…the case for consolidating private sector support in economic development
The private sector’s role is increasingly relevant as regards the global adaptation and economic sustainability debate. The term ‘private sector’ includes a highly diverse group of actors and activities operating at international, national and local levels. It includes everything from large mining companies to small family farmers, the enterprises which provide goods and services as well as the financiers who allow those enterprises to invest. Essentially, private capital is usually used to scale-up investments in diverse areas of business expansion drives, development projects and, to a large extent, climate finance in the light of restricted public resources.
The private sector’s role in achieving the SDGs, and sustainable development generally, is considered fundamental for businesses and other organisations as prioritised drivers of change. The private sector contributes in job creation, economic growth and risks, wider well-being and poverty reduction which have remained significantly crucial. However, the need to mobilise businesses to scale up their capacity to accelerate investments, business activities and economic impacts that deliver on the global goals and economic expectations requires greater collaborative support by the public sector’s participation.
Having said that, the capacity for public-private partnerships and the impetus to promote and spur innovations and socio-economic drive leverage on new technological investment – which ought to be scaled up or replicated to achieve greater impacts and benefits for the economy. For instance, the mobile telecommunications industry in Africa ensures innovation for development through mobile cash transfers and the use of mobile technology to advance health and education are achieved; and partnerships with governments to widen the scale of these efforts and replicating them in many economies leads to sustainable economic development.
However, the quest for private sector capacity build-up and empowerment of same to enhance innovation and create the ability to offer solutions needed to address challenges facing the world is today calls for massive public support in resources provision, policy directions and creation of enabling platforms and environments to complement its crucial efforts in economic emancipation and transformation.
The imperative drive for diversity of the private sector means that an effective strategy has to be deployed to leverage the expertise, creativity, innovation and resources of the country’s wide range of industries and firms, so as to reflect the interests in a way that is manageable for both the public and private sector actors.
About the UN Sustainable Development Goals and Impacts
Adopting the Sustainable Development Goals provides a universal framework for addressing some of the world’s most pressing social and environmental challenges. One purpose for the SDGs is to guide investors and companies toward areas of positive, measurable impact, given the vital role played by the private sector in achieving greater innovation, efficiency and scale in global development.
The SDGs’ impact is an initiative focused on eliminating barriers and driving integrity for SDG-enabling investment at scale. Organisations worldwide are increasing their efforts to achieve the goals. Essentially, SDGs referring directly to economic growth, sustainable industrialisation, innovation and sustainable production have attracted a lot of attention within major industries and economies.
The impact of climate change on Private Sector Development
Direct climate-related risks to the private sector affect core business operations, and this – for instance in extreme weather conditions – increasingly causes business interruptions and damage to physical assets. The obvious change in temperature impacts affect staff health, crop and livestock productivity etc. Water scarcity equally poses challenges for river transport, industrial cooling and hydro-electricity. The sectors which are mainly affected include agriculture, infrastructure operators and tourism.
Meanwhile, indirect climate-related risks also occur through other market changes – with sectors particularly affected including food retail, finance and insurance. Among the negative impacts seen is that supply chains get disrupted when challenges to agricultural production and increased competition for some resources become rampant. Under market demand conditions, there is always a significant shift in change as customers respond to climate change conditions – whether positively or negatively. These climate change risks affect the private sector’s participation in economic development and sustainability when not addressed.
Essentially, the impact on the private sector’s role from climate change poses not only a direct threat to individuals and communities, but also threatens the private sector itself as a key contributor to job creation, economic growth and poverty reduction. However, climate change effects do not only impact negatively but can positively create markets for private enterprises.
In agriculture, for example, climate change and drought could see resilient seeds and new irrigation technologies becoming more important considerations. Again, the change in climate conditions will demand investment in new technologies to deal with disaster risk management and resilient structures. Demand will increase for climate change information, adaptation and risk management consulting services.
Nevertheless, most companies within the private sector space are not experienced in quantifying how the ecosystems contribute to their businesses – and often underestimate the consequences climate change has on the ecosystem and services they depend on. It is an issue such that the policy and regulatory environment firms operate in also can be a challenge and barrier to economic development through private sector contribution. A lack of clear understanding for climate issues, policy-direction from government may for instance lead many businesses to wonder ‘which way forward’ in dealing with the risks associated with climate change and its impacts.
