Sustainability Through the Market: Making Markets Work for Everyone q

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1 Sustainability an the Market Sustainability Through the Market: Making Markets Work for Everyone q Peter White Sustainable evelopment is about ensuring a better quality of life for everyone, now an for generations to come. While sustainable prouction an consumption are essential, focusing on either of these alone risks ignoring the powerful market mechanisms that link them together, an which can promote sustainability. Effective markets provie choice, competition an innovation, all of which are neee if we are to improve quality of life. Toay, however, markets are not working for everyone. One of the biggest barriers to achieving sustainability through the market is the fact that a large section of the global population oes not have access to markets, ue to poverty. Another factor is the lack of appropriate framework conitions in some markets. This article presents some to the attempts being mae to improve lives where there is no market, an what is neee to achieve sustainability through the market, using examples from the Worl Business Council for Sustainable Development ŽWBCSD Publishe by Elsevier Science Inc. Peter White leas Procter & Gamble s ŽP&G. Corporate Sustainable Development Department in Europe. He joine P&G in 1991 after 13 years of university research an teaching in biological an environmental science. At P&G he has been involve in the evelopment of the company s Environmental Management Framework an has worke extensively on Life Cycle Assessment an Sustainable Waste Management. Corresponing author: Associate Director, Corporate Sustainable Development Dept., Procter & Gamble, Newcastle Technical Centre, Whitley R, Longbenton, Newcastle NE12 9TS, UK; Tel.: ; fax: ; [email protected] q Aapte from a presentation mae at Euro- Environment 2000, Aalborg, Denmark, 18 th 20 th October Since the publication of the Bruntlan Commission report in 1987, the concept of Sustainable Development or sustainability has travelle far. It is now quote at the heart of policy aroun the worl at both global an local levels. It is the subject of its own Unite Nations Commission, an we are currently seeing the evelopment of the European Union s first Sustainability Strategy. In the business sector, many leaing companies have starte to prouce annual sustainability reports to ocument their progress, an we have recently seen the publication of the secon Dow Jones Sustainability Group Inex rating the sustainability of the worl s largest companies. 1 Defining sustainable evelopment has probably progresse less far. The original efinition of Meeting the nees of the present without compromising the ability of future generations to meet their own nees 2 16 P. White, Corporate Environmental Strategy, Vol. 8, Iss. 1 (2001) /01/$ - see front matter Publishe by Elsevier Science Inc.

2 Sustainability an the Market expresse the concept, but has prove ifficult to operationalise, an has faile to communicate effectively with the public at large. What has become clear is that sustainable evelopment is a comprehensive concept, an far broaer than just environmental protection. Recent sustainability iscussions on trae, investment an governance emonstrate the nee to integrate economic growth an social equity together with environmental protection to approach sustainable evelopment. Sustainable prouction an sustainable consumption are two sies of the same coin w1x One efinition of sustainable evelopment that appears to have more resonance with the general public, an which integrates the economic, social an environmental aspects is that use by the UK Government. Sustainable Development..is about ensuring a better quality of life for everyone, now an for generations to come. 3 This focus of sustainable evelopment on improving quality of life is becoming more wiely accepte by companies, non-governmental organisations ŽNGO s. an others alike. 4,5 If sustainable evelopment is about improving quality of life for everyone, now an for generations to come, the question then becomes how can this be elivere by all the actors in society. This is a huge challenge in evelope, an especially in eveloping, countries. Accoring to the Human Development Report of the Unite Nations Development Programme, of the 4.4 billion people in eveloping countries, 3/5 lack basic sanitation, 1/3 have no access to clean water, 1/4 o not have aequate housing, 1/5 have no access to moern health services an 1/5 o not have enough ietary protein an energy. 