It has been a well-known fact that activities resulting from foreign direct investment (FDI) always have their two sides, the positive and the negative.
The positive side trumpets the advantages FDI brings for the economy, in particular of the host country – promoting its growth through capital formation, transfer of know-how and technology, infrastructure development, increased export opportunities, greater tax revenues and improved corporate standards and practices.
Numerous countries, in fact, still very much rely on foreign investment to boost their economies in order to alleviate poverty. The UN Conference on Trade and Development, in its World Investment Report 2022, stated that global FDI flows posted a 64% increase in 2021, reaching approximately $1.6trn.
The negative side of FDI, on the other hand, often involves its impact on the environment, especially if there is a lack of proper regulation and management. Water pollution and deforestation are just two of the grave outcomes of natural resources exploitation, which can be brought about by FDI. Recent studies also show that developing countries bear the brunt of FDI’s adverse effects on air quality such as the increase in greenhouse gas emissions. Some countries with weaker environmental regulations are even said to be ‘carbon leakage’ victims, as they serve as sites of carbon-intensive projects from more developed countries.
But all is not lost, as with innovative measures designed to counter environmental pollution, creating a greener environment through FDI is absolutely possible.
FDI for green growth
There are several ways through which FDI can be considered environmentally friendly. One of which is the transfer of advanced technology. Through advanced technology transfer, developing countries are able to leapfrog to a cleaner energy mix, which in turn reduces the environmental impact of industrial activities. It is not only between countries that FDI is viewed as the best conduit for technology transfer, as domestic and foreign companies themselves do benefit from this.
Investments in renewable energy such as solar, wind, geothermal and hydro definitely help in mitigating greenhouse gases, improve access to clean energy, and cut dependence on fossil fuels.
About 5% of today’s energy all over the world comes from solar and wind power. According to the International Renewable Energy Agency, however, that percentage should grow to 60% by 2050 to achieve its target of net-zero carbon emissions.
Sustainable infrastructure projects including waste management systems and water treatment facilities can also be supported by FDI. They do not only conserve natural resources and help lessen pollution but improve public health as well.
FDI can encourage the implementation of eco-friendly production processes that use fewer resources, decrease waste and minimise emissions. These consist, among other things, of modular housing and electrical vehicle and 3D print manufacturing industries, which all aid in environmental performance and competitiveness.
Funding of corporate social responsibility programmes that promote environmental sustainability can be done through FDI. Companies, for instance, can support reforestation initiatives, implement sustainable sourcing policies, and invest in energy-efficient technologies.
The Annual Investment Meeting (AIM) recognises that climate change is one of the fundamental challenges that countries are being confronted with at present. With its focus on investments and technological innovations at this year’s event, AIM is positive that participating organisations – both from the private and the public sectors – will be fully equipped with a broader and in-depth understanding of how the use of the latest technology in sustainable investing can lead to long-term environmental value.
Register at the Annual Investment Meeting here using the discount code AIMGLOBALDATA20.