Industry & Environment - ADB

8/3/2019 Industry & Environment - ADB

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Asian Development Bank 2nd Discussion DraftAsian Environment Outlook 2001 August 2000

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Chapter 6. Industry and the Environment

6.1 Overview

Industrial wastes have adversely impacted human health and the natural environment foralmost two centuries. That impact has always been concentrated in urban areas, where thecombination of industrial pollution and urban wastes pose an immediate threat to health andhuman welfare. Following present trends, the growing congestion and pollution in the vasturban centers of Asia will inevitably overwhelm urban infrastructure and lead to strongresistance to industrial expansion, particularly in the urban areas, with serious implications foreconomic growth of the region as a whole.

In recent decades the degree and long-term consequences of the impact have finally beenrecognized and governments have seriously tried to control the wastes and reduce the impactsthrough regulation. In industrialized countries such as the United States this approach has beensuccessful, but at enormous cost to both industry and government. It has been less successful indeveloping countries that lack the human and financial resources, and often the political will, toenforce such regulations. Moreover, the regulatory approach generally taken has assumed thatindustrial wastes would continue to be generated and must therefore be treated and disposed.Inevitably, the greater marginal cost of more complete treatment, both to the firm and to thegovernment which must monitor it, has caused both industry and government to seek a different,more cost effective and sustainable solution.

The chosen solution started with basic concepts called pollution prevention or wasteminimization. In retrospect, even those countries with successful regulatory regimes recognizethat they could have accomplished more and faster with a combination of regulations andincentives to induce voluntary pollution prevention and better environmental management.

Unlike end-of-pipe solutions, pollution prevention and its evolution, cleaner production, are lesscostly and more sustainable per unit of impact reduction the more intensively they are integratedinto the operations of industry. Developing countries are increasingly attracted to this approach,both because of the lower costs and because it is less politically demanding.

With the wide recognition that pollution prevention and the use of cleaner technology aremore cost-effective solutions than end-of-pipe treatment has come a broadening of the concept towhat is now generally referred to as cleaner production. This more encompassing and moresustainable approach extends far up- and down-stream of the actual production process toinclude consideration of the environmental consequences of the design of the product, selection,extraction and processing of production inputs, and the distribution, use, and ultimate disposalof the product.

Relative to pollution prevention, which fine tunes a production process through better

operation management and selection of cleaner, more material-efficient technology, cleanerproduction considers the sum of the life-cycle impacts of producing and using a product orservice and engages a strategy and management approach to minimize that aggregateenvironmental cost. The UNEP defines cleaner production as the continuous application of anintegrated preventive environmental strategy applied to processes, products, and services to increaseoverall efficiency and reduce risks to humans and the environment.


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Perhaps the most significant of the expanded dimensions comprising cleaner production is theconcern for the natural resources consumed or damaged per unit of production. This reflects theconcept of natural capitalism in which wealth is measured in natural and human resources as

much as in the traditional measures of capital and financial resources. Effectively applied, thisapproach yields very different design and production process decisions by firms. Despite thegenuine concern of some firms, it is very difficult for the firm to even know the natural resourceimpacts of its actions. There is therefore a critical role for government because it is able to take alarger and longer view. It must provide the incentives for reduced emissions and thedisincentives, such as through pricing of resources, that will cause the firm to make theenvironmentally more beneficial decision on the bottom-line business basis with which they aremost familiar.

There are a number of reasons for firms to adopt principles of cleaner production on their owninitiative. These include reduced operating costs and greater profitability through greaterproduction efficiency, improved public image as an environmentally responsible firm, betteraccess to certain types of financing, reduced business risk from accident and regulatory

enforcement, and increasingly a stronger and even preferential competitive position, especially ininternational trade. Cleaner production is often referred to as a win-win solution in which thefirm reduces costs, business risks, and government intrusion, while the government incurs lessenforcement and monitoring costs. The ultimate winners, however, are the people who enjoybetter health and a cleaner environment, and the future generations for which the natural capitalwill be preserved.

Industrial pollution impacts poor people the most, particularly poor households near sourcesof industrial pollution and workers in the plants that are the source of the pollutants. Unlike themore affluent, they are unable to escape the exposure that causes illness, resultant loss of income,and overall shortening of productive life span. The reduction of industrial pollution is therefore acritical concern for public health and a direct contributor to poverty alleviation.

