Heatwave, Flood & Water Stress: India Inc’s Tryst with Extreme Weather Patterns

Corporates are already impacted by the changes on the ground — and it’s a rapidly evolving situation.

Especially in the last two years, we have seen unprecedented heat, abnormally high night temperatures, associated water scarcity, and the impact on crop yields — and it’s only going to get worse.

There are simultaneous problems — the rising heat causes water scarcity in some places; and there’s heavy rain and flooding at other times in the year.

This Founding Fuel Masterclass was organised in partnership with Climate Trends, a research-based consulting and capacity building initiative that aims to bring greater focus on issues of environment, climate change and sustainable development.

The panel

• Professor Runa Sarkar, Economist and Faculty at IIM, Calcutta 

• S Sivakumar, Group Head, Agri and IT Businesses, ITC 

• PS Narayan, Global Head of Sustainability, Wipro

The masterclass was co-hosted by Indrajit Gupta, co-founder, Founding Fuel, and Archana Chaudhary, associate director, Climate Trends.  

We invited three esteemed members from our community to reflect on the masterclass. We’re sharing their 2-5 minute audiograms here, followed by a 10-minute summary of the Masterclass. You can also watch the full session (the video at the top of this piece).

Deven Pabaru: “We are way past the stage of “awareness”… our business continuity protocols will not work… the reset is essential; the business model has to be revalidated in the current context.”

Vineet Taneja: "Even big company executives admit that they are still puzzling over the situation rather than powering ahead with solutions. I can only imagine what SMEs, which form the bulk of the Indian economy, must be going through... [we] need the most creative minds and most resourceful organisations to disrupt to protect the climate." 

Kavya Singhal: "How actual businesses are getting impacted at this very moment insinuates the need to act now."

10-minute Summary

How do we prepare for what is coming?

Prof Sarkar: 

• The good news: businesses are aware of the threat of extreme weather events. 

• The bad news: most firms are still using tools and data from a different decade to address this risk.

• We (academia, think tanks, consultants, policy makers) don’t yet have a ready toolkit to offer firms.

• Using the existing business continuity and emergency management plans to assess and manage climate risks, whose proportions have changed completely, will not work.

How does it impact business?

Sivakumar 

• Financial losses from the damages to physical assets and disruption to supply chains.

• Impact on health and safety of people — which impacts productivity and livelihood

• Impact on agricultural productivity, which means shortages, inflation, and implications for food security.

• Impact on the natural capital and biodiversity, which means natural resources like water will deplete much faster.

• Capital will be diverted to climate resilient businesses

Narayan

• Climate change has come into public consciousness and on companies’ radar only in the last about two decades

• It is not easy for businesses to wrap their head around what is happening and what is likely to happen.

  • You need to assess climate risks without fully knowing the contours of the problem and take decisions

• The concept of double materiality applies: How am I impacting this problem? And how am I being impacted? 

  • There is asymmetry: For example, reducing carbon footprint — companies might be lulled into thinking they are doing a lot, but its cascading effect may not be commensurate.

Is this a reset moment for Indian businesses? 

Prof Runa

• Businesses are facing the reality here and now — you are not facing what could be in the long term.

  • A recent IPCC report says, unless countries step up their efforts to cut greenhouse gas emissions, the planet will be on average 2.5 to 3.5 degrees C warmer by the end of the century.

  • Between 1970 and 2019, the number of annual extreme weather events increased 5X. 

  • India is among the most vulnerable countries because of our size, lack of resilience and because of where we are located.

  • We may account for 34 million of the 80 million global job losses by 2030, according to World Bank

  • In 2019, we lost about $69 billion due to climate related events, which is close to the loss over the previous decade, from 1998 to 2017 — what we lost in a decade, we are losing in a year.

  • Floods affected 14 states in 2019, displacing 1.8 million people, and causing over 1,800 deaths.

  • 12 million people were affected by intense rainfall in the 2019 monsoons and economic loss was $10 billion

  • We are looking at temperatures increasing on an average by over 1.9 degrees — and the probability of drought, extreme rainfall, cloudbursts go up. 

