What is green economy

On the way to a green economy

The demand for a green economy is old

The economy is a double-edged sword. On the one hand, it offers jobs and ensures that we have everything we need to live. On the other hand, it makes a significant contribution to the climate crisis and also makes a profit from wasting resources and exploiting them.

Until a few years ago, it was primarily environmental and human rights organizations that pushed for more sustainable business practices. The report "The Limits to Growth", published in 1972 by the Club of Rome and translated into 29 languages, became known worldwide.

In it, the scientists warned that there would be no second planet to which we could migrate if we had destroyed the first. The authors of the environmental study "Global 2000", published in 1980 and commissioned by the then US President Jimmy Carter, also pleaded for more sustainability. They were also the first to point out the changes in the climate.

In the economy, these appeals went largely unheard. Only in the course of the so-called eco-movement did the first sustainable companies emerge. Mostly, however, it was a question of smaller craft or agricultural businesses that found their livelihood in a niche.

On the other hand, the demands for economic activity in harmony with nature and people rebounded from the broad mass of companies. The early sustainability pioneers were often laughed at. Foregoing profit in favor of the environment and social standards was considered deeply unprofessional.

The economy is on its way

In the meantime, the attitude of the economy has changed significantly. Although there is still resistance to a more sustainable economy and some companies only do greenwashing, more and more companies are working seriously to reduce their ecological and social footprint and to become climate neutral.

For example, the members of the German corporate foundation "2 degrees. Entrepreneurs for climate protection" have long been demanding a higher CO2 price so that it is worthwhile to convert production to more climate-neutral processes. Companies are also trying to improve their sustainability record through sustainable products, new drives, energy-saving programs, minimum social standards, company bikes, e-charging stations and much more.

Even the basic materials industry, which has been on the brakes for a long time, to which steel, chemical and cement manufacturers belong, has made sustainability a priority. For them, the switch is particularly difficult and expensive. Steel production, for example, requires particularly high temperatures, which until now could only be reached by burning coal.

In cement production, the problem has to do with the main ingredient. The moment limestone is converted into cement clinker in the cement kiln, massive amounts of CO2 are released due to the chemical reaction.

While it is still difficult to reduce CO2 emissions in cement production, the steelworks rely on green hydrogen as an energy carrier. The industry is also experimenting with new types of steel. The companies work closely with universities and research institutes. Because the construction and testing of the test systems are too expensive for the companies, they receive additional money from the federal and state governments.

The financial industry is putting the economy under pressure

Sustainability in the economy is also being driven by the financial industry. In January 2020, the head of the world's largest asset manager "Blackrock", Larry Fink, announced in his annual letter to the CEOs that sustainability and climate awareness would be an integral part of his investment policy.

Blackrock will sell stocks of companies that pose a significant sustainability risk, such as the coal industry. Companies that are unable to provide sustainability reports would be held accountable.

Numerous other large investors as well as banks and rating agencies are increasingly demanding more sustainability from companies. The powerful Swedish state fund has long banned corporations that make a large part of their profits with climate-damaging coal from its portfolio.

Other large pension funds, institutions and cities have also de-invested or are considering doing. Deutsche Börse set an example by launching a sustainability index in the Dax in March 2020. Anyone who wants to be listed there must adhere to the ten principles of the "UN Global Compact".

This includes, among other things, that companies are not complicit in human rights violations, that they eliminate discrimination and accelerate and disseminate the development of environmentally friendly technologies. Companies that produce controversial weapons, tobacco, coal and nuclear power or that have entered into military contracts are excluded from the sustainability Dax.

Consumers have to go along with them

The financial industry not only has the wellbeing of the planet and humanity in mind. It is also about profit. In view of the Paris climate protection agreement, the EU's Green Deal and global climate protests, asset managers, banks and rating agencies are increasingly seeing a lack of sustainability as a business risk.

If politics imposes higher requirements, raises the carbon price or cuts subsidies, they consider, profit is at risk, possibly even credit bursts and losses arise. In addition, unsustainable companies threaten to become unattractive for employees and customers, which is also a significant competitive disadvantage.

On the other hand, employees and customers have to go along if they want the economy to be sustainable. This is especially true for products from the basic industry. Experts assume that they will be significantly more expensive in a green economy. The price for a ton could well double. That sounds more dramatic than it is, however. A car would be around 50 euros more expensive.

From the point of view of the experts, the mass loss of jobs often threatened by the economy is also limited. The switch to a more sustainable economy will not take place entirely without job cuts, but in purely mathematical terms the newly created jobs will by far compensate for the losses.

The experts do not fear any job cuts in the primary industry. However, there will be retraining and further training. Different processes and products require different skills and knowledge.

The crux with growth

It remains to be seen how the question of the compulsion to grow can be resolved. The modern economy is designed to expand steadily. Companies have to service loans and purchase new machines and equipment, there is strong competitive pressure in many industries and, last but not least, employees are demanding higher salaries.

In addition, the social security systems in Germany - pensions, health and long-term care insurance - are closely linked to economic growth. However, there are the first pioneers here as well: companies that try little or no growth. As in the organic movement, there are again smaller craft, agricultural or industrial companies. Research on the topic is also picking up speed.