6.2 Current Situation

Over 50 international organizations are currently spending many millions of dollars annuallyto promote cleaner production and its related subjects in Asia. These include agencies of theUnited Nations (UN), multilateral financial institutions, industrialized country aid agencies andenvironmental protection agencies, public interest foundations, business associations, and others.The extent of the concern over the impact of industry on human health and the sustainability ofthe environment and natural resources is evident from the breadth of involved organizations andis growing daily. It is also evident by the number of programs specifically promoting cleanerproduction that a consensus exists that, together with innovative and enforceable environmentalstandards and regulations, it is a key means to reduce pollution and conserve natural resources.

There have been a number of successful cleaner production projects in the region, most withtechnical and financial assistance from international donors. The ADB alone has committed overUS$3.2 billion dollars in recent years to programs promoting cleaner production in Asia and hasUS$451.6 million dollars in the pipeline for the near future. Such programs by ADB and otherorganizations normally have counterpart contributions from the host government and frequentlyalso from local NGOs and the private sector. Increasingly one now sees programs generated andsupported entirely locally, without the incentive of international donor assistance.


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Part of the impetus for cleaner production comes directly from the private sector, especiallythe multinational corporations operating in the developing countries. Almost all multinationalcorporations have some aspect of cleaner production in their corporate policies and have

implemented varying aspects of it in their overseas operations. Some have taken the next step toplace requirements on their local suppliers that they also integrate principles of cleanerproduction in their operations or otherwise demonstrate that they are environmentallyresponsible (sometimes called greening the supply chain). Some of the multinationals also offerassistance to their suppliers to adopt cleaner production, and this trend offers great promise as adissemination mechanism for the practice.

The success of the profusion of cleaner production programs, however, has been measured bychange in a very limited number of firms. Despite the consistent pattern of increased efficiencyand lowered costs in firms that have tried cleaner production, change has propagated slowly,especially among small and medium enterprises (SMEs). The United Nations IndustrialDevelopment Organization (UNIDO) has found in assessment of past projects in the Philippinesthat the mechanisms and motivation needed to spread understanding of the success of those

firms adopting cleaner production do not exist, even within a given industry sector, much lessacross industry sectors.

The approach of both the international donors and of the local organizations and governmentswith which they cooperate has been based in the belief that if information, skills, and financingare made available, and a few industry leaders are shown directly how cleaner production canhelp them, everyone else will soon seize the available resources and emulate the leaders. In afully rational world and with perfect access to information, that might work. Those conditions,however, do not define even the industrialized countries, much less the developing world ofAsia.

Governments remain focused on economic growth that will allow them to catch up with theindustrialized leaders, and have measured growth in the classical terms of financial assets and

capital stock, largely ignoring natural and human capital. They have not seen cleaner productionor related concepts as a national policy issue. Most do see protecting the environment and publichealth, industrial growth, and promoting trade and investment all as policy issues, but they tendto regard cleaner production as a technical solution, a fix. Most have failed to see the manner inwhich the underlying concepts of cleaner production form a common thread through a matrix ofthe accepted policy issues. Consequently, environmental policies remain inconsistent withindustrial development and investment promotion policies, and where there are other bases ofcommon interest in cleaner production the linkages that could reinforce policies in multiplesectors are not made.

Much of the enormous collective effort to reduce industrial pollution and to promote cleanerproduction in Asia has focused on one or more of an array of specific initiatives, from market-based instruments (MBIs) to industry associations, from greening the supply chain to access to

financing, and on to a long list of worthwhile but relatively narrowly focused solutions. Mostprograms have failed to work from a holistic view of the problem, and to choose their initiativesstrategically to achieve a broad and clearly articulated goal. The challenge is to change thebehavior of decision-makers in the many lines of endeavor that have an environmental impact, inindustry, services, and government. In order to do so one must alter the conditions in which theymake their decisions, including the array of rewards and the penalties they confront and the


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technical and managerial resources that are available to them. Only from a holistic perspectivecan one hope to choose the most effective set of initiatives from the limited available resources.

