Transnational firms can boost contributions towards low-carbon economic growth, report says

Geneva, 22 July 2010 - Participation by transnational corporations (TNCs) and the strategic use of foreign investment can help developing and transition economies jump-start "low-carbon" economic development, UNCTAD´s World Investment Report 2010 (1) (WIR10) says.

Although international climate-change negotiations are proceeding slowly, the main issues of concern for developing countries - finance and technology - can partly be addressed through better harnessing of TNC resources. Governments can do this by adopting "clean" national investment promotion programmes, the report contends.

UNCTAD today launched its 20th edition of the WIR. The 2010 flagship report is subtitled Investing in a Low-Carbon Economy. It examines the characteristics, contributions, key sectors, drivers, and determinants of TNC involvement in the move towards low-carbon economic growth. And it analyzes government policy options that may enhance this shift.

TNCs can contribute to reducing emissions by improving production processes in their operations and along their value chains, and by producing and marketing cleaner goods and services, the report says. In the process, transnational firms can bring much-needed capital and cutting-edge technology to global efforts to combat climate change. The report notes that TNCs already make such contributions.

UNCTAD estimates that in 2009, foreign direct investment (FDI) flows into key low-carbon business areas (renewables, recycling, and low-carbon technology) alone amount to roughly $90 billion. But taking into account embedded low-carbon investments in other industries, and various TNC non-equity activities, the actual total investment is much larger.Although low-carbon foreign investments already are substantial, the potential for additional low-carbon investment flows is enormous as the world moves towards a low-carbon economy. Areas where such foreign investment can have major and direct emission-reducing impacts include the power and industry sectors. Transport, buildings, waste management, forestry, and agriculture also can benefit from TNC participation, but mostly in an indirect manner, the report says. For example, TNCs can supply electric vehicles that reduce emissions in the transport sector, or they can influence their suppliers of agricultural products so that they use sustainable practices. Keeping in mind potential negative effects of low-carbon foreign investment, UNCTAD proposes that efforts to attract TNC investment to low-carbon activities be complemented by government adoption of appropriate competition, industrial, and social policies.

Another issue is the possible relocation of greenhouse gas (GHG)-emitting facilities to locations with laxer environmental regulation. The report discusses such "carbon leakage" by noting that while such moves by TNCs can potentially generate short-term economic-growth benefits by adding productive capacity, carbon leakage impedes global emission reduction efforts. The extent of such activities is hard to assess. UNCTAD suggests that instead of addressing the issue at national borders (for example, through tariffs on the carbon content of products), governments could deal with carbon leakage at its source, working through corporate governance mechanisms, such as improved environmental reporting and monitoring.

In the Report, UNCTAD proposes a "Global Partnership for Low-Carbon Investment" to synergize investment promotion and climate change mitigation. This approach might harness low-carbon foreign investment so that it is applied to sustainable growth and development. Such a partnership would consist of five policy initiatives:

• 1.Establishing clean-investment promotion strategies. This includes developing host-country policy frameworks that are conducive to attracting TNC investment in low-carbon activities, implementing programmes targeting low-carbon investment, and mobilizing home-country and international support for low-carbon investment.
• 2.Enabling the dissemination of clean technology. This involves putting in place an enabling framework to encourage cross-border technology flows, fostering linkages between TNCs and local firms, strengthening developing countries´ absorptive capacity for clean technology, and encouraging partnership programmes for technology generation and dissemination between countries.
• 3.Securing international investment agreements´ (IIAs´) contribution to climate change mitigation. This entails introducing climate-friendly provisions into future IIAs and establishing a multilateral understanding to ensure the coherence between existing IIAs and international and national policy developments related to climate change.
• 4.Harmonizing corporate GHG emissions disclosure. This involves creating a single global standard for corporate emissions disclosure, improving the disclosure of foreign operations and activities within value chains, and mainstreaming "best practices" in emissions disclosure through existing corporate governance regulatory mechanisms (such as stock-listing requirements).
• 5.Setting up an international low-carbon technical assistance centre (L-TAC). Such a centre could support developing countries, especially least developed countries (LDCs), in formulating and implementing national climate change mitigation strategies by leveraging requisite expertise from multilateral agencies and other sources and by providing an integrated and comprehensive package of recommendations, including recommendations on how to tap into TNCs´ low-carbon-related financial and technological resources.