Innovations In Emerging Markets

Using Financial Markets to Tackle Global Warming

Whether or not the science of climate change is valid, financial markets still need ways to assess the risk of carbon liability, says a Financial Times op-ed. One solution is emissions trading markets. A carbon "cap and trade" system puts limits on emissions while pushing green investment, because market forces will pick the best clean technology.

The ideal trading market will have low volatility and high liquidity, as well as a derivatives market and contracts that can be traded anywhere in the world, no matter where clean technology is used. That will keep the cost of green capital low and the investment rate elevated.

There is nothing surprising about approaching global warming from a financial perspective. But ignoring climate change could result in serious consequences.

'Going Green' Business Model Offers Innovation, Environmental Awareness

Companies are no longer choosing between maximizing shareholder value and being socially responsible,  columnist John Gapper of the Financial Times says. In fact, he adds, firms in the U.S. going "carbon neutral" can leverage environmental credentials to attract a new customer base.

Gapper's position is in line with the body of work and experience in private sector development pointing to the growing effect of market forces in strengthening eco-conscious activities and businesses. As Gapper says: "The market is voting on whether to do something about global warming". And companies are responding. That is precisely how "Corporate self-interest can be a force for good, " the author says, helping to drive reforms, while developing new market niches and business lines.

South-South Pipeline Investment To Bring Vietnam Cleaner Energy

Malaysia-based Nacap Asia Pacific will construct a natural gas pipeline through southern Vietnam on behalf of state-owned PetroVietnam, Dow Jones MarketWatch says.

The move is intended to help Vietnam meet an increasing energy demand, which is forecast to rise by 15 percent a year through 2010. In addition, the project will enable the government to convert an older oil-powered plant to one that relies on cleaner natural gas.

At present, Vietnam has but a single gas pipeline -- one operated by BP. The lack of transport options has put a damper on expansion of the sector, despite the country's substantial natural gas reserves. The Malaysian firm's investment will at least help ensure that cleaner energy is front and center in upcoming plans to increase capacity in the sector.

Southeast Asia’s Green Energy Industry Fuels Employment

Southeast Asian countries have discovered a lucrative new sector – biofuels, reports the Economist. Palm oil can be turned into biodiesel, which promises to be a cheaper and more environmentally sound energy alternative. Besides reducing dependence on oil and gas, biofuel production helps boost trade surpluses and create employment.

In fact, Indonesia’s biofuel sector already employs 1.5 million people, and with the $110 million in aid the government promised its palm farmers, the number is expected to grow. Meanwhile, Malaysia has already approved 52 new biodiesel plants, which are needed to meet the orders pouring in from the EU and Japan. Neighboring Thailand, Myanmar, and the Philippines are also investing in biofuel plantations. Singapore will be doing refining for producer countries.

Two drawbacks: the time it takes for oil palms to grow fruit and, that as the price of palm oil goes up, food and other cooking oils become more expensive for the poor.

Global Firms Lead on Environmental Standards, Have Trickle-Down Effect on EMs

In the old days, U.S. regulators forced environmental rules on unhappy corporations. In recent years, things have changed as companies weigh reputational risk and preserve brand image. Firms themselves have imposed their own social and environmental standards, said a recent Washington Post column. For example, in the wake of global warming – and the rise of issue-conscious consumers -- Wal-Mart has vowed to double the efficiency of its vehicles and has cut its stores’ energy consumption by 30 percent. Meanwhile, both BP and GE have adopted environmentally friendly policies.

The trickle-down effect on companies in emerging markets is clear to see. The furniture-making industry is a case in point. Most developing countries do not, as yet, have regulation related to the exploitation of forests for furniture-making. But American firms that want to protect their brands are adamant on certification from the Forest Stewardship Council.

Because brands do not face the bureaucratic red tape generated by governments, they can more easily set their own social and environmental standards. Brands, in fact, are ahead of the curve and have become a kind of "shadow government." They are of course not the real thing. But, says the Washington Post, they are better than nothing.

This Corporation Goes Carbon Neutral

Although our policy is not to wholesale IFC initiatives through this blog, it seems appropriate to flag the fact that our Corporation, along with the whole World Bank Group, became "carbon neutral" on June 5, 2006, World Environment Day.

In practical terms that means we will invest in renewable energy and energy efficiency (above and beyond our projects) and purchase verified emissions reductions from projects in developing countries to offset greenhouse gas emissions from our Washington, D.C., offices, staff commuting, and all operational travel from headquarters.

More on this via our friends at the PSDblog.

GreenWatch and China: Using Disclosure to Expose Polluters

China has officially adopted the World Bank-supported GreenWatch program -- a low-cost approach that calls for sharing formerly confidential information on factory emissions with the public. The information is distributed to the media and published on the web to encourage polluters to change their ways.

After pilot GreenWatch projects proved successful in 22 Chinese municipalities, the Chinese  government decided in November to extend the program to every city in the country by 2010. More on this approach to addressing China's environmental problems-- among the worst on the planet.

Kenya Farmers Establishing Carbon Trade Niche

Carbon trading is catching on in emerging markets, often thanks to small-scale programs undertaken in partnership among local farmers, NGOs, and international carbon-trading companies. One case in point involves a small group of farmers in Kenya who are being paid to plant trees to absorb excess carbon from the environment. The International Small Group and Tree Planting Program is the NGO negotiating contracts with the Clean Air Action Corporation on behalf of the farmers.

As one NGO representative says: "This is the beginning. If the projects succeed and the farmers enter into contracts they will continue being paid for the next 20 years at which point they will be entitled to 70 percent of all revenues accrued from the carbon sinks. The tree remains the property of the farmer."

In the meantime, checking eBay is the quickest way to ascertain whether the Kenya farmers have found their market niche.

On Firms and Their Track Records in Green Investments

Reliable information on companies’ social and environmental performance is scarce, especially in emerging markets. That is not news to anyone who has ever worked in the area of business and development. The news is in the initiative recently launched by IFC to remedy the problem.

Through its Capturing Value program, the IFC is hoping to encourage research on the topic by establishing a competition for the best ideas on the subject. Grants of up to $500,000 for organizations that can meet the challenge are available.

Morocco, Madagascar Find Niche in U.S. Sustainable Business

Organic farmers in Morocco and Madagascar are among the suppliers of Simplers Botanica, an organic foods company based in Sonoma County, California. It is one of many businesses, small and large, that have embraced sustainable business practices -- "a concept that recognizes the need to both earn profits and be socially responsible."

An April 3 article in the county's Press Democrat says, together with high-tech firms such as Agilent Technologies, these companies are "making strides toward sustainability by limiting demand on natural resources and reducing waste. And they are profitable."