Programs to promote cleaner production have particularly failed to address the underlyingpolicy and integrated planning needed to produce synergy among resources and achieve therapid spread of cleaner production. Much more could have been accomplished in the last decadetoward establishing cleaner production and thereby sustainable development if the internationaldonors had pressed harder on the more difficult and politically sensitive issues of public policyand national planning. They have instead funded primarily programs that carry out a useful butinadequate and incomplete set of actions. Even where public policy and MBIs have been part ofthe program, they have been regarded as secondary to information, training and demonstration.Without the underlying policies and planning which could create forces for change and focus andorchestrate the available resources, there has been little hope for the rapid adoption of cleanerproduction.

Asia is facing rapid future industrialization, and the adoption of cleaner production can both

make that industrial growth more competitive and avoid the environmental impacts incurred bythe industrialized nations from the same relative growth. The World Bank estimated in 1993 thatin Indonesia 85 percent of the capital stock that would exist in the year 2015 was yet to be built.Most has still not been built, and there is every reason to believe that the same proportion holdstrue for most moderately industrialized economies in Asia, perhaps somewhat less so for themore industrialized and for the newly industrializing. It is reasonable to believe that in theremaining 15 years of the prediction new capital stock will be built in Asia as a whole at leastequal to that which exists today. It is not yet too late to influence the nature of that newinvestment, which will surely shape the environmental future of Asia.

New large enterprises will tend to be cleaner and use less resources because of newer, moreefficient technology and because of the influence of the multinational investment partners. Butclear public policies are still needed to influence which resources are consumed, to reinforce the

trend toward greater efficiency and minimal impact, and especially to prevent the dumping ofoutdated technology.

SMEs, however, produce most of the pollution. Unless they are especially targeted by publicpolicy and effective planning and implementation of cleaner production programs, they will notonly continue to do so but will produce a steadily increasing proportion as larger enterprisesbecome relatively cleaner. They have the least capacity to assimilate information and toaccomplish change, and they must be reached, motivated, and assisted differently than largeenterprises. The typical management of a small enterprise is one person, so extended and focusedon financial survival that he or she has no time to attend a workshop or otherwise learn newconcepts. Information must come to the enterprise, perhaps through an extension service, and ina succinct form easily assimilated and clearly relevant to the bottom-line of the operation. Themore information and training intensive approach used for large enterprises has been shown to

have little impact on SMEs.

The overall gain for environmental quality from cleaner production will fall far short of itspotential unless it is not only applied more intensively by a high percentage of industry, but isalso applied more extensively than is presently occurring. Many assume that cleaner productionapplies only to manufacturing or industry and resist applying the principles elsewhere. Theconcept has developed within industry, perhaps because the most severe environmental impactsare from industrial pollutants and the most immediate problems are seen there. Examining the


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principles of cleaner production, however, one sees that cleaner production can be appliedbeyond the industry sector in two ways. Cleaner production can be applied in the operations ofany organized activity, such as in the way it sources its inputs and produces and delivers its

products or services. Sectors to which the principles readily apply include agriculture,transportation, tourism, energy, medical and many more, and in some of these one already seesthe application of cleaner production starting. Government at all levels can apply cleanerproduction in the way it operates its facilities and delivers services to its citizens.

Cleaner production can also be applied in the requirements an organization places on otherorganizations or individuals in order to bring about a change in their behavior. A localgovernment unit may require a manufacturer in its political domain to demonstrate that it ismeeting environmental standards and practicing cleaner production in order to secure a permitto operate, or an enterprise may require cleaner production or other practices of its suppliers as acondition for doing business. Even more so than with industry, supportive public policy anddirected outreach are needed to motivate change in these emerging areas for cleaner production.

To bring about the intensive and extensive change in behavior needed to make both presentand impending investment in Asia sustainable, developing countries must implement a numberof inter-related reforms. Foremost among these is integration and rationalization of policy acrosssectors, especially environmental policy vs. those for industrial development, energydevelopment, and investment promotion. Sector government agencies must develop theinstitutional capabilities to better understand the requirements of sustainable development andof cleaner production and use this understanding to collaborate with each other and with themany private sector stakeholders to achieve their common interests in national strategic planningfor cleaner production.

Reform and change are essential as well in a number of other areas, including the expandeduse of MBIs, creation of legal liability for environmental damage and the adoption ofenvironmental efficiency and performance criteria in lending by the financial community,

monitoring and enforcement of environmental standards and regulations, revision ofenvironmental regulations to promote cleaner production rather than end-of-pipe treatment, andspecial outreach for SMEs to name a few. All of these, however, depend for their effectiveness ongovernment articulating its objectives with regard to sustainable development and establishingclear and integrated policies to achieve those objectives.

