Tag Archives: Rio+20

The Business View of Rio+20

I’ve been enjoying GreenBiz’s coverage of Rio+20 this week. In their piece about environmental public-private partnerships, writers Tensie Wheland (Rainforest Alliance) and John Williams (Domtar Corporation) write:

There’s no lack of skepticism about the UN Rio +20 Earth Summit, and when it comes to political leadership, no real progress has been made. But that’s not the whole story. … Rio+20 has been a showcase for the role of the private sector and the importance that building the global green economy has for taking sustainability to global scale. … collaborations have evolved to the point where businesses and NGOs working together have become the biggest, most important factor in spreading sustainable production and sourcing practices across the world.

More on business-NGO environmental collaborations here, in “Some Good News, and Next Steps to Take, from Rio.”

GreenBiz executive editor Joel Makower has also put together this great short video about the Business View from Rio+20. Interviewees from companies including Dow Chemical Company, DuPont, Johnson Controls, and Microsoft noted their reasons for being in Rio, such as being part of a gathering of top businesses and the most creative people in the world, working to find and create new collaborations, and experiencing the acceleration of leading countries and leading companies “getting serious.”

Rio+20 attracted the largest number of businesses in the UN’s history of convenings. Watch more of the business perspective below.

This post was originally published by the BCLC Leadership Center blog.

Measuring Green Growth: The Limits of GDP

Clear-cutting in the Amazon rain forest adds to Brazil's GDP. (Photo: Joel Sartore/National Geographic)

Many observers were disappointed at the outcome of the recent Rio+20 environmental summit, which produced no major new initiatives. But more than 86 companies and 50 countries did make an important commitment to sustainable development by endorsing a seemingly obscure and technical accounting change: including environmental assets in countries’ national accounts.

The idea of valuing environmental assets like forests and rivers in the same way as factories and computers – Natural Capital Accounting – is not as radical as it might sound. Businesses and governments already routinely place dollar values on untapped natural resources, such as oil and gas reserves. The problem is that the primary measure of national economic performance, Gross Domestic Product (GDP), counts only economic activity, not the assets or wealth from which it is derived. A dollar earned by clear-cutting a forest, which depletes natural resource wealth and contributes to global warming, is therefore counted the same as a dollar generated by growing crops, selling hydroelectric power, or writing software.

“GDP tells you nothing about sustainability,” Nobel Prize-winning economist Joseph Stiglitz said in 2008. While private companies are judged by both their income statements and their balance sheets, he notes, most countries only calculate their “income” – GDP – and know little about their national “balance sheet.”

The idea of evaluating economies by more than just GDP, long discussed in academia, now has major institutional support. The World Bank’s WAVES (Wealth Accounting and the Valuation of Ecosystem Services) initiative has brought together governments, the private sector, and civil society groups to back the natural capital approach, which is now used in some form by at least 24 countries.

Valuing natural resources appropriately is something even the most sophisticated financial experts at large multinational corporations struggle with. However, there have been important steps towards a feasible system for including natural wealth as a component of national accounts. The international community has now adopted the United Nations Statistical Commission’s System of Environmental-Economic Accounts, an internationally-recognized standard consistent with the existing System of National Accounts used to calculate GDP and other key economic figures.

There are still many other challenges: the statistics can be expensive and time-consuming to collect and compile, and not all countries use the UN system of national accounts (the U.S., France, and China being major exceptions). Also, no comparable standard for accounting by companies has yet been established, though many major firms have endorsed initiatives to include natural capital in their investment and strategy decision-making.

But the basic idea of expanding traditional notions of “capital” is not a new one. In the 1950s, economists began searching for a model to help explain the growth of the knowledge-based service economy, which had supplanted traditional manufacturing in developed countries. The result was the human capital approach, which measures the value of knowledge, skills, creativity, leadership, and social connections and how they relate to innovation and economic performance.

Investments in human capital led directly to the technology revolution which has powered worldwide growth for decades. Countries that spent heavily on education and research, like South Korea, saw incomes soar and millions lifted out of poverty.

Unfortunately, much of this economic growth came at the expense of the planet’s (largely unmeasured) natural resource wealth, which has been depleted at an alarming rate. Measuring that depletion in a systematic way, and balancing it against the economic activity created, is a crucial first step towards a more sustainable economic growth model.

