Sustainable Global Value Chains [1st ed. 2019] 978-3-319-14876-2, 978-3-319-14877-9

Table of contents :
Front Matter ....Pages i-xxi
The Editors Review of Evidence and Perspectives on Sustainable Global Value Chains (Daniele Giovannucci, Berthold Hansmann, Dmitry Palekhov, Michael Schmidt)....Pages 1-15
Front Matter ....Pages 17-17
Rio+20 and Beyond: A New Era of Sustainable Development, Partnership and Interdependence (Chantal Line Carpentier, Isabel Garza Rodríguez)....Pages 19-42
The Grand Vision of G7 in Elmau: Quo Vadis, Sustainability? (Katharina Serrano)....Pages 43-62
From Stockholm to Paris: Four Decades of Sustainability in International Law (Terence Onang Egute, Eike Albrecht, Kelvin Awanaya Egute)....Pages 63-83
European Union Policy for Sustainable Development (Eva Leptien, Ganna Mochalova, Eike Albrecht)....Pages 85-106
Sustainability in Trade and Investment Agreements (Evita Schmieg)....Pages 107-121
Capacity Building to Promote Sustainable Value Chains: The ValueLinks 2.0 Methodology (Andreas Springer-Heinze)....Pages 123-135
Towards Mandatory Sustainability: Recent Lessons from Germany (Robert Atkinson)....Pages 137-155
An Introduction to Sustainability in Australia’s Energy Policies (Aleksandar Damjanovski)....Pages 157-178
Governmentally Controlled Supply Chains in Areas Facing Food Security Challenges: The Case of Baladi Bread Supply Chain in Egypt and the Policy Transition After the 2011 Uprising (Sarkis Nehme)....Pages 179-192
Tools of Transformation: From Small Scale Progress to Structural Change (Guus ter Haar, Lucas Simons)....Pages 193-208
Front Matter ....Pages 209-209
Sustainability Governance of Global Supply Chains: A Systematic Literature Review with Particular Reference to Private Regulation (Marina Jentsch, Klaus Fischer)....Pages 211-226
Chain of Custody and Transparency in Global Supply Chains (Alexander Ellebrecht)....Pages 227-237
Clarity in Diversity: How the Sustainability Standards Comparison Tool and the Global Sustainable Seafood Initiative Provide Orientation (Friederike Sorg, Jens Kahle, Niklas Wehner, Max Mangold, Silke Peters)....Pages 239-264
Future Role of Voluntary Sustainability Standards: Towards Generation 3.0? (Mathieu Lamolle, Sandra Cabrera de Leicht, Regina Taimasova, Aimee Russillo)....Pages 265-286
Front Matter ....Pages 287-287
Measuring Progress Towards Sustainability: A View of the Main Approaches to Evaluation (Keith Child)....Pages 289-304
Transformational Change: The Challenge of a Brave New World (Jyotsna Puri)....Pages 305-326
Impact Assessment of Commodity Standards: Pathways for Sustainability and Inclusiveness (Ruerd Ruben)....Pages 327-345
Performance Monitoring: An Agile New Tool for Facilitating Sustainability in Value Chains (Jessica Mullan, Heather Esper, Daniele Giovannucci)....Pages 347-360
Evaluating the Potential of a Green Economy in Tunisia: A System Dynamics Modelling Approach for the Solid Waste Management Sector (Salma Halioui, Michelle Heese, Michael Schmidt)....Pages 361-377
Front Matter ....Pages 379-379
Designing Progress Towards Sustainable Sectors: The Four Phases of Market Transformation (Guus ter Haar, Lucas Simons)....Pages 381-396
What’s Next for Transforming the Palm Oil Sector: More of the Same or Better Embedded? (Johan Verburg)....Pages 397-415
The Global Coffee Platform: An Innovative Approach to the Coffee Sector Transformation (Friederike Martin, Lars Kahnert, Annette Pensel, Jishoy Vithayathil)....Pages 417-433
Cocoa Certification in West Africa: The Need for Change (Enrique Uribe-Leitz, François Ruf)....Pages 435-461
Sustainability in the Banana Sector: Development and Success Factors of the German Action Alliance for Sustainable Bananas (Alexandra Kessler, Christoph Hermann)....Pages 463-479
Forest Stewardship Council: Transforming the Global Forestry Sector (Amparo Arellano Gil, Thomas Colonna, John Hontelez, Marion Karmann, Anakarina Pérez Oropeza)....Pages 481-497
Recent Experiences from the Natural Rubber Industry and Its Movement Towards Sustainability (Edward Millard)....Pages 499-520
Responsible Mining: Challenges, Perspectives and Approaches (Dmitry Palekhov, Ludmila Palekhova)....Pages 521-544
Responsible Gold Mining at the Artisanal and Small-Scale Level: A Case Study of Ghana (Kenneth Bedu-Addo, Dmitry Palekhov, David J. Smyth, Michael Schmidt)....Pages 545-563
Industry Initiatives Towards Environmental Sustainability in the Automobile Value Chains (Pia Dewitz)....Pages 565-583
Tourism and Sustainability: Transforming Global Value Chains to Networks (Keith Bosak, Stephen F. McCool)....Pages 585-595
Front Matter ....Pages 597-597
localg.a.p.: International Know-How Applied at Regional Level (Enrique Uribe-Leitz, Elmé Coetzer-Boersma, Christi Venter)....Pages 599-619
Cui bono: Who Stands to Gain? Certification for Smallholder Tree-Farmers in Southeast Asia (Aidan C. Flanagan, Peter R. Stevens, Stephen J. Midgley)....Pages 621-638
Group Certification: Market Access for Smallholder Agriculture (Mildred Steidle, Gerald A. Herrmann)....Pages 639-656
Towards a Living Income Within Agricultural Value Chains (Sophie Grunze, Kristin Komives, Don Seville, Stephanie Daniels, Eberhard Krain)....Pages 657-671
Potential for Joint Public and Private Initiatives to Eliminate Deforestation from Global Supply Chains (Franziska Rau)....Pages 673-688
Planned Obsolescence: A Case Under Torts Law as Intentional Damage Contrary to Public Policy (Art. 826 German Civil Code) (Eike Albrecht)....Pages 689-708
A Paradigm Shift in University Education Towards Sustainable Development (Dmitry Palekhov, Ludmila Palekhova, Michael Schmidt, Berthold Hansmann)....Pages 709-730

Citation preview

Natural Resource Management in Transition 2

Michael Schmidt Daniele Giovannucci Dmitry Palekhov Berthold Hansmann Editors

Sustainable Global Value Chains

Natural Resource Management in Transition 2 Series Editors Michael Schmidt, Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Cottbus, Germany Berthold Hansmann, Division Climate Change, Rural Development, Infrastructure, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Eschborn, Germany Dmitry Palekhov, Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Cottbus, Germany

More information about this series at http://www.springer.com/series/13274

Michael Schmidt • Daniele Giovannucci • Dmitry Palekhov • Berthold Hansmann Editors

Sustainable Global Value Chains With Contribution by Robert Atkinson

Editors Michael Schmidt Department of Environmental Planning Brandenburg University of Technology Cottbus-Senftenberg (BTU) Cottbus, Germany Dmitry Palekhov Department of Environmental Planning Brandenburg University of Technology Cottbus-Senftenberg (BTU) Cottbus, Germany

Daniele Giovannucci The Committee on Sustainability Assessment (COSA) Philadelphia, PA, USA Berthold Hansmann Division Climate Change, Rural Development, Infrastructure Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Eschborn, Germany

ISSN 2198-9702 ISSN 2198-9710 (electronic) Natural Resource Management in Transition ISBN 978-3-319-14876-2 ISBN 978-3-319-14877-9 (eBook) https://doi.org/10.1007/978-3-319-14877-9 © Springer Nature Switzerland AG 2019 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword by Leonard Mizzi

Sustainability sits at the heart of the European Union (EU) policy priorities, and its three pillars (social, environmental and economic) are reflected in both its internal and external polices. Sustainability is no longer considered a luxury; it establishes the foundations for a society that meets its needs, without compromising the ability of the next generations to meet their needs. Doing so will require breaking the link between economic growth and environmental degradation. This is the task the world set itself when it adopted the 2030 Agenda for Sustainable Development in 2015, including the Sustainable Development Goals (SDGs). The sustainable management of natural resources is a vital aspect of these SDGs—indeed 12 of the 17 Goals are directly linked to it. In particular, in its external cooperation policies, the EU actively contributes to the eradication of poverty, which is mainly addressed in SDG1, through sustainable development measures. And we are well aware of the close link between improved natural resources management and poverty reduction. Sustainability is essential to both businesses and consumers, and we are reinforcing our work with governments to ensure that sustainability considerations are reflected in EU cooperation programmes and in local governance systems. Both consumers and investors are increasingly keen to promote sustainability in their consumption and production patterns; it is clear that governments have a role in helping them reach sustainable decisions through the provision of information and analysis regarding sustainability. Voluntary standards represent an important tool in our toolbox to support such sustainable decision-making. These non-governmental schemes respond to the demand for sustainably produced products and also seek to create a supply of such products, in addition to raising greater awareness of sustainability issues. Among a broad spectrum of sustainability-related subjects, this publication contributes to a better understanding of how voluntary standards can contribute to generally more

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Foreword by Leonard Mizzi

sustainable global value chains. I warmly recommend it as a reference document for interested parties. European Commission, DirectorateGeneral (DG) for International Cooperation and Development (DEVCO), Head of Unit for Rural Development, Food Security and Nutrition

Leonard Mizzi

Foreword by Kevin J. Dooley

The consumer economy provides innumerable benefits and comforts of life to society, from meeting our food and health needs to providing the objects we interact with daily. Almost all visions of a future, more sustainable society, assume that we will still have a consumption-based, albeit more circular, economy. As an additional 2–3 billion people achieve middle-class status in the next decades, it is essential that the negative environmental and social impacts of producing consumer goods be addressed. The majority of global greenhouse gas emissions, water use, deforestation and labour violations can be linked to the consumer economy. Furthermore, these impacts tend to be the greatest at the ‘ends’ of the value chain: at the beginning of the value chain where agricultural or material extraction activities occur, and at the end of the value chain where product meets end-of-life and must be reused or disposed of. At The Sustainability Consortium, we believe that market-based mechanisms are the most efficient and effective way to induce the adoption of sustainable practices in supply chains. This book, volume 2 in the Springer book series ‘Natural Resource Management in Transition’, contains an excellent collection of chapters authored by some of the leading organisations and individuals working on improving supply and value chain sustainability. It both captures the state of current practice and sets forth research and policy challenges. Increasing the effectiveness of global supply chains and improving circularity touch upon many diverse types of stakeholders and disciplines; these are represented in the book’s coverage of political systems, private sector initiatives, the state of practice and cases studies of progress, and an overview of emerging issues. Distinguished Professor of Supply Chain Management, Arizona State University

Kevin J. Dooley

Chief Scientist, The Sustainability Consortium

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Foreword by Sarah Schaefer

Until recently, the world lacked a shared, international strategy for advancing sustainable development and tackling the seemingly insurmountable, complex challenge of climate change. Yet in 2015, we collectively addressed these challenges. The Paris Climate Agreement and Sustainable Development Goals (SDGs) provide us with an ambitious and bold framework to create a more sustainable, equitable and inclusive world by 2030, equipping us to overcome the hurdles we will face. Yet still, an issue essential to achieving both the Paris Climate Agreement and the SDGs remains side-lined from the global agenda, written-off as too complicated to solve: our food and land-use systems need urgent attention. Today, the way we produce our food and use our land is not fit for purpose. This drives massive environmental destruction, accounting for around 25% of greenhouse gas emissions and causes devastating natural capital losses (including loss of biodiversity, soil erosion and reduced fertility). The disconnect between production and consumption has fuelled the double burden of persistent malnutrition and rising obesity, with 800 million people going hungry and over 2 billion overweight or obese. Meanwhile, 500 million smallholder farmers live under the poverty line. As the producers, manufacturers and retailers of most of the world’s food, business has therefore a responsibility to help drive the food system transformation. This is not just because it is the right thing to do. Business stands to gain an economic benefit of at least US$12 trillion each year by 2030 if they align their strategies to the SDGs—of which more than US$2.3 trillion are directly linked to food and land-use system transformation. But business cannot do it alone—we need unprecedented levels of collaboration and partners to fulfil our joint vision. This book, volume 2 in the Springer book series ‘Natural Resource Management in Transition’, therefore contains a timely collection of chapters authored by some of the leading organisations and individuals working on improving supply and value chain sustainability, and it provides a valuable overview of existing initiatives to identify the path ahead. Global Policy Director, Unilever

Sarah Schaefer ix

Contents

1

The Editors Review of Evidence and Perspectives on Sustainable Global Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Daniele Giovannucci, Berthold Hansmann, Dmitry Palekhov, and Michael Schmidt 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Political Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Private Sector Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 How the Monitoring and Evaluation of Sustainability Has Evolved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 Outlook and Emerging Issues: Perspectives from Select Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part I 2

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1 3 4

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7

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10 13 13

New Trends in Sustainability Agenda: Political Arena

Rio+20 and Beyond: A New Era of Sustainable Development, Partnership and Interdependence . . . . . . . . . . . . . . . . . . . . . . . . . . Chantal Line Carpentier and Isabel Garza Rodríguez 2.1 The 2030 Agenda: A New Era of Development . . . . . . . . . . . . 2.2 How Did the UN Develop Such an Ambitious Universal Agenda? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Business as Usual Is Not an Option . . . . . . . . . . . . . . . . . . . . 2.4 Implementing the SDGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 Trade as an Enabler of Sustainable Development . . . . . . . . . . . 2.6 Implication for Global Value Chains . . . . . . . . . . . . . . . . . . . . 2.7 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . Annex: Agenda 2030: Specific Targets for the Private and Financial Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19 19 21 23 25 30 31 36 38 40 xi

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Contents

The Grand Vision of G7 in Elmau: Quo Vadis, Sustainability? . . . Katharina Serrano 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 A New Sustainability Tool: Global Value Chains . . . . . . . . . 3.3 Collective Sectoral Sustainability Governance: National and Global Multi-Stakeholder Initiatives (MSIs) . . . . . . . . . . 3.4 Looking Back: G7 Approaches to Sustainability . . . . . . . . . . 3.5 2015 G7 Summit in Germany: A New Approach to Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Where to After Elmau? . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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43 45

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52 58 59

From Stockholm to Paris: Four Decades of Sustainability in International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Terence Onang Egute, Eike Albrecht, and Kelvin Awanaya Egute 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 From Stockholm to New York: Sustainable Development in International Soft Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Sustainable Development in International Hard Law . . . . . . . . 4.4 Sustainable Development in Decisions of International Disputes Settlement Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . European Union Policy for Sustainable Development . . . . . . . . . . Eva Leptien, Ganna Mochalova, and Eike Albrecht 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Sustainable Development in the European Union . . . . . . . . . . 5.3 Contribution to Sustainable Global Value Chains . . . . . . . . . 5.4 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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63 63 65 69 76 80 81 85

. 85 . 87 . 99 . 102 . 103

Sustainability in Trade and Investment Agreements . . . . . . . . . . . . Evita Schmieg 6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 The Demands of the UN’s Sustainable Development Goals for Changes in Trade Policies . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Sustainability Issues in Free Trade Agreements . . . . . . . . . . . . 6.4 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

107 107 108 111 117 120

Capacity Building to Promote Sustainable Value Chains: The ValueLinks 2.0 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Andreas Springer-Heinze 7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Contents

Significance of the Value Chain Concept for Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 ValueLinks 2.0: A Methodology for Sustainable Value Chain Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 Sustainability Standards and Value Chain Development . . . . . 7.5 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Towards Mandatory Sustainability: Recent Lessons from Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Robert Atkinson 8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 Clarification of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 Non-Mandatory Sustainability: Potential Advantages of Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 Legislative and Political Tools for Promoting Sustainability . . 8.5 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . An Introduction to Sustainability in Australia’s Energy Policies . . Aleksandar Damjanovski 9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 Energy and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 Policies Pursuing Sustainable Energy . . . . . . . . . . . . . . . . . . 9.4 Key Learnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Governmentally Controlled Supply Chains in Areas Facing Food Security Challenges: The Case of Baladi Bread Supply Chain in Egypt and the Policy Transition After the 2011 Uprising . . . . . . . Sarkis Nehme 10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 Policy Backgrounds of Food Security and Food Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 Food Security in the MENA Region and the Importance of Bread Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 Food Security in Egypt and the Role of Wheat . . . . . . . . . . . 10.5 The Supply Chain of Subsidised Baladi Bread . . . . . . . . . . . 10.6 Challenges Facing the Security of Baladi Bread Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 Governmental Policy and Interventions . . . . . . . . . . . . . . . . . 10.8 Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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130 132 133 134

. 137 . 137 . 138 . . . . .

139 143 150 152 153

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157 158 163 173 174 175

. 179 . 179 . 180 . 182 . 183 . 184 . . . . .

186 187 189 190 191

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Contents

Tools of Transformation: From Small Scale Progress to Structural Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guus ter Haar and Lucas Simons 11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Our Global Food System: The Limits to Change . . . . . . . . . . 11.3 A Logical Outcome of an Unsustainable System . . . . . . . . . . 11.4 Pyramids and Diamonds: The Shape of a Sector . . . . . . . . . . 11.5 The Rules of the Game: What Forces Shape a Sector? . . . . . . 11.6 The Sustainability of Standards . . . . . . . . . . . . . . . . . . . . . . 11.7 Unlocking Progress with Six Key Elements . . . . . . . . . . . . . 11.8 Envisioning a Sustainable Future . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II 12

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. 193 . . . . . . . . .

193 194 195 196 200 202 203 204 206

New Trends in Sustainability Agenda: Private Sector Initiatives

Sustainability Governance of Global Supply Chains: A Systematic Literature Review with Particular Reference to Private Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marina Jentsch and Klaus Fischer 12.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 Research Design and Overview of Results . . . . . . . . . . . . . . . 12.3 Governance Instrument ‘Private Regulation’ . . . . . . . . . . . . . . 12.4 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chain of Custody and Transparency in Global Supply Chains . . . Alexander Ellebrecht 13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 Chain of Custody Models: Successful Traceability Via Adaptability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 Transparency: A Core Supply Chain Challenge . . . . . . . . . . . 13.4 Shared Ledger Technologies Drive Change: Private Federated Ledgers (PFL) and Blockchains . . . . . . . . . . . . . . . . . . . . . . 13.5 How Does Transparency Affect Business: Example of Tony’s Chocolonely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

211 211 212 217 222 224

. 227 . 227 . 228 . 231 . 233 . 235 . 236 . 237

Clarity in Diversity: How the Sustainability Standards Comparison Tool and the Global Sustainable Seafood Initiative Provide Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 Friederike Sorg, Jens Kahle, Niklas Wehner, Max Mangold, and Silke Peters 14.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 14.2 Sustainability Standards Comparison Tool: Orientation in the Landscape of Social and Environmental Labels . . . . . . . 241

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14.3 The Global Sustainable Seafood Initiative . . . . . . . . . . . . . . . . 252 14.4 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . 261 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 15

Future Role of Voluntary Sustainability Standards: Towards Generation 3.0? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mathieu Lamolle, Sandra Cabrera de Leicht, Regina Taimasova, and Aimee Russillo 15.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2 Voluntary Sustainability Standards: Evolution and Recent Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3 What Has Been Achieved So Far by VSS? . . . . . . . . . . . . . . . 15.4 Traditional Models for Assurance: An Old Story? . . . . . . . . . . 15.5 Industry Platforms: Leading the Way on Sectoral Transformation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.6 Towards the Generation 3.0 of VSS . . . . . . . . . . . . . . . . . . . . 15.7 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part III 16

17

265

265 267 273 275 278 282 284 284

Monitoring and Evaluating Progress Towards Sustainability

Measuring Progress Towards Sustainability: A View of the Main Approaches to Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Keith Child 16.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 Establishing the Evaluation Framework . . . . . . . . . . . . . . . . 16.3 Using Programme Theory for Evaluation . . . . . . . . . . . . . . . 16.4 Navigating Different Types of Evaluation Approaches . . . . . . 16.5 Rise of Experimental and Quasi Experimental Approaches . . . 16.6 Observational Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7 Limitations and the Need to Innovate . . . . . . . . . . . . . . . . . . 16.8 Reducing Evaluation Costs . . . . . . . . . . . . . . . . . . . . . . . . . 16.9 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transformational Change: The Challenge of a Brave New World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jyotsna Puri 17.1 Objective and Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2 What Are Organisations Doing? . . . . . . . . . . . . . . . . . . . . . . 17.3 A Discussion of Agency Experiences . . . . . . . . . . . . . . . . . . 17.4 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5 Conclusions: Implications for Organisations . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 289 . . . . . . . . . .

289 290 292 293 293 295 299 302 302 303

. 305 . . . . . .

305 311 312 320 322 323

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19

20

Contents

Impact Assessment of Commodity Standards: Pathways for Sustainability and Inclusiveness . . . . . . . . . . . . . . . . . . . . . . . . . . Ruerd Ruben 18.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2 Impact of Commodity Standards in Value Chains: Objectives, Pathways and Interfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.3 Impact Assessment of Value Chain Performance . . . . . . . . . . 18.4 Conclusions and Outlook: Beyond Impact . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 327 . . . .

Performance Monitoring: An Agile New Tool for Facilitating Sustainability in Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jessica Mullan, Heather Esper, and Daniele Giovannucci 19.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.2 Value and Purpose of Performance Monitoring (PM) . . . . . . . . 19.3 The Tool and How It Works . . . . . . . . . . . . . . . . . . . . . . . . . 19.4 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5 PM Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evaluating the Potential of a Green Economy in Tunisia: A System Dynamics Modelling Approach for the Solid Waste Management Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Salma Halioui, Michelle Heese, and Michael Schmidt 20.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.2 Green Economy: Concept, Principles and Philosophy . . . . . . . 20.3 Green Economy in the Tunisian Context . . . . . . . . . . . . . . . . . 20.4 Modelling the Green Economy . . . . . . . . . . . . . . . . . . . . . . . . 20.5 The Thresholds 21 Modelling Approach in the Context of Greening the Solid Waste Sector in Tunisia . . . . . . . . . . . . 20.6 Solid Waste Management as a Key Sector of the Green Economy in Tunisia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.7 Modelling the Solid Waste Sector in the Context of the Green Economy in Tunisia . . . . . . . . . . . . . . . . . . . . . . 20.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part IV 21

. 327

329 335 341 342 347 347 348 349 355 358 358 359

361 361 362 363 364 366 366 367 374 375

Sector Transformation Towards Sustainability: Selected Initiatives

Designing Progress Towards Sustainable Sectors: The Four Phases of Market Transformation . . . . . . . . . . . . . . . . . . 381 Guus ter Haar and Lucas Simons 21.1 Introduction: Structural Change in our Food System . . . . . . . . 381 21.2 The Four Phases of Sustainability . . . . . . . . . . . . . . . . . . . . . . 382

Contents

Sustainable Evolution: Mapping the Transitions from One Phase to the Next . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.4 Looking Beyond the S-Curve . . . . . . . . . . . . . . . . . . . . . . . . 21.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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21.3

22

23

24

25

What’s Next for Transforming the Palm Oil Sector: More of the Same or Better Embedded? . . . . . . . . . . . . . . . . . . . . . . . . . Johan Verburg 22.1 Introduction: “Welcome to the Hotel California” . . . . . . . . . . 22.2 What Makes Palm Oil Problematic and for Whom? . . . . . . . . 22.3 From Crisis Towards Structural Change . . . . . . . . . . . . . . . . 22.4 Strengths and Weaknesses of Palm Oil Market Transformations So Far . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.5 Where Transformation Should Go for Palm Oil Communities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.6 Call to Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Global Coffee Platform: An Innovative Approach to the Coffee Sector Transformation . . . . . . . . . . . . . . . . . . . . . . . Friederike Martin, Lars Kahnert, Annette Pensel, and Jishoy Vithayathil 23.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.2 The Coffee Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.3 The Establishment of the Multi-Stakeholder Platform: 4C Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.4 Sector Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cocoa Certification in West Africa: The Need for Change . . . . . . Enrique Uribe-Leitz and François Ruf 24.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.2 Cocoa Certification Schemes . . . . . . . . . . . . . . . . . . . . . . . . 24.3 Challenging Certification Criteria . . . . . . . . . . . . . . . . . . . . . 24.4 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainability in the Banana Sector: Development and Success Factors of the German Action Alliance for Sustainable Bananas . . Alexandra Kessler and Christoph Hermann 25.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.2 The Global Banana Sector . . . . . . . . . . . . . . . . . . . . . . . . . . 25.3 Existing Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.4 Multi-Stakeholder-Approach of the Action Alliance for Sustainable Bananas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

386 394 395 395

. 397 . 397 . 398 . 400 . 403 . 410 . 413 . 414 . 417

. 417 . 418 . . . .

421 423 431 431

. 435 . . . . .