6.3 Barriers to Change

Until now programs to promote cleaner production in industry have focused on technicaltraining, demonstration, information networking, and subsidized financing. The needed shift inbehavior requires much more than understanding technology and concessional loans. There aremany barriers to the adoption of cleaner production even when technical information andfinancing are readily available. Some barriers are institutional and some are cultural, and thespecific barriers will vary from country to country. However, most countries will encounteraspects of all of the following:

There is limited general awareness at the management or other decision-making level of cleanerproduction and its inherent advantages over pollution control strategies. In larger enterprises theproduction manager or plant engineer is sometimes aware of the value of cleaner productionbut is unable to communicate its importance through a culturally-determined hierarchical


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system to the senior management whose support is needed to incorporate principles ofcleaner production (as distinguished from cleaner technology) in the operations of the firm.In general, however, awareness is still low, even among large enterprises, and is especially

limited among SMEs.

There is limited awareness among the public as to the impact of industrial emissions on public health.This results in little pressure from the public, even from those directly impacted, ongovernment to take decisive action to reduce industrial emissions.

There is as yet insufficient technical human capital to evaluate, assimilate, adapt, improve,and diffuseinformation on cleaner technologies and on cleaner production practices. There are few trainers ofcleaner production, it is difficult for firms to find staff trained in cleaner production, and thenascent consulting industry still has very limited capability to deliver the specialized supportservices needed by industry.

There is an absence of good information networks on existing cleaner technologies and practices, trendsin technology, product markets, and technology suppliers or vendors. There are a number of

publications and even web sites that contain useful case studies and technical information oncleaner technology. Most, however, have been compiled at a point in time as part of a project,and once completed, even the web sites have not been updated. The most currentinformation is found from equipment suppliers, but they are sometimes suspect of providingbiased information. A self-sustaining and continuously updated network source willprobably require a greater awareness and demand willing to pay a fee for ease of access toimpartial information.

Basic resources such as water, wood, and minerals continue to be regarded as free or almost free goods.Even where considerable cost is incurred in extraction, such as is the case with minerals andmineral products, the mining concession constitutes a very small portion of the delivered costof the input to production. The market cost therefore treats the original natural resource asalmost free and reflects primarily the value added of processing. This is even more true of theuse of water, which is almost universally regarded as a free good at its source. The marketcosts on which a manufacturer makes choices among inputs therefore reflect almostexclusively the cost of processing and delivery, perhaps slightly the relative scarcity of theresource, and almost not at all the impact of its extraction and processing on the stock ofnatural capital.

There is poor compliance monitoring and weak enforcement of environmental regulations in mostdeveloping countries. While the effective application of cleaner production can take a companywell beyond the regulatory requirements, it should not be viewed as a substitute for properlyenforced regulations. Poor enforcement results partially from a lack of enforcementresources, but also significantly from a reluctance of government to confront influential firmsor to appear to impede the economic growth and inflow of investment capital to the country.

As a largely voluntary change of corporate behavior resulting from a combination of marketforces and direct incentives and disincentives, cleaner production represents a less politicallydemanding alternative and a lower cost solution to regulatory compliance as the regulatorycriteria become increasingly tighter.

Many existing environmental standards and regulations promote end-of pipe solutions rather thancleaner production. Most regulatory regimes have been developed with the assumption thatindustrial wastes will be generated and must be treated and disposed. They are therefore


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sometimes prescriptive in nature, requiring certain responses that may include a wastetreatment plant and certain process technology. Fiscal measures such as accelerateddepreciation of treatment plant costs even make end of pipe solutions more profitable. The

regulations are also usually media specific rather than accounting for the overall impact froman operation and do not recognize trade-offs among media to achieve the least total impact.The net result is that they do not leave the firm the latitude needed for cleaner production toseek the most cost-effective means to meet the regulatory limitations and to go beyond.

