Strategies to improve the carbon footprint of industrial zones and their competitiveness: Implications of the adoption of an ESG framework to measure performances of industrial zones and identify potential interventions. A study of two industrial zones in Morocco

The creation of industrial parks is an efficient way of bringing together industrial activities with commercial, infrastructure and services. While they can contribute to economic growth, they have the potential to concentrate negative environmental and social impacts. However, industrial parks can potentially have both positive and negative impacts. Many emerging economies seek to increase industrial output by implementing industrial parks or zones program such as the Export Processing Economic Zone Program in Bangladesh or the Special Economic Zone Program in China. However, there is also a pressing need to decouple economic growth from negative environmental impact and promote resource efficiency to meet economic and social objectives. According to the United Nations Conference on Trade and Development (2019), industrial parks/zones (IPs) are used by more than 140 economies around the world, almost three-quarters of developing economies and almost all transition economies. That number has grown rapidly in recent years, with more than 10,000 IPs (of which at least 5,383 special economic zones) in 147 economies. They are intended to overcome some of the important market failures, typically including malfunctioning land market, deficient industrial infrastructures, and constraining business environment, as well as negative environmental and social externalities. Monitoring and benchmarking the performances of the industrial parks to international standards, as outlined by the Eco-Industrial Park Framework (Environment, Social and Governance Framework developed by UNIDO, GIZ and the World Bank), help collectively (parks, firms, communities, governments, and other stakeholders) identify potential gaps and solutions. Eco-Industrial Parks (EIPs) are industrial parks (such as Special Economic Zones) that integrate environmental, social, and economic principles into their operations, while building on international good practice industrial park development. The World Bank, UNIDO, GIZ International Framework for Eco-Industrial Parks (2nd version, 2021) outlines parameters for their EIP performance on 4 categories (park management, environment, social and economic) with more than 60 performance indicators (international benchmarks). The focus of this research study is to use a specific set of performance indicators (the environmental performance of parks) of the EIP framework to show how parks could use it to improve their environmental performance, increase visibility with investors, national authorities, and clients, and improve overall their competitiveness. If implemented properly with a real demand from the private sector and conducive business environment, EIPs can play a key role in facilitating sustainable industrial agglomeration and generating jobs, investments, and exports, and stimulate structural transformation. Since EIPs can also help reduce emissions and improve resilience of firms, this research study aims to provide a methodology on the evaluation of the economic and environmental performance of a selected number of zones in Morocco to validate the use of an ESG framework to improve the competitiveness of park operators and tenant firms through the adoption of a measure, report and validate (MRV) system associated to the certification of the zone. When it concerns climate mitigation goals (Paris Agreement) for example, industrial parks consolidate a large number of firms in manufacturing that could have significant contributions to national emissions. In China, industrial parks represent 30% of national emissions. In Turkey more than 30% of the manufacturing work force is concentrated in Organized Industrial Zones (OIZs), considering that the industry sector consumes 40% of total energy generated/imported in the country, the OIZs contribute to almost 10% of the energy consumption of the country. Both park operators and tenant firms can implement strategies to improve the sustainability of their business models, facilitating their transition with the uprising of climate finance. However, the access to climate finance requires the adoption of a reporting (MRV) system that allows firms to measure, report, and evaluate their performances when applying for access to climate funds. The adoption of an ESG framework that involves park operator and tenant firms ensures not only to evaluate and certify the park as an operational and organic system that could help collectively mitigate environmental/climate, social and governance risks, but it also enables access to green/climate finance, improves disclosure of best practices to facilitate integration in global sustainable value chains, and allows the establishment of a climate data infrastructure (to be used also for reporting to authorities to measure the contribution to the national targets set under the Paris agreement-National Determined Contribution). EIPs can provide a center of excellence for ESG performance. There is a positive link between companies’ ESG improvements and their financial performance. Studies have shown that incorporating ESG factors improves the risk–return characteristics of an investment portfolio, and that there is generally a positive correlation between ESG-score improvements and share price outperformance even in emerging markets though it may not always be the case in Asia-Pacific region and Europe. More than 60% of Morocco’s export is to Europe. The recent provisional agreement of the EU on the Carbon Border Adjustment Mechanism has pushed the Moroccan Government to foster sustainability and decarbonization of the industrial sector. Industrial zones play an important role in this effort and the adoption of an ESG framework can mitigate the risk of carbon tax on the export to Europe, by ensuring transparency in terms of industrial processes and certification of the decarbonization accomplishments associated to the environmental section of an ESG framework as the international EIP framework. Two among the main industrial zones in Morocco have been assessed in this research study to show the nexus between the adoption of an ESG framework (the international EIP framework) and the potential mitigation of economic risk (due to the CBAM or other carbon taxes imposed by importing countries) associated to the exported goods produced in those zones.