Corporate Responsibility and Sustainable Development: An Integrative Perspective 2020057879, 2020057880, 9781138307711, 9781138307728, 9781315142524

Table of contents :
Cover
Half Title
Title Page
Copyright Page
Table of Contents
List of figures
List of tables
List of insight boxes
Acknowledgements
List of abbreviations
Preface
PART I Contextualisation
1 Introduction
2 The historical antecedents of corporate responsibility and sustainable development
PART II Perspectives on social change
3 Society and development
4 Theorising corporate responsibility and sustainable development
5 Social change and technological innovation
PART III The sustainability governance trinity
6 Sustainability governance
7 Sustainable finance
8 Evaluating progress: Metrics and impact
PART IV Creating social and public value
9 The neoliberal state
10 The welfare state
11 Conclusions and critical reflection
Index

Citation preview

‘This text covers areas of corporate responsibility and sustainability that are important topics for discussion in addressing the path forward for both industry and society.’ – Shaun McCarthy OBE, former Chair of the Commission for a Sustainable London 2012 Olympic Games, and Director, Action Sustainability ‘This book addresses an important gap in the discourse about corporate responsibility and sustainable development. It ofers a strategic examination of these issues located within a complex enabling environment and sets out the importance of numerous perspectives, including a capitals approach, that shape decisions in development, governance, social change and technological innovation.’ – Mark Gough, CEO Capitals Coalition ‘This book is not another book on the defnition of sustainable development and how to develop a CSR strategy in a country or a company. It explains very clearly the link that can be established between sustainable development and other concepts that are fundamental to the development of a CSR strategy. Each chapter gives very concrete examples and fgures. It all ends with relevant case studies that apply what has been seen in the chapter. So, take the time to discover this book to help you better understand the social and environmental issues and allow you to understand at a strategic level all the elements to be taken into account.’ – Charlotte Fontan Sers, Professor of Economics and Head of the Master Global Sustainable Strategies, ESC Pau Business School, France ‘This text is very welcome and important because it takes an integrative approach to CSR and Sustainable Development. Rather than seeing these key challenges as stand-alone, it provides a well-researched approach to understanding their complexities and the multifaceted nature of strategies, policies and practices needed to address them. The practical examples and cases underpin the ideas and concepts in an accessible way that enhances teaching and learning for students, academics and professionals alike.’ – Carole Parkes, Emeritus Professor of Responsible Management and Leadership, University of Winchester, UK

Corporate Responsibility and Sustainable Development

This book explores the overlapping interests of corporate responsibility and sustainable development, specifcally focusing on the dynamics of social change, sustainability governance and evaluation, and creating social value. Corporate Responsibility and Sustainable Development: An Integrative Perspective draws on ideas and research relevant to both concepts, highlighting the interdependent nature of corporate strategy and policymaker ambition. The authors seek to capture that any evaluation of responsibility for sustainable development demands multiple lenses. They propose an integrative understanding to tackling global challenges around sustainable development and focus on four themes: contextualisation; perspectives on social change; sustainability governance and evaluation; and creating social value. Overall, the book takes an evaluative approach, using these themes as lenses for engaging with global challenges, which encourages refection and informed action. Written by two highly experienced authors, this book integrates short case studies and chapter questions throughout the text, in order to reinforce learning and help students reconcile ideas presented with real world issues. It will be an essential resource for tutors and advanced undergraduate and postgraduate students of business, governance and corporate governance, corporate social responsibility (CSR), sustainability and sustainable development, stakeholder theory, business ethics, and politics. Lez Rayman-Bacchus, PhD, is Visiting Research Fellow at Winchester Business School, University of Winchester, UK, and Visiting Scholar at the University of Padova, Italy, and at the École Supérieure de Commerce de Pau, France. Philip R Walsh, PhD P.Geo (non-practicing) SPE, is Professor, Entrepreneurship and Strategy in the Ted Rogers School of Management, Ryerson University, Canada. He is a registered professional geoscientist and a member of the Society of Petroleum Engineers.

Corporate Responsibility and Sustainable Development An Integrative Perspective Lez Rayman-Bacchus and Philip R Walsh

First published 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 Lez Rayman-Bacchus and Philip R Walsh The right of Lez Rayman-Bacchus and Philip R Walsh to be identifed as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identifcation and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Rayman-Bacchus, Lez, author. | Walsh, Philip R., author. Title: Corporate responsibility and sustainable development : an integrative perspective / Lez Rayman-Bacchus and Philip R Walsh. Description: Milton Park, Abingdon, Oxon ; New York, NY : Routledge, 2021. | Includes bibliographical references and index. | Identifers: LCCN 2020057879 (print) | LCCN 2020057880 (ebook) | ISBN 9781138307711 (hardback) | ISBN 9781138307728 (paperback) | ISBN 9781315142524 (ebook) Subjects: LCSH: Social responsibility of business. | Sustainable development. Classifcation: LCC HD60 .R39 2021 (print) | LCC HD60 (ebook) | DDC 658.4/08—dc23 LC record available at https://lccn.loc.gov/2020057879 LC ebook record available at https://lccn.loc.gov/2020057880 ISBN: 978-1-138-30771-1 (hbk) ISBN: 978-1-138-30772-8 (pbk) ISBN: 978-1-315-14252-4 (ebk) Typeset in Bembo by Apex CoVantage, LLC

Contents

List of fgures List of tables List of insight boxes Acknowledgements List of abbreviations Preface

ix xi xii xiii xiv xvii

PART I

Contextualisation 1 Introduction 2 The historical antecedents of corporate responsibility and sustainable development

1 3 18

PART II

Perspectives on social change

39

3 Society and development

41

4 Theorising corporate responsibility and sustainable development

77

5 Social change and technological innovation

97

PART III

The sustainability governance trinity 6 Sustainability governance

119 121

viii

Contents

7 Sustainable fnance

148

8 Evaluating progress: Metrics and impact

168

PART IV

Creating social and public value 9 The neoliberal state

189 191

10 The welfare state

219

11 Conclusions and critical refection

250

Index

261

Figures

2.1 2.2 2.3

Carroll’s CSR defnition Carroll’s corporate social performance model Stakeholder-centric framework for corporately responsible strategy formulation and implementation 2.4 Stakeholder systems approach to CSR 2.5 Sustainable policies for multinational enterprises operating globally 2.6 Siemens’ impact contribution to the UN Sustainable Development Goals 3.1 Evolutionary model of human societies 3.2 World telecom equipment revenue 3.3 Number of 5G technical papers submitted by 3GPP member companies (2015 to mid 2020) 3.4 Urban population growth (the last 500 years) 3.5a Urban population passes rural population 3.5b Urban population and rural population projection to 2050 4.1 Conceptual model for distinguishing corporate responsibility, CSR, and sustainability 4.2 Integrative social contract theory model 4.3 How transparent is your supply chain? 4.4 Environmental Kuznets curve 4.5 Relationship of environmental degradation to economic growth 4.6 Triple bottom line representations 4.7 Values chain framework 5.1 The four industrial revolutions 5.2 Multilevel perspective on socio-technical change 5.3 Urbanisation of China 5.4 The strategic triangle of public value 5.5 Lenses for managing the sustainability transition process 5.6 Relationship of CO2 emissions to economic output 5.7 Economic growth of China 1990–2019 5.8 HDI comparison between China and the OECD countries

22 23 26 28 32 34 45 55 56 59 60 60 78 81 82 85 86 88 94 99 100 101 106 110 111 112 113

x

Figures

5.9 5.10 5.11 6.1 7.1 7.2 7.3 7.4 7.5 7.6 8.1 8.2 8.3 8.4 9.1 9.2 9.3 9.4 10.1 10.2 10.3 10.4 10.5 10.6

China’s CO2 emissions – tonne per capita (1990–2017) Circular economy framework The LCA approach A capitals perspective on sustainability governance Forecast of future sustainable investment in trillions USD 2018 sustainable investment by ESG strategy Financial vs. sustainable fnancial system Integrated model for corporate SDG fnance Sectoral SDG matrix SDG impact measurement model United Nations Sustainable Development Goals ISO 26000 core subjects and related sustainability issues Trend in global corporate responsibility reporting Trends in corporate responsibility reporting by region ‘Neoliberalism’ and other political-economic doctrines as a percentage of all the words in all English-language published books, 1920–2019 Neoliberalism’s three faces Estimated abstractions from non-tidal surface water and groundwater in England, 2000 to 2017 Structure of the water industry regulatory regime in England SDG indicator 1.3.1: Efective social protection coverage, global and regional estimates by population group (percentage) Social spending as a percentage of GDP among OECD countries in 2018 From gross public to total net social spending, as a percentage of GDP at market prices, 2015 Three welfare state regimes Shares of top 1% incomes in total pre-tax incomes, 1990–2007 (or closest year) Drivers of welfare state development and diferentiation

114 115 117 124 149 150 152 158 159 160 180 181 184 186 193 194 202 204 223 225 226 229 239 242

Tables

1.1 2.1 2.2 3.1 4.1 4.2 6.1 7.1 7.2 8.1 8.2 8.3 8.4 8.5

Key challenges facing society 2019 top ten companies in the Forbes Global 2000 Comparison of top fve economies in each hemisphere Types of society today Ranking of national corporate responsibility practices The Coca-Cola Company’s 2017 economic activity by region Governance for achieving the SDGs Sustainable fnance framework Comparing conventional and sustainable banking DJSI Indices SAM corporate sustainability assessment – economic dimension DJSI SAM corporate sustainability assessment – environmental and social dimensions GRI indicators Summary of Intel Corporation’s use of the GRI and UN SDGs frameworks

4 30 31 46 84 86 132 154 164 175 176 177 179 182

Insight boxes

1.1 2.1 2.2 2.3 2.4 3.1 3.2 4.1 4.2 4.3 4.4 5.1 5.2 5.3 6.1 6.2 7.1 7.2 7.3 8.1 8.2 8.3 8.4 9.1 9.2 10.1 10.2

The Volcano and the Bicycle The Early History of Corporate Responsibility at Siemens AG The Siemens Afair of 1914 The Siemens Afair of 2006 Siemens AG Today: is it still proft before people and planet? Huawei and 5G Technology: security risk, ideological competition, or technological dominance? Dharavi, Mumbai: slum city informality and vulnerability Corporate Responsibility and Sustainability at the CocaCola Company Coca-Cola and Economic Sustainability Coca-Cola and Social Sustainability Coca-Cola and Environmental Sustainability China’s Sustainability Paradox China’s Sustainability Regulation China’s Sustainability Performance UK Automotive Industry – dependance on cross-border supply chains Two Ways to Defraud a Bank: the Punjab National Bank (India’s second largest state-run bank) and the Central Bank of Bangladesh Sustainability at Vasakronan Vasakronan’s Green Finance Framework A Critique of Vasakronan’s Green Finance Framework Intel’s Corporate Responsibility as a Competitive Advantage Strategic Legitimacy at Intel Intel’s Sustainability Reporting The Future of Reporting for Intel Privatisation of Public Water Supply in England Intellectual Property Rights and Genetically Modifed Food Social Security Programmes Universal Basic Income Schemes: USA and Finland

10 19 24 29 33 52 64 79 86 89 92 101 103 112 133 136 150 156 162 170 173 182 186 201 210 227 234

Acknowledgements

We are grateful for the assistance of many colleagues and friends at universities in the United Kingdom, Canada, France, Poland, Australia, and others who have invested time and energy in providing feedback and making suggestions. We especially acknowledge the support of several esteemed colleagues in providing detailed chapter reviews. These reviewers were Donald Nordberg of Bournemouth University; Noel Castree of the University of Technology Sydney; William Sheward of the University of Winchester; Mark Gough, Chief Executive Ofcer of Capitals Coalition; Johannes Platje of WSB University in Wrocław; Charlotte Fontan Sers of the École Supérieure de Commerce de Pau; Ritsuko Ozaki of the University of Winchester; and Walter Leal Filho of Manchester Metropolitan University and of Hamburg University of Applied Sciences; and Carole Parkes of the University of Winchester. Their insightful comments have been invaluable. We thank the editorial and production team at Routledge for making this book possible. We ofer special thanks to Annabelle Harris, Commissioning Editor, for her advice and guidance, Matthew Shobbrook, Editorial Assistant, for his enduring support, Peter Hall, production editor, Ramachandran Vijayaragavan, Project Manager for his support throughout the production process along with the rest of the Routledge team for providing professional contributions. Lez Rayman-Bacchus Philip R Walsh

Abbreviations

AEI AI ASEAN BRICS CARICOM CBD CCP CE CEO CFP CIS COMESA CO2 CR CSA CSP CSR DEFRA DJSI EBRD EINS EKC EMS EMT EPA ESG EU FAO FCC FDA FDA FSC FTA

American Enterprise Institute artifcial intelligence Association of Southeast Asian Nations Brazil, Russia, India, China, South Africa Caribbean Community Convention on Biological Diversity Chinese Communist Party circular economy chief executive ofcer corporate fnancial performance Commonwealth of Independent States Common Market for Eastern and Southern Africa carbon dioxide corporate responsibility corporate sustainability assessment corporate social performance corporate social responsibility Department for Environment, Food and Rural Afairs Dow Jones Sustainability Indices European Bank for Reconstruction and Development Extended Inclusion of Nature in Self scale environmental Kuznets curve environmental management system ecological modernisation theory Environmental Protection Agency environment, social, governance European Union Food and Agriculture Organization of the United Nations Federal Communications Commission Federal Drug Administration Food and Drug Administration (USA) Forest Stewardship Council free trade agreement

Abbreviations

GATT GCDL GCI GDP GENI GHG GIIN GMO GMP GRI GS GURTs GVC HDI ICT IEEE ILO IMF IP IPCC IPR ISCT ISI ISO IT ITU JEDEC LCA LDC MERCOSUR MLP MNC MSC NACLA NAFTA NATO NDTV NGO OECD OFWAT OPEC PBC PCSD PMV PNB

xv

General Agreement on Tarifs and Trade Global Change Data Lab Global Cybersecurity Index gross domestic product Global Energy Network Institute greenhouse gas Global Impact Investing Network genetically modifed organism genetically modifed product Global Reporting Initiative governance system genetic use restriction technologies global value chains Human Development Index information and communication technology Institute of Electrical and Electronics Engineers International Labour Organization International Monetary Fund intellectual property International Panel on Climate Change intellectual property rights integrative social contract theory import substitution industrialisation International Standards Organization information technology International Telecommunication Union Joint Electron Device Engineering Council life cycle assessment least developed countries Mercado Común del Sur (Southern Common Market) multilevel perspective multinational corporation Marine Stewardship Council North American Congress on Latin America North American Free Trade Agreement North Atlantic Treaty Organization New Delhi Television non-governmental organisation Organisation for Economic Co-operation and Development Ofce of Water Services Organization of the Petroleum Exporting Countries public beneft company Policy Coherence for Sustainable Development post-material value Punjab National Bank

xvi Abbreviations

PPR PRSPs PRWORA

private property rights poverty reduction strategy papers Personal Responsibility and Work Opportunity Reconciliation Act of 1996 QoG quality of government RBI Reserve Bank of India RCEP Regional Comprehensive Economic Partnership RWA regional water authority SAP structural adjustment policy SD sustainable development SD Association non-proft organisation that sets memory card standards (US) SDG Sustainable Development Goal SG Indicators Sustainable Governance Indicators SGPs supplier guiding principles SME small and medium-sized enterprises SWIFT Society for Worldwide Interbank Financial Telecommunication TANF Temporary Assistance for Needy Families TBL triple bottom line TNC The Nature Conservancy or transnational corporation TPP Trans-Pacifc Partnership TQM total quality management TRIPS Trade Related Aspects of Intellectual Property TTIP Transatlantic Trade and Investment Partnership U users UBI universal basic income UK United Kingdom UN United Nations UNCTAD United Nations Conference on Trade and Development UNFCCC United Nations Framework Convention on Climate Change UNGCI United Nations Global Compact Initiative UNSD United Nations Statistics Division UN SDG United Nations Sustainable Development Goal USA/US United States of America USSR Union of Soviet Socialist Republics WHO World Health Organization WTO World Trade Organization WWF World Wide Fund for Nature 3Ps people, proft, planet

Preface

This book explores the evolving interaction between corporate responsibility and sustainable development; between expanding corporate agency and purposeful societal reform. We explore the terrain of this interaction, seeing it as comprising sites of confuence and infuence we call ‘perspectives on social change’, ‘the governance trinity’, and ‘creating social and public value’, located within a ‘historical context and contemporary crises’. These sites of confuence infuence each other. Context shapes social change processes, how societies govern themselves, and what societies regard as socially valuable. At the same time, what societies see as socially valuable shapes the way we govern ourselves and how society is organised. Similarly, experience and ideas about governing ourselves infuence both social change and our valuation of societal goods. These infuences and counter-infuences leave a historical imprint that, in turn, afect subsequent social change, governance, and valuation of social goods. These four sites and their intersections help structure understanding and constitute the overarching scope of our conceptual framework. To conceive of the interaction between corporate responsibility and sustainable development in this way is novel and on casual refection seems plausible. This work explores the constitution of each site, by grouping chapters that provide particular insights. Furthermore, the systems hierarchy implicit in our conceptual framework is dynamic, refecting that these sites are in some state of reform and disarray, separately and collectively. This is a critical text, applying and evaluating research knowledge alongside practical cases, in order to provide critical insights to policy and practice. We examine the roles, interactions, and negotiated directions of business, government, and civil society stakeholders. These interactions generate social and economic opportunity, but always in tension with emergent social and political challenges and ecological constraints. These dynamics are located within the ongoing development agenda and a shifting discourse on humanity’s place in the biosphere, how to alleviate if not eliminate persistent inequality, and the role of the state. This complexity is accessible at difering levels of analysis, supported by a modular structure. We see three audiences. First, we address our peers, postdoctoral and doctoral students, teaching and researching corporate behaviour in

xviii

Preface

the context of sustainability and development, with some background knowledge and interest in the underlying strategic issues. To this audience the text is directly accessible, providing insights to complex relationships, lateral and vertical. The second audience includes postgraduate and undergraduate students, seeking a text on either corporate responsibility or sustainable development, or both. For this second audience our text complements other more narrowly focused texts. This book is also open to a third audience, not in academia but informed and concerned to better understand the challenges and opportunities involved in shaping modern societal development and well-being. Last, we have written for ourselves, as university tutors and researchers with years of experience, as both academics and management practitioners. Writing helps clarify one’s own ideas, as well as explore new areas, and having practitioner experience we are always concerned to make theory relevant to practice. Our difering experiences, perspectives, and approaches help to enrich our ideas. Collaborating in writing and reviewing our drafts has involved thinking about how to communicate ideas, develop arguments, and challenge thinking. We hope readers will use this text in a similar way.

Part I

Contextualisation

1

Introduction

When one considers the concepts of corporate responsibility and sustainable development, they are likely to fnd that their understanding of each can be diferent to what others might think. As you will see, we have tried to bring together the varied elements associated with these concepts to assist in providing context that might alleviate the ambiguity that exists. In introducing these various elements, we are also subjecting them to a certain level of critical examination as well as providing the reader with frameworks that have been developed throughout the literature to help us understand how corporate responsibility and sustainable development are connected and representative of socio-economic change that is required if society and our planet are to survive. In this introduction, we provide the reader with insight about the topic, specifcally the overlapping perspectives of corporate responsibility and sustainable development. Here we also explain the organisation of the book and provide a brief justifcation for each of the following overarching learning outcomes expected from reading this text and applying the related insight case studies.

Global challenges facing society Nearly fve years ago, the World Economic Forum identifed a number of key challenges facing society around the world.1 This organisation followed the United Nation’s adoption of a 2030 agenda for sustainable development that outlined 17 related goals required to provide for a more sustainable future for all of humankind. Other global organisations have also addressed the challenges that face humanity. Like the World Economic Forum, they have their own priorities when identifying the challenges. Some focus on issues associated with geopolitical competition,2 some specifcally address the environment,3 the International Panel on Climate Change (IPCC) has a mandate to continually monitor the climate change issue, while others provide more comprehensive identifcation of global challenges.4 These global challenges are listed in Table 1.1, with no specifc order of priority. What is obvious is the recognition that these challenges have conficting solutions. A rising population may be the principal driver of most of these issues, whereas the economic growth of business is primarily driven by increasing levels of consumption, whether that be supplying society’s growing population with products and services or using the

4

Contextualisation

human and fnancial capital required to do so. To what extent then is business responsible for dealing with the challenges arising from that economic growth? Should they voluntarily establish institutional practices that limit income inequality or gender inequality? Or should we rely on government to establish rules and regulations in order to address these challenges? Does the cost of dealing with these challenges prohibit economic growth? Do we need to rethink our model of economic growth? These questions raise the debate on the role of corporations, government, civil society organisations, and the individual in meeting these challenges. Certainly, given the complexity of the issues raised by these questions, the answer is more difcult than just suggesting zero population growth. In the chapters to follow we wish to convey that that there are nuanced perspectives on the challenges society faces; for example, though the projected growth of the world’s population is principally within developing countries, they may follow Europe, Japan, and North America in seeing their population decline as they become more developed. In doing so they may face similar issues as the developed economies with the rising cost of an aging population against a shrinking tax base to support that cost. Yet, developing nations might not even get to that point if they lack the indigenous resources (fnancial, intellectual, technological etc.) to support getting there. The world may have reached a stage where there is an inability to adequately adapt (in the sociotechnical, political-economic, and institutional senses) quickly enough to deal Table 1.1 Key challenges facing society5 Food Security – Rising populations, especially in underdeveloped countries has increased stress on agricultural processes to produce the level of food required to avoid famine. Peace and Confict – Countries around the world continue to experience confict with each other and within themselves around matters such as border disputes and religion. Income Inequality – Increasing wealth from global economic growth is becoming more inequitable with wealth concentrating among the wealthy. Biodiversity – Loss of ecosystems from human activity risk is having signifcant impact not only on the general ecology but also on the world’s economies. Employment and Workplace Standards – Large numbers of people remain unemployed across the globe yet employers are fnding it increasingly difcult to fnd skilled employees with certain jurisdictions and industries continuing to operate with substandard working conditions and low-cost refugee and child labour. Climate Change – Global warming and the human activity that is contributing to it is having an impact in terms of increasing severity of drought and storm activity, resulting in signifcant weather-related social and economic loss. Geopolitical Competition – Countries continue to have competing interests pertaining to the economy, the environment, and society in general. Global Finance – Inconsistent monetary policies and mistrust of global fnancial systems by investors has produced inefcient systems of fnance that have limited access to credit and savings for billions across the globe. (Continued)

Introduction

5

Table 1.1 (Continued) Internet Use – The technological transformation led by the use of the internet has allowed for a more interconnected world, both for business and personally, but how does the entire world get connected and what will be the impact on data security and personal privacy? Energy – The need for energy to support economic growth and improved standards of living has encouraged lower cost, environmentally unfriendly sources of energy. Gender Equality – The gap between men and women in terms of wages, health, education, and political power remains signifcant and is only slowly being closed even though parity is crucial for the sustainable future of society. Global Trade and Investment – Increasing exports and foreign direct investment has not been met with the levels of regulatory oversight that limit unethical behaviour and environmental damage. Transnational Crime – Corruption, bribery, and unethical business practices have resulted as a result of globalisation of the economy, increased numbers and heterogeneity of immigrants, and improved communications technology. Healthcare – Aging populations have increased the need for a global health system that can deal with global pandemics, rising non-communicable diseases, and the costs of healthcare, particularly in underdeveloped countries. Long-term Investing – Since the 2008 global economic crisis there has remained a lack of long-term investment by governments and institutions, and with the recent COVID-19 pandemic the pressures faced by governments to address shorter-term issues the combined efect has limited the prospects of longer-term economic growth. Education – A lack of access to education in developing and underdeveloped countries is limiting the ability for social and environmental progress.

with the convergence of several (predictable) vectors, a situation essentially of our own making: (1) regional population growth and population decline and associated post-industrial social and demographic changes; (2) addiction of natural resource depletion and concomitant institutional structures; (3) the water, food, energy nexus (whose linkages are central to sustainable development); (4) unstoppable industrialisation (in the developing world at least), the potentially unrealistic proposition of de-growth; (5) the consumption-production-waste ‘cycle’; (6) the political and economic inertia (a need to address rising inequality via reining in neoliberalism) and a retreat from multilateralism; and (7) humanity’s contribution to climate change. These vectors are not exhaustive; the recent COVID-19 global pandemic has added another crisis to be faced by society and in its early stages has wreaked havoc on the global economy and healthcare systems, resulting in over a million deaths worldwide. Yet there have been some positive environmental consequences of the pandemic, including the reduction in greenhouse gas emissions from reduced travel. This serves to remind us that the crises are interconnected and rely on complex solutions, many of which will require greater levels of corporate responsibility and sustainable development.

6

Contextualisation

The consequences for the world’s limited resources of meeting these challenges Forecasts of population growth have reached anywhere from nine to ten billion people on this planet by the year 2050.6 The projected food consumption will require a coordinated approach to addressing existing issues with the way in which society consumes food. The World Resource Institute has identifed three specifc goals that will contribute to allowing society to address the food security challenge.7 Without the success of achieving those goals humanity remains at signifcant risk from shortages and famine. The single most important goal is to limit volume of food loss and waste produced each year. According to the Food and Agriculture Organization of the United Nations (FAO), an estimated one third of all food produced globally is lost or goes to waste.8 The second goal is to change food consumption behaviour from one that involves excessive amounts of resource-intensive (water, land, fertiliser) foods to one that uses lesser amounts and is replaced with less resource-intensive foods. Finally, food security would beneft from restoring land that has been allowed to degrade to a point that it is no longer efcient for producing food. Of all three goals, the economic confict that exists is obvious. In developing countries, with a lower-income society, the issue is more about food loss during the production process through not having access to costly, but more efcient, extractive and production processes. In developed economies, with the wealth available to overconsume food, the issue is food waste. However, with suppliers having received their economic beneft prior to consumption, there is little fnancial incentive to encourage lower consumption levels. Agricultural resources are not the only resource that will fnd itself under pressure to meet the future challenges facing global society. Forests, and their use for construction material and energy (wood burning), will continue to be stressed and, without reforestation and forest management initiatives, detrimental environmental consequences associated with reduced global forest coverage will continue. The same can be said about the availability of water resources. Inefcient fresh water use has led to increased areas of water scarcity, which can have a signifcant impact on sustainable agriculture processes. Finally, society continues to rely on fossil fuels – coal, oil, and natural gas – to provide lowcost energy to fuel its economic growth. In addition to being non-renewable, they are having a negative impact on climate change and public health that is requiring society to move away from those types of natural resources to nongreenhouse gas emitting sources. Although nuclear and renewable resources (solar, wind, hydroelectric) are non-emitting, they too have their own environmental consequences that will need to be considered.

Difering perspectives on responsibility With the global challenges facing society, the question that ultimately arises is one of responsibility. Who is responsible for dealing with these challenges?

Introduction

7

Certainly, some might appear to be more the responsibility of certain parties. Should corporations be responsible for any challenge associated with economic growth, or does it really start with the rules and regulations provided by government that establishes what corporations can or cannot do within an economic framework designed by the government? A variety of perspectives exists regarding responsibility to society, and all have their limitations. A good start is distinguishing between the perspective that as individuals we all have a responsibility and the perspective that no man or woman is an island and that society is more than just the aggregate of its individuals. In the former case, the idea that responsibility can be shared is discounted by the view that individuals will ultimately make decisions of responsibility based on their own individual experiences, while in the latter case, responsibility rests with the collective who, through whatever societal mechanism – i.e. religion, traditions, markets – choose to adhere to a form of social contract that spreads the responsibility among them. This communal perspective of responsibility has led to the view that government, representing the collective will of the people, takes on the responsibility for securing through policy social and environmental survival, and that corporations, representing a collective of individuals (shareholders, investors, employees) who wish to share their respective resource contributions for the purpose of a collective return, take on responsibility for whatever outcomes that collective wishes. While this remains a simplistic view of responsibility, it does point to how ambiguity around responsibility to society has developed. In addressing that ambiguity, varying perspectives on corporate responsibility have emerged. Two dominant, but opposite, perspectives are that of Milton Friedman and R. Edward Freeman. Friedman supports the idea that the principal role of business is to optimise the efciency of the frm in order to maximise the return to the shareholders of that frm, keeping in mind the legal boundaries that exist. Accordingly, the ethical and responsible behaviour of the frm is limited only by what laws and regulations exist. With Freeman’s stakeholder perspective, any party that is impacted in any way by the actions of the frm has a stake in its activities and therefore has rights that need to be respected by the frm. We will be addressing these difering perspectives in greater detail later in this book, as they do shape the scope and direction of sustainable development.

Difering perspectives about sustainable development The perspectives on sustainable development align closely with the notion of responsibility to society in that economic, social, and environmental principles (of sustainable development) are interdependent, thus raising the question as to what degree do societal actors – governments, civil society, for-proft corporations, and non-proft organisations – work together in achieving a sustainable society, and what should their own respective responsibilities be in doing so. And like the responsibility argument, these perspectives can be broken down along the lines of society versus the frm. From one perspective, the

8

Contextualisation

environmental and social sustainability of society is seen to be a longer-term responsibility, determined by civil society, its government, and other agencies whose mandate is to protect the welfare of society. Economic sustainability is seen to be a distinct shorter-term responsibility, in the classic sense, of creating value for a frm’s shareholders that encourages economic growth and reinvestment, thus ensuring the sustainability of the business and its economic contribution to society. An alternative perspective on sustainable development is one that recognises that the actions of the frm carry impacts on the environment and society and in doing so cannot be considered in isolation. Firms therefore are obliged to consider working with other social actors in meeting economic needs without compromising environmental conditions and social needs. Again, we will address these perspectives in a later chapter.

The concept of governance and its role in instituting sustainable development values and practices Perhaps one of the contributors to the ambiguity mentioned earlier regarding the concepts of corporate responsibility and sustainable development is the differing views on what constitutes governance. When we think of governance we think of public institutions and their management of processes required by the public to deliver goods and services that society requires. It is a rather generalised understanding, but its simplicity is helpful as a starting point towards the role of governance in establishing a route towards sustainable development. In fact, the concept of governance is more complex in that it applies to a variety of perspectives, including hierarchal public governing bodies, markets, networks, communities, and private governance. The role of public administration was described by the German sociologist Max Weber as one that governed based on law and regulation,9 where hierarchal systems of command and control allow for national and subnational governance of societal action. The contrasting view is one of market governance, where markets are seen to be an efcient and equitable mechanism for collecting and distributing resources that are used to maintain society, wherein power is distributed through competition and exchange, social relations, institutions, and infrastructure. A  somewhat hybrid approach to governance of a more contemporary nature is that of network governance, where both public and private institutions coordinate the allocation and use of resources for the beneft of society. This approach can sometimes be difcult to implement, especially when the goals of government do not align with the goals of other network actors. Consistent with the community responsibility discussion in the previous section, an alternative concept of governance is that of community governance, where societal activities can be left to the communities impacted by such activities. This provides for direct oversight of community responsibility by the community itself, but again it faces criticism because of the potential misalignment with larger national goals. Each of these approaches to governance will impact sustainable development diferently. Classical hierarchal governance processes risk being opaque to the

Introduction

9

identifcation of sustainability needs and performance because of its bureaucratic nature, while markets and their approach to sustainable development can be skewed by those who hold market power, and neither consumers or producers may have the best interest of society at heart. Both networks and communities can have limited foci when it comes to sustainable development, thus limiting the broader concerns that might exist. A  relative newcomer is the notion of private governance, self-governance, or self-regulation among stakeholders with a shared interest. This form of governance flls a void where government is unable or unwilling to enforce contracts or compliance and where networks and communities are inefective. Private governance, such as represented by the Forest Stewardship Council or the Marine Stewardship Council, facilitates trade and helps protect property rights such as that embodied in certifcation. However, given the voluntary and circumscribed nature of much private governance, government may still be called upon to complement or supplement private governance authority.

The interdependence of social and technological innovation in promoting sustainable development In addressing the global challenges we identifed earlier, the notion that technological innovation will provide a solution is a popular one. Through time, humankind has innovated in order to meet its sustainability challenges, including disease (polio vaccine, insulin) or transportation (the wheel, catalytic converter) or energy (solar panels). Innovation has been deemed a social process that involves scientifc invention within existing institutional structures and is heavily infuenced by the prevailing socio-economic context at the time.10 It is these institutional and contextual factors that infuence the success of the innovation, the form it will take, and the kinds of change that innovation can have on society. Sustainable development requires a combination of both social and technological innovation. For example, renewable energy technologies exist in many forms and can be operated at various levels of cost, which in itself can be a determinant of adoptability. But technology adoption also involves a certain level of social acceptance or willingness to use that technology in practice, and to that extent this new social practice is an example of social innovation, in that it seeks to fnd a better way to deal with a societal problem (greenhouse gas emissions) than what is currently the established practice (burning fossil fuels to generate electricity). Therefore, with sustainable development representing a societal goal, the role of social innovation is to assist the adoption of sustainability-leaning technological innovation by altering social processes to encourage the use of that technology in meeting a societal need.

The role of context Before moving on to describe how this book will specifcally deal with the concepts of corporate responsibility and sustainable development, it is important

10 Contextualisation

to recognise the role of context in shaping prescriptions and practices of both, appreciating that ethical and political arguments can be made. What constitutes corporate responsibility and sustainable development in one country can difer from that in another. We described earlier how there are difering perspectives towards these concepts, and therefore it becomes important that one understands the jurisdictional context and whether it falls into being institutional, cultural, or cognitive (individual). For example, certain regions of the world have stronger institutional structures that provide for efcient regulation, anti-corruption, and legal dispute mechanisms and a commitment to sustainability (Europe and North America) while other regions do not (Sub-Saharan Africa).11 Within regions, cultural traits such as performance orientation (encouraging and rewarding innovation and performance improvement), power distance (accepting authority and status), uncertainty avoidance (threatened by ambiguous situations), gender equality (society’s belief that gender determines one’s role in society), and future orientation (future-oriented behaviour is encouraged and rewarded) have been found to have a signifcant impact on the level of sustainability practices.12 The cognitive contribution to context lies in the ability of the individual human being to recognise the importance and need for sustainable action on their part. Such cognition is shaped by cultural norms, beliefs, and values that obviously difer from region to region. In such situations, cognitive dissonance pertaining to corporate responsibility and sustainable development can limit support, while cognitive consonance between programmed perceptions and the challenges facing the planet can do the opposite.

Insight 1.1

The Volcano and the Bicycle13

In a recent article by Tom Standage in the Economist magazine, a volcanic eruption in Indonesia was given credit for the invention of the bicycle because of the after-efects of that catastrophic event. Mount Tambora was an active volcano that in April of 1815 erupted to such a degree that it spread volcanic ash and dust across the world, leading to reduced sunlight and therefore lower ground temperatures everywhere. Global production of crops decreased as harvests failed because of lower sunlight and colder temperatures, and the higher cost and lower supply of food resulted in widespread global famine and disease. Meanwhile, horses could not be fed and therefore either starved to death or were killed to provide meat. One related issue that arose was the impact that the reduction in horses had on the transport sector of its day. In the early 19th century, people relied on horses to ride and to pull carriages and trolleys. Without them, no one had access to what was then the quickest means of getting between two points. A German inventor, Karl von Drais, developed a two-wheel device made of wood that was propelled

Introduction

11

by the rider through pushing of with one’s feet every few meters. Von Drais was able to get what he termed ‘a running machine’ to reach speeds equivalent to what a horse carriage might reach, although it was admitted that riding the device required some balance and technique. Later that century the concept of pedals, brakes, steel instead of wood frames, and the chain drive were added to improve upon the design of this device, and it eventually became known as the ‘bicycle’. Standage pointed out that the bicycle was not so disruptive as to replace the horse because the eventual clearing of the atmosphere resulted in more normalised weather patterns and a bounty of crops in 1817. The return of horses meant that the bicycle was left to be a less desirable transportation alternative, but the global crisis created by the eruption created a transport challenge that was met by the invention of the bike.

What to expect from this book Approach and structure

Our world is in an increasing state of fux as average global temperatures continue to rise and the climate becomes less predictable and tends to extremes. Nevertheless, humanity’s demands on the biophysical world continue unabated. Bound up with these demands, the distribution of global wealth and inequality continue to worsen, as wealth is increasingly concentrated, despite some gains in the reduction of global poverty (essentially in China). Social expectations for the scope of corporate responsibility are expanding, while the understanding of sustainable development remains in a state of fux and redefnition. This is a picture of interdependency between the social and the ecological, and of evolving change, in both our biophysical world and our approach to being in this world. This book presents particular insights to these interdependent and evolving processes. The broad approach to examining these processes is analytical and explanatory, employing social science theory and intellectual frameworks and drawing on empirical evidence and examples from everyday life in order to justify claims and support conclusions. The level of analysis is strategic rather than operational, providing insights to the nature of macro-level processes of societal development. In this account we take in the roles of key societal stakeholders, particularly the corporation, the state, and multilateral institutions such as the United Nations (UN); institutional structures and processes such as regulatory mechanisms and governance; and broader underlying political-economic ideological commitments that shape these roles, processes, and institutions. The examination of these macrolevel processes is organised as four parts: Contextualisation (Chapters  1–2); Perspectives on Social Change (Chapters 3–5); The Sustainability Governance Trinity (Chapters 6–8); and Creating Social and Public Value (Chapters 9–10).

12 Contextualisation

The structure of the book is modular. This means each part is self-contained, comprising two or three chapters. All chapters have in common chapter objectives, a rationale for the chapter subject, and some context. Each chapter has also one or two case studies of diverse real-life issues, whether about company strategy, government policies, communities, or other phenomena. Each chapter is organised to invite sequential reading, in order to engage the reader with the developing ideas and arguments presented rather than provide bite-sized summaries. To help the reader in this, all chapters are divided into sections and include visual aids where useful. Each chapter fnishes with a list of questions, intended to challenge the reader and provide a basis for group discussion. Since each chapter is constructed of numerous themes and strands, the reader may wish to delve deeper into particular ideas. Each chapter therefore includes a list of source references. The case studies and chapter questions provide opportunities for the reader, working as part of a group, to engage in discussion about how the concepts introduced in the chapter relate to the case studies. The reader working independently may similarly use the chapter questions and case studies to refect and articulate their acquired knowledge. Each chapter is pitched for use as the main study text or as supplementary to another text, for example as a complement to texts on business strategy, governance, innovation, government, fnance, sustainability, and other related topics. This modularity means it is not necessary to read the book sequentially, though this is also valuable. Modularity allows the pursuit of study framed by the division of the subject into specifc topic areas and learning objectives. Individual students may engage at their own pace, and if appropriate sequence their engagement according to individual interests and preferences. In summary, modularity provides easily identifable objectives, fexibility (learning pace), cooperation (work division within study group), and defned revision (of specifc elements only). The book provides for a normative view that society’s goal should be sustainable development. Achievement of this goal requires the creation of appropriate social value, recognising this to be, in part, a product of historical antecedents but also of purposeful social change and evaluation of progress towards that goal. The chapters

The following chapters all touch on various aspects of corporate responsibility and sustainable development, beginning with the next chapter that completes Part I, Context. In Chapter 2 we describe the history behind the development of the concepts of corporate responsibility and sustainable development. Most believe these are recent phenomena, but corporate (social) responsibility predates the industrial revolution. However, the transition from social responsibility to corporate social responsibility or CSR has emerged only in the past 70 years, and the idea that stakeholders external to the frm should be considered part of that responsibility has been even more recent (since the early

Introduction

13

1980s). We will introduce a stakeholder-centric framework for CSR strategy formulation and implementation that integrates traditional strategy making with the needs of all stakeholders, as well as a systems model to dig deeper into how stakeholder claims and agendas can be assessed in terms of their expectations and the relative importance to the frm itself. As we have been discussing in this introduction, corporate responsibility and sustainable development have become global issues, and we have provided in Chapter  2 some discussion and observations around the impact of globalisation and the recommended sustainability policies for enterprises operating in multiple locations around the world. Our insight case focuses on the history of corporate responsibility and sustainable development at Siemens AG, a German-based, global energy technology company whose history dates back to the mid-19th century. Over the 150 years of its existence, Siemens has been praised for its technological contribution to improving the environment yet criticised for its lack of ethical business conduct on numerous occasions. Part II, Perspectives, addresses in greater detail the perspectives we touched upon in this introduction. Chapter 3 explores several of the theoretical perspectives that have created challenges for sustainable development, including the socio-ecological perspective and the evolution of diverse socio-cultural systems. Socio-ecological systems theory and the interdependent relationship between human social systems and the natural environment is discussed, and an extension is made to societies’ capacity to evolve technologically while acknowledging their ecological context. This evolution of human societies is based on three factors: the obvious interaction of the biophysical and social environment, the genetic heritage of human populations, and historical social and cultural characteristics. The industrial revolution of the mid-19th century was a signifcant point in time of human development and the creation of more complex social organisations within communities. Industrialisation meant rapidly growing and densely populated urban settings and industrial expansion around the globe. We illustrate the impact of industrialisation in terms of social inequality and how societies today vary due to various in-country institutional factors. The associated urbanisation has raised signifcant challenges for sustainable development, and examples are provided. These challenges include the role of internal and international migration, and we conclude Chapter 3 with some insight into that phenomenon. Our chapter insight follows the case of Huawei, a Chinese mobile phone producer, whose foray into the US market highlights how technological advancement can be hindered by socio-cultural systems. Chapter  4 continues with presenting the related theories of corporate responsibility and sustainable development. We highlight the diferences between corporate social responsibility, corporate responsibility, and sustainability, including the connection with integrative social contract theory in the context of corporate responsibility and sustainability. Following that discussion the chapter goes on to deal with responsible supply chain management as a component of corporate responsibility and the importance of transparency in

14 Contextualisation

disclosing the sustainable level of a frm’s supply chain. Recognising the earlier discussion in this opening introduction chapter of jurisdictional context, we provide some discussion on the various international approaches to corporate responsibility. The chapter then moves on to more modern sustainable development theories using the insight case of Coca-Cola for application. The environmental Kuznets curve is used to address theory regarding the inverse relationship between economic growth and environmental stewardship, and we describe the concept of the triple bottom line and the theoretical balance of economic, social, and environmental objectives by a frm. Other theories such as the ecological modernisation theory and the post-material value theory are also presented, with a concluding look at our own values chain framework that combines Maslow’s hierarchy of needs theory with Michael Porter’s value chain framework. We conclude Part II with Chapter 5, exploring social change through the integration of social and technological innovation. Socio-technical change has existed since humankind’s early years on this planet. However, it is only in the past 150 years that the spread of capitalism and global democratisation has been taking place, which has heralded previously unimagined social change through industrialisation. We examine the work of Polyani (1944) and the four signifcant industrial changes driven by socio-technological systems. The multilevel perspective on socio-technological change put forward by Geels (2012) provides an updated view on the role of social groups and actors in creating dynamically stable regimes of technological innovation infuenced by social and political institutions. In the middle of the chapter, we provide some questions to refect on regarding socio-technical change and how systems have responded. Using our chapter insight case of China, we compare and contrast that country with other countries in order to recognise the infuence of those institutions on social change associated with corporate responsibility and sustainable development. This chapter also introduces the circular economy model and the life cycle assessment model, providing insight and application into how society could make the change to a more sustainable future. Part III begins with how corporate responsibility and sustainable development can be evaluated. For Chapter  6 we introduce the concept of governance as it relates to frm level, government level, and global level, especially in regards to sustainability and sustainable development. Without good governance, evaluating the sustainability performance of a frm is moot. Starting with an examination of the history of the use of governance, we move on to discuss why sustainability governance is needed and what the various dimensions of that governance might be. Specifcally, four dimensions – participation, policy coherence, refexivity and adaptation, and democratic institutions – are identifed further, recognising the need to evaluate performance across all of them. We revisit corporate supply chains and value chains, but this time we apply sustainability governance to them by identifying vulnerable areas for non-sustainable and corporately irresponsible behaviour. Global approaches to sustainability governance round out the chapter, with two insight cases, one addressing the UK automotive industry supply chain and the second corporate fraud. The frst

Introduction

15

insight case is an example of the complex cross-border nature of automotive supply chains, which harbours implications for efective sustainability governance. The second highlights the ever-present threat of fraud – in this case bank fraud –through both external threats and those from within the business. Having established the importance of governance, Chapter 7 deals with the practice of sustainable fnance and the importance of establishing a value for sustainable development in order to support investment activity. A brief description of sustainable fnance is followed by the need for qualitative evaluation in addition to quantitative evaluation when considering investing in sustainability initiatives. Recognising the importance of the global fnancial system in this process, we illustrate how the system works in a conventional sense and then as a sustainable fnancial system, where we introduce a framework for sustainable fnance. Various forms of sustainable fnance, such as green equity and green bonds, are discussed along with the UN’s integrated model for corporate fnancing of the Sustainable Development Goals. This model requires the development of a credible SDG impact theory that supports the need to create a measurement and monitoring process for the predefned goals and targets related to the impact theory, integration of that impact into the corporate strategy and governance processes of the frm, and the subsequent structuring of either the bonds or the equity required to implement the strategy. The role of the government in the sustainable fnancing process is addressed given the need for its regulatory support and oversight. Throughout this chapter, we use the case of Vasakronan, a Swedish property manager and developer, as our insight into how corporations can utilise sustainable fnance to provide investment capital that contributes to a more sustainable society. Part III concludes with Chapter 8 on evaluating the progress of corporately responsible and sustainable activities. Here we reinforce the need for such evaluation and its contribution to sustainable development. Presented is a variety of theories regarding evaluation and reporting, including persuasion theory, enforcement theory, re-education theory, legitimacy theory, and signalling theory, all of which encourage its use. Various forms of measure are shown, including the Global Reporting Initiative and the UN SDGs with discussion regarding their histories and their present applications. The chapter concludes with our refections on the future evolution of evaluating corporate responsibility and sustainable development. Using Intel as the insight case, we apply the concepts introduced in this chapter to its past, present and future strategies for corporate reporting. Part IV provides a critical examination of social and public value in terms of the achievement of sustainable development from two prevailing but contrasting societal contexts: the neoliberal state and the welfare state. Chapter 9 focuses on the move after the Second World War to an ideological lens of neoliberalism where the economic dimension is prioritised, with implications for the parallel view of sustainable development thinking about the need to integrate economic, social, and environmental dimensions. After a brief overview of the history of the neoliberal state, we provide an answer to what neoliberalism is, as an ideological world view and as a political-economic policy

16 Contextualisation

discourse and programme. Our description of neoliberalism is broken into broad policy strands with actionable policy measures and related bureaucratic practices, with specifc emphasis on how it can achieve social and environmental goals in a manner that is more efective and efcient due to competitive market mechanisms, as opposed to management by the state. How neoliberalism contributes to sustainable development is further addressed with specifc application to societal priorities such as poverty reduction. The chapter insight cases include a look at the privatisation of a public water supply in England and the confict between neoliberalism and sustainable development when it comes to genetically modifed foods. Finally, Chapter 10 deals with the welfare state. Introduced in the early 20th century, it involved a new governmental rationality where the state would play a role in the functioning of its economy with the intent of reducing social and economic risk. There is no single essential characteristic of a welfare state because diferent nations establish diferent policies depending on their history, traditions, and prevailing economic conditions, but it does provide social assistance for the individual in almost all phases of life. We discuss the nature of social justice, providing insight into the moral principles – of solidarity, social stratifcation, and subsidiarity – that guide who is entitled, and on what basis, to social welfare. We conclude the chapter with a discussion on whether the welfare state might evolve into a social investment state, from its current reactive and protective role to becoming a more proactive agent, and in the process reconciling the gap between neoliberalism and the welfare state. The chapter insight addresses examples of social welfare programmes, including social security and basic income schemes, in the United States and Finland. We use the insights to provide a comparison of how each country deals with their respective programmes. At the opening of this chapter, we suggested that the concepts of corporate responsibility and sustainable development can be understood diferently, and that it is the ambiguous nature of what constitutes these concepts that results in these diferences. Our intention in this book is to reduce some of that ambiguity by expanding upon what these concepts are, their history and application, and the role they play in informing thinking about humanity’s struggle for a more sustainable way of living, given the ecological boundaries of our planet.

Chapter insight questions 1 2 3

Considering when the Mount Tambora eruption occurred, what resource restrictions would have existed that limited societal response? What competing perspectives might have existed when the efects of the volcanic eruption were being felt? Technological innovation led to the introduction of the bicycle in response to a crisis, but can certain institutional and contextual factors have been present to encourage its adoption?

Introduction

4

17

Like the Mount Tambora eruption, global pandemics like COVID-19 are likely to be a recurring natural event. What kinds of innovation can be expected in response to COVID-19 or similar pandemics?

Notes 1 Hutt, R. (2016). What are the 10 biggest global challenges? Retrieved from www.weforum. org/agenda/2016/01/what-are-the-10-biggest-global-challenges/ 2 Global Futures Report: Alternative Futures of Geopolitical Competition in a PostCovid 19 World, Air Force Warfghting Integration Capability (AFWIC). 3 Global Futures: Assessing the Global Economic Impacts of Environmental Change to Support Policy-Making, World Wildlife Fund (WWF). 4 State of the Future 19.0, The Millennium Project. 5 World Economic Forum, AFWIC, WWF, Millennium Project. 6 Roser, M. (2019). Future population growth. Our World in Data. Retrieved from https://ourworldindata.org/future-population-growth 7 Retrieved from www.wri.org/strategic-plan/tackling-global-challenges 8 Retrieved March 2, 2021, from www.fao.org/ 9 Swedberg, R. (2003). The changing picture of Max Weber’s sociology. Annual Review of Sociology, 29(1), 283–306. 10 Dosi, G. (1982). Technological paradigms and technological trajectories: A  suggested interpretation of the determinants and directions of technical change. Research Policy, 11(3), 147–162. 11 World Economic Forum 2019 Report on Global Competitiveness. 12 Miska, C., Szőcs, I., & Schifnger, M. (2018). Culture’s efects on corporate sustainability practices: A multi-domain and multi-level view. Journal of World Business, 53(2), 263–279. 13 Based on the article ‘Why global crises are the mother of invention.’ Retrieved from www. economist.com/1843/2020/07/03/why-global-crises-are-the-mother-of-invention

2

The historical antecedents of corporate responsibility and sustainable development

Introduction For this chapter we will provide some background on the history of corporate responsibility (CR) and sustainable development (SD) and the ongoing debate regarding the confict between the pursuit of economic development and its impact on social and environmental sustainability. Starting in the mid-20th century, we can follow the development of CR and SD from the early days of defning the responsibility of business to society through the years where certain individuals, their ideas, and the events surrounding their actions led to the abandonment of addressing CR and SD with traditional management approaches. What replaced the old approaches was the introduction of stakeholder theory and the integration of business and social interests when addressing the roles and responsibilities of industry. The discussion of the historical antecedents will conclude with the identifcation of how CR and SD has become generally accepted in global organisations as a signifcant strategic issue to be addressed. Following this, the chapter will move into the topic of globalisation and its impact on CR and SD. Has globalisation promoted sustainable development as humanitarianism? Or as liberal economic projects (Washington Consensus) where industrialised world leaders see trade as the best antidote to war, aspiring for global economic growth through open markets and access to natural resources? There has been an evolution from nascent industrialising economies and antagonism towards multinational corporations (MNCs) – and nationalisation – to a welcome embrace, and with that globalisation has had an ever-increasing impact on local norms through the application of global processes. We attempt here to further enlighten the reader on globalisation’s benefts and detriments by addressing such processes and the increased transparency arising from global inspection, with global competition being a signifcant factor in promoting CR and SD.

The history Early in the 20th century, the business practices of ‘American capitalism seemed to be what Marx predicted it would be and what all the muckrakers1 said it

The historical antecedents of CR and SD

19

was – the inhuman ofspring of greed and irresponsibility. . . it seemed to provide overwhelming proof of the theory that private ownership could honor no obligation except the obligation to pile up profts.’2 While generally the case, this was not necessarily universal. The concept of corporate responsibility, while not specifcally referred to as such, existed prior to the 20th century with examples such as the American railroad companies fnancially supporting their employees in pursuing activities at their local YMCA, an initiative that was soon to be undertaken by other industries in the late 1800s.3 In addition, businesses in Europe and North America had already begun considering the problems presented by the introduction of the factory system in the mid- to late 1800s. These problems were typically social in nature and included poverty, poor working conditions, inequitable treatment of women and children, and worker slums, all of which contributed to increasing labour unrest. The notion of an industrial welfare movement began to become more popular, driven by the view of industrialists that providing social benefts for their employees such as access to housing, medical facilities, and recreational facilities would also provide economic benefts to the corporation in the form of reduced work stoppages and improved worker performance. At the same time, philanthropy on the part of business owners was also becoming more common. Certainly, philanthropy had existed for centuries with contributions by wealthy business owners or their families to the church, higher education, and the local community. For example, John Harvard had inherited his fortune from his father, who had business interests in England, and in 1638 Harvard bequeathed half of his estate to help the university founded in his name. But it is generally agreed that it was the late 1800s that marked the beginning of corporate philanthropy, and while it has been said that philanthropy was the precursor to corporate responsibility, it remained difcult to determine, at that time, if the philanthropic activities of such industrialists represented personal philanthropy or corporate philanthropy, given the control they held over their companies. Complicating the matter was the argument that charity was not a function of the company and shareholders felt inclined to legally challenge the right of a board of directors to provide charitable donations from the retained earnings of the business.

Insight 2.1 The Early History of Corporate Responsibility at Siemens AG In 2017 Corporate Knights, a publication dedicated to promoting corporate responsibility, ranked Siemens frst in its Global 100 ranking of the most sustainable companies. Today, it remains in the top 100, but its history over the past 173  years has seen some ups and downs as it pertains to corporate responsibility and sustainability. Siemens Aktiengesellschaft (AG), as it is known today, was founded in 1847 by a German inventor, Ernst Werner von Siemens. Working with master mechanic

20 Contextualisation

Johann G. Halske, they created their pointer telegraph that improved the efciency of electric telegraph operations. Their innovation led to the marketing of the device throughout Europe. Siemens used family members to represent the frm outside of Germany, which was not difcult to do considering Werner had 13 siblings to choose from. His younger brother (by seven years), Carl Wilhelm Siemens, trained as a mechanical engineer and was asked to create a sales ofce for Siemens in London in 1850. From that location, Wilhelm sold the frm’s telegraph technology to British frms, which eventually led to Siemens’ involvement in laying transcontinental ocean cable. He later anglicised his name to William and became an active member of the UK engineering community. His invention of  the regenerative furnace (recirculating hot exhaust gases back through the  primary furnace) was instrumental in reducing fuel consumption in the steel production process. In 1883 William was knighted by the Queen for his achievements and contributions to industry. Werner and William had a younger brother, Carl Heinrich, who was tasked with establishing a presence for Siemens in Russia. In 1853, Carl, as he was referred to, opened an ofce in St. Petersburg in order to manage a new contract for the construction of a telegraph network in Russia. For the next 50 years he travelled between Russia, England, and Germany managing various aspects of Siemens’ businesses, eventually becoming the chief executive of the company upon the death of Werner in 1892. During the tenure of the Siemens brothers, the core business expanded into the general telegraph industry, including the design and development of large telegraph systems. These systems included the frst India-toEurope telegraph line in 1870 and the installation of a direct transatlantic telegraph cable in 1875.4 In addition to the telegraph and regenerative furnaces, Siemens had also created and developed a number of electrical equipment innovations including their dynamo machine, a device that provided a cost-efcient means for producing electrical energy from mechanical energy. This invention allowed for greater use of electricity because it could now be generated economically in large quantities powered by fowing water, the antecedent to the modern hydroelectric generating station. At the time of Werner von Siemens’ death, the company was employing 6,500 people with approximately one quarter of their workforce located outside of Germany. He and his brothers had instilled a culture of corporate responsibility towards its employees, society, and nature.5 This was partially due to their recognition that as the frm grew larger because of an economic boom in Germany during the early 1870s, they needed to establish a longer-term mindset towards their growing workforce. Until that time, they were a smaller frm comprised of skilled craftsmen who had become quite loyal to Siemens and the company. However,

The historical antecedents of CR and SD

21

with the larger number of workers, many of whom were being brought into more labour-intensive vocations and easily enticed away to other employers, Siemens realised they needed to establish greater loyalty to the company amongst its new hires. At the same time, the prevailing social environment in late 19th-century Germany was one of reform, with calls for social equity and improved work conditions. Siemens began to see a mutual beneft in providing employees things such as social insurance in the form of pensions, a relatively uncommon practice at that time. With the amount of pension tied to the length of service with the company, employees were now more encouraged to stay. Siemens also made large donations for the creation of public institutions for scientifc research that could continue his passion for innovation and the contributions that could be made to society as a result. His actions in the latter years of his life were strongly infuenced by this desire to treat the business as a family with a culture of ownership for all employees. Nevertheless, by the early 20th century more and more business owners and managers were exposed to the social agencies that were sprouting up across North America and Europe and the missions they were undertaking. Combining this exposure with increasing trends in public ownership of shares in large corporations and a move towards a more pluralistic society provided momentum for the recognition that while management’s responsibility was to maximise shareholder value, it also required balancing that value with the interest of various stakeholders such as customers, employees, and the communities in which they operated. Barnard (1958, p. 2) described his recognition in 1938 that corporations are broader social systems and as such are ‘autonomous moral institutions on which instrumental political, economic, religious, or other functions are superimposed or from which they evolve’6 and that many of the decisions made by management concern moral issues. This institutional view, when accepted by corporate owners and managers, meant that the age of proft maximisation as the only contribution to corporate responsibility was ending and a new age of corporate stewardship or trusteeship was emerging. In the 1950s scholars began to acknowledge this new form of capitalism focusing on the ‘corporate conscience’ that seemed to be emerging within the American economy in the growth years after the Second World War. That decade could be characterised as a ‘teething period’ for corporate responsibility because it required attitude changes on the part of industry executives and managers. They needed time to get used to the idea of integrating social concerns into their management strategies and then to fgure out how such strategies could be implemented successfully, keeping in mind the interest of all stakeholders. Up to this point in time the contributions of corporations to the greater society was deemed as ‘social responsibility’. The term ‘corporate social responsibility’ or ‘CSR’ became more prevalent in the 1960s as academics

22 Contextualisation

began to isolate the role of the corporation. Davis (1960) suggested that social responsibility was too vague a term and needed to be viewed in the context of corporate management.7 In doing so there was a recognition of the importance of the relationship a corporation has to the society in which it operates. This relationship soon became referred to as the ‘social contract’ between business and society. Not all were comfortable with this mindset, and the most familiar negative position taken was by the economist, Milton Friedman, who famously described the concept of CSR as unethical and undesirable because it meant that management was spending shareholder money without their consent and without the right to determine what is in the best interest of society.8 The 1970s marked a period of greater acceptance of the role of CSR, and researchers were now able to fnd empirical data associated with the outcomes of initiatives being undertaken by frms. Most involved the recruitment and training of minorities, which at the time was being promoted through afrmative action policy that had been implemented by the US government. Other initiatives involved contributions to education and the arts. Corporate concern for the environment was also a substantial element of the CSR actions of business at that time. We will address the role of environmental responsibility in the history of corporate responsibility and sustainable development later in this chapter. At the end of the decade, Carroll (1979) put forward his seminal work on the link between corporate social performance (CSP) and CSR.9 With increasing desire on the part of industry to introduce CSR into their business strategy, it became apparent that some form of measure would be needed to identify the outcomes of their CSR initiatives. Figure 2.1 highlights his fourpart defnition of those responsibilities that a frm would consider in terms of

TOTAL SOCIAL RESPONSIBILITIES*

Discre˜onary Responsibili˜es

Society expects businesses to assume social roles over and above their ethical, legal, and economic responsibili˜es.

Ethical Responsibili˜es

Society has expecta˜ons of businesses over and above the legal requirements to behave and act ethically.

Legal Responsibili˜es

As a par˜al fulfllment of the “social contract” society expects business to fulfll its economic mission within the framework of legal requirements.

Economic Responsibili˜es

The frst and foremost social responsibility of business is economic in nature. It has a responsibility to produce goods and services that society wants and to sell them at a proft.

*The propor˜ons suggest rela˜ve magnitude

Figure 2.1 Carroll’s CSR defnition

The historical antecedents of CR and SD

PHILOSOPHY OF SOCIAL RESPONSIVENESS

23

Proacˇon

Accommodaˇon

Defense Reacˇon Discreˇonary Responsibiliˇes

Ethical Responsibiliˇes

TOTAL SOCIAL RESPONSIBILITIES

Legal Responsibiliˇes

Economic Responsibiliˇes

Consumerism

Environment Discriminaˇon

Product Safety

Occupaˇonal Safety

Shareholders

SOCIAL ISSUES INVOLVED

Figure 2.2 Carroll’s corporate social performance model

its CSR activities. He then proposed a related CSP model (Figure  2.2) that addressed two further dimensions: the social areas a corporation might have a responsibility for, including the consumer, environment, employee discrimination, product safety, occupational safety, and the shareholders, as well as a measure of the frm’s philosophy of responsiveness to those social issues. This latter dimension recognises that although management may believe their frm has a particular social responsibility, there remains a variety of approaches that they might take in regards to dealing with their actions. Such responses range from reacting only when required (e.g. by law or regulation) to initiating a proactive approach that could avoid any negative consequences of acting irresponsibly. The introduction of the concept of CSP manifested itself throughout industry in the 1980s, eventually resulting in the investigation of the infuence that CSR might have on the fnancial performance of the frm (CFP). The impact of social or environmental behaviour on the proftability of the frm became a popular topic for researchers, and empirical evidence began to emerge towards the end of that decade. However, in those early years it became clear that although measuring the level of a frm’s proftability was relatively straightforward, developing valid measures of CSR was not. Even to this day, the CSR-CFP relationship remains uncertain, and diverse opinions exist on the merits and detriments of CSR activities to a frm’s fnancial performance. Around this same period, the concept of sustainable development as an extension of the frm’s corporate responsibility began to emerge. Driven by the work of the United Nations, beginning with its Conference on the Human Environment in 1972 and its subsequent establishment of the Brundtland

24 Contextualisation

Commission in 1983, a more modern and simplifed defnition of the term ‘sustainable development’ was introduced in the report issued by the commission (Brundtland Report, 1987, p. 37): ‘Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’10 The report provided guidance for institutions and corporations in recognising that their actions should address the needs of society, especially those in the world’s poorest regions, as well as the limited ability of the natural environment to meet those needs given the current state of technology and society. Their sustainable development concept requires the progressive transformation of economies. For those that are market-oriented, businesses must be willing to adopt a people, proft, planet approach to their activities. This added emphasis on the impact of business on the natural environment made it more difcult to use the term CSR for addressing responsible business activities in their entirety. In fact, throughout the remainder of the 20th century and the frst two decades of the 21st, CSR was seen to encompass a number of corporate responsibilities such as occupational health and safety, employment equity, ethics, human rights, corporate governance, and sustainability. Add to this the corporate responsibility of the economic sustainability of the frm itself, and we fnd that the use of the term CSR may be too narrow and that it is better identifed, as is the concept of sustainability, as a subset of the concept of corporate responsibility. We will discuss this in greater detail in Chapter 4.

Insight 2.2

The Siemens Afair of 1914

Twenty-two years after the death of its founder, a scandal emerged at the opposite end of the world from Siemens’ headquarters in Berlin. In the year between 1913 and 1914, having defeated Russia a decade earlier in a war over occupation of parts of China and Korea, Japan was continuing to build its naval strength in the region. Siemens had expanded its business to include military equipment sales and had developed strong relationships with the Japanese navy, resulting in a dominant position when it came to being awarded contracts. In January of 1914 it was revealed that top-ranking naval ofcers had been receiving bribes from Siemens in return for securing contracts to supply the Japanese navy. A former Tokyo-based employee of Siemens, Karl Richter, had been put on trial for stealing confdential documents from the company and attempting to bribe Siemens into paying up for the return of these documents. These documents contained information implicating senior ofcials of Siemens of paying high-ranking Japanese naval ofcers in return for accepting company bids on naval projects. The initial charges against Richter came about when a British competitor, Vickers, was willing to provide a larger bribe amount, and Siemens had requested its Tokyo ofce to seek more

The historical antecedents of CR and SD

25

information about its competitor’s actions in Japan. This allowed Richter access to that information and the ability to return to Germany to undertake his own bribery of the company. The German press coverage of the Richter trial was taken up by the Japanese press, which revealed Siemens’ bribery activities resulted in a political scandal for the incumbent government. Public displeasure led to the resignation of the Japanese prime minister and his cabinet and the imprisonment of those responsible within the navy. Both Siemens and Vickers were fned and became ineligible for future bidding of contracts.11 The receipt of bribes was not an uncommon practice in Japan at that time, but discontent about the amount of funding that the military was receiving at a cost to other social needs was motivation for exposing the bribes, with the resulting political aftermath. The United Kingdom had anti-corruption laws in place, meaning that Vickers as a British frm had been acting illegally. However, payment of bribes to foreign ofcials by German companies was not illegal, and that remained the case until 1997.12 Ironically, the contribution that Siemens made to the expansion of Japanese naval strength in the Asia Pacifc region leading up to 1914 was used against Germany when Japan declared war in August of 1914. This declaration resulted in the seizing of German assets in China and German Micronesia (a collection of Pacifc islands and parts of New Guinea) by the Japanese navy that remained held by Japan until the end of the Second World War.

Stakeholder theory As CSR became more recognised in the 1980s, there were those who remained critical of the concept due mostly to the lack of social responsibility theory development that would help clarify why frms would ever consider undertaking socially responsible initiatives. One such critic, Arieh Ullmann (1985), introduced the idea that social responsibility could be part of the strategic framework of the frm if it were to follow the stakeholder management theory put forward by Freeman (1984).13 This theory addressed the role and importance of working with key stakeholders in a frm’s business (e.g. customers, employees, suppliers, shareholders, creditors, government, non-governmental organisations) to optimise collaboration and successful strategy implementation. The theory emphasised moving the thinking of the frm from one of unilateralism to a decision-making process that considered the balancing of difering demands of stakeholders. In circumstances where CSR activities can encourage stakeholders to contribute to achieving the strategic goals of the frm, the importance of those activities becomes clearer. Ullman presented a three-dimensional model that (1) integrated the infuence of stakeholders as determined by their control of resources required to implement the frm’s strategy, (2) identifed the strategic posture of the frm, either through specifc

26 Contextualisation

Shareholders Shareholder Objec˜ves

(may include addressing social and environmental issues)

Economic Performance

Ac˜ve

CSR Ac˜vi˜es

Business Strategy Formula˜on

Management

Business Strategy Implementa˜on

Social and Environmental Issues Passive

Creditors

Government

Employees

NGOs

Suppliers

Community

Customers

Media

Stakeholder Posturing

Stakeholder Power

Figure 2.3 Stakeholder-centric framework for corporately responsible strategy formulation and implementation Source: adapted from Ullman, 1985. Ullmann, A. A. (1985). Data in search of a theory: A  critical examination of the relationships among social performance, social disclosure, and economic performance of US frms. Academy of Management Review, 10(3), 540–557.

CSR actions (active) or not (passive), in responding to the social demands of key stakeholders, and (3) considered the frm’s past and present fnancial performance to determine its ability to aford undertaking CSR activities. Figure  2.3 adapts Ullman’s model by organising each of the dimensions within a process diagram that refects how a stakeholder-centric strategic framework would work. Management of the frm is given the mandate by shareholders (using the board of directors as their proxy) to formulate and execute strategies that would meet their objectives in the shorter and longer term. This would typically involve maximising shareholder value and could include addressing social and environmental issues. Stakeholder theory suggests that management consider other stakeholder demands, in this case those related to social and environmental issues, and how they might be balanced with those of the shareholders in formulating strategy. Management would consider the relative power that each stakeholder possesses, for example customers may not purchase products that are seen to be damaging to the environment, when determining that balance. The economic performance of the frm and the extent to which certain social and environmental issues can be fnancially justifed will infuence management’s choice of responsible business strategies and whether the mode of response therefore will be active or passive. An active response would see the inclusion and promotion of CSR activities in implementing a frm’s business strategy while the passive decision would result in no attempts to consider or

The historical antecedents of CR and SD

27

monitor the social and environmental issues of stakeholders when implementing a business strategy. Recently, an extension of the stakeholder perspective was introduced by Mason and Simmons (2014) as a result of continued concerns around the ineffcacy of corporate governance in meeting stakeholder expectations.14 Corporate governance considers the roles and relationships that exist between a frm’s stakeholders as infuenced by various corporate, market, and regulatory mechanisms. Their systems approach is meant to balance efectiveness and equity expectations of stakeholders and the application of CSR. In doing so, three specifc attributes apply: the descriptive identifcation of stakeholder expectations of the frm, the frm’s response to these expectations, and the implications of both; being instrumental in describing how efectively managing stakeholder expectations can improve the frm’s reputation, efciency, and efectiveness; and taking a normative approach to measuring the satisfaction of stakeholders with a frm’s CSR activities. As highlighted in Figure 2.4, the systems model determines the relevant stakeholders’ claims and agendas, in much the same way that Ullman’s earlier model does, and the frm’s board of directors (acting on behalf of the shareholders) decides on the importance of those claims and the respective expectations. From that decision the frm’s CSR philosophy and strategy is determined, allowing stakeholders to develop their perception of whether the frm has employed an equitable method for determining which stakeholder group’s claims need to be addressed (procedural justice). Flowing out of the frm’s decision is the application of processes and operations to implement CSR strategies. This can be done by using existing systems, for example HR systems or TQM (total quality management) systems (hard wiring), and/or by encouraging a CSR culture (soft wiring), for example establishing organisational norms that promote health and safety. Monitoring these processes and operations can take place through stakeholder relations allowing for the opportunity to perceive whether stakeholder groups are being treated fairly and equitably (interactional justice). Finally, stakeholder evaluation can take place to identify if a frm has been fair in its distribution of resources key to meeting CSR strategies (distributive justice). A cumulative evaluation of a frm’s CSR eforts can then be undertaken on fve key measures: efciency, efectiveness, equity, environmental impact, and external reputation. The combined results of the stakeholder group evaluations and the cumulative frm evaluation can then be used in a feedback loop to inform the system’s efcacy in satisfying the claims and expectations of the various stakeholder groups.

Globalisation It may have become obvious earlier in this chapter that the literature on the responsibility of the corporation, whether it be referred to as social responsibility, corporate social responsibility, or corporate responsibility, has had an American-centric view. Crane et al. (2013, p. 17) claimed, ‘In its most wellknown guise, CSR is essentially an American idea.’15 They point to the origins

• •

•

• • • •

Cost beneft assessment Appropriate ROI Greater innova˜on Increased customer revenue, loyalty, and advocacy Increased employee a˛rac˜on, reten˜on, and advocacy Reputa˜onal benefts Vicarious evalua˜on of the frm’s wider CSR prac˜ce

Investor Evalua˜on

Revenue increase Cost reduc˜on Improved brand value Customer a°rac˜on Employee a°rac˜on Enhanced image

Investor Expecta˜ons

•

• •

• • • • Fulflling work Job security Involved in decision making Commensurate and compe˜˜ve reward Equitable treatment Development opportuni˜es

Employee Expecta˜ons

Employee Rela˜ons

Employee Evalua˜on

Fulflling work Job security Involved in decision making Commensurate and compe˜˜ve reward Equitable treatment Development opportuni˜es

Source: adapted from Mason and Simmons, 2014

CSR – Cumula˜ve Firm Evalua˜on

• •

• • • •

• • • • •

Commitment to industry, na˜onal, & interna˜onal standards Comprehensive and ˜mely disclosure Sustainable resources u˜liza˜on Voice Considera˜on of the social and natural environment

Community & Environmental Evalua˜on

Eÿciency – incorpora˜on of CSR principles and standards in management control and performance management systems E˙ec˜veness – overall (quan˜ta˜ve and qualita˜ve) cost beneft analysis of CSR within an appropriate ˜me frame Equity – CSR stakeholder percep˜ons of appropriate power, scope, and jus˜ce Environmental Impact – demonstrable sustainability in resource acquisi˜on and u˜liza˜on External Reputa˜on – alignment with relevant standards and enhancement of ethical capital across stakeholder groups

Func˜onal, emo˜onal, and social benefts of CSR infused products, services, and supply chains

Customer and Supplier Evalua˜on

Commitment to industry, na˜onal, & interna˜onal standards Comprehensive and ˜mely disclosure Sustainable resources u˜liza˜on Voice Considera˜on of the social and natural environment

Community & Environmental Expecta˜ons

• • • • •

Community Rela˜ons

So˝ wiring (culture)

CSR – Outcomes and Repor˜ng

Customer Rela˜ons

Hard wiring (systems)

CSR Processes and Opera˜ons

CSR – Firm Philosophy and Strategy

Func˜onal, emo˜onal, and social benefts of CSR infused products, services, and supply chains

Investor Rela˜ons

•

Customer and Supplier Expecta˜ons

Figure 2.4 Stakeholder systems approach to CSR

• • • • • •

Board of Directors Decisions on Stakeholder Saliency

Stakeholder Claims and Agendas

Stakeholder Percep˜ons of Distribu˜ve Jus˜ce

Stakeholder Percep˜ons of Interac˜onal Jus˜ce

Stakeholder Percep˜ons of Procedural Jus˜ce

28 Contextualisation

The historical antecedents of CR and SD

29

of the practice of CSR and the language that defnes it as frst emerging in the United States, principally because the American business system generally encouraged markets free of regulation and the fostering of individual accomplishments while discouraging welfare systems. Accordingly, individual and then corporate philanthropy (as discussed earlier in this chapter), and other socially responsible actions such as company-funded healthcare programmes, worker education, and investment in the local community, were characteristic of CSR in the US. In other parts of the globe such as Canada, Europe, and Australia the existence of government regulation and policies to address social issues has kept the responsibility out of the minds of domestic corporations and put it frmly in the hands of government agencies. Companies in Asian countries are typically part of larger business networks with strong interrelationships and cross-ownership positions such as in Japan (Keiretsu) and South Korea (Chaebol), and this has traditionally institutionalised CSR because of their history of patriarchy and longer-term employment of their workers. Global variations in approaches to CSR is grounded in the political economy theory where political and economic institutions can difer across nations and therefore the way in which domestic corporations treat their stakeholders can vary.