435 436 438 456 458

. 463 . 463 . 464 . 468 . 471

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Contents

25.5 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . 477 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477 26

27

28

29

Forest Stewardship Council: Transforming the Global Forestry Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amparo Arellano Gil, Thomas Colonna, John Hontelez, Marion Karmann, and Anakarina Pérez Oropeza 26.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.2 Introduction to FSC Certification . . . . . . . . . . . . . . . . . . . . 26.3 Case Studies from Portugal as Examples of Sector Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.4 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . 481

. . 481 . . 481 . . 486 . . 493 . . 495

Recent Experiences from the Natural Rubber Industry and Its Movement Towards Sustainability . . . . . . . . . . . . . . . . . . Edward Millard 27.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.2 The Natural Rubber Industry . . . . . . . . . . . . . . . . . . . . . . . . 27.3 Social and Environmental Issues . . . . . . . . . . . . . . . . . . . . . 27.4 Movement Towards Sector Transformation . . . . . . . . . . . . . . 27.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Responsible Mining: Challenges, Perspectives and Approaches . . . Dmitry Palekhov and Ludmila Palekhova 28.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.2 Understanding the Concept of Responsible Mining . . . . . . . . 28.3 Overview of the Extractive Industries Transparency Initiative (EITI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.4 Prospects for the Implementation of the IRMA Standard in Countries with Economies in Transition . . . . . . . . . . . . . . 28.5 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 499 . . . . . .

499 500 506 511 517 518

. 521 . 521 . 523 . 528 . 536 . 538 . 540

Responsible Gold Mining at the Artisanal and Small-Scale Level: A Case Study of Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kenneth Bedu-Addo, Dmitry Palekhov, David J. Smyth, and Michael Schmidt 29.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.2 Historical Perspective and Current Challenges of Ghana’s Mining Industry . . . . . . . . . . . . . . . . . . . . . . . . . . 29.3 Voluntary Standards for Responsible Gold Mining . . . . . . . . . 29.4 The AKOBEN Programme as an Initiative Towards Transforming the Artisanal and Small-Scale Gold Mining Sector in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.5 Impact Analysis of the Fairtrade Gold Standard Programme in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

545

545 547 548

550 552

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29.6 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . 558 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559 30

31

Industry Initiatives Towards Environmental Sustainability in the Automobile Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . Pia Dewitz 30.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.2 Environmental Issues Along Global Supply Chains . . . . . . . . 30.3 Major Industrial Environmental Initiatives . . . . . . . . . . . . . . 30.4 Comparison of Initiatives and Discussion of Drivers . . . . . . . 30.5 Potential for Value Chain Transformation . . . . . . . . . . . . . . . 30.6 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tourism and Sustainability: Transforming Global Value Chains to Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Keith Bosak and Stephen F. McCool 31.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.2 The Tourism System: Not a Chain But a Multi-Dimensional Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.3 Systems Thinking in Sustainable Tourism . . . . . . . . . . . . . . . 31.4 Looking to the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part V 32

33

. 565 . . . . . . .

565 567 568 575 578 580 581

. 585 . 585 . . . .

586 591 593 594

Outlook and Emerging Issues

localg.a.p.: International Know-How Applied at Regional Level . . Enrique Uribe-Leitz, Elmé Coetzer-Boersma, and Christi Venter 32.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.2 Background on GLOBALG.A.P. . . . . . . . . . . . . . . . . . . . . . 32.3 localg.a.p. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.4 Principles of a localg.a.p. Programme . . . . . . . . . . . . . . . . . . 32.5 Once localg.a.p. Is Implemented, What Is Next? . . . . . . . . . . 32.6 Case Study: Freshmark localg.a.p., South Africa . . . . . . . . . . 32.7 Conclusion and Recommendations . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cui bono: Who Stands to Gain? Certification for Smallholder Tree-Farmers in Southeast Asia . . . . . . . . . . . . . . . . . . . . . . . . . Aidan C. Flanagan, Peter R. Stevens, and Stephen J. Midgley 33.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.2 The Main Issues with Certification . . . . . . . . . . . . . . . . . . . 33.3 Benefits, Costs and Risks of Certification for Smallholder Tree-Farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.4 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 599 . . . . . . . .

599 601 604 606 614 614 616 618

. . 621 . . 621 . . 623 . . 627 . . 632 . . 635

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35

36

37

Contents

Group Certification: Market Access for Smallholder Agriculture . . Mildred Steidle and Gerald A. Herrmann 34.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.2 Background and Dissemination . . . . . . . . . . . . . . . . . . . . . . 34.3 Terminologies and Interrelations . . . . . . . . . . . . . . . . . . . . . 34.4 Emergence and History . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.5 Common Criteria and Implementation . . . . . . . . . . . . . . . . . 34.6 Observations and Challenges . . . . . . . . . . . . . . . . . . . . . . . . 34.7 Addressing Concerns and Challenges . . . . . . . . . . . . . . . . . . 34.8 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . Annex: Picture Credits for Figs. 34.1 and 34.2 . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 639

Towards a Living Income Within Agricultural Value Chains . . . . Sophie Grunze, Kristin Komives, Don Seville, Stephanie Daniels, and Eberhard Krain 35.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.2 Towards a Living Income Benchmark . . . . . . . . . . . . . . . . . 35.3 Making Use of the Living Income Concept . . . . . . . . . . . . . . 35.4 What Challenges Remain? . . . . . . . . . . . . . . . . . . . . . . . . . . 35.5 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 657

. . . . . . . . . .

. . . . . .

Potential for Joint Public and Private Initiatives to Eliminate Deforestation from Global Supply Chains . . . . . . . . . . . . . . . . . . . . Franziska Rau 36.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.2 Drivers of Deforestation and International Trade . . . . . . . . . . . 36.3 International Initiatives to Eliminate Deforestation from Global Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.4 Chances and Challenges for the Implementation . . . . . . . . . . . 36.5 Potential for Joint Public and Private Initiatives to Combat Deforestation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.6 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Planned Obsolescence: A Case Under Torts Law as Intentional Damage Contrary to Public Policy (Art. 826 German Civil Code) . . Eike Albrecht 37.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.2 Obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.3 Short Overview on Law Related Activities Against Obsolescence and for the Increase of Resource Efficiency of Products . . . . . . 37.4 Damage Claims in Cases of Planned Obsolescence . . . . . . . . . 37.5 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

639 640 642 646 648 651 652 653 654 655

657 658 661 668 669 669 673 673 674 675 680 681 685 686 689 689 691 694 698 704 705

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38

A Paradigm Shift in University Education Towards Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dmitry Palekhov, Ludmila Palekhova, Michael Schmidt, and Berthold Hansmann 38.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.2 Historical Evolution of Higher Education for Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.3 Challenges Relating to Education for Sustainable Development in Ukrainian Technical Universities . . . . . . . . . . . . . . . . . . . . 38.4 Conclusions and Recommendations: Leadership Strategy for Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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709 711 716 723 725

Chapter 1

The Editors Review of Evidence and Perspectives on Sustainable Global Value Chains Lead chapter synthesising key issues and main findings of the 37 chapters in this volume Daniele Giovannucci, Berthold Hansmann, Dmitry Palekhov, and Michael Schmidt

1.1

Introduction

Value chains are a vital part of how our world operates, yet we are only beginning to understand how to make them sustainable. When the World Commission on Environment and Development published Our Common Future in 1987 (also known as the Brundtland Report; see WCED 1987) it represented a turning point for the understanding of sustainability and sustainable development. The fundamental importance of the topic—and the importance of the private sector in achieving it— has since been increasingly signalled by thousands of scientists and policymakers including leading thinkers such as the Nobel Laureate economist Nicholas Stern (2007) who addressed the urgency of taking action to reduce climate change whose cost to all of us has been estimated as equivalent to losing at least 5% of gross domestic product (GDP) globally. Most institutions take the topic very seriously. The United Nations 2030 Agenda (UN 2015) and its leadership in crafting the Sustainable Development Goals (SDGs) will help to guide the transformation towards global sustainable development

D. Giovannucci (*) The Committee on Sustainability Assessment (COSA), Philadelphia, PA, USA e-mail: [email protected] B. Hansmann Division Climate Change, Rural Development, Infrastructure, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Eschborn, Germany D. Palekhov · M. Schmidt Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Cottbus, Germany © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_1

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(see Chap. 2 for more on SDGs). In the intrinsically complex world of sustainability, there is a clear area of consensus: that to achieve sustainability, multidimensionality must be addressed and so must the critical role of the private sector. We recognise that in order to succeed, we need to take into account diverse economic, environmental, and social (including governance) aspects that are affected by the operation of global value chains. We are surmounting prior simplistic or short-sighted perspectives that led to efforts focused only on income, or productivity, or environmental protection. What is left, and it is a key pillar to address, is to undertake the tasks necessary to learn what works and to transform our businesses and economies. That, however, is sometimes easier said than done. The textbook that this chapter introduces, addresses the crux of that challenge by presenting a broad array of options for understanding and managing the complexity of sustainability initiatives that affect value chains and trade. We have selected 38 chapters from among a broad array of experts that address the many ways to undertake this transformation and transition toward sustainable value chains. We define value chains as the full range of people, inputs, and activities required to bring a product or service from conception and production through transformation and transportation to consumers and final disposal in alignment with Kaplinsky and Morris (2001) and others. With that in mind, this chapter provides an overview of the key issues necessary to both understand and drive sustainable global value chains, as well as a brief synopsis of the main themes of the book. With major trends moving clearly toward public-private integration of sustainability initiatives, we look at the key issues and the implications of that. The chapter begins with sections assessing new trends in the sustainability agenda, from both political (Sect. 1.2) and private sector perspectives (Sect. 1.3). This includes the diverse perspectives of governance from SDGs to regulation to private standards. We then discuss in Sect. 1.4 the emergent and critical value of the availability and understanding of innovative and tested approaches to monitoring and evaluating so as to more effectively manage the progress towards sustainability. Selected initiatives are reviewed in Sect. 1.5 to offer concrete outlooks into some of the major approaches by sector. Here we examine some future outlooks from several authors who argue that much has changed in the last decade and there are an array of new tools at hand that can functionally support the emerging value chain transformations towards greater inclusiveness, clarity, and sustainability. The chapter ends with conclusions in Sect. 1.6. The sound approaches presented by more than 50 authors throughout this text help to make informed choices towards a common sustainability agenda. Some also illustrate how to secure outcomes that represent positive returns on investment (ROI), which is useful for both public and private concerns—noting that the ‘returns’ are not necessarily financial or even monetisable. In accord with muti-dimensionality and our abilities for more sophisticated measurement, we can and should consider diverse values that include social and resource capital in addition to financial or economic benefits.

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Political Trends

Simply put, the fundamental role of government and policy is to help ensure that we have the basic conditions to be safe and happy. Sustainability is clearly within this purview of government but, interestingly, as we have become increasingly aware of the intrinsic non-sustainability of our global and local systems, many of the most visible sustainability initiatives have primarily been a voluntary concept at least in recent decades. Even many public efforts or accords remain voluntary and spottily enforced by governments. The private sector, after decades of little or even negative engagement, is emerging more strongly as a voice and catalyst for sustainability—or at least is much more active in sustainability activities and claims. This shift, even at its early stages is certainly welcome, but there are many reasonable questions about whether real sustainability could be widely achieved via the efforts of private firms. It is more likely that the private sector will struggle to achieve meaningful change because of some of the intrinsic contradictions embedded in the dominant consumerist culture that exists across key parts of the planet. Corporate marketing departments tell us to consume more and to live for our own frequent and even immediate gratification while the modestly funded CSR side of the business conducts some projects or insists on suppliers checking off generic compliance checklists. It is becoming clear that the private sector, even if it may have some incentives, does not have the adequate mechanisms or the legitimacy to achieve the necessary common good of sustainability. Our sustainability is likely to require some restraint and a common agreement about many common goods such as the oceans, air pollution, and water. Clearly, public policy will have to take a leadership role. This includes its ability to guide private efforts, such as through Trade Agreements, appropriately. Evita Schmieg illustrates in Chap. 6 how sustainability issues—from labour to environment—are increasingly integrated into trade agreements. It is a critical function of governments to establish such necessary framework conditions and not to expect that consumer or private sector efforts will be sufficient. That is not to imply that there are not many useful private initiatives, rather it is an admission that they are simply not sufficient. For example, the International Organization for Standardization’s Guidance on Social Responsibility (ISO 26000:2010) focuses its operationalisation on performance results and improvement and not on concrete or mandatory requirements. Similarly, other wide-ranging systems working in the private sector realm including the Global Compact, the Global Reporting Initiative (GRI) and many sectoral or national platforms such as the German Sustainability Codex all are strictly voluntary standards and revolve fundamentally around the weakest mechanism: self-reporting. While this is perhaps better than no reporting, one wonders how many prospective employers would hire students who graduated from schools that had only student self-reporting to gauge their academic accomplishments.

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However, conditions to advance sustainability are not ideal in the public sector either. A lack of clarity and agreement has led to more than a few stalled and ineffective policies. The slow move toward solid metrics and results-based science slows progress and investment on many fronts even as swiftness seems a priority, especially for issues related to climate change and resource use. Our understanding and our approach must necessarily be as holistic as it is pragmatic; as Guus ter Haar and Lucas Simons note in their work (see Chap. 11), we need to not just tinker at improving the edges but to consider wide-scale structural change. UNCTAD’s Chantal Line Carpentier and Isabel Garza Rodríguez illuminate in Chap. 2 how the evolution of the global agenda, including the new 2030 Agenda for Sustainable Development and the SDGs, now has powerful implications for how the private sector must be effectively engaged in tangible ways. The private sector clearly has a vital role to play and whether its roles are more circumscribed by policy and regulations or advanced by its own enlightened self-interest remains to be seen. As Robert Atkinson notes, this may be changing with the general feeling in industry and business sectors is that the concept of sustainability is gradually moving from voluntary to mandatory (Chap. 8). In their chapter on private regulation serving to provide sustainability governance of global supply chains, Marina Jentsch and Klaus Fischer (see Chap. 12) note the importance of a broader definition of governance1 as indispensable, since the state is unable to act with the speed and accuracy necessary in today’s fast paced environment. They show that the emergence of private standards has filled a vacuum left by government. Their extensive literature review suggests that because of the importance and risk associated with sustainability, the existing private sustainability governance instruments need to be more rigorously analysed, evaluated and further developed.

1.3

Private Sector Initiatives

In our fast-moving world, where government can rarely respond as quickly as the private sector, are companies the answer to sustainability? Most agree that it must be at least part of the answer. So how can that work when the private system has been engineered to be primarily self-serving and, more recently with fast-moving public trading, rewarded for short-term results regardless of potential long-term benefits. As Starbucks, a global trendsetter, was teetering between its current ‘business as usual’ and a chance to make substantial sustainability differences in areas where it sources products, its then CEO remarked that such decisions that are likely to be good for the

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This definition goes beyond the traditional understanding of government providing most or all of the governance and notes “the sum of the many ways individuals and institutions, public and private, manage their common affairs (. . .) involving NGOs, citizens’ movements, multinational corporations, and the global capital market” (Commission on Global Governance 1995, pp. 2–3).

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long-term prospects of the firm and for sustainability overall are rarely taken into account by the market system that they succumb to. He noted that the pressure to deliver the right quarterly financial reports made that—and his job—very difficult.2 This systemic problem makes it difficult to engage in sustainable practices when the incentives are for short-term returns. Some visionary CEOs disagree. A few years later, Unilever’s CEO, Paul Polman, realising the problem, took a stand to not issue quarterly reports and to free up his firm from unproductive expectations. Curiously, and perhaps because it is also well run, his firm’s move was rewarded by the market with higher share prices. Smart corporate policy is vital to advance sustainability. Perhaps nowhere more so than in its day to day procurement practices. The world is full of firms whose marketing and CSR departments are touting sustainability goals or initiatives while the incentives at the core of their operations are achieving the opposite. The lack of visionary leadership is part of the problem, but another is the complexity of many global firms that does not allow senior managers to readily see the details of what is going on, much less influence them. Many operate as walled fiefdoms and need only meet their bottom line objectives to remain so. Organisations such as COSA or Sourcemap increasingly partner with firms to integrate the metrics and reporting that permit results-based management for sustainability within companies but an increased scale is needed. What are the lessons and the systems that work and how can we discern best practices? Besides having transparent claims that can be verified, one of the simplest interventions would be to improve the sometimes ludicrous metrics used to only measure the basic practices or interventions. Measurement professionals call these interventions or outputs to denote what is being done. For example: how many farmers trained; how many women included; how many good policies in place. A better approach includes the outcomes or even impacts of such practices or interventions. This is the equivalent of focusing on how much of the house is built rather than how much a worker has been arranging or moving boards or bricks. We now also have a burgeoning market for ecolabels that purport to confirm one or more sustainability practices. Of the 463 ecolabels3 available on the market today some do measure outcomes and a few even measure impacts but many of the standards behind the ecolabels simply confirm practices that should lead to expected outcomes, if all goes well.4 There is good reason for this, sustainability is complex

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Personal conversation between Daniele Giovannucci and Starbucks CEO Orin Smith. August 2019 Ecolabel Index lists 463 ecolabels in 199 countries, and 25 industry sectors. 4 Standards propagated by leading public ecolabels such as the Rainforest Alliance, GoodWeave, or Forest Stewardship Council increasingly integrate outcomes such as defined protected areas or worker housing requirements. Yet, as is true for food safety standards, it is increasingly necessary to distinguish results or actual outcomes, e.g. “% presence of bacteria” from the many processes to limit bacteria. 3

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and it is not easy to measure results. But, as interest grows, it is critical to focus more on actual outcomes and impacts.5 It is the complexity that overwhelms simple messages that marketing professionals and consumers prefer. Nuance and realistic complexity are neither easy to convey nor very popular. So, the explosion of ecolabels—the majority of them private efforts, meaning they have limited public scrutiny or oversight—is easy to explain. We want somebody to tell us if something is sustainable because the realities are complex. Friederike Sorg et al. are among the researchers who point out that firms, especially retailers or brands, and consumers increasingly rely on standards for their decision making, particularly, but not only, for fish (see Chap. 14). This, of course, can be a useful market mechanism that pays a service to do the complex work and then conveys an easy to digest result (affixing a label) to buyers. This need is equally strong for buyers and so organisations like GLOBALG.A.P. are adding new approaches, such as their localg.a.p. approach to train producers and help them participate and eventually upgrade (see Chap. 32 by Uribe Leitz et al.). The key factor here is, of course, credibility. Some have it and many do not, so the landscape is littered with a sometimes disorienting array of standards, verifications, and certifications. There are efforts to compare the labels, such as the ITC Standards Map and the Sustainability Standards Comparison Tool. Such efforts provide a valuable service, permitting a side-by-side view of the criteria of the standards. Comparison tools can greatly improve our understanding of the labels and what they claim to do. However, such static comparisons do have limitations. They look primarily at the content topics of the standard or system as well as the expected credibility of that system (based on its stated approach) but not at the actual results or implementation realities of the standard or the system. Some standards systems, such as Rainforest AllianceUTZ and FSC are actually investing to get to some of that understanding through independent and rigorous impact evaluations; but many still are not. As of yet, there is no comprehensive global approach to go beyond the claims made on paper and determine the extent to which those label claims actually occur or have the desired benefit. Since nearly everyone involved—from the standards to the targets of standards to the consumers that ultimately pay for them—is interested in the reality of standards, assessing their actual effectiveness is clearly the next step. While some guidelines exist for assessing impacts6 and more research is emerging, there are two major barriers: cost and harmonisation. Both are addressed in the next section.

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Measuring impact is a science and difficult to do with the resources available to most sustainability-oriented standards. Outcomes are somewhat more accessible but are still more challenging to measure than process or interventions or inputs. For a more complete discussion, see The COSA Measuring Sustainability Report: Coffee and Cocoa in 12 Countries (COSA 2013, pp. 29–31; available online at: https://thecosa.org/wp-content/uploads/2014/01/The-COSA-Measur ing-Sustainability-Report.pdf, last accessed 31 January 2019). 6 ISEAL has established sound guidelines for its member organisations that include some of the most prominent standards bodies.

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How the Monitoring and Evaluation of Sustainability Has Evolved

The critical need for sustainability evaluations is becoming increasingly evident to all stakeholders, from policy makers and consumers to supply chain managers and producers. With resources and time always constrained, everyone wants to know whether their choices or investments are indeed improving sustainability. Some even want to understand the returns on their sustainability investments—and not only the financial returns since we can now consistently calculate some of the social and environmental benefits (or costs) as well. Monitoring and evaluating sustainability presents some unique challenges in terms of both the intrinsic complexity (cost) and the lack of standardisation or harmonisation. Ruerd Ruben rightly elaborates in Chap. 18 that impact evaluation in particular needs to address the net effects at different scales (i.e. farm, chain, landscape, sector), from different perspectives (i.e. environmental, social, economic), and for different types of stakeholders (i.e. farmers, workers, traders, processors, consumers, etc.). As Keith Child notes in Chap. 16, evaluating sustainability means to also understand the ‘why’ something occurred because only by getting clarity on the reasons (understanding contributions and even attribution), can we hope to scale up what works and dial back what does not. Part of that intrinsic complexity is the sometimes unclear dynamic between the factors noted above that can imply substantial synergies or trade-offs. Salma Halioui et al. illustrate in Chap. 20 the value of a system dynamics modelling approach for complex challenges in their approach to the solid waste management sector. Ruben, Child and Puri agree that good impact evaluation seeks insights through these dynamics and into what causes or hinders behavioural change. Recent impact analyses illustrate the sometimes surprising failure of patterns or people to change despite the provision of well-known stimuli or incentives. To better understand key behavioural change interfaces Ruben highlights the importance of multiple-agency approaches for capturing behavioural change and inclusiveness in value chain relationships (see Chap. 18). What makes understanding this complexity even more challenging is that many researchers and evaluators have failed to adopt standardised approaches for even the simple things they measure. This critical aspect of harmonisation is often overlooked by managers, evaluators, and some researchers. This can be a natural evolution in the early exploratory phases of knowledge gathering where standardisation is not yet appropriate. However, as the sciences of sustainability and evaluation are maturing, there is considerable scope for harmonised approaches and to identify best practices. Without a systematic process, it is unclear whether what is observed in evidence or data is a reflection of an accurate assessment or merely a by-product of the approach or process used. Approaches that are ad hoc and difficult to replicate or verify make it nearly impossible to compare and to build up a reliable body of learning. Sustainability efforts are also very contextual and consequently researchers, projects, or supply chains can more effectively measure and compare actual outcomes and

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impacts locally with adapted standard tools that allow context to be seen rather than muddle the information. When metrics are harmonised or at least explicitly noted, measuring common topics such as cost of production, poverty or biodiversity can be aligned and readily compared. But often they are not. Unless a standard protocol is observed, it is very difficult to compare results, check research quality, or actually determine the value of one intervention versus another (Blackman Rivera 2010; COSA 2013). More and more institutions are realising the heavy costs of non-standardisation at the same time that they realise that many things can be standardised, though not all of course.7 Considering the high stakes of sustainable development, we cannot afford to fail at engaging with more credible and standardised systems of tracking or evaluation. For development agencies, donors, and businesses alike, the persistent failure to standardise can result in poor oversight and slow learning. Experienced professionals know that when researchers follow a unique or self-directed protocol, it is nearly impossible to compare results, determine best practices, or to learn across crops or geographies. Harmonised indicators are a start and many groups have embarked on this initial phase. The World Bank’s respected LSMS team is working steadily toward more standardised survey processes; harmonised indicators and metrics are also the prime mandate of the COSA learning consortium with 55 institutions and this trend spreading to organisations as diverse and varied as the Sustainable Food Lab, ISEAL, the InterAmerican Development Bank, McDonald’s, the Sustainability Consortium, Lindt Chocolate, and the Government of Mexico. The cost of effective evaluation is decreasing but still represents a substantial investment for many organisations or projects. Part of that investment is in securing the necessary experience and good fieldwork to gather reliable data and to conduct effective analyses.8 Improved and more widely accepted protocols for good evaluation (e.g. effective sampling designs, control group selection and matching models, mixed methods integration) increasingly serve to make evaluation efforts productive and useful for learning. New technology is also playing a major role from the ability to have high-frequency data gathering (e.g. SMS) to survey software that can eliminate data entry, minimise data cleaning, and dramatically reduce survey time while improving data accuracy in several ways (data piping, skip logic, internal validation, external quality controls, etc.).

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A number of harmonisation advances have been undertaken in recent years. Prominent examples include: FAO Sustainability Assessment of Food and Agriculture systems (SAFA for Smallholders) aligned FAO, COSA, Grameen, Soil&More; Shared Approach for Smallholder Performance Measurement aligned the Sustainable Food Lab, ISEAL, COSA, Rainforest Alliance, Wageningen, Nestlé, Root Capital, IDH, Mars, Ford Foundation; The InterAmerican Development Bank SAFE Platform aligns dozens of firms and institutions using common metrics and reporting into one knowledge base. 8 With many methods available, experience is needed to select the appropriate tool or instrument. Evaluation is made difficult and can also be questionable in many cases when it must rely primarily on secondary data.