The obvious issue is that uncertainty about climate change and impacts makes it more difficult to secure financing by most private sector companies, and this eventually curtails business efforts. This is especially so for SMEs, which already face limited access to credit. Therefore, in dealing with issues of climate change with the underlying benefits for expanding existing markets and creating new markets for adaptation, relevant products and services, it is fundamental to tackle policy issues relevant in setting an enabling environment for sustainability of the private sector for development.
The Role of Private Sector in Economic Development
In promoting sustainable economic growth and development involving opportunities for value creation, the private sector plays an important role regardless. The implementation of economic growth and employment mechanisms see the private sector providing goods and services, generating tax revenues for new and innovative solutions in helping to solve development challenges of many economies.
In the early twenty-first century, serious environmental global issues such as increasing environmental overshoot, worsening climate change, and insufficiency of human needs caused unsustainable consumption of natural resources (Bengtsson etal. 2018). Hence, the delay of the integration of environmental and social aspects with the economic aspect of sustainability in private sector activities may lead to accumulation of negative impacts on human health and the environment. Agenda 2030 considered that the private sector is an essential stakeholder (Lalaguna and Dorodnykh 2018) and has an influential part in the progress of the SDGs (Scheyvens etal. 2016; Ridho etal. 2018), because this sector is a crucial player in the economic investments (Sullivan etal. 2017). The SDGs’ implementation depends on voluntary efforts (Elder and Olsen 2019), although the tensions among compulsory and voluntary SDG responsibility will continue, due to the intense debates among countries and the private sector about the implementation roles of sustainability issues (Bexell and Jönsson 2017). Therefore, the private sector should perform a major role in sustainability, not merely from an economic progress angle but considering the social and environmental issues and requirements (Sullivan etal. 2017). Furthermore, the private sector should amend their plans and strategies to comply with the SDGs (Saner etal. 2019; Scheyvens etal. 2016; Pedersen 2018). According to Baldassarre etal. (2017), and the new holistic approach of business strategies emphasizes more on how further profits may be gained by putting more focus on the social and environmental outcomes beside economic gains. Similarly, Lima etal. (2017) mentioned that there is a need for further coordination and support of public sector to enable the private sector to invest more resources for positive SDGs outcomes. Further, the technology and innovation capacity of this sector are required besides their obligation for supporting the SDG implementation (Hajer etal 2015). According to Topple etal. (2017), impact assessments are an essential method to enhance motivation for facing sustainability challenges in the private sector. According to Roos etal. (2020), there are potential benefits of carrying out an environmental impact assessment that includes conservation of biodiversity and ecosystem; allowing society participation and access to information; mitigation of environmental impacts; and comply with regulations and proper enforcement. These benefits serve the private sector to attain sustainable development.
The private sector is also responsible for environmental degradations. Therefore, attention toward global industrial development has increased due to its negative impacts on the human society and environment (Ardakani and Soltanmohammadi 2019). According to Kopnina (2016), the accumulation impacts of industrial development (revolution) due to unsustainable patterns of production and consumption are the result of trying for economic benefits prior to protection of environment, which has led to environmental unsustainability and abuse of ecosystems. On the other hand, the SDGs clearly encourage “sustainable industrialization” and “sustainable use of land.” Most of the SDGs obviously focus on the environmental dimensions, by preventing environmental degradation, pollution, climate change, waste management, and promoting resource recovery. Therefore, there is a need for urgent actions toward those challenging aspects of the economic growth, which has led to adverse impacts on the environment and human society (Leal Filho et al. 2018).
Gobierno De Colombia (2018) pointed out that mining and energy sectors consume more than 70% of ground and surface water, while food and manufacturing sectors consume more than 50% of the water from public canals. Moreover, these cause high consumption of non-renewable energy such as natural gas and also significantly affect biodiversity due to operations of companies through their supply chains. Though the developed countries achieved some progress on waste management and recycling and energy efficiency, but so far, they have not been able to dissociate the economic growth from increased consumption of energy and other resources, due to continuous excessive consumption of non-renewable energy and the primary resources (Osborn et al. 2015). In this regard, Xiao et al. (2017) stated that global trade business has a significant impact Equally significant is the private sector’s enthusiasm for strong advocacy and desire for the growth of SDGs, translating its interest into action. Private sector activity in markets can potentially create new jobs and increase incomes, and at the same time reduce the wider negative impacts (and harness the positive impacts) of climate change. In spite of this, the private sector does however face a number of challenges.
