, the consequential second-order effects on education, access to healthcare, poverty, financial debt, etc, and ensure their place in the new ecosystem with minimal loss.
Critical Boundary Conditions of Mitigation and Adaptation Strategies
This section talks about some of the most important building blocks of the typical strategies on mitigation and adaptation towards the negative impacts of climate change. I have covered some of this before in abstraction, I will do a deep dive on the same in this section. (source: ESG analysis of Zomato, the impact of Scope 3 Emissions on ESG performance benchmarking, and the ESG performance benchmarking framework)
For the purposes of this particular context and scenario, I have focussed on the boundary conditions and the building blocks of the mitigation and adaptation strategies with regards to businesses, companies, and firms. In a way, we may be able to safely extrapolate these components to other scenarios, eg that of government interventions or non-profit initiatives on environment and social impact change.
The building blocks of mitigation and adaptation strategies can be broadly classified into the following components:
1. Materials
The inputs used to manufacture and package an organisation’s products and services can be nonrenewable materials, such as minerals, metals, oil, gas, or coal; or renewable materials, such as wood or water. Both renewable and non-renewable materials can be composed of virgin or recycled input materials.
The type and amount of materials the organisation uses can indicate its dependence on natural resources, and the impacts it has on their availability. The organisation’s contribution to resource conservation can be indicated by its approach to recycling, reusing and reclaiming materials, products, and packaging.
This plays an important role in the climate change discourse, as the underlying use of materials and the consistent efforts to find alternatives is an essential building block to subsequent components like energy, emissions, and effluents and waste. It is also one of the most under-appreciated and rarely discussed topics. This is because of the very fact that this goes right towards the beginning of the value chain, and its effects though large are very well hidden.
Some important examples to rethink our approach towards materials are:
Carbon Black and the Automobile Industry: The entire automobile and road-based mobility industry require “tyres” for their vehicles. These tyres can only be made from one material, which is called “Carbon Black”. This is one of the most emission-intensive and energy-consuming industries in the world. We speak about electric cars and the reduction of fossil fuels, yet a part of the conversation that deals with this particular use of “Carbon Black” for tyres is hardly ever mentioned.
Real Estate industry and Sand Mining: The real estate industry has some critical components such as cement, bricks, steel, iron, etc. Perhaps none as critical as sand. However, with rapid urbanisation and an explosion in infrastructure development, the shortage of sand at construction sites has led to an over-enthusiastic segment of sand-mafias, especially in India. This sand mafia is not just harmful to the environment, it has second-order effects in increased fuel consumption, emissions due to improper waste disposal, and the third-order impacts of impending natural disasters like flash floods. Also, top real estate firms are not investing enough in finding alternatives to sand as a material.
Packaging Materials: Businesses are collectively lagging behind in the taking concrete efforts to mitigate the effects of packaging materials being used in their value chain, along with finding viable alternatives and making them cost-effective. Only a fraction of the top NSE/BSE 1000 companies follow EPR (extended producer’s responsibility). A fraction of those companies are experimenting with alternative packaging and risk management on these lines.
Cobalt for EVs: A recent article published in the NYTimes, as well as Bloomberg, covered the perilous journey for mining Cobalt, that has become the bedrock for the growing space for making batteries for electric vehicles. However, the process of mining in itself has huge geo-political, economic, and environmental issues. Not to mention the immense amount of GHG (greenhouse gases) emissions being generated due to this process.
“Now, with more than two-thirds of the world’s cobalt production coming from Congo, the country is once again taking center stage as major automakers commit to battling climate change by transitioning from gasoline-burning vehicles to battery-powered ones.“
“American automakers like Ford, General Motors and Tesla buy cobalt battery components from suppliers that depend in part on Chinese-owned mines in Congo. A Tesla longer-range vehicle requires about 10 pounds of cobalt, more than 400 times the amount in a cellphone.”
2. Energy
An organisation can consume energy in various forms, such as fuel, electricity, heating, cooling or steam. Energy can be self-generated or purchased from external sources and it can come from renewable sources (such as wind, hydro or solar) or from non-renewable sources (such as coal, petroleum or natural gas).
Using energy more efficiently and opting for renewable energy sources is essential for combating climate change and for lowering an organisation’s overall environmental footprint. Energy consumption can also occur throughout the upstream and downstream activities connected with an organization’s operations.
This can include consumers’ use of products the organisation sells, and the end-of-life treatment of these products.
It is critical to take into consideration the entire value-chain of Energy: from energy generation, to energy transmission, and then energy consumption.
A good example can be taken from the telecom sector. Energy consumption and consequent emissions form a large part of any telecom company’s environmental impact, further exacerbated in the Indian context by the lack of 24-hour power availability, which forces the use of diesel generators to run telecom networks.
The overall cost per unit (KWHr) might be lower, but this has a very large carbon footprint, in comparison to renewable energy sources like solar.
