Three approaches that can prevent further environmental degradation: World Environment Day

This is the Day when the world gathers to raise awareness about environmental degradation and the threats of climate change. However, even though we have been celebrating this day for years, the world is divided about what it — can and cannot do, should and should not do, will and will not do — to prevent the dire consequences of inaction towards climate change and environmental degradation.

This inaction and indecisiveness is the biggest worry in my mind.

So what can we do?

Humans can be extremely ingenious when the need arises. It is this ingenuity that needs to take center stage if we are to move away from the crippling consequences of inaction. In this post, I would like to describe three innovative approaches the world is taking in order to tackle the problems of environmental degradation and climate change.

Environmental awareness and messaging

Any change requires awareness. While environmental education and awareness have been happening since the 1980s, it is only recently that we have decided to step up these efforts.

The Guardian has recently decided to change the terminologies it uses while talking about climate-related topics. ‘Climate change’ is now ‘climate emergency’ or ‘climate crisis’; ‘climate skeptics’ are now ‘climate science deniers’. These subtle messaging cues are aimed at changing perceptions towards climate change and inducing urgency towards this topic. Apart from such subtle cues, citizens of the world, including the youth, are increasingly adopting the old-fashioned direct approach to government inaction in the form of climate protests.

One of the more successful and innovate environmental action has been possible because of changes in consumer demand. Consumers want to know more about how a product was produced, where it was produced and how it will be disposed of. This has led to the growth of third-party certifications seeking to communicate the mark of sustainability. Many governments have adopted national organic certification schemes. Product/industry specific certification schemes like FSC certification for forest produce and Trustea Code for tea cultivation have also been developed.

Rising environmental awareness and consumer demand is making the private sector — the largest influencers of the world — to consider environment-friendly and climate-friendly options in their businesses.

Business case for sustainability and climate risk management

Businesses are being forced to change their focus from bottom lines to sustainability, making them look beyond their immediate place in a product’s supply chain.

Sustainability allows businesses to improve resource efficiency in the value chain, reduce costs and wastage, and ultimately gain a competitive advantage in the market.

Traditionally, the private sector saw sustainability as a costly, untested and risky venture that was an unnecessary headache. However, viewed holistically, some of the measures suggested under sustainability makes perfect business sense as it allows businesses to improve resource efficiency in the value chain, reduce costs and wastage, and ultimately gain a competitive edge in the market.

An example of this is the fast adoption of renewables in the energy sector. Renewables were seen as the alternative to a fossil-fuel driven economy. But their high costs prevented fast adoption. As technologies improved and costs plummeted, the energy market has transformed and mor renewable options are available at very competitive prices today (it would be cheaper, in fact, without fossil fuel subsidies).

One of the more interesting cases I read recently is the new Addidas running shoe called Futurecraft Loop, which is completely recyclable. This shoe, made from one type of plastic throughout, can be ground up into tiny granules and remade into a completely new shoe. This is part of Addidas’s initiative to use only recycled plastic by 2024. In the long term, Addidas has taken control of their raw materials, drastically reduced costs by using only one type of plastic and gained a business advantage among environmentally sensitive consumers!

The private sector is also becoming increasingly aware about the risks posed by climate on their businesses. Extreme events like floods, droughts, and storms can pose great risk to the businesses that rely on natural elements for raw materials. These risks are being factored into risk management strategies by companies worldwide. For example, an agribusiness company will need to consider water scarcity due to climate change and likelihoods of droughts and floods as a potential risk to their business. A single flood in Assam could wipe out an entire tea crop, denting the a tea company’s earnings from the export of this commodity.

Climate finance

Climate finance — financing climate-resilient projects — as a concept developed to de-risk investments in climate-friendly business models and technologies. New technologies and ideas — like climate projects — are untested and therefore, costly compared to the business-as-usual practices. This incremental cost of climate projects has been a major roadblock for private sector to invest in climate projects. It has also been one of the reasons why governments have not been able to sufficiently justify climate-friendly initiatives.

Carbon pricing, Payment for Ecosystem Services, Green Bonds and Green Banks are innovate approaches to finance climate projects.

To address this challenge and bring down the incremental cost of projects, climate finance is a dedicate stream of financial capital that is invested in reducing emissions and increasing resilience against climate change. This involves the use of grants, concessional loans and guarantee money given to climate projects to make the business model viable. The traditional approach to climate-friendly projects was for developed economies to invest in developing and low-income countries through development assistance. However, climate finance is considered to be an additionality specific to climate projects, over and above this development assistance.

Increasingly, innovative financing mechanisms like co-financing (financing by multiple stakeholders) and blended financing (financing using a combination of different financial instruments) are being used to leverage private investments to make environment-friendly business models viable and sustainable.

Other innovative mechanisms have been developed to raise climate finance. Carbon pricing, involving Emissions Trading System (ETS) and Carbon Tax have proven to be successful. The ETS is a mechanism where a limit (cap) is placed on the total emissions of an industry. Companies that emit less than this cap can trade “credits” for money with companies that emit more than the cap. Essentially, the total emissions from the industry is limited to the cap. Carbon Tax involves a tax placed on per tonne of carbon emissions. This tax makes a cheap but polluting business model less attractive than a slightly more expensive but sustainable business model.

Payment for Ecosystem Services (PES) and Green Bonds like Forest Resilience Bond have been used to raise capital for resilience in natural resources. Beneficiaries of the ecosystem service/natural resource pay the stewards/financiers for the continued supply of the ecosystem service. These mechanisms essentially put a price on non-monetary benefits of the environment, like soil quality, water quality, air quality, etc.

Governments are experimenting with the idea of Green Banks. These are financial institutions, funds, or facilities dedicated to leveraging private-sector investment into low-carbon and climate-resilient solutions. They do this by building national financial capacity to address market barriers, helping to channel domestic savings and private investment into priority projects. Green banks, again, de-risk investments by investing in projects with high environmental protection potential.

There is still work to be done…

While these initiatives are strong, there are gaps to be addressed before they can truly transform how the world views the environment.

The true potential of environmental education and awareness can be achieved when all media houses join the movement in strong environmental messaging. It helps nobody when climate science deniers are invited for debates against climate activists. Education systems need to move beyond the “3 Rs” and “use bicycles” narratives in schools. There is so much more to environmental science, like biodiversity, conservation, restoration, climate finance and resource efficiency. These aspects need to be introduced at the school levels.

Businesses which rely on fossil fuels will continue to oppose climate-friendly initiatives, as a large part of them involve a switch to alternate energy sources. However, the biggest roadblock to business adoption remains the incremental costs and low technological advancements in environment-friendly measures.

Climate finance required to swtich to low-carbon, resilient growth all over the world has been estimated at USD 90 trillion by 2030. Until 2016, USD 75 billion was raised. We are way short of this estimated requirement. Also, climate finance has been heavily skewed towards mitigation projects, as adaptation projects do not fetch return on investments; they function purely on grants. Increased investment in climate projects and adaptation is required, especially from the private sector, to meet the target of a low-carbon, resilient world.

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I believe that an overarching requirement to make these three approaches work is enabling government policy. If governments take environment degradation seriously, then environmental awareness will increase, incremental costs will fall, sustainability focus will increase and climate finance flows will also improve.

Strong government policy, coupled with these approaches can truly create transformational change and prevent further environmental degradation.