Experts estimate that the annual financing required to create the green economy is in the range of US $ 1.0-2.5 trillion. The investment represents an opportunity for the private sector to provide the infrastructure, equipment, goods and services that will drive the transition.
Business alone, however, cannot deliver the speed and scale of change required. Collaboration with regulators, customers and the financial community is essential. Public policies linked to clear principles of sustained economic success are necessary to support this transition.
Preferable Taxation and Reduced Capital Cost
Improving tax regimes to award sustainable innovation is seen as an important incentive. Locations with higher environmental standards and tax subsidies are more attractive to investors.
In Guatemala, tax breaks are provided on equipment for projects designed to support the goal of generating 60 per cent of electricity from hydro and geothermal sources by 2022.
The OECD has confirmed a growing movement towards environmental tax breaks and tradable permits in OECD economies over the last decade. The value of green taxes to boost innovation is evident through increased investment in research and development and registration of patents on new, cleaner technologies.
Other examples of national and city-level tax incentives for cleaner energy include:
- Brazil, Belo Horizonte: Tax credits for residential solar power.
- China: Subsidies on green cars and financing for the construction of infrastructure for charging electric cars across five cities.
- India: Carbon tax on local production.
- Zambia: Tax reductions in mining areas to stimulate investment in renewables.
- Argentina, Bolivia, Colombia, Spain, Belgium, France, UK, Greece, Ireland, USA, South Africa, Sweden, Slovenia, Lithuania, Italy: Fuel tax exemption in favour of biofuels.
Risk Profile and New Opportunities
According to the report, businesses that have effective environmental and social risk management systems in place are in a position to secure a better risk profile, thus enabling them to obtain capital at lower cost. It indicates that climate change, for example, is opening up new opportunities for sustainable products and services in the finance sector.
For instance, there is a pressing need to increase the availability of capital to further develop insurance schemes against environmental risk. Equity Bank of Kenya made profits of over Ksh12.8 billion in 2011 by providing loans at competitive interest rates to farmers who introduce environmental practices such as drip irrigation and water efficiency projects. In addition to that, the bank’s customer base reached Ksh7.15 million in the same year, making it the largest bank by consumer base in sub-Saharan Africa.
Overcoming Challenges
A survey of sustainability experts and practitioners – conducted by UNEP, GlobeScan and SustinAbility in 2011 – examined the reasons why more businesses are not joining the race towards a green economy transition.
Results of the survey indicate that the majority of stakeholders perceived a disconnect between the stated political goals of sustainability and actual policies on the ground.
- An overwhelming 88 per cent of respondents cited the long-standing problem of financial short-termism as the most important barrier for developing sustainability-focused business models; with some investors exploiting the rise in demand – driven by resource scarcity – to push prices up.
- 65 per cent of respondents cited inefficient regulatory regimes as key barrier; referring to regulations that inhibit change, combined with lack of regulation that encourages more sustainable practices.
- Similarly, 65 per cent of those surveyed indicated that the low level of awareness of the sustainability imperative among business leaders was a significant barrier.
If more business leaders and executives developed better understanding of the risks and opportunities that issues such as human rights, climate change, and water scarcity represented to their business, the pace of the transition would significantly increase.
- The lack of formal international standards represented another barrier.
International guidelines and standards such as the Global Reporting Initiative (GRI) and the ISO 26000 Social Responsibility Standards are being widely adopted by major corporations around the world, albeit on voluntary basis.
These leading businesses are now calling for mandatory social and environmental reporting to drive up performance and create fair market advantage.
The Way Forward: An Action Plan for Business
Experts recommend businesses to adopt a set of transformative actions to help drive the transition to the green economy by:
- Driving policy change in support of responsible business investment.
- Encouraging stakeholder and employee engagement.
- Establishing sustainability as a core governance issue on the board agenda and communicate its value to investors and consumers.
- Enhancing resilience and business growth by adopting valuation techniques that go beyond monetary valuation to adequately capture the value of human, social and natural capital.
- Creating incentives and mechanisms to embed sustainability within the company’s culture.
According to the report, the successful transition to the green economy over the long term will require new skills, diverse collaborations, continuous innovation, investment s with uncertain return, and a change in market values. Companies, like governments, will need to choose wisely if they are to capitalize on the opportunities ahead.
The gathering of leaders from government, business and civil society at the Rio+20 UN Conference on Sustainable Development presents a historic opportunity to accelerate the transition to a Green Economy. While public policy is an essential ingredient in making the Green Economy a reality, it is the actions of the private sector that will ultimately determine the pace and shape of the transition.
‘The Business Case for the Green Economy: Sustainable Return on Investment’ was produced by the UNEP, in cooperation with SustainAbility and Globescan. Production of the publication was supported by Unilever and the French Ministry of Ecology and Sustainable Development.
The report complements and builds on UNEP’s 2011 report “Towards a Green Economy”, which proposes a development pathway for policy makers to transition to a green economy that is low carbon, resource efficient and socially inclusive.
Click here to read/download the Full Report – “The Business Case for the Green Economy: Sustainable Return on Investment”.
Source: UNEP.
