Sri Lanka Country Director’s Speech at the Seminar on Going Green: Opportunities for Aitken Spence
Colombo, Sri Lanka
June 06, 2012
As Prepared for Delivery
At the Corporate Auditorium, Aitken Spence Tower I
Colombo, Sri Lanka
It is indeed a pleasure to speak to you on the role of the corporate sector in a green economy. Yesterday the world celebrated World Environment Day. Today we live in a world where greenhouse gas emissions keep growing, air and water pollution is worsening in many developing countries and we continue to lose critical habitats like forests, mangroves and coral reefs.
The last couple of years have seen the idea of a “green economy” float out environmental economics and into the mainstream of policy discourse. It is no longer a concept promoted only by governments, but is increasingly evident in the corporate-sector agenda. It promotes a new economic paradigm — one in which material wealth is not earned at the cost of growing environmental degradation, ecological destruction, and social disparities. There is mounting evidence that a transition to a green economy has sound economic and social justification. For governments, this would include leveling the playing field for greener products by phasing out subsidies, reforming policies and providing new incentives, strengthening market infrastructure and market-based mechanisms, redirecting public investment, and greening public procurement. For the corporate sector, this would involve understanding and seizing the true opportunity represented by green economy transitions across a number of key sectors and responding to policy reforms and price signals through higher levels of financing and investment (Toward a Green Economy, United Nations Environmental Program, 2011).
According to the new World Bank Group Environment Strategy for 2012-2022, “Toward a Green, Clean, and Resilient World for All,” environmental degradation, pollution, or overexploitations of natural resources hamper economic progress. Lack of action to address health-impairing air and water pollution, for example, is costing some countries the equivalent of 4 percent of GDP or more a year. Policy failures account for many perverse incentives in the efficient use of natural resources, and without strong institutions and governance frameworks in place, taking action to reduce environmental risks has a low chance of success.
If the desirability of moving to a green economy is clear to most people, the means of doing so is still work in progress for many. Over the last quarter of a century, the wealth of world economy has quadrupled, benefitting hundreds of millions of people. But according to the Millennium Ecosystems Assessment, 60 percent of the world’s major ecosystem goods and services that underpin livelihoods have been degraded or used unsustainably. This is because the economic growth in recent decades has been accomplished mainly through drawing down natural resources without allowing stocks to regenerate and through allowing widespread ecosystem degradation and loss.
Let’s consider the situation in Sri Lanka. The country’s economy has performed relatively well in recent years, despite decades of internal conflict. Economic growth has remained robust, averaging between 4% and 5% in the past decade, and partly as a consequence the country’s social indicators (such as literacy rates, child and maternal mortality rates, and life expectancy) are comparable to those of middle-income countries in East Asia. The government of Sri Lanka’s development policy framework, Mahinda Chintana: Vision for the Future, seeks to “reposition Sri Lanka in the global arena as a knowledge-based, strong middle-income country… which continues to preserve cultural values and traditions.” The framework seeks rapid economic development through a strategy of accelerated infrastructure growth that would include electricity generation, ports, airports, water supply and irrigation, roads and transport, and revitalization of agriculture. Environmental assets and the unique ecosystems of the country also figure prominently in the framework which “aims to promote sustainable development in close liaison with the land, fauna, and flora.” However, meeting the dual objectives of accelerated infrastructure development, while ensuring environmental sustainability, is a challenge, but not one that is insurmountable.