Few incentives such as MBIs and public recognition have been developed to balance the disincentivesin an overall pattern of forces to change behavior. This situation exists for reasons that aresometimes political, rarely technical, and often institutional and financial. Many agencies andindividuals, genuinely concerned with reducing industrial pollution, are afraid to proposemore sophisticated MBIs such as tradeable permits in the belief that they are too complex toadminister. Less complex instruments such as emission charges are often structured only toachieve regulatory levels, failing to provide incentive for the continual improvement at thecore of cleaner production. Incentives such as tax and tariff waivers for implementation of

cleaner production are usually opposed by financial agencies loath to forego any source ofrevenue, and the agencies which would need to administer such plans lack the humanresources to evaluate the validity of proposed projects. While MBIs probably offer thegreatest future promise of any mechanism to alter the decision patterns of business, theyhave been very slow to be accepted in the developing countries of Asia.

Industry in Asia is not transparent. There is a tradition of secrecy among Asian business andvery few firms report publicly on their operations, especially on their environmentalperformance. While public evaluation and rating programs have been tried in severalcountries, notably very successfully in Indonesia, they only reach a miniscule portion offirms. Other countries are experimenting with programs in which industries report their toxicinputs to production or their effluents to the government, but in general this type ofinformation is not available to the public. This lack of transparency makes it very difficult forcommunities impacted by an industry to even know the nature of the risk they incur, muchless bring pressure for change.

SMEs have poor access to financing. This is not from a lack of capital in the region or in anycountry where there has been any significant amount of industrial development. There ishowever, a shortage of bankable project proposals and of lenders prepared to take the greaterrisks often associated with small enterprises, especially for something they do notunderstand, such as cleaner production. SMEs need assistance in preparing loan proposalsand banks need training and experience in understanding cleaner production and how it canreduce risk in lending, even to SMEs. ADB recently completed a technical assistance inMalaysia to evaluate alternatives for developing financing mechanisms for SMEs,particularly for process modifications for cleaner production and improving waste

management. Of the 28 financing mechanisms found in Malaysia for assisting SMEs, the onlymechanism that has been effectively utilized by SMEs provides access to heavily subsidizedfinance. The conclusion of the study is that access to finance is a critical element, though notnecessarily the limiting factor in the adoption of cleaner production.


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6.4 Overcoming Barriers

For cleaner production to significantly impact environmental quality it will require a

fundamental shift in how governments and the many stakeholders set policies, plan strategically,establish and enforce regulations, develop incentives and disincentives, actually implement thoseincentives and disincentives, provide access to financing, build human resources, buildpartnerships between government and the private sector, disseminate information, and promoteindustrial growth. The appropriate set of solutions will vary from one culture to another, fromone business climate to another, but in most cases it will include the following initiatives:

Set appropriate standards and regulations and revise existing regulations that promote end-of-pipesolutions rather than cleaner production. Some regulations are technology prescriptive and offerthe firm no flexibility in how it achieves the standard. Few offer any incentive to the firm tobecome cleaner than the standard. Encourage industry to tap its vast capacity for innovationby revising regulations to give the firm the flexibility to meet the legal requirements in the

most cost-effective manner. Environmental and industrial agencies should work togetherwith industry to explore new avenues to environmental excellence, to regulatory complianceand beyond.

Enforce the standards and regulations, and monitor them effectively. The interest of industries injoining voluntary cleaner production programs is understandably low, considering the manytechnical and financial barriers to overcome, especially if industries are able to avoidenvironmental compliance through lax enforcement and poor monitoring by government.Industries do not see a real need to adopt cleaner production measures aimed at reducingemission levels. Well-enforced discharge limitations are an important element of the set ofconditions that will cause industry decision-makers to seek a more cost-effective means toincrease process efficiency and reduce wastes.

Focus on SMEs. The barriers are most significant in SMEs whose owners and managersusually have little understanding or appreciation of the potential benefits of cleanerproduction, limited training that would allow them to understand, and little time available tolearn or to make changes. Moreover, they are reluctant to undertake any change orinvestment that does not have a readily identifiable and rapid return. Such lack of awarenesscombined with a long-standing skepticism of governments ability to follow through onenvironment programs results in an unwillingness to participate in programs to show themwhat cleaner production can do. A cleaner production program specifically designed for theinterests and concerns of SMEs has the potential to yield substantial benefits toenvironmental quality.

Improve access to financing for SMEs. SMEs also require special assistance in accessingfinancing for cleaner production. Concessional lending funds for cleaner production have

generally not been successful in Asia because the SMEs lack the skills to develop bankableloan proposals. Also, local banks are reluctant to loan to SMEs, especially for something thatthey do not understand, such as cleaner production. Rather than more concessional money,the SMEs need direct assistance and facilitation in approaching the lenders, and local banksshould receive training in how cleaner production can make the borrower a better risk. Afacilitation fund for SMEs could accomplish this and sustain itself on the basis of fees takenfrom loans issued, but only for successful applications.