6 Of particular recent interest has been the role of markets in this process an how they can eliver sustainability. The Worl Business Council for Sustainable Development ŽWBCSD. has been running a council project in this area, on Sustainability through the market, which has been putting together the business case for sustainable evelopment. This working group is chaire by DuPont an Procter & Gamble ŽP&G.. This article raws on the work of this group, with examples from P&G an recent stakeholer ialogues to ientify how markets can work for everyone to improve quality of life. Why sustainability through the market? Many iscussions of how sustainability coul be achieve have trie to separate the ifferent aspects of how to improve quality of life. Agena 21, for example, focuse on sustainable prouction an consumption as being the two sies of the operation of the market-supply an eman. Business has actively pursue the area of sustainable prouction as being the area where it coul make most progress. The concepts of Ecoefficiency an Cleaner Prouction were evelope by the WBCSD 7 an UNEP 8 respectively, looking at ways in which more value coul be provie from goos an services, from the use of less resources. Such concepts have mature sufficiently so that the focus is now on how they can be implemente into public policy, 9 though less progress has been mae in unerstaning an promoting more sustainable consumption. Rather than separating the two parts of the system, however, the WBCSD is looking at the complete market system. This is necessary for two important reasons: Sustainable prouction an sustainable consumption are two sies of the same coin that cannot easily be separate. Looking at prouction or consumption in isolation ignores this interepenence, an P. White, Corporate Environmental Strategy, Vol. 8, Iss. 1 (2001) /01/$ - see front matter Publishe by Elsevier Science Inc.

3 Sustainability an the Market misses the point that both exist to provie goos or services that improve people s lives. Just as environmental assessments now take a lifecycle approach, so we nee to look at the whole market system to see how quality of life can best be elivere through the market. The market mechanism itself has several aspects that can significantly promote sustainability. Looking at prouction or consumption alone tens to ignore the point at which they meet-in the market place. ŽFigure 1.. The value of markets Choice Sustainability is about ensuring a better quality of life; markets offer us choices as to how we can best achieve this. A WBCSD stakeholer ialogue which aresse this issue agree that, as iniviuals, each of us juges what constitutes quality of life an what most improves our own lives. 10 Proviing choice is therefore a key part of promoting sustainable evelopment. Competition Open markets provie competition, which plays a vital role in riving business towars resource-efficient provision of goos an services an essential part of sustainability. This resource efficiency can be seen at a prouct, or even a company level. At P&G, as at other companies, competition has le to a focus on efficiency an the nee to esign waste out of manufacturing processes, for both cost an environmental reasons. This P&G programme alone has elivere savings of $505 million over the last six years. Data provie in this year s P&G Sustainability Report show that of all the ingreient an packaging materials that enter P&G plants, 94.5% is converte into packe prouct to improve consumers lives. 11 This P&G programme alone has elivere savings of $505 million over the last six years. Innovation If we are to become more sustainable in the way we live our lives, we nee to fin new ways to meet our nees an aspirations. We nee to fin new ways to o ol things, as well as new ways to o new things. 10 Markets foster innovation by encouraging experimentation an rewaring those ieas that Figure 1 Prouction an consumption meet in the market, which has several features vital for sustainability. 18 P. White, Corporate Environmental Strategy, Vol. 8, Iss. 1 (2001) /01/$ - see front matter Publishe by Elsevier Science Inc.

