Policy Article

Green gifts from abroad

FDiIntelligence, February/March 2022

Combating climate change, and environmental degradation in general, is one of the most urgent challenges of our time. Accordingly, many governments and international organisations like the OECD, the United Nations, or the European Bank for Reconstruction and Development have strengthened actions to accelerate a green economic transformation. Given that firms are responsible for a large fraction of global emissions and impact the environment in several ways, these organisations all emphasize the importance of greening the private sector.

In order to achieve a green economic transformation, firms have to be aware of their environmental footprint and need to take consequences of their production on the environment into consideration. To this end, a firm’s capability to monitor and manage actions related to greening its production is central. This requires, among other things, management practises targeted at greening the firm.

However, implementing green management practises is costly for firms and depends on particular knowledge. Attracting foreign direct investment (FDI) might serve as a way to overcome these constraints. Beyond financial resources, foreign ownership can accelerate the diffusion of knowledge and advanced organizational structures. In addition, multinational firms face a broader set of stakeholders and, therefore, experience more external pressure to green their production.