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Bring SMEs into the economic mainstream. The majority of SMEs are family-owned andoperated, and as many as half are not legally registered and are therefore difficult to regulatefrom a pollution control perspective. It also means that many market-based incentives do not

affect them as they do not pay taxes. In addition, many SMEs operate on a cash flow basisand have limited resources to shift to cleaner production. SMEs outside the system tend to beless efficient and are therefore proportionally an even greater source of industrial pollution.An aggressive program to register more enterprises will yield a number of benefits to thenation, including making it possible to reach a greater number of firms through market-based incentives and outreach programs. Private sector programs for greening the supplychains and government procurement systems can reinforce this thrust by limiting purchasesto firms that are themselves registered and which only buy from registered firms.

Develop and implement MBIs. Initial attempts to introduce MBIs in the developing countries ofAsia have been slow and not notably successful. Part of the initial resistance to adoptingincentive-based approaches may be the imbalance that has occurred between the economicanalysis provided to identify the mechanisms needed to overcome inefficiencies in the

regulatory regime, and the practical help that has been offered to policy makers andinstitutions to actually implement the MBIs. Assistance programs should target building theinstitutional capacity to both develop the instruments and administer their implementation.

Promote the greening of supply chains. Buyers of goods and services in both the private andpublic sectors can influence the behavior of their suppliers to adopt cleaner technologypractices, and they are also in a position to assist those suppliers to make the needed changes.Most of the larger firms surveyed in a variety of studies consider business development asthe most important reason to shift to cleaner production. Those active in industryorganizations and similar programs have become aware of the pressure from buyers,especially in international trade, to green the supply chain, and indeed they see this as anincreasingly important business decision. Many of the SMEs are not active in industryorganizations but are links in the industry supply chain. One of the most importantopportunities on which the donors must capitalize is the interest of international businesscommunities to reach SMEs through greening of the supply chain. The larger industriessurveyed are generally willing to undertake cleaner production practices if given the rightincentives, perhaps including affordable financing mechanisms, and they are moreresponsive to their customers than to other pressures for change. If the customers require agreen supply chain, business will react. A great deal of work is currently ongoing in anumber of industrialized countries to determine how they can best promote the greening ofthe supply chains. It is essential that the lessons learned and the support already generatedbe made available to industry in the developing countries of Asia.

Create transparency in industry. Encourage industry, as part of a larger public-private sectorpartnership, not only to use standard metrics to evaluate its environmental performance but

to report that performance regularly and publicly. Encourage firms to utilize systems such asthe Global Reporting Initiative, with the objective of elevating corporate sustainabilityreporting to the level of financial reporting. Simultaneously, governments should be assistedto develop standardized reporting systems for the use of inputs to production, especiallytoxic ones, and the wastes or emissions produced, and the resulting information should beavailable to the public.


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Build public awareness and pressure. A critical avenue for reaching SMEs is through greaterpublic awareness and the resultant public pressure. A growing literature indicates that small,local industries respond much more to neighborhood and local community pressures to

reduce pollution emissions than to municipal or national authorities. This reinforces the roleof civil society in effecting change. Thus it is important to incorporate proper environmentalcommunication campaigns in projects and programs for promoting cleaner productionpractices. Most people still have very little understanding of the implications that theemissions of industrial plants represent for their health. Both the media and the publicshould be educated to the health impacts of industrial pollution and to the reality that it iswithin the capability of the firms to prevent much of it, even profitably, through cleanerproduction.

Apply cleaner production to non-industrial sectors. Many assume that cleaner production appliesonly to manufacturing or industry and resist applying the principles elsewhere. The concepthas developed within industry because the most severe environmental impacts are fromindustrial pollutants and the most immediate problems are seen there. However, the

principles apply equally well in many sectors of business and government operations (e.g.,tourism, agriculture, local government, etc.). To achieve the maximum reduction ofenvironmental impacts and conservation of natural capital, the breadth of adoption of cleanerproduction must be significantly broadened. This can be initiated by bringing these sectorsinto a national planning process to promote cleaner production while also providing trainingto sector associations on how their members can benefit from its practice.

