Published Editorial

Robust regulatory framework is need of the hour

September 2015

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Juan Costa Climent
Global Leader, Climate Change and Sustainability Services, EY

Robust regulatory framework is need of the hour

Heading the Climate Change and Sustainability Services division at international tax advisory giant Ernst & Young, Spanish politician-turned-climate-change-crusader Juan Costa Climent is recognised globally for his advocacy of aligning business practices with environment protection. He spoke to Subhayan Chakraborty about how businesses are increasingly looking at sustainable practices as a lucrative opportunity and why the upcoming international summit on climate change, COP21 in Paris, later this year is crucial.

Describe sustainable business practices.

Sustainability means trying to harmonise, or align economic growth with protection of the environment as also protection of social capital. So, growth cannot be against the environment and society.

What can a company do to achieve this?

The first thing that a company needs to do is to better understand the impact of their business on the environment. It's understood nowadays, if a business has a significant footprint on the environment or society, it is their responsibility to assess its impact and take necessary actions. This is a bit critical. And, that is where Ernst &Young comes in.

Are companies opening up to the idea?

Organisations like global reporting initiative and the World Business Council are increasingly promoting new reporting frameworks like regular sustainability reports and interim reports. Such practices are endorsed by businesses since these allow them to better communicate with the market.

They are able to better explain the activities of the company to the market and investors. Disclosing not only the financial aspects but the impact of a business on environment and society as a whole also helps businesses understand more about themselves. Investors and consumers, on the other hand, are becoming increasingly aware about the environment and are piling pressure on businesses to continue doing so.

What is the attitude among Indian companies, in this regard?

I think Indian companies and the greater business community is increasingly concerned of the risks - social and environmental - of the decisions they make. A very good outcome is that companies here are making the dialogue on environmental issues a core part of their decision making process.

How is Ernst & Young performing in India?

In India, we are the market leaders. We have a strong team and are growing.

A significant share of the Indian market is dominated by companies in the MSME sector. Is Ernst & Young looking to reach out to them?

The reality is that globally the leading names in the sustainable development practices space are the largest ones. Reversely it can be said if you want to be a leading player, you need to adopt sustainable practices. Smaller organisations are also interested, but we focus on helping large enterprises whose business affects a significant number of people.

What do you have to say about India's stand on climate change?

I think India has made a huge effort and the government is committed to environment reforms. India's markets are different from Europe and here, adaptation is a key issue. We, in the international community, need to make sure that funds and technology are made available to those who need it most. The same evolution we've seen in the private sector is going to need to take place in the public sector.

What do you think are areas in climate change where private investment will not work? Developing countries suggest adaptation is one of them.

Transformatory action for mitigating and adapting to climate change is needed. This requires not just funding but also a policy framework. Investments from any sector, private or public, can work equally effectively, even in adaptation area, if the right architecture and enabling environment for investment is put in place.

However, it is true that both private and public sector investments so far worldwide have traditionally been mostly in the area of mitigation. Only lately have we seen the public sector focus on adaptation.

On the question of setting up a global carbon market, if developed countries do not take ambitious targets, do we run the risk of establishing a market where there is no demand?

No doubt the global carbon market will flourish with ambitious commitments from developed countries and with more countries on board. However, in case that doesn't happen, we'll have to wait and see the intended nationally determined contributions being submitted by all countries before the Paris COP21 (Conference of Parties) summit in December. But regional carbon markets are taking shape.

Developed countries suggest that developing countries should fix their regulatory environment allowing green industries to move in faster. Is that like making profit out of a crisis instead of sharing technologies and capacities?

A robust regulatory framework is the need of the hour in tackling climate change. Developing countries also realise the threat of climate change and know that they are most at risk. They have been working towards developing a regulatory environment to foster clean solutions domestically as well. I also hear about a lot of progressive steps being taken to tackle the issue in India - the ambitious renewable energy plan, the smart cities and clean India initiatives are great examples for everyone to follow, be in developed or developing economies.

What do you think of the Indian environment minister's idea that funds from the Green Climate Fund can be used to buy out intellectual property rights for clean technologies that can then be diffused to poorer countries?

I am personally not aware of this statement and, so, would not be able to comment on it.