Rebalancing the economics of greening

On January 15, 2012, in Economic Logic & Value, Project Investment, by Joe Nyangon

Innovations such as the greening of supply chains and optimization of resource flow as a core business practice have been marketed as key drivers and benefits for environmental improvement. But vital questions remain: How do you market investment in the green economy as a key component for addressing energy security, green growth, climate change, and […]

Innovations such as the greening of supply chains and optimization of resource flow as a core business practice have been marketed as key drivers and benefits for environmental improvement. But vital questions remain: How do you market investment in the green economy as a key component for addressing energy security, green growth, climate change, and poverty reduction? How do you drive coherence and collaboration among corporations, among institutions and across disciplines in the transition to a green economy? How do you leverage global finance to fund investment in green economy? And how do you deal with externalities and supply chains?

A Green Pathway
Against the backdrop of these perplexing questions, a UN Environment Programme (UNEP) report, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, found that a transition towards a green economy future would need investment of two percent of the world’s gross domestic product (GDP)[1]. The investments should target ten key sectors, including agriculture, tourism, fisheries, forests, manufacturing, energy efficient buildings, transport, water supply and waste management, or an average of around $1.3 trillion annually, to create high-quality jobs, reduce carbon emissions and create new low-carbon industries, the report recommends.

Powering economic growth—with less fossil fuel—according to the report, offers a pragmatic assessment of how governments, communities and corporations can make a shift in the business of environment. Innovation in clean energy future, for instance, is quickly emerging as the next frontier in global economic growth. As Achim Steiner, UN Under-Secretary General and UNEP Executive Director, affirms, the green economy “aims to link the environmental imperatives for changing course to economic and social outcomes—in particular economic development, jobs and equity.”

Defined by UNEP as the result of “improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities,” the green economy is transforming how people relate to one another; interact with the environment and also within the competitive global economy.

According to the UNEP report, in the green economy investors use market-based instruments such as payments for ecosystem services (PES), trading of access rights and pollution permits, and consumer-driven accreditation schemes to realize both return on investment (ROI) and return on environment (ROE). Fisheries adopt a creative approach to restore damaged marine ecosystems and gain a better understanding of the potential benefits of sustainably managed fishing. Investors and philanthropists speculate on how much they should invest in sustainable forest enterprise and production. Besides, governments enhance collaboration with private sector in developing clear energy policy targets aimed at improving energy efficiency and increasing investments in renewable energies and technologies. And manufacturers embrace efficient energy and materials processes and technologies that simultaneously reduce negative externalities associated with waste and pollution. Sustainability is now a prerequisite for funding for many environmental projects.

Real Opportunities and Misconceptions
The green economy offers a plethora of opportunities for project managers in these varied sectors and their corresponding role in utilizing project, program and portfolio management to realize global sustainability is critical. In successive pages, the UNEP report takes a considerably positive view, detailing opportunities in emissions trading, growth of acceptance of PES, consumer-driven accreditation and certification schemes, opportunities in water sector, and in wastes management, including certified emission reductions (CERs) which is a potential source of inter-governmental funding.

In addition, the green growth blueprint counters the misconception that sustainability is limited to environmental issues alone—far from it. It also includes economic and social issues and striking a balance between the three issues—environmental, economic and social—is not only good for organizations but also national and global economies.

Clearly, several recent developments at the international policy level have steadily promoted the transition to a global green economy as advanced by the report, more so in the lead up to Rio 2012 meeting in Brazil which will mark 20th anniversary of the adoption of Agenda 21—a blueprint for rethinking economic growth and improvement of the business of environment. The Kyoto Protocol, aimed at committing industrialized countries and countries in transition to emission reduction targets, first commitment period also comes to an end next year.

As far as awareness in global sustainability issues are concerned, there has been a steady rise in sustainability practices in both economic and political fronts. Indeed since the UN Conference on Environment and Development (UNCED) in 1992 in Rio de Janeiro, sustainability issues have been on the rise in developed countries and around the world.

Race to the Top
Take China, for instance. Despite overtaking Japan as the second biggest economy, and increased investment in clean-technology market share, it still faces its biggest unknown: Which clean-technology mix will win? Like most developing countries, China grapples with challenges such as low level of energy efficiency, high share of coal in primary energy use, large volume of energy use, and need for domestic energy transportation.

Yet despite these challenges, China leads in demand for growth in renewable energy development: driven mainly by population and economic growth. On the other hand, according to a recent report by the Solar Energy Industries Association, the U.S. solar market increased by 67 percent in 2010—from $3.6 billion in 2009 to $6.0 billion—driven mainly by new photovoltaic (PV) and concentrating solar power installations, and making solar the fastest growing energy sector[2]. As the UNEP report affirms, “improving the environmental efficiency of production at the global level can occur through technology and knowledge transfer from developed economies or through technology spillovers that occur as a result of international investment and globalised supply chains”[3].

The Bottom Line
As professionals in project management, you are probably wondering how these developments might impact on future leadership in global sustainability. The point is we are entering a new age of profound transparency where the calcified, operating-as-always approach, still archetypal in some of the sectors discussed in the UNEP report, are quickly being replaced by frenetic free flow of ideas.

I believe the other key drivers of future growth in sustainability would be the supply chains that must reveal information regarding production practices, intelligent software applications that improve decision making processes in sustainable business practices, and pressure for increased transparency of government actions and policies.

It is time to connect the dots: only those who can handle this transformation well will thrive and grab a bigger market share in clean-technology and deliver on both ROI and ROE, leverage global finance to fund investment in green economy, and effectively deal with externalities and supply chains. The UNEP report is a good place to begin a discussion on when, where, and why this is necessary, and what we must all accomplish for current and future generations.

Article first published in the PM Global Sustainability Community of Practice

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