Rio de Janeiro—How many definitions are there to the concept of sustainable development? At least 436, according to the panel on assessing sustainability at the Rio +20 Corporate Sustainability Forum. More on that shortly.
Business wants to get in on the business of sustainable development big time. The official United Nations Conference on Sustainable Development doesn't kick off until the end of next week. But there's plenty going on in and around Rio de Janeiro now. I spent the day hanging out in meeting rooms at the elegant beachfront Windsor Barra Hotel where a couple of thousand businesspeople, government officials, activists, and U.N. bureaucrats have gathered with the goal of somehow making money out of "sustainability."
The figure for 436 different definitions and visions of sustainable development comes from the private voluntary social and environmental product labeling schemes identified by the Committee on Sustainability Assessment (COSA) have identified. That number includes labels like Fairtrade, Rainforest Alliance, UTZ, and Marine Stewardship Council and so forth. Other panelists would later ratchet that number to more than 800 just in Europe alone.
The head of COSA is Daniele Giovannucci who declared at a panel discussion devoted to Making Sustainability Standards Work for those Most in Need that the goal of COSA is to set up a consistent set of standards and indicators that can be used to assess the impact of the labels – are they actually accomplishing what they claim to be doing? Even if a person thinks that some of the goals of the certifying groups are silly, checking up on them is a laudable enterprise. His organization aims to gather evidence for effectiveness using 135 different indicators of economic, social, and environmental effects. The group has sought the advice of hundreds of groups ranging from major food companies to radical leftwing NGOs. Giovannucci declared, "If we are going to drive sustainability, we can't drive it from a charitable or donor perspective; it must be driven through markets."
Giovannucci illustrated COSA's goals by citing a study looking at a couple of eco-labeling schemes applied to coffee and cacao production. Why? Because these export crops appear to be moving faster toward sustainable production than crops that are not exported. COSA analyzed more than 5,000 farms in ten developing countries measuring various aspects and consequences of certified versus uncertified production, including yields, income, adoption of conservation measures, and even the schooling of children.
For example, the COSA researchers looked at coffee yields under various labeling schemes. Giovannucci said that he was surprised that the researchers found that certified yields were generally higher than uncertified yields, e.g., Organic + 5 percent, UTZ +32 percent, Starbucks + 18 percent, Rainforest Alliance + 15 percent, and Fairtrade + 13 percent, for an average +17 percent over uncertified production. He speculated that certification training of farmers might have introduced better management practices. However, Giovannucci did note that between 2009 and 2011, the differences in yield between certified and uncertified were declining. The researchers had no explanation.
Coffee certification also tended to increase farm incomes, raising them +35 percent in Colombia, but falling -1 percent in Mexico. In addition, certification raised the chances that farm kids were in grades appropriate for their ages, up 9 percent in Colombia (which is already fairly high) and up 254 percent in Tanzania.
One intriguing finding was that when COSA researchers measured how income affected environmental conditions in and around the coffee farms, they were surprised to find that increased income resulted in worse conditions. Giovannucci speculated that incomes between $2,000 and $10,000 per year are not yet high enough for farmers to prioritize environmental improvements.
I asked Giovannucci later if the certifiers liked being checked on by COSA. He observed in one instance that COSA researchers had discovered that in one country a specific certification scheme had increased incomes and yields, yet in a neighboring country certified yields and incomes were 30 percent lower than uncertified yields. "They do not want to hear that," he said.
The result of the proliferation of hundreds of labels, codes and audits, according to Robert Skidmore from the United Nations International Trade Center, is that "standard fatigue is developing" among producers and consumers. His group has set up a database looking at 75 standards, codes, and audits based on a framework of 200 criteria. The idea is to make it easy for producers and businesses to find background information on what is involved in implementing each scheme.
The chief sustainability officer at Mars, Inc., Andrew Hobday claimed that the company has found that "being more sustainable is entirely consistent with making a profit." Mars relies on sustainability labeling of cacao by the Rainforest Alliance and UTZ. Currently 20 percent of the cacao used by the company to make chocolate is certified, but the goal is 100 percent by 2020. The company is also involved in four pilot programs for sustainability certifying coffee. However, Hobday noted that sustainability labeling doesn't have the clarity and simplicity behind it yet for consumers to make sensible decisions. Mars currently uses certification as a way to drive supply chain changes, not really to inform consumers.
Helio Mattar, founder of the Akatu Institute in Brazil, suggested that sustainability labeling comes in two varieties, window labels and mirror labels [PDF]. This distinction was devised by Simon Zadek and his colleagues at the New Europe Foundation more than a decade ago. Window labels inform consumers about how the product was or was not produced; mirror labels reflect back consumer values securing for them the benefits of self-expression and positive social identity. Basically a person buying certified goods tells themselves that they are nice people. Most sustainability labels now function as mirrors, but Mattar claimed that his research shows that the demand for window labeling is increasing. The point is that information behind labeling costs money and somebody has to pay for collecting and verifying it. That would be the consumer.