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Leading researchers and institutions are now advancing much greater methodological diversity and rigor and beginning to move away from the existing haphazard, fragmented, or merely anecdotal evaluation styles. More and more donors are attempting to impose the use of a solid scientific basis to reliably answer major questions. The investment stakes are high and fewer donors still rely on hidebound and outdated evaluation systems based on simplistic metrics from their logical frameworks (e.g. how many farmers trained or hectares influenced). Leading development evaluation thinkers such as Howard White, the co-founder and former chief executive of the International Initiative for Impact Evaluation, have moved increasingly toward ‘the right tool for the purpose’ approach while maintaining the maximum rigor of process for reliable data. This counters the recent phases in the development community of excessive focus on a particular ‘method of the day’, often fuelled by one or another celebrity economist. Such fads can be costly and do not help us get to useful answers when sometimes a simple approach can serve better. Within the COSA consortium, the mandate is to “measure what matters”. Bob Picciotto, the legendary Director General of the Independent Evaluation Group of the World Bank (see Fig. 1.1), warned us to “beware the randomistas”9 as a caution that not every developmental activity can or should be evaluated just by a Randomized Control Trial. So, the notable recent work of Ruerd Ruben, Jyotsna Puri, and Keith Child (see Chaps. 18, 17 and 16 respectively) illustrate how new approaches can combine methods for optimal explanatory results and offer more open and multi-dimensional perspectives. Thoughtful approaches to measuring what matters are providing a more rigorous basis for understanding evidence and creating a solid foundation for both learning and accountability. Sometimes, less evidence paradoxically triggers larger claims. This problem does not occur solely in corporate marketing or CSR departments. A number of development agencies, consultancies, and NGOs are aiming for, or even sometimes claiming, a level of change that is ‘transformational’ or ‘paradigm shifting’. Jyotsna Puri in Chap. 17 offers a schematic approach that could be used to characterise and assess transformational change, particularly the harder to see, yet critical, aspects that are often ignored, especially behavioural change. Ruerd Ruben outlines in Chap. 18 the case that value chain dynamics affect sustainability outcomes and are strongly influenced by the contracts, rules, and governance mechanisms that enable exchange relationships along the supply chain.

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Caution made public at the COSA Scientific Committee meetings in Stockholm.

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Fig. 1.1 Bob Picciotto

1.5

Outlook and Emerging Issues: Perspectives from Select Initiatives

Throughout the understanding and management of sustainability we are confronted by the lack of functional knowledge that is presented in a way that can be utilised, and is made available in a timely manner. Tools are becoming available to better manage supply chains and projects from a sustainability perspective. Much of the problem starts at the beginning with the failure of many initiatives to clearly define (i.e. through program logic or theory of change) or to adequately map the factors that most affect them. If mapping is done well, then it is feasible to lay out the milestones along the relevant impact pathways that will lead to the defined objectives. Now we can actually monitor or measure the ongoing results so as to correct a course as it is being executed, and thus increase our chances of success in achieving a desired impact. More and more managers want to have an understanding of and control over the risks and opportunities in their supply chains or projects and the tools are increasingly available. Thus, performance monitoring is coming into its own as it borrows from the rigor of impact assessment (good indicators and metrics) but strips down the process to the basic necessary information systems to clearly inform managers and do so in close to real time. This is much better than finding out what happened only years after the fact when the impact evaluation is done. As Jessica Mullan et al. show in Chap. 19, the real-world applications are vast and already realised by leading firms like Danone and Mondelēz International in very different supply chain applications. Technology is increasingly altering the possibilities as more and more functions can be carried out at low cost and even with an increasingly transparent process.

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It is clear that the concern for being sustainable and the consumer market for sustainable products and services are clearly here to stay. Indeed, the market is growing. A recent Nielsen Global Corporate Sustainability Report10 notes that the global sales of consumer goods from brands with a demonstrated commitment to sustainability grew four times faster than from those without such a commitment. Similarly, the annual State of Sustainability Initiatives reports (IISD, ITC, FiBL) substantial growth of sustainability certified (or verified) products across multiple sectors. So, our emergent understanding of sustainable development as dealing with complex conditions will likely drive the development of more standards and the concomitant greater need to know, which ones work and how well they work. This growth is abundantly evident, as demonstrated by the hundreds of ecolabels now in use—most of which did not exist prior to 2000.11 Most of the voluntary sustainability standards (VSS) arose in a context of uncertainty, offering tangible guidance about how to shift away from decades of unsustainable practices. They initially offered much-needed solutions—a valuable public good—as both governments and companies struggled to understand and implement sustainable approaches. Many VSS focus predominantly on the issues surrounding production processes rather than on product qualities. As such, they deal with substantial levels of complexity. Their conveyance of a simple signal, i.e. a label that cuts through the complexity for companies and consumers alike, is one good reason why they will continue to proliferate. Today, the awareness and understanding of sustainability has increased significantly. As the number and diversity of VSS has increased so have the questions about their effectiveness. Enrique Uribe Leitz and François Ruf, among other noted experts, point out in Chap. 24 the flaws in systems that not only prevent them from having the desired impact but also can serve to backfire and cause a backlash against these tools. One emerging concern is the potential barriers they may present in some cases for smaller enterprises or farmers (see Chap. 33 by Aidan Flanagan et al.) even as organic and fair trade systems engage special mechanisms to address smaller producers (see Chap. 34 by Mildred Steidle and Gerald Herrmann). Experts such as Edward Millard (see Chap. 27) point out the public value of well managed standards when applied to crops such as rubber. Going forward, it seems likely that the future function of VSS may need to change from their traditional and somewhat limiting compliance-oriented approaches that they have applied in recent decades. If indeed sustainability standards can morph into paths of continuous improvement and innovation, then we may well see them reboot to greater relevance. Mathieu Lamolle et al. consider in Chap. 15 that a VSS Generation 3.0 would need to embrace innovation and technology with a focus on the process of becoming more sustainable, not just the output of an audit.

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Citation found in Chap. 15 by Lamolle et al. The Ecolabel Index offers this definition: A sign or logo that is intended to indicate an environmentally preferable product, service or company, based on defined standards or criteria. 11

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There are several paths emerging that can also serve to define standards, including industry platforms and new sector-wide models. Platforms for soy (RTRS), palm oil (RSPO), cocoa (WCF), forestry (FSC), bananas (AASB) and coffee (GCP and SCC) exemplify this trend as do the national sectoral platforms such as those initiated by UNDP’s Green Commodities Programme in Indonesia and Peru. Friederike Martin et al. clearly note in Chap. 23 the purpose of the Global Coffee Platform to more inclusively provide answers to the intractable concerns of the sector. Similarly, Amparo Arellano Gill et al. outline in Chap. 26 how the Forest Stewardship Council (FSC) leverages positive change in the forest industry sector through its stakeholder engagement processes for consultation and dispute resolution. Franziska Rau illustrates in Chap. 36 the potential for joint public-private initiatives to eliminate deforestation from global supply chains, knowing that between 55 and 80% of global deforestation is driven by agriculture. There are also new approaches that are not oriented to standards. Sophie Grunze et al. note one valuable such direction: the validation of what it means to support a viable ‘living income’ within agricultural value chains (see Chap. 35). There is merit in such coordinated or consensus approaches but there is also the risk of insufficient public sector input and control so that such emergent standards become ineffective in altering practices and turn out to be little more than a bland panacea that can be waved at consumers or shareholders in an attempt to convince them that something is being done.12 Such platforms, if they are to succeed in driving sectoral sustainability and being credible, must invest in transparency, tangible results, and diversity, such that the platform can achieve substantial measurable effects. Some devolve into mere talking forums with modest outputs and merely mediocre progress or risk becoming bastions of protecting the status quo. Another of the great concerns for such platforms is that they must consider the danger of standards that put the onus on producers who may be the least able to invest in significant change. We also must face the emerging issue of the terminology of sustainability that is susceptible to misuse. If we are to scale up sustainable practices quickly, we will need to better and more clearly define what are good practices such that a consumer can digest the message and act on it. This requires a measure of simplicity that, in itself, can contradict the intrinsic complexity of sustainability practices. We cannot simply ‘dumb down’ our metrics. Yet, the emerging messaging must be simple enough to be understandable at the consumer level. This is essentially the model of LEED certification used in construction or EnergyStar certification for appliances. Consumers need to be engaged since their purchase choices are often the ultimate arbiters and can thus encourage the adoption of better practices in value chains.

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While some platforms encourage a handful of civil society organizations to join or comment, this is rarely if ever sufficient to help ensure that a platform does indeed serve both private and public benefits in balance.

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Conclusions

From auto manufacturing to agriculture and from gold mining to tourism, there is an increasing demand for green processes and supply chains that are driving a new generation of targeted activities and investments. The increase in ecological and social standards is one of the outcomes of this development and it is likely that standards and certifications will continue to increase because they present a useful shorthand for both corporate and consumer understanding. As green processes and standards proliferate and become more common, there is a concomitant need to understand both their effectiveness and their ROI. The pace of discovery and research into sustainability has accelerated considerably in the last decade and the data can present new opportunities to improve efficacy. Chief among these is the clear appreciation that the levels of complexity are such that no one actor alone can make a substantial enough difference. In short, we need to work together and to leverage each other’s capabilities. It is also clear that there are so many divergent approaches that the ability to assess and evaluate critically is more necessary than ever. This is in part because there are few one-size-fits-all solutions and the localised need must be accounted for if solutions are to be lasting. In part, it is a necessity of successful innovation. To address complex needs, innovation can be very useful but we need to also learn quickly and identify valuable characteristics or approaches that can be scaled. The idea common in some technology circles is very appropriate for sustainable development: to fail forward and fail quickly. In other words, we need to learn from our efforts and advance our learning and we need to go through the process with eyes open so that useless approaches do not drag on beyond the time needed to test them and to learn. Our ability to discern innovation and effective approaches is greatly dependent on our ability to measure what matters and to communicate the learning effectively. This era of sustainable consciousness has inspiration, altruism and ardour behind it. If we are to use these catalysts well, then we must be driven by a mature and clear understanding of what works and what does not. This understanding cannot be solely a passion; it must respectfully engage the social, economic and environmental dimensions in balance.

References Blackman A, Rivera J (2010) The evidence base for environmental and socioeconomic impacts of “sustainable” certification. Resources for the Future, Washington DC. http://www.rff.org/files/ sharepoint/WorkImages/Download/EfD-DP-10-10.pdf. Accessed 31 Jan 2019

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Commission on Global Governance (1995) Our global neighbourhood: the report of the commission on global governance. Oxford University Press, New York COSA – The Committee on Sustainability Assessment (2013) The COSA Measuring Sustainability Report: Coffee and Cocoa in 12 Countries. The Committee on Sustainability Assessment, Philadelphia. https://thecosa.org/wp-content/uploads/2014/01/The-COSA-Measuring-Sustain ability-Report.pdf. Accessed 25 Oct 2019 Kaplinsky R, Morris M (2001) A handbook for value chain research. Report prepared for the International Development Research Centre (IDRC), Canada. http://www.fao.org/fileadmin/ user_upload/fisheries/docs/Value_Chain_Handbool.pdf. Accessed 31 Jan 2019 Stern N (2007) The economics of climate change: the stern review. Cambridge University Press, Cambridge UN – United Nations (2015) Transforming our World: The 2030 Agenda for Sustainable Development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1 WCED – World Commission on Environment and Development (1987) Our common future. Oxford University Press, Oxford

Daniele Giovannucci is President of the Committee on Sustainability Assessment (COSA)—a global consortium of institutions advancing innovative ways to measure and manage the sustainability of our agri-food systems. COSA partners with leading companies and agencies to generate better management of their economic, social and environmental impacts. A former food company executive he has served as a strategic adviser to a number of governments, companies, and major institutions such as the World Bank Group and led the global teams formulating the strategic input to “The Future of Food and Agriculture” for the United Nations Division for Sustainable Development. The Committee on Sustainability Assessment (COSA), Philadelphia, PA, USA; Email: [email protected]; Internet: www.theCOSA.org. Berthold Hansmann has more than 30 years of experience in development cooperation with emphasis on natural resource management, integrated water resource management (IWRM), promotion of UNCCD implementation and application of voluntary sustainability standards. He holds a Master of Science in Geology. Prior to joining GTZ, Mr. Hansmann lectured and managed fieldwork at the ‘International Institute for Aerospace Survey and Earth Sciences (ITC)’, Enschede, The Netherlands. Following that, he joined the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH (previously GTZ) in Eschborn as a Technical Advisor in the Rural Development Division in the headquarters and as a project manager in the Middle East. Division Climate Change, Rural Development, Infrastructure, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Eschborn, Germany; Tel: +49 6196 79 1463; Fax: +49 6196 79 80 1463; Email: [email protected]; Internet: www.giz.de. Dmitry Palekhov is research associate at the Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Germany. Dmitry obtained a Ph.D. in Environmental Sciences from BTU (2014), Ph.D. in Environmental Law from the V.M. Koretsky Institute of State and Law of the National Academy of Sciences of Ukraine (2009) and holds a LL.M. degree from the National Mining University, Dnepropetrovsk, Ukraine (2003). His research interests include environmental assessment (EIA and SEA), environmental law, environmental planning and sustainable development. Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Tel: +49 355 69 3054; Fax: +49 355 69 2765; Email: [email protected], [email protected].

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Michael Schmidt is Professor and Head of the Department of Environmental Planning at the Brandenburg University of Technology Cottbus-Senftenberg (BTU). At BTU, he initiated the international study programmes “Environmental and Resource Management” and “World Heritage Studies”. In 2002 he received the “Award for Excellence in International University Cooperation” from the German State Federal Ministry of Education and Research (BMBF), and in 2005 the Dr. h.c. of the National Mining University, Dnepropetrovsk, Ukraine. Since 2011 he is Dean of the Faculty of Environment and Natural Sciences. His scientific research and lecturing fields include, among others, environmental planning with focus on cultural landscapes. He has led various research projects funded by EU, BMBF, BMZ/GIZ that were dealing with environmental targets and thresh-olds in spatial planning, risk assessment methods in the context of land use change, natural disasters and climate change. Head of Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Tel: +49 355 69 2454; Fax: +49 355 69 2765; Email: [email protected]; Internet: https://www.b-tu.de/en/environmen tal-planning.

Part I

New Trends in Sustainability Agenda: Political Arena

Chapter 2

Rio+20 and Beyond: A New Era of Sustainable Development, Partnership and Interdependence Chantal Line Carpentier and Isabel Garza Rodríguez

2.1

The 2030 Agenda: A New Era of Development

The year 2015 marked a turning point for development policies: from a period when development efforts focused on the Millennium Development Goals (MDGs) to 2030 Agenda for Sustainable Development which encapsulates a much broader— and much more ambitious—set of seventeen Sustainable Development Goals (SDGs). For instance, whereas the MDGs aimed to halve extreme poverty by 2015, the SDGs aim for complete poverty eradication by 2030 and not only in developing countries but in all countries. In the same way, the MDGs focused on eradicating extreme hunger, while the SDGs aim at ending hunger. Similarly, the education goal now focuses on life-long learning. The SDGs include a stand-alone goal on gender equality and economic empowerment of women and girls, in addition to being a cross cutting issue with several targets of other SDGs. While the MDGs focused on the outcome, the SDGs focus on the root causes of poverty and inequality. For instance, Goals 7 through 10 aim to address challenges to development, inclusiveness, and inequality. SDG 7 ensures access to affordable and sustainable energy without which development is not possible. SDG 8 promotes sustained, inclusive and sustainable growth with decent work for all, while SDG 9 calls for building resilient infrastructure and promoting sustainable and inclusive industrialisation. A stand-alone goal on inequality within and across countries was also a major achievement (SDG 10). Environmental issues mostly left out of the

The views expressed are those of the authors and do not necessarily reflect those of the United Nations. C. L. Carpentier (*) · I. Garza Rodríguez New York Office of the Secretary General, United Nations Conference on Trade and Development (UNCTAD), New York, NY, USA e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_2

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MDGs, make up six goals aiming to better manage water and sanitation, sustainable cities and communities, sustainable consumption and production, combat climate change, and better manage oceans and land resources. A 16th goal focuses on peaceful society with strong institutions and access to justice. While both the MDGs and SDGs had a goal on partnership, SDG 17 is qualitatively and significantly different from MDG 8. For one, the partnership under the MDGs was based on developed countries supporting developing countries to implement the MDGs. The SDGs are universal and thus applicable to all countries. Therefore, SDG 17 calls for strengthening the Partnership for sustainable development but also calls for strengthening the means of implementation, which in United Nations (UN) jargon means: finance, information and communications technology, capacity-building and trade that must be conducive to achieving the SDGs. Finally, the SDGs promised to leave no one behind and embraced the concept of inclusiveness. In fact, the term ‘inclusive’ is stressed in SDGs related to education, economic growth, industrialisation, cities and societies, and institutions. Ultimately, achieving the SDGs will require considerable increases in the incomes of the poorest. This will require sustained increases in labour productivity coupled with job creation, both of which are pivotal in raising real labour incomes and to overall long-term economic growth. Policy to achieve such economic transformation that leaves no-one behind will be at the heart of meeting the SDGs and the litmus test will be in the Least Developed Countries (LDCs) where challenges are most marked. This chapter aims at setting the stage and highlighting the main implications the new 2030 Agenda for Sustainable Development is having and will continue to have on the way to achieve development, not only for governments but for a wider range of actors including businesses, parliamentarians, academics, and civil society. It highlights the integrated nature of the SDGs and the interlinkages and potential trade-offs that result from the social, economic and environmental components of sustainable development. It also underlines some of the key elements that need to be considered by policymakers when designing their new development policies to implement the SDGs, in particular in the case of developing countries. The chapter starts by illustrating how the international development arena is changing now that the SDGs have been adopted by all countries and a broad range of actors including governments, private sector and civil society are working on their implementation. Key differences between the MDGs and the SDGs are highlighted in order to stress the level of ambition and coverage of the SDGs. Section 2.2 explains the process that led to such ambitious SDGs, as well as key issues considered in their development. Section 2.3 discusses the SDG’s financing gap with particular emphasis on the role of the private sector within the 2030 Agenda. Section 2.4 underlines different aspects important to consider when designing policies to implement the SDGs, it highlights that there is ‘no one size fits all’ and offers examples of policies and processes that can be helpful to countries; it further explains key issues that are relevant for LDCs. Section 2.5 stresses the role of international trade as an enabler of economic growth and sustainable development. Section 2.6 describes the implications of global value chains, not only in economic but also in the social and environmental areas. Finally, Sect. 2.7 presents a summary

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of the key issues and recommendations discussed in this chapter and suggests some topics for further research.

2.2

How Did the UN Develop Such an Ambitious Universal Agenda?

In 2012, the international community decided to review progress the world had made on sustainable development since the 1992 Earth Summit and the adoption of Agenda 21.1 The original themes of the Conference were the “Institutional Framework for Sustainable Development” and “Green Economy in the Context of Sustainable Development and Poverty Eradication”. However, developing countries who had, some reluctantly and recently, endorsed the concept of sustainable development adopted 20 years earlier, were not enamoured with adopting new concepts such as ‘green economy’2 that were made popular during the financial and economic crisis of 2008. Rio+20 coincided with preparation for the end of the MDG cycle in 2015. The MDGs had embodied the development objectives of the global community since 2000, that focus on reducing extreme poverty and hunger, improving basic standards of human development (e.g.: education, gender equity, health, and access to water and sanitation), and importantly raising the level of international support through a Global Partnership. The group of 133 developing countries feared that adopting a new concept would risk diluting commitment made under the MDG Global Partnership to support them in achieving the MDGs. The review of the MDGs in 2015 identified a number of key areas where there was still concern (UN 2015a). These included: • Most developing countries had not reached all MDGs; • Persistent gender inequality; • Climate change and environmental degradation undermining progress achieved, affecting poor people the most; • Increasing gaps between the poorest and richest households, between rural and urban areas, and among many countries; • Conflicts remaining the biggest threat to human development.

1 Agenda 21 is a comprehensive plan of action to be taken globally, nationally and locally by organisations of the United Nations system, governments, and Major Groups in every area in which human impacts on the environment. Agenda 21 was adopted by more than 178 Governments at the United Nations Conference on Environment and Development (UNCED) held in Rio de Janerio, Brazil, in June 1992. Please see: https://sustainabledevelopment.un.org/index.php?page¼view& type¼400&nr¼23&menu¼35, last accessed 15 January 2019. 2 There are different definitions of Green Economy. According to UNCTAD, Green Economy is an economy that results in improved human well-being and reduced inequalities, while not exposing future generations to significant environmental risks and ecological scarcities.

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The reasons for this lack of progress were found to be partly a result of major donors not having lived up to Official Development Assistance (ODA) pledges; many developing countries being mired in, or being at risk of, debt distress; LDCs facing trade preferences that were being seriously eroded; and a global governance structure that proved unable to effectively manage major global financial, food and fuel crises since the turn of the century. In addition, in the last decade, developing countries had faced growth that did not reach the majority of the population, often riding the high commodity prices wave. In Africa, the growth was also mostly jobless. Within that context, the concept of green economy was morphed into the development of sustainable development goals (SDGs), with Rio+20 mandating an inclusive, government-led process to develop them. After some resistance from some countries, led by the host of the conference, Brazil, the next phase of the MDGs—the post 2015 Agenda—was merged with the SDGs, to become one universal, indivisible, integrated, and transformative set of development goals that covered the three dimensions of sustainable development: social, economic, and environmental. This was a recognition that economic, social, and environmental development are inextricably linked—achieving one without the others cannot be sustainable, and in the longer-term, may even be counterproductive to overall developmental objectives. Poverty, undernourishment, poor health and low educational attainment are in fact part of a vicious circle which plays a key role in preventing the LDCs, and the poor everywhere from progressing socially and economically. All these social problems pose serious obstacles to productive investment, and ultimately hinder economic development. Poor economic performance in turn limits the capacity for poverty reduction and the accumulation of resources and infrastructure needed for promoting health and education, thus creating a pernicious vicious circle. The inclusive process by which the SDGs were developed, negotiated and agreed, marked another major difference with the MDGs, developed in a closed room of experts over a weekend. The SDGs were developed, defined, and refined over a period of 1.5 years with all member States at the table, as well as major groups of society (children and youth, women, NGOs, trade unions, scientific and technical communities, business and industry, indigenous peoples, local authorities, and farmers) as well as other stakeholders and coalitions. Rio+20 also brought the environment, development, and human rights communities together to develop a joint agenda for the challenges of the next 15 years. The benefit of engaging so many different sectors of society into the UN’s Rio+20 process was to instil a common understanding about how each stakeholder group felt about the global challenges of limited natural resources, climate change, inequality, poverty, and the growing populations, etc., and a common language to express these views. The SDGs are far from perfect: developed countries have not committed additional resources to support developing countries and only five countries are meeting their prior commitments of 0.7% of Gross National Income (GNI), while this agenda is much broader and costly to achieve; the sheer number of goals makes it impossible for

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most to remember them all; implementation relies increasingly on partnerships with the private sector, however a framework that ensures Public Private Partnerships (PPPs) do deliver on these public goods is lacking; data is missing for several targets that would ensure no-one is left behind; and as with the majority of UN agreements, implementation and review of progress are voluntary. But the SDGs do reflect a political balance where everyone has its redline reflected. As a result, the goals are comprehensive, providing an entry point for every and anyone and there is a level of ownership by governments, international organisations, NGOs, the private sector, local authorities, and all other groups that is unique and has spurred an unprecedented level of early actions. The private and financial sector especially has shown an unparalleled level of interest to align their business model and activities with the SDGs. The preparatory processes for Rio+20 led to unanticipated personal connections and shared understanding and experience that the once disparate, fragmented and feeble stakeholders are now using to collaborate and develop solutions, alliances, and partnerships that was unimagined in the weeks leading up to Rio+20.

