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Sustainability, commerce and economics: How to create right balance for sustainable development

We may be losing the war against climate change, as we fail to approach sustainability-related issues in the right manner.

Murali Kallummal   New Delhi     Last Updated: October 22, 2018  | 18:31 IST
Sustainability, commerce and economics: How to create right balance for sustainable development

In a recent article 'The Invisible Hand Won't Solve the Climate Crisis. Capitalism Must Evolve', US professor Andrew J. Hoffman well articulates the perils of global unsustainability and the need to redefine the role of corporation and market. The Economist magazine also warns us against the dire consequence of not addressing the sustainability and climate change related issues in its August month's cover story 'In the line of fire - losing the war against climate change'. Both the articles represent a view that is increasingly gaining strength - a view that suggests that despite all the tall talks over sustainable development, we may be losing the war against climate change, as we fail to approach sustainability-related issues in the right manner. The reason is that all the standards - in global trade, in bilateral negotiations, industrial and investment policies and the framework for private and inter-governmental bodies - that we have been setting all the while, have been production oriented, and not consumer-centric.

Let me explain.

Ever since the United Nations Development Programme (UNDP) set 17 sustainable development goals (SDGs) in 2015 at a meeting in Paris, all economic and developmental activities post-2015 are supposed to have the sustainability agenda, with an aim to protect all living creatures inclusive of flora and fauna, at its core. A mechanism to tackle climate change issues are also supposed to be in-built.  However, in practice, there is an imbalance in the process of new standards (public policy measures) that are, in principle, guided by the SDGs. The non-mandatory standards set by the United Nations Forum for Sustainable Standards (UNFSS) and the international standards set by the International Standards Organisation (ISO) are both imperfect in this regard.

The UNFSS is a neutral, independent and credible forum that supports pro-poor, sustainable development objectives.  The voluntary standards it set is expected to help the developing countries access the global markets, under the assumption that consumer choices in developed markets will tilt towards products and services that take care of the economic, social and environmental impacts of production and consumption. The big question that remains, though, is whether consumer choices are determined by such noble thoughts or simply the market power. The 12thGoal of the SDG - to chart a balance between consumption and production - is perhaps an attempt to bridge the gap.

Therefore, it can be argued that private standards created by the UNFSS have consumers' choice at the centre and it has not addressed the objectives under the Goal 12 of the SDG.  By doing so, the UNFSS has maintained the existing level of unsustainable consumption and in the process is helping a select group of countries to dictate the global production activities.

The case of ISO standards is even more interesting. The framing of these consensus-based market-relevant standards is completely driven by the private sector, especially after 1995, the year which saw 25 transnational corporations registering total sales that add up to more than the gross domestic product (GDP) or wealth of 154 countries across the world. The influence of the private sector is so evident that sustainable consumption is not an idea that finds prominence even in ISO's SDG based standard called ISO 26000.  

Many other activities aggravate the imbalance between consumption and production.

For instance, the standards notified by the World Trade Organisation (WTO) members are also framed after extensive consultations with the private sector. According to an internal analysis done by the Centre for WTO Studies of the Indian Institute of Foreign Trade (IIFT), WTO's present classification suggests that technical barriers to trade (TBT) notifications by the developing countries are higher when compared to the developed and the least developed countries (LDCs). The situation is diametrically opposite when income or industry-based classifications, provided by the World Bank and United Nations Industrial Development Organisation (UNIDO) respectively, are considered.  The higher income countries and countries with high GDP shares of the manufacturing sector are dominant users of TBT standards. Also, the developed countries TBT notifications have a higher weight for the private sector, which regulates production activities. The trade policymaking in the industrial countries thus has marked a shift in the direction that favours more and more public policy measures as a trade policy instrument.  This has led to a proliferation of standards while the tariffs continued to lose its relevance as a barrier to international trade.  The policy shift facilitated the creation of non-tariff measures in the areas of namely environment (sustainability and climate change), labour and others technical standards.

What needs to be done?

Of the 17 SDGs, Goal 12, which talks about "Responsible consumption and production", attempts to address sustainability issues holistically by having both consumption and production related standards/controls. It states, "Achieving economic growth and sustainable development requires that we urgently reduce our ecological footprint by changing the way we produce and consume goods and resources". In other words, for sustainable development, we need to keep a check on three fundamental pillars: social progress, economic development, environment, and climate.  Therefore, it will become essential for economic and commercial activity and practices to be compliant with sustainability standards based on production and consumption. Since the word sustainability is expressed in three different ways: eco labels, messages and claims about a product or process, the standards are to be developed with the need to have sustainability incorporated in all such activities of procurement, production and trading.

Of the 500 plus private standards that we have today, almost all are production-regulating standards.  There are no standards or capping the consumption of various goods, except for a few standards regulating the marine fish stocks for intermediate products and as labels, marks and certificates for consumer's information.  A study conducted by the Food and Agricultural Organisation (FAO) of the United Nations (UN) is a pointer to the inadequacy of the consumption-based standard as it tells us about the quantum of waste generated by the big multinational food retail stores.  It says that the per capita waste by consumers in Europe and North America is between 95-115 kg compared to 6-11 kg of those in Sub-Saharan Africa, South and South-Eastern Asia.

There is a gamut of products/activities that are unsustainable and would need direct consumption-based standards similar to those production-based standards. Since creating consumption based standards would be infringing on personal choices and the present market structure, we have to make a beginning with most environmentally sensitive products.  These would have to be identified by a joint effort of intra-governmental bodies, and the consumption capped at the global level. An earnest and sincere effort should be put in place to develop new standards based on regulation of consumption, particularly for the already identified environmentally sensitive products.  Similarly, a science-based assessment should be made for new products, which are not identified under the market-led international system.

The private sector of developed countries drives the standards that drive investments activities of developing countries using the new frameworks proposed by inter-governmental bodies (like the IMF).  There is a lesser role for the domestic agents of production in the overall development agenda.  The development financing by various the international bodies (WB, OECD, IFS etc.) which targets the sustainable development agenda and climate action are not adequately addressed -  it needs to be reviewed, and the process to be based on science and empirical evidence.  Therefore, the new framework on developmental financing being rolled out by the World Bank, implemented from August 1 2018, lacks a balanced approach to sustainability standards.

India and the SDGs

India has been part of the process of both MDGs and SDGs and in the process conceded considerable policy spaces.  It now faces a formidable challenge of re-orientation its policies to accommodate the present understanding which is skewed and based on production based standards pushed by the private players, market and supported by global investors.  In this context of investment and manufacturing policies, it is important to recognise some of the formidable challenges arising from the systemic issues under the formal systems (like the WTO) and present imbalances regarding private sustainability standards.

India should take this as a clue for its re-industrialisation and built upon its low shares in global trade share as an opportunity, thus for pushing for more sustainability-led industrialisation models. Its large market will always support such initiatives. Supported by the genuinely sustainable technical standards for products based on the following parameters, it would encourage local production and consumption involving people at all the agents of the economy.  In the process, it would help in building a stronger nation, which could withstand any crisis and sustain and improves the quality of life for everyone.

(The writer is a professor, Centre for WTO Studies, CRIT, IIFT, New Delhi)

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