The establishment of a sound, healthy and stable social and environmental structure enables companies to grow faster; and this eventually results in more opportunities for companies.
It is obvious that the global goals create new lines of business and new product and service development opportunities for companies. The needs of inaccessible markets also create a line of business. Remote health service systems ensure inclusivity for all; technologies which will increase the productivity of small-scale farms, environmentally-friendly smart cities can be shown as examples of business lines that could be created when the private sector actively functions well. Companies can generate more revenue through innovative products and services from the development of new markets.
When companies manage their supply chains in consideration of social and environmental development, their operational costs decrease and productivity increases. Companies that are inclusive and value employee-diversity also show better performance. Investors that focus on inclusiveness and social responsibility provide funding increasingly and in more favorable terms to the initiatives working for achieving global goals.
Private Sector and Sustainability Efforts
Sustainability makes good business sense, and by this private sector businesses should adopt workable approaches to remain sustainable and enable continuous economic development and sustainability. Global sustainability challenges are complex problems, and determining the best strategies to bring about lasting improvements in sustainability performance remains a core challenge for sustainability systems.
Many private sector companies are experimenting with a wide range of strategies to reach their sustainability goals. However, the effectiveness of those strategies is highly dependent on the context in which they are applied. The Sustainable Development Goals (SDGs), which were born to provide a general roadmap to encourage private sector participation in economic development, operates with the clear purpose to produce a set of universal goals that help combat the urgent environmental, political and economic challenges facing our world.
Many instruments are in use, or being proposed, that will increase the private sector’s contribution to adaptation as a sustainability strategy. It is important to explore how different tools relate to and complement one another in order to make intelligent policy decisions and bring about sustainability. However, it is essential to develop a common methodology to record and track all risks which have a potential to curtail the private sector’s sustainability effort.
It is the private sector that creates wealth and helps individuals and nations lift themselves out of poverty. The private sector does not just mean multinational companies. Small firms and enterprising individuals matter just as much. If we want to achieve sustainable development and make a difference to the lives of the poorest, we need to work with businesses – small and large – to create jobs, drive growth and raise incomes of the poorest.
This strategy will prioritise three things: firstly, it will help businesses – from multinational companies to individual entrepreneurs – provide jobs and deliver goods and services. Secondly, it will improve market access by rewarding investment and private enterprise, and giving poor people the opportunity to make better use of local and international markets. And thirdly, it will enhance competition by helping governments tackle constraints such as corruption, excessive regulation and weak transport links.
issues, in particular climate change, natural resources consumption, and food security. For instance, the oil and gas sector is an essential industry and one of the largest private sectors globally. This sector consumes more than 57% of total global fuel. Moreover, this sector has both positive and negative impacts on an array of scopes related to SDGs; therefore, it may contribute to the challenges that SDGs look to tackle, for example climate change, environmental degradation, economic inequality, and some health issues (IPIECA 2017).
