The Green Economy: Barriers to Entry

Since the Organisation for Economic Co-operation and Development (OECD) formally launched its Green Growth initiative in 2011, policy makers and business leaders alike have demonstrated significant interest in what has been presented as a new growth paradigm. Rather than placing emphasis on economic growth for its own sake, the Green Growth model prioritises purposeful, sustainable, and inclusive growth.

The shift towards a Green Economy has impacted European businesses of all sizes, in all sectors, and in myriad ways. Many business challenges have ensued, especially for small and medium enterprises (SMEs) with limited resources, and the potential financial burdens that come with greener practices are not easy impediments to overcome. If Green Growth is to remain inclusive, it is important to explore the Green Economy’s barriers to entry.

The Shift So Far

So far, much of the Green Growth paradigm shift suggests a positive opportunity for businesses. For example, in a report related to a pilot project, “Boosting the circular economy among SMEs,” the European Commission noted an increased willingness among corporations to utilise resources more efficiently, as well as incorporate eco-innovation and circular strategies. As the commission has put it, Green Growth is all at once “good for business, citizens and nature.”

In the European Union, Green Growth policies run parallel to initiatives related to the Circular Economy (see also: Making the EU Go Round with Circularity). In relation to these policy goals, the EU has designated wide-ranging measures, from the promotion of “repairing, recycling, and durability” to incentivising waste-reduction – to prioritise greening initiatives and stimulate circularity.

In addition to these broad initiatives, a sub-swathe of programmes falls under the umbrella of Eco-Innovation. Cutting across both economic and ecological policies, these programmes—such as a pilot programme for firms interested in investing in and scaling up circular strategies—are poised to usher in a vibrant and competitive Green Economy.

The goal of Eco-Innovation is a significant transformation of how the economy of the European Union functions. If the roll out is managed effectively, it will continue to reshuffle not only how resources are managed, but how business is conducted, and how success is measured. Within the policy framework driving the paradigm shift, there is much greater public and media visibility on decisions from larger firms, such as SAP’s pledge to go Carbon Neutral by 2023, or Schneider Electric’s consistent place among Corporate Knights’ list of Most Sustainable Corporations. Still, challenges remain for all organisations, and particularly for SMEs, which employ roughly two thirds of the EU-27’s workforce.

Barriers and Challenges

Recognising the role that policy plays in facilitating economic development and transformation, the European Commission has determined that the largest barrier to entry for any organisation, irrespective of size and access to capital, is a policy environment in which conventional economic policy is privileged over ecological concerns. Within the conventional framework, economic incentives do not reward firms’ ecologically oriented actions. But in general, the creation of a stable regulatory environment, as well as the setting of clear environmental goals, are considered critical components of an economy that enables Eco-Innovation.

For smaller firms, in particular, a different set of concerns has emerged. In a report on Eco-Innovation in SMEs, the Commission found that economies of scale plays a significant role in the delivery of savings from resource efficiency innovations. To put it another way: the larger the organisation, the more likely costs will decrease with the implementation of resource efficiency measures, such as materials saving measures, or reusing waste and materials. Perhaps unsurprisingly, this has been found to be of particular strategic importance among manufacturing firms with high overheads.

Among all SMEs, however, there is a significant knowledge gap in terms of how to access financing and funding. This includes an unawareness of financial incentives available through government programmes, as well as of alternative financing opportunities, such as green banks or venture capital. Reflecting trends apparent throughout global capital markets, the Commission has also noted that, among investors, there appears to be an overwhelming emphasis on green information technology, or green tech.

Eco-Innovation in a Digital Economy

As important digital technologies may be to the current global economy, they remain only one part of the economic transformation required. Still, in an assessment of the intersecting policies related to Eco-Innovation and Digitisation, it is evident that many of the EU-27’s member states are adopting policies to stimulate digital competencies. Croatia, for example, has established a plan to reduce taxes for businesses by 30%, in an attempt to create a more competitive market, as well as encourage entrepreneurship.

It is clear that, much like Croatia, the policy approach of many member states is designed so that digital innovations are to precede ecological innovations. Still, the rise of eco-design, digitally-enabled resource management, and other green technologies indicate that the two are increasingly inter-dependent, or perhaps part of the same initiative: towards a more transparent, more efficient, and more inclusive economy. What remains to be seen, however, is whether Big Tech firms helping to drive significant innovation will adopt the same attitude of transparency.