The secret of a viable capitalist approach to macroeconomics may lie less in redistributive intervention or stimulus of consumption but in aligning the private greed in productive ways with a public good. This is the idea of having a more productive economy while also salvaging and defending core public goods: the climate and the environment (in terms of clawing back some of the vast losses that industrial man has incurred in comparison to the pre-industrial age); social balance (within the margins of a democratic society that aims for providing the maximum of opportunities while it allows for inequality on basic of individual merit); and optimal (read still opaque but more transparent and accountable than last year) governance of enterprises, whether they are state owned, publicly listed, or privately held (but most of all publicly listed ones).
Under the indisputable need of climate and environmental health, social balance, and better governance, Lebanese private sector businesses are being offered a new double incentive: They have a chance at gaining hard cash in form of investments or improved investability while they also would reinvent themselves for ruddy economic health by moving toward “green,” or climate goal-compliant, projects and practices and by adopting environmental, social, and governance (ESG) standards.
The mental key to this sustainability migration of Lebanese enterprises is the “power of profit and markets” that drives capitalist innovation, says Yara Daou, who is attached to the Ministry of Environment (MoE) and represents (around a few institutional corners) the United Nations’ Green Climate Fund (GCF) in Lebanon as the national technical coordinator for GCF readiness. To her, this power is stronger than the function of government policy in fostering economic behavior change, and thus able to play a pivotal role in making the economy more compliant and future-proof after it emerges from the country’s economic misery.
“At the end of this crisis, there is going to be an opportunity to reconstruct and rebuild correctly, taking sustainable development and green economic growth into consideration,” Daou enthuses about an alleged building-back-better type opportunity that is hidden in the economic pain of Lebanon.
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She explains that the GCF is the globally largest fund dedicated to climate challenges and supports funding and technical readiness for projects that help countries to mitigate climate impacts or adapt to them. “[The GCF’s] main objective is to mobilize climate finance flows toward developing countries to address mitigation or reduction of emissions and also to adaptations, so adapting to the negative impacts of climate change,” Daou tells Executive.
“There are opportunities for Lebanon to tap into climate funds that will help solve electricity, transport, health and food security problems,” she elaborates during a visit to the magazine’ offices together with her colleague Nay Karam, private sector consultant for the GCF in Lebanon.
According to Daou and Karam, the GCF framework can accommodate funding of projects in eight eligible realms, including renewable energy/energy efficiency, infrastructure, livelihoods, green buildings, health, transport, forests, and ecosystems. “We are moving forward from the classic sectorial approach to encompass livelihoods and infrastructure, not just focus on energy and transport. We are trying to promote more comprehensive and integrative approaches to concepts,” Karam explains.
The overall GCF framework originated with commitments made at time of the 2010 United Nations Climate Change Conference in Cancun. The active work of the current GCF representatives in Lebanon, having commenced in 2021, has just entered the stage of building greater awareness on climate finance among local businesses.
“We are currently engaging in dialog and we are constructing a database of potential private sector stakeholders who might engage in such projects. Almost every business will be impacted sooner or later by climate change. The idea that we want the Lebanese private sector to start examining is that if you engage in climate change as private sector, it is not an environmental burden or CSR or similar but really makes business sense,” Daou reiterates.
For this purpose, a first GCF dialog meeting with the private sector was organized in April in collaboration between the GCF team, agencies under the USAID umbrella, and consultancy Capital Concept, the founding CEO of which, Yasser Akkaoui, is also editor-in-chief of Executive. The kickoff dialog event was attended by ranking public figures such as Nasser Yassin, the minister of environment, and Charles Arbid, the head of the economic and social council of Lebanon (Ecosoc). Also present were agents of funding interests and international financial institutions (IFIs) as well as the usual faces representing private sector interest groups and forward-thinking business organizations.
According to Karam and Daou, the groundwork laid by the GCF team in conjunction with the Ministry of the Environment over the past two years was anchored on the role of the central bank of Lebanon, Banque du Liban, as the natural partner in making all banks apply climate change criteria in their loan and financing procedures.
“Before the crisis, the only candidate for being an accredited GCF entity in Lebanon with an existing track record was the central bank and we were hoping to work with the central bank. Now is not the right time for [further talks on this level] but if you install government procurement procedures as well as climate proofing procedures at the central bank in order to avoid having to do the checks at the scale of the project, the biggest chunk of the problem [in achieving GCF eligibility] has gone,” Daou says, before voicing the expectation that the alignment of banks with climate finance standards could be returned to the sector’s agenda in context of an IMF agreement.
In other collaborations to date, local GCF efforts involved interactions with civil society and academia. Universities and scholars are to date the GCF team’s “biggest resource” in Lebanon as they are strongly involved in seeking ways out of the country’s misery, Daou explains, and civil society organizations (CSOs) and think tanks provide insights in people’s needs and enact groundswell communication on the concepts and agenda of GCF. “We are relying on them the most for the country program, the plan that we are drawing up and coordinating at the MoE to submit to the GCF,” Karam says.
These productive ties notwithstanding, Daou and Karam concede that large-scale project with GCF funding potential will not be flooding across the country in any great waves. As experiences from developing economies around the world have shown, the processes of winning GCF funding are stuffed with data requirements and preconditions that have established them as the bureaucratic antithesis of intuitive. More specifically in the case of Lebanon, the potential for large-scale infrastructure projects with deep, paradigm-shift producing impact, is not large in a country of Lebanon’s small size, and secondly, there is presently scarce interest of IFIs into being involved with any project under auspices of the government of Lebanon.
Karam and Daou thus see projects in the size of $10 to $15 million as the most promising for the time being. These projects could qualify for GCF support and might also get GCF grant funding for a notable percentage of the project cost, in which case the percentage of grant-based co-finance by GCF can be “high” since the risk appetite of GCF is higher than that of other investors. “This is window that is open now, at time when banks and insurances are absent from risk market,” Karam says.
Another, more indirect but at the same time more tangible project for future-proofing Lebanese enterprises relates to ESG certification. It goes by the name of Lebanon Environmental, Social and Governance Stewardship Program. Like the GCF dialog with the private sector, it was launched with nice fanfare and a modicum of pomp and circumstance (if you enjoy Lebanese canapés) in spring of 2022.
Moreover, it again brought together, for a launch event, the same future oriented players as the earlier GCF dialog, namely Lebanese ministers (of economy and environment), agents of USAID, Akkaoui of Capital Concept, and financing and private sector luminaries, albeit in the charming outdoor setting of the courtyard at Musee Sursock.
According to its official media release, this project is “the first of its kind in the Middle East and North Africa region.” Designed to support upwards of 100 Lebanese corporations and small and medium enterprises in adopting internationally accepted environmental, social, and governance practices, it has a one-target for training and certifying SMEs which is expected to make them attractive to investors despite the unfavorable risk perception of Lebanese ventures that, in the best-case scenario, will take years to improve on a broad scale.
As investor Romen Mathieu, managing partner of Euromena Funds and a speaker at the event, confirms to Executive, ESG training and certification is gaining in importance under global investment criteria but is an indirect advantage for companies that seek investors. “It is not directly correlated. A company that is ESG compliant to achieve financial returns because shareholders and management are conscious of many things and are organized,” says Mathieu who came to the launch with the self-chosen mission to challenge IFIs in presence so that they would establish a specific SME Lebanon fund in a range of $20 to 40 million. “Let’s start with this to get the ball rolling. They have the money and we have the framework,” he propositions as yet another viable stepping stone towards economic re-invigoration of the Lebanese private sector.