Insight 2.3

The Siemens Afair of 2006

The lack of any anti-corruption laws in Germany related to bribery of foreign ofcials contributed to a second, more modern scandal concerning the business activities of Siemens. Although the company had publicly maintained an anti-corruption stance, it had been exploiting the legality of bribery since the Second World War to arrange signifcant bribes for corrupt ofcials in governments looking to award contracts for telecommunications equipment. Prior to 1999, German law permitted bribes of foreign ofcials and the ability to write of such expenses against a company’s taxable income. As a result of the 1997 OECD Convention on Combating Bribery, Germany eventually revised its laws to make that practice illegal for German companies. Siemens introduced corporate policy in 2000 that required all operating groups to include an anti-corruption clause in all contracts with third parties, efectively directing employees to not involve themselves in transactions that would directly or indirectly provide an unjustifed advantage to that party. However, in 2008, it was reported that from 2001 until 2007 Siemens paid $1.4 billion US, $800 million US of which was from the telecommunications unit, in illegal payments.16 An investigation found that among these payments, Siemens had paid approximately $40 million to Argentinian ofcials to win a $1 billion contract. Other countries involved included Nigeria, Venezuela, China, Israel, and Iraq. Complex fnancial transactions using anonymous bank accounts in Liechtenstein and Switzerland were organised by managers at Siemens to funnel funds into ofshore

30 Contextualisation

accounts in Dubai and the British Virgin Islands. In order to be successful in obtaining a contract, the company would hire outside consultants with known relationships to high-ranking government ofcials to arrange for Siemens’ bid to be approved. The consultants would deliver the cash payments to the ofcials and in return would receive a fee for their services. Upon completion of an investigation by German and US authorities, Siemens agreed in 2008 to an out of court settlement and the payment of fnes totalling $2.6 billion US. The company’s CEO, Klaus Kleinfeld, who had resigned a year earlier, had been appointed the head of Alcoa, one of the world’s largest producers of aluminium, where he remained until 2016. In 2018 he was appointed as an advisor to the royal family of Saudi Arabia in order to assist with the economic, technological, and fnancial development of Saudi Arabia.17 In addressing these global diferences, the concept of North vs. South has been commonly used to describe the developed nations and developing nations respectively, with the northern hemisphere comprising most of the advanced economies and the opposite being true for the southern hemisphere. Many of today’s largest MNCs were founded in the North. In 2019, Forbes magazine published its annual Global 2000 list in which it ranks the world’s largest publicly traded corporations using a mix of revenue, proft, total assets, and market value. As can be seen in Table 2.1, China has the most companies in the top ten list and the United States the second most. Altogether the US is host to the greatest number of companies on the list with 575 companies, while China (including Hong Kong) continues to rise on the list with 309 companies, an increase of 18 companies from the year before. Rounding out the top ten

Table 2.1 2019 top ten companies in the Forbes Global 2000* Rank

Company

Country

Assets ($ Bil.)

Revenues ($ Bil.)

Profts ($ Bil.)

Market Value ($ Bil.)

1 2 3 4 5 6 7 8 9 10

ICBC JPMorgan Chase China Construction Bank Agricultural Bank of China Bank of America Apple Ping An Insurance Group Bank of China Royal Dutch Shell Wells Fargo

China US China China US US China China Netherlands US

4,035 2,737 3,382 3,293 2,377 374 1,038 3,098 399 1,888

176 133 150 138 112 262 152 127 383 102

45 33 39 31 29 59 16 28 23 23

305 369 225 197 287 961 220 143 265 215

Source: Forbes April 2019

*

The historical antecedents of CR and SD

31

Table 2.2 Comparison of top fve economies in each hemisphere Country

% of Global Economy

Largest Non-ServiceSector Company

Sector

North 1 2 3 4 5

US China Japan Germany United Kingdom

23.89 15.86 5.79 4.65 3.29

Walmart PetroChina Toyota Volkswagen BP

Retail Oil & Gas Automotive Automotive Oil & Gas

South 1 2 3 4 5

Brazil Australia Indonesia Saudi Arabia Argentina

Petrobras BHP Pertamina Saudi Aramco YPF

Oil & Gas Mining Oil & Gas Oil & Gas Oil & Gas

2.18 1.67 1.21 0.91 0.60

Source: World Bank 2018, Fortune Global 500, and Forbes Global 2000 Note: World Bank 2018 excludes Financial Services and Banking

countries with companies on the list are Japan (223), United Kingdom (81), South Korea (62), France and India (57), Canada (56), Germany (53), and Taiwan (47). All of these countries arguably are located above the equator, although countries like China and India remain seen as developing economies. The frst southern hemisphere company to make the list is Brazil’s Petrobras, an integrated oil and gas company. The southern hemisphere economies are dwarfed when compared to the northern, as can be seen in Table 2.2, where the top fve in each hemisphere is compared. When excluding service industry companies, for example fnancial institutions, the dominant industry sectors within the top fve economies in the southern hemisphere are all resource related. Furthermore, for China, Brazil, Indonesia, Saudi Arabia, and Argentina, their largest non-service-sector companies are wholly government-owned or -controlled resource companies which do not have the same exposure to shareholder infuences on their corporately responsible actions as do publicly traded companies such as Walmart, Toyota, Volkswagen, or BP. For sovereign corporations, the infuence for behaving more responsibly rests with the governments of the jurisdictions in which they are based, and those governments in turn can be infuenced by their global trading partners. This integration of social, political, and economic actors presents opportunities and risks for business, and the globalisation of business therefore has a signifcant role to play in promoting corporate responsibility and sustainable development across borders. International business relationships now involve global investors who can infuence large MNCs undertaking activities in collaboration with government-owned businesses in developing countries. The rise of social activism and the role that non-governmental organisations (NGOs) are playing as global oversight bodies to monitor and evaluate corporate and governmental activities further allow for third-party identifcation of problem areas. Finally, the expansion of media outlets, including social media,

32 Contextualisation

has increased the level of exposure that corporations and governments are faced with. Accordingly, MNCs and certain sovereign companies have been engaging in activities in developing countries that would traditionally be thought of as the responsibility of local and federal government. These companies see these environmental and social activities as their social licence to operate within those countries where there is an absence of state-run institutions. Corporate contributions to healthcare, education, security, and human rights provides stability to local society and improves the conditions for doing business. However, it needs to be recognised that, regardless of the integration that globalisation ofers, distinct domestic views on corporate responsibility and sustainability remain. For example, countries like Canada, Australia, and South Africa, whose development by European colonial powers had historically ignored social issues related to the rights of indigenous peoples, are to this day focusing their corporate responsibility debate in that particular area, whereas European countries have put a greater emphasis on the sustainability of the natural environment. In Asia, the topic of governance and transparency by government and large corporations is the more signifcant issue of the day. Both of these topics will be addressed in later chapters, but the diference in regional foci presents a signifcant challenge for frms operating in an ever-expanding global economy. The Organisation for Economic Co-operation and Development (OECD) developed guidelines for multinational enterprises to provide guidance for operating responsibly in a global context. Contained within these guidelines are principles, albeit non-binding, and standards consistent with globally recognised standards and laws. Figure 2.5 illustrates the guiding

Abstain from involvement in local poli˜cs

Interna˜onally recognized human rights

Local capacity building and enterprise development

Engage relevant stakeholders

Encourage business partners and suppliers to be responsible

Comply to statutory or regulatory frameworks Contribute to economic, environmental, and social progress with a view to achieving sustainable development

Carry out risk-based due diligence

Protect whistleblowing employees

Human capital forma˜on (employment and training)

Uphold good corporate governance principles

E°ec˜ve selfregulatory prac˜ces

Support internet freedom and expression (Encouraged)

Responsible supply chain management (Encouraged)

Compliance of corporate policies by employees

Figure 2.5 Sustainable policies for multinational enterprises operating globally Source: adapted from OECD Guidelines for Multinational Enterprises, 2011

The historical antecedents of CR and SD

33

policies that the OECD recommends should be adopted or encouraged by multinational frms in conducting their activities. The guidelines were developed and agreed to by governments to inform these frms, and while obeyance of domestic laws is the prime directive, multinational enterprises are encouraged to adopt these principles and standards to the extent that they are not in direct violation of a country’s laws and regulations.

Insight 2.4 Siemens AG Today: is it still proft before people and planet? Siemens remains an admired company for its actions in contributing to the sustainability of the planet as part of its overall business strategy. The company continues to be frmly established in its home country of Germany where it generates 30% of its total revenues, but it also operates in every region around the world employing approximately 385,000 people and earning annual revenues exceeding €76 billion across six major business segments: Gas and Power, Smart Infrastructure, Digital Industries, Siemens Mobility, Siemens Gamesa Renewable Energy, and Siemens Healthineers.18 Integrating sustainability within their strategy has resulted in the company choosing to utilise the United Nation’s 17 Sustainable Development Goals (SDGs) as their measure of impact. They identify fve goals where they believe they are making a high impact, and six goals where their impact is deemed be moderate (see Figure 2.6). This impact falls into four distinct areas, the frst of which is through their products and solutions that contribute to sustainable development. For Siemens, their history of technology development in the feld of energy, for example, has beneftted the company as the world becomes more sensitive to the environmental damage of economic growth and the related consumption of energy generated from fossil fuels. Energy projects and related infrastructure have been signifcant business opportunities for the company. The second area of impact is Siemens responsibly operating their business, which as history has shown was not always the case. Third, the company believes its expertise and thought leadership has an impact on certain SDGs and, given their size and scope of operations around the world, it would be expected that they have infuence with major governmental decision makers. Finally, they highlight the impact the company has through its corporate citizenship activities and stakeholder engagement in the communities in which it operates, a necessity for creating social legitimacy among those directly impacted by Siemens’ projects. In early 2020, the company was put to a signifcant test of its commitment to its sustainability principles. They entered into a contract with India’s Adani group, which is developing an open-pit coal mine in Queensland, Australia. Siemens’ mobile division is to provide rail signalling technology worth $30  million, and

34 Contextualisation High Impact Health technology products; health and safety programs; community health campaigns

Energy technology products; internal energy eÿciency programs; CO2 neutral program

Infrastructure products; small and medium enterprise partnerships

Medium Impact Employee educaon; partner with educaon instuons; promote STEM subjects

Promote gender diversity in hiring pracces at all levels of the organizaon

Commi…ed to providing decent jobs and enabling employment; decoupling economic growth from energy usage

Responsible use of resources; acknowledges opportunies associated with a circular economy Infrastructure products for city clients; intelligent transport soluons, eÿcient and safe buildings; smart cies

First global industrial player to target CO2 neutral in all its operaons by 2030

Siemens Integrity Iniave; support fair compeon; commi…ed to UN Global Compact, and other supply chain regulaon

Recognize importance of digitalizaon, fnancing, and public-private partnerships for sustainable development

Figure 2.6 Siemens’ impact contribution to the UN Sustainable Development Goals

though Siemens CEO, Joe Kaeser, was reported to have said, ‘we should have been wiser about this project’, the company will continue with the contract because ‘we need to be a supplier who sticks to its commitments’.19 At a time when massive fres were taking place across a droughtridden Australia, this business decision was seen to be in confict with the company’s commitment to the UN SDGs. Given the relatively minor amount that this contract represented, the symbolic nature of the decision could have greater costs associated with it. However, the coal mine was being developed by an Indian conglomerate whose power business subsidiary was one of India’s largest private coal-fred power generators.

The historical antecedents of CR and SD

35

And with coal still forecasted to fuel India’s economic growth,20 the project was an important development for the supply of coal to the country. While protests against Siemens carried through to its annual meeting on 5 February  2020, the response from Kaeser was ‘it is almost grotesque, that a signalling project in Australia became a target for activists’.21 Certain signifcant investors, however, were less than enamoured with one portfolio manager stating, ‘the Adani case was a communications disaster’, and another said the ‘incomprehensible’ decision was ‘threatening to cause massive damage’ to the company’s image.22 Even Siemens chairman, Jim Snabe, opened the meeting by admitting, ‘business must fundamentally reinvent itself ’ and ‘pay more attention to the environmental impact of investment decisions’.23 While Siemens felt that the size of the contract did not warrant the level of criticism levelled at the company, it did raise the issue that, as one protester suggested, Siemens CEO’s ‘understanding of corporate responsibility is stuck in the last century’.24

Transparency The past 30 years has seen societal pressure lead to increased transparency of the corporately responsible actions of the frm. Many major corporations now publish annual sustainability reports and partake in some form of ESG (environment, social, governance) reporting. We will address sustainability reporting in greater detail in Chapter 8, however it is important to understand the prevailing mindset that exists regarding voluntary reporting and the actual business objectives of the frm. In their 2019 paper, Alvise Favotto and Kelly Kollman addressed the argument that transparency for alignment of corporate policies with CSR commitments is the answer to the future efectiveness and legitimacy of the corporately responsible actions of the frm. They sought to examine if any diferences existed between a company’s lobby activities and that frm’s reporting of their corporately responsible activities.25 Their investigation of European and American companies over an 18-year period suggested that corporations are becoming more transparent about their lobbying eforts as part of their responsibility reporting, but that the majority still do so as a formality, perhaps driven by concerns on their part for maintaining a certain level of social legitimacy and to defect concern from the public that corporations still infuence public policy. Of particular interest was their fnding that of all corporately responsible actions, the greatest disclosure was associated with their lobbying on climate change.

Chapter insight questions 1

How did Siemens’ early approach to corporate responsibility contrast with the prevailing societal approach to industry responsibility?

36 Contextualisation

2 3

4

What pressures existed for Siemens to behave unethically? Using the stakeholder-centric framework for corporately responsible strategy formulation and implementation, how has Siemens been able to exploit the opportunities provided by the move towards a more sustainable society? Go online to view Siemens’ latest corporate responsibility and sustainability report and identify which of the OECD Guidelines for Multinational Enterprises they are following.

Notes 1 Literally someone who rakes up manure, but the term is used to identify those who dug deep into an issue. 2 A quote from the editors of Fortune magazine in 1951 describing American business practices at the turn of the 20th century – from Heald (1957, p. 376). 3 Heald, M. (1957). Management’s responsibility to society: The growth of an idea. Business History Review, 31(4), 375–384. 4 Retrieved March 2, 2021, from https://new.siemens.com/global/en/company/about/ history/news/the-year-is-1847.html 5 Retrieved March 2, 2021, from www.greentalents.de/siemens-ag.php 6 Barnard, C. I. (1958). Elementary conditions of business morals. California Management Review, 1(1), 1–13. 7 Davis, K. 1960. Can business aford to ignore social responsibilities? California Management Review, 2(Spring), 70–76. 8 Grant, R., Jordan, J.,  & Walsh, P. R. (2015). Foundations of strategy (Canadian ed.). Toronto, Ontario: Wiley. 9 Carroll, A. (2008). A history of corporate social responsibility: Concepts and practices. In The Oxford handbook of corporate social responsibility. Oxford: Oxford University Press. 10 Brundtland, G. (1987). Report of the World Commission on environment and development: Our common future. United Nations General Assembly document A/42/427. Retrieved from https://sustainabledevelopment.un.org/content/documents/5987our-commonfuture.pdf 11 Mitchell, R. H. (1996). Political bribery in Japan. Hawaii: University of Hawaii Press. 12 Dougherty, C. (2007). Germany takes aim at corporate corruption - Business - International Herald Tribune. Retrieved from www.nytimes.com/2007/02/14/business/worldbusiness/14ihtscandal.4596099.html 13 Ullmann, A. A. (1985). Data in search of a theory: A critical examination of the relationships among social performance, social disclosure, and economic performance of US frms. Academy of Management Review, 10(3), 540–557. 14 Mason, C., & Simmons, J. (2014). Embedding corporate social responsibility in corporate governance: A stakeholder systems approach. Journal of Business Ethics, 119(1), 77–86. 15 Crane, A., Matten, D., & Spence, L. J. (2013). Corporate social responsibility in a global context. In Crane, A., Matten, D., & Spence, L. J. (Eds.), Corporate social responsibility: Readings and cases in a global context (2nd ed., pp. 3–26). Abingdon: Routledge. 16 Schubert, S., & Miller, T. C. (2008, December 20). At Siemens, bribery was just a line item. NY Times. 17 Arab News. (2018, July 3). Klaus Kleinfeld named adviser to Saudi crown prince, NEOM appoints new CEO. 18 Siemens 2019 Annual Report.

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19 BBC News. (2020, January  13). Siemens resists climate protests over Australia coal project. 20 International Energy Agency 2019 Report on Coal. 21 Miller, J. (2020, February 5). Siemens chief lashes out at ‘grotesque’ environmental protests. Financial Times. 22 Ibid. 23 Ibid. 24 Ibid. 25 Favotto, A., & Kollman, K. (2019). Mixing business with politics: Does corporate social responsibility end where lobbying transparency begins? In Regulation & governance. New York: Wiley.

Part II

Perspectives on social change

3

Society and development

Introduction This chapter examines the transformation of social life as a developmental process. Transformation here refers to the pattern of societal development, of increasing social complexity, which is more efective at extracting and more creative and productive in transforming natural resources for societal purposes. Societal development is a process of social change carried out voluntarily between individuals and groups, using all manner of technologies and strategies. This examination requires understanding modern society’s relationship with the natural world, the supposed evolutionary pattern of social change towards industrialisation, and modern perspectives on societal development. First, we need to briefy refect on the meaning of society, in terms of the slipperiness of its macro-sociological scope, in how it overlaps with similar terms (nation state and the polity), and in terms of the dynamics of its microfoundations and the nature of the glue that binds people together in solidarity. The notion of society should not be casually confated with two other notions: the nation state and the polity. To speak of North American society, European society, African society, or Asian society is to infer some loosely defned geographical space, comprising populations that are distinctive from each other and yet conjoined culturally, politically, economically, socially, and linguistically. Society is not another word for the nation state. Even the notion of a nation state is problematical as there are more nations than legal states, with populations spread across nation states, creating a diaspora of nations.1 The diaspora can also maintain intergenerational links, as migrating families maintain links with those left behind or even retain allegiances to their country of birth. In addition, individual nation states are home to citizens, so-called illegals (recent immigrants and their ofspring), and multiple ethnic groups. The population of some nation states have remained relatively homogeneous, ethnically, through thousands of years (e.g. Japan, China) of isolation (culturally, politically, economically, linguistically), while the population of other nation states are relatively heterogeneous, as most citizens can trace their descendants as being immigrants from around the world, arriving over the last 200–300 years (i.e. the Americas comprising some 55 countries and dependent territories). The polities of individual states and nations may have difering

42 Perspectives on social change

traditions, religious infuence, forms of governance, and authority structures, yet each remains internally coherent with enforceable rules of behaviour. Further, polities (whether defned as the political state or civil society) are always developing and deepening political, economic, social, and technological linkages with global networks (e.g. the European Union). The confuence of diaspora (nations straddling state boundaries) and of polities (overlapping states) generates common ambitions but also confict (e.g. ethnic, religious, whether long established or recent immigrants). These observations suggest that the societal in any discourse about development is a subject of analysis and should not to be taken for granted as implying congruence (cultural, political, economic, social) among people sharing a given geographical space. Similarly, the spatial and temporal reach of social institutions is a subject of analysis and not presumption.2 Nevertheless, where it suits our purpose, we may confate the terms society and nation state, for example by referring to citizens (a property of the nation state) rather than this or that ethnic group (a property of society) and rights (a universal property). The notion of solidarity is important because it varies with societies. Developing societies (or economies) may be based more on kinship and shared values, while developed societies (or economies) may be more self-conscious about their own social cohesion and its maintenance. Durkheim regards the development of societies and their maintenance of social cohesion as correlating with two types of solidarity, mechanical and organic.3 Pre-industrial societies have tended towards mechanistic solidarity being somewhat homogenous, with small-scale, less-connected communities, more rural than urban, where people thought and acted alike. More complex modern (industrialised) societies tend towards organic solidarity, where social cohesion is characterised by specialisation and interdependence. Durkheim’s distinctions may be criticised as implying moral progress, and they have been criticised as focusing only on structural factors, ignoring inter-subjective factors of social integration.4 Thijssen argues that both forms of solidarity exist and are important in (modern) societies. He concludes that mechanistic solidarity depends on both a group-based conscience (instinct) and compassion, while organic solidarity is a product of both instrumental reasoning and empathy. Moral progress under mechanical solidarity involves a synthesis of ‘state-induced moral individualism’ (individuals aware of their individuality) and ‘struggles for more inclusive communities’, while in organic solidarity moral progress involves an ‘internalised universalistic tendency toward collective conscience, and individual emotional recognition of the needs of other individuals’.5 Kropotkin is critical of the argument that societies are supposedly characterised by individual competition (i.e. classical Darwinism).6 For him this overlooks that throughout human history, social institutions have been fundamental to the development of societies, and that these social institutions work through mutual support and cooperation rather than from any individual expectation of reward. He argues that the historical record of social institutions shows this tendency towards cooperation is an innate human behaviour.7

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43

The rest of this chapter is divided into four sections. First ‘Socio-ecological Systems’ examines society’s relationship with the biophysical world, highlighting the way in which humanity’s needs are intertwined with the ebb and fow of the ecological system. Human impact on, and adaptation to, the ecological environment has become one of the central concerns of our time and is likely to remain so for a long time into the future. Society is further explored as diverse socio-cultural systems that have evolved over the last quarter millennium through difering levels of development. Regardless of their level of development, societies are constituted of interlinked factors of culture, technology, social organisation, and institutional systems. These factors generate particular kinship relations, ideological and religious beliefs, political systems, and ideas about education and human development. Among these underlying factors, the use of technology emerges as signifcant in enabling economic development. The second section ‘Theories of Development’, summarises key ideas, including modernisation, sustainable development, and others. Most of these theories concern ways in which the less developed economies might grow their economies, while improving social welfare for their citizenry. The third section, ‘Development and technology’, explores some of the ways in which securing continual improvement in societal living standards is bound up with the development of efective technological knowledge and strategies, in conjunction with enabling social, economic, and political institutions. The last section focuses on ‘Industrialisation’, and in particular the challenges of urbanisation, attended by environmental degradation, and urban poverty and socio-economic inequality and informal settlements.

Socio-ecological systems Human societies, and their constituent communities, exist within a biophysical world (Earth), upon which they depend for all their material needs (food, fuel, shelter). The natural resources within a community’s ecological environment bestows particular developmental opportunities, while absence of adequate resources presents survival challenges. Whether societies struggle to survive or fourish also depends on the climatic conditions in which they fnd themselves: whether mild and predictable, or extremes of hot and cold, with diverse landscapes somewhere between dry and wet, arid and fertile, mountainous and fat. Populations survive or fourish in these diverse ecological conditions as they learn and develop adaptive skills and technologies; diverse ways of organising their communities; particular social and economic valuations of resources, for example in precious materials, costing labour, and trade relations. Over time social and technological approaches have become established cultural traditions. These elemental features give rise to particular kinship relations, social and political institutions, modes of production, distribution, and exchange of goods, ideas about education, and religious beliefs.8 For a quarter of a millennium, human communities have met their need for energy, food, and water by exploiting their natural resources and have done so within the carrying capacity of the biophysical world. In this, traditional or

44 Perspectives on social change

pre-industrial societies accomplished work through using physical resources, both human and animal. Until the last 200–300  years, periodic pandemics (plague, black death, yellow fever, cholera, small pox, fu) and inter-communal confict and wars seem to have played a part in a gradual rise in the human population. Over time human inventiveness has developed, bringing mental resources (intelligence and creativity) to the fore. Whereas in pre-industrial societies physical resources imposed limits on the development capacity for societies, there are no inherent limits to mental resources. The European Age of Enlightenment of the 17th and 18th centuries has been fundamental to societal development, emphasising reason and rationality over tradition and mysticism as the basis for knowledge, fostering scientifc developments, the separation of state and church, constitutional government, and ideas about liberty and progress.9 However, while the Enlightenment may have ushered in advances in medicine and improvements in mortality, the Industrial Revolution, and a focus on economic growth and social welfare, there are also ongoing social and environmental costs which continue to plague societal development, as refected in the Sustainable Development Goals. Socio-ecological systems theory helps analyse the interdependent relationship between the biophysical world and social systems.10 Socio-cultural systems theory (or ecological-evolutionary systems theory) similarly highlights that ‘human societies are part of the global ecosystem and cannot be.  .  . understood unless.  .  . taken into account’11 and that societies change and develop as a process of adaptation to the natural environment. Societal survival and development depends on several variables: not breeching biophysical limits; both the resilience and the sustainability of human action, and a capacity to transform in the face of environmental changes (including responses to human action, such as global warming); as well as intra- and inter-societal adaptive changes.12 The capacity and prospects for systemic change of our biophysical world, whether gradual or dramatic, depends on the strength of connectedness within the biophysical system and on the inherent potential of the system for promoting change.13 Further, understanding socio-ecological system evolution as processes of self-organisation, emergent behaviour, non-linearity, and inter-scalar feedback loops raises the need to think about assessments of system robustness,14 of adaptive governance and institutional learning,15 for example in terms of the biophysical system’s vulnerability, tipping points, and critical thresholds. Further, evaluation of socio-cultural systems highlights divergent structural assumptions and contextual perspectives, including bidirectional infuences between the social and ecological and between anthropocentric and ecocentric systems.16 Hardin17 argued that in the absence of government regulation, users of commonly held natural resources cannot be relied on to self-organise in order to sustain common resources, leading to overuse and exhaustion of that resource. Further, evidence shows that regulation can accelerate rather than reduce resource destruction, but that users can and do invest time and energy in sustaining resources on which they depend.18 Ostrom argues that, on the basis of a cost-beneft calculation, moderately sized common territorial resources are

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45

Interaction of the biophysical and social

Historical social and cultural characteristics

Socio-cultural characteristics of a society

Genetic heritage of human populations Figure 3.1 Evolutionary model of human societies Source: adapted from Nolan and Lenski, 2008

more conducive to self-organisation governance than are smaller and very large resource systems (e.g. oceans), which carry disproportionate costs to efective governance. Nolan and Lenski see the socio-cultural evolution of human societies as being based on three factors (Figure 3.1):19 • • •

interaction of the biophysical and social environments; genetic heritage of human populations; historical social and cultural characteristics.

Nolan and Lenski see the evolution of human societies as moving through two broad periods of time, from pre-industrial to industrial (including industrialising). During the pre-industrial period, our early ancestors were hunter-gatherers, and as populations grew so too did their readiness to cooperate in the production of food and shelter and in barter (the exchange of goods) with other groups or communities. As populations grew further, so did technological knowledge, with a horticultural (slash and burn) way of life emerging and more settled populations, some involving fshing and hunting. This in turn eventually gave way to an agrarian way of life, involving the production of a surplus for trade, and larger communities. Our present industrial age, emerging in the 18th century, is characterised by advanced technological knowledge, population explosion, innovation (technology, social organisation), and production at scale, no longer as a surplus but intended for markets, alongside signifcant exploitation of natural resources and people, and ecological harm (pollution, global warming, biodiversity loss).

46 Perspectives on social change Table 3.1 Types of society today Type of society

Median size of society

Number of societies

Hunting and gathering Simple horticultural Advanced horticultural Agrarian Industrial*

40 1,500 5,250 100,000 + 10,500,000

46 53 69 38 27

Source: Nolan and Lenski, 2008 Mean is 35 million

*

There never has been a single (homogeneous) society; the world comprises innumerable societies, more than the number of formally recognised states. All four of Nolan and Lenski’s stylised societal types still exist today, represented by the nomadic peoples in parts of Africa, Asia, and the Americas, the industrialising economies of Asia, and the industrialised economies of North America, Europe, Australasia, and parts of Asia. Among these, developed industrial societies are dominant in terms of population and economically, politically, and militarily (Table 3.1).

Theories of development Development is a term commonly used, the meaning of which is often taken for granted, including a tendency to confate ‘what is intended by development’ with ‘what is development’, resulting in an unhelpful fusing of development as both ends and means.20 The former involves setting goals for improving societal conditions, especially economic and social welfare. The latter describes the process of creating intended or desired economic growth, the material living conditions of the citizenry, and the political institutions necessary for securing democratic freedoms.21 Many theories seek to account for the nature of development, with an emphasis on how states, both developed and developing economies, should go about growing their economies, thereby improving living conditions and lifting their citizenry out of poverty. Most of these theories also assume government drives development, either directly or indirectly. Direct fnancing

Typically, this includes investing public funds in building infrastructure (roads and railways, bridges, power grids, public housing, etc.); public transport; provision of basic services (energy, water, telecommunications) and basic education, including compulsory primary and secondary education; some form of health service and/or insurance; supporting the infrm and the population in old age; and national defence. Governments may also pursue policies to encourage population growth, such as payments to families with children. In addition, some governments have an industrial policy, funding particular technologies and industries regarded as strategically important, now or in the future.

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Indirect fnancing

In parallel with directly investing public funds, governments may also institute fscal policies (e.g. tax reduction incentives) and monetary policies (regulating interest rates and the amount of money in the economy). Through these policies, governments seek to regulate economic growth, encouraging individuals and employing organisations to invest, for example, in training and education, health insurance, and savings towards pension provision and encouraging businesses to invest in R&D, improve production efciency, and spur innovation (technological, fnancial, administrative). Around the world, the degree to which governments directly invest public funds, or use policies to encourage investment by civil society, depends on what individual states believe is the role of government in stimulating economic development and social welfare and individual government administrations’ strategies of and efectiveness in raising necessary revenue (through general and targeted taxation). Moreover, most governments, including those in developed economies, borrow in order to fund their development ambitions.22 The fnancing approaches (direct and indirect) described earlier imply the regulation of a functioning economy, and these are embedded within various broader theories of development described later. Many theories of development seek to transform non-functioning or poorly functioning economies, which involve structural changes that go beyond regulating economic development. Structuralism

A developing economy’s failure to develop is due to structural impediments. From this view, traditional subsistence agrarian economies need to industrialise. Policy prescriptions include import substitution industrialisation (ISI) involving state-directed economic development; ending reliance on the export of primary goods; and erecting import barriers to protect the development of indigenous industries until these become robust enough (enabled by strong domestic markets) to compete in the global free market. The theory of comparative advantage supports ISI, arguing that nations should specialise and exploit their advantage in trade relations with other nations. Modernisation

The goal of social and economic development entails the development and application of new technologies, helping develop a more innovative society and broad social change. Countries seen as developed are also seen as modern, carry more infuence in international institutions such as the UN, and provide a model for development trajectories. Development assistance to poor states is targeted at reforming their socio-economic and political processes (e.g. traditions) considered impediments to development. This overlooks and undervalues the extent to which economic conditions within nations are signifcantly conditioned or shaped by historical, cultural, and social values. Transnational

48 Perspectives on social change

corporations are recognised as creating economic value and social welfare, through the development of new technologies and the building of world markets, ‘taking. . . modernisation to the farthest corners of the world’, subjecting all citizens, rich and poor, to the discipline of the market, which will ensure the ‘whole world. . . emerge[s] in the image of the most afuent countries of Western Europe and North America’.23 Neoliberalism

From this view, creating economic and social welfare requires a larger role for private enterprise while minimising government involvement (except to maintain law and order and national defence). In addition, policies should focus on economic liberalisation (privatisation, deregulation, open markets, and free trade) and fscal and monetary policies to keep tax rates low, public spending low, and infation under control. Globalisation refects a near universal consensus on the merits of this strategy, institutionalised in the World Trade Organisation, the International Monetary Fund (IMF), and the World Bank. Guided by this neoliberal framework, the Washington, DC–based institutions of the IMF, World Bank, and US Treasury Department have been prescribing structural adjustment policy (SAP) reforms to failing or poor states, including fscal austerity (i.e. reduce government spending), privatisation, deregulation, opening their economies to both trade and investment, and the expansion of market forces within the domestic economy. Known as the Washington Consensus, these SAPs have long been contentious, seen by critics as accelerating rather than alleviating economic hardship and poverty among fragile economies. Its replacement, poverty reduction strategy papers (PRSPs) have also been found wanting. PRSPs were instituted in 1999 by the IMF and the World Bank, intended to address the lack of transparency surrounding the conditions attached to loans and to promote wider participation among stakeholders within the recipient state, including trade unions and other civic actors.24 Dependency

From here, developing economies should trade with developed economies, but this leads to dependent development. From this perspective, in a global market economy, resources (raw materials, labour) fow from poor states (the periphery) to rich states (the core). Poverty in developing states persist because they are locked into this globally integrated and hierarchical economic structure. Basic needs

The concept of basic needs was introduced by the International Labour Organization (ILO) in response to the apparent failure of modernisation and structural development approaches. This is less theory driven and more pragmatism, wherein development assistance is determined by assessing the subsistence

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49

needs of poor populations if they are to rise above poverty. This model does not include a need for investments in economically productive activities, and therefore is likely to leave poor states in permanent poverty. Sustainable development

Development in this theory is that which meets the needs of present generations without compromising the prospects of future generations, and (critically) doing so while respecting the biophysical capacity of Earth to support human development. As explored in other chapters of this book, the ideal of reconciling the three Ps (proft, planet, and people) is inherently paradoxical, and its realisation still needs to be reconciled with contrasting political and economic ideals and interests (e.g. neoliberalism and capitalism). Human development theory

Human development theory regards the goal of development as going beyond the basic needs approach, towards ‘enlarging people’s choices’, having access to education ‘and the resources necessary for a decent standard of living’, and leading long and meaningful lives. This theory also encapsulates broader goals of securing ‘political freedom, guaranteed human rights and personal selfrespect’.25 Proponents here look to social institutions (including social norms) and capabilities in ‘advancing human development’ and call for an examination of the political factors that help or hinder success. GDP (growth) should not be the goal but an enabler of human development. In common with sustainable development, human development theory is concerned with advancing theory and practice in macro-economic and environmental policies. Policies of austerity restrict development and promote inequality and unsatisfactory employment consequences. At the same time there is urgent need for efective environmental policies, for example on climate change, that improve rather than make worse people’s lives and livelihoods.26 Post-development

This theory is critical of all other development theories, seeing them as refecting Western-Northern hegemony over the rest of the world. Post-development thinkers regard the development process as socially constructed, that is, Western interests shape the direction and outcomes of development. Development is an idea captured by the so-called developed North, whose living conditions set the desired standard against which the global South is measured as undeveloped. Development as an ideology and societal vision is ingrained in the ideals of modernisation, whereby Western societies represent the model to emulate. Development discourse refects unequal power relations between the West and the rest of the world, and a Western understanding of what development entails, including the notion of progress, directs development for the rest of

50 Perspectives on social change

the world. There is need to prioritise local development thinking and policies, without relying on international development frameworks. Each theory presents a particular vision for development, highlighting differing goals and attendant processes and targeted inequalities. The reality is that development involves difering combinations of these processes, sometimes observable as individual countries or regions adopt difering strategies. In her analysis of Latin American economies, Franko argues that ISI is unsustainable, as these markets are limited in size and contribute to high economic and social costs, increased defcits, and national debt.27 ISI promotes protectionism and keeps prices high, while a lack of manufacturing experience and foreign competition reduces innovation and efciency, harming the quality of manufactured goods. Moreover, Cardenas argues that Latin American economies sufer from low state capacity, defned as the level of political and economic inequality, and the existence of internal and external confict.28 The concentration of economic and political inequality discourages investments in state capacity. For example, democratic achievements are constrained in countries of high economic inequality, which may explain the failure of Latin American states to build state capacity. Understanding the reasons for the poor economic performance and debt experience of Latin American economies relative to those of East Asia has been attributed in part to their (respectively) ‘inward looking’ (protectionist) versus ‘outward looking’ (export-oriented) policy approaches. The large defcits and unserviceable debt levels resulting from import substitution policies are largely credited for the Latin American crisis of the 1980s.29 Two other contributing factors include cultural diferences between the two regions and American frms’ concerns about political stability in the countries in which they build plants.30 The evaluation of Latin American development policy as a failure of state-led industrialisation and a triumph for East Asian neoliberalism should be treated with caution. Hira fnds that Latin America’s embrace of ISI was ‘a period of macroeconomic volatility and income inequality, but also great industrial progress’.31 Hira argues that state-led industrialisation (i.e. ISI) and attention to income inequality are not incompatible with macroeconomic stability and export-led policies (i.e. neoliberalism). Rather, their combination is necessary for development of Latin American and, by extension, other similar developing economies elsewhere.32 These theories also underestimate the signifcance of diferentiated power and economic relations between economies and of the infuence of antecedent conditions of any given region or state. For example, since the last quarter of the 20th century, developed economies have been pursuing neoliberal ideals, in both domestic and foreign policy. The swing to free trade and open markets globally (neoliberal globalisation) leads to developing economies’ embrace with neoliberalism overshadowing their own modernisation ambitions, in particular capital accumulation, nation-state building, and democratisation.33 Moore’s analysis shows three African states struggling to reconcile nation-state formation and democratisation to capitalist modernity, with neoliberalism’s ‘antistatism, its exclusionary version of democracy, and the violence inherent in the

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emergence of private property rights out of pre-capitalist modes of production. . . mediated by colonial and postcolonial institutions’.34 Difering historical, cultural, and political antecedents lead to difering and particular forms of development. For example, Liew shows how China’s ‘loose hug’ rather than ‘intimate embrace’ with neoliberalism refects its determination to mediate its engagement through attachment to three ideas.35 First, the Chinese Communist Party (CCP) remains committed to maintaining the primacy of national unity; economic development of the restless provinces of Tibet and Xinjiang cannot be allowed to rest entirely on market forces. Second, China’s size, geography, and large population is conducive to state-led development policies, while permitting a degree of provincial autonomy. Third, the CCP recognises its monopolistic power and has reinvented itself as a modern business-friendly party, ‘co-opting wealthy and potentially powerful new groups of middle and entrepreneurial classes that its market reforms have created’.36

Development and technology Particular communities construct and apply knowledge that refect their own histories and technical ability in order to solve everyday practical problems of survival, development, and elevating the human condition.37 Practical problems that all modern societies recognise include the need for energy, clean water, food security, and means of transport and communication. Industrial societies have developed diverse technologies for extracting energy from fossil material, for extracting fresh water, and for growing food. Indeed, we take for granted these technologies, from the obvious and mundane (techniques and tools for washing, cooking, and eating) to the out-of-sight yet vital (e.g. electricity, sanitation, and the internet). Technology here refers to how a society exploits the potential material resources available in order to meet its needs and the capacity for developing that knowledge in furthering its development. From a human ecology perspective, ‘all [Earth’s] life forms exist in an open system, dependent on external sources of energy’, that is, solar energy.38 Awkwardly, the world is also a closed system of efectively fnite resources.39 All societies ‘are energy dependent and power limited in some way’ and have developed ‘technolog[ies] explicitly [to identify energy sources and] facilitate energy capture, transfer, and storage in ways unique to humans’.40 From an ecological evolutionary perspective, over time individual societies develop new kinds of knowledge about potential sources of energy and more efective technologies for capturing and using energy, leading to improved material living standards. Meanwhile Lenski diferentiates the survival of societies according to the subsistence technology strategies they employ, in order to extract energy from the environment: from hunter-gatherers, through simple and complex horticulture, to agrarian and then industrial societies.41 Societies develop and employ forms of technology in conjunction with enabling forms of social, political, and economic organisation and institutions, which order and regulate productive everyday behaviour. In the process unique

52 Perspectives on social change

cultures emerge, that is, ways of life based on shared behaviours and technologies that represent and reproduce that behaviour. These ideas highlight both the natural environment (as resource) and technology (as subsistence strategy) in explaining changes in society and culture; the basis of a sociocultural and, in particular, an ecological evolutionary perspective. While technologies give rise to particular forms of social organisation, the latter also informs technological choices. For example, established fossil-fuelbased technologies are embedded within social and economic structures that make difcult any move to alternative non-fossil-fuel-based technologies. As Elwell observes, for Lenski technology is critical: it ‘is information about [how] resources in the environment may be used to satisfy human needs and desires’.42 Since a society’s technology is the ‘interface between the natural environment and all other elements of the sociocultural system [i.e. social, economic, political, culture], it is central to understanding sociocultural systems’.43 From Lenski’s ecological evolutionary perspective, a society’s survival depends on its capacity to develop its subsistence technology through technological advances and innovation. Moreover, competition with other societies drives this evolution. As Lenski argues, ‘societal survival has been largely a function of a society’s level of technological advance relative to the societies with which it has been in competition.’ Thus, a society will survive and thrive where it is comparatively more efective than other societies in using its technology.44 The viewpoints of both Lenski, and Nolan and Lenski, of the pivotal role of technology could be criticised as technological determinism, investing in technology the capacity to develop through some inherent (technical) logic and independent of social infuence.45 For example, they ascribe to technological advance three consequences: population growth, increased contact with other societies, and more positive attitude towards change. They do recognise the potential of social infuence, in particular the power of ideologies and belief systems to infuence individual judgements on the costs and benefts of taking particular courses of action.46 However, based on empirical studies, Nolan and Lenski fnd that, compared with ideological infuences, ‘the efects of technology are generally more powerful, more widespread, and more robust’.47

Insight 3.1 Huawei and 5G Technology: security risk, ideological competition, or technological dominance? As countries around the world unveil plans to roll out 5G communications technology infrastructure, some governments plan to deny Huawei Technologies Co. Ltd., the Chinese company, rights to bid for this new business. Certain countries, notably President Trump and the US administration, allege that the company’s products may intentionally contain security loopholes that enable China’s government to spy on governments and/or corporate communications and/or to disrupt national

Society and development

communications at any time in the future. The US government is even ofering funding to ‘rip and replace’ Huawei equipment.48 In 2019 the US Bureau of Industry and Security (BIS) placed on the Entity List Huawei Technologies and 114 of its overseas-related afliates, on the ‘reasonable conclusion that Huawei is engaged in activities that are contrary to U.S. national security or foreign policy interests’.49 American companies wishing to trade with any company on this list requires a licence, which efectively blocks Huawei from sourcing key electronic components from American producers. Both Google and Microsoft have stated they will continue to provide updates and support existing users of certifed Huawei products, so long as doing so does not breach government regulation.50 In early 2020 the US administration began pressuring European governments and other states to follow suit, but the response has been mixed as individual governments hold difering positions, from seeing no need to exclude Huawei from building their 5G networks (Spain, Hungary), to introducing restricted access (e.g. France), and to deciding to give no access (Romania, Poland, Czech Republic) or introducing a controlled removal (in France: removal over next eight years). These positions are in fux. Both Sweden and the UK have reversed their positions, having reconsidered the risks, and have decided to ban the company. The UK plans complete removal by the end of 2027, while Sweden is aiming for the end of 2024.51 The long-term impact of these decisions on Huawei’s global market share is incalculable; currently, the company is the market leader with ~35%, but Ren Zhengfei, Huawei founder, estimates a drop of US$30 billion – over 2019 and 2020 – from 2018 sales of US$100 billion.52 At the same time, a study by Oxford Economics (commissioned by Huawei) shows Huawei has contributed (in 2019) ‘€16.4  billion to Europe’s GDP and supported 224,300 jobs’.53 Other states have similar decisions pending, complicated by their existing trading relations with China. For example, Canada arrested Meng Wanzhou, then chief fnancial ofcer (and daughter of Ren Zhengfei) on behalf of the US government, for allegedly breaking US sanctions on Iranian transactions. The Chinese government then arrested two Canadians on spying charges. In 2018 Australia banned Huawei and ZTE from its 5G network development based on national security concerns.54 According to the 2019 Lowy survey, Australians have mixed views on their government’s priorities: 44% prioritise ‘protecting Australians from foreign state intrusion’ while 56% prioritise ‘bringing the most sophisticated technology to Australia’ and ‘keeping prices down for Australian consumers’, but 79% see ‘China’s infrastructure investment projects across Asia are part of China’s plans for regional domination’.55 In recent years, Australians trust China less but want its technology.56

53

54 Perspectives on social change

While US policy makers (both Democrats and Republicans), the Department of Commerce, the Federal Communications Commission (FCC), and other agencies block Huawei’s access to national networks and 5G implementation, there are no licence restrictions preventing the company or its subsidiaries from securing contracts with state governments, private companies, and Wi-Fi network providers. The danger, as Layton notes, is that technologies posing a security risk can be found wherever explicit restrictions are absent.57 The company secured membership of the Wi-Fi Alliance, IEEE, SD Association, and JEDEC. Many of the 800 members of the Wi-Fi Alliance are Chinese companies who will have links with China’s government and are therefore listed in the US National Vulnerabilities Database, restricting their use in national government. These include Lenovo, leading maker of laptops, ZTE Corporation (network equipment), Hangzhou Hikvision Digital Technology Co., Ltd. (surveillance cameras), Lexmark (printers), and TCL Corporation (smart TVs). Barring the participation of Chinese government-owned vendors in standards groups is difcult. Moreover, Layton thinks China’s purpose is clear: ‘It has long been trying to [engineer] an alternative version of the internet that does not include American technology.’58 Importantly, Layton is concerned that these restrictions do not apply at the state level of government, and further that these companies’ products have unacceptable security vulnerabilities and could save, and transfer, sensitive data to the Chinese government: data on elections, fnancial reports, and personal information.59 There is a perceived risk in giving Chinese frms with Wi-Fi technology access to critical infrastructure for utilities, transportation, and public safety. More broadly, Leyton summarises the need for the US to pursue a consistent strategy: ‘If we don’t want Huawei in 5G, it shouldn’t be in Wi-Fi either.’60

Technology leadership Huawei is a privately owned Chinese manufacturer, the world’s largest provider of telecommunications infrastructure equipment (Figure 3.2),61 and recognised as the leader in 5G technology, though Brown believes that ‘Europe’ (i.e. Ericsson and Nokia) is catching up.62 Chinese companies have signifcant infuence within ICT international standard setting and advocacy organisations, ‘which is a well-established area of policy research’.63 In seeking to secure one global ecosystem for wireless communications, more than 700 member organisations and businesses worldwide, the 3rd Generation Partnership Project (3GPP), forged agreement on the adoption of a common global standard for 5G technologies. For its part Huawei submitted the highest number of

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Figure 3.2 World telecom equipment revenue Source: Pongratz, S. (2020). Dell’Oro Group.

technical papers, over 20% of 150,000, followed by Ericsson with Nokia third, and the two US companies (Qualcomm and Intel) trailing behind (Figure 3.3). Huawei claims to be the leader in the Wi-Fi market, with its Wi-Fi 6 product range.64 This market has exploded following the introduction of the Wi-Fi 6 standard (IEEE 802.11ax) in 2018, sending markets based on the previous generations of Wi-Fi 5 and Wi-Fi 4 into decline. Wi-Fi 6 provides four times more bandwidth than does the ffth generation, and it is capable of supporting more demanding applications such as Internet of Things (IoT), 4K/8K HD video conferencing, telemedicine, and intelligent robots. A Huawei technical expert was elected as the chair of the IEEE 802.11ax Working Group in 2014, and in 2017 Huawei introduced the frst commercial Wi-Fi 6 product. Perhaps unavoidably, Huawei has also been embroiled in numerous court cases over alleged intellectual

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Figure 3.3 Number of 5G technical papers submitted by 3GPP member companies (2015 to mid 2020) Source: Pongratz, S. (2020). Dell’Oro Group.

property theft (involving Cisco, T-Mobile, ZTE, Nortel, and others), though this is not unique to a Chinese technology company. Over the last two decades Huawei has been subject to accusations on a number of fronts, almost all of which centre on concerns about the company’s ties with the Communist Party of China. Already highlighted previously are claims that its equipment might be harbouring cybersecurity weaknesses (whether due to weak engineering protocols or intentional backdoors) and so may be a vehicle for espionage, surveillance, or theft. In addition, the company is said to have opaque links with the CCP and to be in receipt of funding from China’s military and intelligence branches and of state subsidies. Perhaps more worrying for many nations is the existence of Chinese law that could direct Chinese companies to enforce state interests abroad, if and when instructed,65 and for which there is some evidence.66 The US administration has also alleged that Huawei has been trading with Iranian companies, selling US technology products, and trying to hide this, in contravention of US economic sanctions against Iran. The Chinese government, in common with several other states, stands accused of engaging in cyberattacks on other nations. There is also disquiet that Huawei may be providing both the Chinese state and client governments with the means of population surveillance and human rights violations.67 Both Huawei and the Chinese government reject these accusations, arguing that its exclusion from markets amount to discrimination and is against the best interests of companies and consumers.68 Moreover, the Chinese government’s reaction to Huawei’s exclusions shows they regard this as more than a commercial issue. Veiled threats of retaliation have been made by China’s party leaders, ambassadors, and state-controlled news media.69

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Some see a bigger game in play, centred on maintaining (or gaining) global economic and political dominance, that takes in the protection (or acquisition) of intellectual property, rights over access to (or control of ) naval lanes in Asia, and the reduction of the American trade defcit with China, worth billions of dollars.70 China’s goal is to become a global leader in several technologies, perhaps surpassing the US, and Huawei’s success is undoubtedly supporting that ambition. As Huawei passes Apple, becoming the second largest smartphone manufacturer after Samsung, the US administration may regard this as usurping its technological supremacy. Alternatively, it may be that China sees technological independence as part of ‘self-determination’.71 Within the last three decades, China has pulled itself up the manufacturing value chain, becoming a source of advanced technological innovations and products, with companies to match, and the world’s second largest economy.72 Meanwhile, advanced economies have few alternatives to Huawei, whose technological lead is considered to be at least one year ahead of other 5G vendors.73 The UK government is urging its Five Eyes intelligence partners,74 and possibly the wider D10 group of democracies,75 to collaborate in order to produce or procure credible competitive alternatives to Huawei.76 Like China, many countries have extraterritorial jurisdictional laws. Several governments have legal instruments to regulate the behaviour of individual citizens and companies living and trading abroad.77 The US also exploits its position as the world’s largest economy, using the US dollar’s role as a global currency as a foreign policy tool (e.g. prosecuting economic sanctions). Still, some governments have also pursued extreme strategies (illegal, unethical) to ensure their companies win contracts abroad.78 Other major states have history in being at least complicit in human rights violations (e.g. UK and USA).79 States also clash over the extraterritorial freedoms their companies might exploit, such as on taxation arrangements and consumer privacy protection.

Industrialisation Following Gellner’s examination of what transitional (i.e. industrialising) societies tell us about democracy, we take the notion of industrialisation to mean ‘the utilisation of technology and efective administration for purposes of achieving afuent living, [to be] the imperative imposed on contemporary governments’.80 The growth in populations and their material needs, expansion of global trade, evolution of technological knowledge, greater democratisation around the world, and the ideological grip of the need for economic growth as the key to human development81 has called forth more complex social organisation and social stratifcation as communities became villages, towns, and

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networked cities. We may further characterise the evolution of social organisation as being grounded in particular political-economic traditions that have evolved since antiquity (commonly comprising a ruling elite, peasant labour, and slaves), giving way to feudalism (replacing slavery with serfdom), then mercantilism and merchant capitalists, to present-day industrial capitalism.82 This latter period of economic development (industrialising societies) may be characterised as involving rapid urbanisation (movement of people to urban areas in search of work, enabling mass production and consumption, and the need to support fast-growing populations), globalisation, an increasingly critical assessment of economic and social inequality and of environmental degradation. In this section, we explore two facets of industrialisation: urbanisation and urban informality. Urbanisation

Over the last 200  years, the comparatively rich industrialised economies (Europe, North America, Australasia) have led the way in developing markets for both consumer and industrial products. The search by corporations – especially rich-world multinationals – for more products to satisfy their markets leads to demand for more natural resources, a great deal of which is found in the developing world. When these multinationals set up operations near the source of raw materials (e.g. in Africa or Asia) or support the establishment of local frms as their suppliers, this creates employment opportunities in the host economy. These observations of trade fows between developed and developing economies underpin the intuitive notion of a core-periphery model of the global economy (introduced earlier), which holds that urbanisation is a consequence of the interdependence of the growth and geographical extension of capitalism.83 In this process, cities in developing economies have grown due to the infux of jobs transferred from the developed economies and the internal migration of labour from rural agricultural work. Further, corporations are continually searching for ways of reducing labour cost, which leads them to opening operations in countries where labour costs are lower and regulatory constraints less onerous, such as parts of Asia, Africa, and Central America. The governments of potential host nations provide support and encouragement through tax breaks, local infrastructure (transport, communications), and labour, though sometimes frms must also invest in improvements to the local infrastructure. For their part, frms provide workers with training, salaries, food and accommodation, and healthcare. The employment potential created by these frms attracts people away from their traditional rural subsistence struggle for survival, taking people out of poverty (but at the same time leading to the demise of traditional ways of living, an emptying of rural populations, and a loss of cultural heritage). Until the 18th century the global population grew very slowly, then alongside the emergence of industrialising economies the population began to explode (Figure 3.4). Around the year 2008/09, the number of people living in

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Figure 3.4 Urban population growth (the last 500 years)84

urban environments surpassed that in rural areas (Figure 3.5a) and is expected to rise to 60% by the year 2030. Between 2021 and 2050, the proportion of those living in urban areas is projected to rise from 4.46bn (57%) to 6.68bn (68%) while the rural population declines from 3.42bn (43%) to 3.09bn (32%) (Figure 3.5b). Urbanisation is multidimensional, involving the migration of peoples around the world, both within and across international borders, and rapidly increasing urban population densities. Urbanisation is perhaps among the most visible human activity because of its scale and rate of growth (in population), especially within industrialising economies. Cities and metropolitan areas are key sites of economic activity, accounting for about 60% of global GDP, 60% of resource use (including energy, food, and water). Local infrastructure conditions (e.g. transport, sewage, telecommunications, and waste management) may be unable to absorb the speed of urbanisation, leading to slums. In addition, rapid or unmanaged urbanisation may also cause environmental degradation. Indeed, urban growth is imposing signifcant costs both on the natural environment (responsible for some 70% of global carbon emissions) and on human health and well-being. Environmental impacts include signifcant pollution of the air, rivers, and land; endangers other species and therefore biodiversity; and is leading to increased homogenisation of fauna and fora (e.g. mono-cropping). There is a considerable body of research on the impacts of urbanisation on human health and well-being, and research is ongoing.87 The UN recognises

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Figure 3.5a Urban population passes rural population85

Figure 3.5b Urban population and rural population projection to 205086

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these challenges as signifcant for sustainable development (SDG 11: Sustainable Cities and Communities).88 Further, both industrial (i.e. developed) and industrialising societies – whether through ongoing urbanisation or industrial agriculture – are coming into confict with, displacing, harming the health and environment of, or disenfranchising both indigenous communities (smaller, technologically and socially less complex, and politically marginal traditional communities)89 and non-indigenous citizens.90 In addition, the demand for more land to support growing urban populations is leading to loss of habitat and loss of biodiversity. This process is most evident in developing economies, for example in the form of mono-cropping (e.g. palm oil) and the loss of insect species, and the annual loss of forest to agricultural and urban development. However, there is recognition that the health of urban environments and of their populations is important, and growing recognition of the many ways of ofsetting harmful environmental and social impacts. Healthy ecosystems provide services (largely unappreciated), including food, water, fuel, and other life-giving resources, and also regulatory services such as pollination of crops. In addition, urban vegetation can signifcantly reduce air pollution, mitigate the urban heat island efect, reduce noise, and enhance recreational and cultural values.91 Moreover, as a site where people interact and cooperate, urban landscapes are the very places where entrepreneurial knowledge creation and application (technological and administrative), innovative fnancial resources, and a supporting regulatory space provide opportunities for innovation and for addressing global environmental problems. Urban informality

Inequality clearly has a bearing on societal development, as it raises questions about who is included in (or excluded from) any formal development agenda. Moreover, we need to distinguish between inequality within a state and inequality between states. Studies of inequality are also parsed into components, including economic, health, social, educational access, and more. Theories about inequality – its nature, causes, consequences, and solutions – are many. Nolan and Lenski fnd that across the evolution of societies, the dominant form of production (hunter-gatherers, horticultural, agrarian, and industrial) is consistently associated with particular systems of social stratifcation and levels of (in)equality.92 They fnd hunter-gatherers the most egalitarian society, the agrarian society the most unequal, and the industrial society exhibiting moderate equality, though this does not take account of the harmful impact of neoliberalism on inequality (see Chapters 9 and 10). In their theory, a feature of industrialisation is that democracy wrests control of the state from the aristocracy. Still, within industrial societies there is variation. Where the state has a welfare system, there is greater equality, and where there is little or no welfare system, inequality is higher. Kuznets speculated that income inequality is greatest as economies experience transition to modernisation and industrial development,

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and that inequality would decline once modernisation had been achieved.93 This idea has informed policy development around the world. However, evidence contradicts this proposition. In East Asian economies there is both relative equity and economic growth, while in some high-income countries there is a rise in income inequality.94 Korzeniewicz and Moran show that over the long term, in-country inequality is relatively stable, varying around an average level, and that inequality diferences between countries are also somewhat stable. This stability is due to various in-country institutional factors, such as the existence (or absence) of property rights.95 Urban inequality in all its forms (economic, social, health, etc.) is embedded in industrialising and industrial societies and is a signifcant driver of migration, both internal and international. High-inequality countries tend to grow relatively slowly, have weak civil societies, and are prone to confict. In these societies, crime, disease, and environmental damage are all worse than in lowerinequality societies.96 The importance of inequality as an impediment to development is refected in the UN Sustainable Development Goals, which aims to address inequality on the basis that it undermines economic development, is a source of social unrest, and is immoral. Urban poverty – the existence of social and economic exclusion – encourages the development of informal settlements, known by various names in differing places, though some diferentiation exists (e.g. with shanty towns, and between favelas where dwellers own their home, and cortiço where rent must be paid).97 Slums are densely populated settlements, and they reveal society’s inequalities, especially poverty, but also in income, housing, access to healthcare, social services, security, decent work, and discrimination. Depending on what constitutes an informal settlement, somewhere between 96 million and 1.6 billion people live in them, which equates to one in seven people of the global population. Evidence over the last two decades suggests that for many countries, the proportion of slum households in the urban population has been falling. For example, Global Change Data Lab (GCDL) reports that between 1990 and 2014 four large industrialising economies achieved a reduction in their slum populations.98

Decline in slums as a proportion of urban settlements, in selected countries (1990–2014) • • • •

China: 44% down to 25% India: 55% down to 24% Brazil: 37% down to 22% Nigeria: 77% down to 50%

Nevertheless, these data highlight that the proportion of the urban population living in slums worldwide is high, though what constitutes ‘urban’ is diferentiated,99 and global averages not only vary, but also hide wide national variation. According to GCDL, ‘just under 1 in 3 urban dwellers live in slum households’,100 while the

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United Nations Statistics Division (UNSD) shows that globally, between 2000 and 2014, slum households fell from 28% to 23%, but increased slightly by 2018 to 23.5%, with most geographical regions having similar levels of slum populations and parts of Asia having a much higher proportion.101

Urban population living in slums or informal settlements, 2018 (millions of people) • • • •

Eastern and Southeastern Asia Sub-Saharan Africa Central and Southern Asia Other regions

370 million 238 million 227 million 199 million

36% 23% 22% 19%

Source: UN Statistics Division. (2018). Make Cities and Human Settlements Inclusive, Safe, Resilient and Sustainable (SDG 11). Retrieved from https://unstats.un.org/sdgs/report/2019/goal-11/

These averages seem inconsistent, and they mask vast diferences among individual nation states. For example, according to the World Bank, the proportion of slum dwellings in Sub-Saharan Africa is 53.6% and is substantially at odds with the aforementioned data for Sub-Saharan Africa provided by UNSD. Further, while the proportion of slum dwelling in Nigeria is 54% (close to the average of 53.6%), in Central African Republic the proportion of urban slums is 95.4%, and in South Sudan it is 91%.102 The COVID-19 pandemic that has ravaged much of the world in 2020/2021 is pushing millions of people into poverty as enforced social isolation prevents them from earning. The underlying concern is that this sector of society is numerically substantial, with social and economic needs, harbouring both a missed opportunity and social unrest. The importance of addressing slum dwelling can be seen in several of the UN Sustainable Development Goals, including poverty (SDG 1), good health and well-being (SDG 3), clean water and sanitation (SDG 6), decent work and economic growth (SDG 8), reduce inequalities (SDG 10), and sustainable cities and communities (SDG 11). Set against these ideals, informal settlements have high levels of poverty and of social and economic exclusion or deprivation. Their inhabitants survive through informal income generation, often living in unsafe shelters, sometimes hazardous environments, and overcrowded conditions, and they commonly lack security of tenure and access to water, sanitation, and electricity. In addition, inhabitants of informal settlements have little or no access to credit and formal job markets. Some settlements are often in proximity to cities’ industrial efuent and waste, open sewers, and polluted land. People living in such environments are more exposed to water-borne diseases such as typhoid and cholera, and women and children to greater violence and exploitation.103 Regardless of the precarious nature of life in informal settlements, they give rise to a substantial informal economy. They exist and persist for a variety of reasons, including rapid economic growth driving urbanisation (and an escape from rural poverty for many) and economic stagnation driving urban decline

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(e.g. in developed economies). Moreover, informal settlements may suddenly emerge through natural disaster (Port-au-Prince, Haiti, and Dhaka, Bangladesh) and linger on. Scholars point to a range of factors behind the persistence of informal settlements: • • •

•

inadequate public planning and failure of market responses; inadequate urban infrastructure (e.g. afordable public transport); the demand for low-cost (casual) labour, and the existence of a growing informal economy; economic structural adjustment towards privatisation, deregulation, and globalisation, alongside technological advance towards automation and artifcial intelligence (AI). Together these developments induce a decline in traditional formal-sector jobs and the growth in informal jobs; the formal institutional cost of regulating enterprises (encouraging enterprise activity and discouraging unlawful and unethical practices) is substantial, and extracting business taxes to pay for the institutional provision may be burdensome, all of which may outweigh the fnancial beneft of funding the necessary formal institutions. Nevertheless, informal entrepreneurs often still have to pay some informal fee or protection bribes to local ofcials and the police.

Other sources of persistent social and economic exclusion have historical, social, and political roots, making their resolution more intractable: • • • •

historically embedded colonisation and segregation policies (e.g. various African nations, Mumbai, India, various US states); pre-existing population control policies (e.g. China’s hukou system of household registration); political interests (e.g. pre-existing patronage networks, political and social activists who derive political value from the existence of slums, and opposition by inhabitants to removing or replacing slum accommodation); political and social confict (Palestinian diaspora, Syrian refugees, Afghans feeing Taliban violence, and Myanmar’s Rohingyas and other persecuted minorities).

Insight 3.2 Dharavi, Mumbai: slum city informality and vulnerability Mumbai is a global city (population 20,411,274)104 and India’s city with the highest cost of living for expatriates,105 the country’s fnancial capital, and the home of Bollywood and the movie Slumdog Millionaire. Over 40% (8–9 million) of Greater Mumbai’s population live in slums. Dharavi is a slum city, 2.1 sq. km, of around 1 million people, centrally located

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next to Mumbai’s new fnancial centre (Bandra–Kurla Complex) and near the Chhatrapati Shivaji International Airport.106 It is said to be the second largest slum in Asia, the fourth largest in the world, and one of the most densely populated places on Earth:107 over ten times more crowded than Mumbai city, over 20 times more than Tokyo; over 48 times more than Hong Kong; and over 56 times more than London. Dharavi’s modern history dates from the late 19th century, when local people, along with rural migrants, settled around the edge of the city as the British colonial power expelled them from Bombay city centre and from areas the British reserved for themselves.108 During the 20th century, other migrants slowly arrived from other parts of the country, bringing their craft skills and trade, including leather processing, pottery, embroidery, textile manufacturing, and in more recent decades a trade in recycling. Over time new arrivals simply set up their businesses and rudimentary accommodation, using whatever materials were at hand. As British rule gave way to India’s independence (1947), the early tents, huts, and makeshift workshops were slowly replaced with more permanent structures of brick, concrete, wood, tiles, and corrugated roofs. Over subsequent decades Dharavi has been pushed northwards onto its current swampy and unhygienic site, and its development consolidated into 85 nagars (neighbourhoods). There are no maps or road signs. It is informally organised, with small squares, communal wells, and continuous electrical supply. A city within a city, it is crowded and noisy, a labyrinth of thoroughfares, unending narrow dirty lanes, open sewers, and illegally built cramped huts and workshops. The further you walk into Dharavi from the edge the more permanent and solid the structures become. In a global city where rents are among the highest in the world, Dharavi provides a cheap alternative to those moving to Mumbai to earn a living. Dharavi is a vibrant, ‘self-reliant and self-sufcient’ community where most have jobs, children go to school, and families work hard to make a better life.109 Since people live cheek by jowl, much of daily life takes place alongside neighbours and helps generate a sense of community. One can buy anything here, and there are places catering for people’s religious needs. Mixed in with the poverty is hope. One of Dharavi’s many entrepreneurs, Mohammad Mustaqueem, 57, arrived as a teenager with nothing. He slept in one of the narrow alleyways and remembers being covered in garbage that people threw out each morning.110 Today, he owns property in Dharavi worth US $20 million, has 12 diferent garment workshops and 300 employees, and has an annual turnover of about US $2.5 million. It is a city within a city but not isolated from greater Mumbai, either socially or economically. Adjacent middle-class neighbourhoods employ domestic cleaners and cooks such as Valli Ilaiyaraaja, from Dharavi.111 International Footsteps, a factory making sandals for Western brands such

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as Aldo, is located here. Altstedter and Pandya record that in order to get there ‘you must skip between a puddle of fowl water [during the rainy season] and a dead rat, then duck beneath a tangle of electrical wires, [pass] through a dark, damp tunnel, fnally emerging into a pristine marble hallway’. A multitude of businesses employ about 250,000 people in 15,000 single-room factories. As Altstedter and Pandya note, Dharavi ‘traditionally serve[s] as a commercial engine for all of Mumbai, a frenetic crossroads of exchange and entrepreneurship at the heart of India’s fnancial capital. Before the pandemic, it [was] generat[ing] more than $US 1 billion a year in activity’.112 Despite its economic power and social value,113 Dharavi exists on the margins. There is little or no welfare here, and none have formal title to the land they occupy.114 Small businesses operate out of regulatory sight, but growing businesses face the spectre of rent-seeking politicians.115 Residents seeking credit cards are routinely rejected, and banks are reluctant to lend to businesses with a Dharavi address, while politicians seeking votes promise improvements to their lives.116 Moreover, Dharavi’s location has become valuable real estate,117 with calls for the site to be redeveloped, but the residents are unwilling to move out. Proposals and plans have stalled, mired in politics, accusations of corruption, and weak government.118 Khwaja Qureshi, a well-built man in his forties, owns a recycling facility. His father started the business, and Mr Qureshi now has a 350 sq. ft. room with concrete walls, where fve workers toil 12 hours a day, seven days a week, feeding an iron shredder with plastic waste of all kinds: crushed water bottles, broken television casings, and discarded lunchboxes. They then load the plastic mix into jute sacks which they sell to manufacturers.119 On 24 March 2020, the Indian government introduced a 21-day nationwide lockdown to halt the spread of the virus, causing his workers to abruptly abandon their shredding and return to their villages far from Mumbai. Mr Qureshi spent the following days waiting, drinking tea, and chatting with other Dharavi business owners about the impact of the virus on their businesses and on the Indian economy. They worried that a collapse in economic activity nationwide would mean fewer products being made, therefore less waste material and less demand for recycled plastic. They were pessimistic about the economic future.120 The pandemic has shone a light on the vulnerability of the Dharavi community. After the national lockdown had been lifted (in June 2020), apartment buildings in middle-class neighbourhoods continued to forbid entry to domestic help, fearing they would bring the virus with them. Not only did Valli Ilaiyaraaja lose her income as a domestic help, but her husband also lost his job as a welder during the lockdown and has had to make do with 100 rupees ($1.37) a day, loading trucks.121 They and

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their three children are in limbo, unable to aford the fare to their home village where they could live rent-free and unable to meet the school tuition fees in Mumbai. ‘They are waiting for the nightmare to be over: for the economy to pick up and for the stigma attached to slum dwellers to fade.’122 Meanwhile Mumbai’s middle and upper classes have responded to the inconvenience of not having domestic help, appropriate to their fnancial means; one local dishwasher retailer has been overwhelmed by the spike in sales.123 One third of those living in Dharavi are permanent rural migrants, traditionally sleeping on the factory foor or sharing rented rooms, returning to their villages during holidays. Falling outside of the formal economy, they are efectively invisible to the state. The national lockdown was for them a fnancial crisis, suddenly losing income and the government not providing them any welfare. Many, perhaps most, returned to their villages, travelling on foot, bicycle, or hitching a ride, since the government also suspended all public transport. International Footsteps and some other frms provided fnancial support to their workers, paying 80% of their wages for the frst month, 60% for the second, and in some cases covering the cost of their return to Dharavi. Still, it is estimated that only about 30% of workers returned, most of whom anyway are locals, causing these businesses to struggle to deliver on outstanding orders.124 By July 2020, Dharavi started opening up, people were wearing masks, sanitisers were in evidence in shops and the workplace, and where possible workshops were practising social distancing. Being densely populated, Dharavi is more vulnerable to the spread of the virus, where workshops are poorly ventilated and labourers work in close proximity to each other. Extended families of 10–12 people share just 100–120 sq. ft. Most areas lack adequate sanitation: hundreds of people share one public latrine, and some use the street; excrement, rats, and rubbish is everywhere. Fresh water is rationed and provided by public standpipes that come on daily at 5:30 am for two hours. Children play amongst sewage waste, some of which is toxic including heavy metals. Sion Hospital treats 3,000 patients every day, many from Dharavi, including children who are malnourished or have asthma or diarrhoea.125 There is renewed interest in the informal sector among policy makers (e.g. development professionals, regulators, and tax authorities) in both developed and developing economies. Policy makers’ interest is not only because they worry that the informal sector remains outside the state’s regulatory scope and protection. Policy makers appreciate the harmful links between informality, poverty, and inequality. Perhaps critically, the informal sector’s potential contribution to the formal economy is also seen as substantial. In recognising the signifcance of the informal economy and the need for policy frameworks,

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multilateral bodies such as the OECD and the ILO are promoting international debate.126 The ILO’s goal is ‘the attainment of decent work for all workers and employers’ and the development of an ‘integrated policy framework around work, encompassing [its] four strategic objectives: fundamental principles and rights at work, employment, social protection and social dialogue’.127 There is recognition that the informal economy is linked to the formal economy and is contributing to the national economy. In many economies, the numbers of informal small-scale enterprises are growing faster than are largescale frms in the formal sector, which makes them signifcant, economically and socially. However, many working in the informal sector have much less security. For example, in higher-income countries the ‘precariat class’ carry out involuntary part-time labour, work under short-term and zero-hours contracts, and take up unpaid internships and other exploitative arrangements. They live in economic uncertainty, often carry unsustainable debt, cannot aford to become ill, are not protected under any employer social security programmes, and at any moment could be tipped into poverty, ‘cut adrift from society and probably condemned to social illness or an early death’.128 Another example is the informal contracting of home workers, often women, by factory managers of low-cost garment manufacturing. As Chen notes, policy makers also recognise ‘that women tend to be concentrated in the more precarious forms of informal employment, so that supporting [these] working poor women. . . is a. . . pathway to reducing [their] poverty and [redressing] gender inequality’.129 These examples highlight that supporting the working poor in the informal economy not only makes economic sense, but can at the same time reduce poverty and inequality, while improving well-being through a greater sense of security. Nevertheless, as Meagher argues, while informal-formal linkages may lead to greater empowerment, there is equal potential for these linkages to make worse the distribution of costs and benefts and to greater subordination to the formal.130 Chen argues the need for policy makers to rethink and revise existing attitudes towards the informal economy, and proposes four policy measures to bring informal settlements into the formal economy: create more formal jobs; regulate informal enterprises and jobs; extend social and legal protections to the informal workforce; increase the productivity of informal enterprises and the incomes of informal workers. Perhaps these are more accurately a list of desired outcomes, rather than strategies for drawing the informal economy from the dark into the light.131 Policies to force compliance, or get rid of informal activity, for example by forced evictions, tend to fail; such policies simply force the informal economy underground. Overarching schemes such as reforming the tax and welfare systems are one important element. Another is to incentivise individuals to move out of informality. In ‘How Governments Can Nudge Informal Businesses to Leave the Grey Economy’, The Economist highlights the benefts of nudging

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change: as digital technology improves and almost everyone has a smartphone, transactions become recorded automatically, and cash becomes increasingly obsolete. One tactic would be to incentivise customers to ask for a purchase receipt, which they could use to win a lottery.132

Chapter insight questions 1

Many scholars, such as Schultz, argue that people, especially those living in industrialised nations, spend little or no time outside their built environment. Such urbanites feel little connection with nature, though many hold a romantic and idealised picture of nature. Others see nature as a dangerous place (treacherous environments, poisonous fora and insects, deadly viruses) or even as a dirty and unhygienic place (vermin, pollution), not to mention religious taboos about inedible foods to be avoided. Schutz’s review of studies of American and Western European adults’ and children’s routine experiences and lifestyles show they have very little contact with nature, from which he concludes, ‘we live our lives apart from nature, segregated by choice’ (p. 64).133 What is your (1) lived experience and (2) your general view of nature? Try the exercise, by yourself and with others.

