K C Chakrabarty: Environmental and social sustainability - key issues
and concerns
Address by Dr K C Chakrabarty, Deputy Governor of the Reserve Bank of India, at the Yes
Bank-GIZ-UNEP Sustainability Series event on "Environment and social risk management",
Mumbai, 23 April 2013.
* * *
Assistance provided by Ms. Sangita Misra and Shri Anoop K. Suresh in preparation of this address is gratefully
acknowledged.
1. Mr. Robert Tacon, Tutor, United Nations Environment Programme- Financial
Initiative (UNEP FI); Ms. Stefanie Bauer, Advisor, Private Sector Development, GIZ;
Mr. Pralay Mondal, Senior Group President - Retail & Business Banking, Yes Bank;
Mr. Mengqi Cai, Programme Officer, Asia Pacific Task Force, UNEP FI; delegates to the
event; members of the print and electronic media; ladies and gentlemen. It is a pleasure to
be present here today to address this august gathering at this workshop on sustainability. I
am, indeed, glad to see different organizations with varied interests and areas of work
coming together to address the sustainability issue, a subject which is fast gaining
importance, not just in India, but also globally. Today, all stake holders - Government,
industry, business, banks and consumers - have increasingly started realizing that if India
and Indian businesses have to maintain a high growth momentum in the medium to long run,
they have to focus on various facets of sustainability and I am sure, this Conference will
serve to underscore this vital aspect. I, therefore, congratulate the UNEP, the GIZ and Yes
Bank for this creditable initiative.
A. Introduction
2. Let me start from the very definition. Sustainable development has been defined in
many ways, but the most frequently quoted definition is from Our Common Future, also
"Sustainable development is development that
known as the Brundtland Report (1987):
meets the needs of the present without compromising the ability of future generations to
meet their own needs."
3. There are different aspects to sustainability viz., environmental and social that we
need to understand. "Environment sustainability" refers to the need to preserve the ecology
and ecosystems for sustainable growth. There is no denying that any developmental process
that alters the composition of the global atmosphere and puts pressure on ecological and
socio-economic systems, that are already under stress due to population and economic
growth, is a threat to sustainability. Thus, sustainable development should try to maximize
growth while utilizing the limited available natural resources in an efficient and responsible
manner so as to ensure that they last long. The other aspect of sustainability is the "Social
sustainability" that entails that the development process promotes social cohesion and
reduces inequities. Any form of social exclusion breeds disharmony that leads to various
disruptions owing to which business suffers, growth suffers. Social sustainability focuses
both on "inter-generational equity" i.e., future generations should have the same or greater
access to social resources as the current generation, and "intra-generational equity" i.e.,
allowing equal access to social resources within the current generation. A balanced focus on
both these aspects is a hallmark of sustainable development.
4. The need for sustainable development has been gaining ground both internationally
and at the national level. The Framework for Strong, Sustainable and Balanced Growth is the
signature effort of the G20 that was launched in its Pittsburgh Summit (September 2009).
The United Nations, post Rio+20 summit held in June 2012, has endorsed the idea of
adopting Sustainable Development Goals (SDGs) in the post-2015 period, when the
Millennium Development Goals (MDGs) period of 2000-2015 would end. Leaders at the G20
last year also collaborated to form a Climate Finance Study Group to consider ways of
effectively mobilizing resources, taking into account the objectives, provisions, and principles
of the UN Framework Convention on Climate Change (UNFCCC). Currently, work is
underway to officially launch the public-private Dialogue Platform on Inclusive Green
Investments (DPIGI), particularly among developing countries.
5. At the national level, the Twelfth Five Year Plan for India has emphasized the need
for faster, more inclusive and sustainable growth for the period 2012-17 and accordingly,
has made this the theme of the 12th Plan document. Government's official publication "The
Economic Survey" has also introduced a chapter on Sustainable Development and Climate
Change since last year so as to focus on the developments in this area at home and abroad.
The Prime Minister, in a recent speech, has reiterated the need for economic development to
be environmentally sustainable. Against this backdrop, I would like to highlight various issues
and strategies linked to the two aspects of sustainability - environmental and social - in the
subsequent two sections.