4 Sustainability an the Market meet people s nees an aspirations most efficiently. This is particularly true of technological innovation. P&G, for example, has introuce several new proucts in this last year. Actonel, a prescription rug that has been approve in the U.S. an Europe for use for the prevention an treatment of postmenopausal osteoporosis, has the potential to consierably improve the quality of life for the growing elerly segment of many populations. The technology for controlling calcium eposition in bone came from a completely ifferent sector at P&G from knowlege on how to control calcium ions in the washing process. Experimentation an reapplication of this sort is vital for a sustainable future, an is promote by competition in markets. w2x As well as technological innovation, we also nee social innovation changes in the way society operates an how the ifferent actors work together. In particular, we see many examples of new partnerships: private private, private public, an company NGO, working to bring solutions to particular problems. P&G, for example, has been working with UNICEF to aress the problem of micro-nutrient eficiency the lack of vitamin A, iron an ioine in the iet that results in blinness for 2.8 million chilren, a 10 15% ecrease in IQ, cretinism, birth efects, still births an increase risk of both maternal an foetal mortality in eveloping countries aroun the worl. Together, we evelope a new vitamin an mineral enriche rink prouct, which was teste in Tanzania, an prouce significant measurable increases in height, weight an school performance in school chilren. The prouct was market teste in the Philippines at the en of 1999; we are looking for other areas where this technology can be brought to the market. Making markets work for everyone While the market characteristics escribe above can significantly contribute towars sustainability, there has been much recent ebate over the role of markets, an particularly global markets. The protests in Seattle, an subsequently in Davos an Washington have focuse on areas where markets are not seen as enhancing sustainability. The protests in Seattle «focuse on areas where markets are not seen as enhancing sustainability w3x Since then, in conjunction with EXPO 2000 in Hannover, the WBCSD an the Stockholm Environmental Institute ŽSEI. organise a Global Dialogue on Markets a stakeholer event combining input from environmental an social NGOs, business, governments, inter-government agencies an acaemics, from evelope an eveloping regions. The ialogue starte with the question Can markets eliver sustainability? The first contribution from an environmental NGO was that this was not the relevant question. We have the market system, there is no workable alternative, so we nee to ensure that the market elivers sustainable evelopment. The question becomes not if but how the markets can eliver sustainability. w4x Most of the problems raise with markets not leaing in a sustainable irection were relate to the absence of effective markets, rather than so-calle market failures. What are neee, therefore, are ways to create markets, where no markets currently exist, or to make existing markets operate more effectively. Where there is no market Poverty was raise as the single largest barrier to reaching sustainability through the market. Globally, the 1.2 billion people who live on less than $1 per ay, an the further 1.6 billion that live on between $1 an $2 per ay have little or no access to the market to P. White, Corporate Environmental Strategy, Vol. 8, Iss. 1 (2001) /01/$ - see front matter Publishe by Elsevier Science Inc.

5 Sustainability an the Market improve their quality of life. In the wors of James Gustave Speth, UNDP Aministrator: We must make a etermine effort to eraicate poverty an expan the consumption of more than one billion esperately poor people who have been left out of the global growth in consumption Long term, this etermine effort nees to involve economic evelopment to raise incomes an quality of life. Recent work at the Worl Bank supports the view that economic growth is goo for the poor, an that the income of the poor grows one-for-one with overall growth, espite a number of claims to the contrary. 12 In the immeiate future, however, there is a role for the creative use of markets to improve the quality of life for this near half of the global population living on uner $2 per ay. Where consumers can affor proucts an services, normal markets can operate. Business nees to provie appropriately price proucts that meet basic nees. For a company like P&G, this can mean proviing iniviual use portions of proucts, since many may not be able to affor a large volume pack. Where iniviuals are unable to affor proucts or services that can significantly improve their quality of life, there is a nee for the social innovation escribe previously, to evelop new business moels that can supply such benefits to those that nee them. Several examples alreay exist: The Worl Health Organisation is organising a public private partnership with rug companies as part of its Roll Back Malaria campaign; Suez Lyonnais es-eaux, another WBCSD member, has taken an innovative approach to proviing water to the poor favelas regions of Buenos Aires, by creating partnerships with local communities to unerstan their nees an to use their labour to help install the pipework. 13 There is also the possibility of proviing the benefits in one region where they are neee, by linking them to another market elsewhere. As an example, P&G worke with UNICEF to provie a vaccination programme in Senegal against tuberculosis, one of the leaing infectious causes of eath of youth an aults worlwie. This was linke to sales of Fairy Antibac in Spain an Portugal for every bottle purchase, P&G bought one ose of vaccine an UNICEF ensure that one chil was vaccinate where the nee was greatest. After a three-month campaign, three million vaccines were shippe to Senegal. 11 A similar campaign in the UK provie a further four million vaccines. At the same time, these were business successes for P&G. Successful business moels are essential so that such activities are not just seen as philanthropy, an consequently are reapplie elsewhere. Framework Conitions The Global Dialogue on markets ientifie a range of other factors that restrict the ability of markets to work for everyone, incluing the presence of monopolies an the existence of perverse subsiies. One issue particularly raise by eveloping country participants was that of corruption, which was seen to prevent markets working towars sustainability. Markets shoul be open, but not unfettere; they operate within a set of framework conitions that nee to be base on the rule of law, incluing the establishment an use of property rights. The question becomes not if but how the markets can eliver sustainability While outlawing unsafe an unacceptable behaviour, the market framework conitions shoul also rewar efforts that improve quality of life in environmentally improve, socially acceptable an economically afforable ways. Ieally, markets shoul provie price signals that guie choices in the irection of overall sustainability. This was raise in the 20 P. White, Corporate Environmental Strategy, Vol. 8, Iss. 1 (2001) /01/$ - see front matter Publishe by Elsevier Science Inc.

