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Future Trends in Global Sustainability
Ladies and Gentlemen,
I have been invited to offer you a business perspective on future trends in global sustainability in the wake of the World Summit last year in Johannesburg. WBCSD Since my credibility rests partly on where I’m coming from, let me begin by saying a few words about the World Business Council for Sustainable Development. We are a coalition of 165 leading international companies that are united by a shared commitment to sustainable development. Our members are drawn from more than 35 countries and 20 major industrial sectors. We also benefit from a regional network of 43 national and regional business councils and partner organizations involving some 1,000 business leaders, mainly in developing countries. 45 of our members come from North America. There’s a fair amount of overlap between our Council and this Council, so I’m not surprised to see some familiar faces here tonight. What I have to say will not come as news to those of you who are WBCSD members, so I hope you will bear with me.
The concept of sustainable development has evolved over the past three decades. The 1972 UN Summit in Stockholm focused solely on environmental. Business wasn’t present at all. Twenty years later, at the Rio Earth Summit, the focus had broadened to include both environment and development; and business was in the margins. And in Johannesburg, for the first time, a global summit looked in an integrated way at sustainable development, and business was at the center of events. The decade from Rio to Johannesburg has focused on developing norms and principles for sustainable development. Johannesburg marks the start of a new phase aimed at implementing sustainable development. WSSD: Plan of Implementation for Agenda 21 The main output from Johannesburg was a Plan of Implementation for the Rio Agenda 21 program that specifies what actions governments agree are necessary. At least one of the headlines of the Implementation Plan is focused on the scope of the work of TNC:
Business at WSSD Business had a strong presence on the ground in Johannesburg, and showed a constructive, solution-oriented spirit. We successfully mobilized business under the Business Action for Sustainable Development (BASD) action campaign. Actually, there were more CEO’s than heads of government in Johannesburg. WBCSD and WSSD We seized the occasion of Johannesburg to publish our latest book Walking the Talk, which gives many examples of companies that have moved beyond words to actually implement sustainable development projects in their companies. Two sustainable development agendas Looking toward the future, there are two sustainable development agendas that business needs to address.
The public policy agenda Key issues of the Public Policy Agenda include topics like the following:
How does this agenda affect the business community? Partnerships Partnerships was a key message coming from the WSSD. The balance among the key elements of society has shifted markedly over the past decade. We have moved from a bipolar world where governments and NGOs drove the public policy agenda to a tripartite world where governments, business, and civil society must work together to find solutions to sustainable development issues. At the same time, the relationships between the partners are changing. The
dominance of governments has diminished, while the influence of business has
grown and civil society has matured. The consequences of these changes lead
to rising expectations vis à vis companies, seen as key solution providers. One reason for business to address the public policy agenda is that it directly affects the valuation of a corporation. Let me explain: The market capitalization of a corporation builds on two types of assets: physical assets and intangible assets. Physical assets, like land and manufacturing facilities, make up one part of the market capitalization of a corporation. The other part comes from intangible assets, like reputation, brand, trust, credibility and the ability to interact and work in partnership with stakeholders. The value of these intangible assets is highly influenced by your ability to change and adapt to new societal demands, that is, to address the public policy agenda. And there are many examples of corporations that have seen dramatic impacts on their market valuation when being accused of using child labor, human rights abuses, environmental damage, health risks and so on. Let’s get down to cases by looking at how business can help address parts of the public policy agenda:
How can we make the market work for all, including the world’s four billion poor people? Today, we are witnessing a virulent debate between those opposed to the so-called global market and those in favor. Yet, helping build a free and equitable international market that is not distorted by subsidies, tariffs, or non-tariff barriers should be high on the agenda of any business, NGO, or government that cares about eliminating poverty. Sustainability demands no less of us. Some 80 percent of the world’s people live off 20 percent of the world’s goods. If they cannot get more through market access, they will be forced to destroy natural capital to exist. Fair access to opportunity in the marketplace can narrow the gap between citizens in high- and low-income countries. If we do not find a way to bridge these divides, we risk a backlash against open global markets. Energy and climate change The debate on energy and climate change now focuses considerably more on energy than climate. There seems to be a consensus