Extended Inclusion of Nature in Self scale (EINS) Below are the pictures and instructions of the EINS. You can copy/paste these should you wish to include the EINS in your questionnaire.

Citation:

Martin, C., & Czellar, S. (2016). The extended Inclusion of Nature in Self scale. Journal of Environmental Psychology, 47,181-194. Below, please choose the pictures which best describe your relationship with the natural environment. Please answer spontaneously with what comes to your mind first Please choose the picture below which best describes your relationship with the natural environment. Self Nature

Self Nature

Self Nature

Self Nature

Self Nature

Self Nature

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Please choose the picture below which best describes nature when you think of your relationship with the natural environment Nature

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Please choose the picture below which best describes your relationship with the natural environment. Self Nature

Self Nature

Self Nature

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Please choose the picture below which best describes your relationship with the natural environment. Nature Center

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More rapid economic development is necessary in order to protect the planet and reduce inequality. Discuss.

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3

4 5

Huawei, a very large Chinese private enterprise, seems to have a signifcant technological lead in 5G technology, over any competitor from either Europe or North America. Is the USA’s attempts to block Huawei’s access to markets motivated by fear of the USA losing technological leadership or an ideological confict between Western and China’s political-economic systems? Instead of prescribing more economic growth in order to reduce poverty, the World Bank suggests economies should make the growth process more inclusive.134 Discuss. Urbanisation and population growth seem to drive each other. Discuss the implications for human health and well-being and ecological health.

Notes 1 Walby, S. (2003). The myth of the Nation-State: Theorizing society and polities in a global era. Sociology, 37(3), 529–546. 2 Ibid. 3 Durkheim, E. [(1893) 1984]. The division of labour in society (W. D. Halls, Trans.). London: Macmillan Press. 4 Thijssen, P. (2012). From mechanical to organic solidarity, and back: With Honneth beyond Durkheim. European Journal of Social Theory, 15(4), 454–470, 468. 5 Ibid. 6 Kropotkin, P. [(1902) 2009]. Mutual aid: A factor of evolution. London: Freedom Press. 7 Ibid. 8 Nolan, P., & Lenski, G. (2008). The human condition. In Human societies: An introduction to macrosociology (11th ed., Ch. 1, p. 5). Boulder, CO: Paradigm Publishers. 9 Outram, D. (2006). Panorama of the enlightenment. Los Angeles, CA: Getty Publications; Zafrovski, M. (2010). The enlightenment and its efects on modern society. New York: Springer; Gay, P. (1996). The enlightenment: An interpretation. New York: W. W. Norton & Company. 10 García-Llorente, M., Iniesta-Arandia, I., Willaarts, B. A., Harrison, P. A., Berry, P., del Mar Bayo, M., . . . Martín-López, B. (2015). Biophysical and sociocultural factors underlying spatial trade-ofs of ecosystem services in semiarid watersheds. Ecology and Society, 20(3), 39. 11 Nolan, P., & Lenski, G. (2008). Op. cit. 12 Redman, C. L. (2014). Should sustainability and resilience be combined or remain distinct pursuits? Ecology and Society, 19(2), 37. 13 Gunderson, L. H., & Holling C. S. (2002). Panarchy: Understanding transformations in human and natural systems. Washington, DC: Island Press; Holling, C. S. (2001). Understanding the complexity of economic, ecological, and social systems. Ecosystems, 4(5), 390–405. 14 Andeies, J. M., Janssen, M. A.,  & Ostrom, E. (2004). A  framework to analyze the robustness of social-ecological systems from an institutional perspective. Ecology and Society, 9(1), 18. 15 Evans, J. (2011). Environmental governance. London: Routledge. 16 Binder, C. R., Hinkel, J., Bots, P. W. G.,  & Pahl-Wostl, C. (2013). Comparison of frameworks for analyzing social-ecological systems. Ecology and Society, 18(4), 26. 17 Hardin, G. (1968a). The tragedy of the commons. Science, 162(3859), 1243–1248. 18 Ostrom, E. (2009). A general framework for analysing sustainability of social-ecological systems. Science, 325(5939), 419–422. 19 Nolan, P., & Lenski, G. (2008). Op. cit., p. 17. 20 Cowen, M. P., & Shenton, R. W. (1996). Doctrines of development. London: Routledge.

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21 Aitken, A. (2019). Measuring welfare beyond GDP. National Institute Economic Review, 249(1), R3–R16. 22 The Guardian. (2020, February 23). The world is at least $10tn in debt, so why can we still borrow so easily? The Guardian. Retrieved from www.theguardian.com/business/ 2020/feb/23/borrowing-remarkably-easy-world-carrying-trillions-debt-oecd 23 Sinha, A. (2008). Academy of Management Perspectives, 22(1), 70–72, p. 71. Reviewing Greig, A., David Hulme, D., & Turner, M. (2007). Challenging global inequality: Development theory and practice in the 21st century. New York: Palgrave Macmillan. 24 Welch, C. (2005, October 12). Structural adjustment programs & poverty reduction strategy. Institute for Policy Studies. Retrieved from https://ips-dc.org/structural_adjustment_ programs_poverty_reduction_strategy/ 25 UNDP. (1990). Human development report (HDRO 1990). Oxford and New York: UNDP and Oxford University Press. 26 Stewart, F., Ranis, G., & Samman, E. (2018). Advancing human development: Theory and practice. Oxford: Oxford University Press. 27 Franko, P. M. (2007). The puzzle of Latin American economic development. Lanham, MD: Rowman & Littlefeld. 28 Cardenas, M. (2010). State capacity in Latin America. Economía, 10(2), 1–45. 29 Sachs, J. D.,  & Williamson, J. (1985). External debt and macroeconomic performance in Latin America and East Asia. Brookings Papers on Economic Activity, 1985(2), 523–573. p. 571. 30 Ibid. 31 Hira, A. (2007). Did ISI fail and is neoliberalism the answer for Latin America. Re-Assessing Common Wisdom Regarding Economic Policy in the Region, 27, 345–356, p. 355. 32 Ibid., p. 355. 33 Moore, D. (2001). Neoliberal globalisation and the triple crisis of ‘Modernisation’ in Africa: Zimbabwe, the Democratic Republic of the Congo, and South Africa. Third World Quarterly, 22(6), 909–929, p. 909. 34 Ibid., p. 909. 35 Liew, L. (2005). China’s engagement with neo-liberalism: Path dependency, geography and party self-reinvention. The Journal of Development Studies, 41(2), 331–352, p. 348. 36 Ibid., p. 348. 37 Hagstrom, M. (2015, April  22). How technology can help elevate the human condition. World Economic Forum. Retrieved from www.weforum.org/agenda/2015/04/ how-technology-can-help-elevate-the-human-condition/ 38 Bates, D. G., & Tucker, J. (Eds.). (2010). Human ecology: Contemporary research and practice (p. 2). Cham: Springer Science & Business Media. 39 Sinha, A. (2008). Op. cit. 40 Op. cit., p. 7. 41 Lenski, G. (2005). Characteristics of sets of societies. In Ecological-evolutionary theory: Principles and applications (Ch. 5). Boulder, CO: Paradigm Publishers. 42 Elwell, F. L. (2013). Sociocultural systems: Principles of structure and change (p. 97). Edmonton: Athabasca University Press. 43 Ibid. 44 Lenski, G. (2005). Op. cit., Ch. 6 ‘Characteristics of the global system of societies’. 45 Dafoe, A. (2015). On technological determinism: A typology, scope conditions, and a mechanism. Science, Technology & Human Values, 40(6), 1047–1076. 46 Lenski, G. (2005). Op. cit., Ch. 4 ‘Determinants of the characteristics of individual societies’; Nolan, P., & Lenski, G. (1996). Technology, ideology, and societal development. Sociological Perspectives, 39(1), 23–38. 47 Nolan, P., & Lenski, G. (1996), Op. cit., 23. 48 Layton, R. (2020a, April  23). The US restricts Huawei in 5G, but Wi-Fi is up for grabs. Forbes.

72 Perspectives on social change 49 U.S. Department of Commerce. (2020, May 15). Commerce addresses Huawei’s eforts to undermine entity list, restricts products designed and produced with U.S. technologies. Ofce of Public Afairs, U.S. Department of Commerce. Retrieved from www.commerce. gov/news/press-releases/2020/05/commerce-addresses-huaweis-eforts-undermineentity-list-restricts 50 Endicott, S. (2019, June 24). Microsoft confrms that Huawei devices will continue to be upgraded and supported. Windows Central. Retrieved from www.windowscentral. com/microsoft-confrms-huawei-laptops-will-continue-be-upgraded-and-supported; Welch, C. (2020, February  21). Google addresses Huawei ban and warns customers not to sideload apps like Gmail and YouTube. The Verge. Retrieved from www. theverge.com/2020/2/21/21147919/google-addresses-huawei-services-ban-androidtrump-sideload-apps 51 Wintour, P. (2020, July  13). Europe divided on Huawei as US pressure to drop company grows. The Guardian. Retrieved from www.theguardian.com/technology/ 2020/jul/13/europe-divided-on-huawei-as-us-pressure-to-drop-company-grows; Gov.UK. (2020, July 14). Huawei to be removed from UK 5G networks by 2027. British Government Press Release. Retrieved from www.gov.uk/government/news/huaweito-be-removed-from-uk-5g-networks-by-2027; Decision follows a technical review by the National Cyber Security Centre in response to US sanctions; Kwan, C. (2020, October 20). Sweden bans Huawei and ZTE equipment from 5G rollout. ZDNET. Retrieved from www.zdnet.com/article/sweden-bans-huawei-and-zte-equipmentfrom-5g-rollout/ 52 Duckett, C. (2019, June  17). Huawei will not be beaten to death despite $30b hit: Ren Zhengfei. ZDNet. Retrieved from www.zdnet.com/article/huawei-will-not-bebeaten-to-death-despite-30b-hit-ren-zhengfei/ 53 Oxford Economics. (2020, November). The economic impact of Huawei in Europe. Oxford Economics. Retrieved from www.oxfordeconomics.com/recent-releases/TheEconomic-Impact-of-Huawei-in-Europe; Daws, R. (2020, November 9). Oxford Economics: Huawei is responsible for over 220,000 jobs in Europe. Telecoms. Retrieved from https://telecomstechnews.com/news/2020/nov/09/oxford-economics-huaweiresponsible-jobs-europe/ 54 Reichert, C. (2018, August  23). Australian government bans Chinese vendors for 5G. ZDNet. Retrieved from www.zdnet.com/article/australian-government-banschinese-vendors-for-5g/ 55 Kassam, N. (2019). Lowy institute poll. Lowy Institute. Retrieved from www. lowyinstitute.org/publications/lowy-institute-poll-2019 56 Stilgherrian. (2019, June  26). Australians fear China but want its technology: Lowy Institute poll. ZDNet. Retrieved from www.zdnet.com/article/australians-fear-chinabut-want-its-technology-lowy-institute-poll/ 57 Layton, R. (2020a). Op. cit. 58 Ibid. 59 Leyton, R. (2020b). Stealing-from-states-Chinas-power-play-in-it-contracts: Report. ChinaTechThreat.com. 60 Ibid. 61 Pongratz, S. (2020, September  7). Key takeaways – The telecomm equipment market 1H20. Dell’Oro Group. Retrieved from www.delloro.com/key-takeaways-thetelecom-equipment-market-1h20/. Dell’Oro defnes this as comprising Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network, SP Router & Carrier Ethernet Switch (CES). 62 Duckett, C. (2019, June 26). Chinese vendors bookend 5G RAN market: GlobalData. ZDNet. Retrieved from www.zdnet.com/article/chinese-vendors-bookend-5g-ranmarket-globaldata/; Brown, C. S. (2019, June 26). Report: Huawei 5G tech is by far the global leader, but Europe making gains. Android Authority. Retrieved from www. androidauthority.com/huawei-5g-tech-europe-1003032/ 63 Layton, R. (2020a). Op. cit.

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64 Huawei. (2020, January 3). Huawei Wi-Fi 6 ranked number one globally outside of North America according to Dell’Oro Group. Huawei. Retrieved from www.huawei. com/en/news/2020/1/huawei-wif-6-ranks-no1-globally-delloro-group 65 Ford, C. A. (2019, September 11). Huawei and its siblings, the Chinese tech giants: National security and foreign policy implications. D.S. Department of State. Retrieved from www.state.gov/huawei-and-its-siblings-the-chinese-tech-giants-national-securityand-foreign-policy-implications/ 66 Defence Committee. (2020). The security of 5G. UK House of Commons. Second Report of Session 2019–21 (HC 201); Collins, K. (2020, October 8). UK Parliament cites ‘clear evidence’ Huawei colluded with Chinese state. CNET. Retrieved from www.cnet. com/news/uk-parliament-cites-clear-evidence-huawei-colluded-with-chinese-state/ 67 Ford, C. A. (2019). Op. cit. 68 Remeikis, A. (2020, February 17). China accuses Australia of discriminating against Huawei. The Guardian. Retrieved from www.theguardian.com/australia-news/2020/ feb/17/china-accuses-australia-of-discriminating-against-huawei 69 China Daily. (2020, May 24). UK will pay price if it carries out decision to exclude Huawei: China Daily editorial. Retrieved from www.chinadaily.com.cn/a/202005/24/ WS5eca6650a310a8b241158044.html 70 Chapman, B. (2019, January 18). Huawei: Why are western governments worried about China’s technology powerhouse? Independent. Retrieved from www.independent.co.uk/ news/business/news/huawei-china-national-security-threat-arrests-technologyspying-espionage-a8734461.html 71 Lam, T., Li, F., & Loucks, J. (2019, October 30). China emerges as global tech, innovation leader. CIO Journal, Deloitte: The Wall Street Journal. Retrieved from https:// deloitte.wsj.com/cio/2019/10/30/china-emerges-as-global-tech-innovation-leader/ 72 Ibid. 73 Telesoft. (2018, July 20). Huawei oversight board warns of ‘new risks’ to UK infrastructure. Telecoms. Retrieved from https://telecomstechnews.com/news/2018/jul/20/ huawei-board-risk-uk-infrastructure/ 74 The Five Eyes Alliance (FVEY) comprises the US, UK, Australia, Canada, and New Zealand. 75 Montgomerie, T. (2020, September). How a new alliance of democracies could counter Russia and China. New Statesman. Retrieved from www.newstatesman.com/ politics/uk/2020/09/how-new-alliance-democracies-could-counter-russia-and-china 76 Defence Committee. (2020). Op. cit. 77 USA, The Foreign Corrupt Practices Act (FCPA), 1977; UK Anti Bribery Act, 2010. 78 Leigh, D., & Evans, R. (2010, February 6). BAE admits guilt over corrupt arms deals. The Guardian. Retrieved from www.theguardian.com/world/2010/feb/05/bae-systemsarms-deal-corruption 79 Sabbagh, D. (2019, June  20). UK arms sales to Saudi Arabia unlawful, court of appeal declares. The Guardian. Retrieved from www.theguardian.com/law/2019/ jun/20/uk-arms-sales-to-saudi-arabia-for-use-in-yemen-declared-unlawful/; Zengerle, P. (2019, May 24). Defying Congress, Trump sets $8 billion-plus in weapons sales to Saudi Arabia, UAE. Reuters. Retrieved from www.reuters.com/article/ us-usa-saudi-arms-idUSKCN1SU25R 80 Gellner, E. (1967). Democracy and industrialisation. European Journal of Sociology, 8(1), 47–70, p. 62. 81 Barry, J. (2020). A genealogy of economic growth as ideology and cold war core state imperative. New Political Economy, 25(1), 18–29. 82 Wickham, C. (1984). The other transition: From the ancient world to feudalism. Past & Present, 103, 3–36. 83 Borgatti, S. P., & Everett, M. G. (2000). Models of core/periphery structures. Social Networks, 21(4), 375–395; Hartmanna, D., Bezerrab, M., Lodoloc, B., & Pinheiro, F. L. (2020). International trade, development traps, and the core-periphery structure of income inequality. EconomiA, 21(2), 255–278; While the notion of core-periphery

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84 85 86 87 88 89

90

91

92 93 94 95 96 97

98 99 100 101 102 103

usefully characterises global trade fows, there are serious theoretical problems with what constitutes the core as well as the periphery. Ritchie, H. (2018). Urbanization. [Online Resource] OurWorldInData.org. Retrieved from https://ourworldindata.org/urbanization Ibid. Ibid. Krefs, A. C., Augustin, M., Schlünzen, K. H., Oßenbrügge, J., & Augustin, J. (2018). How does the urban environment afect health and well-being? A systematic review. Urban Science, 2, 21. United Nations. (2015). Transforming our world: The 2030 agenda for sustainable development. New York: UN Publishing; Sustainable Development Goal 11. Make cities inclusive, safe, resilient and sustainable. Retrieved from www.un.org/sustainabledevelopment/cities/ Schlosberg, D., & Carruthers, D. (2010). Indigenous struggles, environmental: Justice, and community capabilities. Global Environmental Politics, 10(4), 12–35; Worland, J. (2016, October 28). What to know about the Dakota access pipeline protests. Time. Retrieved from https://time.com/4548566/dakota-access-pipeline-standing-rock-sioux/ Union of Concerned Scientists. (2008, August  24). The hidden costs of industrial agriculture. Retrieved from www.ucsusa.org/resources/hidden-costs-industrial-agriculture; Health Care Without Harm. (2018). Delivering community beneft: Healthy food playbook. Community health risks of industrial agriculture. Retrieved from https://foodcommunitybenefit.noharm.org/resources/community-health-needs-assessment/ community-health-risks-industrial-agriculture Commission on Ecosystem Management – Ecosystem Services (CEM-ES) Thematic Group (Mandate 2021–2024). International Union for Conservation of Nature (IUCN). Retrieved from www.iucn.org/commissions/commission-ecosystem-management/ our-work/cems-thematic-groups/ecosystem-services Nolan, P., & Lenski, G. (2008). Op. cit.; Nolan, P., & Lenski, G. (1996), Op. cit. Kuznets, S. (1955). Economic growth and income inequality. American Economic Review, 45, 1–28. Korzeniewicz, R. P.,  & Moran, T. P. (2005). Theorizing the relationship between inequality and economic growth. Theory and Society, 34(3), 277–316. Korzeniewicz, R. P., & Moran, T. P. (2009). Unveiling inequality: A world-historical perspective. New York: Russell Sage Foundation. Jolly, R. (2011, September 22). MDG targets are overlooking inequality. The Guardian. Retrieved from www.theguardian.com/global-development/poverty-matters/2011/ sep/22/mdg-targets-overlooking-inequality For a detailed account of Sao Paolo slums, see Fix, M., Arantes, P.,  & Tanaka, G. (2003). Urban slum reports: The case of Sao Paolo, Brazil. University College London Development Planning Unit. Retrieved from http://www.ucl.ac.uk/dpu-projects/ Global_Report/pdfs/SaoPaulo.pdf; for a broad review of slums, including several summary case studies from around the world, see UN Human Settlements Programme (UN-Habitat). (2003). The challenge of slums: Global report on human settlements. London: Earthscan. Ritchie, H. (2018). Op. cit., ‘Share of people living in slums’. United Nations. (2017). The world’s cities in 2016. United Nations Population Division. New York: United Nations Publication. Ritchie, H. (2018). Op. cit., ‘Share of people living in slums’. United Nations Statistics Division (UNSD). (2018). Make cities and human settlements inclusive, safe, resilient and sustainable (SDG 11). Retrieved from https://unstats.un.org/ sdgs/report/2019/goal-11/ World Bank Data. (2018). Population living in slums (% of urban population, 1990–2018). Retrieved from https://data.worldbank.org/indicator/EN.POP.SLUM.UR.ZS?end= 2018&locations=ZG-CF-NG&name_desc=true&start=1990&view=chart UN-HABITAT. (2003). Op. cit.

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104 World Population Review. (2021). Mumbai population 2020. Retrieved from https:// worldpopulationreview.com/world-cities/mumbai-population 105 Mercer. (2020, June 9). Organizations revamp mobility programs with alternate forms of international assignments and a focus on employee well-being. Cost of Living Survey. https://www.mercer.com/newsroom/2020-cost-of-living.html. In Mercer’s Worldwide Ranking 2020, Mumbai ranked 60th (up from 67th in 2019), and substantially higher than New Delhi the capital (101st in 2020, up from 108th in 2019). 106 Boano, C., Hunter, W., & Newton, C. (2013). Contested urbanism in Dharavi. London: The Bartlett Development Planning Unit, University College London. 107 Gulankar, A. C. (2020, April  22). Social distancing not a choice in Dharavi, Asia’s biggest slum. The Federal, division of New Generation Media Private Ltd. Retrieved from https://thefederal.com/states/west/maharashtra/social-distancing-not-a-choicein-dharavi-asias-biggest-slum/ 108 Sharma, K. (2000). Rediscovering Dharavi. New Delhi: Penguin. Retrieved from https://books.google.co.uk/books?hl=en&lr=&id=6RJWYfvHBCQC&oi=f nd&pg=PA3&ots=DSLZ3_y6p7&sig=A5Y3BWrr4bkp0rEdtt3wLV8rvhY&re dir_esc=y#v=onepage&q&f=false 109 Chamberlain, G. (2008, December  21). The beating heart of Mumbai. The Guardian. Retrieved from www.theguardian.com/world/2008/dec/21/dharavi-india-slumsslumdog-millionaire-poverty 110 Yardley, J. (2001, December 28). India’s way: In one slum, misery, work, politics and hope. The New York Times. Retrieved from www.nytimes.com/2011/12/29/world/ asia/in-indian-slum-misery-work-politics-and-hope.html 111 Altstedter, A., & Pandya, D. (2020, October). Dharavi contained Covid-19 against all the odds: Now its people need to survive an economic catastrophe. Bloomberg Businessweek. Retrieved from www.bloomberg.com/features/2020-mumbai-dharavi-covidlockdown/?srnd=businessweek-v2%3Futm_source%3DFacebook&utm_medium= cpc&utm_campaign=Content&utm_content=Mumbai&fbclid=IwAR3zg93g_9hO6I 7Z6VICMZBMqLNH7AzHJLmy4ROuVXapguclCvn3YwTTxZU 112 Ibid. 113 Residents value its history, community, and freedom; the caste cultural social hierarchy is here, alongside the middle class: The Economist. (2007, December 19). Urban poverty in India: A fourishing slum. Retrieved from www.economist.com/christmas-specials/ 2007/12/19/a-fourishing-slum 114 The government recognises Dharavi residents as ‘identifed encroachers’, guaranteeing compensation if the government bulldozes their homes: The Economist. (2007, December 19). Op. cit. 115 Ibid. 116 Yardley, J. (2001). Op. cit. 117 The slum’s land alone is estimated to be US $10 billion in dead capital: The Economist. (2007, December  19). Urban poverty in India: A  fourishing slum. Retrieved from www.economist.com/christmas-specials/2007/12/19/a-fourishing-slum 118 Yardley, J. (2001). Op. cit. 119 Altstedter, A., & Pandya, D. (2020). Op. cit. 120 Ibid. 121 Ibid. 122 Ibid. 123 Ibid. 124 Ibid. 125 Yardley, J. (2001). Op. cit. 126 OECD (International Labour Organization). (2019). Tackling vulnerability in the informal economy. Paris: OECD Publishing; International Labour Ofce. (2014). Report V (1): Transitioning from the informal to the formal economy, International Labour Conference. Geneva: International Labour Organization, ILO Publications.

76 Perspectives on social change 127 International Labour Ofce. (2014). Op. cit., p. 1. 128 Standing, G. (2016, November  9). Meet the precariat, the new global class fuelling the rise of populism. World Economic Forum. Retrieved from www.weforum.org/ agenda/2016/11/precariat-global-class-rise-of-populism/ 129 Chen, M. A. (2012). The informal economy: Defnitions, theories and policies. Working Paper No. 1, Women in Informal Employment: Globalizing and Organizing (WIEGO), p. 3. 130 Meagher, K. (2013). Unlocking the informal economy: A literature review on linkages between formal and informal economies in developing countries. Working Paper No. 27, Women in Informal Employment: Globalizing and Organizing (WIEGO). 131 Chen, M. A. (2012). Op. cit. 132 The Economist. (2016, October 14). How governments can nudge informal businesses to leave the grey economy. Retrieved from www.economist.com/international/2016/10/ 14/how-governments-can-nudge-informal-businesses-to-leave-the-grey-economy 133 Shultz, P. W. (2002). Inclusion with nature: The psychology of human-nature relations. In P. Schmuck & W. P. Schultz (Eds.), Psychology of sustainable development (pp. 61–78, 64). Dordrecht, the Netherlands: Kluwer Academic Publishers. 134 Ending poverty requires more than growth, says the World Bank Group: ‘While economic growth remains vital for reducing poverty, growth has its limits, according to a new World Bank paper released today. Countries need to complement eforts to enhance growth with policies that allocate more resources to the extreme poor. These resources can be distributed through the growth process itself, by promoting more inclusive growth, or through government programs, such as conditional and direct cash transfers’, Washington, DC, April 10, 2014. Retrieved from www.worldbank.org/en/news/ press-release/2014/04/10/ending-poverty-requires-more-than-growth-says-wbg

4

Theorising corporate responsibility and sustainable development

Introduction In this chapter, the reader will be reintroduced to the historical shift identifed in Chapter 2 from the traditional corporate form of business and a focus on a few stakeholders to being largely global and integral to strategic management and corporate governance. Corporate responsibility (CR) will be distinguished from corporate social responsibility (CSR) and sustainability, and readers will be introduced to the concepts of the social contract, frm-level and supply chain responses to CR, national and international drivers for CR, and the international variation of approaches to CR.

Corporate social responsibility versus corporate responsibility versus sustainability The use of the terms corporate social responsibility and corporate responsibility remain to this day somewhat interchangeable. Searching one term on the Web will end up fnding pages that references the other. Even within the academic literature, there is a tendency to blur the terms together, which raises the question as to whether there is a distinction between the two. Complicating matters further is the concept of sustainability, which also fnds itself within the CSR mix; however, as discussed in Chapter 2, sustainable development and the concept of sustainability was historically developed as a systems response to the impact of business on the natural environment and has been recognised as being distinct from CSR – a concept grounded in normative theory where the responsible actions of the frm are infuenced by corporate behaviour.1 When Carroll (1979)2 introduced his defnition for the term CSR, it involved recognising the societal expectations of how a frm acted economically, legally, ethically, and philanthropically. In that original work he identifed a number of social issues that could be associated with those expectations as part of his CSR model. Those issues included consumer protection, the environment, employee welfare, and shareholder interest. However, by 1991 with the introduction of Carroll’s CSR pyramid3, an adaption of his earlier model, the need to address social issues had been replaced by a simpler stakeholder approach following in the tracks of Freeman’s stakeholder theory.4 He argued that the use of the word ‘social’ was too vague and could not provide the frm with enough specifcity to guide it in being responsible. By focusing on

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the concept of stakeholders instead of social issues, his pyramid model and related stakeholder/responsibility matrix was designed to guide frms in identifying the specifc groups or individuals that should be considered when designing a CSR orientation. Unfortunately, this revised model was more generic in approach and lacked the specifcity of addressing certain social issues, and it left the determination of who was an impacted stakeholder, and the choice of social issues, in the hands of management. Furthermore, this revised model left out altogether any reference to considering the environment. Examining the use of the CSR and CR terms within industry today begins to paint a picture as to how they may be distinguishable from each other. Firms and organisations appear to have begun to use the terms diferently when they report on their activities in that the use of the term CR pertains to their organisational commitment to both CSR and sustainability. In some cases, they refer only to CR without any reference to the term CSR, as PWC Canada did in their report on their 2018 activities. Instead, the report highlights socially responsible initiatives such as community philanthropy, employee engagement, and workforce diversity and inclusion; environmental stewardship; and the responsibility to be ethical and transparent and to maintain integrity at all times.5 For industry, the term CR has efectively replaced CSR because it was felt that with the latter, the inclusion of ‘social’ meant that frms risked neglecting other important aspects of responsible behaviour that involved their relationship with their employees, their impact on the natural environment, and their fscal responsibilities. As suggested in 2018 by the Reputation Institute, an industry reputation measurement and management services frm, ‘Corporate responsibility is quadrilateral between social, fscal, employer and environmental responsibility. That is the new rubric for success’.8 Accordingly, we would argue that CSR and sustainability are concepts that both fall under the overarching concept of corporate responsibility. One can’t ignore, however, that the concept of sustainability includes a social dimension, and as shown in Figure 4.1, the CR model would contain both CSR and sustainability and

Corporate Responsibility

Economic

Social

Environmental

Sustainability

CSR

Figure 4.1 Conceptual model for distinguishing corporate responsibility, CSR, and sustainability

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some overlap between the concepts would exist. For example, in this chapter’s Insight 4.2 on Coca-Cola, that frm’s 5by20 initiative empowers female entrepreneurs to contribute to their communities and assists in reducing gender inequality.

Insight 4.1 Corporate Responsibility and Sustainability at the Coca-Cola Company The Coca-Cola Company grew from a simple start in 1886 as a beverage invented by an Atlanta, Georgia-based pharmacist as a medicinal product that combined kola nuts and coca leaves. Today, the company operates in over 200 countries and is the world’s largest beverage company with over 500 non-alcoholic brands. Their products include soft drinks, water, juice, dairy and plant-based drinks, cofee and tea, energy and sport drinks, and water. The company maintains an operating structure comprised of six operating groups: Europe, Middle East, and Africa; Latin America; North America; Asia Pacifc; Bottling Investments; and Corporate. The regional operating groups generate revenues from the production and sale of beverage concentrates and syrups with minor revenues from the actual sale of the fnished product. The bottling investments are CocaCola’s owned or controlled bottling, sales, and distribution operations within each of the regional operating groups. As a publicly owned company, their principal goal is to ‘optimize shareowner value creation over time’,6 in part by employing strategies that grow sales and revenue. This long-term value creation for its shareholders is representative of CocaCola’s corporate economic sustainability, but the company recognises the importance of its employees, and the monetary compensation it provides them is an integral part of this strategy. In May  2003, Coca-Cola’s India subsidiary had its water extraction licence revoked by the local government because their operation was deemed to be damaging the local groundwater, severely impacting the local community’s ability to extract water for their own consumption. In their 2003 annual report fling (10K) with the United States Security Exchange Commission, Coca-Cola’s only mention of activities in India was a one-line mention, ‘accusations, which we believe to be false, that our soft drinks in India contain high levels of pesticides’.7 Of course in that same report containing 123 pages, the word ‘responsibility’ is mentioned only three times in referring to the responsibility of certain ofcers of the company. Twelve years later, Coca-Cola began creating and publishing an annual report that addresses their corporate responsibilities and sustainable actions. They chose to title that document ‘2015 Sustainability Report’, emphasising sustainability as their principal corporate responsibility. In 2018 their report title was amended to ‘Business and

80 Perspectives on social change

Sustainability Report’, refecting the integration of their business activities and the impact it has on social and environmental sustainability. The 2019 Business and Sustainability report for Coca-Cola includes a vision statement for the company that combines their economic, social, and environmental responsibilities. Each of these dimensions will be discussed in Insight sections contained throughout the remainder of this chapter.

Integrative social contract The concept of the integrative social contract was put forward by Donaldson and Dunfee (1994) and was an extension of social contract theory, which had its origins in the 16th century when an English philosopher by the name of Thomas Hobbes claimed that in order for society to remain civil there needed to be a common understanding that it was in society’s best interest to agree to rules that would guarantee safety and security for every member of society. These rules, including specifc moral codes, would remain unwritten but would act as a social contract that would be passed on from generation to generation and would not be broken, thus becoming a set of social norms rather than actual laws. Donaldson and Dunfee added the term ‘integrative’ because they proposed the integration of two diferent kinds of contracts. The frst was normative in nature and involved economic communities of individuals, groups, and organisations who agree to a macrosocial contract of a set of universal values by which all communities abide (hypernorms). The second was a microsocial contract that allowed movement of individuals from those communities to other communities or to form their own communities based on their own view of what moral rules they should accept. Integrative social contract theory (ISCT) recognises that communities can be formal (a city or town) or informal (groups of people who share common interests) and can include industrial frms. Each of the communities’ microsocial contract is agreed to by the majority of community membership, and while there can be conficting values between certain communities, they cannot confict with the macrosocial contract that governs all communities. When addressing the corporate responsibility and sustainable actions of the frm, ISCT would require managers within that frm to make decisions that consider the norms within their respective functional areas but without compromising the norms of their frm as a whole. For smaller organisations, it is likely that there will be a consistency of norms between communities within it, but for larger frms, especially those that operate in a number of global locations, the probability that conficts will emerge is much greater, and this makes managerial decisions more difcult to make. This is amplifed when the frm accepts that the community in which it operates includes individuals, groups, and organisations outside of the frm itself. Figure 4.2 provides a model of the ISCT.

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Group of Economic Communi˜es Macrosocial contract (universal values)

Community A

Community B

Community C

Microsocial contracts (community values)

Microsocial contracts (community values)

Microsocial contracts (community values)

Firm

Firm

Firm

Local Ci˜zens

Local Ci˜zens

Local Ci˜zens

Government

Government

Government

Non-Governmental Agencies

Non-Governmental Agencies

Non-Governmental Agencies

Figure 4.2 Integrative social contract theory model

Firm-level and supply chain responses to corporate responsibility Traditional supply chain management theory has focused on ways in which cost efciency and productivity can be introduced into a frm’s supply chain. Today most frms have been subject to pressures from shareholders, customers, employees, and other stakeholders to implement systems and processes that limit environmental and social impacts arising from that frm’s supply chain activities. This addition to the corporate responsibility of a frm also extends to its suppliers. With global markets and global sources of resource inputs, the frm becomes responsible for overseeing the activities of its suppliers so that the complete life cycle of its products or services have met the frm’s established standard for responsibility. In light of the growth in the use of social media, shareholders, and customers in particular, have become more sensitive to the potential of irresponsible actions of the frm and its suppliers. The ofshoring of manufacturing from developed countries with established regulations that promote responsible workplaces and environmental protection to developing countries with weak or non-existent regulation has seen examples of child labour, race and gender discrimination, dangerous working conditions, and degradation of the natural environment. As a result, many of the multinational frms began developing corporate codes of conduct that stipulated social and environmental standards for their own internal operations with the expectation

82 Perspectives on social change

Innovators

Early adopters

Supply chain scope

Direct Suppliers

Indirect Suppliers

Raw Materials

that their suppliers would adopt the same standards. However, the ability to enforce standards can be difcult for those frms whose suppliers hold a position of power within the relationship. A recent report by Deloitte9 observed that some of the responsible supply chain management techniques were originally created to address environmental impacts associated with supply chain activities but that more recently the focus of frms has been on the social and governance factors related to their supply chain. Examining those factors has traditionally been undertaken through audits, but according to Deloitte they may be well understood and accepted by industry but audits are generally considered inefective. One of the main barriers to understanding the responsibility within the supply chain is its complexity, which results in a relatively opaque view of what is actually happening. Figure 4.3 provides a model, created by Alexis Bateman, a professor at MIT, and Leonardo Bonanni, founder of a supply chain management consultancy, which measures the transparency of a frm’s supply chain along

Early majority

Internal Opera˜ons

Majority

Transparency milestones

Figure 4.3 How transparent is your supply chain? Source: Bateman and Bonanni, 2019

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two dimensions. The frst dimension is the depth to which the frm is willing to disclose information about its suppliers, including where and how they or their suppliers source their raw materials. The second is the level of transparency a frm is willing to provide, ranging from a simple disclosure of their code of conduct to full disclosure. In between, frms can choose to disclose their adoption of recognised standards and certifcations of corporate responsibility, what corporate responsibility performance metrics they employ, and the ability to trace their supply chain activities. According to Bateman and Bonanni, most frms fall within the majority or early majority areas of the model, but they identify frms such as Patagonia as innovators due to that frm’s use of a mapping platform that fully discloses their suppliers and sources of raw materials. Other recognisable global companies, such as Nike and Marks & Spencer, disclose enough information about their operations that they can be classifed as early adopters.

International approaches to corporate responsibility Within the academic literature as well as in practice, the variance in how corporate responsibility is practiced in countries around the world is quite large. Most of this is due to the variability of standards, regulations, and norms, and institutional theory would predict that corporate responsibility would difer by country because of this variability. Certain global institutions such as the United Nations (UN), the World Bank, and the Organisation for Economic Co-operation and Development (OECD) are supporting a global approach to responsible practices with the intent of infuencing country institutions to adopt similar practices and to encourage frms within those countries to do the same. Amor-Esteban et al.10 undertook a study of 29 developed countries and more than 1,400 international frms from those countries in order to measure and compare 22 corporate responsibility practices involving fve dimensions: ethics, stakeholder engagement, employee welfare, human rights, and the environment. They found that European Union (EU) countries maintain the best practices with a leadership position on issues of social responsibility, the Americas emphasise ethical issues, while Asian countries and specifcally those in Southeast Asia have the worst practices. Table  4.1 provides the ranking of countries based on their national corporate responsibility practices.

Sustainable development theories As discussed in Chapter  2, sustainable development has more modern historical roots than corporate responsibility has. The concept’s origin has been attributed to the 1987 Brundtland Report, and since that time the academic literature has further explored what sustainable development means. In addressing that meaning, a number of theories pertaining to sustainable development have been put forward. In this section of the chapter we examine some of those

84 Perspectives on social change Table 4.1 Ranking of national corporate responsibility practices Country

Rank

Country

Rank

Finland Denmark Sweden Norway Netherlands Switzerland Australia Spain France Italy United Kingdom Belgium Germany Japan Canada

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

United States Brazil South Korea Austria Israel India China Mexico Turkey Russia Thailand Malaysia Singapore Hong Kong

16 17 18 19 20 21 22 23 24 25 26 27 28 29

theories, including the Kuznets curve, the triple bottom line, ecological modernisation, and post-materialism and contextualise them through application to our integrative case company, Coca-Cola. The Kuznets curve

Concern about the environmental impact of economic growth has existed well before the concept of sustainable development was introduced. Popular convention was that economic growth equated to industrial expansion and the pollution that was associated with it. In 1991, Grossman and Krueger11 identifed the environmental Kuznets curve or EKC. As shown in Figure 4.4, the EKC applies the conventional inverted curve (attributed to the economist Simon Kuznets and his work on the relationship between income per capita and income inequality) to the dimensions of economic growth and environmental degradation. The curve begins in the conventional way in that as the level of economic growth (as measured by per capita GDP) increases, there is a corresponding increase in the level by which the environment is negatively impacted. The EKC theory eventually takes hold where at some point the level of economic growth leads to a transition towards higher technology, information-intensive industries that are less destructive to the environment. At the same time, increasing institutional development leads to greater levels of environmental awareness, regulation, and technology that slows the pace of environmental degradation and eventually leads to its decline. We refer to the point at which the curve begins its downward path as the environmental infection point. The EKC is generally represented as being normally distributed, but in reality the pace of environmental degradation, both negatively and positively, varies

Environmental Degradaon

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Environmental Infecon Point Rate of Environmental Degradaon

Economic Growth Figure 4.4 Environmental Kuznets curve

depending on jurisdiction and types of pollutants. For example, even within developed countries with mature economies, the institutional and industry commitment to reducing greenhouse gas emissions can vary and thus the slopes of the curve can be steeper or shallower depending on that commitment. In the last 27  years since the EKC was introduced, concerns have been raised in the academic literature that empirical studies relying on the EKC theory have resulted in inconsistent results depending on the environmental indicators being measured, for example carbon dioxide (CO2) emissions or particulate pollution. Some researchers have found that the environmental infection point exists only at much higher GDP per capita levels, indicating that the EKC is in reality more skewed than normal in its distribution and that the world’s environmental degradation would continue to rise for the foreseeable future.12 This observation is illustrated in Figure 4.5 using the fndings from the 2018 Environmental Performance Index, a report published annually by Yale University and Columbia University in collaboration with the World Economic Forum. The index is comprised of 24 environmental indicators measuring the environmental health and ecosystem vitality of 180 nations with the results weighted and aggregated to provide a country’s environmental performance score. The report also provides certain economic measures for each country, including GDP per capita. As shown in Figure 4.5, the results of the report would suggest the opposite of the EKC in that environmental degradation is at its extreme in very poor countries and only improves as countries become wealthier on a per

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Burundi India

Environmental Degrada˜on

High

UAE

China

Singapore USA Qatar

Kuwait Luxembourg

Ireland Switzerland

High

Economic Growth Figure 4.5 Relationship of environmental degradation to economic growth

capita basis. This plot also suggests that at the wealthiest levels there may be an increase in environmental degradation. However, what this fgure really shows is that any relationship between the level of environmental damage and the size of the economy is, as mentioned earlier, likely infuenced by jurisdictional policies and practices.

Insight 4.2

Coca-Cola and Economic Sustainability

Coca-Cola contributes annually to the economic development of communities in which it operates. In 2017 the company directly employed 61,700 individuals worldwide, of which about 20% were employed in its home country, the United States, and paid $1.257 billion in foreign income taxes. Over the past two years, the percentage of Coca-Cola’s fxed assets that were located in countries outside of the United States grew from 34% to 49%. Table 4.2 provides details regarding Coca-Cola’s 2017 operations. Table 4.2 The Coca-Cola Company’s 2017 economic activity by region Asia Pacifc

% sales

Europe, Middle East, and Africa

% sales

Latin America

China

37%

Western Europe

31%

Mexico

Japan

15%

Central & Eastern Europe

21%

Brazil

% sales

North America

47% United States 21% Canada

% sales 94% 6%

(Continued)

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Table 4.2 (Continued) Asia Pacifc India

% sales 13%

Philippines Thailand Australia South Korea Indonesia Vietnam Other

9% 6% 4% 3% 3% 2% 8% 100%

Europe, Middle East, and Africa Middle East & North Africa South & East Africa Turkey & Central Asia West Africa

Latin America

% sales

19%

Argentina

8%

14% 10%

Chile Peru

4% 4%

5%

100%

Colombia Bolivia Ecuador Honduras Other

3% 2% 2% 1% 8% 100%

North America

% sales

100%

Employees

Operating Expenses (USD millions)

Investments and Capital Expenditures (USD millions)

19,300 19,400

$3,013 $3,728

$227 $1,318

4,400 18,700

$1,815 $8,059

$946 $653

1

Asia Pacifc Europe, Middle East and Africa Latin America North America

% sales

1. Including employees in bottling operations

Triple bottom line

The triple bottom line (TBL) refers to the idea that a business maintains a balance between its own economic interests and the social and environmental interests of the community in which it operates. It is also sometimes commonly referred to as the 3Ps (people, proft, planet). The TBL has been attributed to John Elkington,13 who as a business consultant frst put the concept forward in 1994 in response to concerns that businesses might ignore the importance of the environment, considering that the Brundtland Report’s agenda seemed principally focused on the economic and social dimensions of sustainable development. How each of the three dimensions are integrated with each other are best represented by two accepted diagrams as shown in Figure 4.6. The most common is the Venn diagram where sustainability is found to occupy that space where economic growth, social progress, and environmental protection overlap. Between each exists the binary relationships: socio-economic impact where economic development results in the creation of jobs, skills training, and social and local investment; socio-environmental impact that encourages society to protect the environment; and eco-efciency where economic growth coincides with a more efcient and environmentally benefcial use of natural resources. In such a representation, the underlying premise is that the economic well-being of the frm can only exist in the long term if it ensures

88 Perspectives on social change Government

Government

Communi˜es

Non-governmental

Environment

• Protect land, water and air

Social Social

• Protect human rights

Environment

Socio• Protect human • Protect land, water Environmental rights and air • Preserve • Preserve plant and communi˜es Sustainability animal life

Customers

Economic

• Protect capital investment • Preserve economic growth

Economic • Protect capital investment • Preserve economic growth

Suppliers

Shareholders

• Preserve communi˜es • Preserve plant and animal life

Shareholders

Figure 4.6 Triple bottom line representations

the well-being of the society and the environment on which it has an impact. The areas outside of the overlaps represent the frm’s actions that afect each of the dimensions in isolation from the others. For example, a frm will generate economic growth for its shareholders without any direct impact to either society or the natural environment, or it can beneft society and the natural environment indirectly through spillover efects from increased employment and environmental reputation respectively. Whereas the Venn diagram suggests that each dimension is to be treated equally, the ‘Russian doll’ model sets a decisionmaking process for sustainable development that is centred on the economic well-being of the frm but recognises that economic decisions must consider their impact on the society in which it operates which in turn may also impact the environment in which both the frm and society are located. The difculty with the TBL approach is that the ability of managers to quantify and compare each of the dimensions to fnd the appropriate balance can be very difcult. Measuring economic growth can rely on metrics such as shareholder return or revenue growth, but determining the cost of social or environmental impact can be challenging. In Chapter 8 we will address the metrics associated with evaluating a frm’s sustainable development activities. Earlier in this chapter we discussed the expansion of stakeholder interests as it pertained to corporate responsibility, and this follows when a frm pursues the TBL approach to sustainable development. It must recognise that its sustainability actions should consider not just their shareholders and employees but also a greater number of stakeholders. It may seem obvious that the economic dimension of the TBL involves a frm’s employees (salaries), shareholders (proft distribution), suppliers (purchases), and government (licence fees and taxes), but even communities and NGOs can infuence the economic growth of the frm. History has shown us that without their approval, the potential costs of operating (directly or indirectly) can hurt a frm’s proftability

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or shareholder value. Examples include communities closing access to plants (Coca-Cola’s groundwater use in India) and NGO-led protests that damage a frm’s reputation and limit share price growth (Talisman Energy in war-torn South Sudan). The approval of the local community and/or NGOs has been termed the social licence to operate.14 Stakeholder involvement in both the social and environmental dimensions of the TBL is multifaceted. For shareholders, the reputational risk associated with ignoring societal concerns, such as product safety and fair trade within their supply chains, and damage to the natural environment are major considerations in protecting shareholder value. To illustrate an example, the 2010 Horizon disaster and oil spill in the Gulf of Mexico reduced British Petroleum’s shareholder value by over £52 billion (approximately US $80 billion) or 50% of the frm’s market value immediately after the event. Equitable employment opportunities, health and safety, and workplace environment are examples of social and environmental dimension items that afect employees as stakeholders. Customers are directly concerned with the safety, performance, and greenness of a frm’s product as are suppliers in terms of fair trade and the potential expectation that pressure to lower costs may result in a lack of investment in improving workplace conditions and environmental protection. Finally, consideration as to how a frm might assist in protecting the natural environment and improving the social well-being of the community becomes an additional stakeholder concern of the frm. The role of governments as stakeholders within the social and environmental dimensions of the TBL is a contentious one. Government regulation should be expected to establish the rules that govern a frm’s social and environmental actions, in which case the government becomes a signifcant stakeholder. However, in certain jurisdictions regulation may be lacking or non-existent, reducing the government’s impact as a stakeholder. In the latter case, the existence of NGOs who can monitor and report on the social and environmental performance of a frm and therefore, as discussed earlier, afect the reputation of the frm, becomes the only form of external governance of a frm’s operations along these two dimensions.

Insight 4.3

Coca-Cola and Social Sustainability

In their 2016 Sustainability Report, the Coca-Cola Company highlighted a number of social sustainability initiatives that were started as part of their 2020 Sustainability Strategy. These included the requirement of all bottling partners and direct suppliers to comply with the company’s supplier guiding principles (SGPs). These principles require them to conform to the company’s own human rights policy that itself is based on the United Nation’s Guiding Principles on Business and Human Rights.15 Coca-Cola also operates the 5by20 initiative that in 2016 supported over

90 Perspectives on social change

half a million women throughout their four operating regions in pursuing their entrepreneurial goals and, in doing so, empowering them to contribute within their communities and reducing gender inequality. This involves working with women in 64 countries with over 90% of the funding going to women outside of North America and Europe. In that same year, the company invested 1.2% of its operating income back into the communities in which it sells its products, with the majority of that investment going to education, youth development, HIV/AIDS treatment, and increased access to medical supplies as part of humanitarian and disaster relief initiatives. Since 2014, in terms of reaching or exceeding their 2020 goals, Coca-Cola has exceeded their target of giving back 1% of operating income each year, increased the percentage of bottling partners that complied with the SGPs from 88% to 92% (target – 98%) and maintained the percentage of direct suppliers who complied with the SGPs at 91% (target – 95%). The 5by20 goal of 5 million women empowered by the initiative had reached 1.7 million women by the end of 2016, and as of 2019 that number had grown to over 4.6 million. The company also continues to maintain a strategy of moving towards limiting the impact on consumer health by reducing sugar in their drinks and maintaining a policy of not targeting their advertising towards children. This includes reducing added sugar to their product lines while promoting low- or no-sugar products. A quick and relatively easy solution to achieving their lower sugar strategy was the reduction of package sizing, which lowered costs while reducing the amount of sugar consumed because of the reduced volume per unit sold. In 2019, nearly half of their brands come in packages of 250 millilitres or less. This allowed Coca-Cola to actively promote to their shareholders the reduced sugar volumes of their brand lines yet growing sales of those brands. Furthermore, the company has been able to use its global presence to identify markets where lower sugar amounts were more acceptable, including the European Union and Mexico. As a result, 90% of their top-selling brands contain low or no sugar or have a low- or no-sugar option.

Ecological modernisation theory (EMT)

The theory regarding ecological modernisation had its beginnings in the early 1980s as an extension of the study of ecological social sciences. At that time, the theory put forward the idea that the economy will beneft from actions that serve to protect the environment. The central premise was that new technologies could address environmental damage brought on by economic development. In doing so, they would stimulate technological and social change that would help transition markets away from a reliance on old polluting industrial institutions to more modern ones that seek to integrate environmental

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protection into their strategies. In terms of stimulating economic growth, the theory follows a similar approach taken with theories for improvement in the use of labour and capital. In either case, more efcient use stimulates economic growth, and EMT suggests the same can be said for using the planet’s natural resources more efciently. The concept of ‘green capitalism’ has been attributed to EMT,16 in that a capitalistic economy that relies on private investment and competitive markets can treat the natural environment as natural capital in addition to other forms of capital, and like those other forms of capital there is an element of fniteness that suggests scarcity and therefore value. But the difculty with generalising this concept is that global capital systems are principally driven by a proft growth and risk management philosophy, and any attempt to protect natural capital that might jeopardise the ability to grow profts or manage risk may be ignored. This criticism of green capitalism and EMT in general continues even today. Adding to this dilemma is the recognition that our natural environment is shared globally among a group of nations with their own political, economic, and social systems that may or may not be designed to protect it. Furthermore, inequity exists where some nations have a greater infuence on decisions made regarding the global economy, yet with no guarantees that such decisions will beneft all nations. EMT counters these concerns by introducing the role that societies and states will have going forward. According to the theory, consumers within capitalistic economies will infuence proft growth for frms that address environmental harm through purchasing decisions that stimulate eco-friendly products and services. Citizens of democratic societies can infuence states, through electoral actions, to take responsibility for environmental degradation by introducing environmental policies. To the extent that such states can infuence global economic relationships, the ability to convince non-democratic states to institute similar environmental policies is plausible. Post-material value (PMV)

The concept of post-material value or post-materialism has been attributed to a social scientist, Robert Inglehart, who in 1971 identifed a global trend among industrialised countries whereby individuals began valuing their quality of life over prosperity and economic security.17 As opposed to the ecological modernisation theory, where scarcity of natural resources can lead to efcient and environmentally friendly use of those resources, PMV theory relies on the relief from scarcity of resources that allows prosperous societies to place less value on material items and more value on the satisfaction of personal needs such as esteem, belonging, aesthetics, and intellectual fulflment. The theory further requires the recognition that one’s values begin developing during late childhood and evolve as they age and become more involved in the ongoing activities of the society in which they live. This concept has been referred to as the socialisation hypothesis.18

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To the extent that sustainable development involves economic, social, and environmental sustainability attributes, the PMV theory would hold that increasing economic development will lead to greater encouragement of socially and environmentally sustainable actions, as the latter could be defned as less materialistic. The underlying premise of PMV theory is that economic sustainability allows for the satisfaction of basic needs such as food, water, and shelter. Once that level of need has been met, society can then pursue the fulflment of the less basic needs such as non-material qualities of life or the quality of the natural environment. The PMV theory has been criticised as being too ‘one dimensional’ as it addresses values as a continuous range from materialistic to post-materialistic. More recent research would suggest that individual values can be a combination of both depending on a more complex understanding of individual well-being.19 In societies where personal well-being and quality of life are encouraged, post-materialistic values are more prevalent regardless of the level of prosperity as measured by Inglehart. However, this criticism only helps expand the theory to include additional measures of well-being beyond those which Inglehart had used to measure prosperity. Another criticism relates specifcally to how the PMV theory relates to environmental quality. Research has found that societies and individuals in developing countries do value the protection of their natural environment as opposed to the EMV theory proposition that relates the level of the intent to be environmentally sustainable with the level of societal prosperity.20

Insight 4.4 Coca-Cola and Environmental Sustainability Coca-Cola has been criticised in the past for its operating practices that have impacted fresh water supply in countries such as India where water can be scarce. As a large global company, they are also open to criticism about the impact they may be having on climate change. This has resulted in a number of 2020 goals related to the environmental impact that Coca-Cola and its operations have on the regions in which they are located. These goals include impact reductions in agriculture, greenhouse gas emissions, and packaging and water stewardship. Agriculture provides almost half of the inputs that go into Coca-Cola’s products, and they have developed guiding principles for sustainable agriculture for the company to follow. The 2020 goal for their agriculture initiative is to sustainably source 100% (2016 percentage in brackets) of their key agriculture ingredients including beet (75%) and cane (25%) sugars, coffee (100%), corn (25%), lemons (75%), oranges (25%), and tea (100%). The company’s carbon footprint due to emissions from manufacturing and energy use has also been identifed by the company as an area for improvement. Their 2020 goal is to reduce their carbon footprint for

Theorising corporate responsibility

each beverage they produce (as measured by the ‘drink in your hand’) by 25% as compared to their 2010 baseline. Between 2015 and 2016, they had reduced that carbon footprint by 15% to 16%. By 2019, CocaCola had reached a 24% reduction and had reset its priorities to include increased action regarding their contribution to climate change by further reducing corporate supply chain emissions. Their revised target was to continue reducing their absolute Scope 1, 2, and 3 GHG emissions21 to target a 25% reduction from their 2015 baseline by 2030. Coca-Cola also has a long-term vision of contributing to the concept of a circular economy that reduces waste by increasing the amount of packaging that is renewable, reusable, or recyclable. With a 2020 goal of recovering and recycling 75% of the bottles and cans they sell, the company achieved a rate of 60% in 2019, down from 61% in 2014. Their failure to meet their goal has resulted in a rethinking of their waste strategy, recognising that signifcant challenges exist at the local level. This includes designing 100% of their packaging to be globally acceptable for recycling with the use of recycled material in half of their total packaging by the year 2030. This revised 2030 goal would assist in being able to collect and recycle a bottle or can for each one they sell. Coca-Cola produces a number of products that rely on natural ingredients sourced from various agricultural sources. These ingredients include natural sweeteners, fruit juices, cofee, tea, soy, and certain timber products, all of which are sourced from a variety of farming communities around the world. The company recognises that sustaining the quality and integrity of their products requires a sustainable supply chain, so Coca-Cola has developed their own sustainable agriculture guiding principles when it comes to sourcing ingredients, many of which integrate the social and environmental issues that they currently address. The 2020 goal was to achieve 100% certifcation of their global priority ingredients but in 2019 they had only reached 54% of that goal, highlighting the diffculty in achieving a sustainable supply chain when relying on numerous suppliers from a variety of global locations. Finally, the most important environmental issue for Coca-Cola was water use, the largest input to their business. In 2004 they were using 2.7 litres of water to produce 1 litre of product. As part of the company’s water stewardship programme, they had a 2020 goal of returning to the local communities and nature 100% of the water used in producing their beverages. This goal was achieved in 2015, and since then Coca-Cola has returned surplus volumes of water by investing in water wells, water storage, and purifcation systems in communities where they operate. In 2019, the company was returning 160% to nature and communities because of these investments. They have also conserved through more efcient operating practices that have reduced consumption per litre;

93

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however, their 2020 target of improving water efciency by 25% was admittedly over-optimistic, with 2019 achieving only an 18% improvement. This admission has led to the development of a new water strategy and goals to be announced in 2020. As Coca-Cola’s top sustainability executive once wrote, ‘we have learned that achieving maximum positive social and environmental impact from our sustainability eforts requires identifying and implementing integrated programs. By linking related issues, we are able to take a holistic approach with projects.’22

Values chain for developing countries

Society Infrastructure

Support Activities

Government Industry Trade Environmental Sustainability Economic Sustainability Social Sustainability

Physiological Needs

Safety and Security Needs

Love and Belonging Needs

Primary Activities Figure 4.7 Values chain framework

Self-Esteem Needs

Sustainable Development (Self-Actualization)

Walsh (2011) proposed the values chain framework that establishes a sustainable development priority for developing nations (Figure 4.7).23 Combining the theories of Maslow’s hierarchy of needs and Porter’s value chain, the framework is integrative in nature and treats societies as large organisations whose primary responsibilities and related activities are associated with the orderly attainment of societal needs. The initial primary activity is the attainment of physiological needs such as air, water, food, and shelter, followed by the safety and security needs as represented by security, stability, and law and order and by a need for love as found through afection and a sense of belonging. The fnal primary activity provides self-esteem through increased positive recognition and achievement. To implement these primary activities, it is important to have support within the societal infrastructure represented by government, industry, and trade. For example, government policies can lead to the appropriate allocation

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of resources (external aid, tax revenues) towards ensuring food and water supply. Laws and regulations can also encourage societal norms that stimulate afection and belonging within a society. Industry and trade leads to job creation and technological development that can contribute to the safety, security, self-worth, and esteem of individuals and the society as a whole. The fulflment of primary responsibilities by a developing society allows it then to consider contributing its resources and eforts towards additional initiatives that would complete the betterment of the society in which they reside. The framework equates this result with sustainable development and identifes that, for developing countries, social and environmental sustainability should have priority over economic sustainability. That is not to say that economic sustainability is not important but that any policy that improves the economic development of that society should ensure that improvements in social and environmental conditions also result. Chapter insight questions

1

2 3 4 5

Relying on a web search of Coca-Cola’s most recent report on its corporate responsibility activities, identify whether they have evolved from a position of corporate social responsibility as defned in this chapter to one of a combination of corporate responsibility and contributions to sustainable development. Based on your review of Coca-Cola’s Business and Sustainability report, how transparent are they about their supply chain? Provide examples to support your answer. Which of the triple bottom line models applies to Coca-Cola and why? How has Coca-Cola applied the concept of environmental modernisation? Provide examples to support your answer. With Coca-Cola’s presence in many emerging economies, what strategies could they implement that would be consistent with the values chain model?

Notes 1 Bansal, P.,  & Song, H. C. (2017). Similar but not the same: Diferentiating corporate sustainability from corporate responsibility. Academy of Management Annals, 11(1), 105–149. 2 Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4, 497–505. 3 Carroll, A. B. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34(4), 39–48. 4 Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman. 5 Retrieved from www.pwc.com/ca/en/about-us/corporate-responsibility.html 6 The Coca-Cola Company 2017 Annual Report (p. 2). 7 2003 Form 10-K Filing, US SEC (p. 26). 8 Valet, V. (2018). The world’s most reputable companies for corporate responsibility 2018. Forbes. Retrieved from www.forbes.com/sites/vickyvalet/2018/10/11/the-worldsmost-reputable-companies-for-corporate-responsibility-2018/#561e45083371

96 Perspectives on social change 9 Monitor Institute by Deloitte. (2019, April). Responsible supply chain tools: Understanding the market opportunity. Retrieved from https://www2.deloitte.com/content/ dam/Deloitte/us/Documents/about-deloitte/us-about-deloitte-humanity-unitedresponsible-supply-chain-tools.pdf 10 Amor-Esteban, V., Galindo-Villardón, M. P., & García-Sánchez, I. M. (2019). A multivariate proposal for a National Corporate Social Responsibility Practices Index (NCSRPI) for international settings. Social Indicators Research, 143(2), 525–560. 11 Grossman, G. M., & Krueger, A. B. (1991). Environmental impacts of a North American Free Trade Agreement. NBER Working Papers, 3914. 12 Stern, D. I. (2017). The environmental Kuznets curve after 25 years. Journal of Bioeconomics, 19(1), 7–28. 13 Elkington, J. (2004). Enter the triple bottom line. In A. Henriques  & J. Richardson (Eds.), The triple bottom line: Does it all add up? (pp. 1–16). London, England: Earthscan. 14 Walsh, P. R. (2014). A license to operate? An empirical examination of the infuence of environmental and social performance on the fnancial performance of mining sector frms. International Journal of Innovation and Sustainable Development, 8(2), 190–206. 15 U.N. Human Rights. (2011). Guiding principles on business and human rights. New York: Ofce of the High Commissioner, U.N. Human Rights. Retrieved from https://www. ohchr.org/documents/publications/guidingprinciplesbusinesshr_en.pdf 16 Mol, A. P.,  & Spaargaren, G. (2000). Ecological modernisation theory in debate: A review. Environmental Politics, 9(1), 17–49. 17 Promislo, M. D., Giacalone, R. A.,  & Deckop, J. R. (2017). Assessing three models of materialism – Postmaterialism and their relationship with well-being: A theoretical extension. Journal of Business Ethics, 143(3), 531–541. 18 Inglehart, R. F. (2008). Changing values among western publics from 1970 to 2006. West European Politics, 31(1–2), 130–146. 19 Promislo, M. D., Giacalone, R. A., & Deckop, J. R. (2017). Op. cit. 20 Mostafa, M. M. (2013). Wealth, post-materialism and consumers’ pro-environmental intentions: A  multilevel analysis across 25 nations. Sustainable Development, 21(6), 385–399. 21 Direct, owned-indirect, and related-indirect greenhouse gas emissions. 22 Bea Perez, Sr. Vice President and Chief Public Afairs, Communications and Sustainability Ofcer. (2016). 2016 Coca-Cola Company sustainability report (p. 5). Atlanta. Retrieved from https://www.coca-colacompany.com/content/dam/journey/us/en/ policies/pdf/sustainability/2016-sustainability-report-the-coca-cola-company.pdf 23 Walsh, P. R. (2011). Creating a ‘values’ chain for sustainable development in developing nations: where Maslow meets Porter. Environment, Development and Sustainability, 13(4), 789.

5

Social change and technological innovation

Introduction Meeting sustainable development goals is of public rather than private value and requires both social and technological innovation. In Chapter 5 we address how such socio-technical change involves social change, for example the adoption of renewable energy, carbon capture and storage systems, more efcient irrigation methods, essential medicines, household water purifcation devices, and manufacturing processes that minimise waste and pollution. We provide insight into how moving society to a more sustainable way of life is both an end and a process, as might be found with the concept of a circular economy. In doing so a number of questions are addressed. How should this transformation be managed? Whose sustainability should be prioritised? Who governs this process? What is the appropriate lens for managing the process? Why do some countries seem more advanced than others? This chapter will introduce how and why particular jurisdictions are able to implement policies that lead to faster or more fundamental changes in sustainable practices. It will also examine why a circular economy approach is an important step in enabling the transition to a more sustainable future in energy and waste, consumption, and production. Concepts related to the common good, shareholder value, shared value, stakeholder value, and public value are explained.

Socio-technical change Socio-technological change has existed since the dawn of humankind as the human population grew and various forms of collective societies emerged based on their respective development of culture, politics, and economies. This chapter will not go into the depth of what constitutes each of these three dimensions of society but rather accept that each of them have their infuence in the modernisation of society and that our focus will be post-modernist in nature. In terms of cultural development, the world is now comprised of many diferent cultures, whose social norms have been created and maintained over hundreds if not thousands of years. The world is also comprised of a number of political and national systems, but it is only in the last few centuries, a

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nanosecond in respect to the time that humans have occupied this planet, that these systems have developed. Furthermore, it is only relatively recently that this world fnds itself facing the spread of capitalism and global democratisation. Accordingly, an interdependence exists between these global social subsystems even though they remain controlled, in one form or another, by their internal cultural and political logic. This logic drives the acceptability of cultural traits and society’s participation in the political process, including their respective form of representation. For example, in some cultures colourful forms of dress are acceptable while in others it is not, or certain jurisdictions have multiple levels of elected representatives while others do not. The economic and business models acceptable to society are then impacted by this logic as it represents the landscape which industry must face in order to produce its product or service. As history will tell us, culture and politics change over time and in doing so infuence industries to change. This process is commonly characterised as ‘industrial modernisation’ and generally approached from the perspective of socio-technical systems change. The post-modern literature on socio-technical change has its foundation in the work of Polyani (1944).1 He was a social economist who used his experiences in Europe during the Great Depression of the 1930s and into the Second World War to write about societal change and transformation, including the emergence of various social systems such as socialism, fascism and communism in response to failures associated with the prior, more liberal and capitalistic society that had emerged from the great Industrial Revolution of the 1800s. In fact, putting things in context, the time between Polyani’s work and the present day is approximately the same amount of time between the published date of his work and the end of the frst industrial revolution, one of four signifcant industrial changes driven by socio-technological systems (Figure 5.1). Each of the socio-technological periods experienced exponential growth in the global economy, led by the United Kingdom in the 1800s and the United States in the 20th century. The emergence of China over the past 20 years suggests that they may become the next global economic leader. Global population growth has also been exponential during this same period and has contributed to economic growth as well. However, there is a linkage in that socio-technical systems have contributed to improving the standard of living and the quality of life, allowing for lower mortality rates that have allowed for this rise in population. Within a socio-technical system exists a number of actors, technologies, and institutions positioned at difering levels of infuence, for example global, domestic, and local, with multiple pathways of interaction. In the late 20th century, Kemp (1994)2 identifed the interrelationship of niche actors with technology regimes and how these regimes are shifted by radical technological innovation introduced by those actors. When we refer to ‘regimes’ in this context, we are talking about the informal and formal governance instruments that exist to regulate and provide structure to a socio-technical system and

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Third Industrial Revolu˜on

Real GDP per capita 1820-2010 ($1990) 35000 30000 25000

First Industrial Revolu˜on

• • • •

Digitaliza˜on Personal compu˜ng Mobile phones Nuclear Power

Second Industrial Revolu˜on

• Mechaniza˜on • Steam Power • Coal

• Internal Combus˜on Engine • Steel construc˜on • Chemical synthesis Telegraph and • Telephone • Electricity, oil and natural gas

20000 15000 10000

Fourth Industrial Revolu˜on

• The Internet • Sharing Economy • Renewable Power

5000

1820 1826 1832 1838 1844 1850 1856 1862 1868 1874 1880 1886 1892 1898 1904 1910 1916 1922 1928 1934 1940 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006

0

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United Kingdom

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Figure 5.1 The four industrial revolutions Data source: Our World in Data, https://ourworldindata.org/economic-growth

its value to society. Geels (2002) expanded on the niche/regime relationship when he introduced an integrated multilevel framework for technology transitions to explain socio-economic system change.3 Commonly referred to as the multilevel perspective (MLP), it observes change as a consequence of dynamic interactions between a number of actors within the marketplace, the state, and civil society as a whole. These changes or transitions within socio-technical systems are not simply linear but rather a combination of non-linear processes that exist between the niche technical players such as the radical innovators, the existing socio-technical regimes in which established technology is embedded in society, and an overarching socio-technical landscape, infuenced by societal cultures and politics (Figure 5.2). The MLP model describes how an existing socio-technical regime is a system comprised of elements that are controlled and maintained by diferent social groups and actors along a variety of societal dimensions such as the market itself, industry participants and competitors, cultural norms, social policies, and scientifc and social institutions. The regime is path dependent, set by previous societal decisions and developments that have established the direction of future production and provision of products and services. A regime can remain stable for some time as potential pathways remain shut of by regime actors and institutions. It is the external change drivers that exist at the landscape level in the form of political ideological diferences, social value trends, or macroeconomic trends that can destabilise the socio-technical regime and provide

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Socio-technical Landscape

Regime transi on infuences landscape

Ongoing landscape drivers infuence exis ng regime providing opportunity for niche innovators

Socio-technical Regime

Markets, User Preferences Industry A dynamically stable regime Science with ongoing processes Policy contained within dierent Culture dimensions Exis ng Technology

Niche-innova ons Small network of niche actors crea ng and suppor ng novel innova on

Innova on gathers wider adop on by society resul ng in changes to socio-technical regime Innova on aligns and becomes dominant design

Time

Figure 5.2 Multilevel perspective on socio-technical change Source: adapted from Geels, 20124

opportunities for niche innovators. Identifying these opportunities, they create a product or a service that emerges as a dominant design relative to the existing technology within the regime. As it gathers momentum within the market, it becomes the technology of choice with the potential to signifcantly alter the existing socio-technical regime. Of course, the niche innovator may also fail in breaking though into the broader regime, in which case their product or service remains within the niche environment. The MLP framework and other transition theories can be applied in understanding sustainability issues pertaining to social reproduction, increased consumption, and economic growth. In fact, Kemp’s work pertained to the role that new technological regimes could play in addressing environmental issues facing the planet. Theorising social and political trends in the context of sustainability can feed the MLP model, so assessing social diferences is important in recognising what sustainable or unsustainable actions individuals might make. In doing so, one must take care not to create a one-dimensional caricature of the individual, as it may blur key diferentiators that lead to missed opportunities for the niche actors and their sustainable innovations. Furthermore, socio-technical regimes contain inertial social inequalities and power dynamics that infuence individual knowledge, attitudes, and behaviours. The role of government can be signifcant in promoting socio-technical change by introducing policies that assist in transforming socio-technical systems to be more sustainable. However, the process behind introducing such policies, given diferences in social values and political ideologies, remains a challenging one.

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China’s Sustainability Paradox

China has been on a 40-year economic growth path since it initiated economic reforms and more liberal trade policies in 1979. Prior to that time, the country had implemented isolation policies that restricted the economy through central control, leading to inefciencies and uncompetitiveness. After instigating policies changes, China has averaged approximately 10% annual growth in their real GDP, making it one of the world’s leading economies. Unfortunately, its economic growth has included growth and investment in energy-intensive industries that have relied on polluting sources such as coal. Furthermore, industrial growth proximal to urban centres and coastal ports has resulted in the migration of population away from rural communities to the cities. This paradox between economic growth and its negative impact on sustainable development has raised concerns for the Chinese government and the need for more balanced policy. In the past few years the situation has improved (we provide a historical measure in Insight 5.3), but the country continues to face major challenges: carbon emissions, pollution control, income inequalities, damage to marine ecosystems, and the urban-rural gap.5 China’s environmental issues have been well publicised, however the social issues arising from the signifcant growth in urbanisation to support their economic growth may become as great a problem. Current government policy aims to increase the rate of urbanisation a further 10% by 2030, adding hundreds of millions of people to China’s cities (see Figure  5.3) and, with that, increased pressures on social stability.

