Sustainability & Global Politics

A Primer for MBAs

Presentation at the HHL - Leipzig Graduate School of Management, 17 March 2004

Detlef Sprinz

PIK - Potsdam Institute for Climate Impact Research & University of Potsdam http://www.sprinz.org

Overview

Relevance of Sustainability for Business What is Sustainability & Global Politics?

Measuring Sustainability Politics & Institutions for Sustainability Research Agenda

Relevance of Sustainability for Business

Part of Good Corporate Citizenship Becomes Part of Regular Reporting for Leading Companies Vulnerability in Case of Gross Violation Nike Brent Spar DJ Sustainability Index Nuts & Bolts of Sustainability for an MBA

Sustainable Development

World Commission on Environment and Development/Brundtland Commission (1987) “Sustainable Development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” • Needs, esp. of the poor, to be met • Intra- and intergenerational equity Sustainable Development as the historic compromise between developing and developed countries at the 1992 Rio UN Conference on Environment and Development

Sustainability

Environmental Economics (Turner 1993) Very weak sustainability • K m , K h , K n : completely substitutable • K c : non-existent • Sustainability achieved if K ≥ 0 Weak sustainability • K m , K h , K n : partially substitutable • K c : exists and should be preserved unless opportunity costs are too high • Sustainability achieved if K ≥ 0 and K c ≥ 0 unless opportunity costs are too high

Sustainability

Strong sustainability • K m , K h , K n : partially substitutable • K c : exists and should be preserved • Sustainability achieved if K ≥ 0 and K c Very strong sustainability ≥ 0 • K m , K h , K n : perfectly complementary • Sustainability = stationary-state economy, moral/ethical capital ≥ 0

Sustainability – Broadly Defined

AGENDA 21 (UN): Environmental Economic Social

AGENDA 21 Topics

Agriculture Atmosphere Biodiversity Biotechnology Capacity-building Consumption and production patterns Demographics Desertification and drought Education and awareness Energy Finance Forests Freshwater Health Human settlements Indicators Industry Information for decision-making & participation Integrated decision-making International law International cooperation for an enabling environment Institutional arrangements Land management Major groups Mountains National sustainable development strategies Oceans and seas Poverty Science Small islands Sustainable tourism Technology Toxic chemicals Trade and environment Transport Waste (hazardous) Waste (radioactive) Waste (solid)

Sustainability – Broadly Defined

Long-Term Societal Issues Management of Public Debts Management of Public Entitlements Across Generations • Prior commitments of the social welfare state – $ 44 trillion (quoted in Heller, IMF, 2003) Systems – = ca. four times 2004 forecasted GDP for USA (Economist) – Health insurance – Publicly mandated retirement plans – Catastrophic health care Stability of the Global Trading and Financial

Global Politics

Authority Patterns That Transcend the Individual Nation-State No need for governments: Bluetooth, Linux OS, etc.

Governments Often Involved: • Creation of the market for GSM communication Public-private partnerships • Germany has a long tradition: welfare organizations since 19 th century, TÜV, etc.

Global Politics

Lack of Central Authority at the Global Level International treaties (mostly) cannot be enforced • Few powerful sanctioning systems • Exception: WTO (yet decentralized execution) Even in a unipolar global system Rule-creation and implementation is decentralized

Global Politics

Challenge of Global Politics Create and maintain authority patterns where markets produce clearly sub-optimal outcomes Observe subsidiarity in multi-level governance • Nation-states are often better legitimized • Resources are largely controlled by nation states

Measuring Sustainability & Global Governance

Measuring Sustainability UN Commission on Sustainable Development (CSD) -> Institutions

