Climate change, till now a ‘global' issue, is inserting itself into India's bilateral agenda as well. For, at David Cameron's initiative, it is to be a central leg of the strategic new U.K.-India relationship.

Business collaboration goes ‘green'

Collaboration has begun with the U.K.-India Business Leaders Climate Group. Comprising well-known CEOs, the group will work jointly on national emissions-reduction strategies, private sector-driven low-carbon models, and synergistic business opportunities.

Given climate change's stated importance in the U.K.-India partnership, policy-makers and business leaders in both countries might find it useful to leaf through UNCTAD's just-released World Investment Report 2010: Investing in a Low-Carbon Economy, which examines global flows of ‘low carbon' foreign direct investment and proposes strategies to encourage it.

The report makes two essential points, which if implemented could significantly enrich the U.K.-India initiative. One: transnational corporations should be factored into global efforts to mitigate climate change, since they are both principal greenhouse gas emitters and ‘low carbon' technology innovators, Two: it might be time for governments to expand the climate change discourse beyond a single-minded focus on national targets to incorporate performance milestones for individual firms. (In fact, going a step further, U.K.'s Environment Minister has broached the subject of tradeable carbon credits for each individual Briton).

It also presents a number of ideas for the two nations to pilot within their partnership, while using their joint experience to advance the climate change effort at the global level. For instance, FDI could be mainstreamed into low-carbon development strategies, with both countries working together to promote and support low-carbon investors and encourage strategic technology. They also need to ensure that policies incentivise, reward, and create a market for low-carbon investments, while incorporating climate-friendly provisions (including low-carbon investment promotion and environmental exceptions) into investment agreements. The report also suggests the establishment of an international low-carbon technical assistance centre, combining a global low-carbon technology database with advisory and support services.

The most compelling idea is the creation of a single global standard for corporate greenhouse gas emissions disclosure, which would significantly boost the accuracy of emissions monitoring and correction. The report finds 87 of the world's 100 largest transnational corporations reporting on emissions, many voluntarily. But it also finds two common gaps in this reporting. First, nearly a half of those that report are failing to specify the source of emissions — i.e. own operations, value chain, or energy use. Second, only 21 disaggregate their emissions by country.

In choosing practical initiatives to seed the U.K.-India environmental partnership, the U.K. government and the Business Leaders Climate Group might encourage British TNCs in India to report in detail on their local greenhouse gas emissions. This would be the most powerful way by which to establish the U.K.'s dual commitment to India and environmental protection. It would also be a major step in advancing global and Indian ‘best practice' in emissions disclosure.

Voluntary carbon-emissions reporting

Carbon disclosure is already a well-established practice in the U.K., and its Carbon Disclosure Project (CDP) runs an annual survey of corporate emissions-reporting/ environmental management practices among British firms. By publicly reporting findings, CDP encourages firms to continually improve environmental performance, and keeps the public, policy-makers and investors in the loop. Since 2007, CDP has run a similar survey in India, funded by the British High Commission as part of its ‘Low Carbon High Growth Programme. Survey results highlight areas for shared improvement.

In CDP 2009, Indian firms performed as well, if not better, than U.K. counterparts on basic parameters, such as measuring and recording emissions, separating them by source, and in setting reduction targets. But U.K. firms considerably outperform Indian counterparts in public reporting on a variety of key parameters, including emissions, reduction targets, and emissions forecasts. They are also far ahead in isolating, measuring and reporting value-chain emissions.

More important, many of U.K.'s top carbon disclosers — which outperform U.K. counterparts by a 20-points average — have a large and committed India presence. Among them are Unilever, Royal Dutch Shell, HSBC, Barclays, GlaxoSmithKline, Thomas Cook, Reckitt Benckiser, AstraZeneca, Aviva, and Royal Bank of Scotland, who outperform counterparts by 30 (out of a potential 100) points on the very parameters in which Indian firms are the weakest. All these firms are visible corporate citizens in India, and run active environmental and social responsibility programmes.

There is thus much scope for a productive U.K.-India partnership on improved carbon disclosure. With climate change now firmly on the corporate agenda, Indian firms are actively looking to develop best practice across a variety of related areas.

The U.K. and India in the global ‘low-carbon' FDI picture

A word of warning, though. While the U.K.-India environmental partnership is to rest on private sector collaboration, the World Investment Report shows that the U.K. is still a minor player in global low carbon FDI. . Only BP features in its ranking of Top 20 foreign direct investors in the alternative/renewable energy generation, and only three U.K. firms — BP, Bronzeoak, and D1 Oils — feature as Top 20 investors in environmental technologies manufacturing (i.e. the production of wind turbines, solar panels, bio-diesel plants, and other environmental equipment).

BP made only nine of the 728 international greenfield investments in alternative/ renewable energy generation between 2003-2009; all these in developed economies. BP made twelve of the 806 greenfield international investments in environmental-technology manufacture in this period, ten in developed economies. Bronzeoak made six and D1 Oil five; all in developing economies. The World Investment Report provides no indication on the size of these various investments.

This data is based on UNCTAD's analysis of the 1,725 international greenfield investments and 281 mergers and acquisitions in renewables, recycling and low-carbon technology manufacturing between 2003-2009 – collectively worth US$344 billion. Of these, 806 greenfield investments were in environmental-technology manufacture: nearly a half in developing economies. The 728 greenfield alternative/renewable energy investments and the 129 greenfield recycling investments concentrated in developed economies. In all cases, India has been an important destination.

The report also surveyed 240 leading TNCs to find climate change squarely on their agenda. 45 per cent of respondents said they factor host countries' GHG emissions-reduction requirements in planning investments, 32 per cent use in-house technologies, know-how and skills to reduce GHG emission in foreign projects, and 31 per cent use international M&As to obtain technologies and other created assets related to emissions reductions.

Balancing conflicting Indian interests

But, the more committed India becomes to a low-carbon paradigm, the more carefully its policymakers will need to balance conflicting Indian interests.

Take solar power. The government's new policy on grid-connected projects targets 100 per cent local equipment sourcing. This requirement could be counter-productive, in limiting our solar industry to a handful of (relatively new) local suppliers, whose equipment is often costlier than international competitors'. Financing might also be more difficult initially, since financiers are more confident about tried-and-tested equipment. Most worryingly, we might be blocking our industry from immediate access to important solar innovations internationally.

Another case in point is thermal power, where cost is still the defining parameter for technology choice, as a result of which we now liberally source power equipment from China, although it is considerably more polluting than costlier European and American models. — Courtesy: U.N. Information Centre, New Delhi

(Premila Nazareth Satyanand writes on foreign direct investment issues.)

Keywords: climate changeIndiaU.K.

More In: Comment | Opinion