Involve the financial community. Including lenders, investors, and insurers, the financialcommunity has the ability, similarly to greening the supply chain, to influence the behaviorof firms equally if not more so than their buyers do. For varying reasons the transactions ofthese organizations are exposed to risk from environmental accident, adverse enforcementaction, and business failure from high operating costs or loss of market share. Each of theserisks can be reduced through the practice of cleaner production. The financial institutionsneed better understanding, however, of how cleaner production can help the profitabilityand stability of their clients, especially the SMEs, and thereby reduce risk in their financialtransactions. As environmental regulations are increasingly better enforced and financialliability for environmental damages becomes a reality, the financial institutions stand to gainsignificantly through the cleaner operations of their clients. Policy assistance to governmentscan accelerate the introduction of environmental conditionality in financial transactions byhelping to develop the legal and regulatory systems that will establish financial liability suchas is already commonplace in the industrialized nations.

Build capacity for public policy development and integrated planning. In order to achieve asignificant impact the promotion of cleaner production must be approached strategically.This involves setting national goals, formulating public policies to support those goals,

identifying the wide range of concerned parties, their interests and the resources that theycan contribute to achieve the common goals, and collaborating tactically to identifyprogrammatic actions that will achieve the conditions necessary for widespread behavioralchange. This is a slow process and requires the building of human capacity in the institutionsand organizations involved. For example, integrating concepts of cleaner production intoenvironmental policies and those for industrial development and investment promotion,while resolving the conflicts between their different agendas, is a key objective in a nationalstrategic approach to promoting cleaner production. In order for the different institutions


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and organizations to even communicate with each other, much less resolve their conflicts,they must have the human resources able to work effectively with the concepts involved. It isthat trained capacity, whether within a government agency or an industrial association or a

university, which is important to the development of effective public policy and theintegrated action planning so important to the rapid spread of the practice of cleanerproduction.

6.5 Prospects for the Future

While industry is already the lead sector in most Asian economies, the next decades will see asignificant expansion and replacement of the industrial capital stock. If nothing different is doneAsian industry may follow the same destructive path taken earlier by the industrialized nations.Much of the growth may be highly polluting, especially from SMEs, and it will concentrate inmegacities where the combined loading from industrial and municipal wastes will overwhelmalready weak municipal infrastructure. Asia still has the opportunity, however, to follow adifferent economic-environmental pathway, one that builds a clean urban-industrial economyfrom the bottom up and avoids much of the costly, inefficient, and embattled institutional andtechnological experience of the industrialized countries. It is still early enough in thedevelopment process that, unlike the damage already done to much of the worlds waterresources, there are still affordable options to prevent long-term or permanent damage to mostnatural resources and to the urban environment.

The role of public policy in promoting and facilitating such an economic transformation inAsia is critical. Similarly, political commitment and effective governance are essential toimplement industrial restructuring and environmental and industrial development policies thatpromote cleaner production. Key to this is a reordering of priorities on the part of governmentand a true commitment to sustainable development that places the human and physicalenvironment high on the priorities of all departments of government, not just those traditionally

involved with environmental regulation. These same agencies must then take steps to build theinstitutional capability necessary to understand the issues and to do something to implementtheir new agenda.

The promotion of clean development in Asia will require a new type of developmentplatform, one based upon shared interests and goals and involving a broad and deeply rootedpartnership among business, government, NGOs, development institutions, and the research andpolicy community. The prospects for establishing such a partnership for sustainable developmentin Asia are very good, and will go forward faster if strongly supported by internationalcollaboration.

Many leading corporations around the world are undergoing an unprecedentedtransformation in the understanding of their role in sustainable development, calling for changesin the whole industrial system as well as in their own strategic planning and actions. At the sametime, many innovative policy ideas, approaches, and initiatives are emerging from the NGO andresearch communities, as well as from public-private partnership investments, targetedinvestment funds, citizens groups and other sources.

Globalization of trade and the elimination of trade barriers is placing unprecedented pressureon even domestic market industries to achieve a competitive position through greater efficiencyand through responsible environmental management. The opening of markets and the linking of


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trade and industrial policy to export incentives will provide a powerful incentive for industry todraw on its capacity for innovation to achieve greater resource efficiency with accompanyingreduction of wastes, the essence of cleaner production. Perhaps the strongest engine for change is

this largely untapped capability of industry itself, freed from rigid regulatory approaches andmotivated for change, to achieve quantum leaps in technological efficiency that will radicallyreduce both resource consumption and emissions.