While Sri Lanka scores well on most economic indicators, on measures of environmental stewardship its performance remains disappointing. In the realm of environmental sustainability Sri Lanka appears to lag behind most of its peers. The only MDG the country is unlikely to achieve is MDG 7 on ensuring environmental sustainability by 2015. Statistics suggest that Sri Lanka had the fifth-highest rate of deforestation (15%) in the world during the period 2000-2005 (source here). As a result, a recent survey finds that 33% of inland vertebrate fauna and 61% of its flora are nationally threatened. Around two-thirds of the threatened biodiversity is endemic to Sri Lanka. Twenty-one species of endemic amphibians have not been recorded during the past 100 years and these can be presumed extinct. One in every 12 species of inland indigenous vertebrates is currently facing an immediate and extremely high risk of extinction in the wild (IUCN Sri Lanka and the Ministry of Environment and Natural Resources, 2007, The 2007 Red List of Threatened Fauna and Flora of Sri Lanka, Colombo, Sri Lanka). Over 30% of agricultural land is defined as degraded and there are ever-increasing threats from intrusive structures on watersheds and the mangroves that provide a host of life sustaining environmental services. This trend is set to continue unless more systematic and stringent corrective measures are taken immediately.
Natural capital is a key factor in sustaining rural productivity, and the degradation of the natural capital base is having predictable negative consequences for agriculture and rural development. Studies have shown that poverty is often highest where land is degraded and also among communities living in areas adjacent to protected areas. The depletion of soil productivity and watershed services has impacts on local growth prospects. When dry zone forests are converted to alternative uses, the human-elephant conflict emerges, taking an ever more severe toll on the poorest sections of society.
None of this is either inevitable or a necessary consequence of a development strategy that relies on infrastructure growth. There are strategies that would enable Sri Lanka to simultaneously harness highly inclusive rural growth through mechanisms that promote environmental stewardship. For instance, there is strong evidence that nature-based tourism can act as an engine of sustainable rural growth and provide better rural jobs and higher incomes than are currently available. Likewise, global experience illustrates that protection of key environmental services (such as soils and watersheds) can be a highly cost-effective way of securing a robust and resilient rural development. In short, prevention of environmental damage is typically more efficient and cost-effective than restoring the damaged assets.
In the urban areas, industrialization has been vital in fueling growth and providing employment, but it has been accompanied by the familiar suite of environmental problems. With rising prosperity, the volume of waste has risen dramatically and the number of motor vehicles has almost tripled in the last two decades. As a result, problems of congestion, air quality, and solid waste management have emerged as the new challenges of middle-income status. These environmental problems typically bring costs that impair growth prospects and diminish the economy’s productivity. There is considerable evidence that inaction is a costly option (typically costing between 4% and 10% of GDP) and hence a key priority for Sri Lanka is to find efficient solutions to address the consequences of pollution and solid waste.
Therefore, if Sri Lanka’s economic growth is to be sustainable, a transition to a green economy seems inevitable. While the government will have to create enabling conditions for a green economy and lead by example, the corporate sector has a responsibility to ensure this transition takes place by introducing fundamental changes in how business is conducted. A new study by the World Economic Forum identifies 16 emerging-market firms that are turning eco-consciousness into a source of competitive advantage. These companies turn limitations into opportunities. Limitations such as resources, labor, and infrastructure motivate these companies into thinking “out of the box” and turning these opportunities into profit. India’s Shree Cement, a company plagued with water shortages, developed the world’s most water-efficient method for making cement, in part by using air cooling rather than water cooling. Broad Group, a Chinese maker of air conditioners, taps waste heat from buildings to power its machines. Zangzidao Fishery Group, a Chinese aquaculture company, recycles uneaten fish feed to fertilize crops. Sekem, an Egyptian food producer, set itself the task of reclaiming desert land through organic farming. Similarly, the Sri Lankan corporate sector should look beyond the conventional business model and be innovative. Don’t wait for the government to lead the way; you — the private sector — are the engine of growth. Take the initiative to be the engine of “green growth.”
Aitken Spence has made a name for itself in good environmental management — Heritance Kandalama is a case in point. But challenge yourselves to do more, so that you are pioneers in the corporate transition to a green economy. Your initiatives for growth and business expansion should take environmental externalities into account. The depletion of natural capital must be compensated. Energy efficiency and renewable energy options should be explored prior to settling for conventional energy sources. Reforest marginal lands to compensate for your carbon footprint. There are perceptions that the corporate sector exploits natural capital for short-term profit. This is your opportunity to show that you are shouldering a fair share in Sri Lanka’s transition to a green economy.