Indian Businesses Rate Climate Change As Top Threat: Report

The sales and profits of major fast-moving consumer goods (FMCG) companies like Dabur and Hindustan Unilever (HUL) along with major automakers have been affected by erratic weather and extreme weather events, according to the report.

Himachal Rains

Leading Indian companies across the fast-moving consumer goods (FMCG) and automobiles have rated climate change as a top threat, according to a report. 

The top Indian businesses have said that erratic weather and the rising frequency of extreme weather events mean that their sales are getting affected, bringing down their incomes and profits. 

The companies say that the extreme weather events have a particular effect on the rural demand, which gets particularly hit by flooding or lack of rain. In such cases, the income of the agriculture-based rural communities goes down, which brings down their demand for FMCG goods. 

The Indian Express reported top executives of FMCG majors like Hindustan Unilever (HUL), PepsiCo, ITC, Dabar, Emami, and automakers Maruti Suzuki and Hyundai as saying that the climate change comprising unseasonal showers, irregular weather, and uneven rainfall have disturbed their planning, sales, and bottom lines. 

The report comes at a time when India has had a monsoon season with large regional variations. While Himachal Pradesh witnessed unprecedented rainfalls that devastated the state, killing hundreds and destroying several thousands of home and incurring damages in the excess of Rs 10,000 crore on the state, the overall rainfall was below average. The Mint newspaper reported, "The cumulative rainfall in the four months of monsoon –June to September– amounted to 820 mm, which is lower than the long-period average (LPA) of 868.6 mm."

This also comes at a time when the Earth is recording all-time high temperatures. The rising heat and irregular rainfall are combining to pound businesses with uncertainties. The Express reports that this year has been full of such contrasting events. 

"Irregular climate is an uncertainty that's biting companies' plans, and profits. The year so far hasn't made it easy it for India Inc. If February was warmest in over a century, March was unusually rainy, and August was the driest since 1901," reported The Express. 

Premature summers in February, as witnessed this year, followed by unseasonal heavy rains damage crops, which brings down income of the agriculture-associated communities. The poor crops could further affect the procurement of food companies. 

The Express quoted HUL's Chief Financial Officer (CFO) Ritesh Tiwari as saying that it's factoring in the risk of monsoon and weather. 

"El Nino has come earlier, and we know when it comes early, it grows more," said Tiwari, adding that it is not just the quantity of rain but its distribution and timing that can have an impact on business, terming weather as "the only single business risk".

Nestle India's Chairman and Managing Director Suresh Narayanan said that the El Nino and the monsoon deficit could drive down rural demand. 

"Although it may sound speculative, the rural sector's substantial impact could lead to a corresponding decline in rural demand," said Narayanan, as per The Express, which noted that Nestle's sales have a share of 20-25 per cent share in its total sales and the number of HUL is around 40 per cent. 

Dabur's CEO Mohit Malhotra noted that while the company grew 35 per cent overall, its beverages vertical only grew about 2 per cent.  

"When the rains are there, people don't move out and eating and drinking outlets don't have that kind of a throughput; they are not able to sell," said Malhotra, as per The Express. "If the rains are not there, the marriage season is great, which is what we think it should be; or the Diwali season is great if the rain doesn't play a spoilsport, then I think that season shouldn't get impacted by beverages. But because the season is so heavy and it contributes to 30-40 per cent of the total consumption for the whole year, a little impact for the full-year business definitely happens."

The report further said that the sales of Emami's Navratna oil, which is a favourite for the summers, were down by 8 per cent in the June quarter because of the unseasonal rains. 

The car sales in Kerala, which previously used to be among the top states in terms of sales, have also fallen at least partially because of the floods in the states in recent years, according to the report.