that the climate change issue needs to be addressed. How we do that is highly dependent on the future energy infrastructure. How will we meet future energy demand? The IEA World Energy outlook from last year gives a sobering perspective on this. The share of fossil fuels in primary energy demand will grow from 87% to 89% in 2030. Hydro and Nuclear are going down due to political constraints. Renewables are growing, but less than the reduction in hydro and nuclear with explains the increase in fossil fuel use. Against this background, we could see a growing debate at the COP 8 in Delhi in November about how to adapt to climate change. There is one fact in the climate debate that all seem to agree upon, namely, that the carbon concentration in the atmosphere is increasing. And as someone said: “What can not go on forever will eventually come to an end.” We have entered a new era, a carbon-constrained world. This means that the emission of carbon into the atmosphere will no longer be free but will carry a cost, which we in the business world will need to minimize, just as we do with all the other costs we incur. The need for a political framework to address climate change is a key issue. We still lack an agreed global framework, which is creating uncertainties and slowing down actions. The Kyoto Protocol is a case in point. Ratification of the Protocol depends on Russia, but it is unclear when they will take a decision. Depending on Russia’s decision, we could have a divided world: a Kyoto part and a non-Kyoto part. Or we could end up with a non-Kyoto world after six years of global negotiations. What will be the consequences of this for global corporations? Society wants energy in a way that is encapsulated in the 3 As:
Besides, business wants a fourth A, which is Adequate returns on its investments. But how do we balance these demands? Answering this question demands a debate based more on facts and less on emotions. We will from the WBCSD work to establish what we call “The Big Tent” – a factual industry platform with other key players. The role of innovation and technology The role of innovation and technology also raises many questions. Under what conditions can we use the technology we invent? The debate often becomes emotional, especially for risks outside individual control, such as nuclear energy, biotechnology, and Genetically Modified Organisms (GMOs). One important issue for business is Intellectual Property Rights (IPRs). IPRs are crucial for risk-taking investments in new technologies and products. The inventor must know that he has a legal right to an income stream from his invention if he is going to invest. At the same time, how do we make technologies available to the developing countries at a cost they can afford? As the main source and user of innovative technologies, business must remain active in this debate and respond in ways that gain society’s support. We have had a tendency to argue our case too much in scientific and technical terms – and not explaining sufficiently the benefits to society. When weighing the risks and benefits of new technologies, trust is another issue. The growing public distrust in science means that business can no longer take for granted that using scientists to argue its case will be successful. “Exit men in white coats” as I have called it. It is also important to mention that, while innovation and technology are important tools to address sustainable development, there is no guarantee that they are sufficient to close the gap between a growing population and the physical limitation of the planet. There is a clear need for more efficient use of resources. Accountability and Reporting We live today in an information society where “everyone knows everything about you all the time.” There is no place to hide. The growing demand for corporate accountability was clearly visible in Johannesburg. There is new national legislation in countries like France and the UK, and many Codes of Conduct have emerged. New reporting guidelines are coming from the Global Reporting Initiative, for example. Further, we see a significant growth in Socially Responsible Investments and in their demands for information. The consequences for business can be put in simple words - “More Work”. As part of the response to these growing demands, companies need to be clear about what they stand for, i.e., their values and principles. They also need to be open about their performance, both positive and negative. We can also expect growing demands for third-party verification of reporting as well as more stakeholder interaction. These growing demands are creating a number of dilemmas for corporations. How do we strike a balance between what stakeholders find interesting to know, what they have the right to know, and what can be put to meaningful use in companies? This also needs to be weighed against the cost of reporting, which can be quite significant. A further challenge is how to integrate management and reporting processes. Information in itself will not lead to change, it needs to be connected to a management system. To help companies in their reporting efforts, the WBCSD launched a report
in January, Sustainable
Development Reporting - Striking the Balance ( The Business Agenda for Sustainable Development Let me now turn to the second agenda, the Business Agenda for Sustainable Development. Corporations cannot be managed based on philanthropic/do-good arguments. They must be able to demonstrate that sustainable development makes good business sense, that there is a business case for it. Eco-efficiency A first part of the Business Case comes from the eco-efficiency concept that
