This piece originally appeared in the Guardian Sustainable Business.
In 1992, heads of state converged on Rio for the Earth Summit, a bright moment that seemed to herald a new era for sustainable development. Bold speeches were given, important treaties signed. Saving the planet was cast as a moral imperative. Multilateral institutions would lead the way.
Twenty years later, the world looks much different. The unipolar system of U.S. domination that followed the end of the cold war is now multipolar. The locus of global growth and consumption has largely shifted to developing countries, especially in Asia. And for all the good intentions voiced in Rio, the health of our climate, water resources and ecosystems has been deteriorating at alarming rates. That's not to say that there hasn't been progress in some areas, including in the private sector, which will be amply represented – along with governments and civil society groups – at the Rio+20 conference in June. With that in mind, it's worth examining how businesses can build on that progress, even absent the ground breaking global agreements that emerged from the original Rio conclave, but are unlikely this year.
The first thing to recognize is that many businesses have already embraced sustainability, for the simple reason that it can be good for profits. Cutting back on hazardous waste saves on treatment costs and potential liability. Making products more efficiently saves on electric bills. Even regulations, when properly designed, can provide greater certainty for business and sometimes open new markets, as General Electric has demonstrated with its highly lucrative Ecomagination line.
Risk can be another motivating factor. In an increasingly interconnected world, multinationals have learned the hard way about the risks of environmental mismanagement to their image and profits. Investors, too, are becoming more sensitive to environmental risk in deciding how to allocate capital.
There is a range of sensible policies that can encourage businesses to do what they do best: innovate and create new markets.
At the same time, we have to be realistic about how far businesses will go on their own. Companies are ultimately answerable to shareholders and most will embrace sustainability only to the degree that it helps, or at least doesn't hurt, their bottom line.
That brings us to the role of government. As should be obvious by now, there is a range of sensible policies that can encourage businesses to do what they do best: innovate and create new markets. With the right mix of incentives and public investment, businesses can come up with cost-effective solutions to respond to environmental challenges and scale them up quicker than government ever could.
The U.S. wind and solar industries, for example, have received a major boost from federal production and investment tax credits, as well as state-level requirements that utilities buy a share of their power from renewable sources. Such mandates are in force in 29 states, including California, which has set its renewable energy target at 33% by 2020. These incentives, in turn, helped drive more than $48bn (£29bn) in U.S. clean energy investment in 2011.
Germany's feed-in tariff is perhaps the best argument for bold government action on renewables. Now more than two decades old, the tariff guarantees that producers of electricity from wind, solar, biomass and hydropower will be able to sell it to utilities at a reasonable profit. Germany received 20% of its electricity from renewables in 2011, up from 6.4% in 2000. On some days, when the sun or wind is especially strong, Germany produces as much as half of its electricity from carbon-free sources during peak hours. The government's renewable energy strategy, which includes support for research and development, training programs, and infrastructure investment, has enabled the development of a dynamic new sector that provided over 380,000 jobs last year, along with affordable power alternatives for its citizens.
Developing countries, too, are waking up to the possibilities of a vibrant green economy and government's role in fostering it. Indonesia is the world's leading producer of palm oil, reaching 23.6m tonnes in 2011. Yet, the government recently announced plans to curb the destruction of tropical forests for oil palm plantations. The strategy calls for shifting some palm oil production to land that has already been logged or otherwise degraded, which represents at least 70,000 sq km (approximately the size of Ireland) in Indonesia. If done right, this approach can help protect ecosystems and preserve jobs.
Of course, policy shifts come with trade-offs, and should not be imposed without a frank acknowledgement that there will be losers as well as winners. The key is to provide support to companies that may wind up on the outside, helping them move to longer-term stability.
In the 20 years since the first Earth Summit, we've seen that it's possible to have robust economic growth together with environmental protection provided the right policies and incentives are in place. When business and government leaders return to Rio in June, they should take the opportunity to reignite an important dialogue, including spelling out concrete steps, on the urgent need to shift to a more sustainable future.