Urban Popula on as a % of Total 90 80 70 60 50 40 30 20 10 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038

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OECD

OECD Forecast

Figure 5.3 Urbanisation of China Data source: World Bank, https://data.worldbank.org/

China Forecast

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Social unrest may arise from this policy because of the forced migration of citizens and the potential for confict between residents and new migrants. Environmental pollution will also increase health issues that could impact the level of available healthcare through overcrowding of existing health facilities. The migration efect has consequences for rural society as well. Parents leaving their rural communities for employment in the cities commonly leave their children with older family members, and this has had a detrimental psychological and sociological impact leading to problems with the child’s socialisation abilities and their education. A number of questions need to be addressed when considering socio-technical change. In this section of the chapter we provide some discussion to each of the questions in an attempt to inform how it might be answered. In addressing each question some refection is required, and we provide some examples to illustrate how socio-technological systems have responded. How should this transformation be managed?

As suggested earlier, governments can play an important role in managing the transformation through policy intervention. However, some considerations need to be part of any discussion on managing socio-technical system transformation. The primary consideration is one of providing value to society. For the transformation to do that it must align three principal dimensions of the socio-technical regime: economic models of value creation and distribution, valuation mechanisms (how society determines the level of value), and related business models and market structures. Another consideration pertains to the normative and cultural values of the society itself, and transformation can occur when products or services provide social value and contribute to sustainable lifestyles. Finally, proper governance over institutions of authority, social formative power relationships, and technical standards need to be in place to assure niche actors of a level playing feld to encourage the introduction of potentially regime-changing innovation. Combining each consideration limits the capability of any frm or organisation to manage completely the transformation of a socio-technical regime. Only government is given (democratically or undemocratically) the authority to manage that change. For example, the invention of the internet disrupted socio-economic systems around the world as an open source innovation. It has transformed a myriad of industries from telecommunications to retail as societies recognise the value it can provide. The extent of its contribution to that transformation, however, remains subject to the social and political landscape that infuences the regime. In Canada, the telecommunications industry is heavily regulated in favour of incumbent Canadian-controlled media companies who control the cost of internet access, achieved because of their earlier regulated ownership of infrastructure, but who

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do not control internet content. This is due to Canadian social and political infuences that encourage open access to global content provided by frms such as Facebook, Twitter, YouTube, and Netfix. Like Canada, China also heavily regulates its telecommunications industry for the beneft of Chinese companies, but the government also extends that regulation to internet content so that frms like Facebook, Twitter, YouTube, and Netfix have either been banned or have chosen to not provide their services in that country (humorously referred to as ‘The Great Firewall of China’). Made in China substitutes exist, such as WeChat (Facebook), Sina Weibo (Twitter), Youku Tudou (YouTube), and iQIYI (Netfix). Although it would seem that this diference in government policies appears to have little efect on the development and use of technology related to the internet, it can have an impact on the relative transformation capabilities of the respective socio-technical regime currently in place. In a 2016 Time magazine article,6 Chinese scholars complained that the government policy of censorship of internet content was limiting innovation in the country as it precluded access to global information that could assist researchers. Niche innovators in China are not only discouraged by the lack of access to information, but the messaging from policy makers of a controlled socio-economic system also raises barriers to exploiting opportunities that may exist as a result of global landscape changes. The China experience underscores the importance of accepting that socio-economic change involves the interaction of culture and markets and the association of the discourse of power and the economy within a society.

Insight 5.2

China’s Sustainability Regulation

Since 2017 the Chinese government has pursued a fve-year plan to continue its economic growth but to implement stricter policies for dealing with the associated environmental impact. These policies include both fnancial incentives and more stringent regulation. This is particularly the focus for the northeast of the country where pollution is the heaviest. Numerous government agencies such as the State Council, the National Development and Reform Commission, the Ministry of Industry and Information Technology, and the Ministry of Environment Protection are working with industry and local governments to improve energy efciency and to reduce carbon emissions. Strict inspection of these activities were also mandated by the central government as part of the 2017 Environment Protection Act. The act was designed to improve energy efciency, restrict waste disposal, restrict emission of volatile organic compounds such as benzene and formaldehyde, and increase controls on pollution emitted by industrial processes. Initial results have been positive with coal being replaced by natural gas in the more densely populated areas of the country. This has had an economic impact, as natural gas

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is more expensive than coal given the additional investment in natural gas infrastructure and the need for liquefed natural gas import facilities. Policies to improve efciencies within industry supply chains were an attempt to reduce pollution while improving the proftability of industry frms. Smaller frms have been impacted by being shut down when they could not aford to deal with restrictions on emissions or the discharge of waste. In some areas of the country, local governments have implemented the central government policies in simple blanket approaches that covered multiple sectors or entire industry parks and in doing so have damaged local economies and employment. Social regulation policy remains focused on encouraging urban growth by reforming migration restriction and investing in urban infrastructure to establish more sustainable living conditions for urban populations.7 The economic impact of the environmental regulations and the required investment for sustaining urban environments may have a signifcant fnancial efect, especially in light of the trade conficts with the United States, its single largest market for produced goods, and the 2019–20 COVID-19 global pandemic, both of which could result in reduced economic output. Accordingly, some changes to these existing policies may occur in the near future.

Whose sustainability should be prioritised?

It is difcult to answer the question of sustainability priorities in the context of socio-technical change without frst discussing the concept of the political nature of system boundary. As mentioned earlier in this chapter, a socio-technical regime or system is inherently subject to a political boundary. Political boundaries, unlike natural boundaries like a river or a mountain range, are artifcial and subject to change. Country boundaries change intermittently due to confict and war. Germany’s political boundary has changed numerous times since its original formation in 1871 due to war and reunifcation, and the political reorganisation of electoral boundaries is even more frequent. As a result, the pursuit of sustainable development through socio-technical transformation is limited by this systems boundary efect and related diferences in sustainability goals. Specifc objectives such as GHG emission reductions to prevent global climate change can be subject to varying levels of societal and political concern depending on the visible impact to the socio-economic regime. For example, in Western Canada where the oil and gas industry is a signifcant economic contributor and where Canadians are exposed to cold winters and cool summers, they are less likely to be concerned with global warming but are concerned about policies that limit fossil fuel production. To them, that aspect of environmental sustainability holds little priority. In lowlying populated regions of Bangladesh, climate change is resulting in rising sea levels that will subject the country to catastrophic fooding that could kill

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thousands and impact millions. For Bangladeshis, climate change is a real concern and therefore should be a priority. Yet, even the visible nature of the threat is not enough to raise the priority of environmental and social sustainability above that of economic sustainability. The economic growth of Bangladesh requires energy to fuel it, and that has historically come from fossil fuel power generation. In order to maintain that growth, government policy has continued to support investment in coal- and natural gas-fred electricity generation at the expense of increasing the environmental impact that may have.8 The trade-of for Bangladeshis involves deciding between the most economically and operationally viable solution to a growing economy, with a more immediate and consistently visible social beneft of jobs and security of energy supply, and intermittent natural disasters associated with climate change. This is just one example of how priorities vary in terms of sustainable socio-economic systems, and they are not limited to the economic growth versus sustainability argument. Within the low-carbon socio-economic system, specifc trade-ofs related to the natural environment afect priorities. Biofuel use can lead to a loss in biodiversity, solar farms might impact available urban development and rural agriculture, wind farms can impede the visible landscape and lower property value, and nuclear energy results in radioactive waste contamination. Scientifc and technical evaluations of these non-fossil-fuel alternatives can seek to mitigate their impacts on the natural environment, but societal barriers to acceptance can remain, reinforced in part by proponents’ assumptions that may be perceived as subjective and arbitrary. Who should take responsibility for prioritising sustainability objectives within the prevailing socio-technical regime becomes an important question, given the possibility that social values and political ideologies can negate the positive trajectory of sustainable socio-technical pathways. The answer lies with transition management, that is, whether sustainability priorities relying on continuous adaptable learning by key societal infuencers during periods of uncertainty and over time can be determined. This learning process should take a macro-level approach, avoiding the pitfall of micro-level solutions that can meet the expectation of certain actors within the regime but have little impact on the bigger landscape where sustainable change is required. Transition management can identify sustainability goals and the appropriate transition pathways that will modify the existing socio-technical regime, but identifying the societal aims and harmonising the sustainability goals to satisfy those aims is a more complex process that can be subject to continuous reformulation. For example, in 2012 the European Union established binding measures for reducing overall energy consumption, given that coal was a signifcant energy source for power generation, by targeting 20% below the EU’s 1990 level by 2020. In 2014 that target reduction was increased to 30%, but by 2030. Today, the EU faces signifcant challenges due to social and political pressures that have seen certain countries resist such policies. In early 2020, Germany announced it would stop the use of coal completely but extended that timeline until at least 2038, and many of the Eastern European countries remain committed to

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using coal for generating electricity as the industry provides jobs and lower-cost electricity.9 These dynamic social and political conditions complicate the ability to attain consensus and coordination that is critical for successful transition management towards more sustainable socio-technical regimes. A number of perspectives can be taken, however, in determining how sustainability might be prioritised, and they range from the holistic (public value, common good, stakeholder value) to the corporate (shareholder value) and even a hybrid of the two (shared value). Prioritising sustainability that contemplates society as a whole has been examined in a number of ways. The concept of public value involves the aggregation of society’s individual and public preferences using various means of interaction and measurement that provide the opportunity for determining the costs and benefts of providing such value. The future economic, social, and environmental sustainability of that society would then comprise the complex system for which public value can be assessed. According to Benington and Moore (2010),10 the concept of public value has its origins in ancient Greek philosophy, along with related concepts such as the public interest and the public good. They see the creation of public value requiring three distinct but interdependent processes (Figure 5.4). The frst process defnes what the public value is to be, which requires determining the specifc goals and outcomes that would result in creating public value in a given situation. The second process creates an environment of authorisation that would allow for the attainment of those goals and outcomes, and this would need the collective support of all afected stakeholders. Finally, the operational capacity must be developed in order to implement the strategic actions that will lead to the desired public value outcomes. Fundamental to the creation of public value and related sustainability priorities and goals is the role of government and its managers as the creators of public value and the principal infuencer of what society should

The Authorizing Environment

Opera˜onal Capacity

Figure 5.4 The strategic triangle of public value Source: adapted from Benington and Moore, 2010

Public Value Outcomes

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look like: politically, economically, socially, and culturally. Creating public value does not preclude the involvement of the private sector but limits their participation to informing government managers of their assessment of the goals and outcomes and whether they are in the public interest. Another perspective is that of the common good. It focuses more on determining frstly what is good and common to all in society. To achieve common good requires balancing individual and collective interests at all times, both in the shorter term and in the longer term, while all along adapting to the changing external and internal environments facing society. In the context of sustainability, it is the social assumptions or conditions that achieve levels of economic, social, and environmental sustainability agreeable to all and one, at the same time and for the same reasons. Implicit is the responsibility of all members of society to contribute to the extent they can to that achievement and includes the development of the means to do so. This typically requires the creation of laws and institutions to defend and protect the society’s economy, social structures, and natural environment. Stakeholder value, while continuing in the theme of the wider community, is more specifc to a constituency than either public value or the common good. Stakeholder value is derived from stakeholder theory, which we discussed in Chapter 4. It represents the relative worth or importance (value) of the interrelationships between a business and those who have a stake in the success or failure of that business. Defning what constitutes those relationships is important, recognising that stakeholder value is more than just a fnancial arrangement driven by an economic outcome but rather can extend to less visible, non-economic, intangible outcomes. This is particularly salient with respect to social and environmental outcomes. Stakeholder value, like the other holistic perspectives, has a signifcant level of subjectivity associated with it, and this must be considered when dealing with sustainability priorities. The determination of the value ascribed to a particular priority is infuenced by the stakeholder’s level of understanding of sustainable practices which can either be developed explicitly, in the form of further education, for example, or it can be an implicit understanding based entirely on non-rational ‘gut’ feelings. A  signifcant stakeholder is, of course, the frm’s shareholder, and shareholder theory states that the maximisation of shareholder value is the primary responsibility of the frm’s management and that this objective comes before the interest of other stakeholders. This value includes the shareholder’s investment in the frm’s assets and the profts attributed to that investment. Yet shareholders value other things as well. For example, some investors simply value the social identity of their investments whether that is because they wish to be associated with ethical companies or because investing in companies that produce avant-garde products like Space X allows them to think of themselves as forward thinkers or investing in ‘cool’.11 Shareholder value can thus extend to the benefts associated with investing in a frm that behaves more sustainably. Again, the priority of sustainable actions remains somewhat subjective depending on the shareholder’s individual or collective desires. In an extension of stakeholder theory, the shared value perspective emerged in the early part of

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this century that challenged conventional thought about the tensions associated with the responsibility of the frm towards society. Porter and Kramer12 introduced the concept of shared value to stress the interdependence between business and society (business success requires a healthy society and a healthy society requires successful businesses), and therefore the decisions of the frm and the social policies (including the protection of the natural environment) they face should be of mutual beneft, that is, shared value. They frame it within the frm’s ability to create a competitive advantage by including the responsibility towards society when assessing competition and creating business strategy. The obvious connection towards sustainable strategy development, however, does not make it any easier to identify priorities without bias towards attaining other objectives of the frm. Therefore, this perspective risks subjective selection by management as to which sustainability priorities provide mutual benefts over those priorities which may provide a greater beneft for those in society who may need it more. Who governs the sustainability process?

With subjectivity playing such a large role in dealing with whose sustainability should be prioritised, governing the sustainability process becomes increasingly more relevant to achieving sustainable socio-technical regimes. The MLP discussed earlier involves numerous policy sectors and networks, institutions, and government agencies. Actors within government can take on the part of change agents in facilitating transitions to a more sustainable regime, but the implementation of such transitions relies heavily on business and consumers. The governance of transition can include all dimensions of the socio-technical regime in a participatory framework that allows for full representation by all actors within the regime. Ideally each dimension is represented by actors sensitive to the need for more sustainable technology use within the regime and who are willing to be objective, rather than subjective, about the sustainable goals being presented by others. Furthermore, they must have the ability to infuence those within their dimensions to accepting the mutually agreed-to transition trajectory and to develop their respective constituency of actors, institutions, and markets to support the transition and the requirement for continuous learning and adaptation. As a network of objectively rational change agents, they avoid the problem of inertia from existing policymaking networks and incumbent interests. This participatory approach can be criticised as too technocratic, but transitioning to a more sustainable socio-technical regime must be managed in a way that steers clear of prevailing unsustainable policies and activities and that requires agents of change from all regime dimensions. Certainly, their legitimacy and authority is subject to their engagement with the regime’s social, institutional, and political processes, but their involvement in managing the transition to a more sustainable regime is moot if conventional public policy and related institutions do not support a sustainable vision and sustainable pathways. Under such circumstances it is unlikely that actors

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supportive of a sustainability agenda could even be found. Additional complexity exists for this participatory approach when it comes to transitioning sociotechnical regimes across jurisdictional boundaries as globalised networks of capital, people, and other resources increase the likelihood of divergent thought on matters of sustainability and related priorities. What is the appropriate lens for managing the sustainability process?

In this chapter we have identifed a number of theories or concepts pertaining to prioritising who is to beneft from a transition to a more sustainable sociotechnical regime. What is clear is that it is likely that competing demands, and related tensions between parties, will exist if a participatory approach is taken. Adapting the work of Lewis et al. (2014), we describe three principal lenses – paradox, trade-of, and compromise13 – by which these tensions among participating parties can be addressed (Figure 5.5). The concept of a paradox is the frst lens and exists when parties fnd themselves with simultaneous but contradictory motives associated with managing the transition. While their respective solutions appear to be logical in isolation, in other words, that of the proposing party, it can seem irrational or inconsistent when viewed by other parties. The paradoxical lens would suggest that a solution to the competing demands is to identify and leverage synergies associated with the opposing positions in order to make the transition. The trade-of lens requires parties to identify the advantages and disadvantages of their respective demands and weigh the pros and cons of each. The process of transitioning would be the one that maximises the advantages raised and mitigates the disadvantages. Finally, the compromise lens seeks the common ground between parties by blending demands and creating a single transition process. Determining which lens is most appropriate is dependent upon the context of the situation. Compromise by its defnition would indicate a collective agreement that the proposed sustainability process is a win for all parties and is likely the preference when tension is light or relatively non-existent. Trade-ofs would represent a more pragmatic approach with parties willing to win certain demands while losing others. Paradox forces parties to reconsider their existing inertia and defensiveness of their positions and be willing, through learning and adaptation, to incorporate feedback from each other. This lens works best for organisations seeking to improve their strategic agility in general, and specifcally with adapting to sustainable sociotechnological change. Why are some countries more advanced than others in sustainability?

In Chapter 4 we provided some comparisons of country levels of corporate responsibility and environmental degradation compared with economic growth. More economically advanced countries are also typically more advanced in terms of their sustainable development. To understand globalisation, one needs to accept that it is driven principally by economics. Within a global economy

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Paradox

A

B

Trade-o˜ A

B

A Compromise

C B

Figure 5.5 Lenses for managing the sustainability transition process Source: adapted from Lewis et al., 2014

there exists multiple market forces at work, many of which are a consequence of large transnational corporations (privately owned, publicly traded, statecontrolled) that operate wherever there might exist an opportunity for creating a global market advantage. Nevertheless, globalisation also includes social and environmental dimensions that are impacted by the redistribution of resources (human and natural) that results from opportunity-seeking frms. For example, labour-intensive manufacturing has shifted from its traditional base in more developed countries to less developed economies where labour resources are less expensive and plentiful. Similarly, access to low-cost inputs and raw materials for product manufacturing can stimulate frms to either move manufacturing or outsource their manufacturing to regions where those input costs

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are lower. For example, rare earth metals (which are actually quite abundant but are termed ‘rare’ because they are difcult to extract given their propensity to form within other minerals) are used in the production of many relatively new technological products such as mobile phones, renewable energy products, and electric vehicle batteries. As a signifcant producer of electronic products, China is the leading producer of rare earth minerals and yet Canada produces relatively little, even though it ranks among the top fve countries in terms of total reserves. However, the costs of production, including environmental and mining regulations, limit production in Canada, as do the distances involved in transporting the concentrated rare earth metals to Asian manufacturing sites. The competitive nature of globalisation pressures countries to promote lower cost environments of business, and this can translate to avoiding social and environmental regulatory burdens that would add costs. Complicating matters is the relationship between energy demand and economic growth. For most developing countries, increased rates of economic growth require more energy, and pressure to lower costs means lower-cost energy sources such as certain fossil fuels, for example coal. Developed economies are characterised as having more sophisticated and costly industrial manufacturing. In addition to labour regulation that adds cost, they have higher energy costs due to the use of more diverse, cleaner sources of energy and carbon cost regulation. Accordingly, there is a tendency to be more efcient with energy use. Figure 5.6 highlights the trajectories of the CO2 emissions/GDP relationship in certain developing economies such as China, India, and Vietnam as compared to the OECD

GDP versus CO2 emissions

CO2 kilograms per $PPP GDP

2.5 2

1.5 1 0.5 0

Figure 5.6 Relationship of CO2 emissions to economic output Data source: World Bank, https://data.worldbank.org/

China India Vietnam OECD members

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developed economies. Since 1990 China has seen a signifcant reduction in the amount of emissions relative to their economic output, but it remains signifcantly larger than the aggregate of the OECD countries whose combined GDP is approximately three times greater. Both India and Vietnam have growing economies, although substantially smaller than China’s, but have yet to show signifcant improvements in reducing their emissions output relative to their economic output.

Insight 5.3

China’s Sustainability Performance

In reviewing China’s sustainability performance, we highlight the three dimensions of sustainability: economic, social, and environmental. In terms of economic growth, China has seen substantial improvements in total GDP per year growing from $360 billion to over $14 trillion in just less than 30  years (Figure  5.7). This represents approximately a 40-fold increase as compared to the OECD’s three-fold increase. Over the past two years, a fattening of GDP may refect the economic impact of increased sustainability regulation and trade conficts with the US. The social sustainability performance of China has improved due to the increase in individual personal wealth brought on by the country’s economic growth. One proxy for comparing annual performance levels is the UN’s Human Development Index (HDI). It was developed

GDP $US billion 60000 50000 40000 30000 20000 10000 0

OECD

China

Figure 5.7 Economic growth of China 1990–2019 Data source: World Bank, https://data.worldbank.org/

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Human Development Index

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

China

OECD

Figure 5.8 HDI comparison between China and the OECD countries Data source: World Bank, https://data.worldbank.org/

in contrast to relying on economic growth alone as a measure for a country’s human development. The HDI summarises the measure of three key dimensions: a long and healthy life, being knowledgeable, and a decent standard of living. Figure 5.8 compares China’s measured HDI with that of the OECD countries. As can been seen, China’s rate of improvement on the HDI has mirrored economic growth and is narrowing the distance between itself and the OECD countries. While these particular dimensions are showing improvement, other social issues not measured, such as gender inequality, levels of poverty, human security, and empowerment, may soon become more relevant as issues with urbanisation (as discussed in Insight 5.2) become more signifcant. One measure of China’s environmental performance is its carbon dioxide (CO2) emissions per capita, and in Figure  5.9 we provide a comparison with the OECD countries. As would be expected, China’s emissions rise as their economic output has risen. The country’s per capita amount, however, remains below that of the OECD countries and has fattened for the past four years. Even though China’s economic growth appears to have also fattened in the past two years, it does not fully explain the pattern for CO2 emissions. This suggests that China’s environmental policies have had a positive impact on this particular metric.

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CO2 emissions tonnes per capita 12 10 8 6 4 2 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

0

OECD CO2 emissions per capita

China CO2 emissions per capita

Figure 5.9 China’s CO2 emissions – tonne per capita (1990–2017) Data source: World Bank, https://data.worldbank.org/

The tension that exists between global economic development and sustainable development is what limits sustainability policy implementation in developing economies as they seek to increase their country’s societal wealth. In wealthier, developed economies this tension also exists, especially within those elements of society that are being negatively impacted economically by sustainability policies. However, these economies are also more mature and diversifed with societal wealth generated by industries less impacted by sustainability policies and where society generally is supportive of sustainable development.

Sustainable outcomes In Chapter 8 we will discuss the various measures associated with sustainable outcomes such as the UN’s Sustainable Development Goals. In this section, we focus on two approaches to achieving positive environmentally sustainable outcomes. The frst is the circular economy (CE) model and the other deals with the concept of the environmental life cycle assessment. With a circular economy, the economic, environmental, and social sustainability concepts are all integrated in a redesigned cyclical use of resources and the traditional consumer no longer just consumes a product but instead becomes a user of the materials (Figure 5.10). This ‘closed loop’ represents a transition away from the straightline production to consumption to disposal economy that predominates society today. CE regenerates natural systems, creating the cyclical fow of materials and the use of renewable energy wherever they enter and can enhance the economy. The principal aim is to contribute to sustainable development, and its closed loop economic model operates at the macro level (continent, country,

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Renewables

Farming/Collec˜on

Regenera˜on

Finite Materials

Stock Management

Recycle

Parts Manufacturer

Product Manufacturer

Biochemical Feedstock

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Refurbish/Remanufacture

Reuse/Redistribute

Share Cascades Anaerobic Diges˜on Extrac˜on of Biochemical Feedstock

Consumer

User

Collec˜on

Collec˜on

Maintain/ Prolong

Minimize Systema˜c Leakage and Nega˜ve Externali˜es

Figure 5.10 Circular economy framework Source: adapted from MacArthur Foundation, 2013

region, city), the meso level (eco-industrial parks), and the micro level (products, companies, consumers). Decoupling the use of scarce resources from economic growth through new business models that emphasise product longevity and quality, renewability, repair, and reuse is a prime objective of a CE, with the ultimate goal of achieving a fully regenerative economy that encourages biodiversity and the protection of the natural environment. Transitioning towards a CE is expected to generate an overall societal beneft, including the creation of new business opportunities and related employment across a variety of industry sectors and geographical regions.14 Specifc study of the employment impact of a shift towards a CE in the European Union countries suggested that 3 million extra jobs would be created.15 The Ellen MacArthur Foundation, a proponent of the transition to a CE, estimated that material savings alone would equate to approximately 340 to 380 billion US dollars per year in Europe alone.16 Four specifc sources of value creation have been identifed. The frst is the minimisation of material usage throughout the process. The CE model suggests the more that products can be shared, maintained, reused, refurbished, or recycled, the greater the potential to limit input costs. Furthermore, it seeks to maximise the number of consecutive cycles, whether at the reuse or the refurbish stage. Within the model the idea of cascading is also a principal component in that diversifying the reuse of materials can also contribute to reduced inputs. For

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example, plastic bottles can be used to create carpets (Mohawk Flooring USA) which can then be used to create plastic resins for engine parts (Ford Motor Company EcoLon product), thus limiting the new production of plastics and fossil fuels. Finally, value is created through the design of uncontaminated material streams that encourage collection, distribution, and material quality. This value is particularly evident with materials associated with technology products (electronics). The main issue with the CE approach is convincing producers, users, and consumers that fnancial proftability will exist post-adoption. If the cost of raw inputs continues to be less than the cost of returning materials back into the production system, then resistance to the approach is likely to be found among various stakeholders. The direct cost of raw inputs is generally more transparent than the indirect costs associated with the unsustainable nature of their production. Accordingly, responsibility for encouraging the transition to a CE goes beyond engaging businesses and the general public and rests with governments and institutions to create favourable trends that shape global and national market conditions. Governments that have introduced policies supportive of a CE include China, Finland, France, and the Netherlands. However, these policies must address the identifed issue of fnancial proftability, and with that we turn to the next approach to achieving positive environmentally sustainable outcomes, the life cycle assessment or LCA. The LCA is a method to analyse the ‘cradle-to-grave’ impact that a product or service will have on the environment. The cradle-to-grave reference means a product’s life, from the very inputs that go into making the product or providing a service right up until the product is disposed of, or the service completed, including the impact of its disposal or service completion. Most efective environmental management systems (EMS) within companies incorporate an LCA, and the frst examples of LCAs were developed in response to the 1973 oil crisis when oil price input costs had a signifcant impact on product and service costs. In the early 1990s, the Society of Environmental Toxicology and Chemistry was one of the early publishers of a standard for LCA so that organisations could apply a technical framework to their LCA studies. The International Standards Organization (ISO) released their standard ISO 14001, which we discuss further in Chapter 8, that established a systematised framework for LCAs as a support tool in establishing an efective EMS and certifcation. The ISO 14040 standard was introduced in 1997 and contains four principal components for conducting an LCA: the goal and scope defnition, inventory analysis, impact assessment, and improvement assessment. The cradle-to-grave assessment of the entire life cycle of the product or service considers the impact of the extraction of raw materials to be used in the product, the processing of that material, the manufacturing of the product, the product use, and the product’s residual waste and disposal (Figure 5.11). LCAs are not limited to cradle to grave and can focus on any stage, such as the cradle to gate which limits the assessment to the frst part of the supply chain, that is, inputs to sale.

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Emissions Emissions Intermediates Extrac˜on

Processing

Manufacturing

Product Use

Waste and Disposal

Energy

“Cradle to Gate”

“Cradle to Grave” Figure 5.11 The LCA approach

Chapter insight questions 1 2 3 4

Explain how China might manage the societal transformation it is currently seeking in order to address the paradox between economic growth and sustainable development. Suggest some future policy changes that would be required in order to meet China’s economic goals while mitigating any adverse efects on the social and environmental sustainability of the country. Compare and contrast China’s sustainability performance with that of the collective countries of the OECD. Should China’s performance have been comparably better? If not, why not? China has been one of the leading jurisdictions when it comes to policy that encourages circular economy principles. Identify barriers that might discourage the implementation of these principles and why they exist. What would be required to remove those barriers?

Notes 1 Polanyi, K (1944). Origins of our time, the great transformation. New York: Farrar and Rinehart. 2 Kemp, R. (1994). Technology and the transition to environmental sustainability: The problem of technological regime shifts. Futures, 26(10), 1023–1046. 3 Geels, F. W. (2002). Technological transitions as evolutionary reconfguration processes: A multi-level perspective and a case-study. Research Policy, 31(8–9), 1257–1274. 4 Geels, F. W. (2012). A socio-technical analysis of low-carbon transitions: Introducing the multi-level perspective into transport studies. Journal of Transport Geography, 24, 471–482. 5 Lu, Y., Zhang, Y., Cao, X., Wang, C., Wang, Y., Zhang, M., . . . Chen, D. (2019). Forty years of reform and opening up: China’s progress toward a sustainable path. Science Advances, 5(8).

118 Perspectives on social change 6 Beech, H. China’s great frewall is harming innovation, scholars say. (2016, June  2). Time. Retrieved from https://time.com/4354665/china-great-frewall-innovation-onlinecensorship/ 7 Smith, C. (2014, March  2). China plans to put people at heart of Urbanization. United Nations University. Retrieved from https://ourworld.unu.edu/en/china-plans-to-putpeople-at-heart-of-urbanization 8 Ichord Jr., R. (2020). Transforming the power sector in developing countries: Geopolitics, poverty, and climate change in Bangladesh. Retrieved from www.atlanticcouncil.org/wpcontent/uploads/2020/01/Power-Transformation-Bangladesh-fnal-web-version.pdf 9 Sengupta, S., & Eddy, M. (2020). How hard is it to quit coal? For Germany, 18 years and $44  billion. Retrieved from www.nytimes.com/2020/01/16/climate/germany-coalclimate-change.html 10 Benington, J., & Moore, M. H. (2010). Public value in complex and changing times. In Public value: Theory and practice (p. 1). New York: Palgrave Macmillan. 11 The notion of being perceived as ‘cool’ is an abstract term, and though there is a lack of research pertaining to investing, the academic literature has used the term extensively in regards to individual consumption and its contribution to self-identity. 12 Porter, M.,  & Kramer, M. (2011). Creating shared value. Harvard Business Review, 89(1-2), 62–77. 13 Lewis, M. W., Andriopoulos, C.,  & Smith, W. K. (2014). Paradoxical leadership to enable strategic agility. California Management Review, 56(3), 58–77. 14 Preston, F., & Lehne, J. (2017). A wider circle? The circular economy in developing countries. Chatham House, London: The Royal Institute of International Afairs. 15 Mitchell, P., & James, K. (2015). Economic growth potential of more circular economies. Retrieved from https://www.researchgate.net/publication/284187423_Economic_growth_potential_ of_more_circular_economies 16 Ellen Macarthur Foundation. (2013). Towards the circular economy. Retrieved from www. ellenmacarthurfoundation.org/assets/downloads/publications/Ellen-MacArthurFoundation-Towards-the-Circular-Economy-vol.1.pdf

Part III

The sustainability governance trinity

6

Sustainability governance

Introduction Governance, and in particular sustainability governance of our social system, is important because it refers to the framework for agreeing what are the important goals for the longevity of humanity, how to institute or implement those goals, and the challenges and limits to securing these goals over the long term. This chapter examines the nature of sustainability governance and the role certain institutions must take in order to ensure this happens. Governance may seem a recent notion, but it does have a history. The chapter opens by touching on that history, because it has a bearing on our current understanding of the notion. Following this background, the need for sustainability governance is outlined, in terms of the value of a capitals perspective and of the need for global governance, given that the capacity of planet Earth to support humanity is at stake and therefore requires a collective and collaborative response. We then unpick the notion of sustainability governance, looking at several dimensions that seem important in formulating and implementing policy and that are applicable globally to all contexts, from international to local community, regardless of historical baggage, resources available, state of development, or cultural orientation. These are participation, policy coherence, refexivity and adaptation, and democratic institutions. We are aware that democratic institutions are not universal. However, global sustainability governance requires international intergovernmental cooperation. Further, through supply chains MNCs project global reach, which endows them with power and infuence but also exposes their behaviour to scrutiny. In addition, their continued legitimacy relies on a social contract with society, underpinned by international law and regulatory constraints in both environmental and social spheres. This relationship (between MNCs and society) implies that democratic rules apply for the most part. This chapter then examines the role of global supply chains as the operating environment of economic activity and where sustainable development meets corporate responsibility. Supply chains not only are associated with adverse environmental and social impacts, but also are directly vulnerable to fraud, bribery, and corruption. We highlight the signifcance of weaknesses in supply

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chain cybersecurity as a key channel through which much fraud takes place. Financial crime undermines sustainability governance, potentially allowing through the back door social and environmental harm as well as higher economic costs to business and consumer. We then introduce two key global institutions engaged in promoting sustainability governance: UN Global Compact Initiative (UNGCI), the world’s largest institution created for the purpose of engaging business with the sustainable development agenda, and the OECD, a forum of the world’s most developed nations and host to the vast majority of MNC worldwide economic activity. These organisations are in principle well positioned to leverage their infuence to promote sustainability governance. Also examined is the extent to which MNCs may be seen as a global institution, due to their control of worldwide economic activity, through (internal) hierarchy, arms-length market relations, and supply networks and complex supply ecosystems. Their global reach and infuence attract developing economies, but this comes with tensions and potential confict of interest that may challenge the sovereignty of these nation states. This raises the question of whether MNCs should remain free to self-regulate, or whether there is need for global treaties that mandate and regulate MNC sustainability governance obligations. Lastly, this chapter looks at the role of transnational rule-making organisations, some of which are sector focused, such as the Forest Stewardship Council and the Marine Stewardship Council, while others are more issue focused, such as those concerned with promoting labour rights and environmental sustainability.

What is governance for sustainability and sustainable development? Wherever people live together, whether as a community, a nation, or a union of nations, it calls forth a need for governance: setting collective goals, about how they, the population(s), should live and organise their priorities, for today as well as for their future ofspring. Governance operates to encourage predictable behaviour among individuals, organisations, and government conducive to the achievement of particular goals. Efecting the necessary social coordination operates through rules, including formal law, recommended good practice, and informal norms of good behaviour or practice, and wherever necessary enforcing those rules. At a general level, governance refers to social coordination, the nature and patterns of rule, and the dilemmas arising from coordination. Understanding these patterns and dilemmas draws in new theories and practices of governing. Governance for sustainability then emphasises the interdependence of social, economic, and environmental factors and the interests of future generations.1 History and evolution

The use of governance in the English-speaking world has been evolving over the centuries. It has been found in early medieval texts, as a feature of

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individual self-censure in everyday medieval village life. Until around the 14th century, governance implied individual ‘self-regulation as a function of community dynamics and long-held traditions [rather than being the product] of a particular economic structure’. This understanding of governance meant individual control over personal behaviour, and ‘good governance’ meant individual internalisation of community standards, and therefore compliance. In addition, this individual behaviour was regulated by familial and social network relations within the community. Self-regulatory village behaviour took place within a hierarchy, with the lord of the manor sitting at the top, and three or four levels of villagers, from comparatively rich to the poor, at the bottom. Enforcement, or punishment for transgression of any kind, was enshrined in the power provided by hierarchy. During the same medieval period, governance was seen as a feature of monarchical rule, for example when William Tyndale observed, ‘When the king’s grace came frst to the right of the crown, and unto the governance of the realm young and unexpert’3; similarly in a letter from James V of Scotland to Henry VIII, ‘We have put all our confdence, has als actyfie with ye help of our derrest Modir takin on Ws ye governance of our Realme’.4 In the intervening centuries governance continued to evolve, so that by the 20th century governance was no longer seen as an (individual) ruler’s natural right but as a description of an elected government’s institutional structures (Plummer, 1885) and decision-making processes.5 Governance has become widely recognised and increasingly understood as referring to the activities not only of government, but also of a wide range of institutions, private (e.g. corporations) and public, including local government, NGOs, and multilateral bodies such as the UN, World Bank, and IMF. Governance is the process by which power is exercised in the administration of a country’s social and economic resources for purposes of development. Good governance describes an administration that is technically competent, acts within the law, is efcient in the implementation of policies, prioritises the interests of its citizens, and is not corrupt. Today the importance of governance is recognised by most nation states, and from the end of the 20th century it has become bound up with an awareness of the need for sustainable development. The preoccupations of governance have become the same as those of governance for sustainable development (or sustainability governance), and to this extent we may omit the qualifers ‘sustainability’ and ‘sustainable development’. The scope of governance (for sustainable development) is wide ranging and inclusive. 2

A ‘capitals’ perspective

Over the last half of the 20th century, there has been a growing awareness that economic development is not the only priority of national government, and that there is an equal need for policies that secure social justice and careful stewardship of the ecological environment. National sustainability governance

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Natural Manufactured

Financial

Intellectual

Sustainability

Poli˜cal

Natural capital

Human

Social

Human-made capitals

Cultural

Figure 6.1 A capitals perspective on sustainability governance

preoccupations vary depending on history, local geography, state of development, and the mix of resources or capitals available (Figure 6.1). From a capitals perspective, the socio-environmental world may be understood as constituted of diverse capitals, from natural to human made (including social, cultural, political, fnancial, manufactured, and intellectual). Defning the existence of diverse capitals, and attributing materiality to them as discrete elements, necessitates their separate evaluation, measurement, socio-cultural value, and the attribution of accountability for their use in sustainable development. In terms of governance this helps policy makers and business strategists organise their engagement with sustainability, enabling an assessment of impacts and dependencies, the trading of one capital for another, substituting one (i.e. natural capital) with others (i.e. intellectual and socially constructed, and manufactured). Mark Gough, Chief Executive Ofcer, Capital Coalition,6 and Richard Spencer, Head of Thought Leadership, Institute of Chartered Accountants in England and Wales, argue that a capitals approach to sustainable development is more than measuring impacts and dependencies.7 Instead, we should think about capitals as valuing relationships, which means replacing pricing with valuing; the former signalling that capital is tradeable, with the latter emphasising understanding its relative importance, rather than attributing a fnancial value. In addition, capitals are interconnected. For example, evaluations around mining minerals (natural capital) draws in consideration of other capitals, such as fnancial and intellectual, and possible impacts (ecological, social, economic). Further, natural capital provides not only material or tangible resources, but also (intangible) socio-cultural value, such as health and well-being and recreation.8 The materiality and signifcance of particular capitals vary with national jurisdictions, from one industry to another, from business to business, and among citizen and consumers. Where natural capital is under threat, then such capital becomes critical not only in terms of potential economic loss value but

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also ecological loss value to humanity. Where fauna, fora, and minerals have been exploited to near exhaustion, or species hunted to near extinction, then such conditions engender political support for strong sustainability, that is, the maintenance of critical natural capital at today’s levels, or its restoration to higher levels. Strong sustainability, in contrast with weak sustainability, priorities ecological over economic value. From this perspective, nature has a right to exist in and of itself and should be conserved or preserved for successive generations, intact in its original form. Weak sustainability holds that environmental and economic capital are interchangeable, and for this reason is criticised as having little value to the attainment of sustainable development.10 This broader understanding of capital ofers an important lens through which to see sustainable development. Ekins et al. provide a framework for evaluating the gap between environmental conditions and some desired sustainable state, and their method helps develop insights to the social and economic implications for society if the desired state is to be achieved.11 Identifying which activities, attitudes, and customs are causing environmental harm is one challenge, but devising policies and practices to stop, or at least ease, such harm generates further governance challenges in terms of political and social opposition, implementation, and monitoring or policing change. More broadly, from a sustainable development perspective, understanding that our relationship with natural capital (i.e. the stock of natural resources) supersedes all other capital relationships is vital. Governance of sustainability requires understanding the criticality of natural capital, interdependencies,12 and potential impacts, both between capitals and of human action. The Natural Capital Protocol (or the Protocol),13 developed by the Natural Capital Coalition as an internationally accepted framework for businesses to evaluate their relationship with the natural world, is complemented by The ‘Natural Capital Protocol Toolkit’, which provides the tools to enable its application.14 Gough and Spencer propose that as organisations think about how to engage with the Sustainable Development Goals, the Protocol will help them refect on the extent to which they are drawing on natural capital and how to evaluate their consequential impact and dependency. The framework comprises the four stages of frame, scope, measure and value, and apply, or as Mark Gough puts it ‘why, what, how, and so what’.15 The process consists of setting objectives, identifying impacts and/or dependencies, measuring their impacts on natural capital, and valuing the impacts/dependencies (involving some form of probability analysis or cost-beneft analysis). As an organising principle, sustainable development invokes the intertemporal allocation of capital, rather than optimisation of use, requiring resolution of questions about how much is, or should be, consumed (by present generations), and how much should be preserved, conserved, and invested (for future generations). As the scarcity of natural capital increases over time, its substitutability may weaken, requiring society to trade-of choices in maintaining possible sustainable pathways.16 Apart from the challenge of how to operationalise 9

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the relational value of natural capital, and of measuring and valuing impacts and dependencies, there is a further conceptual problem with the notion of capitals. Historically, capital has meant fnance invested or available for investment in any business venture, or tradeable assets or property; property that could be used as collateral for future investment. From this view ‘human capital’ can only be collateral if the humans are slaves, and ‘social capital’ can never be used as collateral as it cannot be owned. There are two problems with this fnancial argument. First, in terms of human capital, if we invest in people we expect a return from that investment, such as greater productivity. Human capital cannot be held as collateral property, as this would violate human rights. However, the investor can protect their investment by entering into a legally enforceable contract with those in receipt of fnancial or other developmental support, providing for compensation if the contract is breached by either party. Second, valuing all assets as property, with a utility value measured by price, is limiting. This ignores the intrinsic value of a wide range of capitals, such as that attached to ecological or historical artefacts (both material and non-material) or their socio-cultural value (from which people draw meaning, inspiration, and spiritual well-being).17 Global governance

There has also been growing awareness than in a globalised world (shared biosphere, common political-economic ideology, cultural) governance spills over beyond the borders of the nation state. Governments and most organised civil society organisations also recognise the interdependence of economic, social, and environmental priorities. For example, policies that create jobs and raise taxes for the public purse also create social benefts. It has been said that economic development is not an option but necessary to signifcantly reduce poverty.18 The World Bank argues that economic growth is not enough for overcoming extreme poverty, that the need is to ‘promote inclusive growth’, perhaps involving (but not limited to) direct cash transfers, in which government programmes may have an important role.19 At the same time, it has become widely known that economic development over the last two centuries has been degrading the natural environment, in part through extracting or consuming the planet’s natural resources (e.g. fossil fuel, metals, forests) in order to feed that economic development, and in part through the waste (e.g. plastics) and pollution (carbon emissions) generated by that economic activity. Governance is commonly confated with government, but while the role of government is central, governance is more undertaken by multiple actors or stakeholders (public and private), involving hybrid practices (hierarchical – legislative and administrative, markets, and networks). Governance also spans multiple jurisdictions, institutions, and sectors.20 The United Nations has been instrumental in facilitating governments around the world to pay attention to issues common to all humanity. In 2015, living sustainably became the goal

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of practically all nations around the world (193 out of 195) and sustainable development the means or process for achieving this goal. In pursuing this collective purpose, individual countries are expected to implement the 17 Sustainable Development Goals (SDGs) by embedding them in their national legislation, translated into policies and practices appropriate for that country, taking account of developmental needs and capitals.21

The need for governance At its 70th session (October 2015), Transforming Our World: The 2030 Agenda for Sustainable Development, the UN General Assembly identifed the need for sustainability governance. In terms of global sustainability governance, diverse sovereign states and alliances have difering societal preoccupations and priorities, and these interact in complex ways and at difering levels, creating tensions and the potential for confict. For example, in relation to climate change, while leaders of both developing and developed economies agree in principle on the need to reduce global carbon emission reductions, they struggle with agreeing common targets.22 Moreover, the needs of the living also seem in tension with those of future generations, just as the political rhetoric in support of sustainability is noticeably at odds with practice. The challenge for sustainability governance is to reconcile the widely perceived contradictory requirements between economic development, environmental protection, and social justice. Governance demands attention to myriad social, economic, and environmental challenges, including: • • • • • • • • • • • •

efective representation of diverse population, including aging citizens; the ‘greening’ of urban living and including rural living in transportation networks; preparing for the efects of climate change; pollution control (air, land, water); recognising and embracing new disruptive technologies, seen as both driving and enabling change; having the capacity to recognise that as societal expectations grow, the relationship between government and citizens is changing; continually reviewing our notions of privacy of openness and national security; control of government data; addressing persistent social inequality and protecting the vulnerable in society; engagement of citizens between elections while responding to newly empowered activist citizens; securing resources necessary for life and prosperity (at least energy, food, water); stimulation of a healthy economy, jobs, income, and decent living standards for all.

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Many of these challenges involve a need to protect resources, for both present and future generations.23 In broad terms, governance for sustainable development is multidimensional, promoting, and relying on, an efective and efcient legal system, democratic participation, accountability and transparency of government, protection of property rights, respect for human rights and being tolerant of diferences, regulating natural resource usage, and developing policies and initiatives that reduce natural resource use in the future. Governance for sustainable development also works to promote, and relies on, political stability and the absence of violence, regulatory quality, and control of corruption. Holmberg et al. provide an interesting synthesis by juxtaposing three interrelated quality of government (QoG) variables (rule of law, government efectiveness, and corruption perceptions) with societal outcomes. They fnd that while GDP seems to be one major determinant of a government’s policy outcomes, the QoG variables correlate positively with societal outcomes in health, ecology, economy, societal welfare, and subjective ‘feel goodness’.24 Critically, the promotion and execution of sustainable development requires awareness among all stakeholders, from politicians to consumers, and functioning democratic institutions that allow local concerns and priorities to surface in public debate. These governance considerations apply to all economies, from developed to developing. In an empirical study of governance for sustainable development, Güney fnds that in developing countries, democracy and urbanisation contribute to sustainable development, while population growth causes a decrease in development. Overall, Holmberg et al. remain equivocal about good governance causality and call for more research in difering settings (political, economic, and cultural), while Güney fnds that good governance has a positive impact on sustainable development, in both developed and developing economies.25

Dimensions of governance for sustainable development The governance of sustainable development is likely to be more successful and subject to a number of dimensions, where stakeholders share in both policymaking and implementation.26 The bringing together of difering actors with potentially divergent perspectives helps in building legitimacy and collective learning. Coordination between difering branches of government and levels of public administration and across difering policy areas is also important in securing policy coherence. Also, ongoing coordination is likely to enable adaptation to changing political and other environmental circumstances. This in turn requires policy actors working together to be refexive in terms of being ready and able to adjust policy purpose and outcomes. Such purposive fexibility is likely to be enhanced by the existence of democratic institutions for economic development, social justice, and environmental stewardship. Participation

The UN SDG 17 identifes multi-stakeholder partnerships as a systemic issue for implementing the SDGs. It involves the Global Partnership for Sustainable

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Development, an international network of 258 diverse organisations, including governments; NGOs; for-proft, academic, and multilateral organisations; and media. 17.16 Enhance, complemented by multi-stakeholder partnerships that mobilize and share knowledge, expertise, technology and fnancial resources, to support the achievement of the Sustainable Development Goals in all countries, in particular developing countries. 17.17 Encourage and promote efective public, public-private and civil society partnerships, building on the experience and resourcing strategies of partnerships. Participation, whether through partnership or otherwise, is not only a systemic issue, but also a political process, because it involves raising questions about who is involved, how are they involved, and on whose terms.27 Participation can help challenge the status quo or reinforce existing power relations, so in seeking to engage the citizenry in implementing the SDGs, policy makers need to consider whether that participation is on equal terms, tokenism, or manipulation.28 As White notes, participation may take several forms: nominal, instrumental, representative, and transformative.29 Each form functions diferently, and participating actors have difering perceptions and expectations for each. As governments seem to retreat from being the sole architect of societal development and provider of a wide range of public services, so a variety of other societal institutional stakeholders step in to fll the space. Moreover, complex societal challenges that involve interaction between social, economic, and environmental considerations demand stakeholder involvement. These stakeholders bring to bear particular expertise and interests and are more prepared than is government in reaching compromise. Participation among stakeholders helps build commitment to, and trust in, the collaborative process. Cross-stakeholder engagement is likely to promote sharing of knowledge, resources, and values, leading to a building of consensus. Heinelt argues that such inclusive participation increases the potential of achieving the Sustainable Development Goals.30 Policy coherence

The UN and any of the world’s international governance institutions regard policy coherence as important. Indeed, policy coherence is part of UN SDG 17: Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development, identifed as one of the ‘systemic issues’. The OECD Framework for Policy Coherence for Sustainable Development (PCSD Framework) ofers ‘a.  .  . tool.  .  . to support governments in designing and implementing coherent policies. . . and suggests options for monitoring and tracking progress in SDG target 17.14, [for] countries to “enhance policy coherence for sustainable development”’ (Better Policies for Sustainable Development 2016). This framework has three elements: analytical, institutional, and monitoring. •

Analytical: understanding better (1) interdependences between the SD goals, their targets, and implications and (2) how policy actions might interfere with the goals and targets.

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• •

Institutional: making sure existing institutional mechanisms work in harmony to support the 2030 Agenda for Sustainable Development. Monitoring: identifying key elements for tracking progress towards policy coherence, contributing to national eforts to monitor and report progress on SDG target 17.14.

In its 2012 strategy on development, the OECD determined that food security, illicit fnancial fows, and green growth would be priority areas as part of its focus on policy coherence; a position reiterated in 2016.31 Refexivity and adaptation

Sustainable development emerged in the midst of an array of existing national or regional strategies and policies towards environmental protection and the safeguarding of human rights. These approaches have emerged and evolved incrementally in response to particular local problems. It is therefore reasonable to suggest these strategies and policies carry inherent weaknesses for meeting a global and comprehensive societal challenge, that of living sustainably. Drawing on a range of studies, Feindt and Weiland highlight clear evidence that existing strategies and environmental policy approaches are failing to reduce environmental pollution, resource depletion, and destruction of ecosystems.32 Many of these studies identify constraints to sustainable development in the structural limits of the nation state, in the very logic and institutions of capitalist market economies, a competitive international order, and democratic consumer societies characterised by entrenched consumer routines. Sustainable development is not an end state but a process through which a society learns about the conditions of its existence, in the context of past choices and future wants. This requires new approaches to governance that recognise the linkages between problem-solutions (ecological, economic, social, and technological) and scales, difering rationalities and competing interest groups, as well as long-term and indirect efects of past and present actions. As the scale of human intervention in the socio-ecological system accelerates (resource depletion, destruction of ecosystems, pollution and population growth), so do the probability and scale of unintended consequences multiply. Sustainable development problems by nature are dynamic, long term, and systemic, and they call for forms of governance that accommodate uncertainty and ambivalence about problem-solutions, multiple goals, and distributed power.33 Such approaches to governance involve active experimentation and learning, and continual adaptation. In this process, ‘[problem-solution] uncertainty would be [openly] acknowledged and actively addressed rather than being denied’.34 In addition, governance approaches and policies should not be devised to be optimal for a single probable future but fexible enough to accommodate a range of plausible futures.35 Refexive governance for sustainable development calls for deliberative policymaking in open arenas, thereby presuming a legitimising context based

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on democratic values and institutions. Open arenas are benefcial but at the same time are a liability, since as Feindt and Weiland remind us, ‘deliberative and refexive fora cannot be insulated from broader struggles for power and domination’.37 In such contexts, refexive and adaptive governance approaches should be more able to facilitate transdisciplinary knowledge exchange between diverse stakeholders than hitherto existing arrangements. Such an approach to the governance of sustainable development is more likely to facilitate globally relevant innovative and integrated problem-solutions. Insofar as this approach is normative, these ideas represent an ideal. The most public example of refexive governance at work is perhaps to be found in the workings of multilateral bodies such as the United Nations. 36

Democratic institutions

Good governance is presumed to rely on the existence of democratic values and institutions. Here, institutions refer to rules of behaviour among all citizens, both formal and informal, and in principle the same moral codes and legal limits apply to all, both ruled and elected rulers. Institutions also describe organisations created to facilitate and oversee collective action and individual compliance and are typically invested with authority to enforce compliance. Institutions shape expectations and behaviour, thereby reducing risk and uncertainty. In broad terms democratic institutions should provide for freedom of expression, respect for civil rights, an independent judiciary, and free and inclusive elections.38 Elected leaders are presumed to have taken part in a fair and open competitive electoral process and elected by an informed citizenry. Under electoral pressure, democratic institutions should act in the public interest, securing more equitable economic and social outcomes for all citizens. In order for institutions to efectively support development, they need to be seen as credible and accountable in the eyes of the voting public.39 Moreover, as Meadowcroft argues, sustainable development is a political project, ‘concerned not just with the governance of change, but ultimately with democratic governance’.40 Alongside the emergence of sustainable development, new governance was also emerging in response to growing recognition that traditional hierarchical, statedriven governance is not suited to managing the realities of socio-ecological systems, characterised by complex interdependencies, pervasive uncertainties, and unintended consequences.41 Evaluating performance against the four dimensions

Glass and Newig examined whether, among upper- and middle-income countries – the OECD group of 35 developed economies and six EU nonOECD countries – governance of sustainability enhances the achievement of the Sustainable Development Goals, by measuring their performance against the SG Indicators (Table 6.1).42 Perhaps predictably, they found a strong link

132 The sustainability governance trinity Table 6.1 Governance for achieving the SDGs43 Dimensions

Descriptions

Participation

The capability of economic and non-economic interest groups to propose and assess relevant policy measures and their implementation. Policy coherence The extent to which the institutional structure fosters coherent and coordinated policymaking and implementation. Refexivity and adaptation

Democratic institutions

The degree of refexivity and adaptation of institutional arrangements, including selfmonitoring, capacity for reform, and the infuence of strategic planning units and regulatory impact assessments. The quality of democratic institutions, including electoral process, media freedom and access to information, civil rights and political liberties, as well as rule of law.

Bertelsmann Stiftung SG Indicators 1.1 Association Competence (Business) 1.2 Association Competence (Others) 2.1 Inter-ministerial Coordination 2.2 Coherent Communication 2.3 Institutional Coherence for Implementation 3.1 Organisational Reform 3.2 Adaptability 3.3 Strategic Planning 3.4 Evidence-based Instruments

4.1 Electoral Processes 4.2 Access to Information 4.3 Civil Rights and Political Liberties 4.4 Rule of Law

between having economic resources and the achievement of particular SDGs. They also found that participation and the role of democratic institutions could contribute to the achievement of sustainable development. However, they found a weak relationship between achievement of sustainable development goals and policy coherence and a negative relationship with refexivity and adaptation.

Sustainability governance and supply chains Supply chains are overlapping networks of frms interacting and coordinating, involving buyers and suppliers, and are globally dispersed. Supply chains are also value chains, a reference to the notion that economic value is added at each stage of the chain. Consider cofee. It begins with growing cofee (often done by individual small-scale farmers) in one or more developing economies. Local agents purchase these cofee beans, sort and bundle them, and sell them to other agents of cofee products (e.g. in Europe). Cofee products (e.g. instant, ground, roasted beans) are packaged and distributed to market wholesalers and retail chains for sale to consumers. Whether the supply chain is in high-value markets (such as smart phones) or commodities (e.g. cofee), the majority of this value tends to be added towards the end of the chain. In commodity markets such as that for cofee, prices fuctuate to the extent that small cofee

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growers are sometimes unable to earn enough income even to support their families. The well-known Fair Trade initiative seeks to ensure these cofee growers receive a ‘fair’ (i.e. larger) share of its fnal economic value. Supply chains are the product of global economic activity. A key feature of the contemporary economy is the globalisation of production and of trade. In this process, transnational corporations have either established international vertically integrated supply chains or outsourced the production and distribution of either elements or the whole product (e.g. Apple). Over time, transnational corporations have been focusing their strategy more on product innovation, fnding new markets and marketing, and developing higher valueadded elements of manufacturing, while reducing their direct ownership or control of more generic tasks such as volume production. The strategy of transnational frms moving up the value chain has enabled developing economies to develop and grow their own industrial and trading capabilities, by supporting the emergence and growth of indigenous frms or encouraging foreign direct investment in the form of frms established by or with the help of transnational corporations. This globalisation of production and trade has also led to the emergence of a variety of supply chain governance structures, not only vertically integrated (hierarchical control) or arms-length supply markets, but also a variety of network forms of governance in between these two positions, such as those proposed by Geref et al.44 Supply chains continue to evolve and grow in complexity and scale. Indeed the existence within some supply chains of semiindependent actors coordinating under limited hierarchical or market-based forms of governance has given rise to the notion of supply ecosystems.45 Supply ecosystems comprise actors involved in multilateral complementarities, linked through complex network structures, and characterised by being more or less dense in terms of the relative number of connections individual frms may have with other frms. Nations trade much more than products. Nations also trade services in the form of knowledge and expertise, and they collaborate, at both governmental and business levels – a totality which the World Bank refers to as global value chains (GVC).46 Moreover, the import of goods and services is as important as export. For example, the manufacture of cars involves the movement of components across borders in both directions.

Insight 6.1 UK Automotive Industry – dependance on cross-border supply chains47 The UK automotive industry is right at the centre of concerns about what damage Brexit might infict on the British economy – because the expansion of car plants since the fnancial crisis is based on remarkable levels of cooperation with suppliers on the [European] continent. The

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1.72m cars produced in the UK last year was a 17-year high and by 2020 production is currently expected to top the all-time high of 2m achieved in 1972. But on average, just 41% of the parts used in a car assembled in the UK are actually produced in the country.

BMW Mini crankshaft The crankshaft used in the BMW Mini. . . crosses the [English] Channel three times in a 2,000-mile journey before the fnished car rolls of the production line [at the Oxford Plant, UK]. A cast of the raw crankshaft – the part of the car that translates the movement of the pistons into the rotational motion required to move the vehicle – is made by a supplier based in France. From there it is shipped to BMW’s Hams Hall plant in Warwickshire [UK], where it is drilled and milled into shape. When that job is complete, each crankshaft is then sent back across the [English] Channel to Munich [Germany], where it inserted into the engine. From Munich, it is [shipped] back to the Mini plant in Oxford, where the engine is then ‘married’ with the car. If the car is to be sold on the continent then the crankshaft, inside the fnished motor, will cross the [English] Channel for a fourth time.

BMW Bentley bumper Another well-travelled car part is the Bentley bumper. It is made in eastern Europe before being sent to Crewe for further work, then on to Germany for fnishing and fnally back to Crewe where it is added to the luxury vehicle. These examples of cross-border assembly of automotive components invites discussion about how such complex processes are – or should be – governed, between hierarchy, markets, or networks. The World Bank encourages developing economies to embrace the ‘GVC revolution’, because by doing so they will grow faster, import skills and technology, create jobs, and improve living standards for citizens;48 further, that economies embracing the GVC revolution will evolve, moving up the valueadding chain to taking on higher value-added tasks, through applying newly acquired knowledge and expertise. The World Bank acknowledges that sceptics see GVC as no more than a variation of the ‘core-periphery’ pattern of development, with higher value ‘good’ jobs remaining in the global North and the lower value ‘bad’ jobs remaining in the global South. The globalisation of production and of trade has fuelled the evolution of global-scale industrial organisation, changing the structure of industries and transforming the economic fortunes of many developing nations. Perhaps

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inescapably, the global scale of economic development comes with social and environmental costs, some of which are bound up with the nature of global value chains. Some social change, especially among developing economies, has been positive, such as the lifting of millions out of poverty (e.g. China). However, the complexity and scale of global value chains or supply ecosystems open up a signifcant potential for fraud, bribery and corruption, exploitative labour practices and disrespect for human rights, and environmental degradation. Fraud, bribery, and corruption in the supply chain

There is often an asymmetrical power relationship between an individual buying organisation (e.g. large supermarket chain) and small competing suppliers (e.g. of fruits and vegetables). In other markets that power asymmetry is reversed, whereby there are many buyers and few suppliers (e.g. demand for rare earth metals for electronic products). Securing supply contracts in the context of a power asymmetry provides signifcant scope for fraud, bribery, and corruption, for example where one party seeks to extract fnancial gain from another party, based on a position of bargaining power. Supply chains are vulnerable to fraud on many fronts, including the complexity of their operating environment, their global spread, and the scale of transactions. Buying organisations need always to fnd alternative suppliers (to meet demand, standards, quality, quantity, pricing, changing markets), and suppliers in turn are also always looking for new buyers. These suppliers may be in diferent countries, which introduces new risks of bribery and corruption through exposure to foreign ofcials and corporate ofcers, who might require a bribe or facilitation payment to allow goods to move or provide access to decision makers. Today most organisations of all types, both business and non-proft entities, rely on information technology (IT) systems. Organisations use IT systems for ordering, making payment, dispatching an order, and tracking shipments, as well as for routine communications, such as email, messaging, and video conferencing. Seen in the context of the UN SDG 9 Industry, Innovation and Infrastructure, cybersecurity is vital, yet the Global Cybersecurity Index (GCI), an annual report based on a global survey of nations and produced by the International Telecommunication Union (ITU), shows that in 2018 just 58% of governments reported having a national cybersecurity infrastructure, up from just 50% in 2017. Such infrastructure is more than technological and should include regulatory institutions, national organisational policies and strategies, expertise in cybersecurity, and international information sharing. There is signifcant variation between regions in the provision of cybersecurity, with Europe having a signifcantly well-developed strategy while the Commonwealth of Independent States (CIS) – comprising Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan – has invested little in the development of a cybersecurity strategy.

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At the level of global supply ecosystems, a global survey by Bissell et al. of Accenture – of approximately 4,600 companies, in 16 countries and 24 industries with a combined revenue of over US $1 billion – estimates that 40% of cyberattacks are ‘indirect’, meaning the proportion of hackers gaining access to supply ecosystems by probing and targeting third-party vendors for weak IT security.49 This provides a back door into other frms within the ecosystem. As the Accenture report notes, corporate cybersecurity ofcers struggle to monitor the vast number of vendors to individual companies. Businesses need to be particularly cautious about opening back doors into their own infrastructure through interfaces with smaller third parties who might lack robust IT security protocols. Further, introducing new suppliers often means changes to many other elements of the supply ecosystem. Contracting a new supplier may involve new logistics providers, new freight forwarders, and customs clearing agents. Introducing new third-party providers into the supply ecosystem is a material risk, as they may not have been subjected to necessary checks. Engaging new suppliers or partners is likely to require providing them access to IT infrastructure, which raises two further risks. The new supplier’s interface and/ or IT infrastructure may lack appropriate security protocols, or they may be incompatible, requiring some kind of ad hoc work-around. The absence of any adequate cybersecurity strategy, in terms of national strategy, limited international cooperation, and weaknesses in the supply ecosystem, provides opportunity for cybercrime. Banks form a vital role in both the wider economy and the business ecosystem, facilitating global trade fnance transactions. Equally important, the role a nation’s central bank or fnancial regulator plays is critical, providing regulatory oversight over fnancial conduct. Not all fraud is due to external cyberattacks; some fraud is due to insiders with appropriate knowledge and freedom of movement, exploiting vulnerabilities. Two well-known cases highlight the vulnerability of banks and their transactional network known as SWIFT: the Punjab National Bank (PNB) of India and the Central Bank of Bangladesh.

Insight 6.2 Two Ways to Defraud a Bank: the Punjab National Bank (India’s second largest state-run bank) and the Central Bank of Bangladesh According to a spokesperson of the Punjab National Bank, Mr  Nirav Modi – a billionaire diamond merchant – and associates colluded with an employee of the Punjab National Bank, Gokulnath Shetty, who provided Modi with fnancial guarantees (letters of credit), without collateral. The fraudulent guarantees were issued by bank branch ofcials using SWIFT, the global payment transfer system, which were then used to obtain foreign loans. Between 2011 and 2017, when the fraud was discovered, these loans amounted to US $1.8  billion. Rodrigues and

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Shrivastava (Bloomberg), who covered this story, described this as ‘India’s biggest bank fraud’.50 They reported that, according to Abizer Diwanji, a partner at EY India Financial Services, the bank’s back-ofce software and the SWIFT international fnancial transfer software were not communicating with each other. He is quoted as saying, ‘ “The ball was frst dropped” when PNB [failed] to reconcile [transaction records between] the two systems’. Modi denies he was involved in the fraud, his lawyer, Vijay Aggarwal, told NDTV. Just two years earlier, in 2016, the computer system of Bangladesh’s central bank was hacked and millions of dollars were stolen.51 In common with many national banks, the Bangladesh central bank holds an account with the Federal Reserve Bank of New York for the purposes of holding and transferring foreign currency reserves. In February 2016, the perpetrators hacked into the central bank’s network, observed its fnancial transfer methods, and accessed the credentials used for making payment transfers. They then used these credentials to authorise 35 fraudulent transfers from the central bank’s account with the Federal Reserve Bank of New York. These instructions requested fund transfers to accounts in Sri Lanka and the Philippines. The Federal Reserve Bank blocked 30 transfers, but fve were executed, amounting to US $101 million. As of 2018, all funds sent to Sri Lanka were recovered, but only US $18 million of US $81 million sent to the Philippines has been recovered. Returning to PNB, in contrast with unknown external agents hacking into the central bank’s computer system, this fraud was based on collusion with employee(s) knowledgeable about PNB’s operational weaknesses. Rodrigues and Shrivastava noted that in the wake of the hacking of Bangladesh’s central bank, the Reserve Bank of India (RBI) instructed all banks to ensure their computer networks are securely integrated with SWIFT. Mr Rama Gandhi, a former RBI deputy governor overseeing RBI’s risk management, explained that since the computer systems of many banks were incompatible with SWIFT, RBI did not force them to carry out the necessary upgrade, which no doubt would be expensive, time consuming, and disruptive, especially as many banks are in poor fnancial health, according to Saswata Guha at Fitch Ratings. Instead, RBI required banks to, each day, manually reconcile internal transactions with SWIFT transfers. Rodrigues and Shrivastava point out several contributing weaknesses: inadequate technology, weak risk management, and lax regulatory oversight. These frauds highlight the risks of moving fnancial data between different transactional systems and the need for stringent regulatory controls of how they interface. According to Tim Phillipps, then a fnancial crime specialist at Deloitte, ‘Trade fnance operations at banks are [vulnerable],

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[but] also [very] proftable. . . . [Over the last decade] most checks. . . don’t allow data to be entered directly into SWIFT because [that is where information can be falsifed].’ Guha of Fitch notes that India’s government and central bank are reforming the banking system, but clearly progress is slow. Meanwhile the banking sector remains vulnerable. The United Nations recognises the signifcance of supply chains to sustainable development. As the UN Global Compact Initiative observes, ‘A company’s entire supply chain can make a signifcant impact in promoting human rights, fair labour practices, environmental progress and anti-corruption policies’.52 Global supply chains are also key sites where corporate responsibility and sustainable development interact, where broad societal goals and corporate goals need to align. Indeed, UN Global Compact participants see supply chain practices as the biggest challenge to improving the sustainability performance of their individual companies.

Institutionalising sustainability governance Institutionalising, or embedding sustainability governance, has many dimensions. We refer to the organisations at the centre of its promotion and implementation, as well as to the change and establishment of desired norms of behaviour and cultural values throughout society. This involves the inculcation of new language (around corporate responsibility and sustainable development) and the operationalisation of practices commensurate with the new language. For our purposes we note the role not only of the UN but also of the OECD, of international supply chains as the structured environment or organisational feld where the enactment of corporate power and interests interacts with the ambitions of other stakeholders (competing suppliers and buyers, governments, activist and lobby groups), and of consumer wants. We further highlight that MNCs’ infuence amounts to institutional power and the rise in the last two decades of private transnational organisations promoting sustainability governance. United Nations Sustainable Development Goals

Recognising that achieving the Sustainable Development Goals requires not just national government legislation and policies, the UN also oversaw the introduction of Agenda 21 focused on locally driven implementation of the Sustainable Development Goals. Alongside the United Nations’ (UN) promotion of, and broad commitment to, the Sustainable Development Goals, the promotion of sustainability governance has become central to the work of intergovernmental summits (e.g. the G20) and organisations, including the Organisation for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO).

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UN Global Compact Initiative: encouraging corporate responsible behaviour

The UN Global Compact is the world’s largest corporate sustainability initiative focused on encouraging businesses to advance societal goals, promoting responsible business practices and universal values within the business community. More directly, the GCI aims at engaging business leaders to commit to fve corporate sustainability imperatives, grounded in ten universal principles (Appendix),53 and more broadly to engage business as a catalyst in support of the SDGs. Embedding the UN Global Compact’s ten principles within individual companies presents one level of challenge, even within individual national regulatory frameworks. Such a shift requires change in business perspective (from a quarterly to a long-term perspective), ongoing improvements in corporate strategy, corporate governance, organisational structure and culture, and transparent reporting. Making change happen within global supply chains is a further level of difculty, because of the global scale and complexity of supply chains and because of national political interests and jurisdictional diferences. More than half of its 8,000 business members are European corporations and small and medium-sized enterprises (SMEs), with the two regions of Latin America and Asia  & Oceania accounting for around 3,000 frms. Among the European members, Spanish SMEs stand out at about 1,200 members.54 Assuming that the Global Compact’s business participants are genuinely engaging with the fve imperatives and ten principles, and do so year on year, their number remains a drop in the ocean of the estimated 230,000 foreign afliates of more than 82,000 multinationals.55 Organisation for Economic Co-operation and Development: leveraging infuence

The OECD is a club of the 37 most developed economies, and its member states dominate the production and control of MNC afliate output. In their review of evidence of whether MNCs do infuence economic activity, the OECD confrms that MNCs play a central role, especially in international activities: some 70% of the output of MNC afliates and partners is produced in OECD countries ($14 trillion in 2014), while over 90% of the production of MNC afliates and partners worldwide is controlled by OECD countries.56 The OECD therefore holds a pivotal position in being able to infuence the engagement of MNC afliates with sustainability governance. The OECD provides member nation states the Framework for Policy Coherence for Sustainable Development (2015) and (OECD) Guidelines for Multinational Enterprises (2011) on Responsible Business Conduct comprising principles and standards set out the expectation that businesses – regardless of their legal status, size, ownership or sector – contribute to sustainable

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development, while avoiding and addressing adverse impacts of their operations including throughout their supply chains and business relationships. (OECD Responsible Business Conduct, Guidelines for Multinational Enterprises) The OECD also contributes as an invited guest to G20 summits,57 for example to the 2009 G20 Summit: Framework for Strong, Sustainable and Balanced Growth, which expanded its agenda on previous summits, going beyond macro-fnancial issues to include socio-economic and development issues. In its report 10 Years On published in 2010, OECD Watch reported on the implementation of the OECD guidelines on sustainable development.58 OECD Watch analysed 96 NGO allegations against corporations regarding environmental and human rights abuses in MNC supply chains, which include developing economies. The analysis found a lack of political will, sanctioning powers, and coherent implementation. OECD Watch concluded, ‘if no drastic improvements are achieved civil society will be forced to look elsewhere to resolve the key problems facing afected peoples and the natural environment’. By 2019 there seems little improvement. In its 2019 Briefng Paper, The State of Remedy under the OECD Guidelines, they report that in 2018 just 9% of allegations reached agreement. The report fnds weaknesses in both the implementation strategy (i.e. the role of National Contact Points) and the guidelines.59 Bolt argues that legislation and regulation, rather than ‘guidance’, would have more impact.60 Multinationals as global institution: limits to corporate responsibility?

As noted earlier, OECD member states host the vast majority of MNC afliates’ and partners’ worldwide production and control of economic output. Similarly, UNCTAD observes that transnational corporation (TNCs) are central to global investments in production networks and managing trade fows in cross-border (global) value chains, whether intra-frm, inter-frm, regional, or global, accounting for some 80% of global trade.61 This concentration of MNC control over worldwide economic output suggests that TNC/MNC equates to a global governance institution. Further to this broad observation, Ruggie argues that MNCs do exercise power, authority, and autonomy.62 Drawing on Fuchs’ typology of power (instrumental, structure, discursive), Ruggie shows how MNCs exercise power, but without necessarily compromising the authority of legitimate state institutions.63 Nevertheless, MNCs do exercise authority, administered both internally and across supply chains under private law contracts. In addition, MNCs, as public corporations, are efectively autonomous institutions, whereby shareholders have some constraining infuence but not control. While MNCs may exercise comprehensive control of global economic activities through supply chains, the constituent legal entities of a multinational group are subject to numerous governmental-legal jurisdictions. Ruggie argues that the apparent schism inherent in MNC strategic control, being largely in

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control of economic activity (throughout the supply chain) and at the same time being subject to external multiple state jurisdictions, creates a governance gap.64 Given the MNC as an efective institution of economic development, should MNCs should be free to self-regulate (including determining the limits of its corporate responsibility), or should MNCs be subject to international treaty regulation (including a CSR tax on corporate profts)? The question is more complex, as the power and interests of both are intertwined: developing economies look to attract MNC foreign direct investment as the route to joining the global economy;65 MNCs operating within developing economies are sometimes at risk of becoming a surrogate state institution;66 and MNCs are known to exercise their capacity to engage in foreign policy lobbying.67 International private rule-making organisations: democratising sustainability governance?