• The macroeconomic impacts: 

  • Shortages and fall in consumption

  • Increased risks of flooding of residential property

  • Investments would fall because you wouldn't know what is the right place to invest in 

  • Labour shortages. With extreme heat, people will not work on-site

  • Drastic damages to physical assets

  • Technology growth and innovation will divert away from things that improve to things that mitigate damage.

• What will be at risk:

  • Business continuity

  • Cash flows

  • People’s health (physical health, climate anxiety, mental health)

  • Productivity

  • Ability to innovate

  • Availability of capital

• The industries that will be affected the most: Agriculture, construction (because of the outdoor work involved), tourism, utilities (water & electricity supply)

• What could be done?

  • At least the larger companies are looking at it from the reputation and branding angle as well. 

  • What we are not looking at in enough detail yet is the damage to infrastructure and physical assets.

• What are we doing right?

  • On the right track with respect to decarbonising within the firm and across the supply chain; need to persist and do more

  • But this is about mitigation and is not enough — its impact on overall climate events is a couple of decades away at least

  • The IMD is giving us better and better forecast 

  • We are using AI for better predictions or better understanding of supply chains

  • Creating the right kind of insurances (relief kicks in when a certain parameter is breached — rainfall, heat, humidity, etc). But these are short-term measures

• What are we not doing as companies?

  • Not investing enough in resilience

  • Need to decentralise and bring in large amounts of redundancy in the system, especially in energy generation

  • Need focus on advanced forecasting, especially for energy generation

• The IMF estimated that 

  • Between 1995 and 2006, cyclones destroyed 2.2% of firms' fixed assets and sales dropped by 3.1% on average in India.

  • A lot of this rebounded within six months. But firms started investing in better industries, which meant, in some industries, investments fell. 

  • This is with respect to large firms — a large part of Indian Industry is not in this session right now.

• Why is a reset essential?

  • it's not about addressing risks the way the risk management committee of a board does. It's about gaining visibility till the end of my supply chain. And also realising that it's not just my supply chain; I have to look at the associated events, and work around it.

  • India is a country where we can have drought and floods at the same time. The more geographically dispersed I am, I don't get the information about the extent extreme weather damage is affecting me. 

• Industry bodies need to look sectorally at different industries and create vulnerability indices for each of them. That will help us understand the kind of capital expenditures needed to make physical assets resilient.

  • Often relocation is not an option, because it's not just one region that is vulnerable. 

  • The financial outlays will be high, but it could lead to future benefits, which otherwise would be costs because of extreme weather events. 

  • Doing that cost benefit analysis for risk assessment is very important. It ensures that you have a way of addressing extreme weather damage.

• For insurance to work as a business model there needs to be risk prediction and there needs to be an upside to business and a downside to business. Every industry is different and their vulnerabilities are different. It has to be done sectorally.

What is specifically the business impact of extreme weather?

And businesses alone can’t pull this off — they need to work with academia, government, regulators

Sivakumar

• On ITC’s establishments (factories, hotels and large office complexes — nearly 500 around the country)

  • They are in zones that are flood prone or water scarce or both in different parts of the year

  • The resilience building started in the mid 1990s. If we hadn’t started back then, many of these factories would have been shut for several days a month.

• On the agricultural value chain, because much of it is open to the sky, there is continued impact.

  • Example, the rain in March, just before wheat or potato is harvested, impacted yields in 2023 and 2024.

Narayan

• Hospitality and healthcare is different in its characteristics, and therefore in its response, from IT services or ecommerce.

• IT Services in Wipro’s case is largely urban-centric.

• We did a granular risk mapping 5-6 years back.

• If I have to understand risk at the city level or a ward level, we don’t have a template to guide us.

• The changes in climate patterns are unpredictable — some micro-geographies are affected much more than others. You have to marry whatever is the state-of-the-art in climate risk assessment with a whole host of open parameters to understand how your location is affected — we are not there yet in terms of a systemic understanding.

• Remote work assumes that the digital infrastructure works reliably. And even that cannot be taken for granted.

  • In 2022 the cloud infrastructure in London had to shut down because of the heatwave in Europe.

