AI and climate are rewriting the rules of business!

AI adoption and its rapid scale-up is already redefining business boundaries and challenging traditional norms.  The climate change crisis is expected to disrupt the operations and policies of companies and organisations this year. With these two megatrends at play, how should companies adapt? What should they prioritise and what can be left behind? 

The debates and the discussions at the World Economic Forum at Davos 2024 are focused on the change agenda for business transformation in light of these two biggest trends of climate change and AI. Most business leaders and experts seem to agree that the rules of business need to be rewritten. Business also needs to factor in global risks and a weakened economic outlook. 56 per cent of chief economists expect the global economy to weaken over the next year, but another 43 per cent foresee unchanged or stronger conditions¹. The Global Risks Report at WEF talks of interconnected and escalating risks around misinformation, climate change, geopolitics and AI².

While unique opportunities exist for us to create a better world and not an apocalyptic future that runaway climate change and AI can potentially bring, navigating these waters isn’t for the faint-hearted. India is on a growth trajectory. Historically, growth has always had a direct correlation with emissions. If India’s growth were to continue – emissions too will rise. The question we need to answer is – How can we enable green / low-carbon growth? Build the India of tomorrow, reduce poverty and yet be a low-carbon economy. For Indian companies that are leading the agenda on a global stage five key strategies are emerging from the discussions at Davos.

As risks rise, so do investor expectations of mitigating these. ESG now consists of everything that doesn’t sit in financial reporting with a thousand metrics and a multiplicity of compliances. Moreover, social responsibility sits in the AI agenda as the escalating risks and implications become clearer. Investors want ESG intent and action, such that ESG metrics become part of everyday operations. Once a year reporting on ESG is not enough any more as investors dig deeper into social impacts and environmental challenges around business operations. What is needed is focus on low carbon operations, green supply chains, recycling materials and a long term growth strategy that will protect and grow value through challenging times. For companies looking to raise capital in the domestic and international markets, ESG will be a critical element in their valuation.

Given the vast spectrum of operations of India’s large companies, creating a NetZero roadmap can look like an insurmountable task. That’s because reducing emissions and creating a positive social impact requires multiple projects that need to be designed and then implemented. It involves people, changes in processes, new technology and many times capital investments. Sustainable products and services need to be at the core of long term transformation. This is because, if customers support you and buy your newer, greener products, the cost of the transition can be underwritten. Looking at new materials, new sources of value, circular supply chains can help you open up new markets and help you score over global rivals. Indian companies can either target these new areas internally or buy out emerging organisations in the sustainability space. A focus on global and Indian customers that prioritise sustainability will bring benefits in the long run.

Cutting-edge technologies are revolutionizing the supply chain landscape. The rapid advancement of generative AI, data analytics, automation, machine learning, Internet of Things (IoT), blockchain, and other innovations is propelling the transition to a 'smart' supply chain as the new standard. While automation enhances efficiency, addressing the substantial carbon footprint of logistics and transportation requires more. Leveraging generative AI can foster sustainability in procurement, enforce global compliances, and enhance transparency.

As businesses seek to generate new sources of value, emerging models will integrate technology, social responsibility, and positive environmental impact. Initiatives like reverse supply chains and on-demand manufacturing will propel growth for large enterprises in both existing and adjacent sectors. Business operations are set to transform, with AI and machine learning predicting, producing, and delivering products in response to demand. This shift is driven by a new generation of customers demanding corporate efforts against waste and endorsing brands committed not only to profits but also causes that contribute to a better world.

AI led automation opens up new possibilities as it builds productivity led tangible gains. Chief economists are almost unanimous (94 per cent) in expecting productivity improvements to become economically significant in high-income economies within the next five years, including 57 per cent expecting the benefits to emerge within the next three years³. The potential gains from productivity benefits are in sharp contrast with concerns about the risks of automation, job displacement and degradation. Companies will soon need to balance technology driven models with social responsibilities so that they don’t lose their social licence to operate. This is particularly important for a large developing economy like India, with significant differences across regions.

The future is not going to be more of the past. Multiple futures are possible, depending upon the choices we make. Can Indian companies make the right ones?

 ^[1,3] World Economic Forum's Chief Economists Outlook: January 2024
^[2] World Economic Forum’s Global Risks Report 2024