Private sector a vital part of solution to climate change

Dr. Vaqar Ahmed

Governments must realize that they cannot tackle the issue alone, so the right regulatory environment has to be in place to attract investment, reduce risk and encourage innovation in sustainable development. Dr. Vaqar Ahmed

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It is now widely understood that the UN’s Sustainable Development Goals (SDGs) present substantial opportunities for businesses to attract investment for sustainable development. There are numerous examples of firms in Pakistan and across South Asia that are integrating national SDG priorities into mainstream business models.Despite this understanding, several business entities and entrepreneurs describe how stifling national-level regulatory environments, a lack of public sector support and weak information remain a problem for scale-ups and even the entry of small and medium-sized enterprises into ventures that can support climate change-related goals. These specific goals are: SDG 13 — advocating that countries take action to combat climate change and its impacts; SDG 7 — which aims to ensure access to affordable, reliable, sustainable and modern energy for all; SDG 9 — aiming to build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation; and SDG 11 — focusing on making cities inclusive, safe, resilient and sustainable.These businesses ask for national-level frameworks that can encourage them to invest in climate mitigation and adaptation. As countries learn ways of living with climate change and its impacts, businesses that come up with ideas and solutions that help this learning will have a ready demand and market.Such frameworks cannot be formulated if entrepreneurs and business managers do not have an understanding of business opportunities in climate change. This also implies a role for think tanks as they act as a bridge between knowledge creators and policymakers. The latter, of course, are responsible for putting in place a conducive and encouraging regulatory environment for businesses to invest and expand.A key question that can help in this direction is: What should a national framework that attracts private investment look like? First, it is important that some of the public sector’s own investment should be redirected towards prioritizing the above mentioned SDGs. A “crowding in” of private investment is possible here, as the public sector should encourage subcontracting for businesses wishing to partner with the government. Successful examples of public-private partnership models can already be seen in renewable energy. However, more is needed, for example in improving water resources for the agriculture and food security industries.Second, we would need to look at our tax and trade policies in a radically different manner. Such policies should be designed to incentivize impact investment. When countries sign preferential trade agreements, they must lower tariff and non-tariff barriers on inputs that go toward the production of clean technologies.Third, it is important that the national framework should also have linkages with national science, technology, and research and development policies. We have examples where science and technology competition funds have been used to sponsor micro-level innovations with significant social impact. For example, in the middle of the Thar Desert of Pakistan, one sees the poorest of the poor, who remain unable to afford state-provided electricity, charging their phones using mobile solar plates.Fourth, the business plan competitions held across tertiary education institutions need to get young minds to think about sustainable businesses. At a national level, as resources that are currently going into fossil fuel-based energy production, industrial generators and household-level uninterrupted power supply systems are vacated, a large idle pool of capital can be diverted towards encouraging renewable energy business solutions.Finally, it is important for national governments to see how they can reduce several forms of risk for businesses entering into sustainable development ventures. When trying to attract traditional private sector investment, countries make use of special economic zones, which carry tax breaks and preferential tax and utilities rates, but these may not be enough to convince businesses, particularly startups, to move in to unchartered territory.For example, incentives for attracting local and foreign companies towards the renewable energy sector requires three levels of inducements, the foremost of which is not a monetary measure. The primary condition for businesses to enter the market is a fair, transparent and competitive regulatory environment. At a secondary level, investment incentives — such as loans at lower interest rates, loan guarantees, tax credits, accelerated depreciation of assets, and exemptions from tax on imported inputs — and production incentives, including minimum tariffs to be charged from consumers, lower production taxes for a certain period, and lower utility rates, are important.Going forward, it is immensely important that our governments realize that they alone cannot tackle the multifaceted threat posed by climate change and its impacts. It is therefore important to understand the role of the private sector as part of the future solution.• Dr. Vaqar Ahmed is associated with the Sustainable Development Policy Institute (SDPI). Twitter: @vaqarahmed