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Overview

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Background

The continuous expansion of economic activities worldwide requires the inexorable exploitation of scarce
resources. Though there have been efforts to achieve sustainable production and reduce greenhouse gas
(GHG) emissions, this is offset by the activities in other areas that compromise environmental protection for
immediate economic gains. This scenario sends a global alarm over energy security and the growing threat
of climate change. As a result, environmental sustainability now stands as a vital component of most
governments' national agenda. Environmental concerns are thus bound to play a more crucial role in
shaping both domestic and international public policy.

The Need for Eco-Innovation

What is deemed necessary is a two-pronged strategy that both advances business opportunities while
reducing detrimental effects on the environment. The innovative solution to advance both environmental and
economic sustainability lies in taking full advantage of green technology. It can serve as a huge investment
stimulus and an environment lifesaver.

The overwhelming impact of global warming makes the utilization of green technology even more urgent
and necessary. The growing momentum to promote its use creates a huge niche for green "technopreneurs"
to come up with innovative solutions by introducing new eco-friendly products, services and processes. This
development is envisaged to change human consumption in the long term, thereby instilling a paradigm
shift that would encourage the growth of environment-conscious consumers.

Eco-Innovation Defined

Against the backdrop of sustainable development, eco-innovation has emerged as a significant factor for
success. Most governments now highly encourage entrepreneurial ideas that tackle both economic and
environmental challenges. Eco-innovation is defined by the European Commission Directorate General
Enterprise and Industry as the: "creation of novel and competitively priced goods, processes, systems,
services, and procedures designed to satisfy human needs and provide a better quality of life for everyone
with a life-cycle minimal use of natural resources (materials including energy and surface area) per unit
output, and a minimal release of toxic substances." Therefore, the heart of eco-innovation is in the quality
and manner of how resources are conserved and efficiently used.

In addition, the Eco-Innovation Observatory (EIO), a three-year initiative financed by the European
Commission, briefly characterized eco-innovation as: "any innovation that reduces the use of natural
resources and decreases the release of harmful substances across the whole life-cycle." EIO's definition
went beyond the traditional notion of innovating to reduce negative environmental effects; it also
encompasses the ways and methods of minimizing the use of natural resources in the design, production,
use, re-use and recycling of products and materials.

According to the Organisation for Economic Co-operation and Development (OECD), what makes
eco-innovation distinct from any other types of innovation is that it results in the mitigation of environmental
impact, whether the effect is intended or not. Furthermore, its scope may transcend the traditional structural
limitations of the innovating organization, thus involving broader social arrangements that could spur
socio-cultural and institutional changes.

Specifically, the three main facets of eco-innovation include the following: (1) "targets" refer to the products,
processes, marketing methods, organizations and institutions, which are the focal targets of eco-innovation;
(2) "mechanisms" tackle the changes in these targets, which include the modification practices or the
creation of new ones as well as the introduction of alternatives; and (3) "impacts" cover the effects of
eco-innovation on the environment, where the introduction of new alternatives usually yield the best
environmental results.

Eco-Innovation and SMEs

Today, small and medium-sized enterprises (SMEs) form the backbone of most of ASEM member states'
economies. In Europe alone, SMEs represent 99 percent of all businesses, providing jobs to more than
100 million people. In Asia, SMEs constitute the lifeblood of many industries as they grapple with the
present global economic meltdown.

In different parts of the world, entrepreneurship has been assimilated in the mainstream to carry out proper
intervention strategies in development. Amidst the crisis, an increasing number of donor agencies are
providing SMEs with access to financial resources. The overarching goal is to use entrepreneurship as
a tool to combat poverty and empower the disadvantaged.

Why should SMEs adopt eco-innovation strategies? Today's model company is not just the firm that delivers
the best deal on the table; consumers are even more impressed by organizations with a great sense of
environmental awareness-where eco-innovation is integrated not just in the company's corporate social
responsibility but in its entire operations. In the highly dynamic market, consumers will certainly demand
for energy- and resource-efficient products, services and processes across all sectors, and the player that
fails to keep up with the pace is doomed to lose its competitive advantage.

Eco-innovation offers SMEs a huge opportunity to save costs, expand to new markets, create new jobs, and
reduce pressure on the environment, thus bridging the gap between maximizing commercial profit and
minimizing negative environmental impact. Beyond boosting a firm's corporate image and profits, riding the
tide of eco-innovation enables SMEs to maintain a high level of legitimacy given the emergence of an array
of environmental rules and regulations imposed by governments and international organizations.

