From Green Economy to the Choice of Business Location: Building Up The Business Case

Transcription

1 From Green Economy to the Choice of Business Location: Building Up The Business Case Benefits, Green Regions, Ecosystem Services Luca Cetara Italian Presidency of the Alpine Convention EURAC research

2 Table of Contents Green Economy: background, definition, actors and rules of the game The Business side of a Green Economy Green Economy: building up the Business case Good reasons to engage: the financial value drivers Classical business location factors Innovative criteria for business location and spatial planning policies: Ecosystem services assessment and Corporate ecosystem valuation Case studies across the presentation: South Tyrol BLS, Puma, EDP, Weyerhauser

3 Green Economy: background and motives Over the last few years the idea of a Green Economy has been floating out of its specialist field of environmental economics into the mainstream policy There is a widespread disillusionment with prevailing economic paradigm, fatigue from the many concurrent crises and market failures, including the turmoil started since 2008 New economic paradigm where wealth is not delivered at the expense of growing environmental risks, ecological scarcities, social disparities Transition to a green economy needs sound economic and social justification for both governments and the private sector

4 Green Economy: who is playing the game? Governments: phase out from antiquated subsidies, start policy reform, strengthen market infrastructure and market-based mechanisms, redirecti public investment, green public procurement. Private sector: understand and seize the opportunity of green economy transition across key sectors, respond to policy reforms and price signals through higher levels of financing and investment Civil society: likely recipient of the economic, environmental, social benefits from a shift to a green economy. Should enjoy an improved wellbeing and better life standards.

5 What is a Green Economy? One that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities: low carbon, resource efficient and socially inclusive (UNEP 2011). Growth in income and employment should be driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services Green Economy requires targeted investment: a great challenge is to drive it correctly in order to support the targets mentioned above, taking note that it should come primarily from the private sector. Thus, addressing the private sector is a primary goal for a sound transition to a Green Economy. It is important to take note of the expectations of the private sector from a Green Economy. Does a transition really deserves its attention?

6 The business side of Green Economy There are benefits to business in adopting greener and resource efficient practices The consequences to business of ecosystem collapse are disastrous Market is changing: changes in public policy, customer preferences, and technology will drive the market for improved environmental performance Transition is not easy: many firms will not survive, new skills, diverse collaborations, continuous innovation, investments with uncertain returns, and a change in what the market values are needed elements for a successful transition (UNEP 2012)

7 Benefits to Businesses from Green Economy More resilient supply chains New investment opportunities Increased consumer demand for sustainable goods and services Sales growth and duration of sales Training and job creation Reduced dependency on natural resources Mitigation against the negative financial risk from environmental impact

8 Green Business Case: the economic / business metrics 6 key financial metrics Sales growth Duration of sales Capital expenditure Profit margin Tax rates Cost of capital UNEP 2012 A business is likely to check the economic variables recalled above before committing to going green - being a sound, rational, profit maximizing actor

9 Drivers of change Resource pressure Constraints in production Consumer Demand Issues in the building and construction industry UNEP 2012

10 Green Business Case: General Model FINANCIAL VALUE DRIVERS 1) Sales growth and duration 2) Reduced Capital Expenditure and improved profit margin 3) Preferable taxation and reduced cost of capital UNEP 2012

11 Building brand value Promotion of more sustainable goods and services, backed up by consistently recognized standards and labels Increase in loyalty among existing customers and continual improvement in reaching new customer bases Reduction of the exposure of a company and its brand to reputational risk Management Review and The Boston Consulting Group (2011)

12 1) Sales growth and duration Attracting more customers through enhancing the benefits of sustainable consumption Eco-innovation and design for sustainability Choice influencing via marketing & awareness raising campaigns Choice editing by removing unsustainable options from the marketplace Considerable new market opportunities Pro-poor products and services Demands from the new middle-class Carbon and Ecosystem Services Markets (through environmental policies and regulations)

13 2) Reduced Capital Expenditure and Improved Profit Margin Increase resource efficiency and productivity to improve the bottomline Resource efficiency (doing the same with less): standards, technologies, innovation Resource productivity (doing better with less): re-thinking systems to maximise value-added of the resources used (from selling a product to a product-service system) Classical cost / benefit analysis shows the consistency of the approach Understand and Make Use of the Role of Ecosystems for Business Aims PUMA Environmental Profit and Loss Account (EP&L) for 2010 (published in 2011)

14 Corporate Ecosystem Evaluation and Dependency: PUMA EP&L 2010 EP&L: strategic, risk management and transparency tool PUMA Corporate Ecosystem Value: 145 M for 2010 (8 core-operations, 137 external suppliers). Main driver: use of water in raw materials production Negative impacts (finance) along the whole supply-chain: economic risks from negative environmental impact especially on water availability, rising raw material costs and further constraints in production Reduce financial loss by strengthening its operating margin: early view of emerging risks, enabling the company to respond strategically to protect long-term shareholder value

15 Business Advice: build up resiliency through sustainable sourcing and resource efficiency across the process' tiers can improve PUMA risk profile and dependency PUMA commitment: 50% of international collections (footwear, apparel and accessories) made of more sustainable materials by 2015 UNEP 2012

16 Productivity (including human capital): Sustainable Return on Investment (SROI) ROI = Net Profits / Investment Higher environmental standards + improved human resource management TOOLS: employee engagement programmes with inherent link to sustainability performance, reward and incentive schemes EXPECTED OUTCOMES: improved attractiveness to recruit top talent, retain employees and enhance employee and supplier productivity. LONG TERM BENEFITS: customer attraction, improved reputation, a boost in operating margin, as well as optimized capital expenditure.

