How to achieve the twin transition towards green and digital production

Sara Amoroso, Stefan Pahl and Adnan Seric

By creating multi-stakeholder collaboration platforms we can drive awareness and market uptake of green and digital technologies.

The green transition developed from the consensus that economic growth must urgently be decoupled from environmental harm.

Global production is currently undergoing two major transitions. The green transition developed from the consensus that economic growth must urgently be decoupled from environmental harm to address both climate change and poverty. The digital transition, on the other hand, evolved because firms realized they could reap economic gains from using digital technologies. This, in turn, might also contribute to achieving the green transition, for example by allowing firms to become more resource efficient. Green and digital production is likely to turn into a competitive advantage in the future. Lead firms in global value chains (GVCs) will increasingly rely on green suppliers whose production methods can be traced and verified, which typically requires the use of digital technologies. Suppliers will thus have to comply with green and digital standards to be able to participate in the global economy.

The digital transition evolved because firms realized they could reap economic gains from using digital technologies

A green and digital divide is, however, emerging between the frontrunners and those lagging behind. This not only decelerates the twin transition in general, it also increases the inequality between leaders and laggards over the longer run. Small- and medium-sized enterprises (SMEs), in particular, face several twin transition challenges, as they lack the (financial) space to invest in new technologies characterized by uncertain and long-term payoffs.

Larger firms have higher rates of advanced digital technology adoption than SMEs

Strategies for raising awareness and uptake of digital and green technologies

The figure below summarizes the key drivers of and policies on green and digital technology adoption. Traditional factors continue to play a crucial role. Financial resources and absorptive capacities at the firm level are key for introducing novel technologies and integrating them into current production processes. Similarly, demand factors, competition, modern and operational infrastructure and networks are strong drivers of technology diffusion at the market level. The regulatory framework remains a leading factor at the institutional level by providing, amongst others, tax (dis-)incentives.

Drivers and policies for green and digital technology adoption

A positive attitude towards innovation and change is one of the key drivers of technology adoption.

The lack of awareness about the costs and benefits of new technology uptake are one of the main reasons for (non-)adoption1. Managers usually have little incentive and interest in collecting and sharing information about who to contact, where to find the necessary financial and technical support, and which government policies and initiatives are available2. Most firms have confidence in their production technologies and do not want to take any unknown investment risks. The scarcity of time to gather the necessary information is a leading reason for this3. A positive attitude towards innovation and change is one of the key drivers of technology adoption. More specifically, early adopters of new digital and green technologies have a positive attitude towards such technologies, are forward-looking, and have a clear understanding of which technologies are available, the associated costs and benefits, and relevant management practices4.

As regards customs and culture, field research from India, for example, finds that households often reject new, more energy efficient cookstoves that could replace traditional stoves because the new ones cannot be used to bake chapatti (a type of unleavened flatbread)5. In Bangladesh, religious beliefs may represent a barrier to use of greener stoves. Muslim households, for example, do not want to use biogas units that run on pig waste, even though such units would be far more efficient6. These examples emphasize the significance of context-specificity and the need to find solutions that address culturally engrained preferences and behavioural patterns.

Potential adopters of digital technologies may also be wary of unknown risks, such as digital security and privacy risks. The protection of data and trade secrets is becoming increasingly difficult, especially for SMEs. Digitalization and the revolution in data codification, storage and exchange have contributed to the rise in trade secret infringements7.Increased digital security risks, including risks to the security of data assets as well as personal data protection, reinforces the importance of addressing trust in digital technologies as another barrier to technology adoption. Additionally, the lack of trust in partners who might misuse data, such as ICT companies (which might sell the data) or other partners in the value chain, must be considered. Such concerns impede cross-company information sharing and collaboration, and is particularly pronounced in SMEs8.

Increased digital security risks reinforce the importance of addressing trust in digital technologies.

Using multi-stakeholder platforms to facilitate technology uptake through awareness raising

As depicted in the figure above, awareness and legitimation programmes have been incorporated in the larger set of more traditional policy tools. Policymakers frequently use public communication to encourage compliance with environmental policies. Media campaigns, websites and news items help governments share information with a broad audience. Demonstration projects and information campaigns can be useful to ensure that firms gain a better understanding of and appreciation for available digital and green technologies, especially environmental technologies that have cost-reducing properties, and information on good practices in digital risk management. A recent study on the effects of information dissemination on residential solar photovoltaic adoption in Sweden, for example, concludes that the campaign had significant influence on adoption rates9. There are only few studies on awareness campaigns and the adoption by firms of green and digital technologies, and this field, therefore, deserves further investigation.

Intermediary organizations and collaboration platforms can play a key role in the market uptake of green and digital technologies.

Our policy review furthermore highlights that intermediary organizations through establishment of multi-stakeholder platforms can play a catalytic role in the market uptake of green and digital technologies, especially among SMEs. Multi-lateral platform initiatives, such as the ones supported by the G20, can facilitate knowledge diffusion by joining a wide array of key stakeholders, including governments, multinational enterprises (MNEs), industry experts, research centres and SMEs, and provide a common place for participants to connect and share best practices, case studies, policy and legislation experiences through roundtables and multi-lateral discussions.

The functions of such platforms should be expanded within the context of green and digital technology  diffusion to offer more than just a network and knowledge repository. The existing platforms should be used to address the lack of awareness about the opportunities green and digital technologies offer, such as access to global markets and facilitation of linkages between SMEs and larger firms, as well as dispel any doubts about digital security and privacy.

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