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Promoting green business: 3 priorities for action

Green business is a win-win for all, but the private sector alone cannot finance its growth. Here’s how policymakers can help scale up Asia’s sustainable business, write Asian Development Bank’s Daniele Ponzi and Erin Jan Sinogba.

The ugly side of strong economic growth in Asia and the Pacific over the past fifty years is the damage this growth has done to the environment. Extreme poverty in developing Asia fell from 53 per cent of the population in 1990 to 9 per cent in 2013 but the price of this progress has been a severe strain on critical environmental resources.

Reversing this trend before it’s too late is urgent. The public sector alone cannot finance all the actions needed for the region to grow sustainably. It’s time for policymakers in Asia to effectively leverage the private sector to do more green business.

There is enormous potential for public policy to help scale up green business development in Asia and the Pacific, as we explored in our recent working paper The Business of Greening: Policy Measures for Green Business Development in Asia. We argue that advancing green business is a win-win for all stakeholders, as long as the right policies and incentives are in place and firms are willing to make the necessary investments and embrace technological innovation.

Making consumers, distributors, investors, and the public all responsible for environmental protection can help hold millions of companies accountable throughout Asia and the Pacific.

 

Policies and regulatory instruments can be broken down into: command-and-control measures such as technology and pollution standards (generally seen as rather rigid and not business-friendly) and market-based instruments such as green taxes or tradable permits, which deliver environmental outcomes with the least cost, but are often harder to implement in developing countries due to capacity constraints.

Another type of public policy tool is for consumers, investors, producers, distributors, and the public to take partial responsibility for environmental management through promoting green business. Voluntary approaches include three modalities, which companies and communities can use to accelerate this agenda.

1. Labeling and certification

Labeling and certification are critical for both business-to-business clients and consumers to verify sustainability claims made by producers and distributors. This covers sustainable supply chains, which are becoming increasingly popular among environmentally conscious consumers.

Obtaining an eco-label or a green certificate allows companies to prove their products are eco-friendly, and in many cases, worthy of being sold at a premium. Good examples are certified organic agricultural products and or buildings constructed with a Leadership in Energy and Environmental Design (LEED) certification such as the new atrium in ADB’s own headquarters in Manila.

However, a major obstacle is fragmentation of the certification process and a lack of consensus on criteria, particularly with cross-border supply chains. The solution is international standardisation set by agencies like the International Organization for Standardization (ISO). ISO 14001 certification encourages continuous improvement in reducing pollution and waste and increasing resource-use efficiency.

Asia is currently leading the world in the number of annual ISO certificates issued, partly thanks to multinationals seeking to certify their supply chains based in developing Asian countries where enforcement of environmental regulations is weak. Within the region, the trend is driven by the People’s Republic of China, where the government subsidises part of the fee for small and medium enterprises (SMEs) to obtain ISO14001 certification.

2. Public disclosure and self-reporting

Several studies have confirmed that information disclosure of companies’ environmental performance raises compliance. However, this is more true for larger companies in developed countries. In developing Asia, by contrast, most corporations are privately owned SMEs, especially in low-income countries where people are still reluctant to pay more for environmentally friendly products and the firms responsible for much of the pollution supply many of the jobs.

Public disclosure also facilitates “green” investment and consumer decisions beyond the stock market. For instance, GreenTech Malaysia, a government-led organisation, awards green certificates to projects that adopt green technology in the country, a model that can be replicated elsewhere in Asia.

Another policy fix is to incentivise self-reporting by firms. In this regard, a promising approach for Asian policymakers is the Next Generation (Next Gen) Compliance model implemented by the US Environmental Protection Agency, which encourages regulators and companies to work together.

Next Gen tools make it easier for firms to comply and for the public to know which corporations are doing so via user-friendly tools with easy-to-understand information, including an online platform to identify the biggest air and water polluters.

3. Monitoring

Monitoring compliance is essential to ensure that companies that claim to adhere to green business practices are telling the truth. Often, this task falls upon third parties such as communities, NGOs, and the media.

The increasing availability of low-cost and portable devices and software empowers communities to monitor air and water quality and natural resource degradation. It also enables citizens to be more actively involved in checking corporate environmental behavior.   

Asian policymakers can engage NGOs as partners to serve as civil society certifiers and auditors and to expose companies found to have polluted to warn customers and investors. A good example is the Forest Stewardship Council, whose certificates help build corporate images and allow smaller logging firms to do business with environmentally responsible multinationals like IKEA.

Finally, a strong media is critical to hold firms that pollute accountable. Media outlets can effectively regulate an industry “for free” (without relying on the public sector), and social media is also becoming more important. A Facebook campaign against a non-compliant company can now achieve the same impact as traditional media reporting.

Making consumers, distributors, investors, and the public all responsible for environmental protection can help hold millions of companies accountable throughout Asia and the Pacific. It’s not too late for policymakers to realise this and adopt some of these helpful tools to promote green business.

Daniele Ponzi is the Chief of Environment Thematic Group, Sustainable Development and Climate Change Department at the Asian Development Bank (ADB).

Erin Jan Sinogba is a consultant with the Sustainable Development and Climate Change Department at the ADB.

This piece was published with permission from the Asian Development Bank.

 

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