2.3

Business as Usual Is Not an Option

Several initiatives are underway to align business practices with the SDGs as well as initiatives to reform trade and investment agreements to ensure that Foreign Direct Investment (FDI) and international trade result in inclusive and environmentally sensitive growth. And although the green economy concept was new to the UN system and thus generated apprehension, member States agreed to continue working on it by adopting a 10-Year Framework of Programmes on Sustainable Consumption and Production (10YFP) now integrated into SDG 12 as well as in several targets under the environmental goals. Policies to achieve these goals will be country specific and must take into account all three dimensions of sustainable development and reach out to the poorest in each country so as to leave no-one behind. Countries and cities are now reviewing their development, sustainable development, green growth, and sustainable consumption and production strategies and plans, etc. to broaden them and align them with the SDGs. Countries as diversified as Bangladesh, Brazil, Ghana, the Philippines and Ukraine have created new inter-ministerial coordination bodies to monitor and implement the SDGs. All these new plans and policies will mean significant changes in the way we conduct business and trade, giving rise to new business models and opportunities. As seen above, it is not only national and local leaders that are realigning their mandate and plans, but also corporations, stock exchanges, regulators, NGOs, every UN agency, think tank etc. An illustration of how the SDGs have also included targets related to the private and financial sectors can be found in Annex to this chapter. The SDGs will affect everything, including our economies and how we trade. Business as usual is definitely not an option and the way business and investors operate is likely to change drastically to support the SDGs. UNCTAD estimates the

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investment gap to achieve the SDGs to US$2.5 trillion for developing countries alone (UNCTAD 2014b). Much of these investments are for basic infrastructure, food security, health, education and climate change mitigation and adaptation. Public sector funding capabilities are indispensable, especially for countries that face challenges attracting private capital, which often need it the most. But they will not be able to meet this funding shortfall alone. The international community will have to mobilise and support countries most in need and business will have to play a role. Thus there was an acceptance—reluctantly and in some cases, still strongly opposed by some stakeholders, for an increased role for the private sector in development finance. A major problem was that there was no additional regulatory framework for the private sector, so the outcome document was perceived as unbalanced. There had been an attempt by some stakeholders and some private sector finance institutions to have a commitment that all companies listed on stock exchanges should disclose their environment, social and governance (ESG), along with their financial report as a requirement to be listed on the exchange. The recommendation was in line with para 473 of the Rio+20 outcome document The Future We Want (UN 2012), but did not have the support of all the membership, in part because some negotiators from the North wanted the requirement to be for all large companies, including state-owned. However, right now 80 stock exchanges have joined the Sustainable Stock Exchange Initiative and made a public commitment to advancing sustainability in their market, and 12 are requiring companies to disclose their ESG impacts (Chesebrough et al. 2016). Countries are also taking legislative actions. For instance, on 15 April 2014, the European Parliament and the Council of the European Union adopted a Directive 2014/95/EU on disclosure of non-financial and diversity information that will apply to listed as well as some unlisted companies, such as banks and insurance companies that are designated as such by member States because of their activities, size or number of employees. The Directive will become effective as of 2017 following transposition by European Union member States into national law (UNCTAD 2015b). And even before this EU requirement existed, countries like France and Denmark had already ESG disclosure requirements in place. Other prominent examples include countries such as South Africa, Brazil, South Korea, etc. In addition to public sector investment, existing private capital must be mobilised and realigned with the SDGs. There is a need to unleash the power of entrepreneurship, its innovative capacity and its capital mobilisation capabilities to also bring additional investments in support of the SDGs. The potential is large in access to clean energy, safe water, sanitation, etc. But new trends also include an emphasis on

Paragraph 47: We acknowledge the importance of corporate sustainability reporting, and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments and relevant stakeholders, with the support of the United Nations system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account experiences from already existing frameworks and paying particular attention to the needs of developing countries, including for capacity-building. 3

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smallholder women farmers4 and entrepreneurs, including by promoting the UN Global Compact and UN Women’s Empowerment Principles5, and increasing awareness of the many ways in which businesses can promote gender equality in the workplace, marketplace, and community (UNCTAD 2015c). The focus on micro, small and medium-sized enterprises, especially in the agriculture, bio-trade and tourism sectors, is also growing. Strategies for disaster risk reduction increasingly recognise the need to strengthen the resilience of communities and economies to increasingly volatile climate, financial, and economic systems. The new generation of people-first public–private partnerships, can also play a role in infrastructure development, as long as transparent measures and metrics are in place to ensure they deliver on the public good and ensure proper balance of risks and responsibilities among the parties. On the investment side, the potential is huge as well. For example, only about 2% of the assets of pension funds and insurers are invested in infrastructure, and FDI to LDCs stands at 2% of global flows (UNCTAD 2014b). The Presidents of the 70th and 71st sessions of the General Assembly have overseen initiatives to identify strategies designed to shift the flow of capital away from the unsustainable investments and toward achieving the SDGs. We are seeing a convergence as the World and development Banks, infrastructure banks and country’s ODA are all being realigned to finance the SDGs. These changes also occur at a crucial time when the world's richest individuals approach retirement, and which will see at least US$16 trillion of ultra-high net worth individual’s wealth passed on to the younger generation. This younger generation is more attuned with the impact of their investments on the economy and oriented towards investment with purpose. This change in vision for investment toward impact investment can hugely support the transformative 2030 Agenda.

2.4

Implementing the SDGs

Rio+20 emphasised that green economy is a useful tool to advance sustainable development. Moreover, it clearly established its relation not only to the environmental dimension of development but also to the social and economic dimensions of

4 Smallholders are sometimes described as peasants, subsistence or near—subsistence farmers, or owners of family farms, although in practice not all family farms meet the small size criterion. Hence, rather than adopting a standard characterisation of smallholders, they are often identified based on a combination of specific characteristics. These include small size, the type of crop(s) they cultivate, utilisation of (own) labour, gender division of labour, restricted access to input and output markets and limited financial capacity, including poor access to credit markets. In addition, small farmers use rudimentary technology, and they have limited access to market information. A defining characteristic of smallholders is that they rely largely on own or family labour (UNCTAD 2015c). 5 http://www.weprinciples.org/, last accessed 15 January 2019.

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it. The interlinkages of the economic, social and environmental dimensions of sustainable development were further consolidated in the 2030 Agenda and the SDGs (UN 2015b). There are different approaches that governments can take to achieve the SDGs, depending on the country’s situation, capacity and needs. Every country needs to conduct an assessment exercise, ideally with all stakeholders, to identify national gaps and agree on priorities. However, coordination and cooperation at the national and international levels and across ministries will also be essential to create an enabling environment. And in particular, political leadership has a critical role to play. At the national level, governments can prepare a sustainable development plan with coherent environmental, social and economic policies. In this regard, during the 2016 High Level Political Forum, 22 countries presented National Country Reviews6 explaining their own internal processes, action plans sharing challenges and lessons learned. For instance, Finland7 stressed the importance of involving all key stakeholders in the process including civil society, academia, the private sector and local government; with a view to ensuring policy coherence for sustainable development and promoting accountability. Another key factor highlighted by Finland was the need for inter-ministerial coordination for policy coherence. Therefore, when preparing its National Plan to implement Agenda 2030, the Prime Minister’s Office of Finland asked all line Ministries to identify those existing policies, measures, activities and budgets covering the 17 SDGs and their 169 targets. This mapping exercise allowed Finland to identify gaps and decide on its priorities and assess funding requirements. Further, the plan will outline the coordination, management, monitoring and review mechanisms. A different path that can be explored is cooperation and mutual learning opportunities between developed and developing countries. In this regard, Finland and Colombia8 have been cooperating at the political and expert levels since 2015 aiming at sharing good practices and facilitating mutual learning on the national implementation of 2030 Agenda. For this purpose, they organised a joint workshop in 2016 in Bogotá, Colombia, with a focus on building institutional capacity, creating mechanisms to engage the private sector and the civil society, and integration of the SDGs into the national plans and public policies. Key aspects countries need to consider when implementing the SDGs include: institutional settings and coordination mechanisms for ensuring policy coherence, integrated approaches that take into account the interlinkages among the social,

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https://sustainabledevelopment.un.org/hlpf, last accessed 15 January 2019. National voluntary review of Finland in 2016, please see at: https://sustainabledevelopment.un. org/memberstates/finland, last accessed 15 January 2019. 8 https://sustainabledevelopment.un.org/content/documents/11098Summary%20HLPF%202016. pdf, last accessed 15 January 2019. 7

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environmental and economic aspects of development and their trade-offs (OECD 2016). Indeed, policymakers need to understand the economic opportunities that environmental and resources management can bring and the impact that environmental degradation can have on economic growth and the society, in particular the most disadvantaged groups such as women and youth in rural areas that closely depend on the natural resources. Other key aspects are: consideration of actions at all levels (local, national, regional and international), as well as systems for collecting data and monitoring progress. This trade-off concept can now be employed in the follow-up and monitoring process of the Agenda to assess the impact of the international environment on the effectiveness of national implementation strategies and trade-offs and synergies in those strategies. In addition, it is important to point out that interdependence between countries and policy areas means that the international environment will have an impact on country level implementation efforts and there will be trade-offs and synergies across sectors and countries (UNCTAD 2016a). Therefore, an enabling international environment is crucial to ensure effective implementation at the national level. This enabling environment takes the form of supportive global trends, international policy frameworks, multilateral rules and effective partnerships, reflected into seven channels including: the trade, investment, finance, technology, regulatory, fiscal and institutional channels. Unfortunately trends are not heading in the right direction. UNCTAD’s Trade and Development Report 2016 stresses the sluggish global aggregate demand, increasing income inequality and persistent financial fragility, which contribute to a vulnerable world economy (UNCTAD 2016b) at a time when we need massive amount of resources to jump start the SDGs. This global economic situation has particular detrimental effects for LDCs. And as UNCTAD has rightly stressed, LDCs are the battleground on which the 2030 Agenda for Sustainable Development will be won or lost (UNCTAD 2015a). In LDCs agriculture plays a key role, accounting for 60% of total employment and 25% of value added. Accordingly, increasing land and labour productivity in agriculture is critical to structural transformation, poverty reduction and food security. Nevertheless, this does not mean that urban development can be ignored. In this regard, the LDCs Report 2015 emphasised that poverty eradication ultimately requires: decent work for all; a minimum wage at a level sufficient to provide households at least with an income that is above the poverty line; and social safety nets. Structural transformation of rural economies, encompassing agricultural upgrading and diversification into non-farm activities, is a key part of this process. Finally, a crucial cross cutting issue in the 2030 Agenda is gender equality. Mainstreaming gender equality and assessing how certain policies impact women in a difference way than they affect men is necessary. UNCTAD stresses the need to conduct a gender-impact assessment of trade and science, technology and innovation policies to understand differentiated effects on men and women and identify the kind of government interventions that are needed to address these effects.

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Concerning environmental policies and initiatives that countries can implement, the following list provides examples of common policies used: • Promotion of renewable energy and conservation measures. • Taxes on natural resource extraction, green subsidies, user charges for services such as water supply and waste management to recover costs, pollution taxes (with plans for access for the poorest). • Policy instruments for tackling GHG emissions including carbon taxes, emission trading schemes, standards and technology-support, etc. • Regulation of resource-intensive sectors. • Public investment in research and development for green innovation. • Investment in new technologies equipment, and urban development including buildings and infrastructure. • Sustainable public procurement as it represents around 25–30% of GDP in developing countries and can stimulate demand and supply of products that contribute to social and environmental objectives (OECD 2012). • Green industrial policy promoting green goods such as organic agriculture products, LED light bulbs, etc. • Certification mechanisms to differentiate green products in the market. • Conducting a public environmental expenditure review to examine government resource allocations and assesses their efficiency. They can be used to redistribute spending (OECD 2012). • Subsidies in the form of financial transfers, preferential tax treatment, and provision of services by governments. • Payments for Ecosystem Services giving cash and/or in-kind payments to farmers and other land managers as an incentive to conserve and enhance ecosystem services. There are different green industrial policy measures that a government can employ. Policies that target particular sectors, however, may run fool of international trade agreements. For instance, tax breaks for certain green industries can be considered prohibited subsidies. In addition, there is growing concern about the adverse impacts of climate change policy response, and governments need to pay attention at how disadvantaged groups can be affected in developing countries. For example, increases in international prices of major food cereals due to the rise in energy prices which lead to a higher demand for biofuels from maize and oil seeds (Sachs and Someshwar 2012). Transitioning towards a green economy can create trade opportunities, through new environmental goods and services and also by greening global value chains. Trade must be harnessed as a catalyst for positive economic, social and environmental change, rather than a driver of environmental degradation (IISD and UNEP 2014). Moving away from fossil fuels to renewable energy brings health and financial benefits as well as enhanced employment opportunities. Indeed, the promotion of green and decent jobs can be a key economic driver and also contribute to social inclusion when it benefits disadvantaged groups.

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In their path toward a green economy, developing countries face challenges on the three dimensions of sustainable development and are the most vulnerable to climate change, and also highly dependent on the use of natural resources for economic growth. It is important to highlight that green growth provides an opportunity for emerging-market economies and developing countries to leapfrog unsustainable and wasteful production and consumption patterns (OECD 2012). The pursuit of green jobs will be a key economic driver as the world steps into building a low-carbon global economy (Poschen 2015). According to a report jointly prepared by Bloomberg New Energy Finance, Ceres and Ken Locklin, US$12.1 trillion investment is needed over the next 25 years to keep the world below the 2 degrees Celsius threshold (Zindler and Locklin 2016). In principle, sufficient financial resources from the public and private sectors are available to support developing nations. However, there is a need to improve the capacity of the system to absorb the capital (especially that of women and youth SMEs) in ways that are beneficial to the poor in developing countries and acceptable to those that bring the capital (Green Growth Knowledge Platform 2016).

2.4.1

LDCs Special Case

Within developing countries, LDCs have particular characteristics and needs. LDCs are in a unique position for leapfrogging and adopting environmentally friendly technologies due to their low-carbon profile (UNEP et al. 2011). LDC economies rely significantly on natural capital assets and are mainly focused on agriculture, forest resources, biodiversity, tourism, minerals and oil extraction. They also have a large potential for renewable energies. Consequently, in addition to the policy options discussed above, LDCs require policies that remove constraints on productive capacities such as access to energy, the preservation and enhancement of ecosystems and ecosystem services including fisheries and forests, as well as more resilient food and agricultural production systems. Other green business opportunities for LDCs can be found in the infrastructure services sector, in solid waste management and recycling in urban areas, ecotourism, and producing sustainably harvested timber. In addition, governments can implement policies that promote the development of rural areas with a view to address the trend of rural-urban migration. Public policies can stimulate private sector engagement in transformative sectors such as renewable energies. Trade policies need to take into consideration the high dependence of LDCs’ exports on commodities. Targeted trade liberalisation can promote consumer access to clean technologies at lower costs. In general, LDCs appear to have relatively high tariffs on certain environmentally-friendly products such as energy efficient electric and electronic appliances. However, the downward trend in commodities prices and a weaker demand from developed countries have contributed to a lack of financing resources for LDCs. The need for external financing, including ODA and private sector funding, is particularly critical for

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green projects in the infrastructure services sector, for example for energy and waste management, but also in information and communications technologies that serves as an enabler. In order to make investments more attractive to the private sector, the use of PPPs, blended financing and the use of de-risking tools has increased in many developing countries. Finally, there is a need for international cooperation and collaboration on research and development and technology transfer. Thus, local policies should focus on addressing the lack of financing, and in strengthening the technical and human capital needed to structurally transform these economies. At the international level, the UN has instated two mechanisms to support LDCs in their efforts to implement the SDGs. The first one is the technology bank and a science, technology and innovation supporting mechanism dedicated to LDCs. According to SDG 17, the Technology Bank should be operating by 2017 to enhance the use of enabling technologies, in particular information and communications technology. The second is a Technology Facilitation Mechanism (TFM) launched in September 2015. This new initiative’s objective is the creation and use of innovative technologies to support countries in their efforts to achieve the 2030 Agenda. The TFM is based on a multi-stakeholder collaboration among member States, civil society, the private sector, the scientific community, United Nations entities and other stakeholders. It consists of a United Nations inter-agency task team on science, technology and innovation for the Sustainable Development Goals, a collaborative multi-stakeholder forum on science, technology and innovation for the SDGs and an online platform as a gateway for information on existing Science Technology and Innovation initiatives, mechanisms and programs.

2.5

Trade as an Enabler of Sustainable Development

Agenda 2030 defined trade as a “means of implementation” and as “an engine for inclusive growth and poverty reduction, [and] that contributes to the promotion of sustainable development”. That is, trade is perceived as a means for achieving “sustained, inclusive and sustainable” economic growth because the majority of countries have developed through trade. In the past several decades, however, many developing countries witnessed that trade growth contributed to aggregate economic growth, but also increased the within-country income inequality. There is thus a need for flanking policy measures to ensure trade leads to inclusive growth ensuring that trade also benefits the small and marginalised and fosters sustainable development including its social, gender, and environmental dimensions. The same is true for investment agreements that must be reformed to ensure they foster investment and FDI in support of the SDGs. Historically, greater market access to international markets was improved by lowering tariffs on imported products. However, as tariff barriers were significantly reduced, the influence of non-tariff measures (NTMs) on trade costs has increased. In 2014, around 70% of agricultural products traded in the world market faced sanitary

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and phytosanitary (SPS) measures, and over 60% of manufactured products faced “technical barriers to trade (TBT)” such as technical regulations and product standards. And the number of NTMs may be increasing fast as countries implement policies to achieve the food security, health and environmental SDGs. G20 NTMs cost developing countries an estimated US$23 billion a year and removing these measures could boost LDC exports by 15% (UNCTAD 2016c). Regional and international collaboration will be needed to help countries (i) collectively improve policy environment towards achieving the SDGs; and (ii) reduce trade distortionary impact of NTMs arising from increased production costs to meet the regulatory requirements, including the costs associated with conformity assessment and certification. These costs are higher when exporters have to meet different requirements for different markets including domestic market, thus regional and international regulatory and certification convergence are preferable.

2.6

Implication for Global Value Chains

Some of the main changes in the global trading system over the past three decades, in particular: the growing participation of developing countries in world trade; the shift in the composition of their trade from primary products to manufactures; and, the rise of South–South trade both as a share of developing countries and world trade are connected, in no small part, through the spread of global value chains (GVCs). South–South trade has been a dynamic component of the global trading system over the past two decades, and particularly since 2001. However, this has been an uneven process. Developing Asia, in particular East Asia, has dominated this picture, with China playing a pivotal role in recent years as a hub for the assembly of inputs produced elsewhere in the region. There is some evidence of expansion in other parts of the South, but this has not dented the dominance of developing Asia in South– South trade. The international production networks of transnational companies (TNCs) that shape GVCs through their investments in productive assets worldwide account for some 80% of global trade (UNCTAD 2013). UNCTAD’s data show that almost all developing countries, including the poorest, are increasingly participating in GVCs. GVCs can be an important avenue for developing countries to build productive capacity, including through technology dissemination (spillover) and skill building, and opening up opportunities for longer-term industrial upgrading. GVCs can facilitate access to global markets and integration in the global economy for developing countries, which no longer have to develop an entire industry to generate exports, but can focus on fewer tasks within industry value chains. Participation in GVCs generates employment and may result in faster GDP and income growth; preliminary evidence appears to indicate that increased GVC participation tends to go hand in hand with faster GDP per capita growth. However, many of the potential development benefits of GVCs—in particular technology dissemination or ‘leapfrogging’, skill building and upgrading—are not

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automatic (UNCTAD 2013). Developing countries can remain locked into relatively low value added and low-skilled labour intensive activities. The location of tasks and activities within GVCs is determined by dynamic factors—including relative labour productivity and cost—and as such can shift around the international production networks of multinational firms (they can be footloose). This geographically dispersed patterns of production means that the package of technology and skills required at any one site is narrower, which can lead to cross-border backward and forward linkages at the expense of domestic spillover. Furthermore, when only a small part of the production chain is involved, out-contractors and TNCs have a wider choice of potential sites, which strengthens their bargaining position vis-à-vis the host country. This can engender excessive and unhealthy competition among developing countries that start offering TNCs increasing fiscal and trade-related concessions in order to attract them, which can aggravate the inequalities in the distribution of gains from international trade and investment between TNCs and developing countries’ smaller companies. The fundamental policy challenge for developing countries is to ensure that participation in GVCs is one amongst several complementary components of a development strategy that focuses on a rapid pace of capital formation, economic diversification and technological upgrading. Significantly, in the case of the first-tier East Asian newly industrialising economies (NIEs), this included import substitution industrialisation in an effort to move from the assembly of imported components to their domestic production. This was the case, for example, with the South Korean clothing and textiles sector and the computer industry in Taiwan China. Singapore was also successful in targeting specific industries for promotion, and in using TNC-controlled assets in efforts to upgrade. However, these successful upgrading stories appear to have been the exception rather than the rule, even in East Asia. A second-tier of NIEs emerging from the same region in the 1980s, while successful in building capacity in the resource and labour-intensive parts of GVCs (including with the help of strong regional trade and investment flows), have been much less successful in upgrading to more skill and technology intensive activities (UNCTAD 2015d). In short GVCs can provide opportunities for the economic growth of participating countries, for companies to get access to new markets and upgrade technologically, and for women and men to get new jobs. However, to be beneficial, GVCs should lead, not only to economic but also to social upgrading. But this does not happen automatically. Thus, policies matter, including a set of coherent and mutually reinforcing industrial, trade and investment policies, as well as the right overall development strategies (UNCTAD 2015d).

2.6.1

Environmental Impacts

The sustainability impact of GVCs can also be significant, starting from the environmental impact of moving goods along internationally dispersed value chain segments, to the risk of firms moving activities with greater environmental impact to less regulated locations. Thus, the environmental, social and labour impact of GVCs

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must be taken into account. With the adoption of the SDGs, the rapid spread of social media and mobile/smart phones, it is hard to imagine that the scrutiny of the GVCs and the role of transnational cooperation in meeting the SDGs, will not increase. A large body of work has been conducted on greening the value chain and decreasing human right abuses down the supply chain. With the SDGs, these lines of work came together, just like the development, environment, and human rights communities came together for Rio+20. This section reviews key findings of each line of research and attempts to offer integrated recommendations. The work on greening the global value chains that has been ongoing for over a decade can guide policies to foster sustainable value chains. This requires a comprehensive approach involving not only the companies but all key stakeholders at national and international levels. Coordination at the global level will be necessary; not only in terms of the legal and institutional frameworks but also in enforcement of environmental, human and labour rights and other regulations. Some environmental public policies such as taxes, technology standards, inspections, legal liability, etc. will significantly influence the efforts that individual companies and branches of GVCs situated on national territory will devote to these issues. Several countries including the United States, China, India, countries in Europe, etc. are promoting their national environmental goods and services industries. Traditionally, developed countries were net exporters of environmental goods and services, and developing countries net importers (Bahar et al. 2013). Technology diffusion towards the developing world is driven by a demand for green technologies induced by environmental policies in industrialised countries. Recently emerging economies have also joined the exporters group. LDCs have very limited access to foreign green technologies as they are mainly connected to the global economy through raw material markets (Glachant et al. 2013). Governments can promote this sector through public funding of environmental R&D, the design of public procurement, the creation of partnerships between private firms and public research institutes and universities, etc. The SDGs, especially SDG 12 on Sustainable Consumption and Production will spur more of these policies and their enforcement thus creating local demand for green technologies and innovation beyond the adoption of foreign technologies. Key factors that have an impact in the environmental effects of GVC include: • Transportation and communication infrastructure. • The availability of energy and water, determine individual firms’ and GVCs’ efforts to preserve these resources. • The type and strength of competition. A retailer whose advantage in a highly contested market rests in consistently proposing very low prices, for example, might turn out to be less receptive to selling greener but more expensive goods. • Industry-specific standards. • Customers’ attitudes, competitors’ aggressiveness and some suppliers’ membership in several supply chains might slow or accelerate the adoption of greener practices (Klassen and Vachon 2012). • Social pressure coming from non-governmental organisations (NGOs) and communities.

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Governments also need to invest in capacity building and technology infrastructure in order to support companies, in particular Micro Small and Medium-sized Enterprises (MSMEs). Many greening activities, particularly those pertaining to the downstream supply chain in developing countries are actually carried out by some informal businesses. Formalisation of businesses can help in this regard (SinclairDesgagné 2013). To be in a better position to establish new policies, governments require traceability of products and materials, to assign responsibilities and monitor environmental compliance; as well as transparency for achieving credibility, legitimacy, and fairness. Reliable environmental data and metrics are necessary and can also provide useful information with regards to how these are shared between GVC members (Sinclair-Desgagné 2013). Life Cycle Assessment (LCA) is used in several— mostly—developed countries to conduct a systematic evaluation of the environmental aspects of a product or service system through all stages of its life cycle. Some European countries also make use of extended producer responsibility policies for goods such as consumer electronics; home appliances, etc. These policies ensure that products reaching the end of their useful life must go through a series of tasks including collection, inspection, sorting, disposal, reprocessing and recycling. In this case, producers are responsible for the costs of managing these goods at end of life. Governments may need to support companies, especially MSMEs to be able to collect and disclose environmental and human right information. The Global Reporting Initiative, the UN Global Compact and the World Business Council for Sustainable Development have created the SDG Compass to guide companies on how to align their strategies and measure and manage their contribution to the SDGs (GRI et al. 2015). Other key aspects that policymakers could consider include international environmental agreements and green technology transfers and agreements aiming to reduce or eliminate tariff and non-tariff barriers for trade in environmental goods and services. Technological capabilities, such as availability of skilled technical personnel, information on available technologies, social institutions that reduce transactions costs, etc. determine a country’s ability to successfully innovate and absorb foreign technologies. Thus, helping developing countries to build absorptive technological capacities should be given priority. Developing countries need methodologies and roadmaps to identify priority technologies and to adapt the policy instruments to local context. Science Technology and Innovation Policy (STIPs) reviews offered by UNCTAD and UNESCO are doing just that. International technology transfers take place through market channels such as trade, FDI and the associated circulation of skilled workers. In fact, FDI induces more knowledge transfer than trade in goods, because it aims at exploiting it directly in a local subsidiary of the source company or in a joint-venture in the recipient country. Concerning the use of patents to promote innovation, there is no agreements on whether a stronger Intellectual property (IP) regime fosters more or less transfer of climate-mitigation technology to developing countries. In the specific case of climate-

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friendly technologies, Dechezleprêtre et al. (2013), Barton (2007), and Maskus (2010) show that patenting has not been a barrier for the transfer of solar photovoltaic power, wind power, and biofuel technologies in emerging economies. There are also business-led initiatives which include international companies from the same sector and intend to improve coordination in their environmental actions by sharing information, technology, or through joint technology development. However, industry-led initiatives do not seem do have acheived major carbon abatement and technology development and diffusion (Glachant et al. 2013).

