What Is Green Business And What Drives It

With a rapid proliferation of businesses and their exponentially increasing scale of operations, the specter of widespread environmental damage is looming larger on the horizon now, than ever before.

In a scenario like this, how can businesses protect the environment they operate in?  Well, that’s where the concept of Green Business comes in!

  1. So, What Is Green Business?

Green business is defined as a business functioning in a manner that there is no adverse impact on the immediate community, the environment or the overall economy. A green business leverages progressive policies for environmental concerns and policies affecting human rights.

The dispersion and proliferation of green businesses vary considerably across countries depending on their level of development in particular. Developed countries tend to have a greater awareness of environmental factors coupled with favorable government policies and measures that encourage green businesses.

Alternatively in smaller countries, particularly developing ones, the biggest concern for businesses, is survival. So, many a time businesses particularly smaller ones, tend not to focus on green business. If you add to this, the fact that governments of underdeveloped countries are sometimes cash-strapped, the motivation for such governments to provide incentives to promote green businesses, comes down sharply.

So, while businesses in developed countries are willing to invest in the costs entailed by green business measures, businesses in developing and underdeveloped countries need to rely more on government subsidies and or innovative cost effective measures.

Countries with a large Small and Medium Enterprises (SME) sector have the greatest challenge in promoting green business. Let us take a look at two countries that have a rather large SME sector and what their experience of promoting green business has been.

2.  Country Instances

(a) Philippines Case Study

A view of the Central Business District in Manila

Consider the case of Philippines. The SME sector dominates the business landscape of the country accounting for over 99% of the total business entities in the country. It also generates over 60% of the total employment. Manufacturing here, is one of the three major industries with the highest number of SMEs and food processing has emerged as a key business. Overall 14% of SMEs are engaged in manufacturing.

However, food processing also poses a potent environment risk, more so when the businesses engaged in it are small or micro.

The good thing is that Philippines, has a robust institutional mechanism for promoting SME sector. A strong institutional mechanism to support and nurture the SME sector, enables the government to drive the adoption of green business measures.

Powered by a government that has strongly supported green businesses and a vibrant workforce of English speaking people, Philippines is emerging as the ultimate destination for green business.

(b) The Thailand Case Study

A view of Bangkok city

Let’s look at another country that is also small, has a large proportion of its businesses engaged in food processing and is now considered a market leader in this industry, Thailand.

Thailand is a country where manufacturing accounts for over 33% of its GDP and 75% of its exports. This is a country that has nationally adopted green manufacturing principles. So pervasive are these principles, that they cover the entire gamut of activities starting from product design to the delivery of the finished product to customers.

This has been achieved by government intervention and creation of several entities that have actively supported organizations in their pursuit of green manufacturing, right down to the grassroots.

In the light of increasing pressure for sustainably manufactured products, particularly in the export sector, business have come to realize the benefit of adopting green manufacturing principles and processes. This has, in turn led to a quantum growth in their exports particularly to developed markets such as EU and USA.

3.  So, What Are The Factors That Promote Sustainability Of Green Businesses?

(a) Increasing Awareness of Green Manufacturing Principles

When small businesses see the benefits of adopting green principles by virtue of growing their business and servicing new markets, they tend to focus more on the benefits than the costs. Government agencies play a key role in disseminating information on the benefits of green business as well as the steps required to adopt green business practices.

In many cases, Governments set up entities that actually hand-hold small and micro businesses in their journey to adoption of green business.

In addition, large international companies such as Toyota and Toshiba have helped by adopting Lean Manufacturing Systems in their plants in Thailand.

Businesses in Thailand have become so progressive that they have started considering the carbon footprint of their products. In doing so, many businesses have been able to curtail the carbon footprint of their product, to their advantage. Measures, like these, make their products not only acceptable in developed countries but also preferred.

(b) Adoption Of Innovative, Cost-effective Green Business Measures

When the level of awareness among businesses is low and people are not very educated, then it helps to proliferate innovative cost effective measures that businesses are then, more willing to adopt.

Low-income markets, characterized by poor education and infrastructure, islands of industrialization and low entrepreneurial capacity, pose a whole new set of challenges. Innovation across the board, are key to bringing about financial inclusion and growth of sustainable businesses right at the grass-root level.

For instance, low cost, rainwater harvesting is a powerful method of saving water resources, particularly when government subsidies are also available for this. Similarly, solar power and wind generated power can also provide clean power to small businesses. In countries like India, there are significant government incentives available for this purpose.

Use of ecofriendly packaging can not only reduce costs but also promote green business.

According to the apex industrial body in India, Confederation of Indian Industries, by the year 2025, the market potential for certified green products would be in the range of USD 300 billion. This has lead to several green businesses mushrooming all over the country. This phenomenon has been significantly catalyzed by the government’s focus on green business and the financial subsidies that have been provided as a part of its policy measures.

(c) Dynamic Institutional Model

Regardless of how dynamic the small and micro business sector of any underdeveloped country is, there is no substitute for a robust institutional mechanism to establish and nurture green business. This mechanism has to come out of public-private partnership to be really sustainable. However, it needs to be initiated and set up initially by the government.

When the onus is on the government alone and interventions are largely financial, the measures adopted by it become one-way interventions and are really not sustainable in the long run. That is why interventions for supporting green businesses have to be mix of financial support and capacity building.

Past experience suggests that financial support alone, to promote green businesses, can be limiting. Instead, when you combine it with softer measures such as training and marketing support, businesses become more sustainable.

(d) Use Of Public Private Partnership Models

An institutional model that relies purely on government intervention to promote and sustain green businesses is usually inadequate to achieve the objectives of green business promotion.

This is because, there needs to be active participation from the small and micro businesses as well, for green businesses to really thrive.  When the target segment being promoted, in this case, the small and micro businesses have a skin in the game, powerful results can come out of it.

Also, engaging representatives of the small and micro green businesses in the process of nurturing and proliferating these businesses, makes the entire process more robust and participative. This in turn tends to have a greater acceptance among representatives of the target segment as in most cases; it is members of that very segment who are engaged in promoting and nurturing green businesses.

(e) Focus On Value Addition

When the focus of a business, shifts from pure business to real value addition, powerful things start to happen. And, this is irrespective of the size of the business. One of the best ways of adding quantum value is to focus on the export market, particularly the developed countries. By doing so, even the small and micro businesses are forced to consider adopting best manufacturing practices such as Good Manufacturing Practices involving standard sanitary operating procedures and Hazard Analysis Critical Control Point. Once this happens at the grass-root level that is where the small and micro businesses are, there is no turning back.  This has been proven in the case of Thailand.

4. The Way Forward

Establishing, nurturing and sustaining green businesses entail a combination of policies, institutional support, participation by small and medium enterprises and innovative use of technology and financial models. This is a domain that cannot proliferate on its own. However, inclusive growth and development is key to the sustainability of green business.




About the Author:

Srinivasan is an independent consultant working in the area of strategy and technology interventions in the public sector domain. He has worked in companies like IBM and TCS and has over 30 years of experience spanning 24 countries.

Srinivasan R

Management Consultant at Independent Consultant