The European Commission leads the way in developing transition pathways to a sustainable economy

The European Commission (EC) adopted a new industrial strategy in March 2020. The strategy recognizes humanity’s sustainability needs and highlights priority areas for industry over the next decade. The creation of green and sustainable companies and the transition of existing companies to responsible companies are essential strategic axes. Later, when the document was updated in May 2021, it had also incorporated learnings from the ongoing pandemic. He underlined the need to accelerate the transition to a sustainable economy and used the term “green and digital transition” to build a resilient European industrial ecosystem.

As a follow-up, the EC has proposed a staff working paper titled “Scenarios towards co-creating a transition path for a more resilient, sustainable and digital local industrial and social economy ecosystem”, which will be part of through a focused engagement process with stakeholders, and will lead to a finalized transition journey in 2022. This document presents scenarios on what accelerating the digital and green transition (twin transition) and building resilience to future shocks mean for the local and social economy. The strategies described build on the potential of social economy business models to drive an inclusive inclusive transition.

To understand the working document, it is essential to understand the expressions “social economy” and “local economy”.

According to the definition of the document, “the social economy covers entities sharing the following main principles and common characteristics: the primacy of people as well as the social and/or environmental purpose over profit, the reinvestment of most profits and surpluses to carry out activities in the interest of members/users (“collective interest”) or society at large (“general interest”) and democratic and/or participatory governance.

The neighborhood economy is based on the concept of a “city in 15 minutes”, which means that everything the resident needs is within a 15-minute walking or cycling distance. It aims to foster local and shorter value chains, mainly micro, small and medium enterprises in this community.

The discussion paper suggested three possible paths for the transition:

1.An agile and innovative ecosystem offering economic and societal resilience and a just transition

The social economy is essential for the future. A few years ago, they were the main players in closing vital governance gaps in health, education, livelihoods, agriculture, financial inclusion, and more. They have become key players who understand local challenges and have created successful businesses to address them. These entities have proven essential and effective in delivering goods, services and relief in times of Covid.

Today, companies and industries, large and small, are increasingly aware of ESG – Environment, Society and Governance – as fundamental aspects for a better future. The rise of sustainable investing and the scrutiny of the negative impact on ESG has played a central role in the growing discussions about the convergence of large, for-profit corporations and the social economy. It is therefore essential to create an enabling ecosystem to ensure that the transition is fair, effective and timely.

2. Fully activate the ecosystem as in recent times dedicated to the green transition

The European Union, in December 2019, declared that it aims to become a climate-neutral continent by 2050. Several countries have followed suit, including the United States, China and India, pledging to become Net-Zero countries by 2050, 2060 and 2070 respectively. Commitment means immense policy change, investment opportunities and deep engagement of all stakeholders including government, industries, businesses, civil society etc. Reconciling economic growth with environmental sustainability offers many business opportunities for the social economy and offers a win-win situation. from all sides. The social economy will grow exponentially and ensure the transition to a sustainable and green economy with a supportive ecosystem.

3. Digitize the ecosystem

The pandemic has revealed inequalities, including digital inequalities. The social economy is very important in this context because it brings innovation and technology to solve immediate challenges. Strengthening technology and digitization will pave the way for scaling across borders. This improved our understanding of the need to go digital and accelerated the process. Several innovative initiatives emerged and helped us reinvent the way we do things.

The document also highlights four challenges:

  1. Skills and capacity building
  2. EU funding of projects and activities
  3. Leverage spillovers and strengthen transnational networks and cross-sectoral partnerships
  4. Improve ecosystem data and information

The staff discussion paper is an excellent starting point for discussing strategies for transitioning to a sustainable economy. However, the document fails to mention one of the most important issues, namely greenwashing. It would be interesting to see how countries would go about this and ensure the timely transition and development of a replicable model for other regions of the world.

The blog was co-written with Keerthi Lal Kala



The opinions expressed above are those of the author.