While Section 5.3 has looked at external private sector
investment, in many areas the most significant investment decisions are those
made within firms. Within a single country, such investment decisions have an
important role to play in the diffusion of technology. Across borders such investment
forms Foreign Direct Investment (FDI), increasingly seen as one of the largest
and most important financial flows (see Section 2.2.2
in Chapter 2).
Particularly in the buildings, industrial, transport, and energy sectors, investment
decisions made by private firms can significantly affect greenhouse gas (GHG)
emissions in firms' processes and products, and in firms' conduct of environmentally
sound technology transfer along private-sector-driven pathways. These decisions
are often at variance with simple economic models that assume universal optimisation,
because of barriers that can exist within firms to technology transfer. Private-sector
investment comes in many varieties (see Section 5.3),
but whatever form the financing mechanism takes, obstacles originating in the
organisational structures and decision-making procedures of firms may limit
adoption of the most environmentally sound technologies. Internal barriers within
a firm are those that slow down the adoption of technologies that would be in
the firm's own interest given prevailing market prices, external macroeconomic
conditions, and regulatory requirements. Both local and multinational firms
are subject to internal barriers, but the ways in which technology transfer
is impeded by the barriers may differ across classes of firms, depending on
the nature of the barriers.
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