6 Sustainability an the Market Global Dialogue, an has been the subject of much previous ebate, ue to concern that the commons forests, oceans, bioiversity etc are not value aequately, leaing to calls for full cost accounting an for internalising the externalities. While it may be true that the commons are not aequately value, attempts to inclue their full value have been fraught with ifficulties. The economic value of clean water, an bioiversity will vary greatly between iniviuals, an between countries an cultures, so consensus is har to fin. Furthermore, many of the commons are share internationally, if not globally, an at present there are not the governance structures in place to implement such agreements. w5x Ieally, markets shoul provie price signals that guie choices in the irection of overall sustainability. There have been some promising examples where the framework conitions have been esigne to introuce a market for improvements, particularly in the environmental fiel. The introuction of traeable permits for air emissions in the USA, an the evelopment of internal emissions traing regimes within some companies, such as BP, are examples of such innovation changing the way the system works. Just recently we have also seen the launch of the International Emissions Traing Association ŽIETA., aime at emissions traing in greenhouse gases. Such innovative attempts to create markets where none previously existe will be viewe with much interest. A range of tools can be use to provie the framework conitions for effective markets. The most effective of these are public policy tools that focus on the esire en result, rather than on the means of achieving the result, since this will enable business to take avantage of its ability to innovate. Public policy tools can be consiere to form a hierarchy, although combinations may be neee in any given situation: Voluntary initiatives shoul be preferre, since these often provie the most flexible an ultimately, overall cost-effective way to achieve a esire result. Negotiate agreements Ži.e. written commitments between businesses an governments to eliver results. can provie high operational flexibility if focuse on what is require, rather than on how it is achieve. Economic instruments can facilitate the operation of the free market, but must be carefully esigne to avoi unintene, unwante consequences, such as perverse subsiies. Comman an control regulations are neee to outlaw unsafe an unacceptable behaviour, an thus to provie a framework within which innovation can flourish. Alone, however, they cannot eliver continuous improvements, since the most effective solutions cannot be preicte or prescribe in avance. Rights, Roles an Responsibilities If we are to achieve sustainability through the market, then business cannot achieve this alone; each of the ifferent sectors of society has a role to play. To aress this, one of the earliest activities of the WBCSD work group was to convene a stakeholer ialogue on Rights, Roles an Responsibilities. 14 Separate rights, roles an responsibilities were ientifie in the areas of responsible marketing, in ensuring that prices reflect real environmental costs, in improving scientific unerstaning, in valuing the commons, in meeting basic human nees everywhere an in consuming ifferently. In summary, it was recognise that: Citizens have rights to choose; to full, fair an accurate information; an to have their basic human nees met. To balance this P. White, Corporate Environmental Strategy, Vol. 8, Iss. 1 (2001) /01/$ - see front matter Publishe by Elsevier Science Inc.

