The private sector and ‘green’ transformation

By Fitrian Ardiansyah, published in Coal Asia, July 19 – August 17, 2013, page 82-83

for the pdf version, please see Opinion Fitrian Ardiansyah_CoalAsia_JulyAugust2013

CoalAsia_JulyAugust2013_privatesector

With growing environmental and social problems faced by the society resulting from economic activities, there is a clear need for substantive solutions that cut to the heart of the economy at different levels. The private sector, as a key actor involved in economic activities, hence has a significant role to push for the transformation of the economy into greener and sustainable.

Indonesia is currently at the forefront of many sustainability issues. Deforestation, depletion of natural resources, water and air pollution, flooding and drought, are among huge challenges that the country has to deal with.

The private sector, including investors and corporates, has often been perceived as one of the main culprits causing environmental problems. In the recent event of forest and land fires in Sumatra, an analysis by World Resources Institute indicated the occurrence of fires in lands belong to a number of plantation and forestry companies. The mud flow in East Java is also an example in which the public view that a particular corporation is the sole cause of the disaster.

The private sector, nevertheless, has also been commencing initiatives with other stakeholders, including the government and civil society groups, to address environmental issues and provide immediate and long-term solutions.

At the global level, platforms such as the Forest Stewardship Council that promotes certification for sustainable forest management and the Roundtable on Sustainable Palm Oil that promotes the production and use of certified sustainable palm oil have emerged.

According to the 2012 Association of Chartered Certified Accountants report, there has been a significant increase in the application of socially responsible investment by institutional investors around the world and over 1,000 investors representing US$32 trillion has signed up to the UN Principles for Responsible Investment.

In Indonesia, although there is yet to be a comprehensive assessment on the private sector’s sustainable activities, it appears there are sections of the sector which have seen sustainability as business opportunity.

Indonesian corporations linked with foreign investors or markets which have stricter environmental regulations or requirements, for instance, may likely to promote and adopt sustainability standards for their operations or could face further pressures and negative consequences.

Pressures and demands from the Indonesian government and its society for greener economy and development have also sent signals to the private sector that destructive operations which result in negative environmental impacts need to be mitigated or stopped.

Local social conflicts could rise due to the perceived negative risks and unwanted impacts resulting from particular business activities, such as from mining, oil and gas extraction, infrastructure development, plantation establishment, logging operations, buildings and settlements.

Avoiding the halt of particular business activities resulting from tensions and conflicts could mean helping investors and corporates to save unwanted costs which could reach millions of dollars.

Creating incentives and rewards can also trigger more active involvement of the private sector to promote, develop and implement sustainable practices.

The latest increase in the tariff for renewable energy in Indonesia (i.e. geothermal, biomass, solar), for example, has created a better level of playing fields for renewable energy investors and corporates. This is expected to further attract larger investments from the private sector which eventually help reducing the country’s dependency on fossil fuels, providing wider and accessible energy for its citizens, and reducing greenhouse gas emissions.

Incentives created for reducing emissions from deforestation have also begun to attract investors and corporates to be pioneers in forest and peat land conservation and restoration. If conducted responsibly, taking into account the needs and rights of local and indigenous peoples, the private sector can demonstrate that this type of actions can produce benefits for the economy, environment and communities.

Such responsible approach is not an easy task to do. The private sector may need help from a variety of groups, including the government and civil society, to understand the complexity of the issues, calculate the costs and initial investment associated with the approach, and be patient but persistent in undertaking the journey towards sustainability.

Multi-stakeholders platforms built collaboratively by the private sector, the government and civil society groups to provide business solutions for sustainability issues can also improve the level of trusts among these actors, especially if transparent discussions and exchange of knowledge take place regularly.

Regardless of the growing number of companies taking part in sustainability platforms, it seems that the current and future environmental problems may be too big to be solved by even “the progressives” and “champions” of the private sector. There is definitely a need for a critical mass of investors and corporates so that there will not be any significant “bootleggers” and “free-riders”.

A significant and larger number of investors and corporates which promote and undertake sustainable practices can reduce costs and investments in greening the economy. A critical mass of the private sector involving in sustainability means that “the champions” of the industry will not be isolated just because they implement sustainable practices.

To achieve such situation, the private sector needs to pro-actively engage the government and seek for the support from the civil society and the media to push for better corporate governance, in which transparency is promoted, corruptions are seriously dealt with and a level of playing field is created.

According to the Global Compact Network Indonesia, good governance is a critical enabling factor. Good governance principles, such as transparency, accountability and responsiveness, therefore, should be promoted as fundamental values to guide efforts to achieve sustainability.

The private sector can further lead the way by improving its internal policies and operations, and creating funds to support such actions. The private sector may require innovation in its approach at different levels so that sustainable development can be carried out in a cost-effective and efficient way.

There is, however, an important component of education and outreach to the public and consumers. Consumers need to understand that efforts to operate in a sustainable manner require their support. Hence, identification of products or services which are really delivered in a responsible and sustainable way is a key.

Honest, clear and accessible information is vital to further promote green products and services. To achieve this, the private sector needs to undertake efforts along the supply chain.

When the private sector can push for both sustainable production and consumption, green transformation can then be considered as “effectively running”. If this is the case, many will likely applaud the contribution of the private sector, particularly toward achieving a healthier and liveable planet.

In a total economic value term, increased investors and corporates focus on sustainability not only are creating better products and services but also fundamentally addressing challenges of natural resource depletion and environmental pollution.

The journey towards greener economy may be long and uneasy, but if the private sector recognizes itself as a key stakeholder and is willing to collaboratively lead the way, this journey may yield immediate benefits and better outcomes in the future.

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The author is climate and sustainability specialist, a doctoral candidate at the Australian National University, and the recipient of Australian Leadership Award and Allison Sudradjat Award.

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