Japan and Germany illustrate the effectiveness of long-term public support for private sector green R&D. Since the early 1990s, such backing has enabled Japan to develop and maintain a competitive edge in green innovation, and to become a global leader in green manufacturing, especially for consumer durables, motor vehicles, parts and accessories, electrical equipment, and other special-purposes machinery. After Japan, Germany has the strongest international record in green innovation, and continues to be well ahead of other European countries in green manufacturing, especially the production of wind turbines and solar panels.
Disseminating Green Technologies to Lower-Income Countries
Although more advanced countries are likely to be at the forefront of global green innovation and R&D, industries in lower-income countries can also benefit from adopting and disseminating proven green technologies. The UN Environment Programme’s Partnership for Action on Green Economy (PAGE) is conducting assessments of the role of industry in facilitating the transition to a green economy in developing countries, including recommendations for how governments can better support the transition to green industrial production through technology adoption. Assessments for Burkina Faso, Ghana, Peru, and Senegal demonstrate that government policies can assist dissemination through private-public partnerships and illustrate the benefits to industry of reducing resource use and environmental impact, improving the effectiveness of industrial zoning and environmental regulations, applying more widespread and systemic reviews of the resource efficiency of imported technology, providing financial assistance for the adoption of renewable energy technologies, encouraging greater uptake of environmental management standards, and identifying and supporting green industry supply chains with export potential.
Facilitating Green Financing and Investments
Green financing involves the financial system’s support of investment decisionmaking that takes into account improved environmental performance and underpriced environmental risks, including those from climate change, natural disasters, and natural resource scarcity. Government also has a role to play to encourage more widespread adoption of green financing and investment principles. Here, priority should be given to ensuring that the rules governing financial systems support investment decisionmaking that accounts for environmental sources of risk and opportunity. As prudential authorities and regulators of financial systems, central banks can advance this objective by establishing requirements for environmental risk management and reporting, incorporating impacts of natural disasters and climate change considerations into financial stress tests across institutions, adjusting capital provisioning to account for underpriced environmental risks, initiating prudential reviews of the impact of sustainability factors on financial stability, and stimulating markets for specific assets (such as green bonds) through asset purchases.
Common international approaches are needed to evaluate environmental impacts and inform decisionmaking.
Because banks and investors rely extensively on company disclosures to evaluate environmental risk, a need exists for common international approaches with standardized data and risk measures to evaluate environmental impacts and inform decisionmaking. This requires governments to coordinate and develop common practical frameworks, methodologies, and tools to provide a systematic approach to monitor and integrate environmental factors into credit and investment risk assessments.
Already, there are efforts to develop international guidelines and common policy and legal frameworks. In February 2016, finance ministers and central banks governors of the G20 major economies met in Shanghai and committed to developing such frameworks to green the $90 trillion of investments required over the next 15 years to achieve global sustainable development and climate objectives. The G20 has also launched the Green Finance Study Group, co-chaired by China and the United Kingdom, to explore ways of mobilizing private capital for green investments.
Toward New Economic Principles
As Boulding predicted over 50 years ago, our perception of the world must change, from a limitless frontier to a “spaceship earth.” The new set of economic principles that underlie this concept must involve a greater role for the private sector, including corporate environmental responsibility and stewardship, improved environmental assessments that factor in the true cost of resource and environmental use, and investments in green assets, technologies, and innovation. In recent years, the opportunities for businesses to capitalize on these initiatives have proliferated.
If we hope to achieve more sustainable economic development, these new economic principles must create sufficient incentives for future expansion in production and consumption, as well as investment decisions, to be decoupled from increased resource use, wasteful production, and pollution. Policies to advance green R&D and innovation, disseminate existing technologies more quickly throughout the developing world, and provide the governance framework for green financing are fundamental to facilitate the transition to a more sustainable trajectory.
Now we must urgently tackle the next challenge, of fostering these new principles to accompany the vision. Innovation, technological adoption, and financial investment—led by private enterprise with support from public policy and the right incentives—can launch the spaceship earth on a more sustainable and prosperous path.