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Asian Development Bank Asian Environment Outlook 2001

2nd Discussion Draft August 2000

Chapter 6. Industry and the Environment


6.1 Overview Industrial wastes have adversely impacted human health and the natural environment for almost two centuries. That impact has always been concentrated in urban areas, where the combination of industrial pollution and urban wastes pose an immediate threat to health and human welfare. Following present trends, the growing congestion and pollution in the vast urban centers of Asia will inevitably overwhelm urban infrastructure and lead to strong resistance to industrial expansion, particularly in the urban areas, with serious implications for economic growth of the region as a whole. In recent decades the degree and long-term consequences of the impact have finally been recognized and governments have seriously tried to control the wastes and reduce the impacts through regulation. In industrialized countries such as the United States this approach has been successful, but at enormous cost to both industry and government. It has been less successful in developing countries that lack the human and financial resources, and often the political will, to enforce such regulations. Moreover, the regulatory approach generally taken has assumed that industrial 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 the government 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 waste minimization. In retrospect, even those countries with successful regulatory regimes recognize that they could have accomplished more and faster with a combination of regulations and incentives to induce voluntary pollution prevention and better environmental management. Unlike end-of-pipe solutions, pollution prevention and its evolution, cleaner production, are less costly and more sustainable per unit of impact reduction the more intensively they are integrated into 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 are more cost-effective solutions than end-of-pipe treatment has come a broadening of the concept to what is now generally referred to as cleaner production. This more encompassing and more sustainable approach extends far up- and down-stream of the actual production process to include consideration of the environmental consequences of the design of the product, selection, extraction and processing of production inputs, and the distribution, use, and ultimate disposal of the product. Relative to pollution prevention, which fine tunes a production process through better operation management and selection of cleaner, more material-efficient technology, cleaner production considers the sum of the life-cycle impacts of producing and using a product or service and engages a strategy and management approach to minimize that aggregate environmental cost. The UNEP defines cleaner production as the continuous application of an integrated preventive environmental strategy applied to processes, products, and services to increase overall efficiency and reduce risks to humans and the environment.

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Asian Development Bank Asian Environment Outlook 2001

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Perhaps the most significant of the expanded dimensions comprising cleaner production is the concern for the natural resources consumed or damaged per unit of production. This reflects the concept 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, this approach yields very different design and production process decisions by firms. Despite the genuine concern of some firms, it is very difficult for the firm to even know the natural resource impacts of its actions. There is therefore a critical role for government because it is able to take a larger and longer view. It must provide the incentives for reduced emissions and the disincentives, such as through pricing of resources, that will cause the firm to make the environmentally more beneficial decision on the bottom-line business basis with which they are most familiar. There are a number of reasons for firms to adopt principles of cleaner production on their own initiative. These include reduced operating costs and greater profitability through greater production efficiency, improved public image as an environmentally responsible firm, better access to certain types of financing, reduced business risk from accident and regulatory enforcement, and increasingly a stronger and even preferential competitive position, especially in international trade. Cleaner production is often referred to as a win-win solution in which the firm reduces costs, business risks, and government intrusion, while the government incurs less enforcement and monitoring costs. The ultimate winners, however, are the people who enjoy better health and a cleaner environment, and the future generations for which the natural capital will be preserved. Industrial pollution impacts poor people the most, particularly poor households near sources of industrial pollution and workers in the plants that are the source of the pollutants. Unlike the more 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 a critical 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 annually to promote cleaner production and its related subjects in Asia. These include agencies of the United Nations (UN), multilateral financial institutions, industrialized country aid agencies and environmental 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 of the environment and natural resources is evident from the breadth of involved organizations and is growing daily. It is also evident by the number of programs specifically promoting cleaner production that a consensus exists that, together with innovative and enforceable environmental standards 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 with technical and financial assistance from international donors. The ADB alone has committed over US$3.2 billion dollars in recent years to programs promoting cleaner production in Asia and has US$451.6 million dollars in the pipeline for the near future. Such programs by ADB and other organizations normally have counterpart contributions from the host government and frequently also from local NGOs and the private sector. Increasingly one now sees programs generated and supported entirely locally, without the incentive of international donor assistance.

