A Significance Of Environmental Protection

As Kevin Wilhelm (2009) observed, scientists have been warning individuals, business entities and governments of the negative impact of wastes, emissions and other factors on the environment for over a decade.

In spite of that, financial services firms have only recently started offering sustainable options to their clients and, seeing as not all investors make their decisions on the basis of ethical considerations, it can be inferred that investing in sustainable activities and/or sustainable organisations must bring high profits, aside from countless benefits to planet Earth and the species that inhabit it.

Both the United States and the European Union are very sensitive to environmental problems and organise periodical meetings to discuss strategies aimed at boosting environmentally, socially and economically sustainable development and making citizens and organisations aware of the importance of adopting pro-environment behaviours.

In 2001, the European Commission gathered to discuss important matters such as climate change and environmental ethics and formulated a set of policies to modernise the entire continent and deliver sustainable development.

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(Europa, 2009)

These new standards have never really affected the way organisations do business and citizens live as significantly as they were supposed to, which is one of the reasons why they were reviewed in 2007, when the Treaty of Lisbon was signed by the member states. (COUNCIL OF THE EUROPEAN UNION, 2008)

The treaty, which confirmed and reinforced Europe’s intention to deliver sustainable development, fight climate change and protect the environment, took effect only in 2009. (EUROPARC Federation, n.d.)

Similarly, the United States have been regulating activities since the 1970’s, when many local and national non-governmental agencies worried about the future of the planet started the so-called “environmental movement”.

(Righter, R. W., 2006)

As a result of the regulations established by both the United States and the European Commission, US and EU-based companies have to adjust their strategies and business plans to remarkably high standards aimed at preserving biodiversity, reducing pollution and fighting climate change. As clearly explained in a recent report published by Confartigianato (n.d.), European environmental policies encourage organisations to act responsibly and penalise the ones which damage the environment, according to the so-called “who pollutes, pays” principle.

From a strictly corporate point of view, these high standards do not allow EU and US-based companies to earn as much as they could if they were not compelled to use only certain machines, avoid certain materials and make sure that each of their products satisfies high quality standards before being made available to third parties.

However, neither the United States nor the European Union can be defined as “emerging markets”, seeing as they have already achieved a high level of development.

BRIC (Brazil, Russia, India, China) countries, on the other hand, boast of rapidly growing economies and their political leaders are perfectly aware of their potential, which is why they met in 2009 to discuss a number of major issues, such as the role they should play in international institutions and the creation of a more fairly balanced world order. (BBC News, 2009)

The present essay will focus on two of these countries, identifying the factors that have made their growth and industrialisation possible and determining what impact sustainable investment might have on their future performance.

The three pillars of sustainable development

Planet Earth has a limited carrying capacity and, seeing as humans have been living beyond this capacity for a long time now, it is crucial that both developed and developing countries should enforce pro-environmental laws and encourage organisations to adopt green practices. (Garver, G., 2011)

In occasion of the 2005 World Summit, it was noted that sustainability can only be possible if environment, economy and society are seen as interdependent variables and not as separate elements which do not affect one another. (United Nations, 2005)

Therefore, both citizens and organisations should make sure that their activities do not degrade the environment in any way and be made more sensitive to issues such as global warming, greenhouse gas accumulation, species extinction, deforestation and so forth…

Most developed countries have already formulated laws aimed at limiting gas emissions and regulating economic activities and, as a result of numerous environmental awareness campaigns, more and more citizens are becoming aware that modern pollution is a consequence of the Industrial Revolution that began in the 18th century in Britain and then spread all over Europe and in the United States between the 19th and 20th centuries, as clearly explained in the Kyoto Protocol. (United Nations, n.d.a)

The tragedy of the commons

Brazil, India, Russia and China, also known as the Big Four, are developing at such a fast pace that Jim O’Neill (Financial Times, 2006), world-renowned economist and analyst at Goldman Sachs, stated that they are very likely to become the world’s strongest economies by 2050.

