Does green make business sense? Economics of going green with special focus on growing economies

Growing environmental awareness across the globe is forcing world industries to go green for their processes and products. While some of the green commitments are being mandated through regulatory frameworks in many of the countries, the pressure on companies to go beyond compliance is mounting. But, going green comes at a significant cost. If the companies are unable to recover these additional costs from markets in the form of either a price premium or increased revenues triggered by increased sales, the extra green commitment becomes no longer viable and does not make any business sense.

This paper, resulting out of primary research across 60 Industries in India of various sizes, probes into the economics of going green particularly in developing economies. The research is a joint effort of the Indian Institute of Management, Indore and the Green Business Centre of India run by the Confederation of Indian Industry. We use a 137-item questionnaire divided into 11 subsections such as initiation, development, and effectiveness of green strategies. The results of the primary survey were analysed using simple statistical tools like correlation and regression analysis and chi square analysis for hypothesis testing.

The research tries to finds answers to some critical dilemmas on various means adopted by companies in going green, the benefits passed on to the end user and whether they are tangible, and whether end users are willing pay a price premium or at least show positive discrimination while planning purchase of these products. The ultimate objective of the paper is finding ways and means of motivating more and more industries to go green by suggesting methods of making the greening efforts economically viable and ensuring that it makes business sense. Though the research concentrates on Indian industry, it is equally applicable to all fast growing developing economies. The paper also offers recommendations on expanding the responsibilities of the regulator in deriving a business sense out of going green beyond compliance. It also suggests workable means of increasing awareness among market operators and buyers of greening efforts.