2.6.2

Social Impacts

Based on evidence from Bangladesh, Brazil, Egypt, Kenya, Lesotho, Mauritius and others countries that have been able to integrate into GVCs, UNCTAD has found that the effects of GVC on social development are largely related to new job opportunities for both skilled and relatively unskilled workers, including women. Growth of real wages, reduction of the gender wage gap, and improvement of labour conditions happen to a lesser extent (UNCTAD 2014a). By looking at specific sectors such as horticulture and agro-processing, the apparel and the Information and Communication Technologies (ICT) sectors, UNCTAD finds that women working in value chains can face similar constraints to those faced by women working in firms oriented towards the domestic markets: employment at the lower nodes of the chain, with limited opportunities for skills development and lower wages in comparison to men performing the same functions. In addition, as firms upgrade technologically and become able to produce goods that have more value addition, women risk being left behind since they often do not possess the skills needed for more technology-intensive production. On the other hand, GVCs have been important in incorporating women in the formal labour force, including into higher value added activities, and giving them access to social protection, social security or pension funds, or other monetary benefits for their families. Evidence also suggests that the expansion of exportable services has enhanced employment opportunities for women, most notably in the IT sector, in several middle-income countries like India, the Philippines, Jamaica and Mexico (UNCTAD 2016d). Some policies can improve the way GVCs support economic and social upgrading, and to provide fairer employment opportunities to women. Ensuring that women benefit from GVC requires a comprehensive approach to address gender-specific constraints, such as heavy household responsibilities, disproportionate care burdens, and lack of technical skills and training. A Gender Impact Assessment of trade policy would help understanding trade effects on men and women and therefore identify the kind of interventions that are needed (UNCTAD 2014a). Other potential social impacts could also be reviewed. Practical instruments, such as Aid for Trade, can also be used to facilitate women’s beneficial participation in value chains.

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A number of trade-facilitation frameworks can help channel funds toward gendersensitive initiatives, particularly on the supply-side of the trade equation. Key interventions on the supply side include: • targeted, gender-sensitive subsidies for productive inputs; • investment in time-saving and labour-saving technologies that respond to women’s needs; • market information systems; • in the case of agriculture, extension services tuned to women farmers and ruralbased agribusiness; • the strengthening of women associations; • interventions to enhance women’s access to capital, credit, networks and technological know-how to enhance their productivity; and • training programmes to incentivise horizontal and vertical gender mobility. Finally, the international communities must ensure that basic ILO conventions on workers’ rights, freedom of association, and equal pay for equal work are respected in all countries. Without a benchmark and a common way to compare companies, it is hard for investors, governments, and civil society groups to assess one company against another. This is why the efforts of the Corporate Human Rights Benchmark (CHRB) developed by six organisations including private sector—Aviva Investors, Business & Human Rights Resource Centre (BHRRC), Calvert Investments, Institute for Human Rights and Business (IHRB), VBDO and Vigeo Eiris—to develop a public benchmark on companies’ human rights performance against the 2011 UN Guiding Principles on Business and Human Rights are so encouraging. This publicly available benchmark launched in November 2016 provides a comparative snapshot yearon-year of the human rights performance of the largest 500 companies on the planet, looking at the policies, processes and practices they have in place to systematise their human rights approach and how they respond when things go wrong. More of these benchmarks should be expected as Aviva and its partners are investing in and calling for more (Aviva Investors et al. 2016).9

2.7

Conclusions and Recommendations

As clearly stated in this chapter, the 2030 Agenda for Sustainable Development contains a set of unprecedented broad and ambitious Sustainable Development Goals (SDGs). The SDGs integrate the three dimensions of sustainable

9 The Corporate Human Rights Benchmark (CHRB) Pilot Methodology released in 2016 was amended by the Methodology Addendum that became available in March 2017. Taking into account results of the 2017 assessment and following extensive consultations, CHRB published on 08.01.2018 its revised Methodology for the 2018 assessment.

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development: economic, social and environmental that are clearly interrelated. Moreover, they are applicable to all countries and were developed through an inclusive process by which all key stakeholders were consulted. As a result, the SDGs are having and will continue to have a strong impact on the policies and initiatives that governments and the private sector will undertake in the years to come. Indeed, we will feel their effects on our economies, how we trade, human rights, environmental policies, gender equality, etc. Business as usual is definitely not any longer an option and the way businesses and investors operate is likely to change drastically to support the SDGs. The high level of ambition of the SDGs means that in order to be able to achieve them by 2030, a big push for mobilisation of finance and technology will be required. Funding from the public sector will be fundamental but it will not be enough. Additional funds will need to come from the private sector, philanthropy, pension funds and by realigning capital flows with the SDGs. The investment gap to achieve the SDGs is estimated to US$2.5 trillion for developing countries alone; mainly for investments in basic infrastructure, food security, health, education and climate change mitigation and adaptation. When implementing the SDGs there is no one size fits all option. Countries need to evaluate their current situation taking into consideration the 17 SDGs and the 169 targets, with a view to identifying national gaps and agreeing on priorities and elaborating a sustainable development plan. Therefore, policies will depend on the country’s situation, capacity, and needs. A particularly important factor to consider is the interdependence between countries and policy areas, because this means that the international environment will have an important effect on country level implementation efforts and there will be trade-offs and synergies across sectors and countries. Indeed, an enabling international environment is essential for an effective implementation at the national level. Unfortunately, the current global situation is contributing to a vulnerable world economy and the weak demand in developed countries and the drop in commodity prices are diminishing the financial resources that developing countries need to implement the SDGs. Against this background, coordination and cooperation and the national and international levels are indispensable and reforms to the financial and investment international systems will be required. Least Developed Countries (LDCs) are the battleground on which the 2030 Agenda for Sustainable Development will be won or lost. In particular, structural transformation of rural economies, encompassing agricultural upgrading and diversification into non-farming activities will be essential. With regards to moving towards a green economy, LDCs are in a unique position for leapfrogging and adopting environmentally friendly technologies due to their low-carbon profile. Their economies rely significantly on natural capital assets and are mainly focused on agriculture, forest resources, biodiversity, tourism, minerals and oil extraction. Trade is considered a means of implementation that can promote inclusive growth and poverty reduction. But there is a need for flanking policies to ensure trade also benefits the small and marginalised and fosters sustainable development including its social and environmental dimensions. For this purpose, regional and international

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collaboration will be needed to help countries (i) collectively improve policy environment towards achieving the SDGs; and (ii) reduce trade distortionary impact of non-tariff measures (NTMs) arising from increased production costs to meet the regulatory requirements. Finally, there have been extended effort to guide policies to foster green value chains, which could also inform sustainable value chains. South–South trade has been a dynamic component of the global trading system over the past two decades. Moreover, all developing countries are increasingly participating in global and increasingly regional value chains. In fact, global value chains (GVCs) can provide opportunities for the economic growth of participating countries, for companies to get access to new markets and upgrade technologically, and for women and men to get access to new employment opportunities, it can also help developing countries to build productive capacity and can open up opportunities for longer-term industrial upgrading. However, such potential benefits of GVCs are not automatic. There is a need for coherent and mutually reinforcing industrial, trade and investment policies, as well as adequate overall development strategies. The fundamental policy challenge for developing countries is to ensure that participation in GVCs is one amongst several complementary components of a development strategy that focuses on a rapid pace of capital formation, economic diversification and technological upgrading. In addition, ensuring that women benefit from GVC requires a comprehensive approach to address gender-specific constraints, such as heavy household responsibilities, disproportionate care burdens, and lack of technical skills and training. A Gender Impact Assessment of trade and technology and innovation policies would help understanding effects on men and women and therefore identify the kind of interventions that are needed. In terms of policy options and monitoring progress of implementation, countries will benefit greatly from sharing experiences and lessons learned. In this regard, South–South, North–South and triangular cooperation could have a positive impact. Further research efforts can be focused on better understanding the impacts of interdependence between countries and policy areas and incorporate findings in development cooperation policies. Other interesting areas would be related to collecting data to assess progress in the implementation of the SDGs and different approaches to monitor progress and identify best practices that ensure no-one is left behind.

Annex: Agenda 2030: Specific Targets for the Private and Financial Sector 9.1 Develop quality, reliable, sustainable and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human wellbeing, with a focus on affordable and equitable access for all.

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9.2 Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries. 9.3 Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets. 9.4 By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities. 9.a Facilitate sustainable and resilient infrastructure development in developing countries through enhanced financial, technological and technical support to African countries, least developed countries, landlocked developing countries and small island developing States. 10.b Encourage official development assistance and financial flows, including foreign direct investment, to States where the need is greatest, in particular least developed countries, African countries, small island developing States and landlocked developing countries, in accordance with their national plans and programmes. 10.c By 2030, reduce to less than 3% the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5%. 12.1 Implement the 10-Year Framework of Programmes on Sustainable Consumption and Production Patterns, all countries taking action, with developed countries taking the lead, taking into account the development and capabilities of developing countries. 12.2 By 2030, achieve the sustainable management and efficient use of natural resources. 12.6 Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle. 12.a Support developing countries to strengthen their scientific and technological capacity to move towards more sustainable patterns of consumption and production.

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12.b Develop and implement tools to monitor sustainable development impacts for sustainable tourism that creates jobs and promotes local culture and products. 17.5 Adopt and implement investment promotion regimes for least developed countries.

References Aviva Investors, Business & Human Rights Resource Centre, Calvert Investments, Institute for Human Rights and Business, VBDO and Vigeo Eiris (2016) Corporate Human Rights Benchmark (CHRB). Pilot Methodology 2016 Bahar H, Egeland J, Steenblik R (2013) Domestic Incentive Measures for Renewable Energy with Possible Trade Implications. OECD Trade and Environment Paper No. 2013/01, March 2013 Barton J (2007) Intellectual Property and Access to Clean Energy Technologies in Developing Countries. An Analysis of Solar Photovoltaic, Biofuel and Wind Technologies. ICTSD Programme on Trade and Environment, Issue Paper No. 2 Chesebrough D, Feller É, Grabski T, Miller A, Paty M (2016) 2016 Sustainable Stock Exchanges Report on Progress. http://www.sseinitiative.org/wp-content/uploads/2012/03/SSE-Report-onProgress-2016.pdf. Accessed 31 Jan 2019 Dechezleprêtre A, Glachant M, Ménière Y (2013) What drives the international transfer of climate change mitigation technologies? Empirical evidence from patent data. Environ Resour Econ 54 (2):161–178 Glachant M, Dussaux D, Ménière Y, Dechezleprêtre A (2013) Greening Global Value Chains: Innovation and the International Diffusion of Technologies and Knowledge. Policy Research Working Paper 6467, The World Bank, May 2013 Green Growth Knowledge Platform (2016) 3 Ways to Help Countries Transition to Sustainable Development, 4 August 2016. http://www.greengrowthknowledge.org/blog/3-ways-help-coun tries-transition-sustainable-development/. Accessed 31 Jan 2019 GRI, UN Global Compact, WBCSD (2015) The SDG Compass. The Guide for business action on the SDGs. https://www.unglobalcompact.org/docs/issues_doc/development/SDGCompass.pdf. Accessed 31 Jan 2019 IISD and UNEP – International Institute for Sustainable Development and United Nations Environment Programme (2014) Trade and green economy: a handbook, 3rd edn. International Institute for Sustainable Development, Geneva Klassen RD, Vachon S (2012) Greener supply chain management. In: Bansal P, Hoffman AJ (eds) The Oxford handbook of business and the natural environment. Oxford University Press, Oxford, pp 269–289 Maskus K (2010) Differentiated Intellectual Property Regimes for Environmental and Climate Technologies. OECD Environment Working Papers, No. 17. OECD Publishing, Paris. https:// doi.org/10.1787/5kmfwjvc83vk-en OECD – Organisation for Economic Co-operation and Development (2012) Green Growth and Developing Countries: A Summary for Policy Makers, June 2012. https://www.oecd.org/dac/ 50526354.pdf. Accessed 31 Jan 2019 OECD – Organisation for Economic Co-operation and Development (2016) Better policies for sustainable development 2016: a new framework for policy Coherence. OECD Publishing, Paris. https://doi.org/10.1787/9789264256996-en Poschen P (2015) Decent work, green jobs and the sustainable economy: solutions for climate change and sustainable development. Greenleaf Publishing Limited, Sheffield

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Sachs JD, Someshwar S (2012) Green growth and equity in the context of climate change: some considerations. ADBI Working Paper 37, July 2012. Asian Development Bank Institute, Tokyo Sinclair-Desgagné B (2013) Greening global value chains: implementation challenges. OECD Green Growth Papers, 2013–2004, OECD Publishing, Paris. https://doi.org/10.1787/ 5k483jnbjbzn-en UN – United Nations (2012) The Future We Want. Resolution adopted by the general assembly on 27 July 2012, A/RES/66/288 UN – United Nations (2015a) The Millennium Development Goals Report 2015. http://www.un. org/millenniumgoals/. Accessed 31 Jan 2019 UN – United Nations (2015b) Transforming our World: The 2030 Agenda for Sustainable Development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1 UNCTAD – United Nations Conference on Trade and Development (2013) Global Value Chains and Development: Investment and value added trade in the global economy. A preliminary analysis. http://unctad.org/en/PublicationsLibrary/diae2013d1_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2014a) Looking at trade policy through a “gender lens”. Summary of seven country case studies conducted by UNCTAD. http://unctad.org/en/PublicationsLibrary/ditc2014d3_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2014b) World Investment Report 2014: Investing in the SDGs. An action plan. http://unctad.org/en/PublicationsLibrary/ wir2014_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2015a) Least Developed Countries Report 2015: Transforming Rural Economies. http://unctad.org/en/ PublicationsLibrary/ldc2015_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2015b) Review of good practices on enhancing the role of corporate reporting in attaining sustainable development goals. Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR), November 2015, TD/B/C.II/ISAR/74. http://unctad.org/meetings/en/ SessionalDocuments/ciiisard74_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2015c) Commodities and Development Report 2015: Smallholder Farmers and Sustainable Commodity Development. http://unctad.org/en/PublicationsLibrary/suc2014d5_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2015d) Global Value Chains and South-South Trade: Economic Cooperation and Integration among Developing Countries. http://unctad.org/en/PublicationsLibrary/gdsecidc2015d1_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2016a) Interdependencies between Countries and Policy Areas: The Role of UNCTAD in the Follow-Up and Monitoring Process of the 2030 Agenda for Sustainable Development. UNCTAD Policy Brief No. 47, March 2016 (UNCTAD/PRESS/PB/2016/3). http://unctad.org/en/PublicationsLibrary/ presspb2016d3_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2016b) Trade and Development Report, 2016: Structural transformation for inclusive and sustained growth. http://unctad. org/en/PublicationsLibrary/tdr2016_en.pdf. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2016c) Regulators must not hinder trade while protecting people and the planet. Press Release, 06 October 2016. http:// unctad.org/en/Pages/PressRelease.aspx?OriginalVersionID¼344. Accessed 31 Jan 2019 UNCTAD – United Nations Conference on Trade and Development (2016d) Trade as a tool for the economic empowerment of women. Note by the UNCTAD secretariat, May 2016. http://unctad. org/meetings/en/SessionalDocuments/ciem8d2_en.pdf. Accessed 31 Jan 2019 UNEP, UNCTAD, UN-OHRLLS – United Nations Environment Programme, United Nations Conference on Trade and Development, Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (2011) Green Economy: Why a Green Economy Matters for the Least Developed Countries. http://unctad.org/en/docs/unep_unctad_un-ohrlls_en.pdf. Accessed 31 Jan 2019

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Zindler E, Locklin K (2016) Mapping the Gap: The Road from Paris. Finance Paths for a 2-Degree Future, 27 January 2016. https://www.ceres.org/resources/reports/mapping-gap-road-paris/. Accessed 31 Jan 2019

Chantal Line Carpentier is the Chief of the United Nations Conference on Trade and Development (UNCTAD) New York Office of the Secretary General. At UNCTAD—the focal point in the UN for the integrated treatment of trade and development and interrelated issues in the areas of finance, technology, investment and sustainable development—she leads her team that bridges the research and technical cooperation conducted by headquarters in Geneva and the New York intergovernmental processes. She previously led the participation of non-state actors in Rio+20 and the negotiations of the SDGs at the UN Department of Economic and Social Affairs. Before her time at the UN, she headed the Trade, Economics and Environment Program of the NAFTA Commission for Environmental Cooperation, and served as policy analyst for the Wallace Institute for Alternative Agriculture, and IFPRI. She’s a Yale World Fellow and holds agricultural and environmental economics degrees from McGill University and a Ph.D. from Virginia Tech University. UNCTAD New York Office of the Secretary General, 2 United Nations Plaza, suite 1125 United Nations, New York, NY 10017; Email: [email protected]. Isabel Garza Rodríguez is an Economics Affairs Officer at the United Nations Conference on Trade and Development (UNCTAD) Division on Investment and Enterprise, where she returns after contributing to UNCTAD’s engagement with the intergovernmental process at the UN, supporting work in the areas of trade and development and interrelated issues in the areas of finance, technology, investment and sustainable development. Back in Geneva she contributes technical, financial, environmental, social and governance expertise towards the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR). Prior to her UN career, she was a Researcher at the Mexican Accounting Standards Board. She holds an M.Sc. in Finance from University of Lund, Sweden, and a BSc in Accountancy and Financial Strategy from Instituto Technológico Autónomo de México. UNCTAD Palais des Nations, 8-14, Av. de la Paix, 1211 Geneva 10 Switzerland; Email: [email protected].

Chapter 3

The Grand Vision of G7 in Elmau: Quo Vadis, Sustainability? Katharina Serrano

3.1

Introduction

Sustainability is here to stay, with or without high level processes such as the UN Agenda 2030 or the G7 commitments. There is no dispute that any kind of development needs to be sustainable for the planet, including its 7.4 billion inhabitants, flora, and fauna, to survive this millennium. However, the costs, risks, methods, approaches and scope of sustainability are disputable. These how-when-where-whoquestions have often been determined—albeit not implemented—at the highest political levels. In that respect, the G7 summits must be seen as trend-setters for the international sustainability discourse and as tracks ensuring the big-picture continuity of the topic. By zeroing in on the G7 summit in Elmau in 2015, this chapter confronts some of the most intriguing and, at the same time, most complex themes surrounding sustainability in the past decade: voluntarism versus state control; global development versus sectoral approaches; and national versus internationalised initiatives. The chapter asks “quo vadis, sustainability?”—one of most fascinating questions of the twenty-first century, especially at a time when the vast majority agrees on the sustainability imperative and some approaches have been tried, tested or abandoned while other strategies are in their pilot phases. Building on the UN Millennium Development Goals (MDGs) and with Sustainable Development Goals (SDGs) well on their way, we are however still searching for effective formats and platforms to achieve set sustainability objectives and agreed-on development targets. We identify needs, prioritise areas, project outcomes and measure impact but the tools that are required to carry sustainable development into every village, every factory and onto every cotton field are often difficult to identify and challenging to use given varying country and cultural contexts, development needs and education levels. K. Serrano (*) Modivendi, Port Vila, Vanuatu e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_3

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Two of the newer instruments to enhance sustainability—next to dialogue, field programmes, policy interventions, safeguards and many others in the traditional development toolbox—are examined in this chapter within the context of the sustainability discourse at G7 level: Global Value Chains (GVCs) and MultiStakeholder Initiatives (MSIs). The former are considered essential for international trade (Taglioni and Winkler 2016) but the globalisation of supply chains over the past two decades calls for a more coherent view of trade and trade-related policies (OECD 2015). Today, three quarter of international trade is comprised of firms buying inputs and investment goods or services that contribute to the production process and add value to goods along numerous tiers of a supply value chain (OECD 2015). With international trade being the undisputed engine of growth and development, GVCs cannot be left out of the debate when it comes to sustainable development for the world’s 836 million people who still live in extreme poverty. As resilient mechanisms of economic growth, GVCs lend themselves as carriers of and implementing mechanisms for sustainability standards, touching areas previously beyond the reach of traditional actors, such as the state or development organisations. With most developing countries participating as upstream producers within value chains that are directly connected to end-consumers in developed countries at the other end, GVCs may well offer the most underrated sustainability pathway in modern history. Nonetheless, infusing supply chains with sustainability standards calls for a politically strong, concerted and economically viable effort. In other words: it takes brothers in arms to pierce the veils of domestic policies, corporate strategies, supplier agreements, market demands and trade-related measures with the sword of social and environmental standards. This is exactly where MSIs come in: voluntary, transformative cooperation platforms uniting participants in their desire for global positive change. As vehicles for innovative approaches to global challenges and knowledge generation podiums, well-executed and sustainability-oriented MSIs can become powerhouses of sustainable transformation in any sector or discipline, be it water, textiles, cocoa, energy, or palm oil. The combination of the sustainability discourse with high-level political impulses as well as new approaches to sustainable development via MSIs focusing on particularly complex GVCs results in this chapter, which unites old theory with new ideas on implementation to see where sustainability may be going next. Certainly, the chapter neither claims to have found the answer to the title question nor does it have the scope to treat the individual parts of the new paradigm—G7, MSIs, sustainability standards and GVCs—in sufficient detail. Rather, its contribution lies in uniting these parts to create a departure point for further debate and thinking. The chapter begins with an introduction of GVCs as new sustainability tools in Sect. 3.2 before moving on to Sect. 3.3 where MSIs as partnership models for collective sectoral sustainability governance are discussed. Following an evaluation of one of the most progressive sectoral MSIs, the German Partnership for Sustainable Textiles, the chapter moves on to set the context for the responsible GVC agenda of the German government in context of the G7 summit.

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Setting the scene, Sect. 3.4 looks back at approaches to sustainability throughout the history of G7/8 summits and discovers some early forms of collective responsibility for sustainable development: MSI-like partnerships in regional context, responsibility shifts towards private industry and Multilateral Development Banks (MDBs). The focus then shifts in Sect. 3.5 to the year 2015 when Germany held the G7 presidency. Section 3.5.1 outlines why the German government decided to introduce sustainability in context of GVCs at the highest political level during the G7 Summit in Elmau in 2015. The reasons why Elmau must be considered a culmination point for collective sustainability governance are outlined in Sect. 3.5.2, which also gives an interim-evaluation of progress made on the Elmau Commitment on Responsible Supply Chains. The chapter ends with a follow-up of the 2016 G7 Summit in Ise-Shima, Japan and the 2017 G7 Summit in Taormina, Italy, as well as an outlook of where sustainable GVCs may go from here following their grand appearance in high politics in 2015.

3.2

A New Sustainability Tool: Global Value Chains

With the emergence of global value chains (GVCs) in the late nineties, international business processes, trade flows and investment patterns have seen unprecedented changes that have resulted in accelerated reactions from governments, think tanks, NGOs, civil society, international organisations and the private sector itself. Not only did the trade and investment agenda become more ambitious; globally operating firms also changed entire business strategies and governments reacted by developing policies to support business environments conducive to reaping benefits offered by GVCs. Naturally, a better understanding of GVCs contributed to a better understanding of globalisation and revealed that, while the global economy was more interconnected than ever before, highly specialised value chains were the actual drivers of growth and productivity (OECD 2013). At the same time issues of global food security, poverty alleviation, inclusive economic growth, social stability, and the sustainable use of natural resources continued to dominate an increasingly complex international development agenda, which culminated in the September 2000 adoption of the United Nations Millennium Declaration (UN 2000), followed by the adoption of 17 Sustainable Development Goals (UN 2015) setting new benchmarks and time-bound targets for sustainable development—the UN 2030 Agenda for Sustainable Development—in September 2015. Sustainability and development were intrinsically linked and the international community acknowledged that sustainability was here to stay as the paradigm for inclusive, responsive and fair development. GVCs, hailed as the new development tools, were pulled into the sustainability discourse and think tanks as well as dedicated organisations such as the global association for sustainability standards (ISEAL) or the International Trade Centre (ITC) engaged into focused research on how to make GVCs more sustainable (ITC 2011, 2013, 2014) and introduce credible

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standard systems to raise social and environmental standards as part of sustainable development (Carey and Guttenstein 2008; ISEAL 2011). By 2015 the debate around the sustainability of GVCs and responsible supply chain management as tools for sustainable development had become mainstream and were picked up by governments as much as industry.1 Questions arose, related not only to the institutional design of sustainability standards or the modus operandi of GVCs but also addressing how standard-setting organisations and value chain players can integrate small and medium enterprises and small farmers into sustainable value chains in order to make the latter real stepping stones for the integration of developing countries into the global economy. How to address GVCs and sustainability issues in the context of multilateral trade systems and who is to capture the value in value chains became some of the more popular questions asked (Draper and Freytag 2014). Beyond substantive issues, the sustainability discourse also addressed the limitations of traditional policy, data capture methods and qualitative analysis in terms of the effects of GVCs on all stakeholders along the value chains. The importance of the new sustainability discourse was enhanced by the lack of progress in integrating sustainability into free trade agreements as well as the shift from multilateralism to bilateralism and regional comprehensive trade agreements. In addition, the 2030 Agenda for Sustainable Development stressed the need for new responsible business practices, such as reduced environmental and social impacts of production and shared responsibility in global value chains (Brandi 2016). With a regulatory vacuum created by the lack of state regulation and effective global environmental policies, more and more voluntary private supply chain governance initiatives emerged in both in developed and in developing countries (Brandi 2016). These initiatives included production process adjustment advice and the implementation of different voluntary sustainable product standards and certification initiatives such as Organic or Fairtrade (Fayet and Vermeulen 2014). While many of the initiatives related to individual agricultural products such as palm oil or bananas, some initiatives took on a more holistic approach to sector transformation, for example in the textiles and garment sector.

