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Hopes of a greener future

How is the Indian subcontinent tackling sustainability?

The world’s most populous democracy has been pursuing an ambitious agenda of modernisation in recent years. But the desired rise in prosperity has come at a price for the environment.

India suffers from staggering levels of air and water pollution. A series of reforms has been introduced since Narendra Modi became Prime Minister in May 2014, but in many areas the country is simply not sufficiently equipped to overcome its challenges. “India has a lot of catching up to do in terms of environmental protection. Especially compared with China, India is currently lagging behind by about ten to 15 years,” says Florian Sommer, Head of Sustainability Research at Union Investment. In November 2017, he travelled to India to gain a first-hand impression. The country’s shortcomings in environmental protection are at least partially due to its low overall state of development. Prime Minister Modi’s target of making all new vehicles in India electric by 2030 is widely regarded as unrealistic. At best, it is a very ambitious plan – especially in view of the fact that the necessary infrastructure is not in place. Political issues, rampant corruption and a maze of bureaucracy are additional obstacles that frequently slow down reform plans.

Millions die from the consequences of pollution

India has the highest pollution-related death toll in the world. This is primarily attributable to exhaust emissions from vehicles, a strong focus on coal for power generation and the widespread and largely unregulated disposal of waste in the country’s rivers. This winter, particle pollution in many of India’s largest cities reached alarming levels. Some airlines were even prohibited from flying to the capital Delhi for several days because the situation was so severe. According to studies, approximately 2.5 million people died from pollution-related causes in India last year – nearly 30 per cent more than in China.

Number of deaths caused by consequences of pollution

Mortality rates in India and China are particularly high

#India‘s goals under the Paris Climate Accord

 

Reducing energy intensity by 30 – 35 per cent by 2030 (based on levels recorded in 2005)

Generating 175 gigawatts of energy from renewable sources by 2022

Generating 40 per cent of the country‘s energy from non-fossil sources by 2030

Solar power on the rise

Amid all these overwhelming problems, Florian Sommer spotted some positive signals: “Solar power is gaining momentum in India and electricity generation through solar technology is now cheaper than using coal.” He says that India is currently the world’s fastest-growing market for solar power, but the sector still holds some challenges. “The question of how to store power efficiently remains unresolved here, too.” Solar power is proving particularly effective as a way of bringing electricity to rural communities. “Many people in India live in areas that are not connected to the national grid. Solar power systems offer an ideal solution because they enable people to generate power in their own village,” says Sommer. At present, solar power and the installation of solar panels are still unaffordable for large parts of the population, but the costs are steadily falling compared with power generated from coal. “This is a welcome trend both in terms of living standards and for the environment, because people stop being dependent on power networks that are mainly supplied by coal-fired plants,” Sommer emphasises.


Solar power market volume by region

India is the world‘s fastest-growing market for solar power
Solar power market volume by region

More transparency than in China

Issues of sustainability are also being addressed on the subcontinent in areas other than environmental protection. Corporate governance in Indian companies is still a far cry from US or European standards, but when it comes to transparency regarding sustainability issues, Indian companies are well ahead of their peers from China. “You can see clearly that India’s market has been open to global investors for a long time and that its companies are much more sensitive to pressures from investors,” Sommer explains. Most major companies publish a sustainability report and are willing and able to engage in a conversation about ESG topics. China, by contrast, is much more strongly driven by a culture of compliance. Sustainability-related aspects that have not been regulated by Chinese lawmakers are generally not disclosed or discussed by Chinese companies. Indian companies are also taking the transition to renewable energies very seriously. “One in three companies has set itself specific goals in this respect,” says Sommer. “That is a good start.”

Companies demand higher working standards

Working standards in India are also improving, as Florian Sommer learned in discussions on his trip. The focus remains on the textile industry. Many global players such as Primark, Ikea, GAP and H&M manufacture in India and the pressure that sustainability-oriented investors have been putting on these companies seems to be having an effect. According to the International Labour Organization (ILO) of the United Nations, the most significant improvements in working conditions are not being initiated by the government or regulators, but rather through requirements that international corporations impose on companies in their supply chains. “This is strong confirmation of the effectiveness of our engagement activities that are aimed at transparency and careful scrutiny of the supply chain,” Sommer concludes.



#Large market for wind power

India is also the world’s fourth-largest market for wind energy. By 2022, the country wants to install further wind farms with a total capacity of 27 Gigawatts. India’s wind power sector generates sufficient energy to cover demand and has even started to build up overcapacities. Manufacturers and suppliers are investing in new plants and wind power technology across the country.

Source: Germany Trade & Invest.

Wind farm
Ilham Mohamed

In conversation with Ilham Mohamed, regional coordinator for Southern Asia at Transparency International, London

Union Investment wants to know more

Why is corruption such a widespread problem in India?

There are many factors that make India fertile ground for corruption. To obtain a permission or licence, applicants have to navigate a jungle of red tape and the anti-corruption mechanisms implemented by the state are very poorly coordinated at all levels. That makes any efforts to expose and prosecute corruption very ineffective. Parts of the population also have a low level of education and there is insufficient access to information and complaints bodies. That makes it difficult to fight corruption.

Has the situation improved since Prime Minister Modi took office?

India’s results in the Corruption Perceptions Index (CPI) have not improved in any statistically relevant way over the last three years. In 2017, India scored 40 out of 100 possible CPI points and was ranked in position 80 of 180 countries. This means it performed worse than countries such as South Africa or China. With the exception of a few high-profile cases that were covered by the media in the last decade, there have been very few reports of criminal prosecution of corruption. This is definitely an area where improvement is needed.

Do you think that India will be able to get its corruption problem under control in the future?

India has a strong and professional judiciary, highly qualified civil servants, very energetic civil society activists and media that are able to exert public pressure. These are promising foundations for an anti-corruption campaign. But there has been little progress over the last three years in terms of regulation, as evidenced by the status of the Jan Lokpal Bill, which seeks to establish an independent body to investigate corruption cases. The police authority, the CBI, is not as independent as a strong anti-corruption authority needs to be. India will need such an independent police force and a strong Lokpal service in order to establish an efficient process that bridges the the gap between the detection and the prosecution of corruption.

#Transparency International

Transparency International (TI) is an international non-governmental organisation. Its main goal is to fight and prevent corruption-related crime. Since 1995, TI has been publishing an annual Corruption Perceptions Index (CPI).

Strong demand for green technologies

About one and a half years ago I went on a similar trip to China and encountered a plethora of local investment ideas. My trip to India was less fruitful in that respect. There is as yet no booming domestic green tech sector springing up in India similar to the one we have been observing in China. But there is no doubt that demand for green technologies in India is substantial and growing rapidly. At the moment, this demand is mostly served by foreign companies. Most of the solar panels are produced in China and German companies are also doing their fair share of business with green technologies on the subcontinent. Green tech ‘made in India’ is harder to find, but there are some companies in the market. The wind turbine supplier Suzlon from Pune in the Indian state of Maharashtra is one example, and there are several Indian car manufacturers that focus on electric-powered vehicles. The existence of these companies is a positive sign, but it remains to be seen whether they will be able to compete on the global stage.

Florian Sommer
Florian Sommer

Head of Sustainability Research at Union Investment

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