Right at the beginning of this writeup, I mentioned the disastrous outcome of a “watered-down” Glasgow Agreement, for which our country India took a lot of heat on the world stage. The key phrase on which the needle was stuck happened to be “phase out coal-based power generation”. This was eventually changed to “phase down coal-based power generation”. Besides India, the two largest polluting countries of US and China were also key players, as “phasing out coal-based power generation” would have hurt them as much (or worse) as it would have hurt India.
Coal-based power generation even today is cost-effective, than other forms. High capital expenditure and time-lag on Hydroelectric plants ensure limited uptake in exploring these projects. Our regulatory framework and Government interest in nuclear power has reduced over the last decade. An interesting Op-Ed published by Anil Kakodkar, the former chairman of Atomic Energy Commission of India does shed some light on practical solutions in this direction.
Solar energy brings about its own set of problems, with sourcing and initial setup costs for retail users being the primary hinderance. On a large scale, the high costs of transmission, distribution ,and storage (include the cost of maintenance and mangement) become major roadblocks.
Other efforts that are made include using more “energy-efficient” mechanims in optimising the energy consumption in the company’s value chain and business. This might include solutions like efficient cooling systems for data centres, part-conversion to solar, installation of micro-grids for specific businesses sites, etc.
3. Water
Fairly straightforward component of water usage forms a critical part of these adaptation and mitigation strategies. The focus is always on more water-intensive manufacturing industries than others - like cement, mining, alcohol and beverages, FMCG, textile, and apparels.
Some of the key strategies under this component include the following:
Reduce water consumption by better technologies that require less water. Low water technologies were developed and deployed in core viscose processes such as fibre washing, chemicals recovery, cooling towers, and fibre washing.
Reuse water in the process or other applications multiple times. Circular technologies have enabled water to be used several times in finishing and recovery processes.
Recycle water with innovations in wastewater recycling technologies and advanced membrane-based technologies. The water quality achieved after recovery is better than raw water quality from the river.
Regenerate water through harvesting (by building dams and reservoirs) to store water in the rainy season that can be used later in the year. Watershed development through social forestry and CSR programmes are another path taken in this direction.
4. Effluents and Waste
In this section, I have merged two very important components under the same umbrella of “Waste”, keeping solid waste as a separate component, and effluent waste as the other component.
Solid Waste is widely discussed, debated, and worked upon by all stakeholders in the sustainability ecosystem. Key focus areas include that of plastic waste, electronic waste, and other important material waste, one of the largest sections being textile and apparel waste (cloth material).
Effluent waste has more to do with liquid form of effluents, mainly generated as a byproduct of water-based manufacturing processes. This is as rampant as solid waste, and is prevalent across most of the important industries. However, this topic rarely gets covered properly, except for the random Sunday newspaper article on beach cleanups and river pollution due to white foam-like substances.
In terms of processes and strategies in both solid waste and effluent waste, solid waste is far ahead. The push towards EPR (extended producers responsibility) across the globe has ensured re-imagining supply chain and logistic issues. However, effluent waste donot get the same treatment, owning to their decentralised and localised nature.
5. Emissions
I had covered emission sometime ago in the previous edition of the newsletter, highlighting the omission of Scope3 calculations. Emissions is one of the most important topics under this discourse, and forms the fundamental bedrock to better understand the impact, and effectively measure the progress of any of the strategies for mitigation and adapatation.
Emissions are generally measured and benchmarked under three major types - Scope 1 that deal directly with emissions regards to the business value chain, Scope 2 that deals with the indirect emission with regards to the business value chain, and Scope 3 that deals with the consequences of the activities undertaken by the company.
An example that comes to mind is that of a company, say Zomato.
In terms of Scope 1 GHG Emissions, they are restricted to their current operations and sites, including office spaces, and directly owned warehouses for their Hyperpure business. However, a majority of their work happens in Scope 2 and Scope 3 GHG Emissions.
The two major sections being fuel consumption through their delivery executives, and the use of single-use plastics and aluminimum based packaging material by restaurants. In an earlier edition of this newsletter, I had estimated 403 million orders for the fiscal of 2020 generating over 800 million containers of plastics and foils (irrespective of the size) in one year alone. Fore the same number of orders to be fulfilled, the total GHG emission value from delivery partners alone comes to 102.8 million kilograms of TCO2 per annum, due to fuel consumption.
Each missed opportunity of mitigation or adaptation strategies will result in some level of GHG emissions, which is leading to global warming and the the negative impacts of climate change. Be it improper waste disposal, of insufficient effluent treatment, or usage of coal-based power generation, or using materials like carbon black and cobalt that have a high GHG emission value in its sourcing.