Both governments and the private sector now recognize, at least in principle, that sustainable, inclusive growth is the only path forward. At Rio+20, a strong political will – backed by extensive private sector and civil society support – has emerged to start looking beyond GDP at the environmental fundamentals on which all economies are built.

By measuring the true value of natural wealth and its contribution to the economy, countries and businesses can make sound, informed choices to ensure prosperity for today’s citizens and for future generations.

Global Programs Intern Matt Williger assisted with research for this post.

The Business Case for a Green Economy

(Image: www.greenbiz.com)

Rio+20 Conference concluded on what many observers describe as a lackluster note: no grand agreements have been reached and even the closing paper ended up not being called a “Rio+20 Declaration” but more modestly Rio+20 Outcomes Document. Attendees did little more than reaffirm the original Rio Principles of twenty years ago (hence the “+20” in the name) and the Universal Declaration of Human rights (adopted in 1948) while calling for new Sustainable Development Goals to complement the Millennium Development Goals.

But where heads of state and government and high-level representatives failed to reach any concrete commitments on pressing global sustainability issues, other Rio+20 participants demonstrated a parallel pathway towards the type of development the world needs. “The lack of political leadership,” writes former Irish President Mary Robinson, “was countered by the incredible vitality, determination and commitment of civil society – from young people, women, trade unions, grassroots communities, faith-based organizations and the private sector.”

The role of the private sector in particular was highlighted at the Rio+20 Corporate Sustainability Forum. Hosted by the UN Global Compact (UNGC), the Forum focused on the theme of “Innovation & Collaboration for the Future We Want,” and aimed to strengthen the contributions of business to sustainable development. The event gathered thought leaders from business, civil society, and governments to zero in on a key aspect of making the transition to a more sustainable growth model: the business case for a green economy.

In many respects, that business case has already been made. As Achim Steiner, Executive Director of the United Nations Environment Programme (UNEP), pointed out, businesses that are true long-term strategic planners very well understand the need for sustainability to be at the heart of economic decision-making, and the benefits thereof in terms of resource management, licenses to operate, and opportunities in new markets. But the way that most businesses — and economies — are structured makes green transitions difficult, because of the sunk costs of investments in older technology, the entrenched “grow now, clean up later” thinking, and a regulatory framework that reinforces both.

Therefore, Steiner noted, “the focus on business case today is not about the basic economics of business anymore: the question is how we accelerate and scale up this transition.” Interestingly, it may be easier in developing countries that do not have to deal with the same technological and economic legacies that industrialized countries do. According to the UNEP figures, for instance, last year China was the number one investor in renewable energy infrastructure.

Beyond the advances in green technology and investment, leadership at the company level is key in order for this transition to succeed. As Barbara Krumsiek, CEO of Calvert Investments, put it, “sustainability is not sustainable without board-level leadership.” This means that one-off sustainability initiatives are not sufficient; companies must integrate sustainability into their strategy and daily operations, and work with suppliers and business partners to incorporate sustainability in their strategies and goals as well. Developing metrics for tracking progress and linking improved sustainability to strong financial returns is crucial to making the business case for such changes.

Sustainability is not purely an aspirational goal: many companies around the world already make it a core part of their business, employing international best practices and standards such as the UNGC’s Ten Principles. Translating these principles into practice is a common challenge and it was the focus of a 2010 set of six case studies that CIPE, Social Accountability International, and UNGC co-authored: From Principles to Practice: The Role of SA8000 in implementing the Global Compact. One of the companies featured in these case studies, Brazilian firm Beraca, participated in the Corporate Sustainability Forum to share its experiences.

Finally, the Forum illustrated some reasons why the voice of the business community should not be overlooked in economic policy debates. If a critical mass of like-minded companies work together to “walk the walk” of making the green economy a reality in their countries, they can help shape the legal and regulatory environment to be conducive toward that transition in a way that fuels, not undermines, economic growth. It is a challenging transition too big for any single company or industry to tackle alone, and can only be achieved through closer cooperation between governments, private sector, NGOs, and other social actors.

“We are in a world of bottom-up social change,” emphasized UNGC’s Executive Director Georg Kell. “We hope that Rio+20 will mark the beginning of a new movement toward sustainability, a movement that is led also – and especially – by business through innovation but where all stakeholders: civil society, trade unions, the academia, investors in particular have a critical role to play to provide the incentives. … We need a long-term perspective to change the incentive structure toward sustainability.”