B. Environmental sustainability
Sustainability and growth - The conflict and the balance
6. Let me begin by highlighting the need for sustainability in the context of the conflict
that exists between economic development and environment sustainability. Economic
progress improves our standard of living and makes our life more comfortable. On the other
hand, it is this very progress that can lead to degradation of the environment. Any increase in
national income would arise only from increased production of goods and services involving
greater consumption of resources such as land, forest, fuels, etc. whose supply is,
essentially, limited. While some of these resources may be renewable, others get depleted
and, ultimately, exhausted with continuous use. Any attempt to preserve the non-renewable
resources might require compromising on the growth rates.
7. The conflict between economic development and sustainability is, essentially, a
conflict between short and long run priorities, between the interests of current and future
generations. Large exploitation of natural resources today, while increasing the economic
growth for the current generations, would lead to gradual exhaustion and degradation of
these resources, thereby reducing their availability to our future generations and adversely
affecting their output, income and living standards. So, environmental degradation not only
affects us but also has repercussions for our future generations.
8. Ultimately, it boils down to maintaining a balance between economic growth and
preserving natural resources, which is an inevitable challenge. By maintaining this balance,
we can create a long term self-sustaining system. In this context, a recent committee set up
by the Government is developing a framework for "Green National Accounts" for India which
is based on the need to measure economic well-being on the basis of a comprehensive
definition of wealth that includes natural and human capital and not GDP alone1.
9. Globally, the need for sustainable development is being emphasized. Sustainable
development attempts to strike a balance between the demands of economic development
and the need for protection of our natural environment. The UN's Human Development
Report 2013, while appreciating the rise of the South (connoted by the developing countries)
in driving growth across the globe in the 21st century, has also pointed out that sustaining the
growth momentum requires policy focus on enhancing equity, managing the demographic
change and confronting environmental pressures.
Global cooperation and efforts
10. Environment sustainability has a global dimension. Since Greenhouse Gases (GHG)
emission in any country accelerates the process of global warming, this is obviously an area
where a solution involving global cooperation is needed. No country will have sufficient
incentive to contain its own emissions unless it is part of a global compact. Such a compact,
in turn, is possible only if there is a fair distribution of the burden. Developing countries have
consistently argued that since it is the industrialised countries that have historically
contributed the bulk of the accumulated stock of GHG, and are also the most able to pay,
they must bear the burden of global mitigation and adjustment.
11. A comparison of the carbon dioxide (in short, carbon) emissions across the
G20 countries shows that, in 2010, the top three carbon emitter countries were Australia,
USA, and Canada, with carbon emissions in per capita metric tonnes being 18.8, 18.1 and
16.3, respectively. Brazil, Indonesia and India remain at the bottom among the G20 countries
in terms of carbon emissions, with per capita contributions in 2010 being 2.3, 1.6 and
1.4 metric tonnes respectively, way below the developed countries. As per the Economic
Survey 2012-13, India's per capita carbon emissions in 2031 will be about 4 tonnes, which
will still be lower than the global per capita emission in 2005 of 4.22 tonnes and about 75 per
cent lower than the 2010 levels of the top three emitters.
12. Given this data, you would agree that imposing emission reduction commitments on
the emerging world at this stage at similar levels as that of advanced countries would be
highly unfair. Rather, a logical approach would be that countries which are more developed
and have caused greater emission as part of their development process should share a
greater responsibility in lowering emissions and the expectations from emerging and less
developed nations should be tempered so that they can attain higher growth, thereby
improving the quality of lives of the poor. This way, one would achieve balance among
countries so that there is equity of development.
13. As regards India, it remains fully committed to the global initiative to address
environmental issues. India is participating in the ongoing international negotiations under
the UNFCCC and has been part of 94 multilateral environmental agreements. In the recently
held Doha Conference (December 2012), India protected its interests fully and succeeded in
bringing the equity aspect firmly on the table. India has also voluntarily agreed to reduce the
carbon emission intensity of its GDP by 20-25 per cent over 2005 levels by 20202. India was
one of the early signatories of the Montreal Protocol on ozone depletion and, as of
1st January, 2010, has completely phased out the production and consumption of ozone
depleting substances such as chlorofluoro carbons (CFCs) once used in almost all
refrigerators and air conditioning systems3 and halons, which were used in fire extinguishers.
