SUPERIOR ENVIRONMENTAL MANAGEMENT LEADS TO STRONGER ECONOMIC COMPETITIVENESS

Abstract

Today, governments’ efforts at environmental management, including through command-and-control regulations and market-based regimes, are perceived to be negatively correlated with strong economic performance. This report aims to provide evidence to challenge this view. Based on data on 96 countries from 2008 to 2018, we provide evidence through regression analysis that shows that superior environmental performances of individual countries are significantly and positively correlated with the long term economic competitiveness of countries, even after controlling for short term economic performances. The evidence shows that this positive reinforcing relationship between long term economic competitiveness and environmental performances exists even after a decade. In addition, we also investigated if at the macro level, superior environmental performances are correlated to strong innovation capabilities, as postulated by the Porter Hypothesis.

The rest of the report looks into other possible ways in which superior environmental management could impact the long term economic competitiveness of countries and provides reasons why the relationship between superior environmental performance and strong long term economic competitiveness will strengthen in future, in light of intensifying climate change.

Lastly, the report looks into the physical and transition risks that climate change poses to national economic competitiveness, as well as to industries and businesses, and the opportunities for green growth moving forward. The report put forth recommendations for governments to consider in managing its risk profile in light of climate change and in capturing the economic opportunities in a new carbon constrained world. In particular, the report highlighted the importance of long term planning and the advantages of both market-based regimes and command-and-control regulations, which can be put in place to achieve both superior environmental performances while shifting production and consumption patterns towards a carbon-neutral economy. Eventually, countries that are able to make the shift stand to gain from a lower risk profile and from the immense growth potential of a new global green economy.