Their rapid growth has been made possible be industrialisation, a process that took over 150 years to complete in Europe and in the United States. When a country, whose economy has always depended on agriculture, becomes industrialised and modern, illnesses, impersonal work, air and water pollution, environmental degradation and other unpleasant side effects are inevitable.

During the years of the first Industrial Revolution, massive amounts of fossil fuels were burnt everyday and the harmful gas emissions deriving from the burning of those non-renewable resources caused death and pollution.

At the moment, western countries are investing in sustainable development and renewable energy sources, whereas rapidly growing economies owe their growth to non-renewable resources.

Many developing countries, like Turkey (United Nations Development Program, n.d.)and the Philippines (Lagarde, M. L. M., 2006), have developed programmes aimed at increasing environmental awareness, improving the overall quality of life, enhancing forest conservation and managing resources in a sustainable manner.

Understanding that there are common finite resources that might disappear if overexploited is key to preserving the environment and ensuring the survival of all living creatures. The concept of depleting finite resources out of selfishness was introduced by Garrett Hardin (1968) in an article entitled “The Tragedy of the Commons”.

Managing common resources in a sustainable and responsible manner, however, is not just a matter of morality and common sense. Most developed countries are already moving towards sustainability, people are becoming more sensitive to environmental issues, as well as to human rights violations, by the day, to the extent that as soon as a large company is accused of underpaying its employees or using child labour, journalists from all over the world start criticising them and consumers protest against its practices, damaging its public image and reputation. (Locke, R. M., 2002)

India’s economic growth

Just like China, Russia and Brazil, India is a populous country whose economy is growing at such a fast pace economists believe that it is destined to become one of the world’s dominant economies. (Financial Times, 2006)

Among its major exports are engineering goods, petroleum products, jewellery and software and it boasts of the second largest workforce in the world. (Library of Congress - Federal Research Division, 2004)

Urbanisation in India did not begin until the 1940’s, when the establishment of factories and the development of various industries in cities like Calcutta and Bombay encouraged village residents to move. After India became an independent nation in 1947 (Lauterpacht, H., 1958) followed the example of the Soviet Union and invested in power plants, machinery and all those industries that would have allowed India to reduce imports and increase domestic production. India’s economy has been growing ever since.

In 2009, the Indian environment ministry published a report concerning various environmental issues. According to the document, greenhouse gas emissions will increase by 300% over the next 20 years and, seeing as developed countries have not yet committed to reducing their own emissions, India, just like China, will not guarantee any cuts. (Majumbder, S., 2009)

Considering that the United States is the world’s second biggest polluter (after China), the reasons why Washington decided to stop pressing China and other rapidly growing economies to commit to cutting their emissions are quite obvious. (Adam, D., Goldenberg, S., 2009)

Environmental Social and Governance issues

As explained by Dan Siddy and Ritu Kumar (2007), ESG issues can affect investors’ financial decisions, seeing as socially responsible investment practices are becoming more and more popular, as a result of people’s increasing awareness of the risks associated with resource depletion, pollution and climate change.

There are, then, a number of problems that India is going to have to deal with in order to maintain its status as an economic power, have more say in international institutions and attract foreign investors.

According to a report published by IFC and Mercer LLC (2009), in fact, fund managers in developing countries and newly industrialised countries, like India, China and Brazil, are starting to consider ESG factors, such as labour standards, climate change, greenhouse gas emissions and electromagnetic energy emissions, when making investment decisions and this fact might prompt the entire financial industry to further encourage socially responsible investment among local and global managers alike.

In light of the aforementioned ESG pressures, India had better embrace sustainable development as soon as possible, since those unsustainable activities that have allowed it to become an emerging market might soon cause its economic growth to stop.