It remains on track towards complete phase-out of production and consumption of hydro
CFCs by 2030. Within the country, the Government is also consistently making
efforts/policies towards ensuring environmental sustainability. This includes policies like Joint
Forest Management, Green Rating for Integrated Habitat Assessment, Coastal Regulation
Zone, clean energy drive through eco labeling and energy efficiency labeling, fuel efficiency
standards, etc.
Reducing global wastage
14. An integral part of doing business in a sustainable way is to reduce waste and, in
the process, decrease operating costs and increase profits. As per estimates4, between 30 to
50 per cent (about 1.2-2 billion) tonnes of food produced around the world never reaches a
human stomach. While wastage in the sub-Saharan Africa and South-East Asian countries,
including India, tend to occur primarily at the farmer-producer end of the supply chain due to
inefficient harvesting, inadequate local transportation and poor storage infrastructure, in
developed countries such as the UK, produce is often wasted through retail and customer
behaviour. Surveys also show that in India, at least 40 per cent of all fruits and vegetables
are lost between grower and consumer due to lack of refrigerated transport, poor roads and
inclement weather. Wasting food means losing not only life-supporting nutrition but also
precious resources, including land, water and energy. About 550 bn cubic metres of water is
wasted globally in growing crops that never reach the consumer. Within India, water use
efficiency in agriculture, which consumes around 80 per cent of our water resources, is only
around 38 per cent, which compares poorly with 45 per cent in Malaysia and Morocco and
50-60 per cent in Israel, Japan, China and Taiwan.
15. Estimates suggest that about 90 per cent of India's waste is currently disposed off
by open dumping and landfilling. Presently, the country has more than 36,000 hazardous
waste generating industries, producing approximately 6 million tonnes of hazardous wastes
per annum. Around 50 per cent of this can be recycled, which is not being done. This leads
to hazardous materials getting disposed off into the environment and causing grave danger
to living beings. It is also estimated that approximately 55 million tonnes of Municipal Solid
Wastes are generated in urban areas of India annually, which otherwise could be a valuable
potential source for power generation for an energy deficient country.
16. In order to prevent wastages of this kind, governments and developmental agencies
should work together to help change people's mindset on waste and discourage wasteful
practices by food producers, supermarkets, industrial units and consumers. Incentives could
be provided to encourage adoption and implementation of such policies. The Union Budget
2013-14 has announced that cities and municipalities would be encouraged to take up
waste-to-energy projects in public- private partnership (PPP) mode. Such municipalities
implementing waste-to-energy projects will be supported through different instruments such
as viability gap funding, repayable grants and low cost capital.
Sustainable usage of natural resources
17. Apart from reducing waste, in order to ensure sustainable development, we also
need to use our natural resources judiciously and in an environment-friendly manner.
Particular attention is required to be paid to conservation of energy, given that any
development process is bound to be energy intensive. As rightly pointed out by the UN
Secretary General, Ban Ki-Moon, sustainable energy is the golden thread that links
economic growth, social equity and a healthier environment. With global economic
development, global energy demand is expected to double between now and 2050, energy
prices are projected to rise and remain volatile, making imports a costly proposition for India.
For a power deficient nation like India, need of the hour is to explore newer means,
particularly, more environment friendly and endogenous ones rather than depending solely
on coal and oil, where our dependence on imports is high. In this context, natural gas is a
good option where domestic potential is huge given our huge reserves. Our attempt should
be to further exploit the huge potential from this environment friendly source. India has also
shown commitment towards generation of 22,000 MW of solar energy by 2020. Several parts
of India are endowed with good solar radiation and deploying solar panels even on one
percent of the land area could result in over 500,000 MW of solar power. It has considerable
advantages for powering the rural areas for education, health and employment. No doubt, it
is expensive at this stage; however, with growing manufacturing capacity, short term viability
gap support from government, aggressive research and development and large scale
deployment, the cost is likely to come down.
18. Inefficiency in usage and theft are also daunting problems facing the power sector,
with the transmission and distribution losses amounting to about 22 per cent in 2011-12.
Apart from enhancing production, efficiency in usage by generating awareness about the
importance of these resources is also crucial. An appropriate pricing regime is also important
in this regard. A completely deregulated system of pricing for energy, whereby prices are
market-determined, would encourage people to take informed decisions, help tackle the
problem of suppressed inflation in the economy and finally, make other alternative forms of
renewable energy such as solar, tidal and bio-gas viable.