During the last two decades, there has been a rapid growth in international organisations whose purpose is to develop and promote voluntary standards and structures rules concerned with sustainability governance in several policy felds, including environmental protection, human rights, trade and fnance, and security. Dingwerth and Pattberg call them ‘private organisations’, as they are not mandated by any central authority, such as government or intergovernmental agency.68 These organisations are making and implementing rules themselves, representing a move away from non-governmental organisations that lobby policy makers, for example the Global Reporting Initiative (GRI), a global organisation of business corporations, civil society groups, academics, accountants, and consultants. Other well-known examples include the Forest Stewardship Council (FSC) and the Marine Stewardship Council (MSC). Successful rule-making organisations working in areas of global sustainability politics are successful when (a) they are transnational, (b) their goals are framed in terms of social and/or environmental sustainability, (c) they have relatively specifc compliance requirements, and (d) their rules are at least minimally efective. These organisations do not necessarily have the same organisational design and processes, but they do tend to use the same rhetoric. The literature on international governance has established that power, interests, and norms largely shape the emergence and infuence of international institutions.69 Dingwerth and Pattberg argue that in studies of international governance, power and interests have tended to overshadow the signifcance of norm setting.70 They explored the signifcance of the latter, drawing on organisational feld theory. Their approach gives an insight to contemporary structures and processes of global governance. . . [showing] the emergence and difusion of a standard model for transnational rulemaking organizations on sustainability issues. . . in the absence of a central organization that would [otherwise] promote and enforce a. . . standard.71

142 The sustainability governance trinity

Chapter insight questions 1 2

3

4

What are the resources or capitals implicated in thinking about sustainability governance? The World Trade Organization is a multilateral body of 164 member states, managing the global rules of trade between members, and works to secure barrier-free trade among them. It provides a forum for governments to negotiate trade agreements and for settling trade disputes, and it helps developing countries build their trading activity. Evaluate the extent to which the WTO includes sustainable development in its mission. International supply chains, such as those of the automotive industry, are complex structures and a challenge for the efective governance of sustainability practices. What is the appropriate form of governance? Discuss with reference to the alternative forms of governance identifed: hierarchy, markets, networks, private. There are several multilateral organisations and agreements, free trade agreements (FTAs), banking institutions, and development organisations. Choose one or two such entities from each of the following three lists, and evaluate the extent to which they recognise, promote, and implement sustainability governance principles among member states. 4.1 International FTAs in play, including TTIP, TPP, NAFTA, RCEP, MERCOSUR, COMESA (one of eight trade blocs on the African continent). 4.2 Multilateral organisations and agreements among nations with broader aims of building closer ties on economic, political, security, and other issues: EU, ASEAN, BRICS, CARICOM, and others. 4.3 Regional development banks, including EBRD, World Bank, IMF, OPEC Fund for International Development, Caribbean Development Bank, and others.

5

The mission of the Global Energy Network Institute (GENI) is to conduct research and to educate world leaders and the public about the critical viability of the interconnection of electric power networks between nations and continents, with an emphasis on tapping abundant renewable energy resources.  .  . Our research shows that linking renewables between all nations will mollify conficts, grow economies and increase the quality of life and health for all. Review two or three of the organisations on its website and assess the extent to which there is clear evidence that their listing supports the mission of GENI. www.geni.org/globalenergy/library/organizations/index.shtml

Appendix UN Global Compact Initiative: fve imperatives and ten universal principles72

Five corporate sustainability imperatives 1 2 3 4 5

Principled business: aligning with ten universal principles (on human rights, labour, environment and anti-corruption)*. Strengthening society: taking action and collaborating with others to advance global challenges. Leadership commitment: efecting long-term change begins with a company’s leadership. Reporting progress: transparency in business practice is crucial for sustainability. Local action: viewing sustainability through a local lens.

*Ten universal principles Human rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights. Principle 2: Make sure that they are not complicit in human rights abuses. Labour

Principle 3: Businesses should uphold the freedom of association and the efective recognition of the right to collective bargaining. Principle 4: The elimination of all forms of forced and compulsory labour. Principle 5: The efective abolition of child labour. Principle 6: The elimination of discrimination in respect of employment and occupation. Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges.

144 The sustainability governance trinity

Principle 8: Undertake initiatives to promote greater environmental responsibility. Principle 9: Encourage the development and difusion of environmentally friendly technologies. Anti-corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Notes 1 Bevir, M. (Ed.). (2011). The Sage handbook of governance. London: Sage. 2 Hanawalt, B. A. (1998). ‘Good Governance’ in the medieval and early modern context: Controlling (mis)behavior: Medieval and early modern perspectives. Journal of British Studies, 37(3), 246–257, 248–249. 3 Russell, T. (Ed.). (1831). The works of the English Reformers: William Tyndale and John Frith (Vol. 1, p. 452). Printed for Ebenezer Palmer. 4 Great Britain, Public Records Ofce. (1836). State Papers published under the authority of His Majesty’s Commission: Vol. V, King Henry the Eighth; Part IV: Correspondence relative to Scotland and the borders 1534–1546 (p. 95). London: His Majesty’s Commission for State Papers. 5 Plummer, C. (1885). The Governance of England also known as the diference between an absolute and a limited monarchy (A translation of John Fortescue’s 15th-century Latin work). 6 Natural Capital Coalition and the Social and Human Capital Coalition have been united to create the Capitals Coalition. 7 Gough, M. and Spencer, R. (2017). The capitals approach. United Nations Association UK (ANA-UK). Retrieved from www.sustainablegoals.org.uk/the-capitals-approach/ 8 Chiesura, A., & de Groot, R. (2003). Critical natural capital: A socio-cultural perspective, 219–231. In P. Ekins, C. Folke, & R. de Groot (Eds.), Identifying critical natural capital. Ecological Economics, 44(2–3), 157–386. 9 Norton, B. G. (2012). Valuing ecosystems. Nature Education Knowledge, 3(10), 2. Retrieved from https://www.nature.com/scitable/knowledge/library/valuing-ecosystems-71373110/; Sandler, R. (2012). Intrinsic value, ecology, and conservation. Nature Education Knowledge, 3(10), 4. Retrieved from https://www.nature.com/scitable/knowledge/library/ intrinsic-value-ecology-and-conservation-25815400/ 10 Cabeza-Gutes, M. (1996). The concept of weak sustainability. Ecological Economics, 17(3), 147–156. 11 Ekins, P., Simon, S., Deutsch, L., Folke, C., & De Groot, R. (2003). A framework for the practical application of the concepts of critical natural capital and strong sustainability, 165–185. In P. Ekins, C. Folke, & R. de Groot (Eds.), Op. cit. 12 Ekins, P., Folke, C., & de Groot, R. (Eds.). (2003). Op. cit. 13 The Protocol is used to distinguish it from other organisations working in this space, including the Natural Capital Project and Nature’s Contribution to People. 14 Natural Capital Coalition. (2016). Natural capital protocol. Retrieved from https://naturalcapitalcoalition.org/protocol/ 15 This simplifcation was provided in a personal exchange with Mark Gough. 16 Fenichel, E. P., & Hashida, Y. (2019). Choices and the value of natural capital. Oxford Review of Economic Policy, 35(1), 120–137. 17 Capitals Coalition. (2018, May 17). Dear George, we cannot take a monoculture approach to the conservation of the natural world. Retrieved from https://medium.com/@CapsCoalition/

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22 23 24 25 26 27 28 29 30

31

32 33 34 35 36 37 38 39 40 41

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dear-george-we-cannot-take-a-monoculture-approach-to-the-conservation-of-thenatural-world-42aa2f37d27e Whitfeld, L. (2012). How countries become rich and reduce poverty: A review of heterodox explanations of economic development. Development Policy Review, 30(3), 239–260. World Bank. (2014). Prosperity for all / ending extreme poverty: A note for the World Bank Group Spring Meetings 2014. Washington, DC: World Bank. Bevir, M. (2011). Op. cit.; Glass, L.-M., & Newig, J. (2019). Governance for achieving the Sustainable Development Goals: How important are participation, policy coherence, refexivity, adaptation and democratic institutions? Earth System Governance, 2, 100031. United Nations. (2015, September, 25–27). United Nations sustainable development summit. Retrieved from www.un.org/sustainabledevelopment/blog/2015/09/summit-chartsnew-era-of-sustainable-development-world-leaders-to-gavel-universal-agenda-totransform-our-world-for-people-and-planet/ Carbon Brief. (2019, December  15). COP25: Key outcomes agreed at the UN climate talks in Madrid. Retrieved from www.carbonbrief.org/cop25-key-outcomes-agreed-atthe-un-climate-talks-in-madrid Güney, T. (2017). Governance and sustainable development: How efective is governance? The Journal of International Trade & Economic Development, 26(3), 316–335. Holmberg, S., Rothstein, B., & Nasiritousi, N. (2009). Quality of government: What you get. Annual Review of Political Science, 12, 135–161. Ibid.; Güney, T. (2017). Op. cit. Glass, L.-M., & Newig, J. (2019). Op. cit. White, S. C. (1996). Depoliticising development: The uses and abuses of participation. Development in Practice, 6(1), 6–15. Arnstein, S. (1969). A ladder of citizen participation. Journal of the American Institute of Planners, 35(4), 216–224. White, S. C. (1996). Op. cit. Heinelt, H. (2002). Achieving sustainable and innovative policies through participatory governance in a multi-level context: Theoretical issues. In H. Heinelt, P. Getimis, G. Kafkalas, R. Smith,  & E. Swyngedouw (Eds.), Participatory governance in multi-level context: Concepts and experience (pp. 17–32). Opladen, Germany: Leske and Budrich. OECD Council. (2012). Meeting of the Council at Ministerial Level, 23–24 May 2012, C/MIN(2012)6, OECD strategy development, April 27th. Paris: OECD; OECD. (2016). Better policies for Sustainable Development 2016: A new framework for policy coherence. Paris: OECD Publishing. Feindt, P. H., & Weiland, S. (2018). Refexive governance: Exploring the concept and assessing its critical potential for sustainable development: Introduction to the special issue. Journal of Environmental Policy & Planning, 20(6), 661–674. Voß, J.-P., Bauknecht, D., & Kemp, R. (Eds.). (2006). Refexive governance for sustainable development. Cheltenham, UK: Edward Elgar. Ibid., p. 12. Walker, W. E., Rahman, A. S., & Cave, J. (2001). Adaptive policies, policy analysis, hand policy-making. European Journal of Operational Research, 128, 282–289. Voß, J.-P., et al. (2006). Op. cit. Feindt, P. H., & Weiland, S. (2018). Op. cit., p. 666. Norris, P. (2012). Making democratic governance work: How regimes shape prosperity, welfare, and peace. Cambridge: Cambridge University Press. Holmberg, S., Rothstein, B., & Nasiritousi, N. (2009). Op. cit. Meadowcroft, J. (2011). Sustainable development. In M. Bevir (Ed.), The SAGE handbook of governance (p. 537). London: Sage. Kooiman, J. (2003). Governing as governance. London: Sage; Salamon, L. M. (2001). The new governance and the tools of public action: An introduction. Fordham Urban Law Journal, 28(4), 1611–1674.

146 The sustainability governance trinity 42 Glass, L.-M., & Newig, J. (2019). Op. cit. 43 Ibid.; Bertelsmann Stiftung. (2019). Sustainable Government Indicators (SGI). Retrieved from www.sgi-network.org/2019/ 44 Geref, G., Humphrey, J.,  & Sturgeon, T. (2005). The governance of global value chains. Review of International Political Economy, 12(1), 78–104. 45 Jacobides, M. G., Cennamo, C., & Gawer, A. (2018). Towards a theory of ecosystems. Strategic Management Journal, 39(8), 2255–2276. 46 World Bank. (2020). World development report 2020: Trading for development in the age of global value chains. Washington, DC: World Bank. Retrieved from www.worldbank.org/ en/topic/global-value-chains 47 Ruddick, G.,  & Oltermann, P. (2017, Friday March  3). Multiple cross-channel road trips highlight how carmakers and suppliers in Britain and the EU are intertwined. The Guardian. Retrieved from www.theguardian.com/business/2017/mar/03/brexit-ukcar-industry-mini-britain-eu 48 Ibid. 49 Bissell, K., Lasalle, R. M., & Cin, P. D. (2020). Innovate for cyber resilience: Lessons from leaders to master cybersecurity execution. Accenture Third Annual Research Study. 50 Rodrigues, J.,  & Shrivastava, B. (2018, February  27). How a $1.8  billion Indian Bank fraud lasted seven years. Bloomberg. Retrieved from www.bloombergquint.com/ global-economics/how-an-1-8-billion-indian-bank-fraud-lasted-seven-years 51 Gopalakrishnan, R., & Mogato, M. (2016, May 19). Bangladesh Bank ofcial’s computer was hacked to carry out $81  million heist: Diplomat. Reuters. Retrieved from www.reuters.com/article/us-cyber-heist-philippines-idUSKCN0YA0CH 52 United Nations Global Compact and BSR. (2015). Supply chain sustainability: A practical guide for continuous improvement (2nd ed.). UN Global compact Ofce and Business for Social Responsibility (BSR). Retrieved from https://www.unglobalcompact.org/ library/205 53 United Nations Global Compact. (2014). Guide to corporate sustainability: Shaping a sustainable future. New York: United Nations. Retrieved from https://www.unglobalcompact. org/library/1151 54 Ibid., Annex. 55 OECD Policy Note. (2018). Multinational enterprises in the global economy: Heavily debated but hardly measured. Paris: OECD. 56 Ibid. 57 The economies of the Group of 20 (or G20) countries account for around 80% of world economic output and 75% of the global population. It comprises both developed and developing economies, and invitees. 58 OECD Watch is a global network of civil society organisations of over 130 members in 50 countries. 59 OECD Watch Briefng Paper. (2019). The state of remedy under the OECD guidelines. Paris: OECD. 60 Bolt, C. (2018). Leveraging reputation in implicit regulation of MNEs: An analysis of the OECD guidelines for multinational enterprises’ capacity to infuence corporate behavior posted on January 20. Seminar on Corporations and International Law, Duke University Law School. Retrieved from https://sites.duke.edu/corporations/2018/01/20/ leveraging-reputation-in-implicit-regulation-of-mnes-an-analysis-of-the-oecdguidelines-for-multinational-enterprises-capacity-to-infuence-corporate-behavior/ 61 UNCTAD. (2013). Global value chains and Development: investment and value added trade in the global economy. United Nations Conference on Trade and Development (UNCTAD). Retrieved from https://unctad.org/system/fles/ofcial-document/ diae2013d1_en.pdf.. 62 Ruggie, J. G. (2018). Multinationals as global institution: Power, authority and relative autonomy. Regulation & Governance, 12, 317–333.

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63 Fuchs, D. (2007). Business power in global governance. Boulder, CO: Lynn Rienner Publishers. 64 Ruggie, J. G. (2018). Op. cit. 65 Moran, T. H., Graham, E. M.,  & Blomstrom, M. (Eds.). (2005). Does foreign direct investment promote development new methods outcomes and policy approaches Peterson Institute. Danvers, MA: Institute of International Economics. 66 Kline, J. M. (2006). MNCs and surrogate sovereignty. The Brown Journal of World Afairs, 13(1), 123–133. 67 Kim, I. S.,  & Milner, H. V. (2019). Multinational corporations and their infuence through lobbying on foreign policy. In Multinational corporations in a changing global economy. Washington, DC: The Brookings Institution. 68 Dingwerth, K.,  & Pattberg, P. (2009). World politics and organizational felds: The case of transnational sustainability governance. European Journal of International Relations, 15(4), 707–744. 69 Hasenclever, A., Mayer, P.,  & Rittberger, V. (1997). Theories of international regimes. Cambridge: Cambridge University Press. 70 Dingwerth, K., & Pattberg, P. (2009). Op. cit. 71 Ibid., pp. 731, 732; Wooten, M., & Hofman, A. J. (2017). Organizational felds: Past, present and future. In R. Greenwood, C. Oliver, T. B. Lawrence, & R. E. Meyer (Eds.), The Sage handbook of organizational institutionalism (2nd ed., Ch. 2). London: Sage. 72 United Nations Global Compact. (2014). Guide to corporate sustainability: Shaping a sustainable future. New York: United Nations. Retrieved from https://www.unglobalcompact. org/library/1151

7

Sustainable fnance

Introduction As sustainable development continues to become an important societal objective, the issue of how sustainable activities are funded becomes increasingly more relevant. In this chapter we introduce certain topics pertaining to sustainable fnance. It is not our intention to turn the reader into a fnance expert but rather to describe what sustainable fnance is and the role it can play in expediting the move towards a more sustainable society. In doing so we will highlight the size and extent of the sustainable investing movement that currently exists, a sustainable fnance typology, and an evolutionary sustainable fnance framework for investment. A comparison will be made between the fnancial value created by traditional fnance activities and the longer-term value creation that can be achieved through a sustainable fnance lens. Various sources of sustainable fnancing will be examined from both corporate and non-corporate perspectives, including green bonds, sustainable banking, and the increasing involvement of the insurance industry. We conclude the chapter by identifying what role the government can play in encouraging sustainable fnance and its contribution to enhancing sustainable development.

What is sustainable fnance? Sustainable fnance refers to any form of fnancial service integrating environmental, social and governance (ESG) criteria into the business or investment decisions for the beneft of both clients and society at large. – Swiss Sustainable Finance1

This defnition of what sustainable fnance is represents a broad interpretation that can be helpful when addressing the fnancing of sustainable development activities, whether that be by a corporation, government, or individual. Certainly, for each of these stakeholders the identifcation of who the client is does vary, but the principal message is that the benefts of the investment accrue to society as a whole. We have addressed the ESG concept in other chapters, so when it comes to integrating ESG strategies into the choice of sustainable

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investment, it can be done in many ways. Before describing those ways, it is important to understand the size and scope of ESG-mandated investment. Figure 7.1 highlights the exponential growth of sustainable investing with over 30 trillion US dollars having been invested globally in a variety of assets associated with an ESG mandate in 2018. The forecast continues to grow exponentially with sustainable investment levels reaching approximately 160 trillion US dollars by the year 2036. To put that in perspective, in 2019 the entire global GDP was estimated to be just over 142 trillion US dollars.2 As just mentioned, diferent ESG strategies are employed in determining how funds are allocated. Depending on the organisation managing the funds, whether that be an institutional investor, government agency, or individual, the sustainable investment can be across an entire industry sector, in a particular company or organisation, or in a single sustainable project. One of the most common strategies today is referred to as exclusionary screening, where certain sectors, projects, or companies are fltered out due to negative ESG practices. Conversely, investment can be driven by positive inclusionary screening that identifes sectors, projects, or companies with superior ESG performance. A  related strategy is the use of international norms around ESG practices, or norms-based screening, where investment occurs only where practices adhere to some defned international norm. Other strategies can be more specifc, such as using detailed fnancial analysis and investment decision making that includes the risks and opportunities associated with ESG criteria (ESG integration) or thematic investing that is based on a particular chosen theme. For example, investments may be limited to a theme of social sustainability, so the funded activities must contribute to that theme. Another commonly used strategy is impact investing which attracts

180 160

Forecast

140 120 100 80 60 40 20 0

Figure 7.1 Forecast of future sustainable investment in trillions USD Source: Fletcher, 20193

150 The sustainability governance trinity

Total ($US billion)

25000 20000

$19,771

15000 10000 5000

$17,544 $9,835 $4,679

$1,842

0

$1,018

$444

Figure 7.2 2018 sustainable investment by ESG strategy Source: GSIA, 20194

investment because the assets to be invested in are seen to provide a positive and measurable ESG impact. A less direct strategy is one of corporate engagement whereby investment has been made more generally but shareholders or funders seek to infuence organisations into more positive ESG behaviour. In 2018, exclusionary screening and ESG integration were the two most prominent strategies employed (Figure 7.2).

Insight 7.1

Sustainability at Vasakronan

Vasakronan is Sweden’s leading commercial property development and management company with 174 properties across the country. Their total property portfolio amounts to approximately 2.3 million square metres with most of those properties located in the nation’s capital, Stockholm. As of 2020 the market value of their holdings was 157 billion Swedish krona (approximately US $18 billion or €15 billion). Vasakronan is a sovereign company owned by four of Sweden’s national pension funds and employs over 300 people. The company’s vision is to ‘create future-proof cities for everyone where people and companies thrive’5 with an objective to provide their owners with high, risk-weighted returns without sacrifcing the environment and the people impacted by their operations. Accordingly, they see themselves as a supporter of long-term sustainable development. Vasakronan’s CEO, Johanna Skogestig, justifes that strategy by refecting upon the history of the company and pointing out

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that the company was the frst to provide green leases, whereby they are contractually obligated to work with renters to operate the property sustainably, for example using waste reduction processes and efcient energy and lowering water consumption. They are proud of having the greatest percentage of environmentally certifed properties in their portfolio when compared to the country’s other property companies, and since 2008 they have reduced their energy use by nearly 60% since 2008. Their triple bottom line approach to sustainability includes fnancial goals that exceed the industry average (a rolling average ten-year return on investment of 6.5%) in addition to a number of social and environmental goals, most of which meet the corporate commitment to the UN Sustainable Development Goals 7, 8, 9, 11, and 12 (see Chapter  8). Their social goals include maintaining a positive work environment, absent of negative stress and without discrimination or harassment. Vasakronan seeks to refect Swedish society in general in terms of employee ethnicity, age, and gender balance. Occupational health and safety practices are a signifcant part of their social goals, as is the requirement of employees and suppliers to act in accordance with these goals and values. From an environmental perspective, Vasakronan has set a goal of having 100% climate-neutral operations by 2030, which they propose to achieve through self-sufcient energy production and continued energy efciency initiatives. In addition, the company plans on building new properties using renewable, recycled, or reused materials, and with existing operations they have a goal of zero waste (non-recyclable) for not only themselves but their customers as well. Finally, to fund these initiatives the company is committed to use only sustainable fnancing methods.

The role of the fnancial system in contributing to sustainability One of the objectives of the UN’s Sustainable Development Goals is to see that future trade between nations and the related fnancial systems include the concept of sustainability, in particular the move to encouraging lower greenhouse gas emissions and development that is more resilient to the efects of climate change. To do so requires the current global fnancial systems to become more inclusive of qualitative assessment processes, not simply quantitative, that recognise the societal and environmental impacts of fnancial investments. The transition to a more sustainable economic system would seem to be attainable given the size and extent of global asset investment. The global fnancial system today is formed of interconnected, nationally regulated fnancial markets with a growing reliance on digitalisation and big data to conduct transactions worldwide. It is not a scarcity of funds to invest, or the ability to do so, that will be the principal barrier to that transition but rather if the fnancial system,

152 The sustainability governance trinity

as we know it today, is ready to accept the need to deal with sustainability and climate change efects. If the global fnancial system is prepared to do so, then it has the ability to drive the changes required in the global economy to contribute to future sustainable development as part of the recurring investments in large-scale infrastructure, fnancial trading, and insurance services. History has shown repeatedly that our fnancial systems do not always operate in a responsible manner, the 2008 global fnancial crisis being an example. Therefore, the fnancial system’s role in contributing to sustainability will likely require some form of regulation and discipline in order to sustain and maintain this transition, and later in this chapter we will discuss the future role of government in this regard. Generally speaking, the current fnancial system is structured to provide fnancial capital to governments, businesses (corporate), and households (Figure 7.3). This contribution of capital is undertaken either through the lending of funds (debt) or through direct investing (equity). For governments, the

Government

Financial System Financial Capital

Investment and lending

Corporate

Linear produc˜on

Financial value crea˜on

Sustainable business prac˜ces

Long-term value crea˜on

Households

Government

Earth

Natural Capital

Financial System

Financial Capital

Society

Social Capital

Investment and lending

Corporate

Households

Figure 7.3 Financial vs. sustainable fnancial system Source: adapted from Schoenmaker and Schramade, 20196

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funds are typically associated with locked-in funding of government budgets, for example infrastructure or healthcare. Corporate funding is allocated towards linear industry supply chains and the production of goods and services. Households utilise the capital lent to them for linear consumption of the goods and services – purchase, use, and dispose. For each of these three groups the intent of their use of borrowed or invested capital is to create some form of fnancial value. For instance, governments invest funds to develop infrastructure that will encourage future industrial growth and investment, while corporates use their acquired capital to grow their business and achieve increased proftability and shareholder value. Households generally use borrowed capital to purchase assets such as a dwelling to reside in with the intention of seeing capital appreciation over time or a car that would provide improved access to their place of employment and therefore an income. Ultimately the creation of fnancial value will add to the available pool of capital that can be recirculated through the fnancial system. Of course, not all uses of capital will result in creating fnancial value as the process is not completely efcient, but the traditional model contemplates a system that works only when the lending or investment of capital results in a net positive creation of fnancial value that protects the original capital investment plus provides a market-rate return to those who provide that capital. A transition to a sustainable fnancial system would incorporate not only the fnancial capital available but also the use of natural capital and social capital within the context of the investment itself. Evaluating the purpose for which either the lending or the investment is intended would include not only the direct costs associated with the investment, but also the indirect environmental and social costs. In doing so, the investment is not limited to just fnancial value, but also to long-term value to society as a whole. For governments, the locked-in spending on budgeted investments will require determining how responsible that spending might be, and with corporate investment the funding will require integrating sustainable business practices into any investment in their linear production processes. In the sustainable fnancial system, household lending will encourage responsible consumption, for example energy efcient housing or electric vehicles. This system of creating long-term value then contributes positively to all three forms of capital: fnancial, natural, and social. Schoenmaker (2017) described a sustainable fnance typology of a threestage framework that could assist the fnancial system in contributing to a more positive social and environmental impact (Table  7.1). These particular stages begin with fnance-as-usual as the base of the framework in which the only factor considered is fnancial and the only value to be created by the investment would be the optimisation of fnancial value or return for the shareholder or investor, typically within a shorter-term horizon. To begin the transition to a sustainable economy, a shorter-term step (Sustainable Finance 1.0) would see investment and lending move away from companies or projects where social and environmental impacts may be deemed negative. For example, certain polluting industries, such as coal-fred power generation, that are seeking funding would be avoided. So too would companies who might be active in industries

154 The sustainability governance trinity

where exploitation of child labour is common. How such negative activities are identifed is likely to continue to be the result of work undertaken by non-governmental organisations with the use of traditional and social media messaging. At this stage, investment avoidance remains somewhat radical in the minds of many investors and those who manage their assets. The beneft of this stage is less about the ability to stimulate signifcant change in investment criteria and more about the move towards having organisations realise that a risk exists and that a ‘new norm’ is being established for acceptable standards when it comes to investing. This risk has its greatest efect on the investors or shareholders themselves, and they have come to recognise the need for their invested capital to contribute to more sustainable operations, whether that is reduced energy and emissions or more diverse employment policies. Certainly, within the Sustainable Finance 1.0 stage, the underlying objective remains one of improving the fnancial return on investment. However, risk that such a return may be negatively infuenced by irresponsible actions on the part of the companies or project managers has stimulated increased interest in investing more responsibly. Furthermore, there can be positive fnancial efects associated with sustainable fnance that become identifed at this stage. They can include cost reduction through better energy management, lower business risk by improving reporting standards, improved reputation that may encourage investment, employee recruitment and retention, and new customers. All of these benefts can lead to improved proftability and shareholder value.7 In the next stage of the framework, Sustainable Finance 2.0, the integration of social and environmental externalities, for example carbon taxes or social welfare reforms that may have a negative impact on the fnancial success of the organisation or project, becomes the norm. Such integration involves assigning Table 7.1 Sustainable fnance framework Desired Value Creation

Ranking of Factors

Shareholder Only Only fnancial factors are to be considered Shareholder+ Financial and then social and environmental factors Stakeholders Financial, social, and environmental equally Common Good Social and environmental before fnancial Source: Schoenmaker, 20178

Factors to Optimise

Time Horizon Sustainable Finance Typology

Financial value

Short term

Finance-as-usual

Financial but Short term subject to social and environmental Financial, Mid-term social, and environmental

Sustainable Finance 1.0

Social and Long term environmental subject to fnancial

Sustainable Finance 3.0

Sustainable Finance 2.0

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a price or cost to those externalities so that they are included in the analysis of fnancial risk associated with the investment. Various forms of technology can assist in gathering the large amounts of data that may be required, and scientifc processes such as an environmental or social life cycle analyses can assist in determining the price or cost associated with any identifable social and/or environmental impact. The resulting integrated value is based on how investors sum up the discount rates for the fnancial, social, and environmental risks that they are taking, which is then used to discount future cash fows from their investment. This approach is not without its problems. The integrated value can appear reasonable, even if the social or environmental value contributions are not, when the economic value is positively infuenced by any reduction in the social or environmental value. Accordingly, Schoenmaker (2017) suggests that minimum levels of social or environmental value must be set for any investment and that stakeholder participation in this integrated value methodology can assist in conceiving the risk and values for the social and environmental impacts. Sustainable Finance 2.0 epitomises the triple bottom line concept whereby the fnancial, social, and environmental consequences are balanced together in an attempt to constrain any negative social and environmental efects arising from the fnancial objectives of the investors. The fnal stage is referred to as Sustainable Finance 3.0 where the goal is to invest only in sustainable companies or projects with a longer-term approach and a focus on investment that promotes sustainable development. As opposed to the earlier stages of the framework where an exclusionary view is taken, this last stage promotes inclusion of investments such as renewable energy projects, sustainable (green) buildings, and electric vehicle production. The attainment of fnancial value remains an important condition for sustainable fnancing as without it, fnancial investment in future sustainable businesses or projects could not occur. Therefore, the forecasted fnancial value must include, at a minimum, a fnancial return on the original investment. What separates Sustainable Finance 3.0 from the earlier stages of the transition framework is the move away from fnance simply being proft-driven to serving the public interest and, in doing so, ranking social and environmental impact before fnancial impact. Determining what constitutes ‘in the public interest’ remains debatable among stakeholders and will require intervention by institutions whose purpose is to objectively determine the answer to that question. More importantly, however, such institutions must attempt to determine what the appropriate fnancial return might be under this stage. In 2016, the Global Impact Investing Network (GIIN) found in its annual survey of impact investors that 59% of impact investment sought fnancial returns consistent with current market rate returns, with only 16% willing to undertake sustainable investment that would simply preserve the value of their initial investment. The remaining percentage were willing to take an investment strategy where the returns fell somewhere in between.9 In 2020, the survey saw the risk-adjusted market rate return investment goal increasing to 67% of all impact investors surveyed and only 15% willing to accept little, if any, fnancial return as part of their impact

156 The sustainability governance trinity

investing strategy.10 This result suggests that regardless of the growing acceptance of sustainable investing, the increased desire to achieve market-rate returns by the impact investment community refects the difculty in achieving the Sustainable Finance 3.0 stage.

Insight 7.2

Vasakronan’s Green Finance Framework

The long-term strategy of reducing energy consumption and increasing the use of renewable energy sources has been a signifcant part of Vasakronan’s overall business strategy. It is not only the potential cost savings that drive their strategy but also the ability to market their properties as being environmentally certifed. As of 2020, the company has achieved certifcation on 85% of their portfolio in accordance with the third-party LEED (Leadership in Energy and Environmental Design) rating system. In 2013, Vasakronan was the world’s frst company to issue a green corporate bond to fnance their development of sustainable buildings. The total amount raised was 1.3 billion Swedish krona (US $150 million or €130  million) and represented approximately one quarter of its capital requirement for new construction and renovation projects. In 2019, the company had green bonds in place totalling in excess of 25 billion Swedish krona (US $2.88 billion or €2.42 billion). Vasakronan’s green fnance framework has evolved to include not only green bonds but also other fnancial instruments such as green commercial paper (shorter-term loans) and green private placements (equity). This variety of instruments is used to raise funding for new building projects and existing buildings, including renewable energy projects, that make a positive contribution to the environment as part of the company’s strategy of promoting a transition to a climate-friendly society. The company has identifed specifc characteristics of a green asset, including new buildings or renovated buildings that are a minimum 25% more energy efcient than what is required by Sweden’s building regulation. Furthermore, the project must be able to be certifed at the highest levels by LEED and BREEAM (Building Research Establishment Environmental Assessment Method). For renewable energy projects, the green fnance instruments are currently limited to solar energy only. The evaluation and selection of eligible green assets to be fnanced through Vasakronan’s green fnance framework is undertaken by a corporate committee on green fnance, and their decisions can be vetoed by the company’s head of sustainability. Once a decision is put forward, the Treasury department of Vasakronan determines if the company can issue a green fnance instrument in light of the overall fnancial capacity of the frm and, once approved, the Treasury department manages the net proceeds on a portfolio basis with a special account to handle diferences between the amount of capital raised and the planned value

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of the company’s portfolio of green assets. Should a building not achieve the level of certifcation required by the green fnancing framework then it is removed from the designated green asset portfolio, and if a qualifying building is sold then it is removed from the portfolio and its value can be replaced with a new building. The entire process is subject to external auditing on an annual basis, and the total value of the green asset portfolio is reported quarterly with a more detailed report provided annually. The available data reported includes: • • • • • • •

level and type of certifcation; energy performance of building or asset; energy generated; level of CO2 emissions (Scope 1 – direct emissions, Scope 2 – indirect emissions from energy purchased); consumption of materials from construction and major renovation projects; waste data, including waste diverted from landflls from construction and major renovation projects, and waste diversion rates for collection from tenants; water consumption and intensity (use per m2 of building space).

Corporate fnancing – equity and bonds In 2019, the UN proposed an integrated model for corporate SDG fnancing as a guide for business corporations when seeking capital. The intent was to encourage the integration of SDGs into the strategic and governance processes of corporations, including the raising of capital, the spending of capital, and the reporting on how that capital is being utilised and providing a return to investors and lenders. This integrated model was purposed to address a variety of corporate activities and industry sectors, asset types, and corporate fnancial instruments, including equity issues and various forms of debt (bank loans and corporate bonds). Figure 7.4 illustrates the model and the four steps contemplated by the UN. Each step represents a progression of actions designed to encourage sustainable activities by the corporation. The model achieves its purpose in a number of ways. It stimulates corporations to develop their own theories of social and environmental impact. This requires an assessment of their operations and their specifc capabilities to determine how they might contribute to the UN SDGs now and in the future. Outcomes of that assessment include ideas as to what assets, aside from their existing assets, need to be fnanced. It also provides an opportunity to signal their new impact strategy to investors, in particular the growing number of impact investors. An advantage of the model is that it is adaptable to the current corporate governance mechanisms that exist at companies who raise capital in the public

158 The sustainability governance trinity

Step 1. Develop a credible SDG impact theory

Step 2. Measure and monitor the impact of SDG investments

Step 3. Integrate SDG impact into corporate strategy and governance

Step 4. Structure general-purpose bonds and equity Figure 7.4 Integrated model for corporate SDG fnance Source: UN, 202011

markets. For example, the SDG impact theory of the frm now becomes their primary strategy and as such is subject to existing corporate governance procedures. This assures investors that their capital contributions are going to be used in a sustainably impactful way and that SDG impact has become the basis for the corporation’s overall strategy, goals, and activities. Furthermore, the model anticipates that corporations will use a variety of fnancial instruments to raise the required capital to implement their SDG strategy, some of which are expected to be part of a liquid equity trading market. Figure 7.5 highlights how an SDG matrix can be created to identify the corporation’s sector priorities for SDG impact strategies. Step 1 – develop a credible SDG impact theory

The frst step involves the development of internal theories pertaining to the social and environmental impact that the frm may have as a result of their corporate activity and which are seen to have a credible impact on promoting SDGs. The measure of credibility is determined by a number of factors including intentionality – how proactive and decisive is the corporation about contributing to the SDGs?; specifcity – in addition to existing assets, is the frm specifc about what future asset or activity is required to contribute to the SDGs?; relevance – is it reasonable to expect that the proposed asset investment is where it is needed most?; intensity – how efective will that asset be in contributing to the SDGs?; balance – to what degree are there potential negative social and/

High

Sector priority: Improve level of SDG impact

13

10

16 4 2

17

9

Medium

159

11

14

3

6

16

SDG

8 5 1

15 7

Low

Sector poten˙al to contribute to SDG

Sustainable fnance

12

Nega˙ve

Neutral

Posi˙ve

Current level of SDG impact Figure 7.5 Sectoral SDG matrix Source: adapted from UN, 201912

or environmental consequences of this asset investment?; comparability – can a corporation’s impact theory allow for comparisons with similar assets or activities, both negative and positive?; measurability – can the SDG impact be measured and monitored over time with developed targets to allow for measure of progress?; and integrated – can the SDG impact form part of the corporation’s strategy and governance process? The UN framework suggests a number of plausible business models and market opportunities that can be pursued as part of the corporation’s impact discussion. They include some recent sustainable business models such as the sharing economy, the circular economy, and the inclusive economy. Each of these models stresses optimal resource efciency in the production and consumption of products and services, including the need to extend the lifetime and usability of products. Another area for SDG impact pertains to new markets and consumers. Corporations can invest in creating new markets and the growth of existing markets through product or service innovation which can contribute to the reduction of poverty and inequality. However, investing in new positive SDG impact assets cannot ignore that previous asset investments of the corporation may become what is referred to as a ‘stranded asset’. A stranded asset is one where new asset investments make it obsolete yet the stranded asset continues to form part of the asset structure of the corporation and may have associated debt or liabilities associated with

160 The sustainability governance trinity

it. Writing of the stranded asset not only has an impact on the fnancial complexion of the corporation, but also can lead to removing a signifcant source of employment. Accordingly, certain transition strategies would need to be considered when developing the impact theory, including retraining employees to work with the new or repurposed assets. Finally, the credibility of a corporation’s SDG impact initiative is not limited by a lack of access to a public market for fnancing. Private capital can be raised by using fnancial intermediaries. For example, fnancial institutions such as banks or government-backed funding agencies such as the World Bank can take on the role as fnancial intermediary for providing capital to fund a frm’s SDG impact asset investment. As fnancial intermediaries they also can contribute to the multiplier efect by having the beneft of using their established networks to leverage their original investment into multiple investments, usually with better negotiated fnancing terms that build on the initial asset investment. Furthermore, these additional investments can involve more local ownership of the SDG impact asset, thus contributing to a greater element of local economic and social development. Step 2 – measure and monitor the impact of SDG investments

Once the credible SDG impact investment has been determined, it becomes important to create a measurement and monitoring process for the predefned goals, targets, and indicators that were determined in Step 1. Specifc measures will address the inputs or outputs of the activities and assets associated with the investment. This step relies on determining what constitutes the inputs, outputs, and outcomes that need to be monitored, as shown in Figure 7.6. There are two methods of measurement, an efort-based method that tracks the corporation’s resource commitment (input) to the SDG impact strategy and a result-based method that assesses the direct outputs and outcomes of that commitment. The measure of input requires answering two questions: what will the corporation do in terms of the level of commitment? – direct investment in an SDG impact asset or a specifc sustainable business unit creation or the launch of a sustainable product, and how will the corporation undertake that commitment? The output-based measures are derived from both estimated and actual measures of the results of the corporation’s impact investment. For

INPUT

Corporate commitment: • What it will do

(invest, create unit, launch product)

• How it will do it (sustainability,

OUTPUT

Corporate assessment: • Company es˜mates and measures immediate results

stakeholder engagement, local transfer)

Figure 7.6 SDG impact measurement model Source: adapted from UN, 201913

OUTCOME

Corporate SDG impact: • Company es˜mates and measures what impact it will generate

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example, a mining company in a remote location might choose to invest in renewable energy and energy storage technology to replace the diesel power generation assets. Their measure of displaced diesel-generated electricity by solar or wind power would represent an output-based measure. The related outcome-based measure goes beyond just the direct output and measures the entire impact of this investment, which in this case would be the reduction in greenhouse gas emissions and a positive impact on associated SDGs (SDG 7  – afordable and clean energy; SDG 11 – sustainable communities; SDG 12 – responsible consumption and production; SDG 13 – climate action). Step 3 – integrate SDG impact into corporate strategy and governance

The third step in the transition towards a sustainable fnance approach to raising capital is the integration of the work undertaken in the frst and second stages into achievable SDG strategies and specifc strategic objectives, targets, and key strategic performance indicators. With the SDG strategies now determined, they can be included in the existing corporate governance processes such as board of directors approval and specifc committees such as the audit or governance committees. Corporate sustainability reporting also becomes more relevant to the organisation, and internal/external controls and audits become signifcant SDG governance activities. All governance activities now include the assessment of both the positive and negative SDG impacts associated with the corporation’s overall activities. At this point the corporation can begin determining their funding requirements to undertake these strategies, that is, required capital expenditures, internal costs, and research and development expenses. Corresponding fnancial instruments – loans, bonds, or equity – are then considered depending on the fnancial management policies of the corporation. Initial fnancing can be specifc to the SDG impact investment, for example impact investors with a mandate to invest in renewable energy might be prepared to fnance those specifc assets with a fnancing mechanism backed solely by those assets’ revenues and value without concern for seeking collateral from other assets of the corporation. As more capital becomes available for SDG impact investment, the broader SDG strategies become easier to fnance. This ease of fnancing is dependent on the corporation’s ability to signal their SDG activities and to establish legitimacy with the impact investment community. Step 4 – structure general-purpose bonds and equity

As pointed out during Step 3, the choice of raising capital for the SDG impact strategies depends on the corporation’s fnancial management approach. For example, some frms can be averse to debt instruments and would prefer to fnance with equity, while other businesses such as utilities may choose to use debt to fund their assets as the risk is limited by the regulated monopoly market they operate in, refecting the importance of industry efects on the fnancing

162 The sustainability governance trinity

choice of the corporation. In addition, the SDG asset investment itself will infuence the type of fnancing that will be pursued. For example, large physical assets like a manufacturing facility or the acquisition of another corporation with signifcant SDG impact assets would likely need to be funded through external fnancing, whereas smaller, operational expenditures that would provide for a positive SDG impact might be fnanced internally or with existing lines of credit. What cannot be ignored is the corporation’s capability to raise the capital based on its existing capital structure. A frm with signifcant levels of debt associated with non-SDG impact assets may fnd that those institutions or investors who provided that debt funding will have established specifc covenants limiting the company’s debt level. Under those circumstances, the corporation would be restricted in acquiring more debt (even if it is associated with new revenue generating assets) and would risk having to pay of their existing debt. Raising equity can also be difcult if the frm’s existing shareholders are concerned that the new equity in the corporation being sold undervalues the existing shares and dilutes the ownership percentage of the existing shareholders. Another consideration for the choice of fnancing is the extent to which the fnancial markets are accepting requests for SDG investment. As discussed earlier in this chapter, it would appear that impact investing is growing, but the willingness for the fnancial markets to provide funding for SDG impact assets can be infuenced by global events, including trade wars or pandemics (the recent COVID-19 virus being a severe example) that could lead to a reduced appetite for investment.

Insight 7.3 A Critique of Vasakronan’s Green Finance Framework The green fnance framework of Vasakronan has been assessed by the independent, not-for-proft research organisation CICERO (Center for International Climate Research). CICERO reviews a company’s green fnance framework to determine if it is aligned with the company’s sustainability objectives and the concept of a low-carbon, climate-resilient economy. They classify the frameworks four ways: Dark Green refecting projects that fully meet the sustainability objectives and concepts, Medium Green for projects that are leading to the reducing emissions in the short to medium term, Light Green for projects that represent quick and shortterm fxes to addressing their impact on the environment, and fnally Brown for projects that do not provide solutions to the environmental efects of the project or facilitate the transition to a low-carbon, climateresilient economy. For Vasakronan, their rating in 2018 was Dark Green, signifying that the majority of projects undertaken by the company are meeting the frm’s sustainability objectives and are contributing to a sustainable economy. However, there remains some concerns regarding their

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green fnance framework. The new construction and major renovation projects that form part of the green asset portfolio are subject to a rigorous certifcation process, but the certifcation levels are based on design and do not necessarily guarantee actual performance. The existing buildings that Vasakronan has designated as eligible green assets are also seen to contribute to improving energy efciencies, renewable energy, waste reduction, and the efcient use of water, but again the concern raised in assessing this approach for existing buildings relates to whether tenants will exhibit what is known as the environmental rebound efect whereby they use the installed technologies to increase consumption behaviour which negates the environmental beneft of installing those technologies to begin with. Overall, the assessment of Vasakronan’s framework was found to be very good with no identifed weaknesses and, as identifed here, minor concerns. Some areas still need to be considered further, including the full sustainable life cycle assessment of the solar technology used by the company as well as reporting on the broader impact each project may have on the community in which it is located, for example is the location subject to longer commutes by tenants or longer delivery times by suppliers, both of which could lead to transportation-related environmental impacts?

Banking Another source of sustainable fnance is the banks. Major banking institutions, as noted earlier, have been investing in SDG impact assets for some time. The concept of sustainable banking is based on the use of customer deposits to fnance social and environmental SDG impact assets. Early sustainable banking was the provenance of smaller banks, co-operatives, and credit unions whose owners or members had chosen a business model that was ethical and focused on a more sustainable world. However, larger conventional global banks such as HSBC14 and Barclays15 have been leading the sustainable banking movement recently. Table 7.2 identifes the diferences between conventional banking and sustainable banking. The objectives difer in that the former seeks to maximise the profts of the banks’ shareholders while the latter recognises the principles of the triple bottom line as discussed earlier in this chapter. Accordingly, the idea that proft is an end in itself as embraced by the conventional banking sector becomes one of a means to an end within sustainable banking. The investment criteria also difer as traditional lending focused only on the risk-reward relationship where choosing to lend required determining that the proftability associated with the transaction outweighs the risk of investing. For sustainable banking the criteria are more complex, with additional screening processes that consider the SDG impact of the fnancing request. This screening would be similar to that shown in the SDG sectoral matrix discussed earlier. Sustainable fnancing takes a less exclusionary approach in order to make funding more accessible to all segments of society but also operates fewer branches, preferring

164 The sustainability governance trinity Table 7.2 Comparing conventional and sustainable banking Feature

Conventional Banking

Sustainable Banking

Objective

Proft maximising to reward shareholders An end in itself Speculative transactions Proftability and risk

Triple bottom line: social, environmental, and economic A means to an end Only on real economy Positive screen (environment, employment creation, culture, etc.) and negative screen (weapons, polluting companies, child exploitation, etc.) Avoid fnancial exclusion

Proft Investment object Investment criteria

Loan policy Transparency Geographical distribution

Exclusion of specifc segments of the society Lack of transparency High number of branches

Total transparency of information and allocation of assets Low number of branches

Source: adapted from Valls Martinez et al. (2020). Sustainable and conventional banking in Europe. PloS One, 15(2), e0229420.

instead to embrace internet-based banking. This lower number of branches when compared to conventional banking is due, to some degree, with the later growth of sustainable banking while conventional banks have been dealing with the legacy of the branch system of banking.

Insurance The insurance industry has only most recently begun taking a role in sustainable fnance principally because the sustainability agenda for their clients has only begun to enter into their operations and the risk management process for which insurance companies have been actively involved. Risk management is the underlying motivation for providing insurance services and, in the context of sustainable development, those risks pertain to the environmental, social, and governance challenges that organisations face on a daily basis. Insurers now have a responsibility to specifcally identify and assess those challenges as part of an organisation’s risk portfolio and to develop products and services that mitigate the impact on the organisation of the related consequences associated with not being able to respond to those challenges. Addressing sustainability challenges is not just external to the insurance industry. Insurers also need to consider their own operations and the challenges they face, although for the purpose of this chapter we will focus mostly on the fnancial products and services that insurers could provide to their clients. A  signifcant insurance product has been environmental insurance. According to AON, a global insurance company, the collected premiums for environmental insurance had reached $2 billion per year in 2019.16 The use of environmental insurance continues to grow as sensitivities to future environmental liabilities from business

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operations has increased among businesses, consumers, and governments regulators. Examples of insured liabilities include expenses associated with remediating sites where environmental contamination has occurred and third-party clean-up expenses, bodily injury, and property damage. The increase in environmental insurance purchases has also resulted in an increase in claims, as those insured become more familiar with their use of the insurance. Property and casualty insurance products related to sustainability have also been introduced. Green infrastructure and related renewable energy construction can be insured and not only for accidental damage. Performance insurance can also be ofered that will compensate clients should their green investment not meet the levels that were originally planned, such as a certain level of energy efciency performance. Insurance can be purchased to alleviate risk associated with project development in Third World countries and the potential impact on local society, including casualties that might result from accidents in the workplace or in communities adjacent to operations. Sustainability-related insurance protection can also be included in directors and ofcers (D&O) insurance policies to address management liability and risk.

The role of government In this chapter we have identifed the role that corporations and fnancial institutions can take in encouraging sustainable fnance, but there are limitations to what can be achieved by them. Therefore, the role that governments play in legislating and regulating the activities of their fnancial markets can be an important one. As suggested earlier, the fnance-as-usual approach was designed to use resources to operate a business with the sole intention to make a proft and was historically supported by the argument that the only business of business is business, to paraphrase the economist Milton Friedman. Yet today we know that sustainable development is the responsibility of all members of the global society: governments, industry, and communities. For governments, their responsibility is to govern with the public interest in mind, and what that means as it pertains to the fnancing of sustainable activities can vary depending on the structure and prevailing politics of those governments. However, it is clear that while the transition to a more sustainable economy can be stimulated through private investment, care must be taken by government to balance policy that is meant to protect the public interest with the potential to discourage private investment. Government’s responsibility is to establish stable and credible policies for encouraging sustainable fnance activities that provide a framework for sustainable investment and the regulatory instruments required for the transition to a sustainable economy. This responsibility is a shared one and should allow a collective participation of local communities, institutions, and investors. The longer-term environmental and social goals of communities can be attained using appropriate regulation and taxation, for example carbon tax, and business would then assess that impact and include the cost in the valuation of their investment. This collective approach reduces the uncertainty around

166 The sustainability governance trinity

the future value of the sustainable assets that might arise otherwise from unilateral policy design and implementation. Nevertheless, conficts can be expected to arise between parties. For instance, the value determination for sustainable investment will be diferent for business than for governments and communities. Financial institutions and businesses determine their own private discount factor for discounting the future fnancial value of their investment, whereas governments and communities will seek to optimise the social welfare element of an investment by using a public discount factor that approaches zero.

Chapter insight questions 1 2 3

4 5

How does Vasakronan’s green fnancing ft within a sustainable fnance system? What level is Vasakronan in terms of a sustainable fnance framework as proposed by Schoenmaker, and what observations do you have to support your decision? Using external sources, construct a sectoral SDG matrix for the commercial property development and management sector and how you would use that to confrm if Vasakronan has made a move to reduce the sector’s SDG impact. Apply the SDG impact measurement model to the case of Vasakronan and explain if they are following it and how. In assessing Vasakronan’s green fnance framework, some concerns are raised. What suggestions could you provide to mitigate those concerns?

Notes 1 Retrieved March 7, 2021, from https://www.sustainablefnance.ch/en/what-is-sustainablefnance-content---1--1055.html 2 Retrieved March  7, 2021, from www.statista.com/statistics/268750/global-gross-domesticproduct-gdp/ 3 Fletcher, L. (2019). Hedge funds join the hunt for the ESG ‘factor’. Financial Times. Retrieved from www.ft.com/content/8d65431c-de0c-11e9-b112-9624ec9edc59 4 Global Sustainable Investment Alliance (GSIA). (2018). 2018 Global sustainable investment review. Retrieved from www.gsi-alliance.org/wp-content/uploads/2019/03/ GSIR_Review2018.3.28.pdf 5 Vasakronan. (2019). Annual report. Retrieved from https://wwwvasakronanse.cdn. triggerfsh.cloud/uploads/2020/05/vasakronan-annual-report-2019.pdf 6 Schoenmaker, D., & Schramade, W. (2019). Principles of sustainable fnance. Oxford: Oxford University Press. Retrieved from www.researchgate.net/profle/Dirk_Schoenmaker/ publication/330359025_Principles_of_Sustainable_Finance/links/5c3c3d1992851 c22a3736593/Principles-of-Sustainable-Finance.pdf 7 Walsh, P. R., & Dodds, R. (2017). Measuring the choice of environmental sustainability strategies in creating a competitive advantage. Business Strategy and the Environment, 26(5), 672–687. 8 Schoenmaker, D. (2017). Investing for the common good: A  sustainable fnance framework. Essay and Lectures Series. Brussels: Bruegel.

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9 Mudaliar, A., Schif, H., & Bass, R. (2016). Annual impact investor report 2016. Global Impact Investing Network. Retrieved from https://thegiin.org/research/publication/ annualsurvey2016#charts 10 Hand, D., Dithrich, H., Sunderji, S., & Nova, N. (2020). 2020 Annual impact investor survey. Global Impact Investing Network. Retrieved from https://thegiin.org/research/ publication/impinv-survey-2020 11 United Nations. (2019). Corporate fnance – A roadmap to mainstream SDG investments. Retrieved from www.unglobalcompact.org/sdgs/sustainablefnance 12 Ibid. 13 Ibid. 14 Retrieved from www.hsbc.com/our-approach/building-a-sustainable-future/sustainablefnance 15 Retrieved from https://home.barclays/news/2019/3/how-barclays-is-building-asustainable-banking-system/ 16 AON. (2019). Environmental insurance update. Retrieved from www.aon.com/getmedia/ 7d47a6e6-70a8-493a-9234-54227dc3b8e7/2019-Environmental-Market-Update-Final. aspx#:~:text=The%20environmental%20insurance%20market%20is,protect%20 them%20from%20environmental%20exposures

8

Evaluating progress Metrics and impact

Introduction This chapter presents readers with the rationale for the need to assess the progress of organisations in their evaluation and reporting of their corporate responsibility actions and sustainable development contributions within and across jurisdictions. The ability to provide specifc measures to support informed management of sustainability and policy development is important in re-enforcing corporate legitimacy among industry stakeholders. We will identify specifc measures and their impact on evaluating progress recognising that there are three sustainability domains to be measured: environmental, social, and economic, that they can be measured separately or in combination, and that their evaluation should be sensitive to nuances in economic-cultural contexts. The issues raised will be informed by theories of evaluation, such as in measuring social change, and the link between evaluation and social learning. The chapter will conclude with a discussion regarding the continual development and evolution of methods used to measure progress in evaluation and reporting.

Why evaluate corporate responsibility and the contribution to sustainable development? It is generally accepted today that responsible business and positive contributions to sustainable development are desirable and benefcial for the world we live in. Understanding to what level responsible activities and their contribution are providing that beneft requires careful evaluation and methods by which that evaluation can be obtained. A variety of measures will be discussed later in this chapter, but which ones provide the most objective view and to what degree are they being adopted by the business community globally? The motivation for evaluation is infuenced by a variety of factors such as stakeholder concern, institutional efects, and frm-level strategic goals. Ultimately, the desire to monitor the responsible actions of the frm and how that infuences sustainable development goals are driven by the internal and external legitimacy needs of the company. Each of those needs results from these factors,

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for example the owner of a company is an obvious stakeholder with an interest in protecting their investment. Their need to do so motivates management to provide that protection against risks associated with operating irresponsibly. When BP acted with poor judgement in operating their Deepwater Horizon project in the Gulf of Mexico, the resulting mistakes cost the shareholders of BP approximately $145 billion.1 The company’s share price has never recovered to the level it held just prior to the incident. For senior management and the shareholders of BP, would an appropriate evaluation of their actions as a company have led to an avoidance of that catastrophe and the costs associated with it? It would have depended on the type and depth of evaluation needed to do so. In that same year BP participated in the drilling of 479 exploration wells so that project represented only 0.2% of their exploration activities which, unbeknownst to BP of the future damage to come, would have likely meant that their process of sustainability evaluation was considered adequate to address the general nature of their global operations. Examples of similar catastrophes related to corporate responsibility that impacted shareholders include Union Carbide’s Bhopal pesticide plant gas leak in 1984 that killed an estimated 15,000 local residents2 and cost shareholders $960 million3 and the Lac-Mégantic rail disaster in Quebec, Canada, that killed 47 people in 2013 when a runaway train and its oil tankers derailed and caught fre. The train was operated by the Montreal, Maine and Atlantic Railway which declared bankruptcy as a result of the fnancial damages associated with the incident and left shareholders with little residual value.4 These are only a few examples of the costs associated with irresponsible activities on the part of companies and their employees or contractors, but it is clear that for investors, evaluating the level by which frms report on the sustainability of their activities is an important consideration. For other stakeholders a measure of corporate responsibility and the contribution made to sustainable development can be more than just fnancial. In each of the three cases just mentioned, the deaths impacted the local communities severely, and the extent of that aspect can be immeasurable in terms of non-fnancial cost. Governments at all levels are impacted by the need to respond and to protect the public interest. Other industry players must deal with the reputational costs and added regulatory burden that arises because of the irresponsible actions of their peers. The wider stakeholder concern infuences the institutional efect whereby evaluation of corporate responsibility is promoted by society in general. This efect may come about because of a formal approach, such as rules, regulations, and standards that establish what sustainability measures of a frm’s activities are required, or because of non-formal cultural pressures, where it is expected for a frm to be open and transparent about such measures. In addition, frms can choose to consider the level by which they measure corporate responsibility to be strategic in nature, both providing an examination of the efectiveness and efciency of their internal operations, for example energy cost reduction, and signalling to investors their sustainable actions as a lever for competitive advantage.

170 The sustainability governance trinity

Insight 8.1 Intel’s Corporate Responsibility as a Competitive Advantage5 Intel Corporation is the world’s largest semiconductor manufacturer with operations across the world. Founded in 1968 by Robert Noyce and Gordon Moore, both of whom were working at a semiconductor frm, the company was responsible for the invention of the microprocessor that paved the way for the production of calculators and personal computers. They named the company ‘Intel’ as a short form for ‘integrated electronics’, and with $2.5  million of funding from a venture capitalist, Noyce and Moore hired a number of skilled engineers to work with them in developing a ‘computer on a chip’, or the world’s frst microprocessor. The company grew to manufacture a variety of products related to processing technology and packaging, architecture, memory, interconnect, security, and software. For over 50 years, the growth of the company has been spurred on by innovation, and their current strategy is to provide the technologies required to address the growth in data management and services. During the past 20 years, Intel has also been a leader in the use of ESG reporting as a contributor to the frm’s competitive advantage. This advantage was found principally through the interaction with investment frms, in which the company would share its ESG metrics and seek investor feedback as to what measures of corporate responsibility were important to them. In the early stages, most of the interest in the company’s responsible behaviour was found within the bourgeoning community of social and ethical investors, and continued eforts to disclose ESG information helped Intel establish a reputation with investors as a responsible organisation. The company also realised that these eforts were also resonating internally with employees and departments, which assisted in integrating the strategy of ESG disclosure throughout the entire organisation. The contribution to a competitive advantage is not limited to attracting capital. Intel has found that ESG measurement and reporting has assisted in continuous improvement of their operations, which has resulted in improved efciency and the reduction of risk. Their use of energy conservation projects throughout their entire operation has produced signifcant energy cost savings, and the company’s strategy of workplace diversity by attracting and retaining top performers of under-represented minorities are two examples of strategic benefts arising from their ESG approach. To quote their director of corporate responsibility, Suzanne Fallender, ‘Publicly reporting our goals and performance has improved accountability, and allowed us to share best practices and insights with others, including our customers and suppliers.’

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Theories of evaluation and reporting The reasoning for evaluating and reporting on corporate responsibility has its roots in a number of theories. Persuasion theory suggests that the level of persuasion is dependent upon how much someone is subjected to a particular message. Petty and Cacioppo (1981) created their elaboration likelihood model of persuasion that identifed two particular routes of persuasion, either of which is subject to the level of motivation and ability to process the message intended to persuade.6 The frst route is a peripheral one, in that the message ends up being delivered indirectly and only stimulates someone to identify with the sender or a particular beneft associated with that sender, as opposed to the actual message directly. For example, a frm can advertise being corporately responsible, but someone watching that advertisement may only identify with the company and a particular beneft of that responsible behaviour and not the actual message about the level of corporate responsibility that frm has achieved. The second is referred to as the central route of persuasion, which occurs when the persuasive message is received by someone who is motivated and able to recognise the main point of the message. In that circumstance, using the previous example, a frm’s advertising of its corporately responsible actions is likely to persuade that individual that the frm is behaving responsibly. A theory related to the institutional efects discussed earlier pertains to the action of coercion. When various external drivers such as regulation or sociocultural expectations are exerted on frms or industry, it is seen as a coercive act that forces companies to behave a certain way. Over time it creates what is referred to as coercive isomorphism, in which large numbers of organisations are forced to behave in a similar way.7 With respect to corporate responsibility, coercion has been identifed as a contributor to encouraging corporate reporting, but that level of reporting remains dependent on the actual demands of the coercive forces at work. Too much coercion and organisations may choose to avoid the regulatory burden and exit the country or market, whereas too little coercion and insufcient levels of corporate reporting may result. This balancing act is associated with the enforcement theory of regulation. It recognises that social infuences on business are imperfect and that institutional efect is bound at one end by disorder, where private agency allows individuals and organisations to exploit others thus inficting certain social costs, and at the other end by dictatorship, where governments have total control over private agents, thus imposing their own brand of social costs. Accordingly, a trade-of exists between the two and the theory would suggest that regulation could enforce the appropriate trade-of. Strong-handed regulation tends to lean towards greater government control, while light-handed regulation leans the opposite way towards providing greater freedom for private agency and the importance of market mechanisms to provide sufcient control to protect the public interest. With corporate responsibility, these market mechanisms would include the actions of investors to infuence management to operate the frm in a more responsible way or management’s recognition that to compete in a particular

172 The sustainability governance trinity

market a greater number of sustainability strategies are required to create a competitive advantage over their peers. Another concept that addresses why frms evaluate and report on their corporate responsibility is one of re-education. In 1945, Kurt Lewin and Paul Grabbe published their work8 on efective re-education. They identifed three specifc actions for re-education, including altering an individual’s cognitive state and personal values, as well as afecting their behavioural actions. A person’s cognitive state refects their perception of the world around them, and frms seeking to convince stakeholders that they are a responsible company must also fnd ways to alter perceptions in a positive way through re-education, such as with sustainability reporting. Personal values are connected to the cognitive state of that individual, but they are also afected by their attraction to certain standards, status, and authority. Responsible actions by the frm that are publicly reported to be meeting certain institutional requirements can contribute to altering stakeholder values in favour of the frm. The fnal action in re-educating stakeholders rests with the efect on their behaviour. Efective reeducation is observed when stakeholders behave in sync with their altered cognitive and value orientation such as might be illustrated by positive stakeholder actions related to the published reports of a frm’s corporately responsible activities. The motivation for disclosure of this information can also be attributed to legitimacy theory. An extension of neo-institutional theory that stipulates the need by a frm to conform to societal expectations, legitimacy theory recognises that frms survive because society supports those frms accepted as legitimate. Accordingly, frms invest in the evaluation and reporting of their responsible business activities as a strategic resource. This strategic legitimation is infuenced by the competitive nature of the business environment and therefore management plays a signifcant role in the process. However, care must be taken to avoid manipulating the communication of a frm’s strategic goals in order to align with societal sustainability goals and norms. Societal perceptions can be signifcantly infuenced by the use of public disclosure and corporate communications, and under those circumstances society may perceive the actions of the frm to be legitimate when the actual sustainable behaviour of the frm is not. This risk is particularly great for frms operating in industries that are vulnerable to stakeholder concerns regarding sustainability issues such as the extractive sector or the garment apparel sector, where information regarding sustainable activities is typically more pronounced. Evaluation and reporting of corporate responsibility and sustainable activities is also connected to signalling theory. Under this theory, information is assumed to be asymmetric between stakeholders, and therefore disclosure and transparency related to a frm’s responsible action is a means to reducing that asymmetry. By voluntarily reporting their actions, management is sending a signal to stakeholders about their sustainable attitudes, intentions, and behaviour and, in doing so, confrming the frm’s commitment to contributing to the best interests of society. Signalling is dependent on two things: the institutional environment in which the signalling is taking place and the strength of the signal. The former pertains to both the political environment of the frm’s home country

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and the extent to which it operates in other host countries. Each will require an understanding of what type of signalling will work best in achieving legitimacy and therefore makes communication of sustainable activities quite complex. The latter relates to the level of infuencing the message is required to make; generally, the more explicit and transparent the message, the more likely it will have a positive efect on the stakeholder community.

Insight 8.2

Strategic Legitimacy at Intel9

Intel describes its strategy of providing environmental and corporate social responsibility reports over the past 20 years as an important tool of transparency for their various stakeholders, including their investors, customers, and employees. Intel’s strategic intent is to reinforce their legitimacy as a company to invest in, purchase from, and work for, by making themselves accountable to these stakeholders. In doing so, they are also able to create sustainability equity in the eyes of external stakeholders as well. For investors, Intel recognises the growing importance to them of sustainable investment assets, so the company continues to expand on its outreach to investors regarding ESG issues and the manner in which Intel reports on its own performance with those issues. They have aligned their sustainability reporting with external frameworks (as discussed in Insight 8.3) that the company feels are important to investors and increased the level of integration of their sustainability reporting into all of their corporate reporting, including the disclosure of how their ESG activities impacts their fnancial results. Intel’s customers are mostly other large global companies, and to legitimise their role as a sustainable supplier, they provide metrics that can be used to determine the customer’s indirect environmental footprint and labour risks. In turn, Intel also requires of its own suppliers specifc reporting on their respective impact on climate change, water use, and social sustainability aspects such as labour and employment practices. The importance to Intel of attracting and retaining high-quality employees is a key element of their business strategy, and they invest in maintaining a positive corporate responsibility reputation in order to do so. This included establishing programmes to achieve a strong and inclusive corporate culture that would earn it an employer of choice status. From a diversity perspective, Intel invested $300 million in 2015 to seek what it referred to as ‘full representation’, meaning their workforce in the US would be made up of percentages that refected the market availability of various demographic groups such as females, African Americans, and Hispanics. While the percentages were achieved in 2018, they remain short in terms of representing the US population as a whole. In 2019, Intel became the frst company to disclose its pay, race, and gender data for its US workforce while also announcing that it had met its goal of equal pay for men and women who do the same work across their entire global workforce.10

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Measures of corporate responsibility and sustainable development With the increased level of reporting on corporate responsibility and sustainable development, a number of frameworks and related measures have been introduced by a variety of organisations. Some of these frameworks are specifc to a particular pillar of sustainability such as the Human Development Index, which focuses on social sustainability measures and is published by the United Nations, or take a very generalised approach as with the UN’s Sustainable Development Goals which identify 17 specifc goals for a sustainable future. Environment, social, and governance (ESG) has become a common term for large publicly traded companies in their investor relation activities. Accordingly, as of 2017, there were more than 600 ESG products ofered by over 150 organisations that provided in excess of 10,000 unique measures of ESG performance.11 In this section, we will focus on some of the more commonly used approaches by business as part of their ESG policy. The sustainability report

The generation of a report on a frm’s ESG activities is generally the result of regulatory requirements pertaining to the disclosure of corporate activities that may be material to investors in publicly traded companies. In the world’s largest stock markets, securities regulators require all reporting issuers to adhere to general reporting obligations such as fnancial statements, annual information forms (AIFs), management discussion and analysis (MD&A), and any other form of information relevant to the public. These requirements can include disclosure of any information associated with the materiality of the environmental and social impact of the frm’s operations, for example a determination of risk, uncertainty, obligation, liability, and the operational and fnancial efects associated with that impact. This disclosure can also include any forward-looking information associated with the company’s board of directors and their governance responsibility over strategic planning and their obligation to identify related social and environmental risks associated with activities arising from the strategic plan. Most frms who wish to report on their ESG activities either will publish an annual individual sustainability report which specifcally describes those corporate activities or will integrate a sustainability section within their annual corporate report that details all corporate activities. Certain frameworks such as the Dow Jones Sustainability Indices (DJSI), International Standards Organization (ISO) standards on environmental management and social responsibility, the UN Sustainable Development Goals (UN SDGs), and the Global Reporting Initiative (GRI) are popular in informing the sustainability reporting of frms.