17 3) Preferable Taxation and Reduced Cost of Capital Licence to operate Early adopters build stakeholder engagement (regulators, politicians, local communities, general public, media, civil society) and may reduce superimposed regulations Tax rates Tax regimes recognise and award sustainable innovations and encourage verifiable improvements in operating conditions Locations with higher environmental standards more attractive for investment Tax subsidies for environmentally preferable goods and services (environmentally related taxation and tradable permits in OECD economies) Effect on Innovation: investment in research and development and registration of patents on new cleaner technologies

18 Preferable taxation in the energy sector

19 Cost of capital and risk profile Risk Profile: Businesses with effective and well-communicated environmental and social risk management systems in place are in a position to secure a better risk profile, enabling them to obtain capital at lower cost (measured on: debt capital, equity capital, average cost of capital) UNEP 2012

20 Reducing the cost of and easing the access to capital Market demands, in a Green Economy scenario, require to: increase availability of / access to capital to sustainability entrepreneurs further develop insurance schemes against environmental risks (allow the market to deliver innovative schemes) Business solution (example): Loans at market-leading interest rates to farmers who introduce environmentally preferable practices, such as drip irrigation and engage in water efficiency projects UNEP 2012

21 Securing preferable investment Firms lowering their systemic risk profile through improved environmental risk management can see two main benefits: they experience less volatility in performance they enjoy lower costs of equity capital and weighted average cost of capital Environmental and Sustainability Risks are increasingly impacting credit defaults and banks and loan portfolios By addressing ESG risks: financial institutions are in a better position to access finance from capital markets or from multilateral financial institutions (e.g. Banks incorporating criteria on environmental risk management benefit from increased security and are safer )

22 Business location and Regional Services

23 Attractive environmental factors for business location

24 Attractive location factors and features of a Green Region Compliance with environmental protection principles and strong environmental culture Use of clean and renewable energy sources Priority to energy efficiency and saving Location with potential for sustainable economic development, enhancing environmental quality and human well-being Smart public sector meeting business demand Economic support schemes and flexible administration criteria in support of business initiatives as critical location factors Widespread green approach to business, development, mobility system Elaboration on BLS (2013)

25 South Tyrol: Environmental Resources BLS (2013)

26 South Tyrol: Energy & Environment BLS (2013)

27 South Tyrol: Innovation & Technology Green Industry in South Tyrol BLS (2013)

28 South Tyrol: Support Schemes and Quality of Life BLS (2013)

29 South Tyrol: The future and the partnership EURAC research CasaClima Agenzia Provinciale per l'ambiente Centro per la sperimentazine agraria e forestale Laimburg Comitato Provinciale per la cultura architettonica e per l'ambiente di Bolzano Eco-research Fondazione Dolomiti Unesco Fraunhofer Italia Research Istituto per le Innovazioni Tecnologiche IIT Libera Università di Bolzano TIS Innovation Park Fiera Bolzano Forum Bressanone Camera di Commercio Associazioni di Categoria BLS (2013)

30 Business, Biodiversity, Ecosystem Services All businesses affect ecosystems and rely on the critical provisioning services (freshwater, fiber, food) and regulatory services (climate regulation, flood control, water purification, waste treatment) they provide 60% of the world s ecosystem services have been degraded over the past 50 years The costs of ecosystem degradation are huge: US$ 2 to US$ 5 trillion in ecosystem services are lost each year, just from deforestation (TEEB). This scale of loss and value is material to large companies operating globally Ecosystem change presents both business opportunities and risks, such as operational (e.g. increased scarcity and cost of raw materials), regulatory and legal (e.g. public policies such as taxes and moratoria on extractive activities), reputational (e.g. relationships and image from media and nongovernmental organizations), market and product (e.g. consumer preferences) and financing (e.g. availability of capital).

31 Meaning and Value of Ecosystem services to Businesses

32 Example of a step-by-step analysis

33 Ecosystem services as a location factor for business? Corporate Ecosystem Services Review and Corporate Ecosystem Valuation as tools allowing to identify & rank the ESs relevant to business and determine risks and opportunities Ecosystem assessment and mapping allow to identify the geographical territories being net providers / beneficiaries of ESs Dependency of business types / production on ESs can help set up appropriate spatial planning measures and add territorial criteria to classical location factors for business This information can help better shape the demand and willingness to pay for business location, the opportunity cost of land, public incentive-schemes, internal and territorial risk management systems, business strategies, new market opportunities (e.g insurance schemes)

34 EDP (Hydropower)

35 Weyerhauser (Forestry)

36 Thank You for Your Attention! Believe me, my sole purpose is to make as much money as possible; for after good health it is the best thing to have Wolfgang Amadeus Mozart to His father, Vienna, April 4, 1781 Contacts: Luca Cetara Italian Presidency of the Alpine Convention Coordinator of the Scientific Technical Secretariat Ministry for the Environment, Land and Sea Department for Sustainable Development, Climate Change and Energy Via Cristoforo Colombo, Roma Ph. 06/ /