Mahindra and Mahindra Ltd. and sustainability
More companies than ever are using ‘carbon pricing’ to understand and manage climate risk. There has been an 80% surge in the number of companies reporting a carbon price or planning to price their carbon globally over the last five years, according to CDPs latest Carbon Pricing report.
Integrating an Internal Carbon Price (ICP) into the business climate strategy helps a company factor in climate risks while preparing for greater GHG emission cuts. A growing number of Indian companies too are now pricing their carbon to reduce costs, guide capital investment decisions and prepare for inevitable regulatory changes.
Reducing emissions through Internal Carbon Pricing
Mahindra and Mahindra Ltd. is the world’s largest producer of tractors and a leading manufacturer of utility vehicles in India. In the year 2016, it became the first Indian company to announce an ICP of US$10 per tonne of carbon emitted. In addition to pricing its carbon, the company has joined several global sustainability initiatives: primarily the Science Based Targets initiative, goals set under which were validated in January 2020.
The company’s sustainability report states that pricing carbon can be an important tool for businesses to reduce not only their carbon footprint but also the system cost and regulatory risk. In addition, lowered carbon emissions will minimize negative impacts on the health of people.
The company recognizes the crucial role that ICP plays in helping it achieve its ambitious decarbonization goals - It has used internal carbon price (shadow price) to create a pool of resources which direct investments towards clean technologies, and amount to US$4 to 5 million annually.
Since 2016, Mahindra and Mahindra Ltd. has consistently priced its carbon at US$10. Initially, the company’s goal was to reduce its GHG emissions by 25% per unit of output by 2019, which it achieved successfully. However, tit may consider revising this price further, given their commitments under the science-based targets initiative and their ambitious goal to achieve carbon neutrality by 2040.
Anand Mahindra, Chairman, Mahindra Group says: “We are doing our part in the global fight against climate change with this ambitious new target. Mahindra will leverage the latest technological advances and Carbon Price to work towards being carbon neutral by 2040.”
Setting an Internal Carbon Price
Mahindra & Mahindra Ltd. started the price determination process by mapping its investments towards emission reduction activities, such as upscaling renewable energy and improving energy efficiency with the company’s overall emissions performance over previous years. It further mapped the initial ratio of annual green investments compared to overall emissions.
Estimating and disclosing emissions since 2007 enabled the company to analyse data across an extended period and arrive at an initial carbon price of US$6-7. Mahindra further decided to determine the additional cost that would be required each year to reduce emissions and plot the maximum price that would be incurred per tonne of emissions by mapping out various abatement options in its unique case.
This resulted in the carbon price being raised to US$10 per tonne of carbon dioxide emissions. The current carbon price of US$10 covers both Scope 1 and Scope 2 emissions and Mahindra & Mahindra uses it to create an internal fund that helps the company fund investments towards reducing emissions. It also deliberated a shadow carbon price and this in turn helped the company direct investments towards capital budgeting for green projects.
ICP as means to achieve targets set under SBTi
Along with 20 of its subsidiaries, JVs and holding companies, Mahindra & Mahindra Ltd. has committed to science-based carbon emissions reduction targets. Moreover, targets set by 17 of its 21 companies have already been approved by the SBT initiative.
Under this commitment, Mahindra & Mahindra Ltd. has committed to reduce its scope 1 and scope 2 GHG emissions by 47% per equivalent product unit by 2033 from a 2018 base year. The company has also committed to reduce its scope 3 GHG emissions by 30% per sold product unit by 2033 from a 2018 base year.
To achieve this ambitious target, the company will need to direct investments in clean technologies, and therefore, raise its current carbon price of US$10.
Mahindra & Mahindra has also articulated the benefits it expects to receive from pricing its carbon and achieve its emissions reduction targets:
- Create funds to facilitate deployment of low carbon projects.
- Enable informed decision-making by management on investments into low carbon projects.
- Achieve emission reduction targets.
- Align company operations and investments with pathways that can successfully facilitate transition to a low carbon economy.
Challenges and pathways to overcoming them
In 2016, despite low awareness of the concept of carbon pricing in the corporate world, Mahindra and Mahindra Ltd. adopted an ICP of US$10 per tonne of carbon emitted. The company therefore also had to bring its people on board along with the different functions in the organization in order to maximize alignment with the process and objectives of ICP. With help from experts, the Group Sustainability office prepared a roadmap for implementation.
Since the company constitutes the largest part of the group and is responsible for 50% of the total revenue as well as carbon emissions, it should drive the group’s transition to a sustainable future.
Lessons for peers
Mahindra and Mahindra Ltd. believes that by using an ICP, businesses can easily fund their emission reduction programs. Rather than losing the way in complex calculations, companies must begin their journey by using a price that can help them cut emissions. Once they begin using this tool, many other doors are bound to open, bringing in new ideas for innovation and collaboration.
Companies can refer to this handbook to learn more about using an ICP to accelerate their decarbonization journey and to achieve emissions reduction targets set under the SBT initiative faster, or can write to us at [email protected].