For now, all steel plants focused on reducing greenhouse gases: Chatterjee

Interview with Koushik Chatterjee, Group Executive Director, Tata Steel

As a growing number of investors demand more information on how companies are addressing the effects of climate change, Tata Steel has taken a pledge to lower the carbon footprint. In an interaction with Ishita Ayan Dutt, Tata Steel group executive director (finance, corporate, and Europe) Koushik Chatterjee, who is the only representative from India on the board of the Task Force on Climate-related Financial Disclosures (TCFD), says the banking system in India will have to set standards in line with the agreement signed by the Indian government on climate change. He also discusses the goals set by Tata Steel and the new technology HIsarna, which is right now in pilot stage. Edited excerpts:

What are Tata Steel's short-, medium- and long-term strategies to reduce carbon footprint?

We not only report on financial outcomes but also other seven capitals — natural capital, manufactured capital, social capital, financial capital, human capital, intellectual capital and relationship capital. We have carbon-pricing mechanism, so for every new investment that we do, we measure the carbon impact of that investment. 

First of all, we do a baselining, from that base line we look at whether it is increasing the base line or it is helping to reduce the baseline. Obviously, Tata Steel's sustainability principles are also embedded in the new product development process because our focus is to ensure that we have products which lower greenhouse gas emissions. 

We are looking to work on switching to renewables to the extent possible. All our investments are benchmarked on carbon footprint and carbon pricing. There is a penalty, if there is any project which increases the carbon footprint and there is a premium or reward on the financials if it reduces the carbon footprint. There is a lot to do as an industry. As a company, we are also investing in technologies which actually look at steelmaking — replacing steam and electricity. 

This is something which is going to be the future because one of our breakthrough R&Ds, which we are working on at Ijmuiden (the Netherlands) to produce steel from lower-grade raw materials without the need of coke-making or the agglomeration process. This would significantly reduce the carbon footprint in the future. We are currently operating on a pilot basis and working to see how it can be scaled up. 

What kind of cost benefits does the new technology have? 

If we are producing steel from lower-grade raw materials, it will help in lowering your raw-material cost. For example, if we are today working with an iron content of 62-65 per cent and if you can work with an iron content of say 40-45 per cent, it reduces cost significantly because you are working with an inferior-grade iron ore. Similarly, if you are working without the need for coke-making or you don't have to do agglomeration processes, there are ways in which it can be certainly have both capex benefit, opex benefit and benefit on carbon footprint. We have been working for the last maybe five-six years. Now it has got on to a real pilot plant. 

But this is a different technology?

This is the HIsarna project. When we look at incremental volume in the future, when we find the answers to scalability, we will look at it. So, for now, existing plants across Tata Steel Group are focused on reducing greenhouse gases, reducing water, reducing energy intake, being more efficient both in work practices and adoption of technology, etc. When Tata Steel finds the answer to the scaling-up issue of HIsarna, then we will be looking at new capacity which can come through that route. So that is a completely new paradigm. 

What is the level of awareness in India on the importance of climate change and its impact on business? There is no other Indian company in TCFD. 

As far as the TCFD is concerned, I was the only Indian on the task force but that does not take away the importance of the subject. End of the day, the country has signed for compliance with the Paris agreement. 

I think there are Indian companies that are conscious of this. I have seen some of them having disclosures and planning and deployments which are focused on reducing carbon footprint and water intake and natural resources. We need to have more and more communication and this is not to just top 30 or 50 or 100 companies. 

It is to companies and organisations across all sizes. And I think it is important to extend the communication to provider of capital like banks, mutual funds, and the domestic investors even the retail investors. We need to start distinguishing between companies which care for the climate and companies which don't and also in relation to compliance to the 2030 target that as a country we have signed up to.

Are the banking and insurance sector already sensitized to this? 

If I look at the multilateral funding companies like IFC etc., or similar kind of agencies, they actually can ensure that before they put any capital. They have an environmental impact study conducted. I think, it is the time the banking sector also moves towards this standard. It is important for all banks, whether it is through the government or the RBI, to actually focus on setting standards, providing capital which will be in conformance to the Government of India's commitment on climate change. 

What does supporting the TCFD recommendations really mean?

Forget TCFD. From a climate change perspective, I think this has become possibly one of the most significant and yet most misunderstood risks that organizations have, in terms of climate change. While it is widely recognized that continued emission of greenhouse gas (GHG) what we call, will cause further warming of the planet, and this warming could lead to damaging economic and social consequences, the exact timing and severity of these physical effects are difficult to estimate. The large scale and long-term nature of the problems make it quite unique, especially in the context of economic decision-making for businesses. Many organizations incorrectly perceive the implications of the climate change to be long-term. The potential impact of climate change on organizations are however not only physical and they will not only manifest in the long term. Global insurance companies will tell you that the impact of climate change is happening as of today. 

The providers of capital need to know how the users of capital are deploying that capital and how this deployment is going to impact the climate equation for the company, for the sector and for the region and for the world. 

You build a steel plant for 25-30 years, you don't build a steel plant for 5 years. Now the providers of capital are also therefore aligned to funding for a project like this for a 25-30 year period. 2030 is when this transition will happen. The effect of the Paris climate agreement will get significantly implemented between 2025 and 2030.