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Asian Development Bank Asian Environment Outlook 2001

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Part of the impetus for cleaner production comes directly from the private sector, especially the multinational corporations operating in the developing countries. Almost all multinational corporations 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 to place requirements on their local suppliers that they also integrate principles of cleaner production in their operations or otherwise demonstrate that they are environmentally responsible (sometimes called greening the supply chain). Some of the multinationals also offer assistance to their suppliers to adopt cleaner production, and this trend offers great promise as a dissemination mechanism for the practice. The success of the profusion of cleaner production programs, however, has been measured by change in a very limited number of firms. Despite the consistent pattern of increased efficiency and lowered costs in firms that have tried cleaner production, change has propagated slowly, especially among small and medium enterprises (SMEs). The United Nations Industrial Development Organization (UNIDO) has found in assessment of past projects in the Philippines that 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 less across industry sectors. The approach of both the international donors and of the local organizations and governments with which they cooperate has been based in the belief that if information, skills, and financing are made available, and a few industry leaders are shown directly how cleaner production can help them, everyone else will soon seize the available resources and emulate the leaders. In a fully 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 of Asia. Governments remain focused on economic growth that will allow them to catch up with the industrialized 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 production or related concepts as a national policy issue. Most do see protecting the environment and public health, industrial growth, and promoting trade and investment all as policy issues, but they tend to regard cleaner production as a technical solution, a fix. Most have failed to see the manner in which the underlying concepts of cleaner production form a common thread through a matrix of the accepted policy issues. Consequently, environmental policies remain inconsistent with industrial development and investment promotion policies, and where there are other bases of common interest in cleaner production the linkages that could reinforce policies in multiple sectors are not made. Much of the enormous collective effort to reduce industrial pollution and to promote cleaner production in Asia has focused on one or more of an array of specific initiatives, from marketbased 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. Most programs have failed to work from a holistic view of the problem, and to choose their initiatives strategically to achieve a broad and clearly articulated goal. The challenge is to change the behavior of decision-makers in the many lines of endeavor that have an environmental impact, in industry, services, and government. In order to do so one must alter the conditions in which they make 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 perspective can 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 underlying policy and integrated planning needed to produce synergy among resources and achieve the rapid spread of cleaner production. Much more could have been accomplished in the last decade toward establishing cleaner production and thereby sustainable development if the international donors had pressed harder on the more difficult and politically sensitive issues of public policy and national planning. They have instead funded primarily programs that carry out a useful but inadequate and incomplete set of actions. Even where public policy and MBIs have been part of the 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 and orchestrate the available resources, there has been little hope for the rapid adoption of cleaner production. 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 by the industrialized nations from the same relative growth. The World Bank estimated in 1993 that in 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 holds true for most moderately industrialized economies in Asia, perhaps somewhat less so for the more industrialized and for the newly industrializing. It is reasonable to believe that in the remaining 15 years of the prediction new capital stock will be built in Asia as a whole at least equal to that which exists today. It is not yet too late to influence the nature of that new investment, which will surely shape the environmental future of Asia. New large enterprises will tend to be cleaner and use less resources because of newer, more efficient technology and because of the influence of the multinational investment partners. But clear 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 of outdated technology. SMEs, however, produce most of the pollution. Unless they are especially targeted by public policy and effective planning and implementation of cleaner production programs, they will not only continue to do so but will produce a steadily increasing proportion as larger enterprises become relatively cleaner. They have the least capacity to assimilate information and to accomplish change, and they must be reached, motivated, and assisted differently than large enterprises. The typical management of a small enterprise is one person, so extended and focused on financial survival that he or she has no time to attend a workshop or otherwise learn new concepts. Information must come to the enterprise, perhaps through an extension service, and in a succinct form easily assimilated and clearly relevant to the bottom-line of the operation. The more 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 its potential unless it is not only applied more