Theme Sub-theme Indicator

Institutional Framework Strategic Implementation of SD International Cooperation National Strategy Sustainable Implementation Agreements of Development Ratified Global Information Access Number of Internet Subscribers per 1000 Inhabitants Institutional Capacity Communication Infrastructure Science and Technology Main Telephone Inhabitants Lines per Expenditure on Research Development as a Percent of GDP 1000 and Disaster Preparedness and Response Economic and Human Loss Due to Natural Disasters Source: http://www.un.org/esa/sustdev/natlinfo/indicators/isdms2001/table_4.htm

Measuring Sustainability & Global Governance

World Economic Forum & CIESIN: Environmental Sustainability Index (2002)

ESI: Components of Environmental Sustainability Component Logic Environmental Systems Reducing Environmental Stresses Reducing Human Vulnerability Social and Institutional Capacity Global Stewardship

Source: World Economic Forum (2002, 5)

Measuring Sustainability & Global Governance

World Economic Forum & CIESIN: Environmental Sustainability Index (2002) 2002 ESI rankings by country

Rank Country ESI

1 2 Finland Norway 73.9 73.0 3 4 5 33 Sweden Canada France Switzerland 72.6 70.6 66.5 55.5 34 35 45 50 91 129 136 137 138 139 140 141 142 Netherlands Chile United States Germany China Ukraine Haiti Iraq Kuwait United Kingdom Saudi Arabia North Korea United Arab Em. 55.4 55.1 53.2 52.5 46.1 38.5 35.0 34.8 34.2 33.2 32.3 25.7 23.9 Source: http://www.ciesin.columbia.edu/ indicators/ESI/rank.html

Measuring Sustainability & Global Governance

Measuring Global Regime Effectiveness NR AP CO Degree of Instrument Use (e.g., emission reductions in %) Effectiveness Score

E



AP CO

 

NR NR

Sensitivity of Effectiveness Score

S



AP

 1 

CO



NR NR



E



CO

1 

NR



dE dAP

Notes: NR = no-regime counterfactual = LB = lower bound CO = collective optimum= UB = upper bound AP = actual performance Source: Helm and Sprinz 2000, 637 (modified).

Politics & Institutions for Sustainability

National: German Council for Sustainable Development Founded in 2001 Mission: • Consult government • Facilitate societal dialogue First National Strategy (2002): “Perspectives for Germany” Current emphasis of national strategy on • Climate & energy; mobility; environment, food & health Future • Inter alias, increased incorporation of older generations Impact • Too recent to judge

Politics & Institutions for Sustainability

Global: UN Commission for Sustainable Development (CSD) World-wide forum created after 1992 UN Conference on Environment & Development Meeting-intensive Indicator development, but national reports have divergent scope Impact: unclear

Politics & Institutions for Sustainability

Need for Long-Term Strategies, Resources, Implementation and Evaluation World Environment Organization Biermann, WBGU, and others Enhanced UN governance system

Politics & Institutions for Sustainability

Challenge Inadequate attention to where most long term decisions are made and where legitimacy predominantly “resides” • Family, local, national, some supranational: EU How to organize a decentralized system of governance that improves on the status quo?

Research Agenda

Assessing the Effect of Global Governance Further develop the “Oslo-Potsdam solution” of effectiveness tool Separating and aggregating effects across international treaty regimes Assessing regime effectiveness over time Investigate non-regime cases, and Explain the variation in regime effectiveness -> assist in regime design.

Research Agenda

Feasibility of Long-Term Policy Current institutions created for short-term governance • Constitutional provisions not specific enough (and are often ignored, e.g. public debt) Examples for Research • Long-term climate policy (“prevent dangerous interference”) • Intergenerational obligations (social security system) • Sectoral policies (e.g., Airbus)

Conclusions

Sustainability Is a Business Issue Potentially Wide-Ranging Concept Assessment of Progress Towards Sustainability is Possible (Effectiveness) The Challenge of Credible Long-Term Policy Remains

Additional Sources

Presentation http://www.sprinz.org

Links and Additional Information: PolitikON(line) Course “International Environmental Policy” Contact: [email protected] or [email protected]