we invented in the WBCSD in 1991. Creating
more value with less impact ( Safety Another area that has been proven to bring value to a company is safety. A safe environment is by its nature a more efficient environment – if machinery is well maintained, staff adequately trained and accidents reduced to a minimum, companies will reap rich benefits in efficiency savings, as well as eliminating the danger of costly and reputation damaging law suits. Reaping the Rewards of Sustainable Development A few years back, I gave a speech that I called “Clean, Green and Rich”. Today being “Clean” is a must for companies. Is there a positive value in being “Green”? It seems so but the evidence remains mostly anecdotal. What about “Rich”? It does seem from indices like the Dow Jones Sustainability Index and others that companies that focus on sustainable development outperform their peers. Why is that? We do not yet know exactly, but it seems that companies that focus on sustainable development are more in tune with the market trends and society, are faster to change and are generally better managed. Too big to handle on your own We see a strong interest from our members in projects that look at the sustainable development challenges for the whole value chain of a particular industry sector. This comes both from an interest in better understanding the future challenges they will be facing, the need to create more stable platforms for future long-term investments and efficiency, and the need to strengthen their business license to operate. We currently have six such sectoral projects: forestry, mining, cement, mobility, electric utilities, and finance. We are launching a seventh project on urban water services. For this audience, the most interesting member project is probably our Sustainable Forest Products Industry project. Sustainable Forest Products Industry Our Sustainable Forest Products Industry project seeks ways to sustainable
manage forests to meet the needs of today's six billion people – and
the nine billion expected by 2050 – for wood and paper products, renewable
energy, ecosystem services, and healthy livelihoods. The working group now
includes thirteen major forest industry members and 15 other participating
members. We then established a permanent Sustainable Forest Products Industry (SFPI) working group to look at the industry in a more holistic way. Ever since, we have been promoting partnerships to help find sustainable solutions to concerns over forestry-based industries. As demand for forest products grows, so do concerns over issues such as illegal logging, deforestation, and protecting wildlife habitat and biodiversity. The forest working group has extended its scope to tackle these challenges and has built alliances among business and non-business players to improve stakeholder understanding of challenges, find common ground, and create the basis for developing appropriate strategies and solutions. In 1999, in partnership with The Nature Conservancy (specifically Nigel Sizer) and other NGO’s, the Forest working group convened The Forests Dialogue (TFD), involving a wide range of stakeholders from both developed and developing countries, – forest representatives, labor, academics, the World Bank, and leading environment groups including IUCN, Conservation International, Greenpeace, WWF and the World Resources Institute. This unique multi-stakeholder process brings together company and NGO leaders to specifically address contentious sustainable forest management issues. Dialogues have since been launched on forest certification, and future topics include seeking consensus on definitions and management objectives for high conservation forests and intensively managed forests and developing the role of sustainable forestry in poverty reduction. In 2001, leaders of the world’s largest forest companies formed The Global Forest Industry CEO Forum, further expanding the industry platform for discussing forestry issues with civic society leaders. WBCSD provides secretariat support to the CEO Forum and the Forestry working groups program is shaping by their input. It is estimated that these CEO Forum companies as responsible for as much as 40 % of annual industrial wood fibre production - so the collective capability and leadership to progress sustainable forestry is very significant indeed. In January 2003, WBCSD signed a Collaborative Framework agreement with WWF International to undertake joints efforts to reduce illegal logging, encourage acceptance of forest certification systems, and sustainability reporting guidelines. and. We also initiated a quarterly dialogue forum with the World Conservation Union (IUCN) to strengthen cooperation on sustainable forestry and biodiversity conservation. Mining & Minerals Another sector that has an important impact on ecosystems is the mining industry. However, time will not allow going also into this project here tonight. Cross Cutting Themes (CCT) We have introduced the concept of Cross-Cutting Themes to our Work Program as a way to keep a strategic focus on important topics outside of our working groups’ remits. The topics are usually connected to previous Council Projects or to issues that are already on the general policy agenda. I have already touched on some of these Cross-Cutting Themes today – they include Eco-efficiency, Innovation & Technology, and Corporate Social Responsibility, Ecosystems, Sustainability & Markets and Risk. The CCT that I would like to focus on now is Ecosystems. Ecosystems Biodiversity One of the topics that we work on in the Ecosystems CCT is Biodiversity.