• Other services industries like hospitality or health care, where physical presence is required, are affected by intense heat or a flooding event — that leads to lost business and lost revenues.

• The larger companies are doing a lot of things

  • Wipro is 75% renewable energy, and absolute energy consumption has halved in the last 10 years.

  • IT services companies have a whole portfolio of sustainability solutions that they can offer to customers

  • Automobile companies, while improving their efficiency and reducing the carbon footprint of the factory, can also help the customers reduce their own footprint through electric mobility

• The playbook for larger businesses looks good

• Key question is whether it adds up to climate mitigation at a larger level — it doesn’t look so now. 

The government’s thinking 

R R Rashmi (former senior bureaucrat in the finance ministry, who helped India shape its negotiations for the Paris Agreement)

• The transition risks are being addressed by many corporates. It's the physical risks of climate that are not being addressed.

• They will have to account for the damages caused to natural resources. 

• We need a regulatory system for a formal structured assessment of the physical risks to which they are exposed, and they need to account for this not simply in financial terms, but in the natural resource accounting terms.

• So far we are guided by the National Action Plan on climate change, which has five missions on adaptation and resilience. 

  • Three of them are focused on energy systems, energy transition, and those are doing very well. 

  • But the aim was to enable state governments, communities and various stakeholders to improve their climate resilience — they have not progressed much. They are in the field of agriculture, transport, the Himalayan ecosystem, forests and biodiversity, and finance.

• Nobody pays for the natural damages, nor does one take this into account in product profiling or financial accruals.

  • There is a need to create incentives or a regulatory push towards these areas.

  • One possible way is to create a system in which we pay the communities for the ecosystem restoration and the ecosystem benefits they generate. And the corporates can take part in that.

  • The government doesn't have enough resources for this kind of effort. We need to create a financial ecosystem, where businesses pay for the natural benefit or ecosystem benefits, which the communities generate.

ITC’s new playbook on agri

Sivakumar

There are three parts to it

• What guides the research and development: 

  • Across the world, many agencies worked on underlying decadal forecast models. We use AI to use those decadal models for microzones — the somewhat homogenous micro agri climatic zones — to forecast weather events for 20 - 30 - 40 - 50 years and map their impact to the different stages of the crops.

  • That forecast is used to guide the research on how we should be breeding seed varieties. 

• What guides the onground practices by farmers: 

  • Use the short-term forecast — what’s going to happen this season — and draw from the agronomy toolkit and disseminate to the farmers.

  • The ITCMAARS super app is used for this.

  • It is not just communicating what needs to be done, but why it makes sense and what are the trade-offs in productivity, quality, etc.

• Some no-regret practices to build resilience

  • Micro irrigation, zero till practice, mulching for water conservation, cover crops, etc.

• Where these practices have been disseminated, we see the impact on yield and quality. A lot more of this has to happen.

Insurance’s role 

Prof Sarkar

• Insurance is the the go-to measure for risk management for a firm

• But for firms to think that insurance is a way of mitigating the risks would be very short sighted.  

  • After the Los Angeles wildfires, insurance companies do not offer home insurance to people in the regions prone to wildfires.

  • For businesses too, eventually the insurance company will say, I cannot insure you from damage from a cyclone.

• For the long term, industry as a whole needs to be more resilient, so the damage is limited and those limited payouts can be made by insurance.

• Insurance firms, industries and regulators need to work together to keep those mechanisms ticking.

Impact on integrated logistics industry

Deven Pabaru (Chief Business Officer, Stellar CVS - CEVA Logistics) 

• We run large logistics parks across 80 locations in India 

• Incidence 1: On 14 June, the newspaper reported a heatwave more than double the normal. Half an hour later I got a panic call from Chandigarh. The temperature stress had got to the very valuable cargo in the temperature-controlled facility that had been designed just last year. 

  • Approximately Rs 8-10 crore was at risk.

  • The forecasted cooling capacity was not enough to handle the sustained 20 days of such high temperatures.

  • My project team flew-in in 4 hours and started building extra capacity. We were told there would be more such heatwave days in the near future.

