Towards a green economy

to measure components such as guest satisfaction which can make calculating returns tricky.22

In other cases, framework conditions in destination countries limit investment. For example, higher interest rates in many countries make investments that are completely viable in wealthy countries, unviable in the local environment. Another frequently cited situation found in many developing countries is that the financial regulatory systems classify environmental investments as non- productive assets, requiring banks to hold greater reserves, resulting in higher interest rates and less investment.

Enabling conditions for finance 1. The single greatest limiting factor for SMEs in moving toward greener tourism is lack of access to capital for this type of investments. Green investments must be seen as value-adding and made on their economic and financial merits, without prejudice. This will require greater private sector awareness of the value of green investment, and also policy coordination with Ministries of Finance and regulatory authorities.

2. Regional funds for local tourism development

could help overcome financial barriers for green investments where investments also generate public returns (through positive externalities). Foreign Direct Investment (FDI), private equity, portfolio investment, and other potential funding sources should be also aligned with sustainable projects and strategies for the tourism industry. Ringbeck et al. (2010) argue that not all green initiatives are financially possible for the local or national parties undertaking them, and destinations are not always able to generate enough revenue through their own resources. When local financial resource limitations exist, obtaining external funding could help ensure the long-term sustainabil ity of investments.

3. Mainstream sustainability into tourism de velopment investments and financing. In this regard, the Sustainable Investment and Finance in Tourism (SIFT) network is working to integrate the expectations of private inves tors, the leveraged strength of the financing and donor community, and the needs of developing destinations. The SIFT Network aims to establish a common, voluntary standard to en- courage greater sustainability in tourism invest ments by public, private and multilateral investors; intensify financing of sustainable tourism projects; increase sustainable

investments in the tourism sector; improve capacity of developing destinations; and

22. For example, Frey (2008) found in a survey of South African tourism businesses that 80 per cent of respondents agree that responsible tourism management leads to enhanced employee morale and performance, improves company reputation and is an effective marketing tool. However, businesses are not investing sufficient time or money into changing management practices.

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Enabling conditions for increasing local contribution 1. Strengthen tourism value chains to back SME investment. Destination tourism is usually stable enough to provide sufficient guarantees for investors and bankers. Long-term contracts for products and services to hotels or other anchor businesses create

leverage unique knowledge and reach others. SIFT efforts should permeate to regional, national and local financial organisations (counterparts), and help integrate other global sustainable financial initiatives (e.g. UNEP FI, Equator Principles) to support green investments in tourism.

4. Establish partnership approaches to spread the costs and risks of funding sustainable tourism investments. In the case of SMEs, for example, besides sliding fees and favourable interest rates for sustainability projects, in-kind support like technical, marketing or business administration assistance, could help to offset the cash requirements of firms by offering them services at low cost. In addition, loans and loan guarantees could include more favourable grace periods, soften the requirements on personal asset guarantees or offer longer repayment periods. Loans for sustainable tourism projects could be set up with guarantees from aid agencies and private businesses, lowering risk and interest rates.

4.5 Local investment

As discussed above, sustainable tourism creates additional opportunities to increase local economic contribution from tourism. An often-overlooked aspect of these linkages is that they also offer opportunities for increased investment in local communities. Capitalised and formalised businesses in the tourism value chain enhance local economic opportunity (through employment, local contribution and multiplier effects) while also enhancing local competitiveness among tourists demanding greater local content. This win-win situation is recognised in the UNWTO’s ST-EP initiative. Notably, many of the targeted mechanisms are investment enhancing as well as local-income enhancing.

This promotes a greater number and variety of excursions

in a given destination, a “buy local”

movement in food and beverages sector and growth of specialised niches. Efforts by tourism businesses to include local communities within value creation, public and private initiatives of local workers training, and the development of infrastructure and supporting industries, creates new conditions for business development, more equitable growth and less leakage. These businesses require investment, and can expect substantial growth opportunities in successful destinations.