Ecological modernization (EM) is the notion that environmental protection and economic development is supplementary, rather than contradictory to each other. Firms could financially benefit from the adoption of sustainable practices. In the long term, human society will witness the restructure of our economy, as innovation in technology would eventually shift the focus of economy from energy and resource-intensive manufacturing industries, to energy and resource-efficient service industries. There will also be losers in this revolution, which are those traditional industries that resist changing.
EM provides a completely different framework for doing business and economic development.
Under this ideology, environment is not irrelevant to business activity; rather it is integrated in business processes. EM can serve as a proactive designing guideline for private companies to better manage their production efficiency and to be more responsible for the life-cycle environmental impacts of their products. Accumulated sustainability efforts would then encourage more technological and product innovation which bring even larger improvements in resource and energy efficiency. Due to decreased marginal cost and environmentally friendly product design, firms guided by the EM principle would gain competitive advantages in the industry. A positive feedback loop will be formed, as sustainability brings both profits and competitiveness.
The laggards in the industry would soon find themselves in a difficult situation. First, pressure comes from their competitors’ lowering marginal cost. Secondly, their customers, either those in the supply chain or the lay public, would have an increasing demand for sustainability. If the laggards were not able to become greener, they are very likely to have a decreasing market share, or to lose contracts as suppliers. Thirdly, the capability to integrate environmental concerns in business management is often closely related to business risk management. Investors tend to prefer firms that are forward-looking and well-prepared for environmental challenges. From this perspective, there could be a race to the top among firms’ environmental behaviors, and the greening of the industry can be self-driven in the long term.
The internalization of environmental externalities by private firms (i.e. solid waste, air/water pollutants) would also benefit the society as a whole. Optimization in resource and energy consumption can reduce the carbon intensity of our economy. With the rise of the green industry, there would be also a diminishing role played by government environmental policies. Voluntary agreements and industrial standards, such as Eco-labeling and ISO14000 certificates, will be more favorable to firms than government-designed regulations. Industry associations and alliances will likely be the agents that initiate the development of guidelines and tool kits to scale-up successful green practices in the industry.
The above discussion seems very optimistic. However, there is little empirical evidence of successful environmental management in private firms. This raises the question “why haven’t we seen the rise of green industries?” Further discussion may be centered on the barriers and the potential roles that government and environmental groups could play in this process.
Shan Zhou is a PhD candidate at the School of Public Policy, Georgia Institute of Technology (USA). Her research interests include diffusion of smart grid technologies, contingent valuation method, ecosystem service payment, and REDD program. Prior to Georgia Tech, she received her Master’s degree from the European Erasmus Program -Environmental Sciences, Policy, and Management (MESPOM), jointly operated by Lund University (Sweden), Central European University (Hungary), University of the Aegean (Greece), and University of Manchester (UK).