3.3

Collective Sectoral Sustainability Governance: National and Global Multi-Stakeholder Initiatives (MSIs)

MSIs have emerged in the recent years as a common partnership model to tackle global problems and can be considered as a form of civil, i.e. voluntary regulation in the absence of government regulation. Resulting from the enormous variation of

1 Examples of GVC-oriented multi-stakeholder initiatives include the German Partnership for Sustainable Textiles, the Italian Action Plan for Bangladesh or the Dutch Sustainable Garment and Textile Sector Agreement. Germany also targets other sectors and their specific GVCs, such as palm oil, cotton, cocoa and bananas with sustainability-oriented MSIs.

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MSIs in terms of their purpose, scope, complexity, membership and level of engagement, there is no clear-cut definition of MSIs. However, there are definitions of MSIs that are widely recognised. For example, the Organisation for Economic Cooperation and Development (OECD) describes a MSI as cooperation in varying degrees between many social partners, including companies, worker and employer organisations, NGOs, governments, or some combination thereof (OECD 2016). Such an initiative may address a specific issue (i.e. labour, environment, bribery, etc.) or encompass the whole range of Corporate Social Responsibility (CSR) issues. Some multi-stakeholder initiatives focus on a specific region; others on a specific sector such as textiles. Some multi stakeholder initiatives focus on promotional activities to build awareness; others have a code of conduct with which their members must comply, and may be required to undergo monitoring and certification carried out by either an auditing firm, an NGO or even the MSI itself. Still others, such as the Global Reporting Initiative (GRI), focus on creating a uniform approach to a particular aspect of the CSR process—in this case the creation of a global standard for sustainability reporting that helps stakeholders and the public at large understand the impact generated on an individual or MSI-basis (GRI 2017). On the other hand, it is quite clear what MSIs are not. They are not conformist client-contractor relationships or outsourcing arrangements where one party unilaterally determines the actions of another. They are not based on contracts that provide in full for every aspect of the partnership, such as dispute resolution mechanisms or principles determining which opportunities the partners must engage with. MSIs are also not public-private partnerships (PPPs) in the conventional sense of the term, although there may be collaboration on financing, and even on resourcing and project management. Unlike PPPs, the central idea of MSIs is not to create a shift in responsibility and risk from one part of society to another,2 but to create a common but equally shared responsibility according to the principles of comparative advantage. Moreover, they should not be seen as a replacement for institutional forms of democratic decision-making, not least since the alliances so nurtured are essentially about the design and/or implementation of programmes or projects for which the conventional democratic process has already assigned priority. It follows that, at least for the purpose of this discussion, MSIs can be defined according to a set of minimum criteria which need to be fulfilled for an initiative to qualify as an MSI. These criteria can be defined as follows: 1. Partnership model: the stakeholders involved bring in their capacities and competencies to initiate, develop and foster a process of common interest without the existence of a conformist client-contractor relationship.

2

With PPPs, the shift in responsibility, risk and accountability envisaged is usually one from the government to the private sector. In theory, a PPP results in the public partner becoming more market sensitive, including being less risk averse, while the private partner accepts more social responsibility, possibly accepting lower-than usual profit margins. This may constitute, in part at least, one of the outcomes of an operational MSI but it is not a primary driver for MSI engagement.

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2. Stakeholder composition: the MSI composition includes various stakeholders and social partners, including companies, worker and employer organisations, NGOs, governments, or some combination thereof. 3. Governance process: the stakeholders agree to objectives and a certain modus operandi (ranging from informal to formal processes) executed by some form of governance structure (ranging from informal to institutionalised). 4. Responsibility: the stakeholders accept responsibility for reaching common objectives and seek joint solutions (e.g. through awareness raising, project financing, standard setting, achieving alignment, setting of supervisory roles, developing learning approaches etc.). 5. Stability: the process has a minimum perpetuation and the members exchange information on the processes on a regular basis. 6. Self-reporting: the members report their activities to the MSI and evaluate progress in pursuing the MSI’s objectives (ranging from informal or formal self-reporting to third-party auditing). The reporting can be internal or external or a combination thereof. The increasing attention given to the promotion of decent working conditions and higher environmental standards through global supply chains was first echoed in MSIs at national, intergovernmental and supranational level that related to the textiles and garment sector—one of the largest consumer goods sectors in the world. As such, the sector consists of the largest and most complex GVCs and represents an important economic driving force. However, the specific interest in sustainable textiles was due to some of the worst factory disasters in the history of industrialised production. The Tazreen Fashion factory fire in Bangladesh in 2012 or the Rana Plaza factory collapse with more than 1000 deaths in 2013 were followed by a global realisation that working conditions, safety standards and environmental concerns needed to be addressed as a matter of urgency. In addition, consumers in developed countries were sensitised to non-sustainable production patterns, resource abuse and child labour issues. This created a growing consumer demand for sustainably produced and sourced textiles. At European level the supranational MSI “EU Garment Initiative” was initiated as part of the European Year for Development 2015. Its main objective was to encourage better coordination, collaboration, dialogue and exchange between all stakeholders active in the area of textiles. In developed countries, the initiative called on the private sector to foster responsible management and transparency in supply chains while developing countries were encouraged and supported in signing up to and implementation of international standards and conventions. At intergovernmental level, the OECD had built extensive experience in developing tailored guidance to help enterprises build responsible supply chains in sectors such as extractives— including minerals from conflict-affected and high-risk areas, agriculture, and finance. This experience was used to engage stakeholders from 2015 onwards in the development of a due diligence guidance for supply chains in the garment and footwear sector (OECD 2017). The risk-based approach underlying the new OECD Guidance was intended to help companies identify and prevent potential negative

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impacts related to human rights, labour, the environment and corruption in garment and footwear supply chains worldwide (OECD 2017). While Germany enthusiastically supported these initiatives and actively participated in relevant debates at the international level, the Federal Ministry for Economic Cooperation and Development (Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung, BMZ) decided that a more concrete, impactoriented and measurable process was needed to spearhead global efforts at sustainability in GVCs. In 2014, the Federal Ministry, with secretarial and operational support from the German Agency for International Cooperation (Gesellschaft für Internationale Zusammenarbeit, GIZ), initiated the first national MSI to address issues of sustainability in textile GVCs.3 As part of a collective voluntary sustainability governance approach, the Partnership for Sustainable Textiles brought together, for the first time ever, textile and clothing industry, retailers, government representatives, trade unions and civil society with the intention to pool the strength and expertise of its members in order to bring about social, ecological and economic improvements along the textile supply chain. It was based on a comprehensive Action Plan and included an innovative impact assessment and results monitoring strategy4 (German Partnership for Sustainable Textiles 2014). Similar initiatives were under way in the Netherlands (SER 2016) and in Scandinavia (Nordic Council of Ministers 2014), while the French government initiated a legislative proposal to strengthen the due diligence and human rights adherence of French companies and their subsidiaries operating along global supply chains (Assemblée Nationale 2017a) and the UK government enacted the Modern Slavery Act 2015 (UK Government 2015). But while this proliferation of legislative initiatives and voluntary MSIs was commendable from a quantity perspective, it also meant that a variety of approaches were negotiated that, in the end, had to be implemented by the same set of actors: the globally operating textile and garment industry. Also, the private sector had indicated that it did not always possess sufficient resources to participate in multiple processes dealing with similar issues. For the German government it was thus clear from the beginning that the final success of the German initiative was dependent on a successful internationalisation

3 Other sectoral MSIs preceded efforts to introduce more sustainability in the textile GVC: the German Initiative for Sustainable Cocoa was founded in 2012 and the Forum for Sustainable Palm Oil in 2013. Like all German sustainability MSIs, they are financed by the BMZ and operationalised through secretariats set up and run by the German International Development Organisation (Gesellschaft für Internationale Zusammenarbeit, GIZ). 4 This so-called Review Process commits all members to concrete goals which have to be progressively developed and demonstrably pursued. The individual goals of the members are based on key issues and indicators, which were jointly defined by specialist working groups. As of 2017, the members are submitting individual road maps on a voluntary basis as part of a pilot phase. As of 2018, the roadmap submission will be mandatory and will have to publicly demonstrate individual progress of the member concerned on an annual basis. The member’s achievements will then be made public in an individual performance card which will contribute to the joint annual progress report of the German Partnership for Sustainable Textiles.

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of the German MSI, including any new sustainability standards evolving from the negotiation process. One year into the German Partnership for Sustainable Textiles, an internationalisation strategy was developed to ensure the process which had been initiated successfully at national level could be elevated to international level and adopted as standard good practice by all stakeholders beyond German or even European borders. Thus far, hopes that the German sustainability example for textile GVCs would become a model MSI have not materialised, although working relations and official linkages exist with relevant activities and projects undertaken by the European Union (EU), the OECD and the International Labour Organization (ILO).5 The advancement of sustainable GVCs to G7 level gave the German Partnership for Textiles somewhat of an increase in momentum as well as international recognition but it did not kick-start an automated alignment of—mostly Eurocentric—MSIs along the German model. Given the transboundary nature of textile GVCs and the global operations of private industry in this sector, the missing elevation of the German sustainability approach to an international standard must be considered a setback. It is perhaps justifiable considering the young shelf life of the MSI, its innovative, yet untested nature and its constant drive for progression and acceptance of the far-reaching, often voluntary sustainability standards amongst the national stakeholder ranks in first place. Looking back at the introduction and development of the sustainability discourse at G7 level, it becomes clear that collective attempts at fundamental, systemic change need time, precedent, momentum, leadership and mountains of goodwill.

3.4

Looking Back: G7 Approaches to Sustainability

Sustainability was not part of the agenda at the launch of the Summit series in 1975.6 The Summit meetings were initially intended to bridge differences between its members and provide a forum for dialogue on mostly economic and security matters. 5 In 2014 the German Ministry for Economic Cooperation and Development (BMZ) signed an agreement with ILO on the financing of ILO programmes in the Asian textile- and garments industry. 6 At the first meeting in Ramboulet, France in 1975, the “Group of Six” (G6) was an unofficial forum which brought together, upon invitation by France and Germany, the heads of the richest industrialised countries: France, West Germany, Italy, Japan, the United Kingdom and the United States. One year later, Canada joined as member and the forum became known as G7. Between 1997 and 2013 Russia was part of the group, making it the G8 until its suspension in 2014 due to the annexation of Crimea. From 1981 onwards, the EU was invited to participate (as EC) in those areas in which it had exclusive competences. Over time, the EU’s role has grown and it was gradually included in all political discussions on the summit agenda and took part in all summit working sessions. Today, the EU has all the responsibilities of G7 membership but is not counted in the titles of the Summit (i.e. there never was a G9).

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The 5th G7 Summit Declaration of 1979 made, for the first time, an implied reference to sustainability in form of environment-friendly use of coal and exploration of alternative energy sources while subsequent Summit Declarations in the early 1980s addressed poverty in general terms in the context of relations with the developing world. While environmental policies concerning climate change and resource management were a central point of the G7 Declaration of 1985, the G7 Summit of 1988 stressed for the first time a firm commitment by Member States to uphold and further develop international standards on human rights. During the 1990s, the G7 group included more and more references to sustainability in its official Declarations and Chairmans’ statements, mirroring thereby sustainability debates sparked at the 1992 Rio Earth Summit. In 1990, for instance, at the 16th G7 Summit in Houston, Texas, sustainability found for the first time a direct entry into the G7 Declaration in form of references to sustainable development and sustainable forest management. In 1991, the G7 Summit Declaration stated that “. . .economic policies should ensure that the use of this planet’s resources is sustainable and safeguards the interests of both present and future generations” (G7 1991). The promotion of sustainable development was addressed in the 1996 Halifax Summit Communiqué with a pledge to mainstream the concept into all policy making and enhance it with environmental considerations where possible, while the first G8 Communiqué of 1997 addressed at length the progress made in context of sustainability since the 1992 Rio Conference. The millennial G8 Summit in Okinawa 2000 was most concerned with addressing the challenges of globalisation within multilateral fora and development through fast integration of developing countries into the world economy. Sustainability as an interrelated topic did not receive much attention. At the Summit in Italy in 2001, G7 leaders saw the main responsibility for sustainable economic growth with MDBs. However, the Africa Action Plan forthcoming from the G8 Summit in Kananaskis, Canada in 2002 gave the private sector for the first time a central role in sustainable economic growth, albeit limited to the African continent. This shared private-public responsibility in context of sustainable development—perhaps an early sign of the future emergence of sustainability initiatives in the MSI format—was echoed during the G8 meeting in Evian, France in 2003. With a dedicated commitment to support corporate social and environmental responsibility, G8 leaders in Evian laid a further foundation stone for the sustainability discourse at G7/8 level. The Gleneagles Summit in 2005 focused again heavily on development issues on the African continent but leaders noted in their final declaration that unsustainable production and consumption patterns in the industrialised countries deserve careful consideration. A link to GVCs however has not yet been made. The Heiligendamm Summit in 2007 stands out for its widening of collective responsibility within the sustainability discourse at the highest level. By inviting the UN Conference on Trade and Development (UNCTAD), ILO and OECD to actively participate and join forces, G8 leaders stressed all three pillars of sustainable development—economic, social and environmental. They also pledged support for efforts of international organisations to effectively implement labour standards and promote the observance of internationally recognised core labour standards in conjunction with

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internationally agreed corporate social responsibility standards, high environmental standards and better governance through National Contact Points for the OECD Guidelines for Multinational Enterprises. Following the global economic and financial crisis of 2008, the G8 summit in L’Aquila in 2009 focused on the human and social consequences and therefore more on new forms of leadership as well as a common framework for balanced and sustainable growth as a way to recover from the crisis and repair of global damage. Closing the first decade of the twenty-first century, the G8 Summit in Muskoka, Canada, reaffirmed the G8 commitment to sustainable development in alignment with the MDGs and in strong partnership with developing countries. The 2011 Summit in Deauville, France, is noteworthy for its introduction of green growth onto the G8 agenda. The introduction of green growth as an essential “umbrella element” to ensuring sustainable global growth meant that G8 leaders were willing to support all strategies for green growth that mainstreamed adapted policy mixes at all economic and social levels, whether introduced as public or private initiatives. The next three G8 Summits 2012–2014 largely went back to the traditional G8 roots7 in supporting the development of open economies, open governments and open societies and prioritising sustainability discussions in relation to tax, accountability and transparency. However, the G7 Summit in 2015 in Elmau, Germany, promised in contrast an interesting, new addition to the G7’s sustainable development approach: the realisation that the world economy is increasingly embedded into GVCs and, consequently, a focus on responsible GVCs as engine and catalyst for effective sector transformation on a global scale.

3.5 3.5.1

2015 G7 Summit in Germany: A New Approach to Sustainability The Decision

Several factors explain the German government’s decision to introduce sustainability in context of GVCs at the highest political level during the G7 Summit in Elmau in 2015. First, high-level processes such as the G7 Summits have been established as a means of addressing challenges of current and future generations that cannot be addressed by national policies applicable to individual, segmented areas or markets alone. The very raison d’être of G7 is thus to overcome national limitations in the face of vast mutual policy dependency, in particular in areas that require closer

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The only radical change during those years was unrelated to the substantive content of the meetings. Rather, it was the 2nd March 2014 announcement of the G7 leaders that they would suspend their participation in preparations for the Sochi Summit 2014. On 24th March 2014 this was followed by the G7 announcement not to attend the Sochi Summit and, instead, to hold a G7 meeting in Brussels on the scheduled dates, namely 4th–5th June 2014.

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economic cooperation by the world’s most powerful and economically advanced states. In other words, G7 is meant to address regulatory lacunae and shape effective global policies in areas of transboundary character. As GVCs are intrinsically linked to global, transboundary trade flows, they seemed most suited as G7 agenda item. Second, the inherent multidimensional nature of GVCs as integrated global networks of production operations, implicates multiple policy areas (Elms and Low 2013). These need to be addressed simultaneously to achieve a meaningful positive impact on the development, operationalisation and functionality of GVCs as tools for sustainable development. Traditionally, the G7 agenda is set by the country, which assumes G7 Presidency in any given year. While reflecting national policy priorities, it is the responsibility of the country holding the presidency to align the agenda with contemporary issues and to have it reflect multiple policy areas of common interest to the G7 group of states. The G7 Summit in 2015 offered thus a unique opportunity for the German government to utilise the momentum created by the SDGs and its own Partnership for Sustainable Textiles to promptly address horizontal and vertical interconnections between policy areas as diverse as the environment, infrastructure, development and human rights. Third, GVCs involve not only multiple policy areas but, due to their complexity, also involve a whole range of stakeholders: governments, private enterprises, non-governmental organisations, trade unions and customers. Against the background of the UN 2030 Agenda and the Paris Climate Change Treaty, German policy priorities increasingly began to evolve around MSIs and projects aiming at voluntary, collective efforts of sector transformation through sustainability in GVCs. Collective sustainability governance became more than just a buzzword; it had evolved into a tangible concept with underlying, concrete action plans. The German government, for example, strategically utilised a strong momentum to link sustainability, development, trade and GVCs at two pre-G7 conferences in the run-up to the Elmau Summit that brought together representatives of governments, international organisations, trade unions and industry to discuss how sustainable supply chains could be created, supported and expanded (BMZ 2015a). Together with other, on-going national MSIs, the G7 sustainability discourse was thus considered a natural step towards the innovative model of collective governance required to address sustainability in GVCs. Lastly, the G7 process was seen as one of the key channels, through which the main German sustainability governance MSI, the Partnership for Sustainable Textiles, could be internationalised. Through internalisation of sustainable GVCs in the G7 process, the Partnership for Sustainable Textiles was to be elevated to international level and its principles and processes for sector transformation through the textile value chain made applicable to all stakeholders, no matter where they were geographically located or at which value chain tier they were operational. Also, the idea was that the German MSI process be mirrored in other sectors beyond garment and textiles: an intended spill-over into other sectors lacking sustainability. With the EU Garment Initiative taking off rather slowly at European level in 2015, the G7 process was thought of as a parallel roadmap to internationalisation of the German Partnership for Sustainable Textiles, also in light of its likely indirect impact on the

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G20 agenda, which would be under discussion by developed and developing countries alike.

3.5.2

Elmau 2015: A Culmination Point for Collective Sustainability Governance

A general precept of the G7 meeting in Elmau in 2015 titled “Think Ahead. Act Together.” was that with the German push for inclusion of sustainability in GVCs the G7 had become a culmination point in global cooperation on sustainability and international efforts towards fair standards and better human rights compliance in GVCs. The German Chancellor Merkel’s push to include labour standards on the G7 summit agenda—which includes the rights for employees to seek legal action to enforce their rights, as well as institutionalising a G7 peer-review process within the OECD Guidelines for Multinational Enterprises—opened a consultative space amongst international trade unions and workers. This was also the first time that G7 countries discussed global working conditions as part of their summit agenda (G7 Research Group 2015), although labour standards had been mentioned at previous G7/8 Summits. In relation to previous sustainability discourses at G7 level, this “joint venture” effect alone made Elmau stand out. However, Elmau’s sustainability discourse also differed in other points from previous G7/8 Summits. In addition to the above-mentioned, globally palpable momentum created by a series of seminal events and international agreements preceding the 2015 Summit, Germany’s determination to internationalise its national MSI-based sustainability processes resulted in a strong political will to see concrete outcomes materialise. This is already evident from the Elmau Declaration in respect of the Commitment on Responsible Supply Chains: We will strive for better application of internationally recognized labour, social and environmental standards, principles and commitments (. . .), increase our support to help SMEs develop a common understanding of due diligence and responsible supply chain management (. . .), strengthen multi-stakeholder initiatives in our countries and in partner countries (. . .), support partner countries in taking advantage of responsible global supply chains. We also commit to strengthening mechanisms for providing access to remedies including the National Contact Points (NCPs) for the OECD Guidelines for Multinational Enterprises (. . .) (G7 2015)

In committing to strive for sustainable global supply chains and for a better application of labour, social and environmental standards in producer countries, the G7 countries demonstrated a clear political will for improved implementation of social and ecological standards in global supply chains. As opposed to just mentioning the importance of international standards, the focus on implementation carries the pledge for concrete action on the ground, resulting in an interesting “outreach” of G7 politics to the grassroots level. It is also interesting to note that while support is pledged to developing countries in taking advantage of sustainability in GVCs, the responsibility for making GVCs sustainable is clearly placed on

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producer countries, i.e. developed countries where final products must meet consumer demands. It is, however, not a responsibility of governments alone; rather, the Declaration recognises the joint responsibility of governments and business to foster sustainable supply chains and encourage best practices—a fact also pointed out in the Ise-Shima Progress Report one year later (Government of Japan 2016). Based on the experience of several ongoing sustainability MSIs in European countries, G7 leaders also agreed that the shared responsibility envisaged in the Elmau Declaration can only be achieved based on the principle of voluntariness, embedded in a quasi-institutionalised dialogue with private industry and other stakeholders, i.e. the MSI format. This was done in recognition of the private sector’s aversion for legally binding strait jackets, possibly hampering the economic freedom to organise and manage their increasingly complex GVCs with thousands of suppliers across hundreds of tiers. Regulation, after all, constitutes, per definition, the imposition of rules by a government, backed by the use of penalties and the authority of the state (OECD 2002). In contrast to traditional regulation, MSIs are based around the principles of co-regulation8 or controlled self-regulation,9 both characterised by mechanisms in which the government cooperates with the private sector and other stakeholders to achieve public policy objectives via tools in the middle of the regulatory continuum (Gaebler 2014).10 Another important consideration behind the choice of MSIs as vehicles for sectoral transformation towards more sustainability along GVCs was the French regulatory experience as well as German background studies into the possibility of a regulatory approach to the German Partnership for Sustainable Textiles (GIZ 2015a, b). The latter revealed that while, under German law, there were legal possibilities for the state-based enforcement of standards, the introduction of a voluntary quality certification to ensure compliance with social and environmental standards—e.g. a meta-standard for textiles—with a flexible structure of compliance monitoring and reporting would yield better results. After all, in contrast to incentives, prohibitions lead to higher costs for companies while incentives-based systems usually lead to companies striving for even better results than may have been envisaged in legislative measures. On top of this insight, the French legislative approach demonstrated severe political difficulties in introducing CSR-related legislation to target sustainability standards in GVCs. Already in 2015, the French National Assembly received a draft law on the due diligence of parent and sub-contracting companies in dealings with their subsidiaries, subcontractors and suppliers. It obliged all companies based in 8 Co-regulatory models typically provide more industry involvement than statutory regulation and rely on widespread industry support for the objectives of regulation. They require periodic monitoring by a (statutory or non-statutory) backstop institution to ensure effectiveness and may require enforcement activity. 9 Self-regulatory systems rely on a strong alignment between the incentives for participants and the wider public interest. Membership is voluntary and there are no formal legal backstops to enforce the rules of the schemes. 10 For differences between PPPs and MSIs, see Sect. 3.3 above.

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France and their overseas subsidiaries to prevent social, ecological and human rights abuses in all their business dealings. It also set sanctions in cases due diligence could not be proved by the company, leading to a substantial civil and criminal liability for parent companies and contracting entities. The presumption of liability on the basis of a reversed burden of proof resulted in the French Minister for Foreign Affairs expressing public concern that the draft law would lead to the abandonment of French economic ventures or the absence of branches in France. The law, which was eventually adopted in 2017 (Assemblée Nationale 2017b), was a substantially watered-down version of the initial proposal lacking the reversed burden of proof element and with a vague scope of the various obligations imposed on companies (Bergkamp 2017). Still, the fact alone that the French Constitutional Council adopted the law against the opposition of at least 120 Members of Parliament may be interpreted as a shift in political paradigm acknowledging the need for more balanced and fairer globalisation (Cossart et al. 2017). The reference to existing MSIs as a vehicle of choice for GVC transformation prompted the drafting of a Concept Note for the Commissioning of the OECD documentation of progress, support and alignment of national MSIs in G7 Partner Countries aiming at enhancement of sustainability standards (GIZ 2015c). In essence, the OECD was tasked, as a follow-up to the G7 Commitment on Responsible Supply Chains, to document whether MSIs have defined any internationally recognised sustainability standards and, if so, what progress has been made so far in achieving the MSI’s set objectives. To establish a common reference framework, progress information on selected, internationally acknowledged international sustainability standards and principles was to be gathered on the basis of a selfassessment methodology, executed through existing OECD national contact points and a German-sponsored OECD secondment. The analysis of data was to flow into the G7 progress reporting system.11 Private industry actively embraced G7’s decision to work with the private sector to improve compliance with minimum social and environmental standards in order to promote sustainable growth and decent employment in developing countries. The Consumer Goods Forum (CGF), an umbrella organisation for more than 500 of the most influential global consumer goods producers, approached the German government with a letter outlining CGF’s willingness to cooperate and support G7 governments in achieving their sustainable GVC commitment. In concrete terms, CGF offered to assist the German government in promoting compliance with global norms for responsible business laid down in the United Nations Guiding Principles for Business and Human Rights, the OECD Guidelines for Multinational Enterprises and the Tripartite Declaration of Principles concerning Multinational Enterprises and the Social Policy of the International Labour Organization (ILO).