The development opportunity lies in the creation of public policies that support, intensify andbroaden these largely private market trends and initiatives, creating space for innovation andaction appropriate to the seriousness of the development and environmental challenge.

6.6 The Role of the International Donors

There is considerable opportunity for the international donors to work collaboratively andindividually in promoting cleaner development in Asia. ADB can take the lead in promoting andparticipating in coordination and collaboration among international organizations to focus their

resources where they will be most effective, to achieve synergy among their programs, and toavoid wasteful duplication of effort. The first step in this process would be basic exchange ofpolicies, objectives, current program information and plans for the future. A roundtable amongdonors to discuss the issues outlined herein and the outlook for the future could be mostproductive.

Donors can promote national development of public policy and action planning to supportthe adoption of cleaner production. It would do so through its present pilot program to directlyassist selected DMCs and through the development of broad guidelines and training programs.ADB plans to publish in collaboration with other donors region-specific guidelines fordeveloping a national policy framework for cleaner production and for developing a nationalstrategy and integrated national action plan for the promotion of cleaner production. ADB orother donors may publish guidelines for introducing concepts of industrial ecology, for the

application of green accounting, for the use of technical assistance extension systems to bringcleaner production to SMEs, and for other topics identified as useful to the broad objective ofnational action to change industrial behavior. Working through one or more appropriate regionalorganizations ADB would develop and assist in publishing the guidelines, in developing trainingprograms based on the guidelines, and in conducting the first rounds of regional trainingprograms to introduce the concepts in the region.

Donors can expand programs for the promotion and support of networks and technicalassistance for cleaner production activities, and advisory assistance to developing countries onimproving measurement tools and monitoring mechanisms required to implement improvedenvironmental policies. A key component of expanded information networks would be thetraining materials and guidelines on development of public policy and action planning forcleaner production, and a body of information and data from Asian and Pacific countries andelsewhere globally on existing policies and plans, and efforts underway to develop them.

Donors could promote benchmarking of national progress in the formulation and integrationof public policy to promote cleaner production and action planning to accomplish rapid adoptionof cleaner production. The program would establish criteria for assessing relative nationalstandings, conduct the initial round of assessments and train an appropriate Asia-Pacific regionalorganization to continue the process and publish the results. Status of a nation relative to the


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Asia-Pacific benchmark could be considered in lending criteria and in the design and allocationof technical assistance. This approach would parallel for nations the considerable work underway by the Global Reporting Initiative and others to create transparency in the policies and

performance of corporations with regard to sustainable development.

Donors can establish an independent organization for the facilitation of local lending to SMEsthrough a multinational loan guarantee facility. The facility would negotiate loan guaranteearrangements with commercial and development banks in each country, to include providingtraining to loan officers of the participating banks on the principles of cleaner production and itsfunction in reducing risk in lending. The guarantee program would also provide technicalassistance to loan applicants to develop bankable project proposals.

Donors can encourage and possibly invest in the international investment funds focused onencouraging local investment in cleaner technologies. Such a fund would focus especially onencouraging investments in the local manufacture of relatively simple, proven technologies withbroad potential to enhance cleaner production and would also make investments in enterprises

employing cleaner technologies or processes, especially if for the first time in the region.This point in time, anticipating future rapid industrialization, offers unique opportunities to

develop innovative initiatives to achieve the overall goal of a sustainable industrial and urbanfuture for the region. ADBs role in assisting countries hit by the recent financial crisis toundertake industrial restructuring and associated policy reforms presents an ideal opportunity tointegrate cleaner production in future industrial development.

There are many aspects of the challenge for sustainable development and cleaner productionthat ADB and other donors may address in future programs. Overall, however, programs maycenter on issues of public policy and planning, information networking and donor coordination,building institutional capacity, facilitating access to financing and investment in cleanerproduction, and in the regional production of cleaner technology. Above all of these objectives,and shaping the programs to address them, will be the broad concerns for influencing and

facilitating SMEs to practice cleaner production, nurturing partnerships with industry to tap theirresources for innovation, and shaping the environmental character of future capital investment inAsia.

Industry & Environment - ADB

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Transcript of Industry & Environment - ADB