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DJSI

The Dow Jones Sustainability Indices are a series of indices comprised of performance measures of select companies related to their economic, environmental, and social activities. The approach taken is to identify and rank the companies who score highly on their ESG performance. Begun in 1999, the DJSI are used primarily to inform investors seeking to invest in frms who sustainably outperform the majority of their peers within a particular industry. They were prepared each year through a partnership between the Standard and Poor’s (S&P) Dow Jones Indices LLC, a joint venture between S&P Global, the CME Group and News Corp., and RobecoSAM, a sustainability investing advisory. In 2020, however, S&P Global purchased the ESG ratings service of RobecoSAM. A  number of indices contained with the DJSI are divided by geography (Table 8.1), and the companies invited to participate are the largest companies based on their market capitalisation (price per share multiplied by the number of shares issued). Once companies agree to participate, they are assessed using a corporate sustainability assessment (CSA). The highest scoring companies that make up the top 10% of scorers on the CSA are then listed by Table 8.1 DJSI Indices Geographical Breakdown

Index

Companies Invited

DJSI World

Dow Jones Sustainability World Dow Jones Sustainability World Enlarged Dow Jones Sustainability Emerging Markets

2,500 largest companies in the S&P Global BMI (Broad Market Index) 800 largest emerging market companies in the S&P Global BMI

DJSI Regions

Dow Jones Sustainability Asia/Pacifc

600 largest developed Asia/Pacifc markets companies in the S&P Global BMI 600 largest developed European markets companies in the S&P Global BMI 600 largest developed North American markets companies in the S&P Global BMI

Dow Jones Sustainability Europe Dow Jones Sustainability North America DJSI Countries Dow Jones Sustainability Australia Dow Jones Sustainability Canada Select 25 Dow Jones Sustainability Korea Dow Jones Sustainability Korea Capped 25% Dow Jones Sustainability Chile

Entire S&P Australia Stock Exchange (ASX) 200 Canadian companies invited to the DJSI World and DJSI North America 200 largest South Korean companies in the S&P Global BMI More detailed methodology

176 The sustainability governance trinity

their respective index or indices and organised by industry. The CSA contains 81 measures divided into economic (43), environmental (21), and social (17) dimensions (Tables  8.2 and 8.3),12 and frms, regardless of their willingness to participate or their eligibility to rank among the top DJSI companies, can utilise this framework to establish their own ESG criteria. Most of the CSA’s measures align with those found within the GRI framework, although there is a distinct diference in terms of the location of certain categories within the three principal dimensions. For example, the CSA has an expansive set of Table 8.2 SAM corporate sustainability assessment – economic dimension Category

Measure

Corporate Governance

Board Structure Non-Executive Chairman/Lead Director Diversity Policy Gender Diversity Board Efectiveness Average Tenure Board Industry Experience Executive Compensation-Success Metrics Executive Compensation-Alignment with Long-Term Performance Management Ownership Management Ownership Requirements Government Ownership Family Ownership Dual Class Shares Median or Mean Compensation of All Employees & CEO Compensation

Materiality

Material Issues Materiality Disclosure

Risk & Crisis Management Risk Governance Sensitivity Analysis and Stress Testing Emerging Risks Risk Culture Codes of Business Conduct Codes of Conduct Coverage Corruption & Bribery Cases Reporting on Breaches Policy Infuence

Contributions and Other Spending Largest Contributions and Expenditures

Supply Chain Management Supplier Code of Conduct Awareness Risk Exposure Risk Management Measures ESG Integration in Supply Chain Management Strategy Transparency & Reporting (Continued)

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Table 8.2 (Continued) Category

Measure

Tax Strategy

Tax Strategy Tax Reporting Efective Tax Rate

Information Security/ Cybersecurity and IT System Availability

Information Security/Cybersecurity Governance Security Measures Process and Infrastructure Information Security/Cybersecurity Breaches

Table 8.3 DJSI SAM corporate sustainability assessment – environmental and social dimensions Dimension

Category

Environmental Operational Eco-Efciency

Climate Strategy

Product Stewardship

Social

Labour Practice

Measure Direct Greenhouse Gas Emissions (Scope 1) Indirect Greenhouse Gas Emissions (Scope 2) Energy Water Consumption Waste Management Incentives Climate Change Strategy Scenario Analysis Climate-related Targets Low-Carbon Products Scope 3 GHG Emissions Internal Carbon Pricing Product Design Criteria Life Cycle Assessment Product Benefts Hazardous Substances Commitment End of Life Cycle Responsibility Environmental Labels and Declarations

Diversity Equal Remuneration Freedom of Association Human Rights Human Rights-Commitment Human Rights-Due Diligence Process Human Rights-Disclosure Human Capital Training & Development Inputs Development Employee Development Programmes Human Capital Return on Investment Return on Employee Development Investment Talent Attraction & Type of Individual Performance Appraisal Retention Long-Term Incentives Employee Turnover Rate Trend of Employee Engagement Corporate Citizenship & Group-Wide Strategy Philanthropy Type of Philanthropic Activities Input

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indicators within the economic dimension while the GRI does not, and the opposite is true in terms of the social indicators. GRI

The Global Reporting Initiative began in 1997 and has grown to become the most widely accepted standard for sustainability reporting. GRI is an independent international organisation based in the Netherlands whose mandate is to promote best practices for reporting on economic, environmental, and social issues. Their operations are supported by funding from various strategic partners comprised principally of governmental agencies and philanthropic groups. Founded originally in the United States by two not-for-proft organisations as an extension to an existing framework for environmental reporting, it was expanded to include social, economic, and governance measures. In 2001, the GRI became an autonomous organisation and a year later was inaugurated as a United Nations Environment Program (UNEP) collaborating organisation. Their principal product is the generation of sustainability reporting standards with a focus on promoting consistent, high-quality sustainability reporting that encourages frms to incorporate stakeholder input in the assessment of their corporate activities. The standards have evolved since its inception and rely on experts from business, academia, and non-governmental agencies to provide input to their design. The GRI has been considered the best-developed framework for reporting the sustainable actions of the frm,13 and while its use remains voluntary, government agencies and regulatory authorities promote the GRI standards as part of the annual reporting requirements of companies. The GRI database contains over 37,000 GRI reports from approximately 14,700 organisations around the world that it has gathered over its existence. According to a 2017 survey by KPMG, 93% of the 250 largest corporations in the world were using the GRI to report on their sustainability performance.14 Like the DJSI’s CSA, the GRI standards contain measures related to the economic, environmental, and social dimensions of a frm’s operating activities as defned by the most recently published G4 framework guidelines. Within each dimension are a number of specifc aspects that a frm can provide a measure of, and the social aspects are further subdivided into four distinct areas: labour practices, human rights, society, and product responsibility (Table 8.4). The GRI G4 guidelines are complementary to the UN Global Compact which stipulates ten principles for businesses related to their ESG activities and addressing four distinct areas of responsibility: human rights, labour, environment, and anti-corruption. UN SDGs

In 2015, the UN member states agreed to the 2030 Agenda for Sustainable Development that called for a 15-year plan to address areas of critical importance to the survival of humankind and the planet. The agenda addresses fve topics: people, planet, prosperity, peace, and partnership.15 As part of this

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Table 8.4 GRI indicators Economic Aspects

Social Aspects – Human Rights

Economic Performance GRI201 Market Presence GRI202 Indirect Economic Impacts GRI203

Diversity and Equal Opportunity GRI405 Non-discrimination GRI406 Freedom of Association and Collective Bargaining GRI407 Child Labour GRI408 Forced or Compulsory Labour GRI409 Security Practices GRI410 Indigenous Rights GRI411 Assessment GRI412   Social Aspects – Society Local Communities GRI413 Public Policy GRI415 Compliance GRI419 Supplier Social Assessment GRI414   Social Aspects – Product Responsibility Customer Health and Safety GRI416 Product and Service Labelling GRI417 Customer Privacy GRI418      

Procurement Practices GRI204 Anti-corruption GRI205 Anti-competitive Behaviour GRI206   Environmental Aspects Materials GRI301 Energy GRI302 Water GRI303 Biodiversity GRI304 Emissions GRI 305 Efuents and Waste GRI306 Compliance GRI307 Supplier Environmental Assessment GRI308 Social Aspects – Labour Practices Employment GRI 401 Labour/Management Relations GRI402 Occupational Health and Safety GRI403 Training and Education GRI404

initiative, a total of 17 Sustainable Development Goals with 169 related targets were identifed to guide countries and stakeholders as a collective to balance the economic, environmental, and social dimensions of sustainable development. Figure  8.1 highlights the SDGs, and it can be seen that they are not specifcally divided by dimension but are represented as a collective of specifc goals that arguably impact all three dimensions. The well-publicised nature of the SDGs and the national commitments to them has stimulated their use among corporate stakeholders. Shareholders and investors see the importance of meeting consumer demands for more positive social and environmental impact. They also recognise that these same consumers are, in most major consuming countries, the electorate and therefore frms have a regulatory risk as governments seek to satisfy that electorate through increased social and environmental regulation. The combination of SDG goals and their respective targets have provided a framework for ESG reporting by a number of frms, although the complexity associated with 169 targets means the careful identifcation of specifc targets that are material to the frm and its operations. ISO 26000

The International Standards Organization is a global not-for-proft nongovernmental body comprised of members from a number of national standards

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Figure 8.1 United Nations Sustainable Development Goals Source: UN.org – www.un.org/sustainabledevelopment/. The content of this publication has not been approved by the United Nations and does not refect the views of the United Nations or its ofcials or Member States.

organisations who design and set internationally recognised standards. ISO has its origins in an international standardising association pre–World War II, but that organisation was broken up during the war only to be re-formed in 1947 with its headquarters in Geneva, Switzerland. Today there are 164 countries represented with the intent to develop and maintain standards in a neutral environment. ISO has issued both a family of environmental management standards, ISO 14001, 14004, and 14005 as well as ISO 26000 – Guidance on Social Responsibility. ISO 14001 was developed in 2015 and is an internationally agreed standard that focuses on a framework for developing a frm’s environmental management system (EMS). As a management system standard it promotes continual improvement, and companies can have their EMS certifed by ISO. In 2016, ISO released standard 14004 to provide general guidelines on the implementation of an EMS, and in 2019, ISO 14005 established a phased approach to developing and improving the EMS with particular attention to small and medium-sized enterprises (SMEs). However, these standards provide little in terms of a framework for informing ESG measurement and reporting. ISO 26000 was created in 2010 to provide guidance for frms seeking to operate in a socially responsible way. It is a voluntary international standard and therefore is not a requirement, nor is certifcation involved. However, it provides frms with a framework consisting of seven core subjects and related sustainability issues to be considered (Figure 8.2). In addition to ISO 26000, a

•

• • • •

Consumer Issues

• • • •

An˜-corrup˜on Responsible poli˜cal involvement Fair compe˜˜on Promo˜ng social responsibility in the value chain Respect for property rights

Fair marke˜ng, factual and unbiased informa˜on and fair contractual prac˜ces Protec˜ng consumers’ health and safety Sustainable consump˜on Consumer service, support, and complaint and dispute resolu˜on Consumer data protec˜on and privacy Access to essen˜al services Educa˜on and awareness

Fair Opera˜ng Prac˜ces

Source: ISO

Due diligence Human rights risk situa˜ons Avoidance of complicity Resolving grievances Discrimina˜on and vulnerable groups Civil and poli˜cal rights Economic, social and cultural rights Fundamental principles and rights at work

The Environment

• • • •

• • •

•

•

Employment and employment rela˜onships Condi˜ons of work and social protec˜on Social dialogue Health and safety at work Human development and training in the workplace

Preven˜on of pollu˜on Sustainable resource use Climate change mi˜ga˜on and adapta˜on Protec˜on of the environment, biodiversity and restora˜on of natural habitats

Labour Prac˜ces

Human Rights

• • • • • • • •

Organiza˜onal Governance

Community Involvement and Development

Community involvement Educa˜on and culture Employment crea˜on and skills deployment Technology development and access Wealth and income crea˜on Health Social investment

Figure 8.2 ISO 26000 core subjects and related sustainability issues

• •

•

• •

•

•

• • •

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182 The sustainability governance trinity

number of standards related to the UN’s Sustainable Development Goals can assist frms in managing their systems to address these goals.16

Insight 8.3

Intel’s Sustainability Reporting17

The 2019–20 Corporate Responsibility Report of Intel is an example of modern-day sustainability reporting, for the most part, in that it no longer refers to itself as a CSR report and it recognises that corporate responsibility entails all three dimensions of sustainability. The report principally utilises the GRI framework, although it relies on their self-declaration as prepared in accordance with the GRI standards. Intel provides links to their GRI content index so that stakeholders can dig deeper into the sustainability indicators measured during the prior year. Furthermore, the company has used additional frameworks to inform the report’s content, including the UN Global Compact and the UN Sustainable Development Goals. Although they self-declare in terms of the GRI standards, the company does take steps to report assurance on certain content. As a holder of ISO 14001 environmental management systems certifcation, independent audits are undertaken to confrm Intel’s adherence to the requirements of the standard. Intel also became ISO 45001 certifed for environmental, health, and safety management systems at their manufacturing sites and that too requires an independent audit. The company has been verifying its greenhouse gas (GHG) emissions through third-party review, and for the past eight years they have hired an independent frm to provide assurances related to selected indicators described in their corporate responsibility report. In the 2019–20 report, indicators related to energy use, emissions, water use, suppliers, diversity, retention, and wellbeing were subject to the assurance review. Table 8.5 provides a summary Table 8.5 Summary of Intel Corporation’s use of the GRI and UN SDGs frameworks

Economic Aspects – G4 EC

Management Approach GRI 103



Corresponding UN SDGs

Economic Performance GRI201 Market Presence GRI202 Indirect Economic Impacts GRI203 Procurement Practices GRI204 Anti-corruption GRI205 Anti-competitive Behaviour GRI206



 

 

   



 

 

    (Continued)

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Table 8.5 (Continued)

Environmental Aspects G4 EN

Social Aspects Labour Practices G4 SA and Decent Work G4-LA

Human Rights G4 HR

Society G4-SO

Product Responsibility G4-PR

Management Approach GRI 103



Corresponding UN SDGs

Materials GRI301 Energy GRI302 Water GRI303 Biodiversity GRI304 Emissions GRI 305 Efuents and Waste GRI306 Compliance GRI307 Supplier Environmental Assessment GRI308 Employment GRI 401 Labour/Management Relations GRI402 Occupational Health and Safety GRI403 Training and Education GRI404 Diversity and Equal Opportunity GRI405 Non-discrimination GRI406 Freedom of Association and Collective Bargaining GRI407 Child Labour GRI408 Forced or Compulsory Labour GRI409 Security Practices GRI410 Indigenous Rights GRI411 Assessment GRI412 Local Communities GRI413 Public Policy GRI415 Compliance GRI419 Supplier Social Assessment GRI414 Customer Health and Safety GRI416 Product and Service Labelling GRI417 Customer Privacy GRI418

       

SDG 6,12,13

 

SDG 4,5,8,10

    

SDG 8,12

        

SDG 4,10



 



 



 

Source: Intel. (2020). Corporate responsibility report 2019–2020. Retrieved from http:// csrreportbuilder.intel.com/pdfbuilder/pdfs/CSR-2019-20-Full-Report.pdf

of the GRI indicators covered by Intel’s 2019–20 Corporate Responsibility Report as well as the UN SDGs. Intel reports on all of the measures except for the supplier environmental assessment and indigenous rights. In terms of the former, the GRI G4 guidelines require reporting on the percentage of new suppliers that were screened using environmental

184 The sustainability governance trinity

criteria as well as on signifcant actual and potential negative environmental impacts associated with suppliers and the supply chain, and the latter addresses the number of incidents of violations involving the rights of indigenous peoples and the actions taken.

The future evolution of evaluating corporate responsibility and sustainable development We wish to conclude this chapter by discussing the continual development and evolution of methods used to measure and report on corporate responsibility and sustainable development and the impact of policy integration with nonsustainability policy areas. The growth in reporting has been signifcant on a worldwide basis (Figure 8.3), and in a 2017 study by the global consulting frm, KPMG, the percentage of the top 100 companies by size in 49 countries who reported on their corporate responsibility actions grew to 75% from 12% in 1993.18 Similarly, a review of the top 250 companies globally showed that, over the same period, the level of corporate responsibility reporting grew from 35% to 93%. In addition, the study found that the GRI framework was the most popular with reporting frms at 66% of reports applying the GRI G4 guidelines or standards. They also found a growing trend in the use of the UN SDGs. One of the most signifcant challenges facing the future of evaluating corporate responsibility is dealing with the relatively voluntary nature of the measurement and reporting. Indeed, while increasing mandatory reporting regulation has been introduced in multiple jurisdictions around the world, these regulations tend to be overly general in nature, in other words, they stipulate reporting of material efects of corporate activities on the social and natural environment,

100%

93%

80%

75%

60% 40%

35%

20% 12% 0% 1993

1996

1999

2002

2005 N100

2008

2011

G250

Figure 8.3 Trend in global corporate responsibility reporting Source: KPMG

2013

2015

2017

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but the manner in which that is measured remains the choice of the frm. As indicated earlier in this chapter, the number of tools available to companies to measure their actions has grown signifcantly, and this provides opportunities for biased and optimistic results. Research has shown that sustainability reporting has been used often as a tool for public relations instead of being a critical examination of the sustainability performance of the frm.19 Even when these reports are subject to third-party assurances, research fndings suggest that such audited results were generally predictable, were formulaic, and included signifcant optimistic rhetoric devoid of any real connection to sustainability or reporting issues that might challenge the report’s reliability.20 Independent verifcation of the measures and impacts of corporate activities remains elusive, and the future for evaluating corporate responsibility and the impacts on sustainable development will need to see continued pressure from external stakeholders to hold frms accountable for providing verifable information. Firms should be encouraged to share how their decisions pertaining to their business strategies will impact related sustainability challenges and to transparently disclose how the frm will address those challenges, including the role that their supply chain activities and partners will play. The signifcant innovations in information technology and the use and analysis of big data will improve the ability of frms to gather measurement data in a timely fashion and to respond more nimbly to specifc operating activities that might jeopardise the frm’s sustainability goals. Furthermore, the measured data will also evolve, as more indicators are being identifed that may include additional measures associated with human rights, as companies become more accustomed to creating policy in this area, and with climate-related fnancial risk, where more severe weather occurrences have resulted in signifcant physical and fnancial damages. The reporting will also become more consistent as certain frameworks, such as those discussed earlier, will morph together as external and internal stakeholders continue to identify and popularise certain nomenclatures. However, the consistency of reporting will still face challenges related to the cross-jurisdictional diferences in the levels of regulation and stakeholder concerns. For example, in 2014 the European Union (EU) issued their NonFinancial Reporting Directive that requires large companies within the EU to disclose social, environmental, and diversity information, but approximately half of the EU member states had failed to meet the deadline for adoption nationally at the end of 2016. It took another two years to be fully adopted across all 28 EU countries and, even then, the rules at the national level still difer.21 Signifcant diferences exist regarding the acknowledgement that human rights is an issue for business, and the overwhelming majority of businesses (two thirds) in 2017 do not acknowledge the external targets for carbon reduction set by governments and other agencies.22 Up until 2017, the overall trend in corporate responsibility reporting varied by region (Figure 8.4) with encouraging growth in some and discouraging results in others. Certainly, a goal of 100% reporting and the assumption that the measures and impacts are valid remain questionable for now, but continued pressure from external

186 The sustainability governance trinity

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% North and South America

Asia Pacifc 2011

Europe 2013

2015

Middle East & Africa

2017

Figure 8.4 Trends in corporate responsibility reporting by region Source: KPMG

stakeholders will remain the principal driver for efective means of evaluating corporate responsibility and the impact it has on sustainable development.

Insight 8.4

The Future of Reporting for Intel

In May of 2020, the world found itself in the midst of a global pandemic associated with the COVID-19 virus. Millions of cases and hundreds of thousands of deaths had resulted since the emergence of the virus in China in late 2019. Bob Swan, the chief executive ofcer of Intel, had predicted a future of continued uncertainty and the increasing importance of transparent reporting in meeting the challenges associated with that uncertainty. This included their membership in the XPRIZE Pandemic Alliance, a coalition of global partners seeking to fnd a solution not only to COVID-19 but to any future pandemic. In joining the partnership, Intel was committed to providing free access to their intellectual property that might assist in achieving that solution. Their future corporate responsibility strategy and related goals have been identifed for achievement in 2030. Entitled ‘RISE’, the acronym stands for responsible, inclusive, sustainable, and enabling. The latter refers to enabling the organisation to achieve the frst three outcomes. When it comes to their ‘responsible’ goals, it means they will seek to achieve a 90% rate of employee belief that the company has produced a strong safety culture by 2030 and that 50% of employees will be participating in their corporate wellness programme

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by that year. In addition, Intel will strive to scale their supplier responsibility programmes to meet the company’s human rights objectives across 100% of their frst- and second-tier suppliers. Their goals will also include increased volunteerism (10 million volunteer hours) from employees in the communities that Intel operates in. The ‘inclusive’ element of their RISE initiative will require a doubling of the number of women and underrepresented minorities in the company’s senior leadership roles and over 40% representation of women in the frm’s technical positions. Finally, the ‘sustainable’ goals for 2030 include powering their global manufacturing operations exclusively with renewable energy sources while conserving approximately 4 billion kilowatt hours of energy. When it comes to emissions associated with their operations, this would include reductions in their Scope 1 and 2 carbon emissions. In regards to product emissions, a commitment to more sustainable design is planned for reducing their Scope 3 emissions. Intel’s sustainability goals are not limited to energy and emissions, as they are hoping to achieve a goal of net positive water use through conservation and funding of external water projects, and the company will also seek to achieve a zero total waste to landfll for 60% of their manufacturing waste streams. The RISE initiative will be faced with many barriers, especially in light of the need for signifcant involvement by the company’s supply chain partners. The high level of transparency and reporting that has been the hallmark of Intel will be challenged, and it remains to be seen if the company maintains that level in light of the risk of not achieving its 2030 goals.

Chapter insight questions 1 2 3 4 5

Can corporate responsibility actions provide a competitive advantage for all companies in all industry sectors? If so, how? If not, why not? How can achieving corporate legitimacy be of importance to private companies? Under what circumstances could you see it not being important? Of the ISO 26000 core subjects, identify which ones are addressed by Intel. Compare and contrast the trends in reporting rates of the regions identifed in this chapter. Explain why the diferences exist. Choose any company and search their website to identify the level of sustainability reporting they undertake. Explain why they are at that level and whether they need to increase their reporting.

Notes 1 Gyo Lee, Y., Garza-Gomez, X.,  & Lee, R. M. (2018). Ultimate costs of the disaster: Seven years after the Deepwater Horizon oil spill. Journal of Corporate Accounting & Finance, 29(1), 69–79.

188 The sustainability governance trinity 2 Taylor, A. (2014). Bhopal: The world’s worst industrial disaster, 30 years later. The Atlantic. Retrieved from www.theatlantic.com/photo/2014/12/bhopal-the-worlds-worstindustrial-disaster-30-years-later/100864/ 3 Sant, R., & Ferris, S. P. (1993). Managerial response to a hostile takeover in an uncertain legal environment: The case of Union Carbide. The Columbia Journal of World Business, 28(4), 74–91. 4 Mann, S. (2018, February 5). MMA and former employees plead guilty, fned $1.25 million in Lac-Megantic case. CTV News. Retrieved from www.ctvnews.ca/canada/ mma-and-former-employees-plead-guilty-fned-1-25-million-in-lac-megantic-case1.3790377 5 Mazzoni, M. (2019, Summer). Intel makes ESG a competitive advantage CR Magazine. CR Magazine. 6 Petty, R. E., & Cacioppo, J. T. (1981). Attitudes and persuasion: Classic and contemporary approaches. Dubuque, IA: Wm. C. Brown. 7 DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational felds. American Sociological Review, 147–160. 8 Lewin, K., & Grabbe, P. (1945). Conduct, knowledge and acceptance of new values. The Journal of Social Issues, 1(3), 56–64. 9 Intel. (2019). Corporate responsibility report. Retrieved from https://newsroom.intel.com/ editorials/2018-19-intel-corporate-responsibility-report/#gs.966un9 10 Green, J., & Recht, H. (2019). Intel is frst to share detailed pay disparities. It’s not fattering. Bloomberg. Retrieved from www.bloomberg.com/news/features/2019-12-10/ intel-s-gender-pay-data-highlights-challenges-in-silicon-valley 11 Do sustainable banks outperform? Driving value creation through ESG practices, 2018. Global Alliance for banking on values, European Investment Bank and Deloitte. 12 CSA Companion 2020, SAM Corporate Sustainability Assessment (CSA). 13 Chelli, M., Durocher, S.,  & Richard, J. (2014). France’s new economic regulations: Insights from institutional legitimacy theory. Accounting, Auditing & Accountability Journal, 27(2), 283–316. 14 KPMG. (2017). The road ahead: KPMG survey of corporate responsibility reporting 2017. Retrieved from https://assets.kpmg/content/dam/kpmg/xx/pdf/2017/10/kpmg-surveyof-corporate-responsibility-reporting-2017.pdf 15 United Nations. (2020). Transforming our world: The 2030 agenda for sustainable development. Retrieved from https://sustainabledevelopment.un.org/post2015/transformingourworld 16 ISO. (2018). Contributing to the UN sustainable development goals with ISO standards. Retrieved from www.iso.org/fles/live/sites/isoorg/fles/store/en/PUB100429.pdf 17 Intel. (2020). Corporate responsibility report 2019–2020. Retrieved from http://csrreport builder.intel.com/pdfbuilder/pdfs/CSR-2019-20-Full-Report.pdf 18 KPMG. (2017). The road ahead: KPMG survey of corporate responsibility reporting 2017. Retrieved from https://assets.kpmg/content/dam/kpmg/xx/pdf/2017/10/kpmg-surveyof-corporate-responsibility-reporting-2017.pdf 19 Boiral, O., Heras-Saizarbitoria, I., Brotherton, M. C.,  & Bernard, J. (2019). Ethical issues in the assurance of sustainability reports: Perspectives from assurance providers. Journal of Business Ethics, 159(4), 1111–1125. 20 Boiral, O.,  & Heras-Saizarbitoria, I. (2020). Sustainability reporting assurance: Creating stakeholder accountability through hyperreality? Journal of Cleaner Production, 243, 118596. 21 Caputo, F., Leopizzi, R., Pizzi, S., & Milone, V. (2020). The non-fnancial reporting harmonization in Europe: Evolutionary pathways related to the transposition of the Directive 95/2014/EU within the Italian context. Sustainability, 12(1), 92. 22 KPMG. (2017). The road ahead: KPMG survey of corporate responsibility reporting 2017. Retrieved from https://assets.kpmg/content/dam/kpmg/xx/pdf/2017/10/kpmg-surveyof-corporate-responsibility-reporting-2017.pdf

Part IV

Creating social and public value

9

The neoliberal state

Introduction In all societies around the world the actions and interactions among societal stakeholders, including the state itself, business, and civil society organisations, are framed by a political-economic vision of the priorities of society and how societies should organise themselves. Today, that political-economic vision for most nation states is neoliberalism. This chapter seeks to shed light on neoliberalism in terms of what it stands for, and to help us make sense of how it infuences the twists and turns of strategic and policy choices being made by governments, business, and other societal stakeholders. Some of these strategic choices are being made in the name of, and others regardless of, the global goal of sustainable development, that is, of living a good (i.e. sustainable) life. In This Changes Everything: Capitalism vs. the Climate Naomi Klein, international thought leader and environmental activist, succinctly defnes neoliberalism in terms of the three policy pillars of ‘privatization of the public sphere, deregulation of the corporate sector, and the lowering of income and corporate taxes, paid for with cuts to public spending’.1 Klein’s defnition captures the essence of neoliberalism, but as neoliberal ideas have spread around the world, its interaction with existing local institutional contexts and political interests has articulated variegated forms of neoliberalism, at the same time absorbing difering connotations.2 There is consensus among researchers that there has been an international turn towards promoting market freedoms over state control, beginning in the 1970s.3 Following World War II, long-established ideological divides among rich world democratic states, between so-called left leaning and right leaning, or between socialism and conservatism began to blur, their economic policies tilting towards neoliberalism and a globalising economy. Within these states, political parties of all shades – conservative-led nations, democratic corporatist states, social democracies – began converging on similar economic policies, in particular the removal of price controls, the liberalisation of fnancial markets, and the removal of capital fow controls. The readiness for a shift in thinking among political elites emerged out of the post–World War II political and economic crises, and transformations in the geopolitical status quo: Europe and large parts of Asia ravaged by war; the

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protracted loss of European colonial powers, the economic impact of which was slowly unfolding; the rapid establishment of the socialist USSR bloc, and the democratic West – two worlds antagonistic towards each other – with the USA as a dominant political and economic force in the latter world. Against this background of a fractured political order, and economic crises in the 1970s democratic West, political elites of the United Kingdom and the USA abandoned Keynesian welfare economic policies, wherein the state played the dominant role in economic development, in favour of neoliberalism. Subsequently, Canada and New Zealand started implementing policies grounded in the neoliberal world view. The infuence of neoliberalism continued to spread through the 1980s and 1990s, gaining traction alongside the dissolution of the Soviet Union and the collapse of communist rule over Eastern Europe. The infuence of neoliberalism spread yet further afeld, as Washington (USA)-based global institutions, the World Bank and the International Monetary Fund (IMF), and the US Treasury Department began promoting economic reform policies which these institutions believed necessary for the economic recovery of crisis-ridden Latin American states and developing economies elsewhere. By the 1990s, neoliberalism had risen to such prominence that its ideas had become taken for granted, for both left and right of the political divide, so that Stephanie Mudge describes its impact as ‘[the] re-centring of political space on a new economic philosophy’, becoming, in the words of Meyer and Rowan, so ‘embedded in the institutional environment’, that it may be considered as grounding the orientation of all political actors.4 A discussion on neoliberalism immediately invites questions about its relationship with other closely related terms: classical liberalism and modern (or social) liberalism. There is clearly overlap, and attempting to separate them is fraught with difculty. While neoliberalism is assertive, advocating revolutionary change and creating freedoms through open markets, classical liberalism  – its 18th- and 19th-century predecessor – is defensive of individual civil liberties and economic freedoms, looking to the rule of law to minimise confict between individuals. Markets and trade were understood as having inherent or natural laws, therefore state regulation was unwarranted.5 Under classical liberalism the state possessed few functions, such as market governance, and provided minimal social assistance, believing the market was the best mechanism for achieving greater individual prosperity. Classical liberals rejected wealth distribution as a policy approach, believing such wealth would be dissipated by the ‘lower ranks’ and the ‘vast numbers of the poor’.6 In addition, neoliberalism difers from classical liberalism, insofar as the former does not advocate laissez-faire economic policy and instead advocates a strong state whose purpose is (or should be) to construct (create and maintain) free markets. In contrast, under classical liberalism, Adam Smith’s The Wealth of Nations (1776) calls on the state to not interfere in the (natural) functioning of the market.7 From the perspective of neoliberal ideals, modern liberalism’s support for state intervention is unacceptable. In this volume, the ‘Introduction’ section of Chapter 10, The Welfare State, provides a sketch of modern liberalism.

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Neoliberalism is a macro-scale political-economy philosophy, and the accepted view is that developing and implementing neoliberalism and its programmes is necessarily state led. We begin by explaining neoliberalism as layered, comprising three levels of meaning that are related hierarchically and horizontally: as a political philosophy, as broad policy directions, and as practical actionable policy measures. Against this background we present seven broad neoliberal policy categories, including privatisation, deregulation, and development of a self-sufciency ethic. This categorisation helps organise thinking about how a neoliberal world view shapes policy choice, afecting both social and environmental issues. We also present nine actionable policy measures, including industrial and business policies, labour market policies, and civil rights policies. By way of providing detailed insight to one policy choice area, we examine the deregulation of the provision of public water supply in England under Margaret Thatcher, Britain’s prime minister during the 1980s. We move on to exploring where and how neoliberalism interacts with sustainable development. We pause to provide insight to this, focusing on one of the features of neoliberalism, that of property rights around genetic modifcation in the food sector.

What is neoliberalism? From around the second half of the 20th century, use of the term neoliberalism grew quickly (Figure 9.1). When compared with other political-economic doctrines, it seems to occur with around the same frequency as welfare state and conservatism. Not surprisingly, the understanding of neoliberalism has evolved from its 19th-century liberalism roots to becoming widely used, often without being defned, as if its meaning is widely understood, leading to multiple understandings and confusion.8 The everyday life of most people is permeated by neoliberalism. As a political project, neoliberalism aims at removing any distinction between state, society, and the market: reforming

Figure 9.1 ‘Neoliberalism’ and other political-economic doctrines as a percentage of all the words in all English-language published books, 1920–2019 Source: Google NGram

194 Creating social and public value

society by subordinating it to the market and replacing citizens with customers. Neoliberalism then is a world view, not just an economic doctrine.9 According to Connell, it is a ‘large scale historical project. . . transform[ing] social structures and everyday practices along market lines’.10 The market has become the arbiter of both economic and moral decision, displacing the need for political judgement by the state. This has consequences for many of the ambitions underpinning the sustainable development project, such as (in) equality (social and economic), rights (human and environmental), development (economic and human), and much else. Some of these issues are picked up throughout this chapter. Neoliberalism is a political-economic idea that presents three faces to the world. In ‘What Is Neo-liberalism?’ Mudge (2011, 2008) unpacks the concept, arguing that neoliberalism can be understood as comprising intellectual, bureaucratic, and political faces (Figure 9.2). Mudge sees neoliberalism as the product of ‘struggle and collaboration’ within and between these three worlds or ‘faces’.11 Refecting on the work of environmentally concerned social scientists, Noel Castree recounts how this community of scholars separately developed a stream of ideas around ‘free market environmentalism’,12 some gradually adopting a neoliberal analytical frame of reference, such as the ‘neoliberalisation of nature’,13 or the ‘commodifcation of nature’, a Marxian conceptualisation of commodities as ‘objects produced for sale on the market’.14 Castree also describes neoliberalism as comprising three features that loosely resonate with Mudge’s three faces: the world view (philosophical), policy discourse (programme), and ‘actionable policy measures’ (bureaucratic practice).15 There is similarity between these two perspectives, both seeing

Poli˙cal Face Market-centric view of the role, authority, and cons tuencies of the state

Bureaucra˙c Face (The State) Policies for priva za on, deregula on, liberaliza on, depoli ciza on, monetarism

Intellectual/academic Face Neoliberal ideals, free market economics, belief in monetarism

Figure 9.2 Neoliberalism’s three faces Source: adapted from Mudge, S. L. (2008). ‘What Is Neo-liberalism?’

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neoliberalism as having hierarchical depth and congruent structured spaces and categories of meaning. Such hierarchical structuring provides a useful tool for evaluating the coherence of policy. For example, we could examine policy measures in practice for evidence of a corresponding neoliberal world view and/or evidence of a corresponding policy discourse. This hierarchical structure does not preclude horizontal linkages, whereby policy measures are likely to spill across to other policy measures and having unintended practical consequences. Castree’s conceptualisation provides a useful structure for exploring neoliberalism’s hierarchical infuence, while also keeping in mind Mudge’s three faces: as (philosophical) world view; as (political) policy discourse and programme; and as actionable policy measures and bureaucratic practices. As (philosophical) world view

Writing in 1944, Karl Polanyi characterises neoliberalism as a ‘creed’, a semireligious belief in the superiority of the self-regulating market.16 Neoliberalism is an ideology, which is a set of more or less coherent ideas, beliefs, and ideals about how societies should organise political and economic activity. Understanding neoliberalism requires understanding its context, that is, what went before and what were the contemporary alternatives. Neoliberalism is the 20th-century re-emergence of 19th-century notions of political and economic liberalism, which slowly took shape and emerged from the margins of intellectual and political discourse during the 1930s. Its rise can be seen as a foil to the growing infuence of Soviet communism in the eastern hemisphere, and to prevailing welfare state governments of Western democracies. These Western governments pursued policies that, to varying degrees, were based on Keynesian economic thought and belief in the value of government intervention for securing the economic and social well-being of all citizenry. During the post-WWII decades, neoliberalism gradually eclipsed the post-war Keynesian consensus, not just becoming – from the late 1970s – the guiding philosophy of particular political parties, but also colonising the traditional landscape of party politics, left and right, of most Western economies. Its ideals continue to inform the political projects of most parties and political systems of entire nation states, encompassing the formal legal institutions that constitute government, the wider state apparatus, and associated procedures, decisions, and policies. Neoliberalism is an intellectual and political-economic construct wherein markets are regarded as the spontaneous expression of individual desires, and that human freedoms are best achieved through the operation of markets unimpeded by government intervention. Indeed Mudge, Harvey, and others highlight neoliberalism as the source of freedom in all its guises (human dignity, of expression, entrepreneurialism).17 Further, neoliberalism has a moral thrust. Mudge fnds that neoliberalism is a moral project, extolling the moral benefts of a market-based society, couched in the language of economic rationality.18

196 Creating social and public value

Brown too highlights that neoliberalism ‘equates [individual] moral responsibility with rational action’, whose ‘moral autonomy is measured by their capacity for “self-care”’. This moral thrust ‘involves extending and disseminating market values to all institutions’ promoting a ‘rationality. . . and. . . mode of governance [not limited by], but encompassing, the state, producing subjects, forms of citizenship and behaviour’.19 Its intellectual face is rooted in international debates, in particular EuropeanAmerican transnational academic exchanges, involving networks of infuential individuals and international think tanks. Key infuencers include the Austrian economist Friedrich von Hayek, the American Milton Friedman, and others who promoted their ideas through numerous forums, including the Mont Pelerin Society (based in Switzerland), and the Chicago School.20 Over time these intellectual networks and think tanks developed persuasive new arguments in favour of self-regulating markets, including plausible explanations for the failure of welfare capitalism and Keynesian developmental policies, and ofered recommendations for post-WWII economic recovery based on vesting power in markets rather than governments. As (political) policy discourse and programme

The apparent failure of Keynesian welfare economics to either avoid or overcome economic crises in rich world countries in the 1960s and 1970s, and crises among Eastern European and developing economies in Asia, Africa, and South America, rendered political elites vulnerable and open to alternative political economic approaches. As Mudge puts it, ‘those with the ability to defne political problems and the range of possible solutions exert a unique infuence’.21 The political face of neoliberalism encapsulates political struggles around establishing the primacy of market-centric arguments. Going further, the convergence on neoliberal ideals and a shift towards a more integrated global economy stems from the Bretton Woods Conference among post–World War II allied nations. Under the leadership of the USA, the Bretton Woods Conference introduced the notion of free trade and open markets and an end to economic nationalism. This involved the lowering or removal of barriers to trade and the free movement of capital. Under this notion, states maintaining sovereignty over other national interests, while removing trade barriers, would go a long way towards eliminating the potential for another war. Further, the Conference agreed that the most advanced industrial democratic nations – essentially those present – would jointly manage the Western politicaleconomic order. Out of this meeting, the International Bank for Reconstruction and Development (later becoming the World Bank) and the IMF were created, as institutional instruments for implementing the new consensus. In hindsight neoliberalism as political discourse has turned out to be seminal, promoting the spread of prosperity globally. From the 1970s the idea of open markets was being exported to non-democratic states (frst Chile) and to independent emerging and developing economies. It was framed as the Washington

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Consensus, a term coined by British economist John Williamson in 1989. Intended to help developing countries facing economic crises, the Washington Consensus recommended these governments adopt structural reforms to their economies in exchange for immediate fnancial help.22 Williamson set out ten principles: 1 Low government borrowing to discourage having high fscal defcits relative to their GDP. 2 Diversion of public spending from subsidies to important long-term growth supporting sectors like primary education, primary healthcare, and infrastructure. 3 Implementing tax reform policies to broaden the tax base and adopt moderate marginal tax rates. 4 Selecting real interest rates, determined by the market after taking infation into account. 5 Encouraging competitive exchange rates through freely foating currency exchange. 6 Adoption of free trade policies, removing import trade barriers, such as tarifs and quotas. 7 Relaxing rules on foreign direct investment. 8 The privatisation of state enterprises, such as railways, oil, and gas. 9 The eradication of regulations and policies that restrict competition or add unnecessary barriers to market entry. 10 Development of property rights. Other forces helped accelerate the spread of the notion of open markets, including growing competition among OECD economies for foreign investment and the growing integration of member states of the European single market.23 As Quinn and Toyoda observe and Steinberg et  al. confrm, the prevalence of open capital markets among neighbouring countries encourages domestic support for capital account liberalisation.24 Countries hesitating to deregulate capital fow controls risk disadvantaging their own economies within the (wider) world economy.25 These trends point to the emergence of neoliberalism as a political-economic ideology and help fuel the development and growth of capitalism. A neoliberal world view may be understood as consisting of seven broad policy strands, which help organise thinking about the various routes governments may pursue as part of a wide-ranging commitment to neoliberalism.26 1 2

Privatisation. The assigning of private property rights to previously unowned, community-owned, or state-owned assets from the social, natural, and cultural worlds. Marketisation/Commercialisation. The institution of a market logic to areas and ideas, expressed through market transactions and measured in monetary values, within and between nation states.

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3

4

5

6

7

Deregulation. (a) The removal or minimisation of state intervention in the use of certain social, environmental, and cultural products and services, with the aim of enabling businesses and individuals to exercise freedom of choice; (b) delegating certain functions to quasi-state or state sanctioned entities; and (c) contracting private or third sector entities to deliver services based on competitive bidding or partnership agreements. Market-oriented (re)regulation. Reconfguring the state to broaden the scope for privatisation and marketisation, including the state intervening more on behalf of the market economy and less as a public service provider. Initiatives include encouraging entrepreneurship, consumer-oriented tax policies, business-oriented labour market policies, and policies to support easy movement of capital. Market proxies in the provision of public services. Reorganising state functions and services to operate as internal markets, introducing budget limits and cost recovery, and embedding a commercial spirit in the functioning of the state. Encouraging development of third sector (i.e. non-proft) civil society organisations. In order to replace the removal of hitherto state-provided services in social and environmental domains, policies introduced to promote (a) informal and social economies and (b) well-funded and professional voluntary and community organisations. Cultivating an ethic of self-sufciency and self-governing consumers, producers, families, and communities. Policies promoting this ethic seek to displace reliance on public services and includes those individuals and entities within the state bureaucracy.

As actionable policy measures and bureaucratic practices

Mudge’s bureaucratic face and Castree’s ‘actionable policy measures’ describe neoliberalism’s governmental policies and their translation of liberalisation, privatisation, deregulation, and monetarist policies into practical policies. As noted, neoliberal policies seek to promote market competition and to relieve government of any interventionist style economic management. More profoundly, as Mudge notes, neoliberal reforms call for not just the retreat of state bureaucracy, but also its wholesale overhaul or conversion, and the establishment of a neoliberal state.27 Real policy measures and practices need to make sense in terms of some overarching world view, otherwise they are likely to be regarded as irrational or unworkable.28 The aforementioned wide-ranging neoliberal world view and associated policy programme provides a legitimising framework to support an ambitious range of actionable policy measures. Castree identifes nine common neoliberal policy practices.29 1

Macro-economic policies: control of government borrowing and domestic money supply, low taxation levels and low infation rates, a foating

The neoliberal state

2

3 4

5

6

7 8

9

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exchange rate, and interest rates determined by market conditions (rather than the state). Industrial and business policies: broaden the scope of competition by (a) removing subsidies and barriers to trade, investment, and ownership of assets and (b) introducing incentives for entrepreneurship, innovation, and competition. Labour market policies: the dismantling of any collective practices that inhibit competition and diferentiated performance rewards, such as trade union membership and collective bargaining practices. Education and training policies: promote and incentivise individual human capital and lifelong learning. Such policies require appropriate investments and incentives in corresponding or adjacent policy measures, such as higher and vocational education policies, industrial and business policies, and labour market policies. Managing, monitoring, and auditing measures: in order to assess policy efectiveness and efciency, measuring performance is essential. These demand goal and target setting, benchmarking performance, rewarding success, taking corrective measures, and penalising failure where necessary. Social policies: encourage all individuals to take responsibility for their own livelihoods, their successes and failures; a ‘remoralization of the poor and the excluded’,30 replacing any ethic of dependency with one of individual self-sufciency; an emphasis on workfare not welfare. Law and order policies: uncompromising in dealing with lawbreakers and with anyone infringing on the rights of others or causing social disruption. Civil rights policies: operating within constraints of established law and order policies, there should be freedom of assembly, of speech and of lifestyle choice, privacy rights, and freedom of access to information (held about oneself ) and concerning the common good. Governance policies: democratisation of decision making should prevail, that is, power over decision making should devolve to actors outside of formal government. This overlooks the existence of policy advisors, who are unelected but wield unknown and substantial infuence.

These actionable policy measures seek to achieve social and environmental goals through competitive market mechanisms, believed to be more efective and efcient than the state, regarded as posing a risk of making arbitrary administrative judgements, regardless of any claims to rationality.31 It should be noted that elements of the preceding policy programme and the aforementioned actionable policy measures encourage or assume democratic process and institutions: the policy programme includes one item – encouraging development of a third sector (non-proft civil society organisations), while actionable policy measures include two items (civil rights policies and governance policies). There are non-democratic states that embrace competitive markets but not political freedoms, such as China. There are also states that use the democratic electoral process as an instrument to legitimise the authority of a political

200 Creating social and public value

incumbent, while pursuing what might be termed neoliberal policies, but they engage with neoliberal ideals selectively, applying elite group preferences or other political ideological reasons. In his review of studies of the impact of neoliberalism on environmental policy, Castree makes six observations.32 Developing markets in environmental goods and services typically requires: 1 2 3

considerable state intervention; appreciation that biophysical materiality/physicality tend not to yield to ideological design; better understanding of the prevailing socio-cultural and political-economic context.

And more generally that neoliberal environmental policy: 4 5 6

is often and in large measure constitutively ‘impure’; frequently tends to disadvantage the poor and the powerless; produces environmental improvements as much as problems.

Refecting on Castree’s three general conclusions about the nature and impact of neoliberal environmental policy: frst, his argument that neoliberal environmental policy is often constitutively impure, as well as Mansfeld’s study of the rights of indigenous communities in western Alaska, highlight that neoliberalism can (and does) hold contradictory goals. For example, Mansfeld’s study highlights how neoliberalism promotes individual (or community) property rights, while at the same time supporting the redistribution of wealth to include the poor.33 More generally, this apparent contradiction goes some way to explaining why both conservatives and liberals might support the same social practice, say gambling: people should be free to choose rather than be controlled by some moralising authority. This leads to broader debates about the nature of (neoliberal) ideological coherence.34 Second, the impact of neoliberal environmental policy on the poor or powerless is captured in McCarthy’s study of the efects of national trade agreements such as NAFTA.35 Arguably more profound is McCarthy’s insight that ‘recent trade agreements are part of the larger neoliberal agenda of overthrowing the last remnants of postwar modes of regulation’.36 Within this agenda, natural world ecological regimes become subject to privatisation and deregulation (e.g. seed varieties as intellectual property and water resources as private property), accelerating the commodifcation of nature.37 Third, neoliberal environmental policy does not necessarily lead to improved resource management and the ‘greening of capitalism’.38 Particular circumstances (e.g. local geographies) demand adaptation of neoliberal policy approaches.39 Bakker’s study highlights how the Yorkshire water drought of 1995 was as much a product of privatisation and the role of the regulatory ‘game’ as simply of water scarcity. Nevertheless, as Bakker shows, after a

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decade of experimentation, the post-privatisation regulatory framework for water became a mix of command and control and market mechanisms. Thus, neoliberal environmental policy is not bound to lead to either better or worse outcomes; rather that in seeking to improve natural resource management, the architects of privatisation must also recognise the need to adapt preconceived neoliberal regulatory approaches to local social particularities and ecological imperatives.40 Castree concludes that there is evidence that neoliberal environmental policy is a work in progress.41 First, more could be done to address the ecological harm that results from capital accumulation. Second, it privileges the rights of designated owners of the biophysical environment above the rights of other stakeholders. Third, and perhaps raising questions about the freedoms that neoliberalism promises, it frequently assimilates people into its rationalities, whether or not they are willing. Insight 9.1, Privatisation of Public Water Supply in England, provides some insight into the policy strand of privatisation and to Castree’s three concluding observations.

Insight 9.1 England

Privatisation of Public Water Supply in

Water is one of the most valuable resources in the world and is vital to all known forms of life. Indeed water has become regarded as a globally scarce resource. From a neoliberal perspective, consumer access to this scarce resource should be treated not as an entitlement to water as a service, but as a commodity to be purchased. As an increasingly scarce natural resource, its management demands a new ethic of efcient use; a responsibility in which public management, i.e. the state, has been failing. The necessary efciency is best delivered by the private sector, i.e. its commercialisation. Naturally, a paradigmatic shift of this magnitude requires the creation of new institutions, importantly, a pricing mechanism and the creation of property rights. These institutions will ensure water is allocated to users willing to pay, thereby maximising efciency. Under privatisation the focus shifts from creating new sources of supply to managing demand involving a variety of strategies, including conservation (through new water-saving technologies), reuse (grey water, reclaimed wastewater, desalinated water, recycled water), metering, and tarif structures. This shift of focus is accompanied by (re)educating citizens to becoming consumers in the new ethic of efciency and accepting new principles in the valuation of natural resources: the attachment of economic value to water and a displacement of traditional expectations underpinning access to water, from a sense of entitlement (social equity) to the willingness to pay (economic equity).

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Public water supply in England In England the Environment Agency licences and regulates the direct abstraction of water, ensuring that there is enough water available to meet all projected demand and that abstractions of one type will not afect other abstractions.43 Public water supply is the largest use of water abstracted from the ground, remaining relatively stable at about 51% of all abstractions (Figure 9.3). Public water is purifed and distributed through water mains to houses, ofces, and other premises and facilities for personal and domestic use. During the 1980s, water abstraction by industry fell by around 42%, mainly due to the more efcient use of water (including recycling) and structural changes in British industry, including the contraction of major water-using industries, such as steel-making.44 In the 19th century, the British government took control of public water supply because private capital was either unable or unwilling to meet the scale of investment required in the water sector.45 In contrast, the British government in the 20th century, for diferent ideological and political reasons, was unwilling to continue to meet the large investment needs of the water sector that led to privatisation. Up until this change in governmental political-economic philosophy, clean water was considered a public health issue, rather than a commodity, and to be treated as social equity, supplied universally, and priced so as not to discriminate on ability to pay. This means household supply was not metered but charged based on property value. By the end of the 1970s, the water sector had become seriously underfunded as successive governments tried to control public borrowing and

Figure 9.3 Estimated abstractions from non-tidal surface water and groundwater in England, 2000 to 2017 Source: DEFRA42 Note: the supply of fresh water in Scotland and Northern Ireland is managed diferently, where public water supply systems are publicly owned.

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to keep water charges low for political electoral reasons. Indeed funding fell to about 30% of the 1970 level. The new Conservative government of 1979 continued the policy of restricting the ability of the existing regional water authorities (RWAs) to borrow, now for ideological reasons, as providing funding would contradict their political goals, these being: ‘1) promoting competition and enterprise; 2) reducing the size of the public sector; 3) involving staf of companies; 4) spreading share ownership; and 5) freeing the enterprises from state controls’.46 In 1989, the UK Conservative government under Margaret Thatcher enacted the transfer of authority for providing potable public water and sewage and sewage treatment functions from the ten RWAs to purposefully created privately owned companies. The government had proposed privatisation in 1984, then again in 1986, and was then shelved due to strong public objections and also to prevent the issue infuencing the impending general election in 1987. The government was re-elected, and the privatisation plan was ‘resurrected and implemented rapidly’.47 This new thinking considered the private sector as being more suited to addressing the chronic underfunding of the water sector that had dragged on for years. Another important argument for privatisation was that under existing governance arrangements RWAs were responsible for both service provision and regulatory compliance. These two responsibilities involved a confict of interest and had to be separated, and privatisation would help remedy this confict (Summerton, 1998).48 Moreover, the European Union prosecuted the UK for failing to implement (by the 1985 deadline) the 1980 EU Drinking Water Quality Directive and the 1976 Bathing Water Directive, setting out more strict legislation on water quality (in rivers and coastal areas, and for drinking and bathing). Estimates of the capital expenditure required to achieve EU standards and meet the existing backlog in infrastructure maintenance ranged from £24 to £30 billion.49 Under public ownership, funding for the water sector would have to come from (1) central government, through increased government borrowing, or (2) through raising prices for water provision. Increasing public sector borrowing to provide funding was inconsistent with the government’s monetarist economic doctrine and (the government believed) would also drive up infation. Raising the price of water supply would also push up headline infation, and the government would be accused of failing to improve the lives of ordinary citizens.50 These arguments give a sense of the Conservative party’s determination to privatise water supply. In his evaluation of the privatisation of water supply, Green likened the Conservative government’s general approach to the English proverb ‘marry in haste: repent at leisure’.51 He saw the government intent on a straightforward transfer ownership

204 Creating social and public value Dept of Environment, Transport, & The Regions Environmental Agency

Dept of Trade & Industry Drinking Water Inspectorate Compeˆˆon Commission

OFWAT: Oÿce of Water Services

Local Authoriˆes: Land use control

General Uˆliˆes, e.g. General Uˆliˆes, e.g. UnitedUnited Uˆliˆes, Sco‹sh Power Uˆliˆes, Sco‹sh Water & Power sewerage providers

Consumer Council for Water

English Nature Mulˆnaˆonals, e.g. Vivendi

Water-only companies

Environmentally Sensiˆve Areas, other Agricultural Areas

Royal Society for the Protecˆon of Birds

Ministry of Agriculture, Fisheries & Food

Figure 9.4 Structure of the water industry regulatory regime in England Source: adapted from Green, C., 200052 Key: [ ] Regulators: OFWAT, Drinking Water Inspectorate, Environmental Agency, Competition Commission Those directly involved in supply (e.g. multinationals and water and sewerage companies) { } Those indirectly involved or whose decisions afect the water and sewerage companies (e.g. local authorities; Consumer Council for Water) Arc of infuence: Lady Barbara Young was chief executive of the Environmental Agency (2000–2008), previously the chairwoman of English Nature, and before that chief executive of the Royal Society for Protection of Birds.

of the RWAs from public to private ownership, without undue delay and without changing the structure of the industry, and then expediently tackle problems arising, regardless of whether they were caused by privatisation. However, it soon became clear that investing private companies with regulatory powers was deemed to be against European Law. This led to a separation of responsibilities covering three areas of performance and which involved the creation of new agencies to provide the necessary supervision of private companies licenced to provide public water services and sewerage treatment: the elected government maintained responsibility for setting policy and standards for water quality, operating through the secretaries of state and several other bodies; and a new entity, the Ofce of Water Services (OFWAT), was instituted to supervise service quality, consumer satisfaction, and competition (Figure 9.4). Privatisation allowed the government to largely redirect funding of the sector, from the public purse to shareholders. Further, the separation

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of oversight of the sector’s performance has enabled a sharper focus on improving both water quality and consumer interests. As the newly formed private water sector matured, an industry association, Water UK, emerged promoting the contribution made by water companies, including Scottish Water, created as a statutory corporation in 2002, and Northern Ireland Water, also a government-owned company from 2007. There remains deep division about the costs and benefts of privatising the public water supply in England.53 According to The Guardian newspaper, a poll of British public opinion in 2017 suggested 83% of the public favoured the return of all water services to public ownership.54 However, a report by Social Market Foundation, an independent think tank, commissioned by Anglian Water, Severn Trent, South West Water, and United Utilities, and published in 2018, found that support dropped to 42% after the Social Market Foundation claimed that nationalising water could cost taxpayers up to £90 billion.55 In search of the best of both worlds – public good and private enterprise – The Guardian proposed that the government create a new entity, the public beneft company (PBC), its purpose being to prioritise public benefts over proft making. This could reconcile a contradiction between the limitations and constraints of public service organisations with the dynamism and fnancing freedoms of business organisations.56 Drawing broader lessons from the privatisation of public water supply in England highlights how states in economic crises provide fertile grounds for radical ideological change and the attraction of alternatives, such as neoliberalism. In the context of a worldwide recession in the 1970s and early 1980s, neither Labour nor Conservative parties were able to deliver on promises of economic regeneration, as refected in the short tenure of successive British governments. Britain was experiencing a period of fscal and ideological crises. Against this backdrop, British governments were unable and unwilling to fnance infrastructure works. Moreover, wider concerns for clean water across the European Community (and similarly in the USA) further heightened a willingness to entertain alternative approaches to water management. Those successful in portraying the state as inefective, ‘and from some neoconservative perspectives, despotic and inimical to freedom [helped usher in a profound change] in the ideology of democratic governance in most industrialized nations’.57

Neoliberalism meets sustainable development Overall, neoliberal policy frameworks undermine the legitimacy of regulating markets and by extension the practices of transnational corporations in their treatment of the environment and of human rights.58 In contrast, neoliberalist

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commitment to promoting the rights of individual freedom and responsibility is seen as undermining international obligations to protecting economic and social rights, especially to the poor.59 Others observe that social and economic forms of inequality are inherent to neoliberalism.60 Criticism that social and environmental issues have been, and continue to be, ignored by neoliberal ideals have been long recognised, including visible signs of growing environmental harm from business activities61 and worries about limits to growth due to overpopulation, adequate food production, industrialisation, pollution, and the consumption of non-renewable natural resources.62 While the infuence of neoliberalism can be described as having become global in reach, World Bank and IMF policies aimed at reforming developing economies have proven to be controversial, namely the Washington Consensus introduced earlier in this chapter. Critics argue that the policies were unhelpful and imposed harsh conditions on developing economies, and they question their legitimacy as strategy for economic development.63 In particular they have been heavily criticised for promoting the interests of the USA and its multinational corporations at the expense of the sovereignty of developing nations and for contributing to anti-globalisation movements,64 but the policy framework has also been defended in terms of both its intended aims and its achievements.65 Others have defended the long-term positive impact of these ideas.66 Over the last three decades we have witnessed the emergence and unfolding of two normative discourses, or ‘meta-narratives’,67 of neoliberalism and sustainable development, both embraced by developed and developing states around the world. As we have learnt, the frst is premised on the notion that the development of a nation and the welfare of its citizens is self-evidently an economic endeavour, requiring competitive nations in a global economy and competitive markets at home, private property rights, and individual freedoms and responsibility for one’s own successes and failures. The state’s role is to either help promote that process or at least not inhibit it. The other notion holds that humanity exists in symbiosis with the biosphere, and so the good life, a sustainable life, should be a universal goal for all peoples. This requires not only an acceptance that economic development is intimately bound up with social justice and community rights, but that both conditions (economic growth and social justice) are predicated on a healthy global ecological system. Neither neoliberalism nor sustainable development represent homogeneous world views. Neoliberalism occupies a spectrum of beliefs, between libertarianism and social democracy. As Blomgren notes, It ranges over a wide expanse in. . . ethical foundations as well as. . . normative conclusions. At one end of [the spectrum] is ‘anarcho-liberalism’, arguing for a complete laissez-faire. . . and. . . the abolishment of all government. At the other end is ‘classical liberalism’, demanding [government be more than] the so-called night-watchman state.68

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Similarly, the understanding of sustainable development spans a wide range, varying in signifcance according to difering socio-economic ideologies, differing regional economic assumptions and assessments of the ecological risks to humanity. Policy makers also hold difering preferred technological solutions to ecological challenges and hold difering views on the extent to which natural resources are seen as technologically substitutable, framed by arguments about weak versus strong sustainability.69 The role of energy in economic development provides a clear example of the diverse ways in which national policy making engages with sustainable development. The need for energy is universal, yet across Sub-Saharan Africa some 580 million people lack access to electricity, representing 75  percent of the global total. Moreover, the COVID-19 pandemic crisis (2020–2021?) has pushed millions more into poverty and reliance on traditionally inefcient and polluting energy sources (e.g. coal).70 This suggests the sustainable development agenda is not reaching a large section of the global society, and commitment remains vulnerable to crises. The four national policy scenarios of energy demand for economic development over the next 30  years, vary in the extent to which they embrace moving from fossil to renewable energy sources and reducing carbon emissions. For example demand for gas in South and East Asian economies is expected to rise, but decline in advanced economies.71 Within a globalised setting nation states are diverse, not only in terms of political-economic ideologies, but also developmentally and culturally. Further, they are also interdependent, so that the two meta-narratives of neoliberalism and sustainable development both converge and diverge, one informing the discourse and practices of the other in context. The descriptors global North and global South are gross generalisations but convenient shorthand terms for two interdependent worlds. The former, largely so-called developed (or advanced) states, is a world of the largest industrial and post-industrial economies, while the latter describes those newly industrialised and emerging economies. Using a neoliberal lens, these two worlds invest in each other, drawing on each other’s advantages for mutual beneft, for example by exploiting lower production costs in the latter and consumer markets in the former. From a sustainable development perspective, there is universal agreement that both worlds need to stop externalising the costs of economic development and to rein in their appetite for fossil fuels and other natural resources, along with reducing the associated pollution of air, water, and land. Each of these worlds has its own ideological struggle. In democratic developed economies, there is division between conservatives and neoliberals for whom free-market economics is sacrosanct and ecologically informed radicals who want more environmental protection and regulation. Political elites in the so-called newly industrialised and developing world are experiencing a diferent ideological struggle, between would-be modernisers who regard industrial development as progressive change (while also lamenting the environmental costs) and those who seek to hold on to traditional grids of power and social organisation.72

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In the heartland of neoliberal politics, both traditional left (Democrats and Labour) and traditional right (Republicans and Conservatives) recognise poverty and inequality as a serious social problem of the day. Indeed, globally, poverty is recognised as so important that ‘No Poverty: end poverty in all its forms everywhere’ is also Goal 1 of the UN’s 17 Sustainable Development Goals. In the USA, representatives from the two parties (Republicans and Democrats) formed a working group that collaborated for 14 months in search of solutions, publishing in 2015 the AEI/Brookings report.73 They propose difering solutions, yet are grounded in a shared ideological commitment to neoliberal ideals, including the important role of economic growth, individual responsibility, and self-sufciency, and in particular the need to strengthen families, improve the quality and quantity of work such that young people will be better prepared ‘to assume the responsibilities of adult life and parenthood’, and ‘improve education in ways that will better help poor children avail themselves of opportunities for self-advancement’. The AEI/Brookings report cites Hayek’s The Road to Serfdom, as support that both parties believe in the need for a social safety net, while acknowledging that conservatives worry that state guarantees of security ‘often undermine people’s sense of personal responsibility, lead[ing] to greater dependency’.74 They agree that (working) adults’ sense of security starts from children growing up in stable environments of caring adults where selfregulation is valued. Policies should therefore improve the securing of children as this will lead to more responsible adults. In Reducing Poverty the Republican Way,75 Douglas Holtz-Eakin, a former director of the American Congressional Budget Ofce, lays out four principles for poverty alleviation in the USA: 1 2 3 4

Solve the right problem. The problem is not poverty. The problem is that too many Americans are not self-sufcient. All policies should be pro-work. Work is valued – it is a source of pride and self-esteem, as well as the dividing line between the poor and non-poor. Taxpayer dollars must be accompanied by accountability for outcomes. Federal programmes will fail without a social foundation of better parents and stronger marriages.

In outlining his policy initiatives for addressing poverty in America, HoltzEakin focuses on: • • • •

Pro-growth economic policies: improving economic growth is the frst requirement. More growth means more opportunities for work and families. Pro-work social safety net: the social safety net needs to reward fnding or returning to work, and he proposes some reforms of an existing policy and an expansion of another. Improving education and skills: self-sufciency is fundamentally linked to better educational outcomes across the life cycle. Social foundation for self-sufciency: stronger marriages and better parenting.

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As with the issue of poverty, close examination of other policies (e.g. addressing hunger or health and well-being) in neoliberal-leaning states is likely to reveal difering attitudes and preferred solutions among political parties, yet still favoured by neoliberalist beliefs. In some developing economies, for example India and Brazil (see Insight 9.2), political elites fnd themselves balancing the demands of powerful neoliberalist investing states and their own constitutional and cultural traditions. Prior to the advent of sustainable development as an ideological and political framework, development policies focused on increasing the wealth of nations, through increasing production and consumption. Sustainable development draws attention to the implications of such unfettered economic-centred polices for the ecological world, a world on which humanity depends for its welfare and very existence. The doctrine laid out in the Brundtland Commission’s Our Common Future76 and the 2002 World Summit on Sustainable Development in Johannesburg warn that economic development must be subordinated to ensuring the sustainable use of natural resources, the maintenance of healthy environments, and protecting biodiversity. Critical observers note such a position puts sustainable development at odds with the doctrine of neoliberalism.77 Indeed a commitment to sustainable development could be cast as undermining the primacy of economic development. The administrations in the 1980s of both British Prime Minister Margaret Thatcher and US President Ronald Reagan championed the market unhindered by government interference as key to economic development. Proponents of sustainable development see a need for the re-regulation of the economy in the interests of the ecological world. Joseph Stiglitz, one-time senior vice president of the World Bank and a high-profle critic of neoliberal policy prescriptions, regards the ‘neoliberal experiment – lower taxes on the rich, deregulation of labor and product markets, fnancialization, and globalization – a spectacular failure’, and ponders on what should, or will, follow.78 Economic development involving investments in corporate innovation and entrepreneurial activity invokes the notion of property rights. In neoliberal thinking, individual freedom is conditional on free markets and unhindered entrepreneurial activity, which demand strong property rights.79 Property rights matter because in principle they help allocate returns on investment and provide protection against those likely to expropriate the returns. Property rights encourage entrepreneurial activity and are essential for a capitalist system, facilitating economic growth and wealth creation. In addition, institutions that secure property rights, alongside equality and opportunity, promote prosperity.80 A democratic political system and a free-market economy should secure universal and impersonal property rights. In principle such rights, grounded in institutions supporting open access of political and economic competition, encourage innovation and productive activities in a modern economy.81 The understanding of property rights also varies with particular political jurisdictions and their institutional arrangements. Western corporate capitalist economies have created legal regimes and institutions to protect private

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property rights. Property ownership may also be some mix of private and public ownership. In ‘The Fatal Flaw of Neoliberalism: It’s Bad Economics’, Dani Rodrick of The Guardian describes how China, in the 1980s, pursued a development strategy based on township and village enterprises (TVEs), collectives owned and controlled by local governments.82 TVEs were publicly owned, but entrepreneurs were protected against expropriation. The Monsanto insight case explores how this transnational corporation mobilises property rights in support of its innovations in food crop development. It also highlights that these property rights, granted in one jurisdiction (USA), do not carry universal value, showing the challenges of enforcement in India and Brazil.

Insight 9.2 Intellectual Property Rights and Genetically Modifed Food The production and consumption of food provides rich terrain for observing the entanglement and confict between neoliberalism and sustainable development, both in the former’s colonisation of the latter and as a rejection of the former. Genetically modifed or engineered foods, or more broadly, genetically modifed organisms, are created by modifying the genetic material (DNA) of plants, animals, or microorganisms, in ways that do not occur naturally. The frst such food, a tomato called Flavr Savr, was created by Calgene Inc., Davis, California, and introduced to the market in the early 1990s. They successfully turned of the gene that normally caused the tomato to soften as part of its ripening and aging process, thus lengthening the shelf life of the fruit. Calgene as an enterprise eventually failed, and Monsanto (an American agrochemical and agricultural biotechnology corporation) bought Calgene’s patents to the technology.83 Amid ongoing controversy about possible side efects or threats to human life, GMO technology and genetic editing continue to fourish. Set against a growing population, especially on the African continent but also in Asia, and persistent poverty, GMO ofers hope of solutions. Apart from delaying ripening of produce, the technology promises help with producing crops tolerant to environment stress such as drought, pest resistance, improved nutrition compared with non-GMO equivalents, and taste. Some of these benefts clearly address the sustainable development agenda, such as the need to feed a growing population, especially in part of the world where there is environmental stress, poverty, and malnutrition. Agro-chemical and agricultural biotechnology companies – such as Monsanto, BASF, Bayer, DuPont Pioneer, Dow Chemicals, and Syngenta, invest millions of dollars/euros in biotechnology research and development and are granted intellectual property rights in the form of patents for biological products (e.g. seeds) they create, deemed by law not

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to be naturally occurring. Monsanto has vigorously enforced these patent rights through the courts in the USA and abroad, and between 1997 and 2010 successfully pursued 144 individual American farmers, only nine of which went to trial.84 Successive cases and interpretations of US and Canadian patent law have found in favour of biotechnology developers over farmers, efectively ending debate in North America about whether intellectual property rights extend to self-replicating living organisms, such as seeds and plants. It should be noted that Monsanto did not simply rely on the existence of statutory intellectual property rights to protect its business. Over the years the company spent millions of dollars both in the USA and abroad: on lobbying successive US administrations, opposing the labelling of foods as containing GMO, in contributions to political campaign (to both Democratic and Republican parties), on biotech advocacy as member of the Biotech Industry Organisation trade association, advising the Food and Drug Administration (FDA) regulator, and lobbying the European Union both directly and through individual member states. In a so-called revolving-door practice involving US institutions, Monsanto’s senior executives and legal councils have occupied senior posts in US regulators (e.g. FDA, EPA) and the judiciary (Supreme Court), while politicians and senior US government ofcials have held positions on Monsanto’s board. The company was also advisor to the British New Labour government of Tony Blair (1997–2005), regarded by many as ‘corporate compliant’85 in its embrace of neoliberalism.86 In India and Brazil, Monsanto sought to exercise the same proprietary rights regime as it did in the USA; these two jurisdictions have signifcant diferences in legislation around plant variety patent protection and farmers’ rights. While in the USA and Canada biotechnology companies can rely on the power of patent law to support any claims they bring forth regarding potential breech of their intellectual property rights, in both Brazil and India case law has developed around alternative legal interpretations. In attempting to prosecute its claims in these jurisdictions, Monsanto was fnding that Indian and Brazilian laws – as a refection of social sentiment and cultural values – prioritise broader social concerns about food security ahead of private property rights. According to one judge, the Brazilian constitution provides guarantees to small farmers, and larger social interest must prevail over purely private interest. Further, Monsanto’s ‘property rights over the initial technology. . . do not extend to the entire production process and to successive generations of plants’.87 These constitutional and legislative diferences are muddied by geopolitical sensitivities between global North and global South, in the promotion of North American ‘neoliberal designs and [its implementation through] international norms’.88 Although Brazil and India have not

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encouraged the introduction of the same proprietary rights as Monsanto has enjoyed in North America, the two states have been strategic in their accommodation of Monsanto. Peschard and Randeria characterise India as a ‘cunning state’, observing how ‘its right-wing government, in spite of its strident nationalist rhetoric, is forced to juggle its stated aim of attracting foreign investment with the demands of its protectionist rural electoral base’.89 The Monsanto case highlights that the neoliberal valuation of IPR is not universally accepted, and that in jurisdictions other than North America or the UK, other values may be prioritised or exist in an uneasy tension between the neoliberal ideals of the global North, that is free markets, and those of the global South, where there may be a stronger emphasis on social solidarity. The case also highlights that the neoliberal requirement for a small state does not defne what counts as ‘small’ and does not prescribe the boundary, or the nature of relations, between state and market. Harvey imagines two possible roles for the state: to set up free-market conditions and stand back or to actively work at ensuring free-market conditions, intervening as necessary.90 From this perspective, the American government did not simply stand back having created the conditions for a free market, including establishing intellectual property protection legislation. However, it would be misleading to credit the American government with actively creating a favourable business climate without also acknowledging the participation of business in that active role, through lobbying the state, advising ofcials and senators, and formally recruiting corporate elites into regulatory state functions such as with the FDA and EPA. Moving from a national to a global perspective, Harvey also notes that the neoliberal state behaves competitively in global politics. Playing the nationalist card secures citizen cooperation in foreign afairs and facilitates re-election, which allows government to further promote neoliberal reforms at home. However, while nationalism helps the state to function as a coherent competitive entity in world markets, nationalism also gets in the way of neoliberalism’s call for global market freedoms. Powerful states (economically, politically, technologically, militarily) such as the USA, by defnition, have the scope to project international infuence. For example, the USA emerged from World War II as the most powerful state and, in cooperation with other Western powers, determined a new vision for the world. The Bretton Woods Conference and the Washington Consensus and the creation of the World Bank and the International Monetary Fund all essentially refect the USA’s neoliberal vision for peace and prosperity for humanity. Reforms started in the 1980s by US President Ronald Regan and British Prime Minister Margaret Thatcher provided signifcant impetus to the spread of Anglo-Saxon neoliberalism throughout the rest of the world.

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Global goals such as the Sustainable Development Goals and international organisations such as the United Nations Framework Convention on Climate Change (UNFCCC), the North Atlantic Treaty Organization (NATO), the World Health Organization (WHO), and others are multilateral organisations pursuing common goals for its members, and are funded by its members, proportional to their national income. A  powerful state can be expected to participate equally only as long as doing so serves its interests and to exert political pressure on the organisation on account of its superior contribution. The threat of such unilateral action destabilises multilateral attempts to prosecute global goals, so that ultimately the success of global goals such as the SDGs are subject to the interests of powerful states being appropriately aligned or benign.

Chapter insight questions Aspects of the neoliberal policy programme and associated actionable policy measures encourage or assume democratic freedoms, in terms of processes and institutions. The policy programme includes encouraging development of a third sector (non-proft civil society organisations), while actionable policy measures include civil rights policies and governance policies (source: Castree, N. (2011). Neoliberalism and the biophysical environment: A  synthesis and evaluation of the research. Environment and Society, Advances in Research, 1, 22). In several states, these freedoms are presently illegal or otherwise not allowed and are unlikely to change in the foreseeable future. 1 2 3

4

Examine this claim, drawing on examples of particular political regimes. Examine the ways in which China, as a totalitarian/authoritarian political regime, reworks the scope of neoliberalism, whereby economic pragmatism is combined with political control over all institutions. Evaluate Chile’s experience of neoliberalism, from the 1980s under the military dictatorship of Pinochet to the present where Calderon refers to Chile’s ‘post-neoliberal future’ (sources: (a) Víctor Orellana Calderón (2020) In Chile, the Post-Neoliberal Future Is Now, NACLA Report on the Americas, 52(1), 100–108; (b) Aljazeera News, ‘Counting the Cost of Neoliberalism in Chile: How the Doctrine of Neoliberalism Has Undermined Democracy in Chile. Plus, a Look at the Efects of Phantom Investments’, Aljazeera, 10 November  2019, www.aljazeera.com/ programmes/countingthecost/2019/11/counting-cost-neoliberalismchile-191109112653102.html). Identify a neoliberal-leaning state of your choice and examine its published attitudes and policies on either hunger or health and well-being, in relation to the UN SDG 2 (Zero Hunger: End hunger, achieve food security and improved nutrition, and promote sustainable agriculture); and SDG 3 (Health and Wellbeing: Ensure healthy lives and promote well-being for all at all ages).