19. Government has, in recent times, taken steps towards appropriate pricing of
nonrenewable sources of energy and encouraging Clean and Green energy. Recognizing that
consumer pays a high price for renewable energy because of high cost of finance,
Government has set up a National Clean Energy Fund by imposing a cess on coal that will
provide funds to the Indian Renewable Energy Development Agency (IREDA) for on-lending
to viable renewable energy projects. The non-conventional wind energy sector has got
special incentives in the recent Union Budget 2013-14. India has recently signed the electric
vehicles initiative (EVI) of the Clean Energy Ministerial (CEM) that aims to facilitate the
deployment of 20 million electric vehicles globally by 2020. As you are aware, the
commercial manufacture of battery-operated vehicles has begun in India.
20. In addition to power, the Indian economy and society faces daunting challenges in
water as well. As per World Bank, at current rate, the 1.2 billion people in India will exhaust
their fresh water supplies by 2050. While demands of a rapidly developing economy are
huge, our potential for augmenting supply is getting limited. Water tables are falling. A recent
assessment by NASA showed that during 2002 to 2008, India lost about 109 cu.km. of water,
leading to a decline in water table to the extent of 0.33 metres per annum. Water quality
issues have increasingly come to the fore. We receive very good rains, yet our inadequate
storage and distribution facilities make water a scarce resource in India. Climate change
poses fresh challenges with its effect on the hydrologic cycle that might exacerbate impacts
of floods and droughts. Estimates suggest that about half of the demand for water will be
unmet by 2030. Given these challenges, it is important that we improve efficiency in water
usage. Initiatives aimed at recycling and reuse of water, better flood management and
ground water management is important. Transforming the Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) into a watershed restoration and groundwater
recharge programme, as envisaged in the 12th Plan, seems desirable. It could serve the dual
purpose of preserving water resources while simultaneously creating employment. Also,
appropriate pricing of both water and electricity, will help recharge the depleting aquifers.
Sustainable industrial/business practice
21. Industry being the catalyst of development, it needs to patronise the concept of
sustainability in its various processes. Sustainability is, now, seen as a key challenge as well
as an opportunity in business. In future, only companies that make sustainability a goal will
achieve competitive advantage. Early movers today can reap the benefits. That means
rethinking business models as well as products, technologies, and processes (Prahalad et al,
2009). Recognizing this, some of the large multinational corporations like Unilever,
CocaCola and Walmart have committed, though Consumer Goods Forum, to eliminate
deforestation from their supply chains. Microsoft has promised to go carbon-neutral by
2012-13. Markets have also started rewarding sustainable business5 that further adds to the
reputation of a company. Sustainable businesses require innovation in technology,
organisation and management (usually all three together). Many of the sustainability gains
would require more fundamental organisational shifts, and need to be led by the top-level
management.
22. Some of the common characteristics of green companies include: using natural gas
for boiler fuel, recycling biodegradable waste, minimum use of plastic material, using
recyclable packaging materials, using biomass and solar radiation as sources of renewable
energy, generating electricity from hydroelectric plants and reducing toxic emissions.
Besides, there are some simple ways to make an office environment-friendly and reducing
energy consumption by introducing efficient practices and generating consciousness among
the staff.
23. Obviously, there is a perception which is true to some extent that implementing
greener business technologies could have an impact on cost, risk and most importantly,
profitability. However, one needs to be innovative to find out ways of viability within
sustainability. In fact, sustainable practices can also keep the companies competitive.
Careful usage of the natural resources, reduction in wastes and exploring ways of minimizing
energy usage, saves cost and boosts profitability of the company. Some organizations
recycle and reuse their own waste to lower the cost of raw materials in manufacturing. Some
companies sell waste to other sustainable organizations for recycling and reuse and, in the
process, create a new stream of revenue. To give you an example of sustainable business,
in Ford Car Maker Company, the seat fabric is made from 100 per cent post-industrial
materials and renewable soy foam. Many companies choose to become greener by
neutralizing (or offsetting) their carbon emissions by buying carbon credits, which are used in
various projects, such as reforestation projects, and balance their emissions. There are now
many companies specializing in calculating and trading carbon credits and this is becoming a
very popular trend.
