In this decade, we are already adding 8–10 gigawatts of renewable capacity, but that amount needs to be quadrupled to reach 40–50 gigawatts per year
Most businesses do not follow a knee-jerk approach to sustainability, and many have formalised their sustainability policies on the path towards achieving net zero. There is little question that the development of technological and creative solutions along with major collaborative efforts are necessary for the future of carbon neutrality.
Rajat Gupta is a senior partner at McKinsey. He leads the sustainability practice in Asia and has led the energy and materials sector in Asia, managing numerous high-profile, digital-first operational transformations. ET Edge Insights was in an exclusive interview to gain his viewpoints on sustainability in the Asia-Pacific region. Excerpts from the interview.
Could you tell us a little bit about what are steps needed for India in this decade to achieve an orderly transition into a net zero?
Just to give some context, unlike in the west where discussions about decarbonization must do a lot of the talking, in India the conversation must be about building India right because 75 to 80% of the country is underdeveloped, the industrial and operating capacities are lacking, and the roads and the cars that travel them are underdeveloped. Therefore, the first topic of discussion should be how to build India right and how the future can be built right.
The issue is that this revolution differs from prior ones in that corporations might be moved by tens of millions of dollars, resulting in real consequences and outcomes. Instead, we’re discussing tens of billions of dollars worth of investments. For such infrastructure to be put in place, it is crucial that the private sector, corporate sector, public sector, or whoever is investing has a clear path to profitability. To achieve this, policies are required, and the policies must be consistent. Nothing can be 100% steady because there are uncertainties. Many things will change, technologies will advance, and we will evolve and learn a lot. However, to the extent possible to steady policies signalled 5 to 7 years ahead, we need a national plan that looks 30, to 50 years ahead and defines the pathway for India is going to be like for decarbonization, industrialization, etc.
Therefore, that is one of the most crucial things that must be done, and for is one of the sectors where policies must be put in place. For instance, there is a discussion about the compliance carbon market, but what will the carbon price most likely look like in 8 years?
The investments in that will it be profitable for me to invest in greener capacities now to be able to benefit from carbon prices, there are policies that have to come into place.
There are capacity expansions that must happen and many more areas where policies must be put into place. All-in-all I would like to say that we have to put many other things into place, in this decade substantially policy-oriented, technology-oriented, capabilities that have to be put into place for a banker’s perspective the ability to evaluate those policies so we have to come together to invest and build India, right, together.
Do you see the change happening, as the government is taking several right moves towards building an enabling environment?
We are benefiting from what happened with our solar devices and consequently the persistent actions that were taken in renewables in the last decade. In this decade, we are already adding 8–10 gigawatts of renewable capacity, but that amount needs to be quadrupled to reach 40–50 gigawatts per year. To achieve our 2030 goals, there are policies, and sometimes they are created explicitly and sometimes implicitly. For instance, today’s transportation fuels like petrol and diesel are effectively taxed at 240 dollars per tonne, which obviates the need for the electrification of two-wheeled vehicles. However, there is still much work to be done in all sectors, including those like steel, cement, and even agriculture, where things are particularly challenging because we need to change the behaviour of millions of people. As a result, I must say that there are several steps the government and the industrial sector have already taken that are assisting us in moving forward.
Where do you see the opportunities for India Inc. towards reaching the net zero transition for India?
So, I would like to say that while conversing or having conversations with companies in India the conversation starts with scope 1 and scope 2, and the question remains on compliance.
We are under some pressure from our customers, and that is where it all begins. I’ll share two facts with you. First, this capital investment cycle is the biggest we’ve seen in our lifetimes—possibly in the last 50 to 100 years. Second, India will be making the largest investment in this cycle, at 6 and a half per cent of GDP, while other markets are seeing investments of varying sizes. There will be a shortage of many green materials. Customers will demand more of these resources, and they are already requesting green steel, which may or may not be available in three, five, or seven years.
These are the two facts: the largest capital investment cycles our nation has ever experienced, as well as the energy and material constraints. This presents an opportunity for enterprises to develop a framework; however, they must first search for new ventures to invest in since new sectors will be developed because of this investment cycle, including the solar panel industry. There will be chances when you decarbonize quicker than others because you can then charge more for your products and have better profit margins.
We undertook an examination of a few companies that had shifted towards green energy and products as well as companies that, for several reasons, had not yet migrated. One of those reasons was that in one of those sectors, the technology of the companies had not changed.
The difference between the two enterprises was 3x, indicating that there is already a sizeable amount of value being created by businesses that decide to invest in some of the most recent technology and launch new ventures in this field.