intensively by a high percentage of industry, but is also applied more extensively than is presently occurring. Many assume that cleaner production applies only to manufacturing or industry and resist applying the principles elsewhere. The concept has developed within industry, perhaps because the most severe environmental impacts are 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 applied beyond the industry sector in two ways. Cleaner production can be applied in the operations of any 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 sees the application of cleaner production starting. Government at all levels can apply cleaner production 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 other organizations or individuals in order to bring about a change in their behavior. A local government unit may require a manufacturer in its political domain to demonstrate that it is meeting environmental standards and practicing cleaner production in order to secure a permit to operate, or an enterprise may require cleaner production or other practices of its suppliers as a condition for doing business. Even more so than with industry, supportive public policy and directed 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 present and impending investment in Asia sustainable, developing countries must implement a number of inter-related reforms. Foremost among these is integration and rationalization of policy across sectors, especially environmental policy vs. those for industrial development, energy development, and investment promotion. Sector government agencies must develop the institutional capabilities to better understand the requirements of sustainable development and of cleaner production and use this understanding to collaborate with each other and with the many private sector stakeholders to achieve their common interests in national strategic planning for cleaner production. Reform and change are essential as well in a number of other areas, including the expanded use of MBIs, creation of legal liability for environmental damage and the adoption of environmental efficiency and performance criteria in lending by the financial community, monitoring and enforcement of environmental standards and regulations, revision of environmental regulations to promote cleaner production rather than end-of-pipe treatment, and special outreach for SMEs to name a few. All of these, however, depend for their effectiveness on government articulating its objectives with regard to sustainable development and establishing clear and integrated policies to achieve those objectives. 6.3 Barriers to Change Until now programs to promote cleaner production in industry have focused on technical training, demonstration, information networking, and subsidized financing. The needed shift in behavior requires much more than understanding technology and concessional loans. There are many barriers to the adoption of cleaner production even when technical information and financing are readily available. Some barriers are institutional and some are cultural, and the specific barriers will vary from country to country. However, most countries will encounter aspects of all of the following: There is limited general awareness at the management or other decision-making level of cleaner production and its inherent advantages over pollution control strategies. In larger enterprises the production manager or plant engineer is sometimes aware of the value of cleaner production but 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 of cleaner 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, on government to take decisive action to reduce industrial emissions. There is as yet insufficient technical human capital to evaluate, assimilate, adapt, improve,and diffuse information on cleaner technologies and on cleaner production practices. There are few trainers of cleaner production, it is difficult for firms to find staff trained in cleaner production, and the nascent consulting industry still has very limited capability to deliver the specialized support services needed by industry. There is an absence of good information networks on existing cleaner technologies and practices, trends in 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 on cleaner 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 current information is found from equipment suppliers, but they are sometimes suspect of providing biased information. A self-sustaining and continuously updated network source will probably require a greater awareness and demand willing to pay a fee for ease of access to impartial 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 and mineral products, the mining concession constitutes a very small portion of the delivered cost of the input to production. The market cost therefore treats the original natural resource as almost free and reflects primarily the value added of processing. This is even more true of the use of water, which is almost universally regarded as a free good at its source. The market costs on which a manufacturer makes choices among inputs therefore reflect almost exclusively the cost of processing and delivery, perhaps slightly the relative scarcity of the resource, and almost not at all the impact of its extraction and processing on the stock of natural capital. There is poor compliance monitoring and weak enforcement of environmental regulations in most developing countries. While the effective application of cleaner production can take a company well beyond the regulatory requirements, it should not be viewed as a substitute for properly enforced regulations. Poor enforcement results partially from a lack of enforcement resources, but also significantly from a reluctance of government to confront influential firms or 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 market forces and direct incentives and disincentives, cleaner production represents a less politically demanding alternative and a lower cost solution to regulatory compliance as the regulatory criteria