Sustainable agricultural practices
24. In India, with the average annual rate of growth of foodgrains production and
population being at 1.2 and 1.6 per cent, respectively, over the past decade, per capita
availability of foodgrains, has started declining. Yield levels are stagnating and are below our
counterpart emerging economies. With increasing income levels, there has been an increase
in demand for protein items, in which we are not self sufficient. Given that poor spend more
than 60 per cent of their income on food, any hike in food prices due to lower production
hurts the poor the most. In India, eight million people were kept in income poverty from the
increased food prices in 2010-11 (UN ESCAP estimates). The Right of all people to Food
was reaffirmed by various countries at the Rio+20 United Nations Conference on Sustainable
Development held in June 2012.
25. Recognizing the impact of demographic trends on food demand, food supply has to
keep pace. FAO estimates show that food production has to grow by 60-70 per cent to feed
the expected 9 billion people by 2050. However, any attempt to increase food production will
put pressure on the resources that it requires like land, water and energy. Several parts of
food system, like the production of nitrogen fertilizers, are highly energy intensive. Hence the
thrust of agricultural development in coming years has to be on sustainable agricultural
practices.
26. The National Agricultural Policy in India focuses on sustainable development of
agriculture by promoting technically sound and economically viable, environmentally non-
degrading and socially acceptable uses of the country's natural resources. Towards this end,
productivity enhancements are needed through higher investments in agriculture, greater
research in the area of regionally adapted varieties and hybrids, adoption of eco-friendly
integrated pest management technologies and use of manure and compost instead of
artificial fertilizers. With limited scope for increasing cultivable land in India, more dynamic
ideas for using arable land elsewhere, as being done by China and Japan, could also be
explored.
Green banking
27. You would agree that apart from industry and agriculture, banks as the financing
agent of the economic and developmental activities of the world, could also play a crucial
role in promoting overall sustainable development. It is in this respect that the concept of
green banking has emerged and is recognized as an important strategy to address
sustainable development concerns and creating awareness among people about
environmental responsibility. Green banking has two dimensions. First, the way the banking
business is being done - is it paperless or not. There is often a doubt that what big impact a
monthly paper statement can have. It could be enormous. Estimates for US suggest if every
household were able to switch to paperless bank billing, this would save an estimated
16,500,000 trees per year or about a 46,000 acre forest, 396,000 tonnes of CO2 a year,
495,000 tonnes of air pollution per year and gain almost 2,145,000 tonnes of oxygen per
year. There are several guidelines from the Reserve Bank on e-banking and banks are also
putting sincere efforts towards adopting paperless banking.
28. The second dimension of green banking relates to where the bank puts its money.
Green Banking entails banks to encourage environment friendly investments and give
lending priority to those industries which have already turned green or are trying to go green
and, thereby, help to restore the natural environment. There are no specific RBI
regulations/guidelines for banks on green banking. However, in its circular on Corporate
Social Responsibility, the Reserve Bank has advised banks to familiarise themselves with the
issue of Corporate Social Responsibility, a concept whereby companies integrate social and
environmental concerns in their business operations and in their interactions with their
stakeholders on a voluntary basis. They are also required to put in place a suitable and
appropriate plan of action towards helping the cause of sustainable development, with the
approval of their Boards. In this context, particular attention has been drawn in the circular to
the International Finance Corporation Principles on project finance and carbon trading.
Further, banks /financial institutions have been advised to keep themselves abreast of the
developments on an on-going basis and dovetail/modify their strategies/ plans, etc. in the
light of such developments. Albeit all this is voluntary on the part of the banks, the underlying
objective of the Reserve Bank is to sensitise banks on the issue so that they can help
contribute to this effort by playing a more meaningful role.
29. Let me emphasise that environmental viability is not very independent from commercial
viability. That is why some banks have begun considering environment viability along with
commercial viability while deciding on lending decisions. Reason being that if a debtor
company goes out of business due to environmental issues, the bank is exposed to credit,
legal and reputational risks that hinder the commercial viability of the project as well.
However, unlike the foreign banks, Indian banks have a long way to go in this area.
