The article originally appeared in The Times of India
The private sector in India has traditionally avoided engagement on climate issues publicly. But this seems to be changing. On November 5, 2020, 24 leading companies signed a ‘declaration of the private sector on climate change’ to tackle the climate crisis. This is an important beginning as the private sector will have to play a crucial role in mobilising resources, knowledge, and innovation. And within the private sector, family-controlled conglomerates are uniquely positioned to lead the low/no-carbon growth trajectory.
Family ownership is the most dominant form of business around the world. Historically, family businesses have dominated the Indian industry. Until the 1990s, a few old business ‘houses’ were dominant, holding diversified business interests across the economy. Their dominance was partly enabled by the planned economy ‘license raj’ model of the time. Since the economic reforms of 1991, these older business houses have been challenged by new families and non-family entrants. But the power of family conglomerates as a business model has not diminished. While some of the older houses did not survive the reforms, many – such as the Tatas, the Bajajs, the Birlas, the Mahindras – did and flourished and are joined by new houses –the Ambanis, the Adanis, the Mittals, and the Jindals.
Presently, India has the third-highest number of publicly-listed, family-controlled companies in the world, after China and the United States. Fifteen of the BSE Sensex – the index of 30 reputed companies listed on the Bombay Stock Exchange – are family-controlled, accounting for more than half of the Sensex combined market capitalisation. Share-price returns of family businesses have also consistently outperformed non-family firms.
One of the key features of prominent family conglomerates in India is that they operate in fossil-fuel intensive sectors and are responsible for a significant share of India’s carbon dioxide emissions.
Today, just seven family conglomerates (Reliance, Adani, Tata, Aditya Birla, Mahindra, Jindal, and Vedanta) are responsible for emitting at least 530 million tonnes of CO2 annually. This is equivalent to 22% of India’s total CO2 emissions. In 2019-20, these seven groups operated 25% of India’s coal-based power plants (50,000 MW); produced 39% of India’s steel (43 million tonnes), 27% of India’s cement (91 million tonnes), and 22% of India’s passenger and commercial vehicles (0.92 million). They also accounted for 30% of oil refining capacity and 25% crude oil production.
If these companies get serious about climate action, India’s emission profile will look fundamentally different. While this ‘seriousness’ primarily comes down to the business argument, there is evidence that family businesses take a more long-term view on investments than non-family firms. Also, studies indicate that they are socially more responsible as they invest in the social and physical infrastructure of the areas they operate in.
The reason why a family conglomerate can take such investment decisions is its unique structure. Unlike other corporates, family businesses are organised around patriarchs/ matriarchs, who bear the ultimate responsibility and hold final decision-making powers. Though the ‘professionalisation’ of family businesses has resulted in hiring competent executives to advise and assist, they still run on the will of the founder or his appointed successor.
To avert a crisis like climate change, forward-thinking and long-term planning is required, for which the value of committed visionary leadership cannot be underestimated. As family conglomerates are organised around visionaries, if they sincerely act on the climate crisis, they can change the trajectory of their own business and that of the sector rapidly. To some extent, they already are doing so.
Mukesh Ambani has recently announced that Reliance Industries would become a net zero-carbon company by 2035. RIL is planning multi-billion dollar investments in hydrogen, wind, solar, fuel cells, and battery to become one of the world’s top “new energy” companies. Tata’s have also strongly signalled that they are moving out of the coal sector and moving into renewable energy, electric vehicles, and hydrogen-based steel making. Similarly, Mahindra has committed to aligning its operations with the science-based targets in the Paris Agreement, and Adani is investing hugely in the solar business to become the “world’s largest” green energy enterprise.
While these announcements and investments are encouraging, it is also a fact that many of these conglomerates continue to invest in fossil fuels. For example, during the recent auction of coal mines, Vedanta, Aditya Birla, Jindal, and Adani made acquisitions of coal assets, despite announcing ambitious renewable energy targets.
This seeming contradiction fits in with another well-known characteristic of Indian family conglomerates – they operate within a broad vision but have mostly grown opportunistically in areas where government incentives to expand are available. Therefore, even though they are bullish on a low-carbon future, much work needs to be done to move these family conglomerates from merely being followers of government policies to proactive climate champions. This can be a virtuous cycle – these conglomerates have a strong influence on government policy; if they are brought on board, a stronger climate policy is likely to follow.
Given their financial prowess and policy influence, the commitment of these families will be critical for accelerating the transformative changes that climate change requires. Cultivating their next generation to champion climate actions could be an important strategy to move them towards a green future. The business case will be an important part of the engagement, but not the only argument. These industry captains will have to be convinced of the new reality – our children are inheriting a dangerously climate-risked world. Family wealth will not provide infinite protection, but if used wisely, it can certainly contribute to making the world safer for everyone.