While the activist panel on assessing sustainability standards concentrated on how to get private voluntary labeling to work, I was struck by the contrast with the panel devoted to doubling global rate of energy efficiency improvement. The corporate participants in that panel were intent on seeking government mandates as way to boost their profits. For example, Gabriela Werner who was representing the appliance manufacturer Embraco noted that her company currently makes a refrigerator that turns on its compressor only when cooling is needed, making it 40 percent more efficient than earlier models. However, she said her company was quite frustrated by the fact that government energy efficiency standards vary quite a bit around the globe, making it hard for this improved refrigerator to compete with cheaper, less efficient competitors. This lack of government regulation and standard setting was big theme in the discussion that followed. "Government policies and legislation are the main drivers to how fast we introduce new products," explained Werner. She asserted that the return on investment in energy efficiency is always positive, but that for many companies the payback period takes longer than expected. Thus, in her analysis, they tend to underinvest in energy efficiency.
Another panelist, Stephen Harper from Intel, was asked what it would take to drive radical innovation inside of companies. Harper declared that there is already a tremendous amount of innovation available. He then added that companies will only invest in more energy efficiency innovation for two reasons: They have to get a regulatory signal, such as carbon tax. Or they must get a price signal. For example, a new energy technology must be cheaper so that the buyer will save money. (The last point seemed pretty obvious).
"We know that incentives don't always work," said Harper. Why? Because of things like principle/agent problems in which the person buying equipment doesn't have to pay for the energy they use. One typical example is a homebuilder selecting appliances for a new house. A second failure occurs because of lack of open information. Consumers don't know how much electricity they are consuming, so they can't connect their behavior to their monthly bills. This lack of information creates a market for various applications that allow consumers to control their energy use. Harper identified as a third problem the disconnect between energy production and the way power companies are compensated. Regulators need to figure out a way to pay power companies for selling energy services instead of just more electrons.
Neil Hawkins from Dow Chemical argued that governments need to set minimum building code energy efficiency standards. "It's hard for private companies to invest without minimum energy efficiency standards," he said. The first are regulatory standards (which are voluntary so far) such as the EnergyStar appliance standards set by the Department of Energy.
Harper pointed out that governments are generally the largest landowners, vehicle fleet operators, and employers, so their procurement priorities could have a big effect on the deployment of energy efficiency technologies. With regard to supplying consumers with more energy consumption information, Harper noted that many studies found that consumers reduced their consumption by 10 to 20 percent. They also reduced their bills by shifting energy use to non-peak periods, such as washing clothes and dishes late at night. Werner asserted, "Every dollar that governments spend on energy efficiency is two dollars saved from energy production.
Basically, the panel strongly suggested that pushing sustainability in the form of increased energy efficiency depends on government mandates and regulations. The fact that energy costs money to businesses and consumers is not powerful enough to drive energy efficiency. But is that true? While regulations have no doubt played some small role, it is a fact that in the United States GDP per dollar of unit of energy used has fallen by nearly 50 percent [PDF] since the early 1970s. Perhaps the price system does still drive energy efficiency innovation.
In addition, an authoritative report in 1980 from the National Academy of Sciences projected that the U.S. by 2010 would need to produce 130 quads of energy (A quad is a quadrillion British Thermal units (BTUs) which is equal to the amount of energy in 45 million tons of coal, or 1 trillion cubic feet of natural gas, or 170 million barrels of crude oil.). Yet the economy has more than doubled from $6 trillion in real dollars in 1980 to $13 trillion today and Americans used only 98 quads of energy last year, up from 80 quads in 1980. Apparently markets are capable of encouraging consumers and businesses to economize on energy consumption without the "help" of regulations and legislation.
Finally, I dropped by the session launching the new Natural Capital Declaration in which 37 financial companies agreed to consider the effect of their investments on natural capital and biodiversity. Natural capital is basically defined as those aspects of the environment that are unowned. At the launch William Bulmer from the International Finance Corporation noted that the services provided by natural capital are "too often underpriced" and "treated as a free good" and "therefore are not properly managed." Why might that be? Basically, resources in open access commons do not become valued until they become scarce. And even then, they will be abused until someone can claim ownership and exclude others from overusing them. Recall Adam Smith's famous diamond/water paradox. Why are diamonds which nobody needs far more valuable pound for pound than water which everyone needs? Smith did not resolve the paradox, but the solution turns on relative scarcity. The rarity of diamonds makes them expensive, whereas the ubiquity of water makes it cheap.
One of the chief problems with natural capital is that governments get in the way of people enclosing open access commons, i.e. creating private property. Once that happens, however, resources that are becoming increasingly scarce relative to demand can be properly valued and conserved in the marketplace. The Natural Capital Declaration states that "governments must act to create a framework regulating and incentivizing the private sector." Although the participants in the launch of the Declaration conspicuously avoided saying so, at the first approximation the framework governments should establish to help conserve and protect natural capital would be private property rights.
Tomorrow, I will be back at the Corporate Sustainability Forum perhaps listening in to panels discussing topics such as Aligning Business Practice with the Human Right to Water and Sanitation, Green Gold—Financing the Green Economy, and a Framework for Action: Social Enterprise & Impact Investing.
Reason Science Correspondent Ronald Bailey will be posting daily dispatches about the goings-on at Rio +20 Earth Summit, the People's Summit, and the Corporate Sustainability Forum for the next week.