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Notes 1 Klein, N. (2014). This changes everything: Capitalism vs. the climate (pp. 72–73). New York: Simon & Schuster. 2 Birch, K. (2015). Neoliberalism: The whys and wherefores.  .  . and future. Sociology Compass, 9(7), 571–584. Birch, K., & Mykhnenko, V. (2009). Varieties of neoliberalism? Restructuring in large industrially dependent regions across Western and Eastern Europe. Journal of economic geography, 9(3), 355–380. Piletic, A. (2019). Variegated neoliberalization and institutional hierarchies: Scalar recalibration and the entrenchment of neoliberalism in New York City and Johannesburg. Environment and Planning A: Economy and Space, 51(6), 1306–1325. Campbell, J. L. (1998). Institutional analysis and the role of ideas in political economy. Theory and society, 27(3), 377–409. 3 Mudge, S. L. (2008). What is neo-liberalism? Socio-Economic Review, 6(4), 703–731; Castree, N. (2010). Neoliberalism and the biophysical environment: A  synthesis and evaluation of the research. Environment and Society: Advances in Research, 1, 5–45. 4 Mudge, S. L. (2008). Op. cit.; Meyer, J. W.,  & Rowan, B. (1991). Institutionalized organizations: Formal structure as myth and ceremony. In W. P. Powell & P. J. DiMaggio (Eds.), The new institutionalism in organizational analysis (p. 41). Chicago, IL: University of Chicago Press. 5 Appleby, J. (1992). Liberalism and republicanism in the historical imagination. Cambridge, MA: Harvard University Press; Ward, C. (1993). Review of book Liberalism and republicanism in the historical imagination, by Joyce Appleby. Constitutional Commentary, 10(1), 258–266. 6 Hunt, E. K. (2016). Property and prophets: The evolution of economic institutions and ideologies: The evolution of economic institutions and ideologies (p. 50). London: Routledge. 7 Smith, A. (1904). An inquiry into the nature and causes of the wealth of nations. . . Edited, with an Introduction, notes, marginal summary and an enlarged index by E. Cannan. Library of Economics and Liberty. Retrieved from https://www.econlib.org/library/ Smith/smWN.html; Mirowski, P. (2013, June  19). The thirteen commandments of neoliberalism. The Utopian. Retrieved from www.the-utopian.org/post/53360513384/ the-thirteen-commandments-of-neoliberalism; Gaus, G. F.,  & Kukathas, C. (Eds.). (2004). Handbook of political theory. London: Sage. 8 Flew, T. (2014). Six theories of neoliberalism. Thesis Eleven, 122(1), 49–71; Bell, D. (2014). What is neoliberalism? Political Theory, 42(6), 682–715; Levine, P. (2017). Varieties of neoliberalism. A  Blog for Civic Renewal, posted July  19. Retrieved from http://peterlevine.ws/?p=18753; Konczal, M. (2017). ‘Neoliberalism’ isn’t an empty epithet: It’s a real, powerful set of ideas. VOX, updated December 20. Retrieved from www.vox.com/the-big-idea/2017/7/18/15992226/neoliberalism-chait-austeritydemocratic-party-sanders-clinton 9 Mirowski, P. (2013, June 19). Op. cit. 10 Connell, R. (2010). Understanding neoliberalism. In S. Braedley & M. Luxton (Eds.), Neoliberalism and everyday life (Ch. 2, p. 33). Montreal, Canada: McGill-Queens University Press. 11 Mudge, S. L. (2008). Op. cit., p. 704. 12 Castree, N. (2010). Op. cit.; Gordon, H. S. (1954). The economic theory of a commonproperty resource: The fshery. In Classic papers in natural resource economics (pp. 178–203). London: Palgrave Macmillan; Hardin, G. (1968b). Commons 13. Science, 162, 1243– 1248; Hardin, G. (1974). Living on a lifeboat. Bioscience, 24, 561–568; Pearce, D. (2002). An intellectual history of environmental economics. Annual Review of Energy and the Environment, 27(1), 57–81; Pearce, D. W. (1992). Economic valuation and the natural world (Vol. 988). Washington, DC: World Bank Publications; Barbier, E. B. (1999). Endogenous growth and natural resource scarcity. Environmental and Resource Economics, 14(1),

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51–74; Barbier, E. B., & Burgess, J. C. (2017). Natural resource economics, planetary boundaries and strong sustainability. Sustainability, 9(10), 1858. Robertson, M. M. (2004). The neoliberalization of ecosystem services: Wetland mitigation banking and problems in environmental governance. Geoforum, 35(3), 361–373; Bakker, K. (2005). Neoliberalizing nature? Market environmentalism in water supply in England and Wales. Annals of the Association of American Geographers, 95(3), 542–565; Birch, K., Levidow, L., & Papaioannou, T. (2010). Sustainable capital? The neoliberalization of nature and knowledge in the European ‘knowledge-based bio-economy’. Sustainability, 2(9), 2898–2918. Prudham, W. S. (2009). Commodifcation. In N. Castree, D. Demeritt, D. Liverman, & B. Rhoads (Eds.), A companion to environmental geography. Oxford: Wiley-Blackwell; Castree, N. (2003). Commodifying what nature? Progress in Human Geography, 27(3), 273–297; Polanyi, K. (1962 [1944]). The great transformation: The political and economic origins of our time (p. 72). Boston: Beacon Press. Castree, N. (2010). Op. cit., p. 11. Polanyi, K. (1962 [1944]) The great transformation: The political and economic origins of our time. Boston, MA: Beacon Press. Mudge, S. L. (2008). Op. cit.; Harvey, D. (2005). A brief history of neoliberalism. Oxford: Oxford University Press. Ibid., p. 706. Fourcade, M., & Healy, K. (2007). Moral views of market society. Annual Review of Sociology, 33, 285–311; Brown, W. (2003). Neo-liberalism and the end of liberal democracy. Theory and Event, 7, 40–42. The Chicago School: Chicago School of Economics, University of Chicago. Known for its belief that free markets best allocate resources in an economy, along with minimal government intervention. Mudge, S. L. (2008). Op. cit., p. 707. Here Mudge is drawing on Pierre Bourdieu’s sociology. For Bourdieu ‘felds’ refer to stratifcation and domination in social relations within a given arena. Fields are structured social spaces organized around particular combinations of capital (i.e. power and other resources). Here actors compete over control of valued capitals, and over what constitutes valued capitals: Swartz, D. L. (2016, April  28). Bourdieu’s concept of feld. Retrieved from www.oxfordbibliographies.com/ view/document/obo-9780199756384/obo-9780199756384-0164.xml Williamson, J. (2004). The Washington Consensus as policy prescription for development. Institute for International Economics, a lecture delivered at the World Bank on January 13, 2004; Williamson, J. (2000). What should the World Bank think about the Washington Consensus? The World Bank Research Observer, 15(2), 251–264. Mudge, S. L. (2008). Op. cit. Quinn, D. P., & Toyoda, A. M. (2007). Ideology and voter preferences as determinants of fnancial globalization. American Journal of Political Science, 51, 344–363; Steinberg, D. A., Nelson, S. C., & Nguyen, C. (2018). Does democracy promote capital account liberalization? Review of International Political Economy, 25(6), 854–883. Boix, C. (2000). Partisan governments, the international economy, and macroeconomic policies in advanced nations, 1960–93. World Politics, 53, 38–73; Fourcade-Gourinchas, M., & Babb, S. L. (2002). The rebirth of the liberal creed: Paths to neoliberalism in four countries. American Journal of Sociology, 108, 533–579. Castree, N. (2010). Op. cit. Mudge, S. L. (2008). Op. cit. Clarke, J. (2004). Dissolving the public realm? Journal of Social Policy, 33(1), 27–48. Castree, N. (2010). Op. cit. Ibid., p. 11. Long, E. V. (1968). Arbitrary administrative decisions: The need for clearer congressional and administrative policies. Nebraska Law Review, 47(3), Article 3, 459–468;

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32 33 34

35 36 37 38 39 40 41 42

43

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45 46 47 48 49 50 51 52 53 54

Vermeule, A. (2015). Rationally arbitrary decisions in administrative law. The Journal of Legal Studies, 44(52), S475–S507. Castree, N. (2010). Op. cit., pp. 31–32. Mansfeld, B. (2007). Property, markets, and dispossession: The Western Alaska community development quota as neoliberalism, social justice, both, and neither. Antipode, 39(3), 479–499. Freeden, M. (2000). Practising ideology and ideological practices. Political Studies, 48(2), 302–322; Warren, M. (1990). Ideology and the self. Theory and Society, 19(5), 599–634; Gerring, J. (1997). Ideology: A defnitional analysis. Political Research Quarterly, 50(4), 957–994; Nescolarde-Selva, J. A., Usó-Doménech, J. L., & Gash, H. (2017). What are ideological systems? Systems, 5(1), 21. McCarthy, J. (2004). Privatizing conditions of production: Trade agreements as neoliberal environmental governance. Geoforum, 35(3), 327–341. McCarthy, J. (2004). Op cit., p. 338. Ibid., p. 336. Castree, N. (2010). Op. cit., p. 32. Bakker, K. J. (2000). Privatizing water, producing scarcity: The Yorkshire drought of 1995. Economic Geography, 76(1), 4–27. Bakker, K. (2005). Op. cit. Castree, N. (2010). Op. cit., pp. 33–34. DEFRA. (2019, March 14). Water abstraction statistics: England, 2000 to 2017. London, UK: Department for Environment Food  & Rural Afairs (DEFRA). Retrieved September  23, 2020, from https://www.gov.uk/government/statistics/water-abstractionestimates Following the devolution of responsibility for regulating water abstraction licences in Wales, the water boundary with England created a break in the series from 2015, after which fgures for these two regions are not directly comparable with previous years. These changes increased the estimate for total abstraction of non-tidal surface water and groundwater in England by 2.1% and are not signifcant for examining the privatisation of water in England. DEFRA. (2019, March 14). Op. cit.; The Open University. (2016). Water in the UK. The Open University, OpenLearn. Retrieved from www.open.edu/openlearn/ science-maths-technology/science/environmental-science/water-the-uk/contentsection-2 Hassan, J. (1998). A history of water in modern England and Wales. Manchester: Manchester University Press. Hukka, J. J., & Katko, T. S. (2003). Water privatisation revisited: Panacea or pancake? (p. 40). Delft, the Netherlands: IRC International Water and Sanitation Centre. Lobina, E., & Hall, D. (2001). UK water privatisation – A briefng (p. 5). London: Public Services International Research Unit. Summerton, N. (1998). The British way in water. Water Policy, 1(1), 45–65. Hassan, J. (1998). Op. cit. Green, C. (2000). The lessons from the privatisation of the wastewater and water industry in England and Wales. In F. Holzwarth & R. A. Kraemer (Eds.), (2001) Umweltaspekte einer Privatisierung der Wasserwirtschaft in Deutschland. Berlin: ecoscript. Ibid., p. 9. Ibid. For example ‘Tapping into debate over water supply’, Hexam Courant, 31st July 2018, a newspaper serving Northumberland, England. Retrieved from www.hexham-courant. co.uk/news/16612931.tapping-debate-water-supply/ Hutton, W. (2018, January 9). We can undo privatization: And it won’t cost us a penny. The Guardian. Retrieved from www.theguardian.com/commentisfree/2018/jan/09/ nationalise-rail-gas-water-privately-owned

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55 The Social Market Foundation. (2018). The cost of nationalising the water industry in England. The Social Market Foundation (SMF). Retrieved from www.smf.co.uk/ publications/water-nationalisation/ 56 Hutton, W. (2018). Op. cit. 57 Bakker, K. (2005). Op. cit., p. 547. 58 Holzmeyer, C. (2009). Human rights in an era of neoliberal globalization: The Alien Tort Claims Act and Grassroots Mobilization in Doe v. Unocal. Law & Society Review, 43(2), 271–304, p. 278. 59 Freeman, M. (2014). Neoliberal policies and human rights. Colchester: Department of Government, University of Essex, United Kingdom. This is a revised version of two lectures given at Dokuz Eylul University Law School, Izmir, Turkey, under the auspices of the Raoul Wallenberg Institute, Istanbul, on 10 November 2014. 60 Azevedo, F., Jost, J. T., & Sterling, J. (2019). Neoliberal ideology and the justifcation of inequality in capitalist societies: Why social and economic dimensions of ideology are intertwined. Journal of Social Issues, 75(1), 49–88. 61 Carson, R. (1962). Silent spring. Boston, MA: Houghton Mifin. 62 Meadows, D. H., Meadows, D. L., Randers, J., & Behrens III, W. W. (1972). The limits to growth; a report for the club of Rome’s Project on the predicament of mankind. New York: Universe Books. 63 Broad, R., & Cavanagh, J. (1999). The death of the Washington Consensus? World Policy Journal, 16(3), 79–88. 64 Stiglitz, J. E. (2008). Is there a post-Washington Consensus consensus? The Washington Consensus Reconsidered: Towards a New Global Governance, 41–56; Reinert, E. S. (2004). Globalisation in the periphery as a Morgenthau Plan; The underdevelopment of Mongolia in the 1990’s: Why globalisation is one nation’s food and the other nation’s poison. In E. S. Reinert (Ed.), Globalization, economic development and inequality: An alternative perspective. Cheltenham, UK: Edward Elgar. 65 Williamson, J. (2004). Op. cit.; Williamson, J. (2000). Op. cit. 66 Grier, K. B., & Grier, R. M. (2020, September). The Washington Consensus works: Causal efects of reform, 1970–2015. Journal of Comparative Economics; Williamson, J. (2000). Op. cit. 67 Meadowcroft, J. (1999). Planning for sustainable development: What can be learnt from the critics. In M. Kenny & J. Meadowcroft (Eds.), Planning sustainability (pp. 12–38). London: Routledge. 68 Blomgren, A.-M. (1997). Nyliberal politisk flosof: En kritisk analys av Milton Friedman, Robert Nozick, och F. A. Hayek. Cited in D. Thorsen & A. Lie, (2006), What is neoliberalism? p. 12, unpublished manuscript. Retrieved from https://outlawjimmy.com/ wp-content/uploads/2016/12/What-Is-Neoliberalism.pdf 69 Solow, R. M. (1993). An almost practical step towards sustainability. Resources Policy, 16(3), 162–172; Hartwick, J. M. (1978). Substitution among exhaustible resources and intergenerational equity. The Review of Economic Studies, 45(2), 347–354. 70 IEA. (2020), World Energy Outlook 2020. Paris: International Energy Agency (IEA). Retrieved from https://www.iea.org/reports/world-energy-outlook-2020 71 Ibid. 72 Rayman-Bacchus, L., & Radavoi, C. N. (2019). Advancing culture’s role in sustainable development: Social change through cultural policy. International Journal of Cultural Policy, 26(5), 649–667; Manno, J. (2004). Political ideology and conficting environmental paradigms (Book review). Global Environmental Politics, 4(3), 155–159. 73 American Enterprise Institute for Public Policy Research (AEI) and Brookings Working Group on Poverty and Opportunity. (2015). Opportunity, responsibility and security: A  consensus plan for reducing poverty and restoring the American dream. Washington, DC: American Enterprise Institute for Public Policy Research and Brookings Institution. 74 Ibid., p. 12.

218 Creating social and public value 75 Holtz-Eakin, D. (2016). Reducing poverty the Republican way, Pathways Magazine, Stanford Centre on poverty and inequality. Palo Alto, CA: Stanford University. 76 Brundtland, G. H., Khalid, M., Agnelli, S., Al-Athel, S., & Chidzero, B. J. N. Y. (1987). Our common future (p. 8). New York: Oxford University Press. 77 Haque, M. (1999). The fate of sustainable development under neo-liberal regimes in developing countries. International Political Science Review, 20(2), 197–218; Tulloch, L., & Neilson, D. (2014). The neoliberalisation of sustainability. Citizenship, Social and Economics Education, 13(1), 26–38. 78 Stiglitz, J. E. (2019, May  30). After neoliberalism. Project Syndicate. Retrieved from www.project-syndicate.org/commentary/after-neoliberalism-progressive-capitalismby-joseph-e-stiglitz-2019-05?barrier=accesspaylog 79 Angebauer, N. (2020). Property and capital in the person: Lockean and neoliberal selfownership. Constellations, 27(1), 50–62. 80 Acemoglu, D., Johnson, S.,  & Robinson, J. A. (2005). Institutions as a fundamental cause of long-run growth. In P. Aghion & S. Durlauf (Eds.), Handbook of economic growth (Vol. 1 Part A, pp. 385–472). Amsterdam: Elsevier. 81 North, D. C., Wallis, J. J., & Weingast, B. R. (2009). Violence and the rise of openaccess orders. Journal of Democracy, 20(1), 55–68. 82 Rodrick, D. (2017, November  14). The fatal faw of neoliberalism: It’s bad economics. The Guardian. Retrieved from www.theguardian.com/news/2017/nov/14/ the-fatal-faw-of-neoliberalism-its-bad-economics 83 Monsanto was acquired by Bayer in 2018. Bayer no longer uses the name Monsanto because of its reputation, but Monsanto’s product brand names were maintained. In the 2018 Fortune 500, Monsanto was ranked 199th of the largest United States corporations by revenue. 84 Monsanto Company. (2010, April  14). Why does Monsanto sue farmers who save seeds? Archived 2010–06–29 at the Wayback Machine. Retrieved from https://web.archive. org/web/20100629143524/www.monsanto.com/monsanto_today/for_the_record/ monsanto_saved_seed_lawsuits.asp 85 The GM Crop Debate. (2020). The reunion. BBC Radio 4. Retrieved from www.bbc. co.uk/programmes/m000mbpp 86 Raco, M. (2005). Sustainable development, rolled-out neoliberalism and sustainable communities. Antipode, 37(2), 324–347. 87 Peschard, K., & Randeria, S. (2020). Taking Monsanto to court: Legal activism around intellectual property in Brazil and India. The Journal of Peasant Studies, 47(4), 812. 88 Ibid., p. 812. 89 Ibid. 90 Harvey, D. (2005). Op. cit.

10 The welfare state

Introduction This chapter seeks to shed light on the welfare state in terms of what it stands for and to help make sense of how it infuences the twists and turns of strategic and policy choices being made by governments, business, and other societal stakeholders. Some of these strategic choices are being made in the name of, and others regardless of, the global goal of sustainable development, that is, of living a good (i.e. sustainable) life. The welfare state refers to a discernible form of social and economic administration within government but also refects a particular type of politics or ideology. The two are analytically diferent and yet interlinked. Historically the welfare state has coexisted with difering types of political regime, from the 19th-century conservative regime of Bismarck’s Imperial Germany and his welfare programme of practical Christianity to 20th-century regimes of all shades. The welfare state has become an established fact in all advanced industrial economies, including the Scandinavian social democracies and liberal democracies such as the USA and UK, and is in development in newly emerging economies, resource-rich rentier states such as Saudi Arabia’s totalitarian absolute Islamist monarchy,1 even as regimes shift ideologically, such as the People’s Republic of China’s embrace of capitalism. The welfare state emerged during the early 20th century to become one of the ‘great structural uniformities of modern society’.2 Like other successful technologies, welfare state programmes quickly difused among developed economies, becoming established within a few decades.3 The welfare state introduced a new administrative rationality, with attendant social and economic strategies and administrative policies for governing society, including the socialisation of citizens to participate in this rationality – a process of governance French philosopher Michel Foucault referred to as governmentality.4 Closely allied with Keynesian economic theory – wherein the state is expected to intervene in the functioning of the economy, to increase aggregate demand and stimulate growth – the welfare state provides comprehensive social protection for the collective, involving compulsory citizen participation, its purpose being to insure against social and economic risk, maintain policies that

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minimise cycles of unemployment, promote saving and investment, control credit, control population growth, and introduce policies to improve the quality of that population as productive citizens.5 From around the last two decades of the 20th century the management of environmental risk – reversing or mitigating humanity’s degradation of the planet’s ecosystems – has increasingly become an integral feature of both corporate strategy and government policy. Environmentalism and numerous United Nations conferences during this period have helped put these concerns on both corporate and policy agendas. Environmentalism is a philosophical, political, and ethical movement with a long history that seeks to protect, and restore where necessary, the natural environment from harmful human activity, recognising that an unhealthy ecology is also harmful to human health and societies. Thus there is recognition of a need to develop relations between human societies and the ecological world (of which we are part and on which we depend) that is sustainable. In pursuit of sustainability, environmentalism seeks changes in public policy and in individual behaviour. Welfare policies are delivered through designated state ministries (some of which may be quasi-government bodies), in cooperation with a network of non-governmental organisations and in parallel with charitable institutions. As a bureaucracy the state might not be the most cost-efective agent for delivering services to its citizens, but it is the only institution potentially able to focus on the care of all citizens without being distracted by another potentially contradictory agenda, such as the need to generate proft. Running a welfare state is complex, challenging, and expensive, but it is equally challenging and probably more expensive to administer the afairs of a nation where large sections of the population struggle to feed and clothe families, have equitable access to education and care from childhood to old age, and are able to pursue individual goals that beneft both them as individuals and the nation state as a collective. The welfare state engages several challenges in the provision of services. These include determining the necessary level of services, ensuring that contributions required from individuals and benefts paid to those in need are appropriate, while also ofering sufcient incentives for citizens to seek productive work, whether as employees or entrepreneurs. Since the welfare state is a bureaucracy, and to the extent that it holds a monopoly in providing services to citizens, two further administrative challenges exist. The frst is ensuring the efcient and efective operation of that state bureaucracy, and the second is securing an equitable level of resources in order to fnance welfare services beyond the direct contributions of citizens and benefciaries. Changing social and economic conditions in Europe and North America throughout the 19th century (rapid industrialisation, revolutions and wars, nation-state building) opened up political debate and division about the importance and nature of individual liberty and the role of the state. Classical liberalism asserts that individuals are free when free from oppression (negative freedom). For example in contemporary times, this includes laws against discrimination and the protection of human rights. Modern or social liberalism

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holds that for society to be equal, everyone must have equal opportunity to work and live a fulflling and meaningful life (positive freedom) (Beverage Report, Social Insurance and Allied Services, 1942).6 On the role of the state, classical liberalism supports minimal state regulation, in both social and economic life (laissez-faire economies), and it should therefore be limited to that of a night watchman (ensuring legal contracts are upheld and the market runs smoothly). They believe more state intervention carries the prospect of increasing negative freedom on individuals, and that increasing state power corrupts (Lord Acton’s ‘power.  .  . corrupts, and absolute power corrupts absolutely’, 1956).7 In contrast, modern liberals argue the state must intervene in society in order to enable citizens to achieve their potential, refected in the work of John Rawls (A Theory of Justice, 1971)8 and infuential British economist Maynard Keynes. Modern liberalism – in contrast with classical liberalism – sees society as more than the sum of its citizens; people are both independent and interdependent. The state should be enabling and not simply a night watchman. Modern liberalism endorses an expansion of the scope and scale of social justice, of civil and political rights, and a regulated market economy. Besides being marketoriented and based in individual rights, argues Paul Spiker, a liberal welfare state is also ‘pluralistic’ and ‘localised’.9 Pluralism signals that liberalism values diversity and difering patterns of public services delivery (including publicprivate partnerships). Localism acknowledges that concerns about liberties, and the opportunity for individual participation in democratic processes, vary within any liberal regime hierarchy. The desire for self-determination raises questions about whether the locus of decision should be with the individual, the family, the local community, the nation state, or beyond (e.g. regionalism). In many continental European states, democratic authority is highly devolved (e.g. Belgium, Switzerland), while the UK is said to be highly centralised.10 Where the locus of decision is the state, the scope for self-determination varies with the level of public participation and how well government operates.11 As Chapter 9 highlights, neoliberalism recognises a role for the state, but sees that role as enabling open markets and free enterprise, seen as more reliable than the state in securing individual liberty and prosperity. This chapter presents the fundamental features of the modern welfare state, as ‘a historically-emergent social fact’, highlighting that it is integral to the functioning of advanced industrialised nations (Garland, 2014; 330).12 It explains its distinctive role in providing social insurance, social security, and other social services, including its part in shaping the economy. We focus on the modern form of the welfare state, and alongside Chapter 9, locate the welfare state as an essential institution of modern capitalist societies. The notion of a welfare state implies that the state alone develops and provides social policy. However, in reading this chapter it should become apparent that corporate societal stakeholders (business, along with other entities) are critical contributors to the achievement of a welfare state, in setting international standards (e.g. the International Labour Organisation), businesses in meeting or exceeding

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welfare policy, and businesses and numerous civil society organisations (e.g. social audit and environmental audit organisations) in furthering welfare good practices throughout international supply chains. The chapter provides the characteristics of the welfare state as a whole, noting variation of welfare states, but does not go into the specifcs of welfare state programmes or regimes, except for illustrative purposes. The chapter also discusses the place of social justice as a feature of the welfare state, and how the everyday understanding of fairness among the citizenry is refected in particular types of welfare state. This leads to a broader discussion on the relationship between neoliberalism and the welfare state, and in particular the issue of inequality. The chapter then introduces the developing debate around the need for the welfare state to include environmental policy development alongside social policy work, as integral to governance of the economy. The chapter fnishes by exploring the future of the welfare state, in particular as provider of social investment and a bridge between the welfare state and the neoliberal state.

What is the welfare state? Sociologist T. H. Marshall describes the modern welfare state as a distinctive combination of democracy, welfare, and capitalism. He sees the development of the Western welfare state as an obligation of the state to its citizenry, for introducing social citizenship, encompassing the rights to both material resources and social services. These social rights complement and reinforce the civil and political rights that had been won in Western Europe and North America in the 18th and 19th centuries.13 The modern welfare state denotes a concept of government in which the state plays a signifcant role in furthering the economic and social well-being of its citizens, promoting equality of opportunity, and funding support for those unable to secure for themselves the minimal requirements for a good life. Partly as a consequence of becoming mature industrial economies,14 but also as a response to well-documented economic crises and two World Wars during the 20th century, developed economies – regardless of neoliberal leanings – have sought to provide some measure of social insurance or social security for their citizenry. The provision of social protection is recognised as a human right and as necessary for achieving the Sustainable Development Goals, yet to date only 45% of the global population are covered by at least one social protection measure, and only 29% are protected by a comprehensive social security system (Figure 10.1).15 Broadly, the welfare state provides for citizens and legal residents protection under several institutions, grouped into the following six categories. The frst two institutions are the most familiar, that is, welfare programmes that provide some level of income security through one of two cash transfer mechanisms, social insurance and social assistance: 1

Social insurance: (e.g. National Insurance in the United Kingdom and Social Security in the United States) provides income in a range of circumstances, including retirement, illness, pregnancy, unemployment, and work-related injuries. These are funded by contributions from the individual and their employer, which may be compulsory, voluntary, or some combination and

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45.2

Population covered by at least one social protection benefit Children Mothers with newborns Persons with severe disabilities Unemployed Older persons Vulnerable persons covered by social assistance

34.9 41.1 37.8 21.8 67.9 24.7

Population covered by at least one social protection benefit Children Mothers with newborns Persons with severe disabilities Unemployed Older persons Vulnerable persons covered by social assistance

17.8 15.9 15.8 Not available 5.6 29.6 9.5

Population covered by at least one social protection benefit Children Mothers with newborns Persons with severe disabilities Unemployed Older persons Vulnerable persons covered by social assistance

27.6 66.2 68.6 72.9 16.7 86.2 38.7

Population covered by at least one social protection benefit Children Mothers with newborns Persons with severe disabilities Unemployed Older persons Vulnerable persons covered by social assistance

38.9 Not available 33.4 9.4 22.5 55.2 16.4

Population covered by at least one social protection benefit Children Mothers with newborns Persons with severe disabilities Unemployed Older persons Vulnerable persons covered by social assistance

84.1 87.5 81.4 86.7 42.5 95.2 66.7

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100

%

Note: Population covered by at least one social protection benefit (effective coverage): Proportion of the total population receiving at least one contributory or non-contributory cash benefit, or actively contributing to at least one social security scheme. Children: Ratio of children/households receiving child/family cash benefits to the total number of children/households with children. Mothers with newborns: Ratio of women receiving maternity cash benefits to women giving birth in the same year. Persons with severe disabilities: Ratio of persons receiving disability cash benefits to the number of persons with severe disabilities. Unemployed: Ratio of recipients of unemployment cash benefits to the number of unemployed persons. Older person: Ratio of persons above statutory retirement age receiving an old-age pension to the number of persons above statutory retirement age (including contributory and non-contributory). Vulnerable persons covered by social assistance: Ratio of social assistance recipients to the total number of vulnerable persons (defined as all children plus adults not covered by contributory benefits and persons above retirement age not receiving contributory benefits (pensions).

Figure 10.1 SDG indicator 1.3.1: Efective social protection coverage, global and regional estimates by population group (percentage) Source: International Labour Organization (ILO), World Social Protection Report, 2017–2019: Universal social protection to achieve the Sustainable Development Goals. International Labour Organisation.

2

are administered by the state or private insurance companies and pension funds. Somewhat problematic is that for most nations, retiree pensions are funded by those currently in work. This is recognised to be unsustainable in the long term because of demographic change (ageing population and falling birth rates in developed economies). Social assistance: for childcare and parenting, maternity grants, payments to war victims and their survivors, and fnancial aid to those aficted by disability or pressing needs. These payments are fnanced by taxation and administered by the state. Welfare payments may serve wider policy goals, such as poverty alleviation programmes, and with an eye on long-term demographic change, the state may increase/decrease childcare and parenting payments as an incentive/disincentive for families to have more children. While social insurance and social assistance may be described as the public face of the welfare state, less acknowledged is that the state further provides

224 Creating social and public value

3

4

5

6

public services, employment rights, personal social services, and governance of the economy.16 Public services: considered by voters and policy makers as essential to equality of opportunity and social justice, including healthcare and social care. Most developed states provide some level of free primary and secondary education, vocational training, public housing, public transport, and legal aid. Towns and cities are expected to provide libraries, museums (access may involve fee payment), and sports and recreational facilities. The scope of these tax-funded public services and facilities varies with nations, where some provide these as citizen entitlements, while other (market-oriented) nations charge a fee for access. Employment rights: as with public services, tax funded and provided as socioeconomic entitlements, including minimum wage, right to collective pay bargaining, paid holidays, maternity and paternity leave, employment protection, transparent workplace procedures for dismissal and promotion, right to form or join a union, and right to strike.17 Personal social services: tax funded and wide ranging, and include social care for the elderly, the disabled, and mentally ill; social work and children’s services; and prison service and probation services (a statutory criminal justice service). Personal social services are distinctive in providing not only care (in common with the frst four services) but also control and discipline, for example as a response to perceived dysfunctional social behaviour or criminal activity.18 Governance of the economy: perhaps less obvious is that economic governance forms part of the welfare state – even as neoliberalism prevails – as governments attempt to manage income and expenses in order to balance budgets. Garland’s reading of Donzelot’s treatise The Policing of Families provides some sense of the interdependence between managing welfare and managing the economy in noting, ‘the welfare state regulates and secures the family just as much as it regulates and secures the market’.19

The aforementioned welfare state institutions exist alongside, and interact with, wider governance of the economy. These interdependencies are manifest across the spectrum of governmental economic policy, from Keynesian demand-side to neoliberal supply-side policies (fscal and monetary policies), government spending and taxation policies, labour law, environmental policies, market behaviour policies (e.g. competition policy, market failure), industry subsidies, agreements with unions and professional occupations (e.g. on working conditions, compensation, investment), economic activity stimulation, employment, and infation control. Welfare states employ progressive personal taxation regimes in order to achieve some proportioning of both wealth distribution and the tax burden, and to help fnance social insurance and social assistance programmes. Nevertheless, it is widely recognised that cash transfers tend to fall considerably

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short of the levels needed for income security. In addition, as Howard, Garland,21 and others (e.g. Kristof )22 observe, there is a hidden welfare state, whereby accommodative regulatory and tax regimes and corporate welfare schemes channel benefts, including mortgage interest tax relief, generous retirement benefts, executive performance payments, healthcare, living allowances, and other tax-exempt compensations. These schemes are hidden from the public gaze but should be included in any debate about the welfare state. At the same time, the notion of a welfare state or the term welfare is also used as a criticism of the state, seen as providing incentives to unemployed persons to not seek employment, or as interfering in the lives of citizens, perhaps to the extent of undermining free choice in various spheres, such as education and healthcare. The amount governments around the world spend on welfare varies signifcantly. For example among OECD countries, in 2018 France spent the most at 31.2% of GDP on welfare, while Mexico at the other extreme spent 7.5%, and the USA spent less than the OECD average and Finland signifcantly more than most (Figure 10.2). Social expenditure comprises cash benefts, direct in-kind provision of goods and services, and tax breaks with social purposes. Benefts may be targeted at low-income households, the elderly, disabled, sick, unemployed, or young persons. To be considered ‘social’, programmes have to involve either redistribution of resources across households or compulsory participation. Social benefts are classifed as public when general government (that is, central, state, and local governments, including social security funds) controls the relevant fnancial fows. All social benefts not provided by general government are 20

30

28.7

25

20

20.1 18.7

15

10

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M ex ic o ch il Ko e re Tu a rk e Ire y la Ic nd Sw ela itz nd er la nd Is r Li ael th ua n N L ia Sl eth atv ov e ia ak rla n R ds ep ub C lic an Au ada st ra l U Es ia n to C ited nia ze S ch ta t N Rep es ew u Ze blic al H and O ung U EC ar ni te D-T y d Ki ota ng l do Po m la Sl nd ov en i Lu Ja a xe pa m n bo Po urg rtu g G al re ec e Sp N ain or G wa er y m a Sw ny ed en Au st ria D Italy en m a Fi rk nl a Be nd lg iu Fr m an ce

0

Figure 10.2 Social spending as a percentage of GDP among OECD countries in 2018 Source: OECD, 2020, Social spending (indicator). doi: 10.1787/7497563b-en.

226 Creating social and public value

Gross public social expenditure

Gross mandatory private

Gross voluntary private

Net tax effect

Net total social expenditure (˜)

40 35 30 25 20 15 10 5 0 -5 -10

Figure 10.3 From gross public to total net social spending, as a percentage of GDP at market prices, 2015 Source: OECD Social Expenditure Update 2019: Public social spending is high in many OECD countries, January, www.oecd.org/social/expenditure.htm

considered private. Private transfers between households are not considered ‘social’ and not included here. Net total social expenditure includes both public and private expenditure. It also accounts for the efect of the tax system by direct and indirect taxation and by tax breaks for social purposes. This indicator is measured as a percentage of GDP or USD per capita. Social spending is higher among the richer OECD countries. In 2018 the top fve economies (in ascending order: Italy, Denmark, Finland, Belgium, France) spent from 27.9% to 31.2%, which is signifcantly more than the OECD average of 20.1% (Figure 10.2). The height of the bars in Figure 10.3 indicates the net level of social spending when constituent elements of spending are taken into account: public, mandatory private, voluntary, and the efect of tax reliefs. This total net social spending provides a more accurate picture of national social spending. The USA is commonly criticised as providing inadequate welfare support compared with similarly well-developed or rich economies.23 Indeed, Leibfried and Mau question whether the USA, being a major welfare ‘laggard’, even qualifes as a welfare state.24 Yet OECD data suggests US gross spending to be 18.7% of GDP, which is close to the OECD average of 20.1% (Figure 10.2). Further, net spending shows USA moves up to second place (Figure  10.3). However, high levels of spending does not necessarily mean equal outcomes. The USA and Finland might be seen as ideologically poles apart, with the former clearly neoliberal in outlook (even libertarian among some constituencies in parts of the country) and the latter a social democracy. This means that in principle US citizens prefer minimal government intervention in their lives, while in Finland (and the Nordic states in general) citizens expect the state to play a signifcant role in social welfare. Their ideological diferences help explain the USA’s relatively large elements of mandatory private and voluntary contributions in social spending.

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Social Security Programmes

United States of America The US federal government administers approximately 80 means-tested programmes; these exclude programmes to which people contribute (e.g. Social Security and Medicare). The programmes provide cash assistance, help with buying food, medical assistance, housing, education, energy and utilities, child care and development, community development, and various support services (legal, vouchers, grants, and others). The 1996 Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) introduced major reforms to social welfare provision, replacing the Aid to Families with Dependent Children (AFDC) programme with the Temporary Assistance for Needy Families (TANF) programme. The change in language, from ‘aid’ to ‘temporary assistance’, is informative. In TANF there is a social contract between government and citizenry, such that welfare recipients are expected to be seeking work, with a fve-year time limit on welfare benefts and other restrictions introduced as part of the reform. The Republican Party, led by Newt Gingrich, pressured President Bill Clinton (Democrat) into agreeing to the reforms.25 The impact of the act has been a reduction in welfare claims and associated federal budget savings. Claims for social welfare are handled by social caseworkers. The caseworker’s relationship with the client is important, such that caseworker evaluation of client welfare needs include assessment of the personal characteristics of the recipient, especially moral weaknesses, which could be used as grounds for denying assistance. Premilla Nadasen found that casework fosters a paternalistic and demeaning relationship between social workers and clients.26

Finland In common with the other Nordic countries, Finland is a social democracy, that is, a market-oriented democracy, but one that prescribes a substantial welfare role for the state. The Nordic states operate welfare systems generally regarded as more comprehensive than other regions of the world, providing free education, free healthcare, a high degree of gender equality, and guaranteed pensions. Finnish citizens choose to pay high taxes so that all may experience a similar level of security. Finland’s companies are managed by entrepreneurial citizens, in which workforce participation in decision making is high. The citizenry trusts their government because the government is led by citizens concerned with maintaining a high level of social security accessible by everyone.27

228 Creating social and public value

The Finnish National Institute for Health and Welfare (THL) (2010) presents the Finnish social protection system as being congruent with the model of Nordic welfare state: • • • • •

the principle of universality, including the right to a basic level of social protection regardless of where a person lives in the country or his or her profession or economic position; earnings-related benefts for employed persons; a strong public sector; a system based on tax funding and contributions; and equal treatment.

In the Finnish understanding of social welfare, healthcare is seen as being embedded in the welfare model.28 Its social programmes are divided into those that guarantee income security and those that provide social and health services. Income security programmes come in two categories: 1

2

social insurance, which provides income despite old age, illness, pregnancy, unemployment, or work-related injuries; earnings based; fnanced by contributions to private insurance companies and pension funds and administered by the Finnish Centre for Pensions. income security classifed as welfare, which consists of income transfers to aid families through measures such as child payments, maternity grants, payments to war victims and their survivors, and fnancial aid to those aficted by disability or pressing needs. It is residency based, fnanced by tax, and administered by KELA, the Social Insurance Institution of Finland.

Programmes of the frst category, income security guarantees, take some 80% of the funds expended for social welfare.

Varieties of welfare state The welfare state has no single essential character, as individual nations adopt particular policies based on history, traditions, and prevailing economic conditions. While the state has the power to formulate and implement particular welfare programmes, with varying degrees of success, its ability and capacity to govern the economy is uncertain, with too many variables beyond control. Following Karl Polanyi, the fctitious commodity value of labour is decommodifed or insulated from market pressures by welfare state entitlements.29 That is, insofar as the state provides a welfare programme, including unemployment protection, medical care and healthcare, and income security in retirement,

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and supports other entitlements, and insofar as these entitlements are in some sense universal, citizens and legal residents enjoy a degree of immunity from market dependency. However, to the extent that a nation’s political-economic doctrine is neoliberal, labour is never totally decommodifed. This gives rise to the possibility that there might exist difering types of modern developed capitalist welfare states. Drawing on the elastic nature of decommodifcation, Gøsta EspingAndersen developed a decommodifcation index comprising characteristics of three major social insurance programmes: pensions, unemployment, and sick pay. His framework highlights international variations in social rights and stratifcation, based on difering arrangements between state, market, and family, though his categorisation focuses rather narrowly on the European and AngloSaxon states, omitting the rest of the world.30 His insights identify three regimes (Figure  10.4): social democratic providing a high level of decommodifcation (such as the Nordic countries), conservative (Northern European countries), and liberal (USA, UK) and those in which labour is much more dependent on the market (such as the United States). Jørgen Andersen observes that welfare states difer according to level of expenditure and institutional arrangements, and that difering principles of solidarity determine eligibility for welfare support.31 Identifying the three types of welfare state with particular political regimes (as Esping-Andersen seems to have done) is problematical since the agendas of political regimes are apt to vary over time, between conservatism and liberalism, and/or between authoritarianism and libertarianism. Instead, Andersen Mandatory social insurance Financed by social contribu˜ons Typically for employed manual workers

Gradually extended to all social groups in the labour market

Support for the poor Typically tax fnanced For all ci˜zens, according to need

Gradually extended to all ci˜zens

Targets the poor Means-tested

Corpora˜st model

Universal model

Residual model

(conserva˜ve model; Bismarck-model; Social insurance model; Performance-achievement model)

(social democra˜c model; ins˜tu˜onal model)

(liberal model)

”People’s insurance” Redistribu˜on from everybody to everybody High taxes

”Protec˜on against poverty” Means-tested support Low taxes

Rights based on contribu˜on

Rights based on ci˜zenship

Rights based on need

Benefts according to contribu˜ons

Equality as ci˜zens

Safety net for the poor

Security according to social status

Figure 10.4 Three welfare state regimes32 Source: adapted from Andersen, J. G., 2012

230 Creating social and public value

proposes the categorical titles corporatist, universal, and residual, these refecting the principles of solidarity underpinning each regime, in particular the basis for deciding who is entitled and the level of entitlement (Figure 10.4). In essence, depending on the welfare state regime, citizen rights of access depend on either citizenship alone (universal), level of individual fnancial contribution (corporatist), or need (residual). Comparatively newly advanced industrialising economies such as the BRICS countries (Brazil, Russia, India, China, and South Africa) have developed, or are developing, some form of welfare state, while least developed countries (LDCs) continue to develop a variety of approaches. For example, Rudra’s study shows some LDCs developing a productive welfare state, others developing a protective welfare state, and some both, depending on the extent to which they encourage open market development and seek to protect labour from market risks.33 The three welfare state models are not mutually exclusive, which means that comparable levels of protection exist for citizens among advanced industrial economies, such as OECD member states. First, there exist myriad national laws and international treaties and conventions designed to protect human rights. For example, the United Nations Guiding Principles on Business and Human Rights, developed by John Ruggie, comprises 31 principles whereby governments must protect, business must respect, and courts must exist in order to remedy any wrongs. Second, the reach of neoliberal ideas about open markets is global, and by extension so is policy among international companies. This means that employment policies and practices in both OECD member states and non-member states, up and down international supply chains, is relatively uniform, depending on industry norms. Third, Article 3 of the United Nations Right to Development and Article 25.1 of the Universal Declaration of Human Rights provide Everyone has the right to a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing and medical and necessary social services, and the rights to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. (UN, 1948: 9) However, while in principle welfare state protections envisioned by the United Nations are universal, states may not have the resources or competences necessary to honour these requirements or be willing or able to extend protection to displaced persons, whether development induced or through cross-border migration (applicable to political and economic migration).34 As noted, welfare state provision is not uniform among developed economies. In its most comprehensive form, the welfare state provides social assistance for the individual in almost all phases of life – ‘from the cradle to the

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grave’ – such as in the Netherlands and the social democratic governments of the Scandinavian countries. Here, welfare provision is more comprehensive than in other European countries, which in turn tend to be more universal than in the United States.

Social justice There are competing theories of social justice, that is, about what constitutes rights and liberties, including Rawls’s justice as fairness, Nozick’s entitlements, and Sen’s capabilities approach. For Rawls, ‘each person [should] have equal right to. . . basic liberties’ and ‘social and economic inequalities [should] . . . be arranged to everyone’s advantage, and attached to positions and ofces open to all’. For Nozick, no one has a right to demand the earned holdings and entitlements of others. Sen’s focus is on overcoming societal barriers to fundamental entitlements and achieving individual well-being; the disadvantaged too readily accepting their situation and exercising adaptive preferences.35 While ideologically poles apart – Rawls’s position being consistent with liberalism, and Nozick’s libertarian position – both are concerned with the allocation of resources and the distribution of outcomes. Sen, in contrast, observes that individual liberty easily clashes with societal (collective) preferences, which easily leads to illiberalism. Others are critical of the whole notion of social justice, fnding it contradictory and potentially contrary to liberty;36 an illegitimate claim of entitlement [O’Neill];37 lacking precision, and a device to legitimise the exercise of power and legal coercion.38 These competing perspectives not only expose arguments about whether notions of liberty and equality harbour inconsistencies,39 but also the ongoing debate about the paradox of individual liberty and societal (collective) preferences leading to illiberalism.40 Still, social justice remains an important idea, under which, citizens and legal residents can rely on access to health, well-being, justice, and opportunity, regardless of their legal, political, economic, or other circumstances. To gain further insight into the nature and variety of the welfare state, we explore the moral principles underpinning decisions about who is entitled to what, and on what basis. The principles of social stratifcation, subsidiarity, and solidarity help delineate the nature of this entitlement. Plurality of principles

Contrary to any single unifying theory of social justice, such as proposed by Rawls, Nozick, and Sen, the existence of alternative welfare state regimes, partly oppositional and partly overlapping (Figure  10.4), invites discussion about the nature of social justice. Miller proposes a pluralist understanding, that there is no single assessment of justice, arguing that what counts as a fair distribution of benefts and burdens within society varies with the attitudes, moral principles, and assumptions of its citizenry.41 For Miller, modern liberal

232 Creating social and public value

societies can be characterised in terms of three diferent types of relationships, each generating a particular principle of justice: 1 2

3

a solidaristic community (where people identify themselves as holding a shared culture or belief ) gives rise to the principle of justice based on a distribution according to need; instrumental associations (where people are acting together with a common purpose but each for their own beneft and not necessarily sharing a common identity or ‘conception of the common good’), live by the principle of justice where distribution (of benefts and burdens) is according to contribution (what he calls ‘dessert’ after ‘just desserts’); a citizenship society (where people are related through political and legal structures), gives rise to the distribution of benefts and burdens based on equality.

These arguments highlight that the state’s capacity to provide for the wellbeing of community members is bound up with everyday perceptions and varying forms of fair and just relations between the individual and society. Further, this implies that operationalising the provision of social justice in particular welfare state regimes involves the use of difering eligibility criteria for deciding who should receive support, on what basis, and the level of entitlements (how much). Social stratifcation and solidarity

While the provision and protection of social justice can be seen as a core aim of the welfare state, as Esping-Andersen argues, the character of this social justice depends on social stratifcation and its construction of solidarity.42 The welfare state does not simply correct the structure of inequality, but also actively and directly orders social relations. It is a system of stratifcation. The means-testing model (Anglo-Saxon states) promotes hierarchy within the working class, stigmatising those seeking social assistance. The corporatist model (Germany, Austria, France, Italy) reinforces divisions among wage earners, legislating particular social insurance programmes for diferent status groups, with their differing rights and privileges. In both models, labour is seen as suspicious of a hostile state, providing the basis of class mobilisation, and of solidarity and justice, provided by self-organised friendly societies, unions, or party-sponsored welfare plans. The universal model (Nordic countries) promotes equality of status where all citizens enjoy similar rights, irrespective of class or market position. This model seeks to promote cross-class solidarity (between labour and capital, and across difering professional classes), and thereby national solidarity. Taylor-Gooby et  al. examined people’s ideas about welfare state priorities and future prospects, employing a moral economy theoretical framework.43 While acknowledging that self-interest does shape attitudes to the welfare state (who gets what, and under what circumstances), the research team examined

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the extent to which moral concerns motivate individual actions and preferences. Employing a novel method, they organised separate democratic forums in three diferent welfare states – Germany, Norway, and UK – where a crosssection of citizens (approximately 36 individuals in each case) were brought together to discuss what they see as the major challenges for the future of their welfare state. The choice of states represented Esping-Andersen’s welfare regimes (universal, corporatist, residual). They analysed tens of hours of material from these events, searching for Miller’s underlying principles (of need, dessert, and equality), for evidence of self-interest and for evidence of any consistency between the ideal types of Esping-Andersen and Miller. Across the three forums they found meaningful variation in attitudes, perceived priorities, and moral sentiment about their economy, consistent with the three ideal regime types. As to be expected, the research team also found evidence of these countries departing from the three archetypical categories, including evidence of the infuence of neoliberalism. In this they found that across the three nations, neoliberal values of individual responsibility, and concerns about rising inequality, were endorsed the more by the neoliberal-leaning UK forum. Subsidiarity and solidarity

Individuals are born into communities comprising overlapping social networks and reciprocal obligations. Insofar as the community as a whole body carries social meaning and cultural value for its members, then all members of that community share an obligation to protect the common good, which means looking after each other. The principle of subsidiarity prioritises individual liberty and the protection of personal independence. Intervention by the state into local afairs – political, social, economic – is subsidiary to individual and familial social obligations; individuals’ frst obligations are to familial ties and local communities, so individuals do not live as isolated entities.44 Nevertheless, in the frst place individuals are responsible for their own care and wellbeing, and only if they are unable to take care of themselves should they seek help from their families and then, if necessary, to their community, local governments, and eventually the state.45 Under this principle, state intervention should be executed at the appropriate level: too much support leads to dependency, while too little support fails both the individual and the common good.46 Subsidiarity and the residual model of welfare see in common a limited role for state intervention, favouring private markets. Subsidiarity further implies that services, welfare and otherwise, should not be the preserve of one allembracing state body. Rather (welfare) services should be provided at multiple scales (from local to national), varying in constitution according to their function, and include non-state or private agencies where these are better able than public bodies to provide services directly. There are some parallels between Esping-Andersen’s welfare state models and the two moral principles of subsidiarity and solidarity. Whereas institutional welfare accepts human need as a normal part of social life, in contrast

234 Creating social and public value

residual welfare extends a safety net for people seeking support. There is also a tension between subsidiarity and solidarity, the latter highlighting the need for collective provision and the former restricting the scope of provision. Similar to social stratifcation and solidarity in the welfare state models, subsidiarity structures solidarity hierarchically. The primary level of solidarity, that of mutual responsibility, is the family, with diminishing responsibilities to more remote communities, such as the state and the international community.

Insight 10.2 Universal Basic Income Schemes: USA and Finland A universal basic income (UBI) is an unconditional income that is suffcient to meet the basic needs of an individual, and especially sufcient to lift a person or family above the poverty line. Around the world, from Europe to North and South America, Africa and Middle East, Asia, and Oceania, numerous basic income schemes are being proposed, are in development, or have been introduced and evaluated. These schemes vary in scale and scope, from national to local, and from comprehensive to partial. They are set against a worry that providing benefts universally and without strict eligibility criteria encourages dependency on benefts, undermining individual work ethic and the desire to seek employment. UBI experiments in the USA and Finland provide contrasting insights to employment, both economic and behavioural.

United States of America Americans are divided about the desirability of universal welfare, such as UBI schemes. In ‘From Unthinkable to Universal’ published in 2020, The Economist noted that a recent Stanford study found 88% of liberals (Democrats) and 45% of conservatives (Republicans) to be in favour.47 Objectors fnd the idea smacks of socialism and anathema to American ideals of liberty built on self-sufciency and personal responsibility. Nevertheless, Mr Yang, a US Democratic presidential nomination candidate in 2020, proposed a scheme whereby every American adult would receive $1,000 per month, no matter what their fnancial circumstances. Mayors of around a dozen USA cities got together and launched Mayors for a Guaranteed Income, in order to experiment with UBI schemes. In an 18-month initiative that began February 2019, Stockton, California, gave $500 to 125 randomly selected people, which is being extended by six months to help them cope with the economic impacts of COVID19. In Jackson, Mississippi, the Magnolia Mothers’ Trust is giving poor African American mothers cash payments of $1,000 per month for a year. Approximately one third of residents of Newark, New Jersey, live in

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poverty, with some 60% of them carrying debts they are unable to service. The mayor (of Newark) is planning to introduce a pilot scheme, but says that introducing an efective UBI scheme requires federal funding. The impact of UBI schemes is difcult to evaluate. Moreover, they are not universal in the sense that they are ad hoc cash payments to poor Americans, and the payments are not enough to live on. These experiments are funded through philanthropy, such as the $5 million donated from Twitter to Mr Yang’s organisation. Compared with funding through taxation, funding that relies on charitable or other donations are not a reliable or predictable source of funding. However, even assuming taxbased funding, UBI schemes do not take into account the additional – probably substantial – taxes that would be needed to fnance such UBI schemes. To give a sense of the scale of taxation needed for funding UBI, The Economist compared the cost of Mr Yang’s scheme, estimated to be $2.8 trillion annually, as being equivalent to the federal government’s combined annual budget covering Social Security (pensions), Medicare (healthcare for the elderly), and Medicaid (healthcare for the poor). Further, the proposed $12,000 a year would not lift an out-ofwork family  – say two adults and two children – above the national poverty line. The Economist argues that a welfare beneft scheme would have much greater benefcial impact if it were targeted at those needing help. For example, some 1,000 families in the Bronx (New York) received a onetime grant of $1,000 from Mr  Yang’s organisation. This allowed these families to buy food and other everyday essentials. Those advocating UBI have to explain why it is preferable to give $1,000 per month to every adult citizen or family rather than giving larger sums to families with a clear need, such as those in the Bronx.

Finland At a cost of some €20 million, the Finnish government carried out a twoyear experiment with UBI, which ran from January  2017 to December  2018. The experiment sought to examine how the Finnish social security system might better meet the challenges and changes in working life. In particular it sought to understand how receiving a basic income might afect the employment status and well-being of participants. The experiment also sought insight about to how to empower and motivate people to start or take up employment and sought ways of reducing the bureaucracy and complexity around providing welfare benefts.48 During the experiment, 2,000 unemployed persons between the ages of 25 and 58 received a monthly payment of €560, unconditionally and without means testing. The study compared the employment status and

236 Creating social and public value

well-being of basic income recipients against a control group of 173,000 people who were on unemployment benefts.49 Results of the two-year experiment show that those in receipt of basic income worked about 78 days; six days more than those on unemployment benefts. This increase was greater among families with children and also (inexplicably) those whose frst language was not Finnish or Swedish. Recipients reported not only improved fnancial well-being, but also better mental health and cognitive functioning, as well as higher levels of confdence in the future. As Henley of The Guardian notes, UBI might be associated with (leftleaning) progressive politics, but the Finnish experiment ‘was carried out by a centre-right, austerity-focused government interested primarily in spending less on social security and bringing down Finland’s. . . 8%-plus unemployment rate [and] to see whether an unconditional income might incentivise people to take up paid work’.50 KELA is also examining the links to healthcare, for example whether a guaranteed unconditional income, paid in advance, provides recipients with sufcient peace of mind and budgetary control, so as to reduce their anxiety, prescription drug consumption, or seeking other medical or psychological support.

Welfare state and neoliberalism The modern welfare state emerged under the New Deal in the United States as a response to the Great Depression of the 1930s and in Europe after the ravages of WWII. However, while building a safety net for people caught up in market failure, concurrent economic crises in advanced industrialised economies encouraged both American and British governments to abandon Keynesian policies of stimulating the economy, that is, through public spending to create demand. Neoliberal ideas emerging in the 1970s promoted the notion that the market mechanism was superior to the state in managing the allocation of resources in the economy. The state’s role should be to create market conditions and not otherwise interfere, though neoliberalism recognises the electoral value of some interference, in particular the popular support for some welfare institutions, such as the National Health Service (NHS) in the UK and Medicare in the USA. As highlighted in Chapter  9, The Neoliberal State, these new ideas turned to monetarism (prioritising infation control), supply-side economics (incentivising enterprise and cutting social spending and taxation), privatisation, a stress on individual freedom and responsibility for success, and workfare rather than welfare. This also meant the abandonment of the goal of full employment, the disempowerment of trade unions, and the gradual reemergence of income inequality.

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For conservatives and neoliberals (essentially the traditional ‘right’) the welfare state was misconceived, especially in Anglo-Saxon regimes where the work-ethic norm assumes that the limits of welfare is the marginal propensity to opt for welfare instead of work. While recognising the electoral and popular support for some welfare institutions, such as the NHS in the UK and Medicare in the USA, welfare states were deemed to be the cause of the economic crises. It was seen as interfering with the market’s self-regulating order, for privileging certain interest groups (trade unions and public employees), and for the cause of rigidities in the labour market (employment rights) that should instead be fexible. An immediate consequence of the turn to neoliberalism was a rise in unemployment. In Britain, in the wake of the removal of fnancial support for ailing industries, privatisation, and other reforms, unemployment increased from 5.5% in 1976 (Margaret Thatcher was elected prime minister in 1979), more than doubling to 13.1% as she began her second term in ofce from 1984.51 Salt’s study shows the impact to be broadly national, not only on large urban conurbations, but also on small towns, and on all occupational types. He concludes, ‘government responded to rising unemployment in a very haphazard fashion’. Unemployment in Ronald Reagan’s America similarly rose from 7%–8% in 1980–1981 to around 11% by December 1982.52 As with earlier classical liberalism, neoliberalism promotes belief in the freedom of the individual, which comes with the individual being responsible for their own welfare and showing resilience in dealing with adversity. Individual agency is primary, prioritising individual responsibility for choices and circumstances. As Bottrell observes, people’s capacity to thrive, or not, in the face of perceived barriers and uncertainties represents personal accomplishments or failures and is regarded as somewhat detached from exogenous economic and social conditions for accumulation or dispossession.53 Similarly, Joseph argues that an emphasis on individual adaptability in neoliberal governmentality refects a historical continuity from the Anglo-Saxon understanding of resilience.54 An emphasis on individual responsibility and resilience lends support to the observation that modern welfare programmes carry neoliberal tones around workfare and welfare-to-work, emphasising that welfare is provided on an explicit expectation that recipients do whatever is necessary to secure employment, including retraining, reskilling, or relocating.55 The provision of social welfare has a long tradition of expecting recipients of welfare to work in exchange for benefts. For example under the British Poor Law of 1834 the poor lived, and worked, in workhouses. Similarly France, in 1848, introduced national workshops where the poor were employed as unskilled labour on public works projects, such as road works, in exchange for a minimum wage.56 Modern versions of this expectation – that recipients of cash transfers and essential subsistence benefts work or attend training programmes – remain embedded in the welfare programmes of most nation states today, both developed and developing.57

238 Creating social and public value

Going further, from a neoliberalist position, philanthropy has a part to play in supporting those unable to support themselves, the poor, and those otherwise in need, as it involves no contribution from the state. Philanthropists and philanthropic organisations, like individuals, are free to spend their money as they see ft. The growth in corporate social responsibility (CSR) is commonly seen as emerging from philanthropic roots. In the USA the main political parties and institutions hold divided attitudes about welfare (for the poor). Democrats and Independents believe welfare benefts help poor people become more fnancially independent (respectively 71% and 63%), while 68% of Republicans believe such programmes promote dependency and perpetuate poverty.58 Social spending sits on a dilemma, between universal and targeted provision. While universal provision, such as free healthcare (at the point of delivery) is expensive, in many countries these enjoy widespread public support. Even so, for a given budget, cash transfers and services that are available to people regardless of income (universal benefts) may not provide sufcient help for those most in need. Targeting the poor through means testing potentially provides more for them, costs less in public resources, and wastes less. However, restricting social welfare support to those sufering poverty carries several risks. Set within a society socialised into the neoliberal ethic (in terms of self-reliance and opportunity for unhampered entrepreneurial activity) and the morality of capital accumulation,59 seeking help from the state can stigmatise recipients, stoking feelings of shame or discouraging them from seeking support. It can also create perverse disincentives to earn additional income, and a ‘poverty trap’ for those afraid of losing benefts should they earn more than some threshold. It can create ‘ghetto services’ that become poorly funded because most taxpayers and voters have no stake in them as recipients.60 Social spending remains a compromise between the targeting of those in need, securing beneft take-up, stigma, and disincentives, and the inclusion in some respects of middle-class taxpayers in state provision.61 This produces a form of ‘mixed economy’, where the state provides some goods (such as compulsory education) regardless of income, while other goods (such as safety-net benefts) are by defnition means tested.62 Inequality

Governments of the most developed economies in the years preceding and immediately after World War II in general pursued Keynesian policies, wherein social control of the economy was regarded as normal policy. Welfare state policies reduced the gap between high- and low-income groups, leading to more equal societies with fewer people either very poor or very rich. Welfare state policies strengthened the hand of industrial workers, created a fourishing middle class, and lifted living standards of most families. Under the infuence of neoliberalism, welfare policies of the 1980s and 1990s undid these developments. As Garland notes, the introduction of neoliberal policies benefted ‘corporate executives, [fnanciers] . . . property-owners. . . restored conditions

% of total pre-tax income

The welfare state 20 18 16 14 12 10 8 6 4 2 0

239

2007 (˜)

1990

Figure 10.5 Shares of top 1% incomes in total pre-tax incomes, 1990–2007 (or closest year) Source: Cingano, F. (2014). ‘Trends in Income Inequality and Its Impact on Economic Growth’. OECD Social, Employment and Migration, Working Papers No. 163; OECD. (2011). ‘Divided We Stand: Why Inequality Keeps Rising’, OECD Income Distribution Database (IDD): Gini, Poverty, Income, Methods and Concepts, IDD Database, November 2016: Release of OECD Inequality Update 2016 ‘Income Inequality Remains High in the Face of Weak Recovery’, www.oecd.org/social/incomedistribution-database.htm

for capital accumulation, and shifted power and infuence towards fnance capital. In the course of a few decades, neoliberal policies undid the equalizing, democratizing efects that the New Deal and the welfare state had achieved’.63 As Figure 10.5 shows, the share of top incomes increased, especially in some English-speaking countries. The fnancial crisis of 2007–2009 did little to halt increasing income inequality. As Cingano highlights:64 Over the 20 to 25 years leading up to the global economic crisis of 2007–08, average disposable household income increased in all OECD countries, by about 1.6% annually. However, in three quarters of OECD countries household incomes of the top 10% grew faster than those of the poorest 10%, resulting in widening income inequality. During the years following the crisis (2007 to 2011/12) average household income stagnated or fell in most countries, falling more than 3% in Spain, Ireland, Iceland and Greece. In almost all countries where incomes fell, those of the bottom 10% fell more rapidly. Similarly, in about half of those countries where incomes continued to grow, the top 10% did better than the bottom 10%. Taken together, these developments confrm the long-term trend towards higher inequality.

Welfare state and environmentalism The welfare state can be called on in cases of economic hardship, and environmental disaster, resulting from ‘environmental intrusion’ (e.g. fooding,

240 Creating social and public value

earthquake, frestorm, etc.).65 In pursuing the global goal of sustainable development, and from the position of governance, the welfare state has a role in attending to societal-environmental concerns. The everyday routines of citizens are infused with a range of national policy prescriptions and proscriptions grounded in concerns about climate change, fossil fuel depletion, managing waste, and reducing a range of pollutants. Nevertheless, social concern seems mixed and varies with economic priorities. A  National Geographic survey shows strong commitment in a dozen countries for more than half of the Earth’s land surface to be protected.66 However, a survey of American attitudes – while not representative of all nations – shows that between 2008 and 2013 people prioritised economic growth over environmental protection. This may be an efect of the 2008 global fnancial crisis, but it indicates volatility of individual priorities in times of economic stress.67 Such volatility highlights the need for considered and committed policy action, yet government responses to the fnancial crisis have also been mixed. At the international level governments have maintained momentum in committing to addressing climate change.68 At the same time neoliberal states (USA and European economies) have pursued austerity policies (cuts on social spending), while China spent RMB 4 trillion on infrastructure projects to sustain employment, economic growth, and social stability.69 The fnancial crisis highlights a paradoxical relationship between economic and environmental crises.70 In many economies the pursuit of economic recovery have been at the expense of both environmental and social policies, while in some instances the impact on industrial activity has been taken as an opportunity to shift investment towards more efcient technologies. An open exchange among scholars – reported in The Lancet in 2013 – about the links between the fnancial crisis, austerity policies, and health in Europe reveals a signifcant increase in suicide in some European countries but not others.71 The policy responses in Portugal and Spain involved substantial cuts in spending on healthcare and social support and a step increase in suicides among working-age men. In the exchange, Roberto De Vogli argues, ‘unfortunately the [neoliberal] ideology has not only created the conditions for the fnancial downturns, but also contributed to the popularity of contemporary austerity policies. . . afecting health outcomes in Europe’.72 The aforementioned surveys and research points out the uneasy tension between the imperatives of economic growth and the necessity for social and environmental welfare, as well as the inseparability of the latter two. As already identifed, one of the six faces of the welfare state is governance of the economy, which includes environmental policy. Beginning in the 1970s, a substantial body of scholarship has developed putting national political processes, institutions, and government policy at the centre of environmental enquiry. A variety of terms has emerged to describe this area of concern, including the ‘green state’, ‘ecological state’, ‘environmental state’, ‘ecostate’, and ‘eco-social state’.73 Duit prefers ‘environmental state’, as this ‘seems most closely aligned with the way state intervention around these issues is actually

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framed in ongoing political practice’. The environmental state describes those institutions, processes, and practices dedicated to environmental management and societal-environmental interactions, specifcally particular ministries and agencies; environmental laws and regulatory bodies and mechanisms; environmental fnancial, budget, and taxation schemes; and research institutions and advisory organisations. These administrative, regulatory, fnancial, and knowledge structures circumscribe a particular area of concern, but they interact and overlap with other governmental obligations, becoming an unavoidable element in political discourse about the direction of societal development. All welfare states, both developed and developing, have some level of engagement with the environmental state, supported by a diversity of administrative, fnancial, regulatory, and knowledge structures, making for more or less robust environmental states. The determination of environmental concerns and solutions, including how these should be funded, and over what time frame, reveal controversy in the form of disagreement over priorities, policy coalitions in favour of competing strategies, ‘cleavages and contradictions, and difering patterns of normative justifcation’.75 Moreover, Daniel Bailey observes a reluctance by the two relevant literatures to engage each other: ‘the frst is on the fscal sustainability of welfare states. . . invariably predicated upon future growth primarily to manage demographic changes. The second is the post-growth literature, which has enjoyed a renaissance in recent years due to an environmental critique of economic growth’.76 He fnds both literatures contain implications for the analysis of welfare state sustainability. On reviewing these literatures, Bailey concludes that the role of the welfare state is critical to any development route towards a low-carbon economy, and ‘retrenchment’ in the wake of the fnancial crisis ‘is environmentally unsustainable’.77 This requires a form of governance that encourages a reform of market logic, consumption habits, and reduced inequalities. Duit’s observation of diferentiated welfare state capacity and Bailey’s concern about a failure of policy and intellectual engagement highlight recognition that welfare states urgently need to account for environmental imperatives, not simply alongside but as an integral feature of social welfare policy and economic development objectives. How this should be done remains subject to research and policy speculation.78 Expanding welfare state policy in the direction of addressing environmental concerns faces substantial interwoven challenges: the inertia of long-run institutional commitments, including social practices, neoliberal political-economic structures, and investments in carbonbased technologies that now look wholly inappropriate. Bailey worries that while privatisation of welfare state services remains accepted policy, this is likely to lead to greater environmental degradation, though this is not necessarily the case. For example, attaching economic value to environmental services, such as drinking water, can lead to more considered consumption (Chapter 9). Bailey argues, ‘in an age of constrained ecological and monetary resources there is clear evidence that decarbonisation strategies are accelerated by the presence of robust welfare states’.79 74

242 Creating social and public value

Ian Gough draws on James Meadowcroft’s observation that both the social welfare state and the environmental state seem to experience similar trajectories, both facing the challenge of alleviating harmful market externalities, though the former has a longer history of (hesitantly) taking responsibility for addressing the social and human cost.80 In search of lessons for environmental governance and intervention, Gough proposes a framework for identifying common determinants of welfare states and environmental states in advanced capitalist states. He points out fve drivers (fve ‘I’s) of welfare state development: international suprastate infuences, ideas, industrialisation, interests, and institutions. In his framework, international suprastate infuences appear dominant and a directional infuence between industrialisation, interests, and institutions. Ideas play a mitigating role in the process (Figure 10.6). Using this framework to gain insight to drivers common to both states (welfare and environmental), Gough identifes globalisation, the power of capital and business ‘over other classes’, and ‘the continuing dominance of neoliberalism’. International linkages (economic and political) seem to support the environmental state more than the welfare state.81 In contrast, Gough notes persistent institutional diferences among developed economies, refecting varieties of capitalism and welfare regimes. Putting these insights together, he sees two groups of advanced states, the Anglosphere and the European Union, with the UK holding a hybrid position.

Industrialisa˜on changing economic, II demographic, social structures

Interests Actors, power resources, class movements, poli˜cal par˜es

Ins˜tu˜ons Na˜on building, ci˜zenship, states, cons˜tu˜ons, poli˜cal systems

Welfare policy

Ideas Culture, ideologies, epistemic communi˜es, policy learning

Interna˜onal suprastate infuences War, globalisa˜on, global civil society, policy transfer, global governance

Figure 10.6 Drivers of welfare state development and diferentiation Source: adapted from Gough, 2016

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Refection and prospect: from welfare state to social investment state? Attempts to classify welfare states may be appealing, but remain problematical. A large body of literature has so far developed around Esping-Andersen’s three archetypical welfare states, treating the framework as providing reliable analytical and empirical categories. Numerous studies have sought to build on its empirical foundations, comparing and contrasting new examples of welfare state. However, in trying to replicate Esping-Andersen’s conclusions, Scruggs and Allan fnd weak evidence that Esping-Andersen’s decommodifcation indices support his regime classifcation.82 Their analysis suggests, ‘EspingAndersen’s index provides an inaccurate picture of actual cross-national variation in decommodifcation.  .  .’ and ‘there is little evidence of national regime coherence across the three [social insurance] programmes [pensions, unemployment and sick pay]’.83 Regardless of the putative value of the existence of welfare state regimes, their role in modern society is constant. Following Keynes, Garland concurs, ‘The welfare state exists to modify the economic outcomes and social relations that capitalist markets would otherwise create; secure a politically-agreed minimum of social welfare and economic security; and ensure the education, training, socialization and well-being of children, young workers and citizens’.84 Moreover, these practices are designed to operate in ways that sustain and do not undermine the fundamentals of the capitalist economy and of liberal democracy. In modern societies, economic activity and public policies of social protection are bound together as mutually opposing yet interdependent forces, one working to ameliorate the consequences of unfettered economic action, the other at the same time always working to undermine perceived attacks on economic freedoms. In this strained relationship, welfare policies are always at risk of being reformed yet never eliminated. The welfare state is necessary, for the creation and maintenance of non-market conditions of social stability, essential for the ongoing legitimacy of neoliberalism and the reproduction of capitalism.85 This apposing yet interdependent relationship between economic activity and social justice almost mirrors their relationship within the sustainable development framework. National welfare states exist to protect labour and families from the unintended consequences of neoliberalism, while the sustainable development project seeks to engage all nations in raising the living standards of the disenfranchised of the world, doing so through harnessing economic activity, while at the same time protecting the biosphere from human industry. There is a growing argument that the welfare state should move from being a passive to proactive agent of economic development. Under Sweden’s presidency of the European Union (July–December 2009), proponents put forward a new vision for the welfare state.86 In this, Morel et al. of the Stockholm-based Institute for Future Studies argued the need for the welfare state to adopt a

244 Creating social and public value

social investment policy perspective, proposing the welfare state take a more progressive position beyond providing protection.87 All advanced industrialised economies face aging populations, declining birth rates, and rising inequality, and – in common with all nations – climate change and environmental degradation. From their view, the welfare state needs to be more proactive in securing its own fnancial and political sustainability, in reducing human sufering, environmental degradation, and government debt. From this social investment position, the welfare state needs to recognise the centrality of the (new) knowledge-based economy and address emerging social risks and structures of contemporary societies, such as deindustrialisation, deregulated fnancial markets, and mobile global capital. While agreeing with the proposed direction of social investment, Ferrera sees a need to focus on a ‘whole of life’ approach promoting opportunities and supporting all individuals, rather than meeting the needs of ‘large’ frms, so including women and children rather than only single-earner households and placing more emphasis on services (childcare, education, and training) than on cash transfers.88 Looking ahead, the welfare state should seek to reconcile social and economic goals, designing public policies that help individuals, families, and societies adapt to emerging transformations (social, political, economic, technological). However, while the European Union may be showing leadership through its policy commitments to social investment, Leoni fnds the European Commission’s progress disappointing in its implementation of these policies. He fnds there exists a substantial ‘imbalance’ between institutional changes needed to implement social investment and the prevailing policy environment, such that there remains a ‘strong bias towards austerity and short-term goals emanating from European policy in recent years, to the detriment of social inclusion and long-term objectives’.89 The evidence on whether the welfare state contributes to, or is detrimental to, economic growth remains ambiguous. However, a social investment policy regime, that is, the welfare state as a proactive rather than passive agent, carries the potential of reconciling the difering priorities of the neoliberal state and the welfare state. Ahn and Kim carried out a comparative analysis of the economic performance of service-oriented social investment strategies of 15 OECD states between 1990 and 2007 – Australia, Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Japan, New Zealand, Norway, Sweden, Switzerland, the UK, and the USA. They were interested in whether the welfare state is productive or non-productive in promoting growth and distribution, and whether social investment strategies had any impact on economic performance. They found that increasing social service-oriented spending (as a percentage of total welfare expenditure) does contribute to both economic growth and labour market performance.90 Refecting on the policy implications of their fndings, they argue that the Keynesian and neoliberal paradigms considered only the size of the welfare state and failed to examine the welfare structure of cash transfer and social service. They argue that a welfare state strategy founded on social investment

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would transcend the traditional reactive model of income protection and proactively help an economy make the transition into building ‘livelihood security’, thereby promoting the long-term sustainability of welfare states. Andrew Gamble is cautiously optimistic the welfare state can survive the ongoing period of austerity, but it needs reform and a new democratic citizenship.91

Chapter insight questions 1

2

3 4

Esping-Andersen’s (1990) three archetypical welfare state models are based on a very limited part of the world, on North America and the UK, continental Europe, and Scandinavia. The rest of the world is not accounted for, so others have attempted to apply the framework to the rest of the world. Identify a country, or group of countries, in the rest of the world, based on them having some level of welfare state. Drawing on Esping-Andersen’s decommodifcation and rights criteria, plus ideas about subsidiarity and solidarity, and Figure 10.1, (a) locate your identifed nation state(s) as an example(s) of his models and (b) assess whether and how Esping-Andersen’s underlying criteria might be adjusted to be more globally encompassing. Neoliberalism emphasises individual rights and responsibilities, while Keynesianism sees a prominent role for government in the afairs of its citizens. Compare and contrast the notions of universal welfare and targeted welfare, with reference to neoliberalism and Keynesianism. Finland is a social democracy, as are the other Nordic countries, yet UBI was trialled by a Finnish centre-right austerity government. How was it elected in this milieu? A social investment state efectively reconciles the divergent paths of neoliberal ideals and a passive welfare state. Discuss.

