The manufacturing sector is known to be one of the most polluting sectors among all industries. Sustainability Outlook spoke to Nitin Kalothia, Associate Director, Manufacturing and Process Consulting at Frost & Sullivan about his experiences with regard to the uptake of sustainability initiatives in the manufacturing sector.
We have seen a huge upsurge in the talks relating to sustainable practices in the recent past. Do you think the manufacturing industry is picking up on the conversation as well? What are the drivers for the business case for investments in sustainability interventions?
The sustainability trend in the manufacturing sector is positive and is picking up. However, the rate at which the conversation is picking up is very slow. Very few companies in our country are truly working in this sphere that too only large scale enterprises. There is almost negligible effort being made by the small and medium enterprises in this space. This trend is applicable to service as well as the manufacturing sectors.
The positive thing that can be said is that people are getting inquisitive to know what sustainability is about and how this can be leveraged into a beneficial competitive business tool. I would like to add, that currently majority of the companies in our country are still grappling with this concept, trying to figure out what it means, if it is applicable to their sector and debating whether or not they should go for it.
The biggest reason why the conversation around sustainability is not mainstreamed is because unlike many developed countries, there are no big drivers that have come from the top – either from the customer , the government or the regulatory body to propel industries into the sphere. On the other hand, India has never waited for government regulations to intervene to take on initiatives that can bring them business benefits, which has been known to be a unique Indian trend. One can only conclude that the biggest barrier is the lack of awareness. It is only now that industries are beginning to understand the concept and figuring out its applicability. If people would have known about it earlier and realized the great business benefits of it, they would not have waited for government regulations to implement these concepts.
Which are the sectors in manufacturing which are most impacted by resource constraints?
Increasingly, sectors which are most heavily dependent on natural resources and are energy intensive are the ones making a sincere effort towards reducing their risks related to non-availability of resources and increasing prices of fuel. For example, the plant utilization of potash based fertilizer manufacturers is only about 60-70 percent at times because of non-availability of key raw materials. Rock phosphate, which is one of the key input materials, is scarce throughout the globe. That is one sector which is already paying the price of severe resource constraints on their business. There is a lot of work that is happening in the cement industry and metal companies as well because of diminishing natural resources.
What are the major challenges to sustainability imperatives in the manufacturing industry?
One of the biggest reasons why companies are not investing as much in green initiatives is because, the prospects of return on such investments is very long. In manufacturing where many companies work with small profit margins, constraints come from the investment perspective.
What are some of the progressive initiatives in the recent past that have propelled sustainability in the manufacturing industry?
The Clean Development Mechanism definitely started the conversation about making an incentivized business case for sustainability. Thereafter the PAT scheme was introduced, which through the tradable e-cert mechanism is expected to propel process based plants to look at energy efficiency and the green aspects in the industry.
The next major initiative is the SEBI guidelines mandate for the top 100 companies to report on Environmental, Social and Corporate Governance (ESG) criteria. There is also talk that in the next 5-7 years this might become mandatory for all companies. People have started preparing themselves for such a scenario and this has helped bring sustainability and sustainability reporting to the forefront.
What are some of the policy changes that the industry expects from the government to help aid sustainable practices in manufacturing?
Indian manufacturers have never looked at the government to lead the way. So even if one keeps the implementation side of it apart, I would still say the Government coming up with different laws, or stricter regulations will not really translate into the change of mind-set in Indian manufacturers. When the manufacturing sector itself is made aware of the business opportunity which lies in this, the sector will take up the cause.
However, one place where government intervention is absolutely needed is in the SME sector. Large enterprises are not constrained with respect to investments that they can make or the initial money required for funding projects. The challenge is for SMEs to come up with the money to fund green projects. So if the government can intervene in this sector, by either making available the initial funding required for such projects or can come up with shared resources for this sector, it will go a long way in making SMEs a part of the sustainability conversation.
Given your role as a trusted Industry partner, what kind of help is the Industry seeking from you in context of sustainability mandates they may have set for themselves?
There are two distinct needs of the companies who come to us today. There is a set of companies who seek support in becoming compliant with sustainability guidelines as it is the customer’s requirement or would require assistance in publishing a sustainability report as they are expected to be reporting their sustainability performance. There is another set of companies, though smaller in numbers who come to us to understand the business case of sustainability and to integrate sustainability into their business framework. For these companies we develop a long term sustainability road map for 5-7 years and help them in its deployment.
The SME sector has other important focus areas and is still to understand the term ‘sustainability’. The way in which the SME sector looks at sustainability has little to do with environmental issues, resource conservation or energy efficiency. With small businesses, the fundamental challenge is to meet basic regulatory requirements – with respect to pollution control board requirements or labor regulations, minimum wages, etc.
Sustainability as a competitive business tool is at the margins of the conversation. Truth be told, even if one were to showcase the profitability of sustainable initiatives to a small business or an SME the biggest hurdle is to just not be compelled to shut shop for non-compliance. Their biggest preoccupation is not getting shut by say, the pollution control for flouting emission norms, or ineffective treatment of effluent water, or for any non-compliance of mandates from a regulatory body. The above being the biggest challenges – saving some electricity is not even their concern as they fight to just keep up their operations. I think the time has still not come to highlight the role of SMEs in sustainability; maybe in 5-7 years the sector will be mature and stable enough to partake in the conversation.
Even if one looks at large and medium enterprises in the country, I wouldn’t be wrong in estimating that only about 10 percent of the companies in this sector are working on sustainability in a structured manner today. The focus should thus be on these companies, which have the resources to tackle the problem and which have the biggest environmental impact. SMEs have a much smaller contribution to the footprint, on the other hand.
This interview was conducted by Anindita Chakraborty, a member of the Sustainability Outlook team.
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