become increasingly tighter. Many existing environmental standards and regulations promote end-of pipe solutions rather than cleaner production. Most regulatory regimes have been developed with the assumption that industrial 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 waste treatment plant and certain process technology. Fiscal measures such as accelerated depreciation 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 from an 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 to seek 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 disincentives in an overall pattern of forces to change behavior. This situation exists for reasons that are sometimes political, rarely technical, and often institutional and financial. Many agencies and individuals, genuinely concerned with reducing industrial pollution, are afraid to propose more sophisticated MBIs such as tradeable permits in the belief that they are too complex to administer. Less complex instruments such as emission charges are often structured only to achieve regulatory levels, failing to provide incentive for the continual improvement at the core 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 of revenue, and the agencies which would need to administer such plans lack the human resources to evaluate the validity of proposed projects. While MBIs probably offer the greatest future promise of any mechanism to alter the decision patterns of business, they have 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 and very few firms report publicly on their operations, especially on their environmental performance. While public evaluation and rating programs have been tried in several countries, notably very successfully in Indonesia, they only reach a miniscule portion of firms. Other countries are experimenting with programs in which industries report their toxic inputs to production or their effluents to the government, but in general this type of information is not available to the public. This lack of transparency makes it very difficult for communities impacted by an industry to even know the nature of the risk they incur, much less bring pressure for change. SMEs have poor access to financing. This is not from a lack of capital in the region or in any country where there has been any significant amount of industrial development. There is however, a shortage of bankable project proposals and of lenders prepared to take the greater risks often associated with small enterprises, especially for something they do not understand, such as cleaner production. SMEs need assistance in preparing loan proposals and banks need training and experience in understanding cleaner production and how it can reduce risk in lending, even to SMEs. ADB recently completed a technical assistance in Malaysia 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 only mechanism that has been effectively utilized by SMEs provides access to heavily subsidized finance. The conclusion of the study is that access to finance is a critical element, though not necessarily 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 those incentives and disincentives, provide access to financing, build human resources, build partnerships between government and the private sector, disseminate information, and promote industrial growth. The appropriate set of solutions will vary from one culture to another, from one 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-pipe solutions rather than cleaner production. Some regulations are technology prescriptive and offer the firm no flexibility in how it achieves the standard. Few offer any incentive to the firm to become cleaner than the standard. Encourage industry to tap its vast capacity for innovation by 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 together with industry to explore new avenues to environmental excellence, to regulatory compliance and beyond. Enforce the standards and regulations, and monitor them effectively. The interest of industries in joining voluntary cleaner production programs is understandably low, considering the many technical and financial barriers to overcome, especially if industries are able to avoid environmental compliance through lax enforcement and poor monitoring by government. Industries do not see a real need to adopt cleaner production measures aimed at reducing emission levels. Well-enforced discharge limitations are an important element of the set of conditions that will cause industry decision-makers to seek a more cost-effective means to increase process efficiency and reduce wastes. Focus on SMEs. The barriers are most significant in SMEs whose owners and managers usually have little understanding or appreciation of the potential benefits of cleaner production, limited training that would allow them to understand, and little time available to learn or to make changes. Moreover, they are reluctant to undertake any change or investment that does not have a readily identifiable and rapid return. Such lack of awareness combined with a long-standing skepticism of governments ability to follow through on environment programs results in an unwillingness to participate in programs to show them what cleaner production can do. A cleaner production program specifically designed for the interests and concerns of SMEs has the potential to yield substantial benefits to environmental quality. Improve access to financing for SMEs. SMEs also require special assistance in accessing financing for cleaner production. Concessional lending funds for cleaner production have generally not been successful in Asia because the SMEs lack the skills to develop bankable loan proposals. Also, local banks are reluctant to loan to SMEs, especially for something that they 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 banks should receive training in how cleaner production can make the borrower a better risk. A facilitation fund for SMEs could accomplish this and sustain itself on the basis of fees taken from loans issued, but only for successful applications.