11

The Ise-shima Progress Report 2016, Section 2–4 does not yet contain the analysis envisaged for the Elmau Commitment on Responsible Supply Chains (which was marked as ‘new’) and no score was given to this commitment due to the absence of agreed baseline data for 2015.

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Clearly, private industry considered the alignment of these norms with voluntary codes of conduct to shape an industry standard for sustainable business practices through the development of concepts for a harmonised adjustment of CSR policies and business management systems as an important step forward in voluntary sustainability initiatives. The German government in turn welcomed CGF’s participation in broad-based, trans-sectoral reform programmes on the ground and encouraged active industry support for the planned Vision Zero Fund for the prevention of accidents at work or the Growth and Innovation Fund for Cotton. In this context, it was considered essential that businesses participate in key MSIs, such as the German Partnership for Sustainable Textiles, which are considered essential in the generation of positive impact in both the manufacturing (i.e. developing) and consuming (i.e. developed) countries. However, if Elmau is to be considered a culmination point for collective sustainability governance, any evaluation of success cannot be based on expressions of interest or head count of stakeholders willing to participate in MSIs. This is why the Ise-Shima Progress Report resorted to five indicators allocated for a progress report scoring in context of the baseline shaped by the Elmau Commitment on Responsible Supply Chains in 2015 (Government of Japan 2016): 1. Support offered to Multi-Stakeholder Initiatives (MSI) in G7 countries and in partner countries (separately counted), participants and wider geographical reach of MSI. 2. Funding or other support to partner countries for taking advantage of responsible global supply chains. 3. Funding or other support for SMEs to understand due diligence and responsible supply chain management. 4. Number of offers to host and/or attend voluntary G7 National Contact Point (NCP) peer reviews among all NCPs. 5. Number of G7 NCP peer learning activities. The above progress indicators are in many ways benchmarks in testing the theory that sustainability standards infused in GVCs and effectively administered through MSIs could be a breakthrough model for measurable, impact-oriented sustainable development. Unfortunately, the G7 Ise-Shima Comprehensive Progress Report did not allocate a score to the Elmau Commitment on Responsible Supply Chains. This is unsurprising given the fact that the G7 countries and their designated partners only had one year for implementation since the commitment made it onto the G7 accountability and reporting list. However, each of the five progress indicators allocated to the Elmau Commitment on Responsible Supply Chains was assessed individually based on information gathered from OECD, ILO, World Bank Reports and self-reporting undertaken by the G7 countries. The assessment reveals MSIs were particularly supported by the US, UK, Canada, France and Germany. The support offered was either direct, through secondment to international organisations or through new sectoral MSIs with government involvement. The MSI landscape remains fragmented however and there seem to be few, if any, linkages between national MSIs, even if they focus on

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transformation in the same sector(s). In terms of support to partner countries, largescale projects targeting better working conditions and labour standards in Southeast Asia attracted the most support, followed by North Africa and Latin America. In addition, the US and EU have supported the Vision Zero multi-donor trust fund with USD 1 million and EUR 3 million respectively. Support for SMEs was concentrated largely on the OECD Advisory Group on Responsible Supply Chains in the Textile and Garment Sector, which is tasked with the development of the sector guidance for the OECD Guidelines for Multinational Enterprises. To date, other sectors have largely been left out. In contrast, the NCP review system benefitted over the past year from the pro-active approach of G7 countries, willing to be reviewed and, in turn, offering to review other G7 NCPs. There was even precedence for a best practice sharing beyond the G7 group of countries, although the number of NCP peer learning activities does not seem to have risen significantly following Elmau. Nevertheless, it seems important to point out that the utilisation of existing implementation structures for the fulfilment of Elmau commitments did not amount to a duplication of efforts. Instead, it seems that processes previously separated in scope, influence and constituency became more aligned, more complimentary and, therefore, more effective in relation to set objectives.

3.6

Where to After Elmau?

Following the appearance of sustainable GVCs and MSIs on the world scene, Germany has shown a keen interest in a continuation of the momentum created in Elmau in 2015. In October 2015, the G7 employment and development ministers met in Berlin to operationalise the Elmau Commitment on Responsible Supply Chains from June that year. The outcome in form of a Declaration titled “Action for Fair Production” (BMZ 2015b) reaffirms the German commitment to shape an international environment conducive to sustainable GVCs. In particular, the Ministers agreed to develop a common understanding of due diligence and responsible supply chain management; to coordinate sectoral sustainability-oriented MSIs; to involve SMEs in improving social and environmental conditions; and to support OECD and ILO in particular in the implementation of their existing agendas. The admittedly ambitious pledges were well received but also attracted criticism for being covert duplications or a re-naming of already ongoing initiatives (IOE 2015), which, in part, is true. Noteworthy remains however once again the political will to drive positive change and the actual financial support12 provided to OECD and ILO to implement the Elmau Commitment on Responsible Supply Chains.

12 Apart from the direct financial contributions, the BMZ also financed a secondment to OECD to oversee the MSI review process and coordinate the G7 follow-up.

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Yet, the memory of Elmau and responsible value chains seemed to fade at the international level. The G7 agenda is set by the G7 Presidency and, depending on which country presides the meetings, reflects more often than not international priorities of the respective country. The Ise-Shima and Taormina summits were no exception to this rule. In Ise-Shima the topics ranged from, among others, public health and quality infrastructure to corruption and countering terrorism and were in part taken up by the 2017 Italian Presidency which also added a plan on innovation, skills and labour as well as migration and African development. The Leaders’ Communiqués reveal reference to sustainability or sustainable development with most of the G7 agenda items and “strong, sustainable and balanced growth patterns” are part of both declarations in 2016 and 2017. GVCs and MSIs however are nowhere to be found on the recent G7 agendas. Two years on, the innovative Elmau momentum seems like a distant memory with a miserable existence carved out in the tri-annual G7 progress reports. Is this the end of the road for the most underrated sustainability pathway in modern history? The optimistic answer is: no. The disappearance from the G7 agenda was expected. The re-appearance on the progress report list is a positive development as it means that G7 leaders will be held accountable for (non-)progress towards achievement of their commitments over time. With the next progress report due in 2019, more data will be available to assess where the Action for Fair Production plan, the Vision Zero trust fund or the German Partnership for Sustainable Textiles have taken us. OECD will have had time to implement the MSI review concept and to develop strategies to connect similar processes, utilise synergies avoid the duplication of efforts. Much will depend on continued political will to create impact, especially at G7 level, but also in partner countries. Equally, much will depend on how effectively the economic and developmental potential of GVCs can be reaped by all stakeholders involved in the value chain. As with all market-driven aspects of a highly integrated global economy, there is no guarantee that GVCs will deliver what MSIs attempt to achieve. But the norms, policy guidelines, codes of conduct and sustainability standards already emanating from the many initiatives form a new sustainability imperative hopefully heard and felt across all economic actors, regions and sectors. Making these actors to sing from one page is the subsequent step in determining which pathway sustainability takes next.

References Assemblée Nationale (2017a) Proposition de Loi relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre, Texte Adopté n
924 le 21 février 2017. http://www. assemblee-nationale.fr/14/pdf/ta/ta0924.pdf. Accessed 31 Jan 2019 Assemblée Nationale (2017b) LOI n
2017-399 du 27 mars 2017 relative au devoir de vi-gilance des sociétés mères et des entreprises donneuses d’ordre. https://www.legifrance.gouv.fr/ affichTexte.do?cidTexte¼JORFTEXT000034290626&dateTexte¼20180225. Accessed 31 Jan 2019

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Bergkamp P (2017) Supply Chain Liability: The French Model. https://corporatefinancelab.org/ 2017/03/11/supply-chain-liability-the-french-model/. Accessed 31 Jan 2019 BMZ – German Federal Ministry for Economic Cooperation and Development (2015a) The G7 are committed to fair trade and sustainable supply chains. https://www.bmz.de/g7/en/ Entwicklungspolitische_Schwerpunkte/Menschenwuerdige_Arbeit/index.html. Accessed 31 Jan 2019 BMZ – German Federal Ministry for Economic Cooperation and Development (2015b) Action for Fair Production, Ministerial Declaration. Meeting of the G7 Employment and Development Ministers, Berlin, 13 October 2015. https://www.bmz.de/g7/includes/Downloadarchiv/G7_Min isterial_Declaration_Action_for_Fair_Production.pdf. Accessed 31 Jan 2019 Brandi CA (2016) Sustainability standards and sustainable development – synergies and trade-offs of transnational governance. Sustain Dev 25(1):25–34 Carey C, Guttenstein E (2008) Governmental use of voluntary standards: innovation in sustainability governance. ISEAL Alliance, London Cossart S, Chaplier J, Beau de Lomenie T (2017) The French law on duty of care: a historic step towards making globalization work for all. Bus Hum Rights J 2(2):317–323 Draper P, Freytag A (2014) Who captures the value in the global value chain? High level implications for the World Trade Organization. E15Initiative. International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, Geneva. http://e15initia tive.org/wp-content/uploads/2015/09/E15-Global-Value-Chains-DraperFreytag-FINAL.pdf. Accessed 31 Jan 2019 Elms DK, Low P (eds) (2013) Global value chains in a changing world. WTO Publications, Geneva. https://www.wto.org/english/res_e/booksp_e/aid4tradeglobalvalue13_e.pdf. Accessed 31 Jan 2019 Fayet L, Vermeulen WJV (2014) Supporting smallholders to access sustainable supply chains: lessons from the Indian cotton supply chain. Sustain Dev 22(5):289–310 G7 (1991) Economic Declaration: Building World Partnership. G7 London Summit, 1991. http:// www.g8.utoronto.ca/summit/1991london/communique/index.html. Accessed 31 Jan 2019 G7 (2015) Leaders’ Declaration G7 Summit, Schloss Elmau, 7–8 June 2015. http://www.g7ger many.de/Content/DE/_Anlagen/G7_G20/2015-06-08-g7-abschluss-eng_nn¼1281552.html. Accessed 31 Jan 2019 G7 Research Group (2015) Report on Civil Society and the 2015 G7 Schloss Elmau Summit. http:// www.g8.utoronto.ca/evaluations/csed/2015-elmau-civilsociety.pdf. Accessed 31 Jan 2019 Gaebler M (2014) Recognition of private sustainability certification systems for public regulation (co-regulation): lessons learned from the EU Renewable Energy Directive. In: SchmitzHoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) Voluntary standard systems: a contribution to sustainable development. Natural resource management in transition, vol 1. Springer, Berlin, pp 99–112 GIZ – Gesellschaft für Internationale Zusammenarbeit (2015a) The enforceability of human, social and environmental standards in the global supply chain. GIZ Study, Eschborn, Germany GIZ – Gesellschaft für Internationale Zusammenarbeit (2015b) The applicability of the British Transport Fuels Obligation (RTFO) in the textiles sector. GIZ Study, Eschborn, Germany GIZ – Gesellschaft für Internationale Zusammenarbeit (2015c) Concept note on MSI monitoring and progress reporting in context of the G7 commitments. GIZ, Eschborn, Germany Government of Japan (2016) Ise-Shima Progress Report: G7 accountability on development and development-related commitments. http://www.mofa.go.jp/files/000158338.pdf. Accessed 31 Jan 2019 GRI – Global Reporting Initiative (2017) GRI at a Glance. https://www.globalreporting.org/infor mation/news-and-press-center/press-resources/Pages/default.aspx. Accessed 31 Jan 2019 IOE – International Organisation of Employers (2015) Outcomes of the G7 Employment and Development Ministerial: “Action for Fair Production”, 12–13 October 2015. https://www. ioe-emp.org/index.php?eID¼dumpFile&t¼f&f¼133508&token¼9b1e8156d7a7bf83cfc3977 a40dc743af7c1ac44. Accessed 31 Jan 2019

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ISEAL – International Social and Environmental Accreditation and Labelling (2011) An introduction to ISEAL: making good standards better. ISEAL Alliance, London ITC – International Trade Centre (2011) The impacts of private standards on global value chains. Literature review series on the impacts of private standards; Part I. ITC, Geneva. http://www. intracen.org/WorkArea/DownloadAsset.aspx?id¼37609. Accessed 31 Jan 2019 ITC – International Trade Centre (2013) LDCs and global value chains: using aid for trade to seize new opportunities. ITC, Geneva. http://www.intracen.org/LDCs-and-Global-Value-Chains/. Accessed 31 Jan 2019 ITC – International Trade Centre (2014) Global value chains in services: a case study on Costa Rica. ITC, Geneva. http://www.intracen.org/publication/Global-value-chains-in-services-A-casestudy-on-Costa-Rica/. Accessed 31 Jan 2019 Nordic Council of Ministers (2014) The Nordic Textile Commitment: a proposal of a common quality requirement system for textile collection, sorting, reuse and recycling. http://norden. diva-portal.org/smash/get/diva2:790973/FULLTEXT01.pdf. Accessed 31 Jan 2019 OECD – Organisation for Economic Co-operation and Development (2002) Glossary of statistical terms: regulation. https://stats.oecd.org/glossary/detail.asp?ID¼3295. Accessed 31 Jan 2019 OECD – Organisation for Economic Co-operation and Development (2013) Interconnected economies: benefiting from global value chains. Synthesis Report. https://www.oecd.org/sti/ind/ interconnected-economies-GVCs-synthesis.pdf. Accessed 31 Jan 2019 OECD – Organisation for Economic Co-operation and Development (2015) Trade policy implications of global value chains. https://www.oecd.org/tad/trade-policy-implications-gvc.pdf. Accessed 31 Jan 2019 OECD – Organisation for Economic Co-operation and Development (2016) Multi-stakeholder initiatives and responsible business conduct. Background Note Global Forum on Responsible Business Conduct. https://mneguidelines.oecd.org/global-forum/2016-GFRBC-Session-NoteMSI-and-RBC.pdf. Accessed 31 Jan 2019 OECD – Organisation for Economic Co-operation and Development (2017) OECD due diligence guidance for responsible supply chains in the garment and footwear sector. http:// mneguidelines.oecd.org/OECD-Due-Diligence-Guidance-Garment-Footwear.pdf. Accessed 31 Jan 2019 SER – Social and Economic Council of the Netherlands (2016) Agreement on sustainable garment and textile. http://www.indianet.nl/pdf/AgreementOnSustainableGarmentAndTextile.pdf. Accessed 31 Jan 2019 Taglioni D, Winkler D (2016) Making global value chains work for development. Trade and development series. World Bank, Washington, D.C. https://openknowledge.worldbank.org/ handle/10986/24426. Accessed 31 Jan 2019 The German Partnership for Sustainable Textiles (2014) Plan of action for the partnership for sustainable textiles. https://www.textilbuendnis.com/wp-content/uploads/2017/09/Plan-ofaction-1.0.pdf. Accessed 31 Jan 2019 UK Government (2015) UK Modern Slavery Act 2015. http://www.legislation.gov.uk/ukpga/2015/ 30/pdfs/ukpga_20150030_en.pdf. Accessed 31 Jan 2019 UN – United Nations (2000) United Nations Millennium Declaration. Resolution adopted by the General Assembly on 18 September 2010, A/RES/55/2 UN – United Nations (2015) Transforming our World: The 2030 Agenda for Sustainable Development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1

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Katharina Serrano is a sustainability expert and founder of Modivendi, an advisory firm that assists stakeholders in developing transformative opportunities and managing change based on the sustainability imperative. In her previous engagement, she spearheaded the strategic development and global engagement activities of the World Maritime University, a postgraduate institution part of the UN International Maritime Organisation with a mission to build transformative partnerships in the maritime and oceans sector and promote sustainable development. Prior to her UN engagement, she worked as policy adviser on sustainability governance, sector transformation and sustainable EU trade policy for the German development cooperation agency GIZ. She is an international lawyer by profession and pursued an academic career as Deputy Head of Law School at the University of the South Pacific in Vanuatu and Fiji following completion of her Ph.D. thesis on the trade-development nexus in Economic Partnership Agreements between the EU and the Pacific SIDS. Between 2003 and 2006 she worked as Project Officer on a Jean Monnet Project of the EU Education, Audiovisual and Culture Executive Agency implemented across the Pacific islands to promote a better understanding of EU external law and policies. Modivendi, Port Vila, Vanuatu. Email: [email protected]

Chapter 4

From Stockholm to Paris: Four Decades of Sustainability in International Law Terence Onang Egute, Eike Albrecht, and Kelvin Awanaya Egute

4.1

Introduction

This chapter aims to provide an overview of the evolution and incorporation of sustainability in international law from the 1972 United Nations Conference on the Human Environment to the 2015 Paris Climate Conference, considering the role this field of law plays regarding the delicate balance between environmental protection and socio-economic development. The World Commission on Environment and Development published “Our Common Future” also known as the “Brundtland Report” in 1987, in which it defined sustainable development as “development that meets the needs and aspirations of the present without compromising the ability of future generations to meet their own needs” (WCED 1987, p. 41). When we examine the evolution of sustainable development from 1972 to 2002 when the Johannesburg Summit on Sustainable Development took place, it can be described as a developmental process by which resources are deployed to meet the needs of people while ensuring preservation of the environmental quality and socio-economic growth, with an ultimate objective of meeting the needs of the present and future generations. With emphasis on intra and inter-generational equity, sustainable development is advanced as a response to the achievement of a more equitable balance between social, environmental and economic development (Cordonier Segger and Khalfan 2004; Zengerling 2013). The United Nations has played a major role in promoting the concept of sustainable development through international conferences. Take, for example, the United T. O. Egute (*) · E. Albrecht Department of Public Law, with Focus on Environmental and Planning Law, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Cottbus, Germany e-mail: [email protected]; [email protected]; [email protected] K. A. Egute Abie, Egute & Associates Law Firm, Bamenda, Cameroon e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_4

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Nations Conference on Environment and Development, also known as the Earth Summit, which was held in 1992 and witnessed the adoption of the Rio Declaration on Environment and Development.1 In Principle 27 of the Rio Declaration, states committed to “the further development of international law in the field of sustainable development”. In addition, in chapter 39.1(a) of Agenda 21, one of the soft law instruments adopted during the Earth Summit, states are encouraged to further develop international sustainable development law and pay more attention to the delicate balance between the environment and developmental concerns. It is against this backdrop that the concept of sustainable development has found expression in international soft and hard law agreements. Additionally, it is regularly invoked by states to buttress positions which they seek to justify. Sustainable development is recognised as a principle of international law and is increasingly accepted as a norm of customary international law (Sands 2003; Gillroy 2006; Voigt 2009; Hunter et al. 2015; Albrecht 2017). It is increasingly invoked before international disputes settlement bodies such as the International Court of Justice, the Panel and Appellate Body of the World Trade Organization (Gillroy 2006; Hunter et al. 2015; Cordonier Segger 2017). Despite the relentless efforts of the international community to promote the concept of sustainable development, human activities continue to result in the deterioration of ecosystems, depletion of natural resources, and environmental degradation (MEA 2005). The international understanding of sustainable development may diminish its value as a principle of international law, given that some government policies may be justified by referencing it. It is therefore doubtful whether the concept of sustainable development has been adequately incorporated in international legal instruments since 1972 and whether its centrality in some international soft and hard law agreements as well as international judicial decisions is yielding desired results. The focus of this chapter is to provide an overview of the extent to which sustainable development has evolved and found expression in international law including decisions of international dispute settlement bodies from 1972 to 2015. The chapter has the following objectives: • To contribute to an understanding of the extent to which the concept of sustainable development is expressed in international soft law and hard law agreements. • To present positive developments in incorporating sustainable development in international law, including the WTO regime. • To investigate whether international law and practice as we have today can effectively foster the achievement of sustainable development. The objectives of this chapter are realised through an in-depth review of existing literature in the field of sustainable development and international law, as well as a legal analysis. The chapter starts by providing a concise insight into the concept of sustainable development and linking it to international law and international disputes settlement bodies. Section 4.2 discusses how the concept of sustainable development has evolved since the 1972 United Nations Conference on the Human Environment

1

U.N. Doc. A/CONF.151/26 (Vol. I); reprinted in 31 I.L.M. 874 (1992).

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through its prominence at the Earth Summit of 1992, with focus on the incorporation of the concept in emerging international soft law instruments. Section 4.3 examines the extent to which the principle of sustainable development finds expression in international hard law agreements and the legal texts as well as the jurisprudence of the WTO regime. Section 4.4 discusses sustainable development considering decisions of international courts and tribunals, given its increasing recognition as a legal principle and growing presence in the settlement of disputes. The chapter ends with conclusions and recommendations in Sect. 4.5, highlighting the way international law adheres to the principle of sustainable development and how, through international law, sustainable development can be set as a standard for balancing environmental protection and socio-economic development.

4.2

From Stockholm to New York: Sustainable Development in International Soft Law

Sustainable development is subject of international soft law and has over the last four decades found expression in soft law documents such as declarations, agendas, resolutions of international organisations, and programmes of action (Barral 2012; Tladi 2007). The following subsections present an overview of sustainable development from the 1970s to 2015, with emphasis on international soft law documents such as the Stockholm Declaration, World Conservation Strategies, the Brundtland Report, the Rio Declaration, Agenda 21, the Johannesburg Declaration, The Future We Want, and Agenda 2030 in which the need to take environmental and socioeconomic priorities into consideration in efforts to achieve sustainable development is recognised and reflected.

4.2.1

Stockholm Declaration and World Conservation Strategy

The concept of sustainable development started featuring in international law in the 1980s, and its dissemination in this field has accelerated since the 1992 Earth Summit. The origin of the concept is the United Nations Conference on the Human Environment, which was held in Stockholm, Sweden in 1972, and which adopted the Declaration on the Human Environment,2 a key soft law document in which emphasis is placed on the link between development and environmental protection. The Stockholm Declaration provides impetus to the idea that development and environmental protection are not in conflict. While the Declaration makes no direct allusion to sustainable development, its principles, such as Principles 1, 2, 2

U.N. Doc. A/Conf.48/14/Rev. 1; reprinted in 11 I.L.M. 1416 (1972).

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4, 8, 9, 13 and 15–20 refer to its components. Even though Principles 5 and 6 of the Declaration emphasise restraint of development processes for purposes of environmental sustainability, the soft law document largely illustrates a positive synergy between development and environmental protection. It thus provides a basis for the conception of sustainable development as a global policy. In 1980 and 1991, several notable actions were taken by non-governmental organisations relevant to sustainable development. In 1980, the International Union for Conservation of Nature (IUCN) in cooperation with United Nations Environment Programme (UNEP) and World Wildlife Fund (WWF) published the World Conservation Strategy (IUCN 1980), the first soft law document to clearly articulate the concept of sustainable development. The World Conservation Strategy argues for conservation as a means to support development, particularly for the sustainable utilisation of environmental resources (Adams 1990). It provides general policy guidelines for defining development priorities to ensure sustainable utilisation of renewable resources and establishes the linkage between conservation and development. Additionally, the 1980 World Conservation Strategy led to the adaptation of national strategies for conservation in many countries. In 1991, the IUCN published another soft law document, Caring for the Earth, which is a strategy for sustainable living. In its definition of sustainable development, Caring for the Earth emphasises the improvement of the quality of human life while remaining within the carrying capacity of ecosystems. It also lays down principles important for sustainability and guidelines for implementation.

4.2.2

Brundtland Report, Rio Declaration and Agenda 21

The 1987 Brundtland Report provides a definition of sustainable development that is widely accepted. Although the Brundtland Report significantly contributed in disseminating the term sustainable development internationally and nationally, the term was borrowed from the World Conservation Strategy of 1980. And even though sustainable development had already been defined in the Brundtland Report (WCED 1987), it was the Rio Declaration on Environment and Development that provided the necessary platform for its recognition and extensive dissemination. Like the Stockholm Declaration, the Rio Declaration does not contain any definition of the term sustainable development. Instead, the term is incorporated explicitly in several of its 27 principles. Specifically, the term sustainable development appears in eleven of the Rio Declaration’s 27 principles (Principles 1, 4, 5, 8, 9, 12, 20, 21, 22, 24 and 27). Principle 4 of the Rio Declaration provides that “in order to achieve sustainable development, environmental protection shall constitute an integral part of the development process and cannot be considered in isolation from it”. As Tladi (2007) posits, the Rio Declaration thus seeks to balance environmental concerns with those of development. It also contains procedural tools, such as the precautionary principle and the principle of environmental impact assessment, which facilitate the achievement of sustainable development. These procedural tools are also found in more

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recent declarations, such as those laid down in the New Delhi Declaration of Principles of International Law Relating to Sustainable Development (ILA Resolution 3/2002) adopted by the 70th Conference of the International Law Association, which was held in New Delhi, India in April 2002. However, it remains unclear whether these procedural tools concretely aid countries in meeting their sustainability objectives. It is in this regard that Horn (2011) recommends that research be conducted to determine the extent of the effectiveness of the procedural tools in helping states meet their sustainable development objectives. That aside, the Rio Declaration remains the bedrock of the conceptual articulation of sustainable development. One of the 1992 Earth Summit outcome documents, Agenda 21, was also designed as a blueprint for sustainable development. It was intended to integrate respect for the environment and development to fulfil basic needs, improve living standards, appropriately manage ecosystems, and ensure a more prosperous future. Agenda 21 remains a significant plan of action of what is expected from states to reconcile environmental and developmental objectives. The Rio Declaration and Agenda 21 thus reflect the consensus of states on the principle of sustainable development and its introduction to international law (Castagno 2014).

