Given the enormous investments needed to bring the Lebanese industry towards sustainable, low-carbon development, the financial sector will have to play a major role in allocating affordable and cheap funding to sustainable investments that shall contribute to the green transformation, while discontinuing any funding provided to activities that harm the environment. Indeed, awareness has been rising among central banks and regulators that the financial system has to take into consideration the environmental challenges and climate risks facing the real economy. In fact, the central banks play an important role as guardians of the financial and macroeconomic stability, as climate change and environmental damages may have direct consequences on price stability and levels of inflation.
This included the central of bank of Lebanon (BDL) which developed a set of industrial and sustainable energy subsidized funds granted through the Lebanese banking sector, to deal with this challenge in practice, prior to the unstructured sovereign default announced by the resigned government and the severe financial crisis still heavily weighing on all the Lebanese economic sectors. In this respect, the Lebanese banks provided long-term subsidized financing at low interest rates that were only eligible for disbursement, subject to sustainability assessments performed by accredited institutions and were monitored by both the banks and the regulators. This contributed earlier in the acceleration of the awareness and implementation of sustainable measures, to enable the funded industrialists to apply further enhancement of their sustainability policies and adopted measures.
No ESG, no money
As a matter of fact, Lebanon suffers from one of the highest negative environmental, social and governance (ESG) scores, reflecting its severe exposure to environmental risks, extremely high social risk and weak governance measures.
The United Nations Development Programme (UNDP) estimates total solid and chemical waste arising from industry to be around 326,000 tons per year (Source: UNDP report), with most of it generated in Mount Lebanon and the Greater Beirut areas. Many environmental issues like the chronic waste management crisis and the absence of any recycling measures, as well as water, air and noise pollution can be resolved if strict ESG measures are adequately implemented, by imposing on the government and companies to take due actions to enable them secure any future funding or equity investments.
In order to engage and implement strict ESG policies, a serious and trustworthy government has to be formed engaging action for the immediate execution of the long awaited political and economic reforms, including reinitiating the negotiations with the International Monetary Fund (IMF), in order to re-establish trust in the country and resume the path to financial stability that can revive economic activity and future investments in the country. The promised financial pledges from a number of foreign donors will bring economic aid to Lebanon. However the multi-development banks (MDBs) and other donors, such as the World Bank, International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), Agence Française de Développement, etc. are only expected to offer financing that would be fully integrated to support reforms including sound environmental management, which would reflect the importance provided by them for supporting the environmental agenda in Lebanon. Nonetheless, this will not be enough to solve all the country’s problems, unless the authorities apply the necessary reforms and prioritize ESG factors as part of their full economic and financial recovery plan.
In parallel, joint initiatives by the Ministry of Environment, the Ministry of Finance and the BDL have to be closely incepted with the donors, in coordination with the Lebanese Industrial Association (LIA) to join efforts, with clear objectives to reduce the industrial pollution in targeted industrial companies. The Ministry of Environment will have to strengthen its monitoring and enforcement capabilities for all financial sectors to follow suit. In fact, they jointly need to set up several prerequisite mechanisms for financing the abatement of the industrial pollution within the industry sector and to provide the necessary technical assistance for ensuring the ESG implementation and the sustainability of these interventions. The banking sector will also have to resume its active lending role in the economy, by implementing transparent ESG policies in its lending criteria, otherwise it will not be capable of raising new direct cheap financing from MDBs. In fact, for previous loans granted by MDBs, local banks were required to implement strict social and environmental management systems (SEMS), consisting of assessing the environmental and social risks and opportunities arising from any borrowers’ business activities, prior to granting or renewing any related facilities, that were regularly monitored by the donors.
Raising the issue
The major issues and difficulties anticipated and previously faced are the weak participation and awareness of the industries in the implementation of pollution abatement measures which may affect achieving the set targets and the additional efforts that may be required to align the technical reports completed by the industries to meet ESG requirements.
While Lebanon is still suffering from the regional political constraints and the continuous delays in the formation of a decent trustworthy government, it would be still recommended that the LIA initiate immediately more active and focused collaborations among industrialists to create and implement enhanced sustainability awareness, including practical measures and collaborations to improve the ESG implementation and proceed with the needed lobbying with some credible deputies to promulgate or at least prepare the needed regulations. In parallel, this would pave the way to pre-secure in due time the terms and conditions required to raise cheap financing and enhance their performance capacity, to meet the growing ESG and competition needs. The benefits could be immediately witnessed with potential cheaper production costs, higher exports raising fresh funds liquidity, obtaining fresh funds financing (such as through Cedar Oxygen), while awaiting political stability and reforms.
In fact, it would be a good initiative for the industrial sector to provide special attention and focus on how integrated supply chains opportunities may be initiated among stakeholders, in order to adopt local alternative resources to save on the import of raw materials and save on paying very high sums in foreign currencies. For instance, manufacturing industries of plastic packaging, nylon bags, water pipes and tanks, cartons, etc. that are importing most of their raw materials could eventually coordinate with the recycling industries and other concerned parties, to recycle existing plastic and paper waste in Lebanon to be used as part of their raw materials. This would have several benefit edges including the reduction of the cost of acquiring raw materials, cheaper and more competitive products that can be exported, thus attracting fresh funds and actively contributing to the ESG implementation, while maintaining a stable supply chain and contributing to lowering pressure on the Lebanese pound and inflation. This will eventually have spill-over effects that would benefit end-consumers and all the local economy.
Finally it would be worth highlighting that the absence of standardized data about business practices relating to social and environmental concerns is a key barrier limiting the flow of socially responsible investments, especially in the MENA region. Another challenge lies in educating all relevant stakeholders about the importance of ESG standards in investment and lending decisions by training existing resources, communicating with clients and ensuring continuous board and management engagement. Some basic methods that could be used to create more public awareness are: regular roundtables among all stakeholders, lectures, seminars, TV spots and programs, fairs, cleaning campaigns and press releases. NGOs, academic universities and institutions could also contribute to sponsor initiatives, organize seminars and environmental fairs to combat pollution. The visual media and programs also play an important role in exposing the environmental problems with scientific documents broadcasted to introduce different pollution problems objectively.
