How to combine business with just transition

February 15, 2024

An increasingly popular topic internationally is that of the green and just transition. This is due to increased awareness of the climate crisis, concerns about poverty and social inequalities exacerbated by environmental degradation and climate changes, concern for workers in sectors that may be most affected by the transition, political momentum around environmental sustainability and social justice issues, greater corporate commitment, with growing recognition of the need to transition towards more sustainable and socially responsible business practices, and recognition that the climate change and SDG agendas can be combined and reinforce each other.
According to the UN, the concept of the green and just transition seeks to ensure that no one is left behind in the transition towards low-carbon and ecologically sustainable economies and societies. However, despite its appeal and reasonableness, the concept is controversial. Various groups, each with their own reasons and motivations, oppose it. These include industries that rely heavily on fossil fuels or unsustainable practices, such as coal mining, oil and gas extraction, and heavy manufacturing, movements that represent workers in carbon-intensive industries, groups and shareholders that prioritize immediate profits, countries that benefit from the export of fossil fuels, and individuals or groups who deny the scientific consensus on climate change. In the United States, for example, companies that have adopted ESG principles are experiencing powerful negative lobbying from conservative groups, and the just transition is even a topic of election campaigns.
But the evidence suggests that the green and just transition is not antagonistic to commercial interests. On the contrary, the transition towards sustainable practices opens new business opportunities. Companies that embrace sustainability can tap into emerging and growing markets to gain a competitive advantage. Adopting sustainable practices often leads to medium- and long-term operational savings, such as in energy efficiency, waste reduction, and resource conservation. By embracing sustainability, value is created and innovation and differentiation are promoted in the market, such as in green technologies, sustainable materials, and circular business models. Demonstrating a commitment to sustainability can also improve the company's reputation and brand value in the market and its employees. By proactively addressing ecological concerns and complying with social and environmental regulations, the company can also avoid fines, legal disputes, and reputational damage. Empirical evidence suggests that companies that demonstrate a commitment to environmental and social responsibility have greater and better access to capital and credit conditions, experience greater growth in market share, and are more resilient.
However, it is necessary to recognize that companies' interests in the green and just transition agenda may be influenced by the specific conditions of each country. After all, the conditions faced by the same company in a developed and a developing country to carry out that agenda can be quite different. It is also necessary to recognize that the growing wave of nationalism, discrimination, protectionism, and subsidies offered by developed countries to their companies and the fragmentation of global trade impose asymmetric costs and disadvantages for companies operating from developing countries, generating obstacles to the adoption of the green and fair transition in these contexts.
Despite the difficulties, the case of Latin America illustrates how companies can take advantage of business opportunities and combine attractive returns with a green and fair transition. After all, the region offers unprecedented conditions for domestic and international companies to explore the economy of the future and prosper. Consider green energy and powershoring. The region has by far the greenest electricity matrix, and many new renewable energy projects and transmission lines are underway. In addition to immediate availability, the cost of that energy is generally competitive, which increases the attractiveness of the region for energy-intensive businesses or those that need to decarbonize in short terms. The region is also generally abundant in fresh water and strategic minerals for the transition, is especially rich in biodiversity, has immense potential for the carbon market, immense leadership and potential in the production of biofuels, and enormous potential for the expansion of sustainable agriculture. All this favors the competitiveness of energy and water-intensive products.
As an example, consider green steel. The region is globally the most competitive to host the production of this product, which can have significant implications for the generation of employment and income, territorial development and value chains, infrastructure, impact on small businesses, and generation of taxes and exports, among others. many other benefits that converge with the green and fair transition in developing countries. But this steel can also benefit companies in other regions that need to decarbonize their production lines, such as the vehicle industry, favor international consumers with more competitive prices accelerate the times, and reduce the cost of the energy transition in importing countries. steel. In the end, this steel could favor the green and fair transition in a general plan.

Stimulating and promoting the combination of commercial, social, and environmental interests could accelerate measures and reforms that favor environmental commitments and the SDGs, placing the private sector in a very special condition. Stimulating trade and investment, ending subsidies from rich countries, and accessing technologies and sources of financing could be particularly relevant to involve companies in developing countries in this important agenda of global interest.

Jorge Arbache
Jorge Arbache

Vicepresidente de Sector Privado, CAF -banco de desarrollo de América Latina y el Caribe-