Notes 1 Looney, R. (2004, March). Development strategies for Saudi Arabia: Escaping the Rentier State Syndrome. Strategic Insights, III(3). Center for Contemporary Confict. 2 Wilensky, H. L. (1975). The welfare state and equality: Structural and ideological roots of public expenditures (p. 15). Berkeley: University of California Press. 3 Garland, D. (2014). The welfare state: A fundamental dimension of modern government. European Journal of Sociology/Archives Européennes de Sociologie/Europäisches Archiv für Soziologie, 55(3), 327–364. 4 Li, T. (2007). Governmentality. Anthropologica, 49(2), 275–281. 5 Garland, D. (2014). Op. cit., p. 338. 6 Berlin, I. (1958). Two concepts of liberty. In Isaiah Berlin (1969), Four essays on liberty. Oxford: Oxford University Press. 7 Letter to Bishop Mandell Creighton, April 5, 1887, Transcript of, Figgis, J. N., & Laurence, R. V. (Eds.). (1907). Historical essays and studies. London: Macmillan. 8 Rawls, J. (1971). A theory of justice. Cambridge, MA: Harvard University Press. 9 Spicker, P. (2013). Liberal welfare states. In B. Greve (Ed.), The Routledge handbook of the welfare state (pp. 193–201). London: Routledge; Bochel, H. (2018). Liberal welfare states. In B. Greve (Ed.), The Routledge handbook of the welfare state (pp. 176–186). London: Routledge.

246 Creating social and public value 10 Agbonlahor, W. (2015, January 27). UK ‘almost most centralised developed country’, says Treasury chief. Global Government Forum. Retrieved from www.globalgovernment forum.com/uk-most-centralised-developed-country-says-treasury-chief/ 11 Dunleavy, P. (2018, October 31). In comparative league tables of liberal democracies the UK’s democracy is judged to be First Division, but not Premier League. Democratic Audit. Retrieved from www.democraticaudit.com/2018/10/31/in-comparative-leaguetables-of-liberal-democracies-the-uks-democracy-is-judged-to-be-frst-division-butnot-premier-league/ 12 Garland, D. (2014). Op. cit., p. 330. 13 Marshall, T. H. (1950). Citizenship and social class: And other essays. Cambridge: Cambridge University Press. 14 Dostal, J. M. (2010). The developmental welfare state and social policy: Shifting from basic to universal social protection. The Korean Journal of Policy Studies, 25(3), 147–172. 15 International Labour Organization (ILO). World Social Protection Report, 2017–2019: Universal social protection to achieve the Sustainable Development Goals. Genève: International Labour Ofce. 16 Garland, D. (2014). Op. cit., pp. 327–364. 17 Turner, B. S. (2009). T. H. Marshall, social rights and English national identity. Citizenship Studies, 13(1), 65–73; Marshall, T. H. (1981). The right to welfare and other essays. London: Heinemann. 18 Donzelot, J. (1979). The policing of families (Robert Hurley, Trans.). New York: Pantheon Books. 19 Garland, D. (2014). Op cit., p. 344; Donzelot, J. (1979). Op. cit. 20 Howard, C. (1997). The hidden welfare state: Tax expenditures and social policy in the United State. Princeton, NJ: Princeton University Press. 21 Garland, D. (2014). Op. cit. 22 Kristof, N. (2014, March  26). A  nation of takers? New York Times. Retrieved from www.nytimes.com/2014/03/27/opinion/kristof-a-nation-of-takers.html 23 Howard, C. (2003). Is the American welfare state unusually small? Political Science and Politics, 36(3), 411–416. 24 Leibfried, S., & Mau, S. (Eds.). (2008). Welfare states: Construction, deconstruction, reconstruction, Vol. I: Analytical approaches (p. XII). Cheltenham, UK: Edward Elgar. 25 Gillon, S. M. (2008). The pact: Bill Clinton, Newt Gingrich, and the rivalry that defned a generation. New York: Oxford University Press. 26 Nadasen, P. (2004). Welfare warriors: The welfare rights movement in the United States. New York: Routledge. 27 Lyttkens, C. H., Christiansen, T., Häkkinen, U., Kaarboe, O., Sutton, M., & Welander, A. (2016). The core of the Nordic health care system is not empty. Nordic Journal of Health Economics, 4(1), 7–27. 28 Ibid. 29 Polanyi, K. (1962 [1944]). The great transformation: The political and economic origins of our time. Boston, MA: Beacon Press. 30 Esping-Andersen, G. (1990a). The three worlds of welfare capitalism. Princeton, NJ: Princeton University Press; Esping-Andersen, G. (1990b). The three political economies of the welfare state. International Journal of Sociology, 20(3), 92–123. 31 Andersen, J. G. (2012). Welfare states and welfare state theory. Aalborg: Centre for Comparative Welfare Studies, Institut for Økonomi, Politik og Forvaltning, Aalborg Universitet (CCWS Working Paper). 32 Adapted from Ibid. 33 Rudra, N. (2007). Welfare states in developing countries: Unique or universal? The Journal of Politics, 69(2), 378–396. 34 Morvaridi, B. (2008). Rights and development-induced displacement: Risk management or social protection? In K. Grabska & L. Mehta (Eds.), Forced displacement. London: Palgrave Macmillan.

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35 Rawls, J. (1999). A Theory of Justice. (Rev. ed.). Cambridge: Harvard University Press, p. 53; Nozick, R. (1974). Anarchy, State, and Utopia. New York: Basic Books, p. 238; Nussbaum, M. (2003). Capabilities as fundamental entitlements: Sen and social justice. Feminist economics, 9(2–3), 33–59; Sen, A. (1995). Inequality Reexamined. Cambridge, Mass: Harvard University Press. 36 Hayek, F.A. (1982). Law, Legislation and Liberty, Vol. 2. London: Routledge. p. 78. 37 O’Neill, B. (2011, March 16). The injustice of social justice. Mises Daily Articles. Retrieved from https://mises.org/library/injustice-social-justice. 38 Novak, M. (2000). Defning social justice. First things, 11–12. 39 Wolf, J. (1996). Robert Nozick: property, justice and the minimal state. Oxford: Blackwell Publishers and Polity Press. 40 Mueller, D. C. (2003). Public choice III. Cambridge University Press; Sen, A. (1970). The impossibility of a Paretian liberal. Journal of political economy, 78(1), 152–157. 41 Miller, D. (1999). Principles of social justice. Cambridge, MA: Harvard University Press. 42 Esping-Andersen, G. (1990b). Op. cit., pp. 92–123. 43 Taylor-Gooby, P., Hvinden, B., Mau, S., Leruth, B., Schoyen, M. A.,  & Gyory, A. (2019). Moral economies of the welfare state: A  qualitative comparative study. Acta Sociologica, 62(2), 119–134. 44 Spicker, P. (1991). The principle of subsidiarity and the social policy of the European community. Journal of European Social Policy, 1(1), 3–14. 45 Ibid. 46 Fox, R. A. (2009, December 7). Health subsidiarity, or solidarity, or socialism (take your pick). Front Porch Republic. Retrieved from www.frontporchrepublic.com/2009/12/ health-subsidiarity-or-solidarity-or-socialism-take-your-pick/ 47 The Economist. (2020, August  8). From unthinkable to universal. Retrieved from https://www.economist.com/united-states/2020/08/08/universal-basic-incomegains-momentum-in-america. 48 The Social Insurance Institution of Finland (Kela). (2020, May 26). Basic income experiment. Retrieved from www.kela.f/web/en/basic-income-experiment 49 Lu, D. (2020, May 6). Universal basic income seems to improve employment and well-being. New Scientist. Retrieved from https://www.newscientist.com/article/2242937-universalbasic-income-seems-to-improve-employment-and-well-being/#ixzz6WrN1fp8G 50 Henley, J. (2018, January 12). Money for nothing: Is Finland’s universal basic. The Guardian (international edition). Retrieved from www.theguardian.com/inequality/2018/ jan/12/money-for-nothing-is-fnlands-universal-basic-income-trial-too-good-to-betrue income trial too good to be true? 51 Salt, J. (1985). The geography of unemployment in the United Kingdom in the 1980s. Espace, populations, sociétés, 2, 349–356. 52 Auxier, R. C. (2010, December 14). Reagan’s recession. Pew Research Center. Retrieved from www.pewresearch.org/2010/12/14/reagans-recession/ 53 Bottrell, D. (2013). Responsibilised resilience? Reworking neoliberal social policy texts. M/C Journal, 16(5). Retrieved from https://doi.org/10.5204/mcj.708 54 Joseph, J. (2013). Resilience as embedded neoliberalism: A governmentality approach. Resilience, 1(1), 38–52; Hacking, J. discusses the notion of continuity through historical ontology: Hacking I. (2002). Historical ontology. In P. Gärdenfors, J. Woleński, & K. Kijania-Placek (Eds.), In the scope of logic, methodology and philosophy of science: Synthese Library (Studies in epistemology, logic, methodology, and philosophy of science) (p. 316). Dordrecht: Springer. Retrieved from https://doi.org/10.1007/978-94-017-0475-5_13. 55 Besley, T., & Coate, S. (1992). Workfare versus welfare incentive arguments for work requirements in poverty-alleviation programs. American Economic Review, 82(1), 249–61. 56 Christoferson, T. R. (1980). The French national workshops of 1848: The view from the provinces. French Historical Studies, 11(4), 505–520. 57 Besley, T., & Coate, S. (1992). Op. cit.

248 Creating social and public value 58 Ekins, E. (2019, September 24). What Americans think about poverty, wealth, and work: Findings from the Cato Institute 2019 Welfare, Work, and Wealth National Survey. Washington, DC: Cato Institute. Retrieved from www.cato.org/publications/survey-reports/ what-americans-think-about-poverty-wealth-work 59 Clarke, S. (2005). The neoliberal theory of society. Neoliberalism: A Critical Reader, 50, 59; Angebauer, N. (2020). Property and capital in the person: Lockean and neoliberal self-ownership. Constellations, 27(1), 50–62, p. 1; Harvey, D. (2005). A brief history of neoliberalism (p. 3). Oxford: Oxford University Press; Treanor, P. (2005). Neoliberalism: Origins, theory, defnition. Reperibile all’indirizzo. Retrieved from http://web.inter. nl.net/users/Paul.Treanor/neoliberalism.html 60 Gugushvili, D.,  & Hirsch, D. (2014). Means-testing or universalism: What strategies best address poverty. A review contributing to Joseph Rowntree Foundation’s development of an anti-poverty strategy. Leicestershire: Loughborough University, Centre for Research in Social Policy. 61 Finn, D.,  & Goodship, J. (2014). Take-up of benefts and poverty: An evidence and policy review. Joseph Rowntree Foundation/ Centre for Economic and Social Inclusion Report. 62 Gugushvili, D., & Hirsch, D. (2014). Op. cit., p. 1. 63 Garland, D. (2016). The welfare state: A very short introduction. Oxford: Oxford University Press. 64 Cingano, F. (2014). Trends in income inequality and its impact on economic growth. OECD Social, Employment and Migration Working Papers, No. 163, OECD Publishing. 65 Miller, C. (2003). Environmental rights in a welfare state? A comment on DeMerieux. Oxford Journal of Legal Studies, 23(1), 111–125. 66 Waite, E. (2019, September 17). Many people want to set aside half of Earth as nature. National Geographic. Retrieved from www.nationalgeographic.com/animals/2019/09/ poll-extinction-public-slow-extinction/ 67 Gallup. Environment | Gallup historical trends. Gallup.com. Retrieved December 30, 2020, from https://news.gallup.com/poll/1615/environment.aspx 68 History of the United Nations Framework Convention on Climate Change (UNFCCC) frst and second commitment periods 2008–2012 and 2013–2020, and the 2015 Paris Agreement. Retrieved from https://unfccc.int/process/the-convention/ history-of-the-convention#eq-1 69 Li, B., & Mayraz, G. (2017). Infrastructure spending in China increases trust in local government. Social Indicators Research, 132, 341–356. 70 Tienhaara, K. (2010). A tale of two crises: What the global fnancial crisis means for the global environmental crisis. Environmental Policy and Governance, 20(3), 197–208. 71 Ayuso-Mateos, J. L., Barros, P. P., & Gusmão, R. (2013). Financial crisis, austerity, and health in Europe. The Lancet, 382(9890), 391–392. 72 Ibid., p. 391. 73 Duit, A. (2016). The four faces of the environmental state: Environmental governance regimes in 28 countries. Environmental Politics, 25(1), 69–91. 74 Ibid., p. 5. 75 Ibid. 76 Bailey, D. (2015). The environmental paradox of the welfare state: The dynamics of sustainability. New Political Economy, 20(6), 793–811, p. 793. 77 Ibid., p. 807. 78 Sandbrook, R. (2011). Polanyi and post-neoliberalism in the global south: Dilemmas of re-embedding the economy. New Political Economy, 16(4), 415–443; Ruckert, A., Macdonald, L., & Proulx, K. R. (2017). Post-neoliberalism in Latin America: A conceptual review. Third World Quarterly, 38(7), 1583–1602. 79 Bailey, D. (2015). Op cit., p. 805.

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80 Gough, I. (2016). Welfare states and environmental states: A comparative analysis. Environmental Politics, 25(1), 24–47; Meadowcroft, J. (2005). Environmental political economy, technological transitions and the state. New Political Economy, 10(4), 479–498. 81 Gough, I. (2016). Op cit., p. 43. 82 Scruggs, L., & Allan, J. (2006). Welfare-state decommodifcation in 18 OECD countries: A replication and revision. Journal of European Social Policy, 16(1), 55–72. 83 Ibid., p. 69. 84 Garland, D. (2014). Op. cit., p. 345. 85 Beckert, J. (2020). The exhausted futures of neoliberalism: From promissory legitimacy to social anomy. Journal of Cultural Economy, 13(3), 318–330; Gamble, A. (2017). The age of perplexity: Rethinking the world we knew: The welfare state and the politics of austerity. Madrid: BBVA, OpenMind, Penguin Random House Grupo Editorial. 86 Morel, N., Palier, B., & Palme, J. (Eds.). (2009). What future for social investment? Research Report. Stockholm: The Institute for Future Studies: presented at the conference Sustainable work: A challenge in times of economic crises, 27–28 October 2009. The conference was organised by the Swedish Council for Working Life and Social Research (FAS), the Swedish Governmental Agency for Innovation Systems (VINNOVA) and the Swedish ESF Council in collaboration with Workin Net and European Foundation for the Improvement of Living and Working Conditions (Eurofound). 87 Morel, N., Palier, B., & Palme, J. (Eds.). (2009). Op. cit.; Morel, N., Palier, B., & Palme, J. (Eds.). (2012). Towards a social investment welfare state? Ideas, policies and challenges. Bristol, UK: Bristol University Press. 88 Ferrera, M. (2009). From the welfare state to the social investment state. Rivista Internazionale Di Scienze Sociali, 117(3-4), 513–528. 89 Leoni, T. (2016). Social investment as a perspective on welfare state transformation in Europe. Intereconomics, 4, 194–200, p. 199. 90 Ahn, S.-H., & Kim, S.-W. (2015). Social investment, social service and the economic performance of welfare states. International Journal of Social Welfare, 24, 109–119. 91 Gamble, A. (2017). Op. cit.

11 Conclusions and critical refection

Looking back This book explores from a strategic vantage point the relationship between corporate responsibility and sustainable development. We explore this relationship as dynamic, with evolving spatial and temporal scales and ongoing redefnition.1 It is a relationship of continual change, uncertainty, and ignorance. Further, it is an interdependent relationship, between (human) sociocultural systems and ecological systems (of which humanity is an integral element). At stake is not only the social and economic structure of societies here and now, nor the biophysical limits to growth alone, but their combination. Our aim and approach are refected in the organisation of the book into four parts, highlighting this relational dynamic. After frst introducing the long-run historical social change, we then explore the dynamic complexity of contemporary social change. The focus then shifts to how we evaluate social change progress, followed by competing rationalities underpinning the creation of social value. Refecting on the underlying purpose of this book reveals it to be about social change, purposeful social change, and in particular social change for sustainable futures. Substantive refections

Part I, Contextualisation, locates the subject of this book against two features of society: a historical background of shifting corporate responsibility, alongside the emergence of sustainable development as a new philosophy of living, and a contemporary society apparently plagued by crises, crises, everywhere.2 We see long-run historical social change taking place when we acknowledge the historical antecedents of corporate responsibility, its gradual shift from being narrow (voluntary and philanthropic) to being expansive and global, framed in both regulatory and societal expectations. Similarly, concern for the health of the biophysical world, and humanity’s place therein, has come to the fore only since the late 20th century. Critics see industrial-scale production and consumption over the last 200–300 years as responsible for this state of afairs. At the same time stakeholders have emerged as a political force, with rights and

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infuence, voicing their dissatisfaction with business’ social performance and the apparent lack of public accountability by governments. This historical dimension highlights the expansion of the responsibilities of business – of which the corporate form is most visible and subject to public scrutiny – from its preoccupation with satisfying a limited number of investors to meeting larger societal expectations carried by the emergence of sustainable development as a societal ambition. Modern business must therefore engage with a diverse range of stakeholders who represent not only economic interests, but also environmental and social concerns. Thus, the corporation maintains its licence, is granted rights of access to resources in order to operate and prosper, under a social contract with civil society. This licence is mediated by an expanding social legitimacy framework, in which the rationality of legitimacy continues to change as the types of legitimacy conficts evolve. Business must fnd new carbon-neutral energy resources, and new socially responsible ways of operating, while remaining proftable and contributing to economic development. Moreover, at a global level the broadening of a values orientation of business must remain fuid, as a necessary condition for navigating societies that are not only growing in population but also in their diversity and developmental demands. The opportunity to operate a potentially lucrative business (say mineral extraction or genetically modifed crop production) that generates thousands of local jobs and substantial tax revenues must be weighed against the potential environmental cost and social backlash from other communities and the prospect of having their licence revoked if electable political parties deem the social mood too hostile. This ambiguity and fuidity of rationality at the intersection between corporate purpose and societal values pose important challenges for developing sustainability. Added to this unfolding historical context is a societal sense of numerous global crises all having historical roots and seemingly intractable to the pessimists, from the crisis of capitalism to those of ecological degradation and climate change, to rising social inequality and the prospect of social unrest unless addressed. These concerns are succinctly captured on the UN 17 Sustainable Development Goals. Our understanding of present and emerging challenges is seriously compromised without some understanding of these contexts.3 Historical contextualisation helps locate modern ideas and aids in identifying enduring themes and patterns underpinning more modern ideas and trends in both corporate responsibility and sustainable development. This historical contextualisation challenges internalised narratives that students may hold about the timeless nature of human behaviour, or unhelpful assumptions about the nature of phenomena they may acquire through popular culture.4 Part II, Perspectives on Social Change, draws attention to three distinct yet overlapping social processes: socio-economic development (Chapter  3), the overlapping and evolving environments of corporate responsibility and sustainable development (Chapter 4), and socio-technical innovation (Chapter 5). The social change process inscribed in each of the three chapters involves a particular range of theoretical perspectives. Whatever their peculiar nature,

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these three diferent processes of social change embody institutions, that is, rules for living in a society. These rules are both formal (laws and regulations) and informal (conventions and norms of behaviour) and provide structure to everyday life, reducing uncertainty and directing choice. Some informal rules are integral to culture, unconsciously held, and unchanging over time. In these terms, social change necessitates institutional change. These three processes provide the potential of seeing within them theories of institutional change, in particular collective-choice theories and evolutionary theories. In the frst perspective, a political collective (e.g. state or community), working within a nested hierarchy of rule-making, specifes the formal rules, while interest groups and individuals lobby or negotiate to modify or reform these rules. Efecting rule change, and thereby institution change, involves the formation of coalitions negotiating with higher level rule makers, while vested interest groups impede institutional change in order to maintain the status quo. These two perspectives provide difering accounts of why and how institutions change, including their difering rationalities,5 where history matters but in difering ways, and the process by which rules are formulated, are selected, and emerge. In contrast with collective-choice theory, in evolutionary theories there is no hierarchically coordinated mechanism (e.g. state initiated) driving the direction or scope of new rules. Rather, new rules emerge, either randomly or deliberately, and are shaped through some kind of decentralised selection process. Along the way some new or mutated rules spread while others perish. In this way new rules and patterns of behaviour emerge through uncoordinated choices of many agents, rather than through a hierarchically orchestrated collected-choice political process. Framed by these two perspectives, some theories regard the political process to be a battleground of political actors and interest groups vying to shape formal rules to their own liking. Other theories invest more authority in autonomous political actors, such as the state, able to create and enforce rules, with the judiciary playing the role in institutional change, accommodating or disallowing proposed changes to existing formal rules. Evolutionary theory of change (which explains movement over time, so the analysis is dynamic) ofers another and potentially fruitful approach to capturing the complexities of macrosocial change, with its intertwining of social, economic, technological, and cultural variables. Drawing on evolutionary theory of change (a notion that pre-dates Darwinian evolution), Richard Nelson suggests such change processes possess two features.6 First, socioeconomic change has both random features that generate or renew some variation and mechanisms that systematically remove surviving variation of some quality. Variation here refers to qualities potentially existing at several levels, for example individual learning, organisational adaptation, and environmental selection of organisations, all simultaneously in play. Second, that there exist inertial forces that provide continuity of whatever survives removal. The evolutionary theory of change emphasises the role of systemic structure and behaviour, the force of inevitability and yet the existence of the seeds of structural change through individual choices. From this evolutionary

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systems view, sustainable development foresees not only the gradual change of institutional structures, but also emergent behaviour of agents and their collective impact on systems. Evolutionary theory of change may be ‘better’ at explaining the complexities of socio-economic change in the sense that this approach promises to provide insights more consistent with informed judgements about observed diferences and similarities in the body of data. However, capturing such complexity and ambiguity leads to weaker predictive modelling. Similarly, socio-technical change involves long-run change, and is multi-scalar, evolving through macro-, meso-, and micro-level sociotechnical transitional pathways that are non-linear, involving periodic disruptive transformations. The third process – theorising corporate responsibility and sustainable development – also involves social change, involving an expanding corporate responsibility keeping abreast of social expectation and a redefning understanding of sustainable development. This social change dynamic provides for the role of (corporate) agency within the social change dynamic, shaping and being shaped by society’s sustainable development agenda. Corporate agency is ever present, at multiple levels, as niche actors, regime actors, landscape actors, and societal actors.7 Acknowledging agency also highlights societal expectations that corporations accept ever enlarging refexive responsibility, that is, that they take a ‘self-critical scrutiny of current modes of taking responsibility for their achievements and unintended [harmful social and environmental] efects’.8 Using slightly diferent language, we may see social change here through the theory of enabling environment. The enabling environment is constituted of societal sociocultural structural factors (including social and economic organisation, culture), institutional factors (social hierarchy, and formal and informal rules of how to live in society), and governance factors (capacity development policies, institutional coordination, planning and monitoring), and political leadership. The nature of the enabling environment also varies with the extent to which a government’s development strategy leans towards market fundamentalism (neoliberalism) or policy intervention (e.g. neo-Keynesian localism).9 In some jurisdictions (e.g. India) corporate responsibility is mandated an enabling role (an agent of change) by law. From this view Kanji and Agrawal pose three questions to help defne the corporation’s enabling role. From the perspective of the corporate: why should we invest? What is our beneft? From the perspective of legislators and policy makers: ‘What can be done to promote the interest of corporates to invest in SDG and disaster resilience? From the perspective of the society: What responsibilities are due to us and how do we ensure that we are beneftted with what is necessary?’10 All three social change processes also hint at underlying questions about evolutionary change. Change is inherent in social processes, but the trajectory of social change is neither predictable nor random. Evolutionary change breeds structural diferentiation, specialisation, and institutionalisation, causing the tempo and direction of social change to vary.11 Importantly, as Eisenstadt observes, ‘even when structural diferentiation is institutionalized, each new

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institutional system evinces diferent potentialities for further change, for stagnation, breakdown or development’.12 Part III, The Sustainability Governance Trinity, points out governance, fnancing, and evaluation as the trinity for regulating the achievement of sustainable development. The operationalisation of sustainable development requires integration of decision making, and the three chapters here (Chapters 6, 7, and 8) focus on each element of the trinity vital to integrated decision making. Achieving the goal of living sustainably requires sustainability governance, which in turn should demand responsible fnancing of development, whether in terms of government policy or corporate strategy and investment, ensuring that the ecological price does not exceed the economic benefts.13 Yet this is not enough. While governance provides for monitoring and oversight, there is also a need for independent evaluation of progress and of measurable impact assessment. Over time, integration of this trinity is more likely to lead to decisions in which economic development, ecological protection, and social justice are mutually supportive rather than being contradictory or inconsistent. This is not to suggest that this trinity can eliminate the prospect of compromised outcomes or suboptimal choices, for example between economic development and environmental impacts. The demand for integrated decision making, obvious as it seems, is in stark contrast with how most government ministries are organised or how businesses develop and implement strategy. Realising integration of decision making can be achieved by attention to process: a procedural mechanism and substantive goals, and scope (resource-based, issue-based, activity-based, or place-based).14 Part IV, Creating Social and Public Value, examines the role of neoliberalism and the welfare state. In so doing it refects Albert O. Hirschman’s famous observation that societies oscillate ‘between periods of intense preoccupation with public issues and of almost total concentration on individual improvement and private welfare goals’.15 At one end of the pendulum, the market is the guiding mechanism for the allocation of resources in an economy and the creation of social value. At the other is that government, as a welfare state, is more than, or should be seen as more than, an institution setting rules or provider of a social safety net for the citizenry. The welfare state has the potential to create public value, to shape the public sphere (political, economic, social, and cultural), and to improve the material and social conditions of the citizenry. Benington and Moore propose a ‘strategic triangle’ for creating public value, comprising ‘clarifying. . . the strategic goals and public value outcomes’; establishing a coalition of stakeholders as an ‘authorising environment’ in order to support the strategic goals; and ‘mobilising operational resources’ in order ‘to achieve the desired public value outcomes’.16 Chapter  5, Social Change and Technological Innovation, draws on this framework in a discussion under the section ‘Whose Sustainability Should Be Prioritised?’ Useful as these two perspectives of the role of the state are, there are criticisms about both. First, from an institutionalist perspective the market is not the mechanism allocating resources within the economy. Rather, it is societal

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institutions (political, social, economic) alongside the market, itself another institution, that allocate resources within the economy.17 In addition, institutions create social value, though what counts as social value varies with corporate power and political elites. Across the political spectrum, both conservatives and (neo)liberals believe market mechanisms are more efective than the state in allocating resources, while ‘libertarians believe that value is subjective preference as measured by price.  .  . and that political elites’ relations with the business community have little infuence on public policy’.18 For Tilman, one perspective of social value depends on where one sits on the spectrum between utilitarian theory of value and the institutionalist instrumental theory of value. Second, the notion of public value is problematical. Albert Hirschmann proposes that over time societal preoccupations oscillate between concentrating on public welfare issues and (at other times) on private welfare goals.19 If this is true, then a richer understanding of public value could inform policy design so as to alleviate such swings. Talbot argues that public value is created by balancing three interests: the self, the public, and procedural (fairness in how people get to participate in shaping public policy). However, as Meynhardt points out, ‘value’ is both subjective and objective.20 Meynhardt considers public value to be the collective view of the public about what they value, which may or may not coincide with a written constitution or other formal declaration. While ‘the public is a fction of society’, ‘public value creation is situated in both individual subjective evaluations against basic needs’, and ‘in relationships between individuals and society’.21 Further, following the proposition of H. George Frederickson – the highly infuential scholar of public administration – that public administration comprises multiple intellectual traditions, Meynhardt notes fve perspectives of ‘public’:22 o o o o o

interest groups: pluralist; consumer: public choice; represented: legislative; client: service-providing; citizen centred.

This brief insight to public value creation highlights a messy process, often leading to indeterminate societal outcomes. The social world commonly presents complex strategic problems, inducing stochastic (unpredictable) outcomes with the potential for harm.23 Meynhardt considers any conclusion that public value is subject to Hirschman’s pendulum metaphor is misplaced, and that what counts as public value rests with the individual’s valuation thereof. Philosophical and methodological tensions

In the volume’s Introduction we noted the approach taken in this text ‘is analytical and explanatory, employing social science theory. . . and empirical evidence.  .  . in order to justify claims’. However, a normative theoretic is also

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evident, since the text refects the notion that sustainable development is a desirable philosophical principle for guiding social action and which holds universal appeal. We also acknowledge that variation in cultural values around the world means that individual societies hold varying valuations of what is desirable and appropriate for securing a good life, now and in the future. Engaging with a normative theoretic and seeming ignorant of cultural variation unavoidably opens the way to charges of making value judgements and of political bias, of neocolonialism, and of cultural imperialism, being either implicit or explicit. In treading the line between (objective) analysis and explanation and (normative) evaluation, and between universalism and particularism,24 we have remained conscious of what would be the appropriate normative theoretic structure, between agent-neutral and agent-centred.25 For example, the prescriptions implicit in The Sustainability Governance Trinity (Part III) apply universally (agent-neutral), but this does not contradict that particular states adopt variations of this trinity. We have sought to be sensitive to such concerns in determining what kinds of theoretical approaches and insights matter and how they should be organised.

Looking forward Here we refect on a central feature of sustainable development, that of future generations. First, we briefy discuss how much we should care about the future, compared with the preoccupations and priorities of the (current) living. Second, we refect on the future prospect of achieving social change, by examining the infuence of signifcant societal agents – economic elite groups and corporations – and policy/lawmakers, and that infuence in relation to the infuence of the voting public. Discounting the future?

At stake is whether living generations should (continue to) discount the welfare of future generations, and carry out any kind of cost-beneft analysis in order to decide the distribution of sacrifce and enjoyment of benefts between those living and those to come far in the future. Kenneth Arrow, economist and ‘father of social choice theory’, gave a lecture to the World Congress of the International Economic Association in 1995, arguing that the living should discount the welfare benefts of future generations, because frst, doing so would be logical, and second, would impose excessive sacrifces on those living.26 Approaches to discounting tradable goods, such as commodities, invoke market pricing mechanisms, but which are very unreliable for evaluating the wellbeing of future generations.27 Even if future generations are likely to become extinct (due to some as yet unknown apocalypse), discounting methods disenfranchise future generations, as those presently living would determine the future value of wellbeing.28 Arrow’s proposition is indefensible on moral grounds.29

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The scientifc consensus is that global temperatures are rising unabated, carrying an increased likelihood that the world’s climate will change profoundly, putting humanity’s future viability at stake. The implication is that present increasing levels of consumption are being set against risking the likelihood of future existence; humanity cannot enjoy the former without raising the risk of the latter. We should not discount the welfare of future generations, yet arguably we do just that by failing to take strong action on climate change, biodiversity loss, waste generation, and a host of other harmful environmental impacts. As Cambridge economist Frank Ramsey observed in 1928, the human inclination to consume now rather delay gratifcation is ‘a practice which is ethically indefensible and arises merely from the weakness of the imagination’.30 Chichilnisky, Hammond, and Stern note that from several difering ethical perspectives humanity should take strong action now, whether on climate change or consumption and waste or many other situations involving some implicit discounting of the ethical rights of future generations. They show that a contractarian would not wish to saddle future generations with a dictatorship from the present; that the Kantian categorical imperative requires one to behave as one would have others behave (including future generations); that Aristotle’s virtue ethics would not permit the pursuit of self-interest if that brings harm to others; and that a rights-based argument would include respecting the rights of future generations. These considerations demand an end to the ongoing habit of discounting the welfare of future generations, which requires that multilateral organisations, governments, and businesses, among other societal stakeholders, refect on ways of stopping this discrimination according to age. Infuencing the policy process: economic elites’ interests, corporate infuence, and weak public interest

In exploring the potential for future social change, we should pay attention to the role of economic elites in wielding power and infuence. We fnd this infuence clearly prioritises the present, even at the cost of future-oriented policies. In examining this, it is necessary to highlight the infuence of economic elite groups on political institutions (democratic and otherwise) and on social welfare, the mechanisms through which they exercise infuence and their propensity to marginalise unorganised dispersed citizen infuence on the democratic process, and to show that their interest in short-term private returns threatens long-term public welfare. Debate continues about the composition of economic elite groups,31 their infuence on the policy process, and the extent to which their infuence promotes private gain over social welfare.32 Views about their infuence on public policy and social welfare difer substantially, between arguments that their infuence is overstated (libertarian view) to those who regard their infuence as powerful (Marxian and neoinstrumentalist views).33 Their infuence is found not only in least developed economies and in middle-income states with weak institutions,34 but also within advanced industrial societies.35 As

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societies develop, so the pattern of economic elite group infuence becomes more diferentiated, through ‘patrimonial order giving way to [Western modern] Weberian rationality’.36 Corporate infuence over democratic institutions is also signifcant and operates through numerous lawful mechanisms. Corporations support political campaigns and partisan interest groups, in order to secure their own, typically conservative, interests. Their goals range from helping elect a supportive government to fghting citizen resistance to potentially harmful investments (e.g. in resource extraction). Upon winning Australia’s 2013 national election, Prime Minister Tony Abbott’s conservative Coalition (of the National and Liberal parties) repealed carbon pricing, an initiative of the outgoing Labour government. In the face of international criticism, Abbott declared support for Australia’s coal industry. It was ten years before the Abbott conservative group’s ‘denialist policy’ was overturned (in 2012). As Crowley observes, ‘both political self-interest, and a strident defence of Australia’s status as the world’s largest exporter of coal explain these actions [as] does the Coalition’s innate conservatism and climate scepticism’.37 Both economic elite groups and corporations exercise their democratic right to infuence policymaking (i.e. lobbying), through which they not only promote their agenda, but also cultivate close personal ties with policy/lawmakers. Such close ties open opportunities to infuence regulation, through the ‘revolving door’ phenomenon, whereby it is common for industry lobbyists to have previously held political ofce and for senior executives to take up positions as regulator or policy advisor (e.g. fnancial services), facilitating frictionless career moves between public ofce and private interest.38 Similarly, Monsanto, the US agrochemical and agricultural biotechnology company, used its close ties with government to obtain favourable regulation, even at the expense of consumer safety.39 In Australia’s controversial Adani mining project in Queensland, ‘six out of ten of the Premier’s personal meetings with lobbyists were with Adani’s lobbyists, and at least three of these included [former State Secretary] Milner’.40 These studies lend support to the view that ‘economic elites and organized groups representing business interests have substantial independent impacts on. . . government policy, while average citizens and mass-based interest groups have little or no independent infuence’.41 Corporate infuence opens the door to a democratic defcit, through the ‘sustained integration of lobbying in a representative democracy’, or by the alienation of the electorate through lack of public control over political decisions that afect them.42 More broadly, Zwarthoed notes several factors undermining the capacity of current democratic systems to meet future generational obligations, including the infuence of ‘short-termist’ lobby groups, such as fossil fuel and automobile industries.43 Lastly, public engagement with government on infuencing future-oriented policies, such as climate change, is weak, largely left to activist individuals and groups. Fairbrother et al., in their survey of four countries (Sweden, Spain, South Korea, and China), found most people care about future generations but

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either disbelieve or distrust the claimed benefts of future-oriented policies, such as addressing climate change and the national debt.44

Notes 1 Iyer-Raniga, U., & Treloar, G. (2000). A context for participation in sustainable development. Environmental Management, 26(4), 349–361. 2 Neveu, M. J. (2015). Crisis, crisis, everywhere. Journal of Architectural Education, 69(1), 1–1. 3 More, A. F., Spaulding, N. E., Bohleber, P., Handley, M. J., Hofmann, H., Korotkikh, E. V., . . . Mayewski, P. A. (2018). The role of historical context in understanding past climate, pollution and health data in trans-disciplinary studies: Reply to comments on More et al., 2017. GeoHealth, 2, 162–170. 4 Reisman, A., & Wineburg, S. (2008). Teaching the skill of contextualizing in history. The Social Studies, 99(5), 202–207. 5 Redmond, W. H. (2004). On institutional rationality. Journal of Economic Issues, 38(1), 173–188. 6 Nelson, R. (1995). Recent evolutionary theorizing about economic change. Journal of Economic Literature, 33(1), 48–90. 7 Fischer, L.-B., & Newig, J. (2016). Importance of actors and agency in sustainability transitions: A systematic exploration of the literature. Sustainability, 8, 476. 8 Börjeson, N., & Boström, M. (2018). Towards refexive responsibility in a textile supply chain. Business Strategy and the Environment, 27, 230–239, p. 233. 9 Eisenschitz, A., & Gough, J. (1996). The contradictions of neo-Keynesian local economic strategy. Review of International Political Economy, 3(3), 434–458. 10 Kanji, R., & Agrawal, R. (2020). Exploring the use of corporate social responsibility in building disaster resilience through sustainable development in India: An interpretive structural modelling approach. Progress in Disaster Science, 6, 100089. 11 Eisenstadt, S. N. (1964). Social change, diferentiation, and evolution. American Sociological Review, 29(3), 375–386. 12 Ibid., p. 375. 13 Thistlethwaite, J. (2014). Private governance and sustainable fnance. Journal of Sustainable Finance & Investment, 4(1), 61–75. 14 Dernbach, J. C. (2003). Achieving sustainable development: The centrality and multiple facets of integrated decision making. Indiana Journal of Global Legal Studies, 10(1), 247–284. 15 Quoted by Meynhardt, T. (2009). Public value inside: What is public value creation? International Journal of Public Administration, 32(3–4), 192–219, p. 192. 16 Benington, J., & Moore, M. H. (2011). Public value in complex and changing times. Public value: Theory and practice (p. 1). Palgrave Macmillan. 17 Samuels, W. J. (1995). The present state of institutional economics. Cambridge Journal of Economics, 19(4), 569–590. 18 Tilman, R. (1983). Social value theory, corporate power, and political elites: Appraisals of Lindblom’s politics and markets. Journal of Economic Issues, 17(1), 115–131, p. 127. 19 Hirschman, A. O. (2002). Shifting involvements: Private interest and public action. Princeton, NJ: Princeton University Press. 20 Meynhardt, T. (2009). Public value inside: What is public value creation? International Journal of Public Administration, 32(3–4), 192–219. 21 Ibid., p. 212. 22 Ibid.; Frederickson, H. G. (1991). Toward a theory of the public for public administration. Administration & Society, 22(4), 395–417; Frederickson, H. G. (1997). The spirit of public administration. San Francisco: Jossey-Bass. 23 Hardin, R. (2003). Indeterminacy and society. Princeton, NJ: Princeton University Press.

260 Creating social and public value 24 Gewirth, A. (1988). Ethical universalism and particularism. The Journal of Philosophy, 85(6), 283–302. 25 Dreier, J. (1993). Structures of normative theories. The Monist, 76, 22–40. 26 Chichilnisky, G., Hammond, P., & Stern, N. H. (2018). Should we discount the welfare of future generations? Ramsey and Suppes versus Koopmans and Arrow. Warwick Economics Research Papers Series (WERPS), 1174. Retrieved from http://wrap.warwick. ac.uk/107726 27 Broome, J. (1994). Discounting the future. Philosophy & Public Afairs, 23(2), 128–156. 28 Ibid. 29 Chichilnisky, G., Hammond, P., & Stern, N. H. (2018). Op. cit. 30 Ramsey, F. P. (1928). Op. cit. 31 Neustadtl, A.,  & Clawson, D. (1988). Corporate political groupings: Does ideology unify business political behavior? American Sociological Review, 172–190. 32 Amsden, A. H., DiCaprio, A., & Robinson, J. A. (2012). The role of elites in economic development. New York: Oxford University Press. 33 Tilman, R. (1983). Op. cit. 34 Musacchio, A., & Read, I. (2007). Bankers, industrialists, and their cliques: Elite networks in Mexico and Brazil during early industrialization. Enterprise & Society, 842–880. 35 Rothman, S. (2001). Political elites: Recruitment and careers. In N. J. Smelser & P. B. Baltes, (Eds.), International encyclopedia of the social & behavioral sciences. Oxford: Pergamon. 36 Ibid., p. 11656. 37 Crowley, K. (2017). Up and down with climate politics 2013–2016: The repeal of carbon pricing in Australia. WIREs Climate Change, 8, e458, p. 8. 38 Wirsching, E. M. (2018). The revolving door for political elites: An empirical analysis of the linkages between government ofcials: Professional background and fnancial regulation. In 2018 OECD Global Anti-corruption and Integrity Forum. Paris: OECD. 39 Shen, A. (2013). The Real Monsanto Protection Act: How the GMO giant corrupts regulators and consolidates its power. Think Progress. 40 Wood, D., & Grifths, K. (2018). Who’s in the room? Access and infuence in Australian politics. Grattan Institute Report No. 2018–12, p. 23. 41 Gilens, M., & Page, B. I. (2014). Testing theories of American politics: Elites, interest groups, and average citizens. Perspect Politics, 12(3), 564–581. 42 Karr, K. (2007). Democracy and lobbying in the European Union. Frankfurt; New York; Chicago, IL: Campus Verlag; University of Chicago Press; Levinson, S. (2007). How the United States Constitution contributes to the Democratic defcit in America. Drake Law Review, 55(4), 859–878. 43 Zwarthoed, D. (2018). Political representation of future generations. In M. Düwell, G. Bos, & N. van Steenbergen (Eds.), Towards the ethics of a green future: The theory and practice of human rights for future people (pp. 79–109, p. 81). London: Routledge. 44 Fairbrother, M., Arrhenius, G., Bykvist, K., & Campbell, T. (2020). How much do people value future generations? Climate change, trust, and public support for future-oriented policies. Retrieved from TrustGov.net; Fairbrother, M., Arrhenius, G., Bykvist, K., & Campbell, T. (2020). How Much Do We Value Future Generations? Climate Change, Debt, and Attitudes towards Policies for Improving Future Lives. Working Paper 2020:11. In Paul Bowman and Katharina Berndt Rasmussen (Eds.), Studies on Climate Ethics and Future Generations. Vol. 2. Institute for Futures Studies Working Papers 2020: 1–11 Stockholm 2020. pp. 237–265. Stockholm. Retrieved from https://www.ifs.se/media/22920/ climateethics_vol2_webb.pdf#page=238.

Index

Note: Page numbers in italics indicate a fgure and page numbers in bold indicate a table on the corresponding page. 5by20 initiative 79, 89 5G communications technology 52, 70; Huawei 52–57; technical papers 56; ZTE 53 actionable policy measures 16, 193–195, 213; and bureaucratic practices 198–201; neoliberal policy practices 198–199 agricultural biotechnology companies 210–211, 258 American capitalism 18 anti-corruption laws 10, 25, 29 artifcial intelligence (AI) 64 Bangladesh 64; Central Bank of 136–138; climate change 104–105; coal- and natural gas-fred electricity generation 105; economic growth 105; environmental sustainability in 104 banking 163–164; in Bangladesh 136–138; conventional vs. sustainable 164; defraud 136–138; sustainable fnance 163 biodiversity: challenges facing society 4; efects of pollution on 59; loss of 45, 61, 105, 257; protection of 209; regenerative economy and 115 biofuel 105 Brundtland Commission (1983): establishment of 23; Our Common Future 209 Brundtland Report (1987) 24, 83, 87 Building Research Establishment Environmental Assessment Method (BREEAM) 156 Business and Sustainability Report (2019), for Coca-Cola 79–80; see also corporate sustainability assessment (CSA) business policies 193, 199

Canada 29, 31–32, 53, 78; biotechnology companies in 211; environmental and mining regulations 111; infuence of neoliberalism in 192; Lac-Mégantic rail disaster 169; oil and gas industry in 104; rare earth minerals 111; telecommunications industry in 102, 103 carbon capture and storage systems 97 carbon dioxide (CO2) emissions 85, 111, 111, 113, 114, 157 carbon footprint 92–93 Carroll, A. 23–24; corporate social performance model 24; CSR defnition 23 Central Bank of Bangladesh 136–138 China: Chinese companies, social and political landscape 103; CO2 emissions/ GDP relationship 111, 114; COVID-19 global pandemic 104; economic growth in 1990–2019 112; electric vehicle batteries 111; environmental issues 101; environmental performance 113; HDI comparison 113; infrastructure investment projects 52–54; internet, government policy of censorship 103; Ministry of Environment Protection 103; social regulation policy 104; socioeconomic change 103; sustainability paradox 101–102; sustainability performance 112–114; sustainability regulation 103–104 circular economy (CE) 14, 93, 97, 117, 159; framework of 115; model of 114 citizenship society 232 civil rights policies 193, 199, 213 civil society organisations 4, 126, 191, 198–199, 213, 222

262 Index classical liberalism: liberalism 192, 206, 220–221; neoliberalism 15–16, 48–51, 61, 191–201, 205–213; see also democrats; laissez-faire economics; libertarianism; Republican Party, Republican climate change 3, 35, 49, 127, 151–152, 173, 240, 257–259; in Bangladesh 104–105; challenges facing society 4; Coca-Cola’s operating practices and 92–94; and environmental degradation 244, 251; GHG emissions and 104; humanity’s contribution to 5; impact of fossil fuels on 6; natural disasters associated with 105; United Nations Framework Convention on Climate Change (UNFCCC) 213 coal-fred power generation 34, 153 Coca-Cola Company 14, 79, 89–90; economic sustainability of 86–87; environmental sustainability of 92–94; use of groundwater 89 Codes of Business Conduct 176 commercialisation, idea of 197, 201 company-funded healthcare programmes 29 Conservative government 203; Conservatives 208 corporate conscience 21 corporate contributions, to healthcare/ education/security/human rights 32 corporate cybersecurity 136 corporate engagement 150 corporate fnancing: by equity and bonds 157–162; impact on corporate strategy and governance 161; SDG impact theory 158–160; SDG integrated model for 158; SDG investment 160–161; UN’s integrated model for 15 corporate funding 153 corporate governance 24, 27, 77, 139, 157–158, 161, 176 corporate infuence 257–259, 258 corporate responsibility (CR) 9, 12, 77, 109, 168–169; Dow Jones Sustainability Indices 174–178; evaluation theories 171–173; frm-level and supply chain responses 81–83; future evolution of 184–186; Global Reporting Initiative 178; history of 18, 19–21; international approaches to 83; ISO 26000 179–184; measures of 174; reporting by region 186; reporting of 171–173, 174; social expectations 11; social responsibility

vs. sustainability 77–80; supply chain responses 81–83; sustainable development 168–169; teething period 21; United Nation’s Sustainable Development Goals (SDGs) on 33, 178–179 corporate social performance (CSP) 22, 23; fnancial performance of frms 23; models for 23 corporate social responsibility (CSR) 12–13, 21, 77, 238; Carroll’s CSR pyramid 77; conceptual model of 78; corporate responsibility vs. sustainability 77–80; defnition of 22, 22; frm’s proftability 23; stakeholder-centric framework 13, 26; stakeholder systems approach 28; three-dimensional model 25; Ullman’s model 26; use of 78 corporate stewardship 21 corporate sustainability assessment (CSA) 175–176, 176–177 corporations: economic elite groups 159, 258 corporatist model 232 corporatist welfare state model 229 COVID-19 pandemic 17, 63, 162, 186, 207; economic impacts of 234; as global pandemic 5, 104 ‘cradle-to-grave’ impact, analysis of 116 cultural development 97 cultural traits 10, 98 cyberattacks 56, 136 cybercrime 136 cybersecurity 56, 122, 177; corporate 136; Global Cybersecurity Index (GCI) 135 democrats 54, 208, 211 deregulation, of corporate sector 48, 64, 191, 193, 198, 200, 209 developing societies see societal development Dharavi, Mumbai 64–67; entrepreneurs 66; plastic waste recycling 66; waste recycling 66; see also inequality; poverty discounting methods, disenfranchise future generations 256–257 diverse socio-cultural systems, evolution of 13, 43 Dow Jones Sustainability Indices (DJSI) 174, 175–178, 176–177 East Asian economies 62, 207 ecological-evolutionary systems theory 44, 51–52

Index ecological modernisation theory (EMT) 14, 90–91 ecological state 240 economic crises 191–192, 196–197, 205, 222, 236–237 economic development 18, 43, 47, 51, 58, 62, 69, 87, 90, 92, 95, 123, 126–128, 135, 141, 192, 206–207, 209, 241, 243, 251, 254 economic elite groups 256–259 economic policies: Adam Smith 192; classical liberalism 192; Keynesian welfare 192; libertarianism 206; macroeconomic policies 198–199; pro-growth 208; for removal of price controls 191; towards neoliberalism 191 economic recovery 192, 196, 240 economies: developing societies 42; governance of 224; sustainability 8; top fve 31 Economist magazine 10, 68, 234–235 eco-social state 240 education 22, 29, 32, 43, 46–47, 49, 90, 102, 107, 197, 208, 225, 227, 243; challenges facing society 5; equitable access to 220; gender equality in 5; higher education 19; training policies 199; vocational 199 Ellen MacArthur Foundation 115 employment and workplace standards, challenges facing society 4 employment equity 24 employment rights 224, 237 energy 9, 13, 44, 79, 97, 105, 154, 227, 251; carbon footprint 92; challenges facing society 5; from coal burning 105; conservation projects 170; consumption of 33, 105, 156–157; efciency 103, 151, 161, 165; electrical 20; generated from fossil fuels 33; management of 154; mechanical 20; need for 43, 51; nuclear 105; relation with economic growth 6, 111, 207; renewable 97, 111, 114, 155, 161, 187; security of 105; solar 51; sources of 51, 111, 207; storage technology 161; technologies for extracting 51; technology development 33; from wood burning 6 England: non-tidal surface water and groundwater 202; privatisation of public water supply 201–205; regulatory regime, structure of 204 entrepreneurialism: entrepreneurial classes 51; Finnish citizens 227; knowledge

263

creation and application 61; and neoliberalism 195; and private property rights 209–210; and self-reliance 238; and social sustainability 89–90; see also Dharavi, Mumbai environmental challenges 127, 143 environmental concerns, determination of 241 environmental degradation 43, 59, 84–85, 91, 109, 135, 241, 244; economic and social inequality 58; to economic growth 86 environmental disaster 239 environmental impacts 27, 35, 59, 82, 84, 92, 94, 103, 105, 151, 153, 155, 157–158, 179, 184, 254, 257 environmental intrusion 239 environmentalism 194, 220, 239–242 environmental Kuznets curve (EKC) 14, 84, 85 environmental management system (EMS) 116, 180, 182 environmental pollution 102, 130 environmental, social and governance (ESG) 148, 164 environmental state 222, 240–242 environment, social, and governance (ESG) 174 ESG criteria 149, 176 Esping-Andersen, G. 232; decommodifcation indices 229, 243, 245; welfare regimes 233 European Age of Enlightenment 44 European Union (EU) 42, 90, 115, 185, 203, 211, 242, 244; energy consumption 105; issues of social responsibility 83; social and economic conditions changing 220 evolutionary theory, of change 252, 253 Favotto, Alvise 35 fnance, sustainable 152, 154, 155; banking 163–164; defnition of 148; framework of 154; government, role of 165–166; insurance 164–165; objective 148; role of 151–156; see also corporate fnancing fnancial vs. sustainable fnancial system 152 Finland 16, 116, 225–226, 245; gender equality 227; national corporate responsibility practices 84; social protection system 228; UBI experiments in 234; universal basic income schemes 235–236 Food and Agriculture Organization of the United Nations (FAO) 6

264 Index Food and Drug Administration (FDA), USA 211 food security 6, 51, 130, 213; challenges facing society 4; social concerns about 211 Forbes magazine 30, 30 forests 6, 61, 126 Forest Stewardship Council (FSC) 9, 122, 141 fossil fuels 6, 9, 33, 104–105, 111, 116, 126, 207, 240, 258 Freeman, R. Edward 7, 25, 77 free-market economics 207, 209 Friedman, Milton 7, 22 future generations 49, 122, 125, 127, 128, 256, 258 G20 summits 138, 140 GDP growth 49 Geels, F.W. 99, 100 Gellner, E. 57; see also industrialising societies; transitional gender: discrimination 81; equality 5, 10, 227 genetically modifed food 16, 210–212 geopolitical competition, challenges facing society 4 Germany 21, 31, 33, 134, 244; anticorruption laws 29; corporatist model 232; democratic forums in 233; economic boom in 20; Richter trial 25; Siemens Afair of 2006 29–30; welfare states 233 global challenges facing society 3–5 Global Change Data Lab (GCDL) reports 62 global corporate responsibility reporting 184 global economy 109, 152; comparison of 31; core-periphery model of 58; sociotechnological periods 98 global energy technology company 13 global fnance, challenges facing society 4 Global Impact Investing Network (GIIN) 155 globalisation 27–33; competitive nature 111; neoliberal 50; power of capital and business 242; production and trade 133; social and environmental dimensions 110 global markets 48, 53, 81, 110, 212 global population 58, 62, 98, 222 Global Reporting Initiative (GRI) 15, 174, 178; G4 guidelines 184; indicators 179;

Intel Corporation’s use of 182–184; non-governmental organisations 141 global supply chains 121, 138–139 global supply ecosystems 136 global sustainability governance 121, 127 global trade and investment, challenges facing society 5 global value chains (GVC) 133–135, 140 global warming 4, 44, 45, 104 GMO technology 210 Gough, Ian 242 governance: good 14, 123, 128, 131; policies 199; private 9; for sustainable development 125, 128; see also corporate governance governance, sustainable: adaptation 130–131; ‘capitals’ perspective 123–126; democratic institutions 131; development of 122; dimensions of 128; economic co-operation/development, organisation for 139–140; evaluating performance 131–132; fraud, bribery, and corruption 135–138; global 126– 127; history and evolution of 122–123; institutionalising 138–141; international private rule-making organisations 141; multinationals, as global institution 140– 141; need for 127–128; participation of 128–129; policy coherence 129–130; refexivity of 130–131; social system 121; and supply chains 132–138; UN Global Compact Initiative (UNGCI) 122, 139; UN sustainable development goals 138 governmentality, notion of 219, 237 Great Depression of 1930s 98, 236 green capitalism 91 greenhouse gas (GHG) emissions 5–6, 9, 85, 92, 104, 151, 161, 182 green state 240 Guardian, The 205, 236 Guiding Principles on Business and Human Rights (United Nations) 89, 230 Hardin, G. 44 healthcare, challenges facing society 5 hidden welfare state 225 HIV/AIDS treatment 90 homogeneous society 46 Huawei Technologies Co. Ltd. 13; 5G Technology 52–57; access to national networks 54; Entity List 53; global market share 53; technology leadership 54–57; Wi-Fi market 55

Index human communities 43, 44 human development theory 49 humanity: demands on biophysical world 11; impact on ecological environment 43 human societies 43, 45 hunter-gatherers 45, 51, 61 import substitution industrialisation (ISI) 47, 50 income inequality 61–62, 84, 101, 236, 239; challenges facing society 4; macroeconomic volatility and 50 incomes 239, 239 inequality: Chen, M.A. 68; components of 61; and economy 67; and environmental degradation 43, 58; human development theory 49; impediment to societal development 63; income and gender 4, 68; Latin American development 50; long run trends 62; Meagher, K. 68; nation state welfare system 61; and neoliberalism 5; political and economic 50; and poverty 67; and sense of security 68; social 13, 58; and wealth distribution 11; and well-being 68; see also urban population, urban inequality India: Adani group 33–35; CO2 emissions/ GDP relationship 111; Punjab National Bank (PNB) 136–138 industrial age 45 industrialisation 43; technology utilisation 57; urban informality 61–62; urbanisation 58–61; urban population 63–64; urban settlements 62–63 industrialising economies: BRICS countries 230; emergence of 58; least developed countries (LDCs) 230 industrialising societies 57–58, 61; see also Gellner, E.; transitional industrial policies 46, 199 Industrial Revolution 12–13, 44, 98, 99 industrial societies 42–44, 46, 51, 61–62, 257 industrial welfare movement 19 information security 177 information technology (IT) systems 103, 135, 185 innovation, in sustainable development 9 insurance 164–165; health service 46; risk management 164; social 21 integrative social contract theory (ISCT) 13, 80–81

265

Intel: corporate responsibility 170; future of reporting 186–187; strategic legitimacy 173; sustainability reporting 182–184 intellectual property rights 57, 209, 210– 212 inter-communal confict 44 International Labour Organization (ILO) 48, 221; basic needs 48; goal of 68 International Monetary Fund (IMF) 48, 123, 192, 206 International Panel on Climate Change (IPCC) 3 International Standards Organization (ISO) 116; ISO 14001 116; ISO 14040 116; ISO 26000 179–182, 181; standards 174 International Telecommunication Union (ITU) 135 Internet 51, 54; censorship in China 103; challenges facing society 5; internetbased banking 164; Internet of Things (IoT) 55; invention of 102; use of technology related to 103 KELA (Social Insurance Institution of Finland) 228, 236 Kemp, R. 98, 100 Keynesian economic theory 195, 219 Keynesian welfare economic policies 192, 196 Klein, Naomi 191; see also neoliberalism Kollman, Kelly 35 Kuznets curve 14, 84–85 labour: and capital 91, 232; casual and parttime 64, 68; child 82; decommodifed 228, 229; market 237, 244; market risk 230; neoliberal efects 229, 243; social and economic valuations of 44, 58; social stratifcation and solidarity 233; unrest 19; urbanisation 58 labour market policies 193, 198, 199 Labour Party 208; Labour government (Australian) 258; Labour government (British) 211; see also Conservative government laissez-faire economics 192, 206, 221; see also liberalism Latin America: crisis of the 1980s 50; economic recovery of crisis 192 law and order policies 199 Leadership in Energy and Environmental Design (LEED) rating system. 156 least developed countries (LDCs) 230

266 Index legitimacy theory 15, 172 Lenski, G. 46, 61; ecological evolutionary perspective 52; on evolution of human societies 45; non-fossil-fuel-based technologies 52; on survival of societies 51 Lewis, M. W. 109 liberalism: Adam Smith 192; classical 192, 206, 220, 221, 237; social or modern 192; see also neoliberalism; Rawls, John libertarianism 206, 226, 229, 231, 255, 257; see also Nozick, R.; Rawls, John liberal welfare state 221 life cycle assessment (LCA) 14, 114, 116, 117, 163 long-term investing, challenges facing society 5 macro-economic policies 198 macro-sociological scope 41 management discussion and analysis (MD&A) 174 Marine Stewardship Council (MSC) 9, 122, 141 market development 200, 230 marketisation, notion of 197, 198 market-oriented regulation 24, 198, 224 market proxies 198 Marshall, T. H. 222 Marx, Karl 18, 194, 257 Maslow’s hierarchy of needs theory 14, 94 materiality 124, 174, 176, 200 Medicare 227, 235–237 modernisation, theory of 14, 43, 47–48, 49, 50, 61–62; ecological modernisation theory (EMT) 90–91; industrial modernisation 98 modern welfare state, features of 221–222, 236 modularity, notion of 12 Monsanto’s ‘property rights 211 Moore, Gordon 50, 106, 170, 254 Mudge, S. L. see neoliberalism multilevel perspective (MLP) 99; framework and transition theories 100; socio-technical change 100; sociotechnical regime 99 multinational corporations (MNCs) 18, 30, 140; international treaty regulation 141; supply chains 121; sustainability governance 122; sustainable policies 32 multi-stakeholder partnerships 128–129

national corporate responsibility practices, ranking of 83, 84 National Geographic survey 240 National Health Service (NHS) 236 national sustainability governance 123 national welfare states 243 Natural Capital Coalition 125 Natural Capital Protocol Toolkit 125 natural disasters, associated with climate change 105 neo-institutional theory 172 neo-Keynesian localism 253 neoliberal environmental policy 200–201 neoliberal globalisation 50 neoliberalism 192, 193; Bretton Woods Conference 196; characterises of 195; defnition of 193; deregulation 198; economic doctrine 194; environmental policy 200–201; free trade and open markets 196; global politics 212; intellectual face 195, 196; political-economic 193, 195; post-privatisation regulatory framework 201; post-WWII economic recovery 196; privatisation 197; sustainable development 205–210; three faces 194, 195 neoliberal state: bureaucratic practices of 198–204; Castree, Noel 194, 195; infuence of 192; international debates, intellectual 196; macro-scale politicaleconomy philosophy 193; Polanyi, Karl 195; political-economic doctrines 191, 193; political policy discourse/ programme 196–198; sustainable development 205–213 Netfix 103 Nike 83 Nolan, P. 45, 46, 52; see also Lenski, G. Non-Financial Reporting Directive 185 non-fossil-fuel 52, 105 non-governmental organisations (NGOs) 31, 123; allegations 140; economic growth of 88; social activism 31 Nordic welfare 228 norms-based screening 149 North America: Coca-Cola Company’s 2017 economic activity 86–87; industrialised economies 46; social and economic conditions changing 220 North American society 41 North Atlantic Treaty Organization (NATO) 213 Noyce, Robert 170 Nozick, R. 231

Index Ofce of Water Services (OFWAT) 204 Organisation for Economic Co-operation and Development (OECD) 32, 33, 83, 138–140; economic output 112; foreign investment 197; goal 68; HDI comparison 113; social spending, as percentage of GDP 225; sustainable development agenda 122 Ostrom, E. 44 Patagonia 83 peace and confict, challenges facing society 4 Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) 227 personal social services 224 persuasion theory 15, 171 philosophical tensions 255–256 Polanyi, Karl 195, 228 Policing of Families, The 224 Policy Coherence for Sustainable Development (PCSD) 129 Policy Infuence 176 policy process, infuencing 257–259 political-economic policy 16; ideological commitments 11; neoliberalism 15 population growth, forecasting of 4–6, 46, 52, 70, 98, 128, 130, 220 Porter’s value chain, Maslow’s hierarchy of 94 post-material value (PMV) 14, 91–92 poverty 11, 16, 19, 46, 48–49, 58, 62–63, 65, 67–68, 70, 113, 126, 135, 159, 207–210, 234–235, 238; see also inequality; urban poverty poverty reduction strategy papers (PRSPs) 48 Practical Christianity 219 pre-industrial societies 42–44 prioritising sustainability see under sustainability privatisation 197; government 204; of public water supply in England 201–205 property rights 9, 51, 62, 128, 193, 197, 200–201, 209–212 public beneft company (PBC) 205 public services 129, 198, 205, 221, 224 public value, strategic triangle of 106 quality of government (QoG) 128 Quebec Lac-Mégantic rail disaster (2013) 169

267

Rawls, John 221, 231 Reducing Poverty the Republican Way 208 re-education, theory of 15, 172 regimes: technological 100; welfare state 230; see also corporatist model; residual model; universal model regionalism 221 regional water authorities (RWAs) 203 Republican Party 227; Republicans 54, 208, 234, 238; see also Conservative government, Conservatives; democrats; labour Reserve Bank of India (RBI) 137 residual model 233 residual welfare model 229 responsibility, perspectives on 6–7 Risk & Crisis Management 176 Road to Serfdom, The 208 RobecoSAM 175 rule-making organisations, successful 122, 141 Russian doll model 88 SAM corporate sustainability assessment 176–177 Schoenmaker, D. 153, 155 self-governance 9 self-governing consumers 198 self-organisation governance 45 self-regulation 9, 123 self-reliant/self-sufcient community 65 Siemens AG: afair of 1914 24–25; afair of 2006 24, 29–30; history of corporate responsibility at 19–21; present business strategy 33–35; UN Sustainable Development Goals 34 Siemens, Carl Wilhelm 20, 33 signalling theory 15, 172 Sina Weibo (Twitter) 103 slums 62; slum city 64–67; Slumdog Millionaire 64 small and medium-sized enterprises (SMEs) 139, 180 social assistance 16, 192, 222, 223–224, 230, 232 social contract 22, 80, 227, 251 social expectations, for corporate responsibility 11, 253 social expenditure 225; net total 226; OECD countries 226; percentage of GDP 225, 226 social innovation 9 social institutions 42, 49, 99

268 Index social insurance programmes 21, 221, 222–223, 228, 229, 232 social integration 42 social investment position 244 social investment state 16, 243–245 social justice 16, 123, 127–128, 206, 221–222, 224, 231, 232, 243, 254 Social Market Foundation 205 social media 31, 81, 154 social organisation, evolution of 13, 43, 45, 52, 57, 58, 207 social policies 99, 108, 199, 240 social responsibility 12–13, 21, 22–23, 25, 27, 83 social safety net 208, 254 social security programmes 68, 227–228; Finland 227–228; United States of America 227 social spending 226, 236, 238, 240 social stratifcation 16, 57, 61, 231, 232–233 social sustainability 8, 89–90, 105, 112, 149, 173–174 social welfare 46, 237; claims for 227; political institutions 257; politicallyagreed 243; provision of 237 societal development: basic needs 48–49; dependency 48; direct fnancing 46; human development theory 49; indirect fnancing 46; macro-level processes of 11; modernisation 47–48; neoliberalism 48; notion of solidarity 42; overview of 41; post-development 49–51; social institutions 42; structuralism 47; sustainable development 49; and technology 51–52 societal survival and development 44 society: environmental and social sustainability of 8; types of 46 socio-cultural systems 43; evaluation of 44; technological advancement 13 socio-ecological systems 13, 43–46, 44, 130–131 socio-economic change 3, 103, 253 socio-economic ideologies 207 socio-economic systems 99, 102–103, 105 socio-environmental impact 87 socio-environmental world 124 socio-technical change 14, 97–100, 104, 253; multilevel perspective 100; postmodern literature 98; social change 97; sustainability priorities 104 socio-technical innovation 251

socio-technical system 98, 100, 102 socio-technological change 97; country levels 109–114; cultural development 97; global economy 98; managing 109; multilevel perspective (MLP) model 99; post-modern literature 98; sustainability priorities 104–108; sustainability process 108–109; transformation, managing 102–103; transition theories 100 solidaristic community 232 solidarity, construction of 232 stakeholder systems: approach to 28, 28–41; management theory 25–27; value of 107 Standage, Tom 10–11 Standard and Poor’s (S&P) Dow Jones Indices LLC 175 state-induced moral individualism 42 structural adjustment policy (SAP) 48 supplier guiding principles (SGPs) 89, 90 supply chains 81, 133; fraud 135; management techniques 82, 82, 176; responses to corporate responsibility 81–83; sustainability governance 132–138 supply ecosystem 122, 133, 135–136 sustainability: capitals perspective 124; corporate responsibility vs. corporate social responsibility 77–80; needs, identifcation of 9; paradox, China 101–102; performance 14, 112–114, 178; priorities 104–108; process 108–109; regulation, China 103–104; transition process, lenses for managing 110; at Vasakronan 150–151; see also governance, sustainable sustainable business models 159 sustainable development (SD) 9, 24, 130, 148; corporate responsibility 8, 168–169; difering perspectives about 7–8; fnancial system 151–156; history of 18; refexive governance 130; role of context 9–10; role of governance in 8–9; Siemens’ impact 34; social and technological innovation in promoting 9; social/technological innovation, interdependence of 9; societal development 49; society’s goal 12 Sustainable Development Goals (SDGs) 15, 33, 125, 127, 222; corporate strategy and governance 161; corporate sustainability 161; corporation’s fnancial management 161; economic resources 132; fnancing 157; governance 132; impact

Index strategy 160; impact theory 158–160; investments 160–161; measurability 159; measurement model 160; and national commitments 179; sectoral matrix 159; social protection coverage 223 sustainable development theories 83–95; ecological modernisation theory (EMT) 90–91; Kuznets curve 84–87; national corporate responsibility practices, ranking of 84; post-material value (PMV) 91–92; triple bottom line (TBL) 87–89; values chain, for developing countries 94–95 sustainable fnance see fnance, sustainable sustainable investment: ESG strategy 150; forecast of 149 sustainable outcomes 114–117 SWIFT transfers 136, 137 systems theory: ecological-evolutionary 44; socio-cultural 44; socio-ecological 43 tax reduction incentives 47 Tax Strategy 177 technological 47; advance 52, 64; choices 52; determinism 52; development 95; innovation 57, 98; knowledge 45; leadership 54, 57; regimes 100; and social change 90, 97, 109; and social innovation 97; solutions to ecological challenges 207; substitution 207; supremacy 57; sustainable 109; systems 98, 99; 102 technology: leadership 54–57; social organisation 52; societies develop and employ forms 51 telecommunications industry: Canadiancontrolled media companies 102; Chinese companies, beneft of 103 Temporary Assistance for Needy Families (TANF) 227 tensions, philosophical/methodological of 255–256 Thatcher, Margaret 193, 203, 209, 212, 237 thematic investing 149 Theories of Development 43; basic needs 48–49; dependency 48; direct fnancing 46; human development theory 49; indirect fnancing 47; modernisation 47–48; neoliberalism 48; North 49; post-development 49–51; sustainable development 49 Theory of Justice, A (1971) 221

269

This Changes Everything: Capitalism vs. the Climate 191 Three Ps (proft, planet, and people) 49 total quality management (TQM) systems 27 township and village enterprises (TVEs) 210 trade wars 162 training policies 199 transformation 41, 102; managing 102; societal development 41; trade-of lens 109 Transforming Our World: The 2030 Agenda for Sustainable Development 127 transition: from social responsibility to corporate responsibility 12 transitional: societies 57; sustainability process 110; see also Gellner, E.; industrialisation transnational corporation (TNCs) 110, 133, 140, 205, 210 transnational crime, challenges facing society 5 transparency, frm corporately responsible actions of 35 transportation 9, 11, 54, 127, 163 triple bottom line (TBL) 87–89; Brundtland Report 87; frm’s employees 88; representations 88; social and environmental dimensions 89; stakeholder involvement 89; Venn diagram 87 trusteeship 21 Twitter 103, 235 Ullmann, Arieh 25–26, 26 Union Carbide’s Bhopal pesticide plant gas leak (1984) 169 United Kingdom (UK) 31, 192, 222; anticorruption laws 25; automotive industry 133–134; global economy 98; National Health Service (NHS) 236 United Nations (UN) 83, 123; adoption of 2030 agenda 3; anti-corruption policies 138, 144; Conference on the Human Environment (1972) 23; environmental challenges 143–144; fve corporate sustainability imperatives 143–144; Global Compact Initiative (UNGCI) 122, 143; Human Development Index (HDI) 112; human rights 143; labour 143; sustainability governance, institutionalising 139; Sustainable

270 Index Development Goals (SDGs) 33, 63, 114, 138, 151, 174, 180, 251; Universal Declaration of Human Rights 230 United Nations Environment Program (UNEP) 178 United Nations Framework Convention on Climate Change (UNFCCC) 213 United Nations Statistics Division (UNSD) 63 United States of America (USA): Bureau of Industry and Security (BIS) 53; Medicare 236; Treasury Department 48, 192 universal basic income (UBI) 234–236; Finland 235–236; United States of America 234–235 Universal Declaration of Human Rights 230 universal model 232 universal welfare state model 229 urbanisation: of China 101; multidimensional 59; rural population 60 urban population: carbon emissions 59; confict with indigenous communities 61; environmental degradation 59; growth 59, 60; impact on health and well-being 59; impacts of economic structural adjustments 64; impacts on infrastructure 59–64 (waste, sewage, transport, telecoms); impacts on public fnances 64; informal economy 63; loss of habitat 59; loss of biodiversity 61; migration 59; regulatory costs 64; slums 59, 63; urban inequality 62; see also entrepreneurialism, knowledge creation and application urban poverty 62; see also Dharavi, Mumbai values chain framework 94, 94–95 Vasakronan’s green fnance framework 156–157, 162–163, 166 Venn diagram 87–88 Vietnam, CO2 emissions/GDP relationship 111

volcanic eruption, in Indonesia 10–11 von Drais, Karl 10–11 Washington Consensus 18, 197, 206, 212 water-borne diseases 63 weak sustainability 125 Weber, Max 8 Weberian rationality 258 WeChat (Facebook) 103 welfare policies 220, 238, 243 welfare states 219, 222, 224; defnition of 222; development 242; economy, governance of 224; employment rights 224; environmentalism 239–242; environmental risk management 220; fscal sustainability of 241; fundamental features of 221; inequality 238–239; liberalism 221; neoliberalism 236–238; personal social services 224; policies 238; public services 224; refection/ prospect 243–245; regimes, three 229 (see also Esping-Andersen, G.); social and economic administration 219; social assistance 223–224; social expenditure 225; social insurance 222–223; social justice 231–232; social stratifcation and solidarity 232–233; subsidiarity and solidarity 233–234; varieties of 228–231 Western-Northern hegemony 49 ‘whole of life’ approach 244 Wi-Fi network 54 Williamson, John 197 World Bank 48, 63, 83, 123, 126, 133, 134, 160, 192, 206 World Economic Forum 3, 85 World Health Organization (WHO) 213 World Resource Institute, The 6 World Trade Organization (WTO) 48, 138 XPRIZE Pandemic Alliance 186 Youku Tudou (YouTube) 103