C. Social sustainability
Need and importance
30. We now move on to the other dimension of sustainability i.e., social sustainability.
You would agree that no programme for controlling environment degradation can be effective
without education, jobs for everyone and without a visible rise in the standard of living of
common masses. Unless we are in a position to provide employment and purchasing power
for the daily necessities of the people living around forests, we cannot prevent them from
combing the forest for food and livelihood. This does not necessarily mean an inherent
conflict between the two dimensions. We need to strike a right balance between our
development needs and environmental commitments to ensure long run growth
sustainability.
31. Over the past ten years, many developing countries, including India, have achieved
strong growth rates and increased economic prosperity, laying the foundations of a better life
for their citizens. And yet, in several of these countries, the benefits of high growth have not
penetrated uniformly across all citizens and societies. Estimates suggest that the gap
between rich and poor has widened in most OECD countries over the last 30 years. The
average income of richest 10 per cent of population is about nine times that of the poorest
10 per
cent6. These inequalities are reflected in strong sentiments of disconnect between the
concerns of ordinary citizens and those of political elites, even in developed countries.
Growth itself can be destabilising if it is not inclusive (Subbarao, 2012). The eradication of
poverty and inequality remains the greatest global challenge facing the world today and is an
indispensable requirement for sustainable development, as recognized by the UN Rio+20
outcome document.
32. Looking at India, it grew at an average rate of 7.8 per cent during the Tenth Plan
and at about 7.9 per cent during the Eleventh Plan despite the global crisis, which is
praiseworthy. While this has also been associated with reduction in unemployment and
poverty levels, yet these remain much above the tolerable levels. Despite improvement in
literacy and health outcomes as reflected in Census 2011 data, India is still not on target to
meet some of the MDGs by 2015. Despite being one of the fastest growing economies of the
world, India's rank in terms of the global Human Development Index (2013) as brought out by
the United Nations is 136th among 187 countries. It is clear that the country has major
challenges to address, particularly in terms of making the growth process more inclusive and
socially sustainable.
Investing in human capital and jobs
33. India's demographic dividend presents the country with a great opportunity to
enhance its growth and seek convergence of per capita incomes with that in the developed
world. Median age for India's population is about 27 years compared with over 40 for most
OECD economies. There will be significant addition to India's labour pool and even as the
median age bucket rises, it will still be at a relatively young 30-34 age bracket by 2026.
Clearly, India has a potential advantage of demographic dividend over its emerging market
peers and, in case we want to reap its benefits, we need to invest in human capital. The
World Bank's World Development Report 2013, commenting on India, has also observed that
providing key services like health and education can help create the right jobs that will lead to
improved standards of living and inclusive growth, which would be relevant for India as it is
expected to contribute a significant proportion of global labour force in the coming years.
More importantly, focus should be on women education as mother's education is observed to
be more important than household income for her child's survival (HDR, 2013).
34. The combined expenditure of central and state governments on education is just
about 3.3 per cent of GDP, while that on health is another 1.3 per cent of GDP. In contrast,
the European Union countries spend from their general government account, 5.5 per cent of
GDP on education and 7.5 per cent of GDP on health. Canada's public spending on health
alone is over 11 per cent of its GDP and that on education is nearly 5 per cent. India needs
to step up its public spending on education and health considerably over the next five years.
In addition to higher spending, quality of such spending is important. Right skilling of our
work force by adequate focus on technical education is the need of the hour. Our technical
institutes should get connected to the industry and the market and take inputs from there.
35. In the face of various constraints, the expenditure by the Central and State
Governments on education alone will not be sufficient to make a difference. The private
sector would also need to pitch in for improving the quality of education and educational
system in the country. The banks have a very crucial role in facilitating pursuit of education
by the resource-constrained youth. As we are all aware, the cost of education, in particular
that of higher education, has risen very substantially. This is likely to result in exclusion of
poor, but meritorious and deserving youth from obtaining quality education unless suitable
funding is made available to them. In the year 2001, Indian Bank Association (IBA) prepared
a Model Educational Loan Scheme (since revised) which forms the basis for banks' loans to
students for pursuing various educational courses. RBI, on its part, has permitted banks to
classify loans and advances granted to individuals for educational purposes, including
vocational courses up to 10 lakh for studies in India and 20 lakh for studies abroad, under
"priority sector". Further, the loans granted to educational institutions are eligible to be
classified as "priority sector" advances under micro and small (service) enterprises, provided
they satisfy the provisions of MSMED Act, 2006. The banks have been manda