  • Luckily we had the equipment and money to double the cooling capacity within 4 days.

• My customer obviously holds me accountable — a new kind of risk and accounting will have to be budgeted.

• Incidence 2: There was an orange alert in Bhiwandi, the distribution centre 30 km outside Mumbai. It has 6 rivers and 2 of them have dams. If it rains in all the locations at the same time, the dam gates have to be opened. The entire Bhiwandi area gets flooded and millions of rupees of inventory is exposed.

  • We have 12 metre high buildings. And we have learnt not to keep anything in the first 2 levels.

  • That means overnight 20-30% of storage capacity has to be created. I get 2-4 hours to respond before the dam gates are opened. And this is getting more frequent.

How can startups respond?

Vinit Taneja (Corporate Advisor & C Suite Executive, Nokia, Airtel, Dyson & Micromax, Climate enthusiast)

• As incomes rise, technology becomes affordable. With weather changes, there’s a dilemma of lifestyle versus lives.

• This can be seen in the air conditioning category.

  • Till 2030, 30% of new AC equipment in the world will be installed in India.

  • Industry continues to sell low energy-efficient ACs.

  • An interesting Mumbai-based company wants to provide 5-star ACs as a service — the main proposition is energy efficiency.

• The other dilemma is, as high as 0.5 degrees out of the 2.5 degrees that Prof Sarkar talked about, could be coming from just cooling equipment across the world.

• Without fundamental disruptions in the way we do things, we won’t get to solutions.

• Big companies are looking at it from a risk point of view; startups are looking at it from an opportunity point of view.

The effect on people

Satish Pradhan (Former head of HR, Tata group, and environmentalist)

• We’ve been saying this for 40 years. We need to put more sharpness behind that.

• We continue to look at businesses as balance sheets. We need to think of businesses differently. 

• On environmental degradation, the fiscal movements on balance sheets are not changing anything substantive. Our development is costing us hectares of green cover and forests.

• One metric that urban economists consider a great achievement — the nighttime lighting up of the subcontinent — is telling us how much green cover we have lost.

• We are making progress on green energy, but our fossil fuel energy consumption is still growing at an unbelievable pace.

• The Factories Act’s guidance was that the ambient temperature in a workplace like a factory should be at about 25 degrees. Today, that’s the lowest temperature my AC is allowed to be at.

• Today the heatwave grid reaches 48-49-50 degrees. This is the environment in which workers and their families are going to live. 

• You can build back damaged assets. For the planet it’s a survival question. Any acceptance of human price is a crime.

What was new and different for the panellists

Sivakumar: 

• From the noise of activism we need to move to a call for action:

• At an enterprise level, to integrate climate risk management into strategy and decision making. It's not an independent piece. 

• As an industry collective, for all large-scale conservation restoration projects, the scale can really be meaningful when it is collective. 

• Together with policymakers create climate risk-centric institutions.

• And action at an individual level.

Narayan

• It calls for a mindset shift — which is a different ballgame at a collective level.

• Businesses understand the lexicon of money. How do you bring these externalities into that lexicon? 

  • Some companies, including Wipro, have been publishing something called the environmental profit and loss statement for the last seven to eight years, which puts a value to our negative impacts, including second order impacts on people.

  • Our environmental impact adds up to 12% of our profits, and about 3% of our revenues. And that is because it's a services industry. For other industries, extractive industries, it is as high as 80 to 90%.

  • Which means that if companies do have to pay for ecosystem services, then a very significant part of the reason why they exist, will be wiped out.

Prof Sarkar

• Recognising that today we are talking about how India Inc is dealing with the cost they would bear. That cost is minuscule compared to the cost that the voiceless are bearing.

• Hugh Heclo spoke about a powering and puzzling approach to complex problems that affect multiple stakeholders

  • the puzzling part of it is having deliberations across disparate channels to figure out how we could get an appropriate response 

  • The powering part of it is allowing the puzzling to happen, getting inputs from the puzzling and actually building it into policy solutions and implementing it. 

• Today was about puzzling. I do hope the powering will take over.