Notes from the Field

From Global to Local at Rio+20

June 20, 2012

The first Rio Convention on Sustainable Development in 1992 called for businesses to adopt a new blueprint for economic development – to incorporate social, environmental, and economic considerations into business operations. Over the last two decades, some international corporations have taken steps to integrate these perspectives through corporate social responsibility programs, sustainability reporting, and responsible sourcing within global supply chains. But these efforts represent only a thin wedge in the vast landscape of global business.

New sky-rises in Yinchuan

China, with the world’s largest population, is also the world’s largest producer of municipal solid waste and largest importer of foreign waste. Above, new skyscrapers in Yinchuan, China. Photo by Ted Alcorn.

As the 2012 UN Conference on Sustainable Development (Rio+20) commences this week, world leaders and policy makers are revisiting this blueprint for a green economy. While efforts are being made to hash out new international commitments on sustainable development, more action at the local level is needed. In Asia, small- and medium-sized enterprises (SMEs) directly affect people’s immediate environment and social structures. SMEs make up the bedrock of local economies and provide a critical link between global markets and local communities. They not only provide many of the products and services demanded by consumers all over the world, but are fundamental sources of jobs and livelihoods for many people throughout Asia. SMEs make up more than 90 percent of businesses and employ around 60 percent of the workforce in the Asia-Pacific Economic Cooperation (APEC) region. Integrating SMEs into a green economy is a critical step toward real action on local sustainable development and poverty alleviation.

Despite their potential, SMEs have yet to be more fully engaged in this opportunity. To better understand the drivers, challenges, and opportunities that contribute to a robust green economy for SMEs, The Asia Foundation directed a research study with Stanford University’s International Policy Studies program. The study aimed to identify ways the Foundation can support the development of green SMEs in Asia, particularly in two growing economies – China and Malaysia. In China, SMEs account for 60 percent of GDP, 82 percent of employment, and 68 percent of exports; in Malaysia, they account for 31 percent of GDP, 56 percent of employment, and 19 percent of exports. Integrating social, environmental, and economic factors into these local businesses is an opportunity for significant global impact, particularly in the organic agriculture and waste management industries in China, and the ecotourism sector in Malaysia. Below are some key highlights from the study:

Organic Agriculture
At close to 10 percent of the GDP, agriculture is a major contributor to China’s economy. It is also a significant source of water pollution – more so than the industrial sector – due to intensive fertilizer and pesticide use in conventional commercial agriculture. Recent food safety scandals in China have eroded public trust in the food supply. Organic agriculture provides an opportunity to reduce this sector’s environmental impact, while at the same time providing greater economic opportunity for the nearly 200 million small farms in China. The country’s organic foods industry is now a $2.4 billion per year industry, and wealthier Chinese and international consumers are willing to pay the additional premium for organic products. In 2008, the Chinese market accounted for $1.1 billion, and exports to international markets were valued at $500 million. While large supermarket chains play a major role in the industry, SMEs are important intermediaries throughout the organic agriculture supply chain. They grow organic products, and provide material inputs and financing, quality control, food processing, distribution, and marketing of these organic products. Despite SME contributions to organic agriculture and the sector’s rapid growth, there are significant barriers to entry including large start-up costs and the need for specific technical capacity. Additionally, Chinese demand is limited – not many consumers are willing or able to pay the over 100 percent price premium for organic goods, compared to the 60 percent mark-up in the United States.

Waste Management
China, with the world’s largest population, is also the world’s largest producer of municipal solid waste and largest importer of foreign waste. Improper disposal of waste has a detrimental impact to local water supplies, soil, and air quality. Electronic waste (e-waste) in particular – discarded computers, cell phones, and kitchen appliances – are particularly toxic. It is estimated that 70 percent of the world’s e-waste ends up in China. Waste management here is largely unregulated, and there are a large number of SMEs and individuals that play a substantial, but informal role in collecting, sorting, recycling, and breaking down waste. In Beijing alone, it is estimated that 160,000 people make their living in this sector. But there are significant challenges – waste collection and especially e-waste recycling and decomposition have been linked to severe environmental and health risks for these workers, including premature births, impacts to neurological development, and increased rates of cancer. The amount of waste in China is expected to increase to more than 480 million tons per year by 2030 – nearly two and a half times of the current amount. Proper and responsible disposal offers an opportunity to reduce this impact on local environments, particularly in China’s urban areas.

Ecotourism
Orangutans, elephants, and virgin rainforests draw tourists from all over the world to visit Malaysia. Tourism plays a major role in the country’s economy, contributing 16 percent to total GDP in 2011, and seven percent of employment. Ecotourism is one of the fastest growing segments of the global tourism industry. Estimates indicate that globally, the sector is growing at 20 percent per year, compared with seven percent growth for tourism overall. However, varying definitions of ecotourism make its exact size and growth in Malaysia difficult to measure. The International Ecotourism Society (TIES) defines it as “responsible travel to natural areas that conserves the environment and improved the well-being of local people.” There is also risk of “green-washing” by tourism operators looking to capitalize on the draw ecotourism has for tourists, but not implementing sound environmental and social practices. Done correctly, however, ecotourism offers tourists a unique and personal experience where communities have the opportunity to share their local environment, culture, and heritage with visitors while minimizing environmental impact. SMEs play a significant role in facilitating this exchange, by building and operating eco-lodges, running tours, marketing, and producing locally made goods such as foods and handicrafts.

SMEs already make significant contributions to local economies and have the potential to play a greater role in expanding green economies. However, they still face challenges and need support in enhancing their access to information, training, financing and other resources, strengthening their networks and associations, raising consumer awareness about green businesses and products, engaging with policy makers, and reducing barriers to market entry.

Rio+20 provides a platform for connecting broad international policy goals to local impact for immediate value – connecting local businesses with social, environmental, and economic perspectives that determine the food people eat, the quality of their health, and their ability to value natural environments.

This report is the result of a joint collaboration among The Asia Foundation’s Environment and Economics Themes, with research by Stanford University’s International Policy Studies program. Special thanks to the Stanford research team: Edith Elliott, Marie Feghali, Bill Gallery, Emily Green, Chiara Kovarik, and Nashat Moin.

Lisa Hook is a program officer for The Asia Foundation’s Environment Programs in San Francisco. She can be reached at lhook@asiafound.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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