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Bring SMEs into the economic mainstream. The majority of SMEs are family-owned and operated, and as many as half are not legally registered and are therefore difficult to regulate from 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 basis and have limited resources to shift to cleaner production. SMEs outside the system tend to be less 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 the nation, including making it possible to reach a greater number of firms through marketbased incentives and outreach programs. Private sector programs for greening the supply chains and government procurement systems can reinforce this thrust by limiting purchases to 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 of Asia have been slow and not notably successful. Part of the initial resistance to adopting incentive-based approaches may be the imbalance that has occurred between the economic analysis provided to identify the mechanisms needed to overcome inefficiencies in the regulatory regime, and the practical help that has been offered to policy makers and institutions to actually implement the MBIs. Assistance programs should target building the institutional 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 and public sectors can influence the behavior of their suppliers to adopt cleaner technology practices, 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 as the most important reason to shift to cleaner production. Those active in industry organizations 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 an increasingly important business decision. Many of the SMEs are not active in industry organizations but are links in the industry supply chain. One of the most important opportunities on which the donors must capitalize is the interest of international business communities to reach SMEs through greening of the supply chain. The larger industries surveyed are generally willing to undertake cleaner production practices if given the right incentives, perhaps including affordable financing mechanisms, and they are more responsive to their customers than to other pressures for change. If the customers require a green supply chain, business will react. A great deal of work is currently ongoing in a number of industrialized countries to determine how they can best promote the greening of the supply chains. It is essential that the lessons learned and the support already generated be made available to industry in the developing countries of Asia. Create transparency in industry. Encourage industry, as part of a larger public-private sector partnership, 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 as the Global Reporting Initiative, with the objective of elevating corporate sustainability reporting to the level of financial reporting. Simultaneously, governments should be assisted to develop standardized reporting systems for the use of inputs to production, especially toxic ones, and the wastes or emissions produced, and the resulting information should be available to the public.