A recent study conducted in Colombia reveals that the companies are willing to include
the SDGs in their sustainability reports and consider incorporating it in their sustainabil-
ity strategy (Pineda-Escobar 2019). According to 2018 KMPG study on corporate report-
ing of the SDGs, 55% of reporting companies are paying the most attention to SDG 4, 8
and 12, while about 26% reporting companies are paying the least attention to SDG 2, 14,
and 15 (Blasco etal. 2018). Another study conducted on Indonesian and Russian compa-
nies reveals that the private sector had contributed suitably to a specific number of SDGs,
but more efforts are needed to increase company’s implementation to achieve other goals
of SDGs (Ridho etal. 2018). Concomitantly, other studies on different aspects were con-
ducted to assess a range of voluntary actions for improving the environmental and social
issues within the private sector. Thorlakson etal. (2018) found that 52% of firms practice
at least one voluntary sustainable practice but to a confined extent. Working in this field,
Fleming etal. (2017) concluded that the SDGs are still unconfirmed in the private sector
practices due to the differences in the language utilized in the SDGs when compared to the
business; the required changes are difficult and complex, and few regulatory tools incentiv-
ize the SDGs’ adoption. Another study by Moldavska (2017) concluded a lack of knowl-
edge about sustainable development in the private sector. Hacking (2019) point out that
there is an increasing attention to adopting the SDGs in the private sector, but they also
found that the impact assessment community is slow. Further, there is a call for corporate
sustainability assessment (CSA) at a global level (Zijp etal. 2015), and the private sector
is considered one of the main stakeholders (Dijk etal. 2017). The real value of CSA is to
voluntarily adopt for measuring sustainable development (Topple etal. 2017). The exist-
ing CSA still does not adequately cover the SDGs, and the researchers are so far uncertain
regarding its weaknesses and difficulties (Moldavska and Welo 2019). Undoubtedly, the
private sector has an essential responsibility toward achieving the SDGs because it acts as
a development actor through business activities. In doing so, the SDGs strongly encourage
this sector to eliminate or stop their negative impacts on the human and their environment,
enhancing their positive participation, for example, minimizing the air pollution through
implementation of the SDG 7 (Affordable and Clean Energy), which is linked directly to
SDG 13 (Climate Action). For instance, Axon and James (2018) stated that the chemical
industrial sector has contributed scientific and technological solutions that address various
global challenges, e.g., pollution prevention.
Adoption of circular economy (CE) is another role of private sector toward implemen-
tation of SDGs. According to Morseletto (2020), CE is “an economic model aimed at the
efficient use of resources through waste minimization, long-term value retention, reduction
of primary resources, and closed loops of products, product parts, and materials within
the boundaries of environmental protection and socio-economic benefits.” Rizos et al.
(2016) envision private sector as a part of CE, and the main barrier to its attainment is the
company environmental culture. In this regard, D’Amato et al. (2019) mentioned that the
private sector is pivotal for the development of CE strategies at the national and regional
level, and this concept leads to corporate sustainability reporting strategies. Kirchherr etal.
(2017) also mentioned that the concept of the circular economy implies its ability to attain
beyond present efforts of sustainable development. In line with this not
etal. (2017) stated that companies are increasingly conscious of the opportunities prom-
ised by the CE and have begun to recognize their potential benefits for stakeholders. Fur-
thermore, Stahel (2013) believed that the role of the private sector in a sustainable society
is yet a premium summary of the CE. Schroeder etal. (2019) documented that circular
economy practices are closely linked with SDG 12. As a result, the concern of the schol-
ars has increased in the field study of consumption in the context of the circular economy
and its solutions (Camacho-Otero etal. (2018)). Mao et al. (2018, p. 42) mentioned that
the principle of circular economy is reduction-, reuse-, and resource-based. According to
Millar etal. (2019), the current economic growth may hinder the adoption of the circular
economy as a tool to achieve sustainable development. Thus, the power of circular econ-
omy can bring the business sector and policy-making working together toward sustainabil-
ity (Korhonen etal. (2018)).
As a result of this focus, the private sector can attain a competitive benefit via com-
plying with SDGs through efficient energy and resource usage (Bocken etal. 2014). The
standard of living could be improved through the adoption of sustainability practices such
as recycling strategies, natural resources protection and saving energy, creation of safer
and more efficient working environmental conditions, cleaner production and eco-friendly
products, and provision of health and safety measures for the entire society (Ardakani and
Soltanmohammadi 2019). Malviya etal. (2018) stated that the emphasis on development
of green products will lead to focus on minimizing waste effectively, efficient use of raw
materials, and producing and designing recyclable and eco-friendly products to save the
environment. In this regard, the private sector can play the role of a development actor
through effective public–private and civil society partnerships via SDG 17 (Partnerships
for the Goals). Moreover, Nilsson etal. (2018) pointed out that SDGs interactions mean
initiating new partnerships among concerned stakeholders through science, policymak-
ers, private sector, and the local societies. On that note, SDGs may utilize to facilitate the
implementation of sustainable development strategies in both public and private sectors
(Leal Filho etal. 2019). In the context of roles, Fowler and Biekart (2017) argued that the
role and institutional position of multi-stakeholders are essential for increasing the pos-
sibility of successful implementation of SDGs. Similarly, Georgeson and Maslin (2018)
stated that the private sector is particularly more accountable for multi-stakeholder partner-
ships and development. Consequently, this sector must find an efficient means to amend
and improve their plans and strategies in line with the requirement of Agenda 2030 toward
proper implementation of SDGs. Additionally, both the governments and the private sec-
tor increasingly commit to Agenda 2030 by appropriately embedding the SDGs within the
assessment rules for facilitating decision-making. Abshagen etal. (2018) reported that due
to increasing private sector commitment toward the implementation of SDGs, governments
tend to hand over more of their services duties via privatizations, especially in the social
services sector such as water and energy infrastructures, healthcare, and transportation.