Eco-innovation is still a new phenomenon yet it is expanding quickly across many countries. The greatest
challenge among governments is how to spur an enabling environment that allows SMEs to easily explore
and pursue their innovative ideas despite the risks. The most common barriers are the lack of access to
finance or venture capital, inadequate information, poor business management skills, and the protection of
intellectual property rights. Overcoming these hurdles can empower green SMEs to contribute significantly
in reviving the global economy while securing a sustainable future for everyone.

Best Practices in Eco-Innovation

Global efforts to formulate better environmental policies are gaining momentum. For instance, European
countries have come together to enact the Environmental Technologies Action Plan (ETAP) in 2004. It aims
to reinforce the use of green technologies to protect the environment and enhance European
competitiveness. The initiative puts emphasis on three priority areas, namely (1) bringing green research
output to the market; (2) improving market conditions for environmental technologies; and (3) supporting
developing countries to harness clean technologies through foreign investment.

According to the latest Eco-Innovation Scoreboard, Finland is the top performer in eco-innovation in the EU.
One of the most notable Finnish practices is a marketing innovation by Globe Hope Ltd., which transforms
waste materials such as hospital and army textiles, worker uniforms, advertisement banners, flags, recycled
sails, seatbelts, and vintage home textiles into high quality clothes, accessories, and textiles. It promotes
sustainability by turning waste into new raw materials through byre-cutting, re-sewing, re-dying, and printing.

In Denmark, eco-innovation goes beyond environmental preservation. It is also about improving living
conditions through the use of a water cleaning technology developed by Skjoelstrup & Groenborg. This
technology improves water quality in swimming pools by removing organic pollutants and curbing the use of
chlorine by over 80 percent. The technology makes swimming a more comfortable and environmentally
sound activity, especially for people who suffer from skin asthma, allergies, or other forms of irritation from
the water in swimming pools.

As a non-biodegradable material, the use of petroleum-based plastics in various industries has had
enormous negative effects on human health and the environment. A German company, Tecnaro has
successfully found a good alternative to non-biodegradable polymers by introducing Arboform. It is made up
of a solid substance in wood called lignin, one of the most abundant organic polymers. In terms of price,
Arboform is even cheaper than the regular fossil-based plastic.

Non-EU OECD countries also have some good practices to share with the world. For instance, China's pulp
and paper making process has never been greener thanks to the efforts of Giant Hemu Technology Co. Ltd.
(Giant Hemu). The firm was able to gather support from domestic and foreign investors in selling a
technology that removes harmful side-products such as untreated black liquor from the processes of pulp
and paper making. This change alone has been estimated to have reduced carbon dioxide emissions by
420,000 tons per year. As part of China's strategy to create an enabling environment for green technologies,
Giant Hemu is entitled to tax exemptions and has secured a patent for its unique product.

Meanwhile, Japanese automakers still lead the race in making hybrid cars, which are specially designed to
reduce emissions by using electric motor to support the combustion engine. Some of the latest models
include the Toyota Prius Plus and Honda Civic Hybrid. The Prius is considered to be one of the cleanest
vehicles based on toxin emissions. New models of fuel-efficient cars are being tested in laboratories to
capture the emerging global market for environment-friendly automobiles.

Eco-innovation is not limited to the big economies. The fact that all ASEM member countries are also joining
in this cause only proves that combating climate change is now being accepted as a shared responsibility
across all nations. In Thailand, Ravotek, a company that began with only twenty staff members, developed
solar collectors which use solar energy to heat water. In Cambodia, Kamworks Ltd. was able to take
advantage of an emerging green opportunity by developing a portable solar lantern called "Moon Light,"
which is very useful for people in the rural areas who are simply using candles and kerosene lamps for
lighting. The invention has proven to be a safe, affordable, and sustainable solution to the lack or shortage
of power in far-flung communities. Aside from technological inventions, curbing the use of resources in
business operations is another important facet of eco-innovation. In Petaling Jaya, Malaysia, coffee shops
are planning to install solar panels to reduce electricity bills as well as installing rain harvesters to recycle
rainwater for use in restrooms.

Moving Forward

Eco-innovation is expected to foster a huge market of green technology in the years to come. The
International Trade Center (ITC) noted that as of 2008, the global market for green technology has reached
US$650 billion, which is equivalent to the size of the aerospace and pharmaceutical industries. The
European Forum on Eco-Innovation estimates that by 2020, the global market for green technology, ranging
from the simplest to the most advanced form, will be valued at US$2.3 trillion. ITC further identifies the most
crucial sectors, which include renewable energy, information technology, and waste water management.
Furthermore, more explicit environmental regulations imposed by governments and international
organizations are also envisaged to push SMEs to rethink their business operations. The future competition
in the corporate world will thus be redefined in such a way that environmental aspects are afforded more
value and relevance.