Explaining Scope 1, 2 & 3
To help delineate direct and indirect emission sources, improve transparency, and provide utility for different types of organizations and different types of climate policies and business goals, three “scopes” (scope 1, scope 2, and scope 3) are defined for GHG accounting and reporting purposes. Scopes 1 and 2 are carefully defined in this standard to ensure that two or more companies will not account for emissions in the same scope. This makes the scopes amenable for use in GHG programs where double counting matters. Companies shall separately account for and report on scopes 1 and 2 at a minimum.
Scope 1: Direct GHG Emissions
Direct GHG emissions occur from sources that are owned or controlled by the company, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.; emissions from chemical production in owned or controlled process equipment. Direct CO2 emissions from the combustion of biomass shall not be included in scope 1 but reported separately. GHG emissions not covered by the Kyoto Protocol, e.g. CFCs, NOx, etc. shall not be included in scope 1 but may be reported separately.
Scope 2: Electricity Indirect GHG Emissions
Scope 2 accounts for GHG emissions from the generation of purchased electricity consumed by a company. Purchased electricity is defined as electricity that is purchased or otherwise brought into the organizational boundary of the company. Scope 2 emissions physically occur at the facility where electricity is generated.
Scope 3: Other Indirect GHG Emissions
Scope 3 is an optional reporting category that allows for the treatment of all other indirect emissions. Scope 3 emissions are a consequence of the activities of the company, but occur from sources not owned or controlled by the company. Some examples of scope 3 activities are extraction and production of purchased materials; transportation of purchased fuels; and use of products and services.
Semi-Final Word
I circle back to answer the five questions I had posed earlier that form the basis of the ‘analysis matrix’:
Who pays for it?
A lot of progress had been made by companies in owning the efforts in paying for mitigation and adaptation strategies. However, there is a long way to go about this. One of the critical reasons for this is myopic view of investors and relevant company stakeholders - that look at quarterly earnings to gauge the value of a company, and think debt on balance sheet is bad. So in part, the government, especially in the global south shoulder a lot of responsibilities.
How do you, and how much do you pay for it?
Mitigation, adaptation, and just-transition strategies and measures donot come cheap. These costs are spread across multiple years, with intensive upfront capital expenditure. Most companies fund these initiatives through debt-financing, either through corporate bonds, or loans. The new movement in climate financing looks encouraging, however the incentives are yet to be properly designed.
Who owns it, who operates it, and who is responsible for it?
My experience in working with the Aditya Birla Group (way ahead of their competition in sustainability efforts) is that the most effective way to address this question is the involvement of every single line manager in the company’s hierarchy at each level. Local decentralised governance with a robust management process is what does the trick.
For example, effluent discharge in a Hindalco plant near Nagpur is looked after at the site level by a designated person, the entire process from data collection and documentation, to audits, and performance management. This is then checked and rechecked by designated people at the division level (manufacturing level), company level (corporate sustainability), and group level (chief sustainability officer and the subject matter expert).
How do you accurately measure the performance of it, which actually translates into impact on the environment and climate change?
India has a long way to go with regards to building something like the robust scientific apparatus of the EPA (Environmental Protection Agency) in the US. Of the most interesting things I found on the EPA’s public domain is an excel sheet that provides the TCO2 GHG emissions per material (like wood, gasoline, diesel, biofuel, electricity generation, etc). This is a good benchmark to calculate an approximation of the carbon footprint of a company’s value chain.
Internal Carbon Pricing is an effective way to combat this as well. In lay man’s terms, it is mechanism to calculate the total GHG emissions that the company emits across its entire value chain, and the cost associated with per-tonne of GHG emissions. The cost incurred by a company to generate one-tonne of TCO2 GHG emissions may be used as the internal carbon pricing.
An important part of this exercise is the “Life Cycle Assessment” of a company’s value chain. This means, the company undertakes a detailed study to understand the TCO2 of GHG emissions at each stage of the value chain, and measure it as accurately as possible. Besides the GHG emissions of normal business processes, this also takes into account the GHG emissions of logistics, electricity consumption, waste management, etc.
Who keeps the people responsible for it, accountable? and 6. What are the payoffs for everyone involved in the entire ecosystem?
This is conversation for another edition, which I hope to write very soon.
In the future, I wish to propose an alternative and more realistic worldview that might touch upon the following:
Why do we fail at a collective responsibility for mitigating the negative impacts of climate change?
Whom did we not see in the entire media and technical discourse about the global response towards mitigating the negative impacts of climate change?
What are the second-order and third-order effects of our proposed or current actions in our efforts towards the global response for mitigating the negative impact of climate change?
What can be some of the potential leverage points that create a cascading impact within the entire interlinked systems view of the environment, sustainability, and climate change?
What are your thoughts? Write in at aashir.sutar@gmail.com
How did you like this edition? Let me know your thoughts, comments, inputs, and suggestions. Happy to discuss, learn, and explore.