That means investing in infrastructure projects (such as airports, roads, ports, electricity and railways), as the current lack of infrastructure represents an obstacle to the country’s future growth. According to Dan Siddy and Ritu Kumar (2007), the Indian government will have to spend around $ 330 billions on infrastructure to make the country competitive in today’s global market and get both public and private companies to resolve India’s electric capacity problems, which result in periodical power cuts which do not make the country particularly appealing to investors.

As of today, most of the local commercial power demand is met thanks to India’s coal reserves; however, the country has showed its interest in and concern about environmental issues by investing significant amounts in wind energy and other renewable alternatives. (Ramesh, R., 2008)

According to the World Bank (2010), the only way for India to compete with developed countries and achieve its potential is to invest in areas that will benefit its economy in the long run, such as transport infrastructure, education, social equality (by removing castes), nutrition and renewable energy.

The advantages of sustainable investment

The word “sustainable” comes from the Latin verb “sustinere”, which means “to support”, “to last”, “to endure”. The concept of sustainability is often used in relation to environmental awareness and responsible resource management, as these two put together can guarantee the survival and well being of all living things in the long term.

Even sustainable investment is intended as the financial decisions made by ethical investors who keep account of ESG factors when looking for companies to put their money into.

As explained by the International Institute for Sustainable Development (n.d.), the number of investors interested in sustainable funds has increased significantly over the last 10 years, probably as a result of the environmental awareness campaigns promoted by scientists and governments. The increasing demand for sustainable financial products has prompted financial services firms to offer more and more sustainable funds, as well as other sustainable options, to their clients.

However, sustainable financial products go beyond the scope of the present essay, whose primary goal is to shed light on the environmental, social and corporate policies adopted by two BRIC countries, China and India, and evaluate what the long-term effects of their “unsustainable” activities could be.

The various references discussed throughout the essay reveal that while pollution and unsustainable activities go in hand in hand with industrialisation, neither developed countries nor emerging markets can afford to keep ignoring the gravity of the situation for the sake of economic growth. There are also a few more factors rapidly growing economies should consider, since the aforementioned environmental, ethical and health issues are not the only reasons why they should abandon unsustainable activities.

In fact, by not investing in sustainable development and innovation, newly industrialised countries like China and India can keep offering low-cost services and products, but the foundations on which they are building their fortune are rather weak, as the problems that their economic growth is causing them will soon outweigh the benefits.

The relationship between emerging countries and innovation was further analysed by Darrell Rigby and Barbara Bilodeau (2005), who carried out a survey among around 1000 managers to find out what they thought about these matters; 86% of the respondents agreed that “innovation is more important that cost reduction for long-term success” (Ridgby, D. & Bilodeau, B., pp. 4-12)

Conclusion

In light of the findings and observations presented, it can be inferred that rapidly growing economies owe their current status to their competitiveness, in terms of labour cost, quality standards, regulations and prices.

When Europe and North America went from being rural societies to industrialised economies, the machinery, materials and techniques employed to manufacture both goods and other machines damaged the environment and increased mortality rates. (Berlanstein, L. R., 1992)

At some point, however, governments had to deal with the social and environmental consequences of the two Industrial Revolutions, which many thinkers, philosophers and economists, like Karl Marx (2004), found unacceptable and so they started regulating economic activities whilst investing in technological research, at which Germany and the United States have always excelled since the early 1900’s.

Today, these countries are considered to be developed and highly civilised and they have managed to maintain their status despite the financial crisis and the tough international competition resulting from the increasing globalisation of the world economy.

As the managers interviewed by Darrell Rigby and Barbara Bilodeau (2005), correctly observed, the only way for developed countries to succeed in these turbulent times is to focus on innovation and development as competing with emerging markets on an even footing would be impossible.

It is crucial that rapidly growing economies should adopt this kind of mentality before other newly industrialised countries emerge offering more competitive labour costs and cheaper goods and services, as, should that happen, their GDP and economic growth would slow down, but the negative effects of their unsustainable activities would remain.