Moneycontrol Pro Panorama | Countries buy time on climate change, but companies may feel the heat

We explain India’s compulsion in negotiating a longer life for its coal-fired power plants, what with thermal power contributing 50 percent of the current energy mix. Do read to know why India’s stance is important for its coal mining and power industry, and why the lack of climate finance support from the developed nations is an obstacle in faster adoption of cleaner technologies.

The COP26 summit may not have yielded any concrete measures that investors can put in their worksheets, to assess what costs companies may face in the effort to mitigate climate change or what disruptions may be lying in wait. But these will become clear as the years pass and companies may have to change their way of doing business, irrespective of their home country’s stated position on the issue.

For instance, Tata Steel in Europe has decided against going for a carbon capture project to lower emissions and is, instead, exploring making steel through the electric arc furnace route using gas or hydrogen. But it wants financial support from the government for the project and, along with its peers, is also asking for a carbon border tax on imported carbon steel. That can be a barrier for other steel companies even if their home country does not prohibit carbon-based steel. This sort of a barrier can be extended, for instance to a car made using metals that have not been produced with clean technology.

This is just one way of pushing companies to become climate-friendly. Mandating investors to follow ESG principles is another way of enforcing guidelines that may override the country’s own priorities, as foreign money is a significant component of portfolio inflows. All those companies who do business across borders in this globalised world will find it difficult to ignore climate-related concerns.

Even executive compensation is increasingly being tied to progress on climate targets by companies, says this FT report (free to read for subscribers). While the number of companies among the S&P 500 doing this remains relatively low at 20 and 24 from the FTSE 100, the number has doubled in 2020 over 2019. But it’s not an easy key result area to tie an executive’s compensation to since the results of some of these mitigation efforts may play out only in the longer run. Do read to find out more.

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Ravi Ananthanarayanan

Moneycontrol Pro