7 Sustainability an the Market they have responsibilities to act sensibly; pay the full price for goos an services an become eucate an involve. NGOs have rights to question information; avocate solutions an participate in setting policy. They have responsibilities to act as a social watchog, use information responsibly an promote innovation. Governments have rights investe in them to represent society; control resources for the public goo; an efine basic human nees. They have responsibilities to incorporate the emocratic will; provie a basic human safety net; protect the commons; rewar goo behaviour by companies; ensure a level playing fiel an remove barriers to innovation. Businesses have rights to sell an market proucts consistent with society s expectations; make a profit; have access to the commons; know what level of risk is acceptable to society; invent an innovate. They have responsibilities to operate within the law; provie truthful information about proucts an operations; reuce environmental burens of their operations; manage the commons responsibly an care for employees. Business, governments an NGOs share responsibility for raising public awareness of sustainable evelopment issues Business, governments an NGOs share responsibility for raising public awareness of sustainable evelopment issues, for eucation, an for proviing information that can guie choices in the marketplace. w6x It will require all the actors in society to take on such roles an responsibilities for sustainable evelopment to be achieve. Sustainability through the market the vision The members of the WBCSD share a com- mon commitment to sustainable evelopment. Many appear in the Dow Jones Sustainability Group Inex, which attempts to measure sustainability performance 1 but few, if any, woul claim to fully unerstan all the implications of being a sustainable corporation. P&G woul certainly not o so. P&G is looking for ways to improve quality of life for everyone, now an for generations to come. The company has ientifie the two areas where it consiers we can make the greatest contribution: health an hygiene, an water. In common with participants in the recent Global Dialogue, P&G believe that the best way to achieve this quality of life will be through the market. To achieve this P&G an other members of the WBCSD look for the following in public policy: An open market for goos an services, governe by the rule of law An environment conucive to innovation Informe ecision-making base on soun science an ata Iniviual choice, as people know best how to improve their lives, within the law an respect for others. Clear priorities for future evelopments an improvements Through this we can eliver the WBCSD vision for sustainability through the market: As the worl society approaches a balance between economic, environmental an social sustainability, markets are transparent, stimulate innovation an are effective in their role as a catalyst for change towar a better quality of life for everyone. 15 Ennotes 1. DJSGI an SAM, Biographies of Corporate Sustainability Leaers. Dow Jones Sustainability Group Inex an SAM Sustainability Group, September 2000, Zurich. 2. WCED Our Common Future. Worl Commission on Environment an Development, Oxfor University Press, Oxfor, P. White, Corporate Environmental Strategy, Vol. 8, Iss. 1 (2001) /01/$ - see front matter Publishe by Elsevier Science Inc.

8 Sustainability an the Market 3. DETR A Better Quality of Life. A strategy for sustainable evelopment in the Unite Kingom, Department of the Environment, Transport an the Regions, Lonon, P&G, Embracing the Future. Procter & Gamble Sustainability Report EEB, Shaping the New Europe Working towars Sustainable Development. European Environmental Bureau, Friens of the Earth Europe, Friens of Nature International. Contribution to work of the European Commission on a Sustainable Development Strategy. September, UNDP Human Development Report, 1999, Unite Nations Development Programme, New York, Schmiheiny, S. an BCSD, Changing Course. MIT Press, Lonon. 8. UNEP Unite Nations Environment Programme Cleaner prouction Programme, UNEP-Inustry an Environment, Paris, EEEI, The European Eco-Efficiency Initiative. Brief 2. October European Partners for the Environment ŽEPE. an Worl Business Council for Sustainable Development ŽWBCSD WBCSD, Report of the WBCSD stakeholer ialogue on Sustainability in the Marketplace: Innovation. Brussels, 13 th 15 th Sept, WBCSD, Geneva. 11. P&G, Procter & Gamble Sustainability Report Dollar, D. an Kraay, A Growth is goo for the poor. research March, Suez Lyonnais es Eaux 14. WBCSD, Report of the WBCSD stakeholer ialogue on Sustainability in the Marketplace: Rights, Roles an Responsibilities. Washington DC. 18 th 20 th Feb, WBCSD, Geneva. 15. WBCSD, Sustainability Through the Market seven keys to success. WBCSD, Geneva. Available at P. White, Corporate Environmental Strategy, Vol. 8, Iss. 1 (2001) /01/$ - see front matter Publishe by Elsevier Science Inc.