Global investors focusing on environmental, social and governance (ESG) performance of companies coupled with the Indian government’s push on renewable energy and cutting emissions will make it imperative for Tata Sons to align its plans and move swiftly.
Energy transition and reduction in carbon emissions will be among the top priorities for N Chandrasekaran as he heads for a second stint as chairman of Tata Sons, as execution of plans in the next five years will be key to achieving the commitments made by the group’s companies thus far.
Global investors focusing on environmental, social and governance (ESG) performance of companies, even attaching a premium to it, will make it increasingly important for the group to expedite its plans as it needs access to global funds across businesses to reduce debt and finance growth.
Closer home, Prime Minister Narendra Modi has committed to a five-point climate action plan, the so-called “Panchamrit”, at the core of which is the ambition to be a net zero emissions country by 2070. Tata Sons, which is already working towards sustainability and clean energy, will have to work more aggressively to align itself to the plan.
For a group that traditionally used conventional energy to fuel its energy-guzzling businesses, Tata Sons has a stated sustainability policy that looks at creating long-term stakeholder value by integrating economic, environmental and social considerations for all Tata companies. The group set up the Tata Sustainability Group in 2014 which partners with all the Tata companies to embed sustainability in their business strategies. Group executives said that Chandrasekaran is likely to use this platform to push the group to improve its ESG ratings.
Experts tracking the group believe it will work on a two-pronged strategy—focus on energy efficiency and renewable energy while generating and sourcing electricity, and reduction of carbon emissions across businesses.
New Energy
Before 2022 began, Chandrasekaran addressed Tata Sons employees in a letter that was seen to be setting the tone for the group’s road ahead. He said in the letter to colleagues that new energy will be a key premise for the group. “Our strategy, looking ahead, has four themes: digital, new energy, supply chain resilience, and health. Our companies are already adapting to these changes, and we are witnessing a stronger performance,” he said in the letter.
In line with this strategy, the group’s power utility, Tata Power Company, is focusing on its green energy arm Tata Power Renewables to grow it fivefold in five years across businesses. It aims to scale up capacity to 15 GW by 2025 from about 3 GW now. Tata Power has a strategic goal of phasing out its coal-based power and scale up clean energy that makes up around 30 percent of total generation now to 80 percent by 2030. The group is keen to unlock value in the renewable business.
In an interview to Moneycontrol last month, Tata Power Renewables president Ashish Khanna said, “We have not changed a lot of portfolios; we have just been going on with aggressive growth in the segment we were serving in the past.”
The company’s push on renewables is in line with India’s ambitious target to have half of its energy mix from non-fossil fuel sources by 2030. At COP26 climate change summit in Glasgow, Modi increased the target India has set for renewable energy capacity to 500 GW; it is around 150 GW now.
The new “aggression” in energy transition is apparent and will be a continued theme in Chandrasekaran’s second term at the helm, as the next five years would be crucial to achieve these milestones.
With a focus on sustainable and clean energy development, Tata Power is also steering the transformation as an integrated solutions provider by looking at new business growth in distributed generation through rooftop solar and micro grids, storage solutions, electric vehicles charging infrastructure and home automation, among other initiatives.
Group companies like Tata Steel, Tata Motors and Tata Consultancy Services (TCS) have also taken steps to source more energy from cleaner sources. Tata Motors is a signatory to the RE100 initiative of The Climate Group, under which it has committed to using 100 percent renewable energy by 2030.
Chasing ESG Goals
In early 2021, Tata Sons had reportedly sent a directive to the top management of all group companies to work on a priority basis towards formulating a framework that would help each one of them to meet ESG norms. While parts of this plan are already evident, Chandrasekaran is likely to consolidate a plan for the entire group, sources within the group have indicated.
India’s aim to be at net zero emission by 2070 means that the share of electric cars and the contribution of biofuels for heavier vehicles will have to increase to 84 percent, and industries will have to transition to cleaner biofuels or hydrogen. While the group’s new pilots and businesses, from 5G to TataNeu and Tata Electronics, are being built around the ESG theme, existing businesses are moving swiftly to adapt it.
TCS has plans to be a net zero emission company by 2030 and to reduce greenhouse gas emissions by 70 percent till 2025. As a global technology giant, this will be important for the company as not just investors but even customers are closely watching its performance on these parameters.
Tata Steel is working towards making the production process more sustainable, and making CO2-neutral steel with hydrogen.
Tata Chemicals has committed to Science Based Targets initiative (SBTi) to reduce CO2 emissions. The company is building its first industrial-scale carbon capture unit in the UK.
Tata Sons’ Sustainability Working Council said in a meeting in December after the COP26 meeting that India’s projected carbon emissions by 2030 will be 4.48 billion tonnes, almost double its present emissions. This would mean a 22 percent reduction in carbon emissions from the business-as-usual scenario will be required if the country wants to achieve its goal of cutting projected carbon emissions by 1 billion tonnes.
Chandrasekaran has led the group from the pledge to plan stages for these milestones. Now he faces the task of executing these plans.
https://www.moneycontrol.com/news/economy/policy/energy-transition-esg-to-be-in-focus-in-chandrasekarans-second-term-as-tata-sons-chairman-8081861.html/amp
