Towards sustainable growth

Energy efficiency initiatives can succeed only when the suppliers and users of goods and services see benefits of the necessary investments and believe it can make a positive change in their living standards

The competitive pressure and regulatory requirements that compel global companies to think and act more sustainably are increasing every year. What is helping drive this new reality is the need to balance the world’s limited energy resources with the growing demand for energy from increasingly urbanised populations. This is especially true in high-growth economies like China, India and Brazil. As per Gartner, India’s spending on green IT and sustainability initiatives will double from $35 billion in 2010 to $70 billion in 2015.

Whereas companies have historically approached sustainability with an eye to compliance, there is an agreement among global executives that taking a more proactive approach towards sustainability and policy management will play an important role in their business strategy over the next several years.

A recent Economist Intelligence Unit survey of global C-level executives showed nearly 80 per cent of executives believe energy efficiency will be more important to their business in five years. Also, 61 per cent of non C-level execs said their organisation does not do enough to integrate energy efficiency into its strategy. And in a surprising find, the survey showed that just a minority (22 per cent) of executives believe that regulation is a burden to their business. Rather, their perception is that regulation can actually create a level playing field across geographies and help develop new markets.

How and why has this perception changed? During the last several years, there has been a migration from what was once perceived as onerous compliance-based policies that required manufacturers to add cost to their infrastructure to meet regulatory requirements. Policymakers have shifted their focus to develop more progressive regulations that help the private sector create new solutions for other businesses and consumers. Most global companies now realise that sustainable policy development doesn’t have to come at a cost to business. Rather, policy can actually create opportunity. Driving increasing standards through responsible policy and increasing incentives for energy efficiency investments benefits everyone. Governments win by delivering on their primary development objectives, end-users have new technologies to make investments, and businesses can find new growth markets in which to offer technology and improve operational performance — it’s a winning scenario.

Different approaches can bring success:

In some regions, the expectation that government needs to be the sole funding mechanism for energy efficiency initiatives has changed. The private sector is eyeing this as a cash cow in the long run. In these cases, all that is needed are targets that increase minimum standards and more focused incentives for end users that help accelerate the return for their investments. It’s a very focused and leveraged approach in the scope of traditional government policy with the vast majority of innovation investment coming from the private sector.

Other regions have taken a more central approach. In China, there are significant initiatives from the central government to drive energy efficiency and reduce water usage. They invest in clean water programmes for their populations and are becoming environmentally conscious.

Both approaches have their merits and demerits but the ultimate success comes when the supplier of goods and services sees benefits in making the necessary investments and the user of such goods and services believes that it is making a positive change to his living standards. Why Buildings? Without a doubt, the biggest opportunity to address energy usage and mitigate the associated green house gasses (GHG) is in commercial and residential buildings. Globally, buildings account for 1/3 of world energy use, and the resulting green house gas emissions are expected to double by 2030.

Raising standards and creating more efficient buildings bring greater productivity for business and greater comfort and safety for their employees.

In India, we need to learn from what has been built already, and ensure that in these markets new construction is not allowed to be built around a very low hurdle of standards. Instead, if we can drive up the minimum standards for building codes today, we can ensure that the buildings two decades from now will be meeting a high level of efficiency, so that we do not have to make huge re-investments down the road. In more mature markets, like North America and Europe, the vast majority of energy is consumed by existing buildings. Here, a smart policy should focus on standards and incentives that encourage efficiency in existing buildings to help encourage investments that can deliver an order of magnitude in ROI for building owners.

Government’s unique role: While regions and governments may differ in their approach to energy efficiency, there are three common areas where they are uniquely positioned to impact these issues.

First, policymakers have an important role to play in addressing the minimum standards that will prevent people from building inferior buildings. These can include efficiency levels, building envelope requirements, and efficiency standards for building equipment.

Next, governments have the unique ability to provide financial incentives. While many energy efficiency programmes have decent returns over the lifecycle of the building, providing focused incentives can help shorten the period to capture returns.

Finally, policymakers can drive collaboration between the public and private sector in creating awareness of these programmes so that the building community — the consultants, the construction professionals and building owners — are aware of the benefits of energy efficiency investments.

Awareness of the incremental benefits in energy efficiency programmes that go beyond financial returns, such as lower GHG emissions, greater safety, and cleaner environments have higher credibility if they are also shared messages from the government.

Best practices: While awareness of green IT and sustainability issues is very low in Indian organisations, the increasing global focus on energy efficiency, energy security, green IT and sustainability issues is now causing the executive leadership in the technology sector to track, report and manage sustainable and resource-efficient business practices.

Companies need to identify the unique objectives of the governing body in their specific regions and ensure their business objectives are aligned with those of the government.

Specifically for India, it is imperative that the industrial, academic, the NGO sectors and government come together.

Ingersoll Rand has been promoting the concept of “innovation convergence” across organisations and technologies in India. With the unique skill sets India has in the area of information technology, it is time that as a nation we bring to fore technologies on a common platform and converge them to drive profitable sustainability practices. These could be in the area of energy management, material science, solar energies and other applicable areas which, when converged together, can deliver substantial benefits to society.

Targets that are laid out by the government currently do not stipulate the methods in which they have to be met. It becomes the joint responsibility of theses partners to leverage capabilities together and drive comprehensive execution plans which in turn will create a cleaner and a sustainable environment for the future generations. These practices can be made financially viable without the loss of intellectual property of the participating bodies and yet have a positive impact on the large unserved society.

It is estimated that India needs to invest over $50 billion by 2020 to meet its renewable energy targets. Experience shows us that as a nation we do not tend to combine technologies, but prefer to build multiple independent approaches. Even though India’s per capita green house gas emissions is considered lower compared to the rest of the world (approximately one twentieth of the US and one fourth of China), it is expected that this would rise three fold by 2020. Every dollar invested in energy efficient technologies will provide a return of $2.5 and also help in substantial reduction of carbon dioxide emissions.

If the approach of ‘convergence’ begins to take root, India could well become the leader in minimising investments and exporting low-cost sustainable technologies, which could also provide support to the rest of the world.

 

Venkatesh Valluri
Chairman and President, Ingersoll Rand India