Some important roles of private sector and their relation to SDGs can be seen in Table1. SDGs andcorporate social responsibility (CSR)
The essential aim of the SDGs is to begin a revolution in responsibility by engaging fit
for purpose to treat the environmental impacts (Caballero 2019). In the context of 2030
Agenda, the private sector has a key part to perform in accelerating the achievement of
the SDGs through strengthening public–private partnerships, eco-friendly invest
Public-private partnership in addressing climate (Business) change
There is a range of actions policymakers should consider when engaging with the private sector to achieve sustainable development. First, diversity in the private sector is critical. Diversity of opinion and conflict is key to redefining the problems we are facing, shifting perspectives and designing strategic solutions that achieve results. With respect to the sustainability agenda, there will continue to be discussions on public-private sector contributions for economic development. The question is, how can the public sector spur the private sector diversity agenda?
There is a need to leverage local innovation and insights for public-private partnerships. Many of the partnerships we are seeing in Africa now involve large national or multinational firms undertaking costly large-scale projects. However, there is an untapped innovation marketplace with sustainable local-level solutions already addressing many of the social and infrastructural needs which require the right partner to scale up.
The strategy that emphasised the public sector’s role in meeting infrastructure needs and creating an enabling environment for private-sector development, awareness-raising of responsible business practices, and consensus-building through key governmental and institutional partnerships are key. The innovation, energy and resources of international and domestic companies in developing countries – to transform both the communities in which they operate and the prospects for overall growth and sustainable development – are highly recommended.
It is equally important to experiment with ways of constructively engaging with those working against progressive action. In such instances, policymakers need to take decisive action through changing laws or policies that are disadvantageous to private sector development. Over-reliance on the potential of impact investing and similar profit-driven approaches that do not support growth, expansion for achieving sustainability should be discouraged. It is important that private sector partners continue to innovate with new sustainability-oriented financing mechanisms and profit-driven ventures, as there is room for sustainability gains by reducing environmental harm and greening the existing economic system in the short-term.
But it is also important to recognise limitations of the potential to effect sustainability mechanisms, given the immense challenges associated with achieving climate change adaptation objectives. Consequently, creating more climate-resilient societies will require action from businesses and government. Government must develop an innovative strategy for leveraging the private sector to ensure success for its national adaptation and sustainability planning. Notably, developing and implementing effective responses to climate change will require action by a wide range of actors across society and the economy, including civil society, academia and the business community.
In addressing Private Sector Development Strategy, creating the right conditions for businesses to expand and grow is essential if we are serious about achieving the sustainable development agenda. If we want people in developing countries to have a chance of getting a job and earning a decent living, if we want parents to be able to provide for their children, if we want families to have access to affordable goods and services, and if we want to make poverty history for millions of people around the world, we need to put the private sector at the heart of the way we work. It is the private sector that drives economic growth and offers people the chance to earn a living.
Discovery….Thinking solutions, shaping visions.
ABOUT FRANK ADU ANIM:
Frank is the CEO and Strategic Partner of AQUABEV Investment and Discovery Consulting Group and an Executive Director and the Lead Coach in Leadership Development and best Business Management practices for Discovery Leadership Masterclass.
Email: [email protected] or [email protected]
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