We recognized the importance of biodiversity for business several years ago
and worked with the World Conservation Union (IUCN) to produce a report
called
Business
and Biodiversity: A guide for the private sector ( Another initiative we are involved in is the Millennium Ecosystem Assessment, which most of you will be familiar with. WBCSD is supporting this effort and has helped bring business representative to the Board of this Assessment. The Business Case for Biodiversity The good news is that there is a strong business case for biodiversity. Biodiversity can be associated with good environmental, economic, and social performance – all of which are necessary for sustainable development. These elements are consistent with the three objectives of the Convention on Biological Diversity: conservation, sustainable use, and equitable sharing of benefits. A company that integrates biodiversity into its core business strategy and management can reap many business benefits, among them the following:
Looking down the road, I see urgent issues touching on ecosystem management that I am hoping The Nature Conservancy will explore with us. Wise use of natural resources Wise use of the world’s natural resources is a theme underlying much of our work. The value of the ecosystem services that nature provides for free has been estimated to be almost twice the value of society’s economic activities. But if prices do not reflect the true worth of the Earth, the global commons will be squandered: we do not protect what we do not value. We need to establish efficient markets for ecosystem services. One major barrier to efficient markets is subsidies that encourage damage to natural resources. Eliminating subsidies would also free up tax revenue that could be better spent elsewhere. The amount spent on subsidies that undermine sustainable development dwarfs the aid money aimed at encouraging sustainability in developing countries. Globally, societies spend almost 1.5 trillion dollars a year to subsidize activities that cause significant resource damage or overuse - or roughly 30 times the total for Official Development Assistance (ODA). A related issue is full-cost pricing - prices that reflect real economic, social, and environmental costs. We recognize that it is difficult to value particular externalities, but that should not stop us from trying. One company cannot unilaterally adopt full-cost pricing; whole market segments must change so as not to doom particular companies to unfair competitive disadvantage. These are problems societies must solve to make the market a force for sustainability, and we hope you will join us in pushing for solutions. A question especially urgent for forest industries is whether a market for carbon sequestration will emerge under the aegis of the Kyoto Protocol. Kyoto has not yet created a formal market for forest carbon. The UK Emission Trading System does not at present accept sequestration credits. But it is crucial that forest owners be given the opportunity to earn revenue or create internal offsets by conserving forest tracts. If they can sell carbon-storage credits to those who need to offset their own greenhouse gas emissions, forest owners will have real economic incentive to change management plans – for instance to conserve forests intact, which would have the added benefit of protecting watersheds and helping stem the loss of biodiversity. I am aware that The Nature Conservancy is attempting to tackle this same issue via its Carbon Change Initiative - and I applaud this. Proposal Let me now make a proposal to achieve our common goals: I would like to see a global coalition of players - let's call it a business and biodiversity alliance - working together to address the knotty issues we face. And by that, I mean bringing The Nature Conservancy, the IUCN, and Conservation International, World Resources Institute, and perhaps even WWFI, together with the WBCSD in a common effort. We at the Council already have various agreements with these parties, but I'd like to see a single overarching agreement that puts us all around the same table. We would have to get beyond territorial thinking and come to terms on many problematic issues, such as valuation of biodiversity and the allocation of property rights, but the synergies we could achieve would more than make up for the necessary compromises. The obvious target for unveiling such a partnership is at the IUCN's General Assembly in November 2004 in Bangkok. If we are to make a global business and biodiversity alliance a reality by then, we've got our work cut out for us. Conclusion I would now like to conclude on a more general note. Going forward I believe that we need to stress more that the normal operations of companies are crucial for sustainable development. Companies provide economic growth and jobs. They pay taxes and they contribute to resource efficiency. Sustainable development on three levels To move toward sustainable development, you need actions on three levels. In companies By governments By the financial markets However, the key challenge for business in contributing to a sustainable future will, I believe, not be how we manage our own corporations. The key challenge will instead be the expectations on us to play a larger role in society. Business cannot and should not replace governments. But how do we perform our role as providers of goods and services in non-functioning societies? As we expressed it in our report, Sustainability through the Market, “Business cannot succeed in a society that fails.”
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It is a great pleasure to be here in Hot Springs and take part in this International
Leadership Council meeting. 
1.3 MB). 