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Build public awareness and pressure. A critical avenue for reaching SMEs is through greater public 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 role of civil society in effecting change. Thus it is important to incorporate proper environmental communication campaigns in projects and programs for promoting cleaner production practices. Most people still have very little understanding of the implications that the emissions of industrial plants represent for their health. Both the media and the public should be educated to the health impacts of industrial pollution and to the reality that it is within the capability of the firms to prevent much of it, even profitably, through cleaner production. Apply cleaner production to non-industrial sectors. Many assume that cleaner production applies only to manufacturing or industry and resist applying the principles elsewhere. The concept has developed within industry because the most severe environmental impacts are from industrial 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 of environmental impacts and conservation of natural capital, the breadth of adoption of cleaner production must be significantly broadened. This can be initiated by bringing these sectors into a national planning process to promote cleaner production while also providing training to sector associations on how their members can benefit from its practice. Involve the financial community. Including lenders, investors, and insurers, the financial community has the ability, similarly to greening the supply chain, to influence the behavior of firms equally if not more so than their buyers do. For varying reasons the transactions of these organizations are exposed to risk from environmental accident, adverse enforcement action, and business failure from high operating costs or loss of market share. Each of these risks can be reduced through the practice of cleaner production. The financial institutions need better understanding, however, of how cleaner production can help the profitability and stability of their clients, especially the SMEs, and thereby reduce risk in their financial transactions. As environmental regulations are increasingly better enforced and financial liability for environmental damages becomes a reality, the financial institutions stand to gain significantly through the cleaner operations of their clients. Policy assistance to governments can accelerate the introduction of environmental conditionality in financial transactions by helping to develop the legal and regulatory systems that will establish financial liability such as is already commonplace in the industrialized nations. Build capacity for public policy development and integrated planning. In order to achieve a significant 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 they can contribute to achieve the common goals, and collaborating tactically to identify programmatic actions that will achieve the conditions necessary for widespread behavioral change. This is a slow process and requires the building of human capacity in the institutions and organizations involved. For example, integrating concepts of cleaner production into environmental policies and those for industrial development and investment promotion, while resolving the conflicts between their different agendas, is a key objective in a national strategic 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 is that 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 the integrated action planning so important to the rapid spread of the practice of cleaner production. 6.5 Prospects for the Future While industry is already the lead sector in most Asian economies, the next decades will see a significant expansion and replacement of the industrial capital stock. If nothing different is done Asian 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 in megacities where the combined loading from industrial and municipal wastes will overwhelm already weak municipal infrastructure. Asia still has the opportunity, however, to follow a different economic-environmental pathway, one that builds a clean urban-industrial economy from the bottom up and avoids much of the costly, inefficient, and embattled institutional and technological experience of the industrialized countries. It is still early enough in the development process that, unlike the damage already done to much of the worlds water resources, there are still affordable options to prevent long-term or permanent damage to most natural resources and to the urban environment. The role of public policy in promoting and facilitating such an economic transformation in Asia is critical. Similarly, political commitment and effective governance are essential to implement industrial restructuring and environmental and industrial development policies that promote cleaner production. Key to this is a reordering of priorities on the part of government and a true commitment to sustainable development that places the human and physical environment 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 the institutional capability necessary to understand the issues and to do something to implement their new agenda. The promotion of clean development in Asia will require a new type of development platform, one based upon shared interests and goals and involving a broad and deeply rooted partnership among business, government, NGOs, development institutions, and the research and policy community. The prospects for establishing such a partnership for sustainable development in Asia are very good, and will go forward faster if strongly supported by international collaboration. Many leading corporations around the world are undergoing an unprecedented transformation in the understanding of their role in sustainable development, calling for changes in the whole industrial system as well as in their own strategic planning and actions. At the same time, many innovative policy ideas, approaches, and initiatives are emerging from the NGO and research communities, as well as from public-private partnership investments, targeted investment funds, citizens groups and other sources. Globalization of trade and the elimination of trade barriers is placing unprecedented pressure on even domestic market industries to achieve a competitive position through greater efficiency and 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 to draw on its capacity for innovation to achieve greater resource efficiency with accompanying reduction 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 and motivated for change, to achieve quantum leaps in technological efficiency that will radically reduce both resource consumption and emissions. The development opportunity lies in the creation of public policies that support, intensify and broaden these largely private market trends and initiatives, creating space for innovation and action 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 and individually in promoting cleaner development in Asia. ADB can take the lead in promoting and participating in coordination and collaboration among international organizations to focus their resources where they will be most effective, to achieve synergy among their programs, and to avoid wasteful duplication of effort. The first step in this process would be basic exchange of policies, objectives, current program information and plans for the future. A roundtable among donors to discuss the issues outlined herein and the outlook for the future could be most productive. Donors can promote national development of public policy and action planning to support the adoption of cleaner production. It would do so through its present pilot program to directly assist selected DMCs and through the development of broad guidelines and training programs. ADB plans to publish in collaboration with other donors region-specific guidelines for developing a national policy framework for cleaner production and for developing a national strategy and integrated national action plan for the promotion of cleaner production. ADB or other 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 bring cleaner production to SMEs, and for other topics identified as useful to the broad objective of national action to change industrial behavior. Working through one or more appropriate regional organizations ADB would develop and assist in publishing the guidelines, in developing training programs based on the guidelines, and in conducting the first rounds of regional training programs to introduce the concepts in the region. Donors can expand programs for the promotion and support of networks and technical assistance for cleaner production activities, and advisory assistance to developing countries on improving measurement tools and monitoring mechanisms required to implement improved environmental policies. A key component of expanded information networks would be the training materials and guidelines on development of public policy and action planning for cleaner production, and a body of information and data from Asian and Pacific countries and elsewhere globally on existing policies and plans, and efforts underway to develop them. Donors could promote benchmarking of national progress in the formulation and integration of public policy to promote cleaner production and action planning to accomplish rapid adoption of cleaner production. The program would establish criteria for assessing relative national standings, conduct the initial round of assessments and train an appropriate Asia-Pacific regional organization to continue the process and publish the results. Status of a nation relative to the

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Asian Development Bank Asian Environment Outlook 2001

2nd Discussion Draft August 2000

Asia-Pacific benchmark could be considered in lending criteria and in the design and allocation of technical assistance. This approach would parallel for nations the considerable work under way 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 SMEs through a multinational loan guarantee facility. The facility would negotiate loan guarantee arrangements with commercial and development banks in each country, to include providing training to loan officers of the participating banks on the principles of cleaner production and its function in reducing risk in lending. The guarantee program would also provide technical assistance to loan applicants to develop bankable project proposals. Donors can encourage and possibly invest in the international investment funds focused on encouraging local investment in cleaner technologies. Such a fund would focus especially on encouraging investments in the local manufacture of relatively simple, proven technologies with broad 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 urban future for the region. ADBs role in assisting countries hit by the recent financial crisis to undertake industrial restructuring and associated policy reforms presents an ideal opportunity to integrate cleaner production in future industrial development. There are many aspects of the challenge for sustainable development and cleaner production that ADB and other donors may address in future programs. Overall, however, programs may center on issues of public policy and planning, information networking and donor coordination, building institutional capacity, facilitating access to financing and investment in cleaner production, 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 their resources for innovation, and shaping the environmental character of future capital investment in Asia.

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