4.2.3

Johannesburg Declaration, The Future We Want, and Agenda 2030

In 2002, at the World Summit on Sustainable Development (WSSD) in Johannesburg, the commitment to sustainable development was reaffirmed and an enhanced Plan of Implementation was established by representatives from all over the world. The outcome document, the Johannesburg Declaration on Sustainable Development3 specifically provides that “we assume a collective responsibility to advance and strengthen the interdependent and mutually reinforcing pillars of sustainable development—economic development, social development and environmental protection—at local, national, regional and global levels” (Para. 5, Johannesburg Declaration). It also sets a direction for the implementation of sustainable development. The Plan of Implementation identifies eradication of poverty, change of unsustainable production and consumption patterns, and protection and management of natural resources for socio-economic development as necessary requirements for sustainable development (Magraw and Hawke 2007). This social aspect was articulated in paragraph 140(c) of the Plan of Implementation, namely that there is a need to “(. . .) promote the full integration of sustainable development objectives into programmes and policies of bodies that have a primary focus on social issues. In particular, the social dimension of sustainable development should be strengthened.” However, the objectives laid down in the strategic action on sustainable

3 Report of the World Summit on Sustainable Development, Johannesburg, South Africa, 26 August–4 September 2002, U.N. Doc. A/CONF.199/20.

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development could be regarded as aspirational rather than concrete goals. While the Rio Declaration lays emphasis on the significance of sustainable development for countries at all development stages, the 2002 Johannesburg Declaration strengthens sustainable development through integration of the private sector in the process. The United Nations Conference on Sustainable Development, also known as Rio +20, which took place in Rio de Janeiro, Brazil from 20–22 June 2012, adopted a declaration on sustainable development and a green economy entitled The Future We Want.4 In paragraph 1 of this declaration, states renew their “commitment to sustainable development, and to ensure the promotion of economically, socially and environmentally sustainable future for our planet and for present and future generations”. The Rio+20 outcome document articulates the concept of greening the economy as a mechanism for achieving sustainable development (Bartelmus 2013). Paragraph 246 forms the link between The Future We Want document and the Millennium Development Goals (MDGs). It provides that “We recognize that the development of goals could also be useful for pursuing focused and coherent action on sustainable development. We further recognize the (. . .) goals should address and incorporate in a balanced way all three dimensions of sustainable development and their inter-linkages”. Paragraph 249 states that “the process needs to be coordinated and coherent with the processes to consider the post-2015 development agenda”. Paragraphs 246 and 249 thus paved a way for the development of the Sustainable Development Goals (SDGs). The Rio+20 outcome document lays down a framework for the development of aspirational sustainable development goals and measurable targets that constitute part of Agenda 2030. On 25 September 2015, the United Nations General Assembly adopted Resolution A/RES/70/1 in New York, entitled Transforming our World: the 2030 Agenda for Sustainable Development (hereinafter Agenda 2030) as a plan of action for people, planet, and prosperity. Paragraph 2 of Agenda 2030 provides for states the commitment to achieve “sustainable development in its three dimensions—economic, social and environmental—in a balanced and integrated manner” and in paragraph 3, states resolve to establish conditions for sustainable and inclusive economic growth. The international soft law agreement lays down 17 Sustainable Development Goals (SDGs) and 169 targets, which aim to mobilise global efforts to eradicate poverty and hunger, foster peace, improve education and health, safeguard the rights and dignity of all people, ensure that cities are sustainable, address the problem of climate change, and protect oceans and forests (Para. 59–59, Agenda 2030). Agenda 2030 is designed to guide global development efforts between 2015 and 2030, and its centrepiece, the SDGs, replaces the MDGs that were limited in scope and came to an end in 2015 (Fehling et al. 2013). The SDGs, which build on the MDGs, are designed to achieve what the MDGs failed to accomplish. While the MDSs focused largely on human development, the SDGs are more important, given that they constitute part of the first global agenda that considers development in all its dimensions, including those of security, economic,

4

U.N. Doc. A/RES/66/288.

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social, human, and environment. The main limitation of the SDGs are their non-binding nature and the lack of suitable review mechanisms. The achievement of Agenda 2030, however, depends on the willingness of states to implement the plan of action. To conclude this section, the various soft law instruments discussed above are not legally binding and are not recognised among the classical sources of international law as laid down in Article 38(1) of the Statute of the International Court of Justice.5 Even though soft law instruments are not legally binding, they are often negotiated in good faith with anticipation that the non-binding commitments will be met. As Cordonier Segger (2017) asserts, in certain circumstances, soft law can still give rise to legitimate expectations among states. Soft law instruments often form the basis for the development of legally binding treaties and help in their interpretation, while their aspirational language inspires states to rely on them to improve environmental policy (Nanda and Pring 2003; Hunter et al. 2015). Sustainable development commitments incorporated in soft law instruments can contribute to shaping international treaty regimes as well as relevant legal principles (Brunnée and Toope 2010). Commitments to sustainable development are found not only in international soft law, but also as provisions of international hard law agreements.

4.3

Sustainable Development in International Hard Law

Sustainable development is reflected in international hard law agreements and is regularly invoked by states to support positions which they seek to justify (Barral 2012; Tladi 2007). Even though the commitments to sustainable development are found as provisions of international environmental law, international economic and trade law, international human rights law, and international humanitarian law which states are required to give weighty consideration during implementation and enforcement (Viriyo 2012), this section focuses only on international environmental law, as well as international economic law and trade law considered to be the most relevant for this contribution. The section highlights the extent to which international hard law gives effect to sustainable development and presents how some WTO agreements and jurisprudence reflect sustainable development as one of the guiding objectives of the international trade system. The principle of sustainable development has featured as an object and purpose of many international environmental agreements, and it is directly relevant to the interpretation of their provisions and guides the decisions of international courts and tribunals. It can be considered part of the object and purpose of many international environmental agreements which among others include the United Nations Framework Convention on Climate Change, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, the Paris Agreement, the Convention on Biological Diversity,

5

39 AJIL Supp. 215 (1945).

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and the United Nations Convention to Combat Desertification in Countries Experiencing Serious Drought and/or Desertification, Particularly in Africa. The concept of sustainable development or its components is also reflected in instruments relating to international economic law and trade law such as the Marrakesh Agreement Establishing the World Trade Organization and the General Agreement on Tariffs and Trade 1994. The following subsections begin with international environmental law and end with international economic and trade law in which the principle of sustainable development is reflected.

4.3.1

United Nations Framework Convention on Climate Change and Kyoto Protocol

The principle of sustainable development is one of the principles guiding the implementation of the United Nations Framework Convention on Climate Change (UNFCCC)6 adopted in New York on 9 May 1992 with the ultimate objective of achieving “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system” (Art. 2, UNFCCC). The principle of sustainable development is directly and indirectly reflected in some provisions of the UNFCCC. For example, it is directly reflected in Art. 3(4) of the UNFCCC, which states, “Parties have a right to, and should, promote sustainable development. Policies and measures to protect the climate system (. . .) should be integrated with national development programmes, taking into account that economic development is essential for adopting measures to address climate change”. The principle is also indirectly reflected in Art. 2, which provides that the Convention aims to achieve “stabilization of greenhouse gas concentrations (. . .) within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, (. . .) and to enable economic development to proceed in a sustainable manner”. Sustainable development is mentioned three times in the Kyoto Protocol to the United Nations Framework Convention on Climate Change7 adopted in Kyoto, Japan on 11 December 1997, with the aim of achieving the UNFCCC objectives by requiring industrialised countries to reduce their greenhouse gas emissions by at least 5% as compared to the 1990 level (Art. 3, Kyoto Protocol). The concept is used in qualifying the overarching purpose of measures to be implemented by the Parties to promote sustainable development (Article 2.1, Kyoto Protocol) and to achieve sustainable development (Article 10, Kyoto Protocol). The concept is incorporated as one of the objectives of the Clean Development Mechanism. Art. 12 of the Kyoto Protocol provides that “the purpose of the clean development mechanism shall be to assist Parties not included in Annex I in achieving sustainable development”. By 6 7

U.N. Doc. A/AC.237/18 (Part II)/Add.1; 1771 UNTS 107; reprinted in 31 I.L.M. 849 (1992). U.N. Doc. FCCC/CP/1997/7/Add.1, Dec. 10, 1997; reprinted in 37 I.L.M. 22 (1998).

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repeatedly emphasising the principle of sustainable development or its components in the provisions of the UNFCCC and the Kyoto Protocol, states clearly committed themselves to integrate environmental and socio-economic issues in the development process, which is vital for an effective and adequate response to climate change.

4.3.2

Paris Agreement on Climate Change

The Paris Agreement,8 which is an agreement under the UNFCCC to govern GHG emissions mitigation, adaptation and finance from 2020, is the most recent international environment agreement in which sustainable development explicitly finds expression in its operative provisions. As stipulated in Art. 2(1), the “Agreement, in enhancing implementation of the Convention, including its objective, aims to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty”. As Gupta and Arts (2017, p. 14) avow, “in line with Agenda 2030, the Paris Agreement also requires that climate action is consistent with sustainable development while eradicating poverty and respecting human rights”. The Paris Agreement makes at least twenty-two references to sustainable development. Sustainable development is clearly incorporated in Art. 4(1), which details states’ self-determined mitigation contributions in order to realise the long-term temperature goal set out in Art. 2. Sustainable development is mentioned six times in Art. 6; where Parties lay down the foundation for cooperative mechanisms that will facilitate voluntary cooperation to achieve the objectives of the agreement. In this regard, Art. 6(1) lays down the general principle that voluntary cooperation allows for higher ambition and aims to promote sustainable development and environmental integrity. Art. 6(2) provides that “Parties shall, where engaging on a voluntary basis in cooperative approaches (. . .) promote sustainable development and ensure environmental integrity and transparency, including in governance”. It is worth noting that Art. 6(4) introduces the foundation for a mechanism still to be ascertained by Parties in future negotiations that aim to support mitigation action while fostering sustainable development. This means that this mechanism must fully incorporate the human rights guarantee incorporated into the SDGs. The same can be said about the framework for non-market approaches established in Art. 6(9) to promote “sustainable development and poverty eradication”. Art. 6(2) and 6(3) establish a bottom-up mechanism whereby Parties can decide to enter into voluntary cooperation and transfer mitigation outcomes. All these have to be geared towards promoting sustainable development and ensuring environmental integrity. Art. 6(4) to 6(7) establish a centralised mechanism placed under the Conference of Parties to contribute to mitigation of GHG emissions and foster sustainable development. Art. 6(8) and 6(9) define a framework for non-market approaches to sustainable development. The various sections of Art.

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6 refer to sustainable development as the ultimate objective of the mechanisms created. In each case, sustainable development is associated as an objective to be pursued in line with climate mitigation actions. There are other references to sustainable development including in Art. 7 (adaptation measures), Art. 8 (loss and damage) and Art. 10 (technology transfer). The sustainable development approach integrated into the Paris Agreement will guide how countries will address their climate challenges sustainably from 2020. The Paris Agreement also makes direct and indirect references to the SDGs. The relationship between international climate law and the SDGs reveals that there is a need to integrate the SDGs into the implementation of the Agreement. Seventeen years after Kyoto, the Paris Agreement shows an evolution in the way sustainable development is perceived. It no longer safeguards against climate action as a potential obstacle to development. Today, it represents the very vehicle by which development is ensured. As Atapattu (2016, p. 121) asserts, the incorporation of sustainable development within the climate regime “seeks to ensure that developing countries will not make same mistakes that developed countries made in their pursuit of economic development”. This implies that it is essential for all states to integrate climate action into all development planning and consider that the achievement of sustainable development will greatly depend on decisive action to adapt to and mitigate climate change.

4.3.3

Convention on Biological Diversity and Convention to Combat Desertification

The Convention on Biological Diversity (CBD),9 adopted on 22 May 1992 is the main legally binding agreement designed to sustain the rich diversity of life on earth. The CBD is another international environmental agreement in which the principle of sustainable development finds expression. The CBD was inspired partly by the international community’s growing commitment to rational use and conservation of biological resources. The objectives of the Convention, designed to encourage actions leading to a sustainable future, are “the conservation of biological diversity, the sustainable use of its components, and the fair and equitable sharing of the benefits arising out of the utilisation of genetic resources” (Art. 1, CBD). The CBD emphasises the sustainable use of biological resources. The term “sustainable use” is defined in Art. 2 of the CBD as “the use of components of biological diversity in a way and at a rate that does not lead to the long-term decline of biological diversity, thereby maintaining its potential to meet the needs and aspirations of present and future generations”. With the three objectives and the definition of sustainable use, the CBD is regarded as a key instrument for sustainable development. Ecosystems, species and genetic resources should be used sustainably for the benefit of humans in a way that does not result in the decline of biodiversity. The preamble of the 9

1760 UNTS 79; reprinted in 31 I.L.M. 818 (1992).

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Convention recognises that biodiversity conservation is a common concern of humankind and an integral part of the process of development. Parties are required to “promote environmentally sound and sustainable development in areas adjacent to protected areas with a view to furthering protection of these areas” (Art. 8(d), CBD). They are also required to incorporate sustainable development in national decisionmaking procedures and encourage cooperation between the public and the private sector (Art. 10, CBD). State Parties are to provide for research, training, education and fostering of awareness concerning measures of identification, conservation, and sustainable use of biodiversity (Art. 12 and 13, CBD). Even though the CBD is a framework agreement, since it does not largely lay down precise obligations, it is nonetheless regarded as an important instrument for sustainable development, due to its emphasis that biodiversity conservation will bring significant environmental and socio-economic benefits in return. It provides a general framework for conservation and sustainable use of biodiversity, focusing largely on habitat protection, to balance the need for economic development with biodiversity conservation. Another biodiversity-related agreement that addresses global and regional sustainable development goals is the United Nations Convention to Combat Desertification in Countries Experiencing Serious Drought and/or Desertification, Particularly in Africa (UNCCD).10 The UNCCD’s primary objective is to combat desertification and mitigate the effects of drought in affected countries through action at all levels. The action programmes are underpinned by international cooperation and partnership with a view to achieving sustainable development, which is directly reflected in Art. 4.2b and Art. 5b. Achieving the convention’s objective entails long-term integrated strategies that focus on improved productivity of land, rehabilitation, conservation and sustainable management of land and water resources in affected countries, leading to improved living conditions particularly at the community level (Art. 2, UNCCD). As Art. 4.2b states, “in pursuing the objectives of this convention, the Parties shall give due attention (. . .) to the situation of affected developing country Parties with regard to international trade, marketing arrangements and debt with a view to establishing an enabling international economic environment conducive to the promotion of sustainable development”. Furthermore, Art. 5b provides that “affected country Parties undertake to establish strategies and priorities, within the framework of sustainable development plans and/or policies, to combat desertification and mitigate the effects of drought”. The convention is based on the principles of participation, partnership and decentralisation (Art. 3, UNCCD) that contribute to the achievement of sustainable development. This important convention, which among others facilitates formal recognition of land degradation, is implemented through national, sub-regional, and regional action programmes designed to form an integral part of a country’s national sustainable development policy.

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1954 UNTS 3; reprinted in 33 I.L.M. 1328 (1994).

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Marrakesh Agreement Establishing the World Trade Organization

The concept of sustainable development is reflected in the first paragraph of the preamble to the Marrakesh Agreement Establishing the World Trade Organization (Marrakesh Agreement)11 as an objective of the organisation. The outcome of the 1992 Rio Earth Summit perhaps influenced negotiators to incorporate the concept of sustainable development in the preamble of the 1994 Marrakesh Agreement. Its first paragraph provides that Parties “recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment (. . .), while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment (. . .)”. While preamble statements are usually not legally binding like operational provisions (Barral 2012), they can play a meaningful role in interpretation of a treaty, as provided in Art. 31(2) of the Vienna Treaty Convention on the Law of Treaties,12 especially in identifying the treaty’s object and purpose. As detailed in Sect. 4.4.1 of this chapter, the 1998 Shrimp-Turtle case provides a direct demonstration of how sustainable development as incorporated in the preamble of the Marrakesh Agreement influenced the interpretation of the World Trade Organization (WTO) Agreement. The preamble of the Marrakesh Agreement shows that the negotiators in 1994 were conscious of the need for environmental protection as a global policy goal. However, Cordonier Segger (2017, p. 215) opined that “notwithstanding its potential interpretive weight as part of the object and purpose of a treaty, a preambular reference alone in a trade or investment treaty may not provide a comprehensive response to the tensions that are being identified in assessments and current political debates”. However, the WTO compromise with sustainable development was reaffirmed in the Doha round of negotiations, which have been described as the Development Round. The recognition of sustainable development among the objectives of the Marrakesh Agreement is reaffirmed in paragraph 6 of the 2001 Doha Ministerial Declaration13 which provides that “we strongly reaffirm our commitment to the objective of sustainable development, as stated in the Preamble to the Marrakesh Agreement. We are convinced that the aims of upholding and safeguarding an open and non-discriminatory multilateral trading system and acting for the protection of the environment and the promotion of sustainable development can and must be mutually supportive”. Although the Doha Ministerial Declaration is a soft law document which is not legally binding, it does clearly highlight the significance of sustainable development in the WTO regime. The concept of sustainable development is also partly reflected in other WTO agreements, as revealed below.

11

1867 UNTS 154; reprinted in 33 I.L.M. 1144 (1994). U.N. Doc. A/Conf.39/27; 1155 UNTS 331; reprinted in 8 I.L.M. 679 (1969). 13 WTO Doc. WT/MIN(01)/DEC/1; reprinted in 41 I.L.M. 746 (2002). 12

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General Agreement on Tariffs and Trade 1994

Article XX of the General Agreement on Tariffs and Trade 1994 (GATT 1994)14 sets out general exceptions for free trade that may support the concept of sustainable development in the WTO regime. The general exceptions for free trade are “subject to the requirement that such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination (. . .), nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (. . .) (b) necessary to protect human, animal or plant life and health; (. . .) (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”. Even though Article XX of GATT 1994 is relevant to sustainable development, the concept is not incorporated as one of the general exceptions of the Agreement, exceptions which can be invoked by a country to justify domestic measures that may likely violate WTO agreements. However, the preamble of the Marrakesh Agreement, which explicitly acknowledges the concept of sustainable development, supports the GATT 1994 and other related agreements. Even though the preamble of the Marrakesh Agreement lead to no negotiations of new legally binding rules, in the 1996 Singapore Ministerial Declaration,15 there is a note in paragraph 16 restricted only to trade and environmental issues. This note states that the full implementation of the Marrakesh Agreement would result in significant contribution towards the achievement of sustainable development. In the Geneva Ministerial Conference of 1998, sustainable development was further considered as one of the reasons for enhanced trade and as a means to constrain environmental measures. The preamble of the Ministerial Declaration states in paragraph 4 that the signatories shall also continue to improve their efforts towards the objectives of sustained economic growth and sustainable development. The preamble clearly establishes the link between the concept of sustainable development and the concept of sustained economic growth. It can therefore be asserted that 1998 is the year where the WTO formally recognised that sustainable development is not merely related to natural resources but has become one of the goals of the organisation itself. Even though sustainable development is reaffirmed in the WTO by related, non-legally-binding declarations, it is clear that the concept does not carry much weight, as it is supposed to be in the WTO regime. It is in this regard that international trade law plays an important role in equally shaping and constraining countries’ abilities to frame sounder developmental and environmental protection policies (Castagno 2014). As the concept of sustainable development is partly reflected in international trade law, it is increasingly considered in decisions of international disputes settlement bodies, as revealed below.

14 15

1867 UNTS 187; reprinted in 33 I.L.M. 1153 (1994). WTO Doc. WT/MIN(96)/DEC; reprinted in 36 I.L.M. 218 (1997).

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Sustainable Development in Decisions of International Disputes Settlement Bodies

Sustainable development is increasingly invoked before international disputes settlement bodies, such as the International Court of Justice, the Panel and Appellate Body of the World Trade Organization. The concept has become legally relevant, particularly in informing international dispute settlement bodies in its procedural dimensions (Kentin 2004). The following subsections provide an overview of how sustainable development has been operationalised through international courts.

4.4.1

Sustainable Development in Recent Decisions of WTO Dispute Settlement Bodies

The concept of sustainable development is widely recognised by international dispute settlement bodies, such as the Panel and Appellate Body of the WTO (Kentin 2004; Zengerling 2013). It is worthwhile to briefly highlight how the Appellate Body of the WTO recognises the relevance of sustainable development for addressing disputes. One of the cases that highlights the relevance of sustainable development in addressing disputes is the case Tuna-Dolphin II (1994), brought against the United States by the European Economic Community and The Netherlands, who claimed that the country had no right to place embargoes on both primary and intermediary nations.16 The United States imposed trade embargoes on yellowfin tuna and yellowfin tuna products imported into the country that used methods causing a high number of dolphin kills, citing protection of the life of dolphins as an exhaustible resource as justification for trade restriction. The United States’ Marine Mammal Protection Act of 1972 required the nations to establish a conservation fishing programme for reducing the incidental taking of dolphins in accordance with the statute or suffer trade embargo on tuna. The GATT Panel focused on the United States’ requirement that foreign states create a regulatory programme for conservation of fish stocks. The Panel employed a legal test involving these three steps: the policy had to conserve or protect health or life, it had to be necessary, and it had to be established as not being arbitrary or unjustifiable discrimination. The Panel found that the United States passed only the first test and consequently, it did not rule in favour of the country. In conclusion, the Panel mentioned sustainable development in GATT cases for the first time, recognising it as a legal principle within GATT, even though it rendered it mere dicta in the case at hand (Gillroy 2006). It concluded that “the objective of sustainable development, which includes the protection and preservation of the environment, has been widely recognized by the contracting

33 I.L.M. 839 (1994); Report of the Panel, United States – Restrictions on Imports of Tuna, DS29/ R (16 June 1994).

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parties to the General Agreement. The Panel however observed that the issue in this dispute was not the validity of the environmental objectives of the United States to protect and conserve dolphins. The issue was whether, in the pursuit of its environmental objectives, the United States could impose trade embargoes to secure changes in the policies which other contracting parties pursued within their own jurisdiction”.17 The Shrimp-Turtle case concerning India, Malaysia, Pakistan, Thailand v United States (1998)18 is another case where the WTO Appellate Body recognised the relevance of sustainable development for addressing disputes. The case concerned a regulation under the United States Endangered Species Act of 1973 to protect five different species of endangered sea turtles. The United States required that its shrimp trawlers should use “Turtle Excluder Devices (TEDs)” in their nets to prevent sea turtles from being caught along with shrimps. Another law then banned shrimp imports from regions whose shrimp trawlers were not using TEDs in the presence of sea turtles. India, Malaysia, Pakistan and Thailand brought a case against the United States, complaining that the prohibition was inconsistent with the United States’ GATT obligations. In the case, the United States proposed that Article XX GATT should be interpreted in the light of the preamble of the WTO Agreement; an environmental purpose is fundamental to the application of Article XX, and such a purpose cannot be ignored, especially since the preamble to the Marrakesh Agreement acknowledges that the rules of trade should be “in accordance with the objective of sustainable development,” and should seek to protect and preserve the environment. The WTO Panel found the import ban inconsistent with GATT 1994 Article XI:1 and unjustifiable under Article XX, and it asked the United States to bring its laws into conformity with its GATT 1994 obligations. The Panel found that the plaintiff nations were given considerably less notice by the United States than other countries before being compelled to comply with TEDs requirements and concluded that the country’s measure constituted unjustifiable and arbitrary discrimination between countries where the same conditions prevailed. The United States decided to take the case to the WTO Appellate Body, but it did not reverse the Panel’s decision. It did, however, advance three main points of interest. Firstly, it decided to examine Article XX listed exceptions (a–g). Secondly, in examining exception (g), the Appellate Body’s decision considered the preamble but did not follow the United States’ argument, as it stated that “(. . .) recalling the explicit recognition by WTO Members of the objective of sustainable development (. . .). We hold that in line with the principle of effectiveness in treaty interpretation, measures to conserve exhaustible natural resources, whether living or non-living, may fall within Article XX(g)”. However, it is more than 50 years ago that the words of Article XX(g), “exhaustible

Report of the Panel, United States – Restrictions on Imports of Tuna, DS29/R (16 June 1994), 5.3–5.42. 18 United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/R (15 May 1998). 17

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natural resources”, were crafted. An interpreter of a treaty must read the words in the context of contemporary concerns of the global community about environmental protection. Thirdly, the Appellate Body distinguished trade law from environmental law by allowing quality environmental standards to further negotiations: “We have not decided that sovereign states that are members of the WTO cannot adopt effective measures to protect endangered species, such as sea turtles. Clearly, they can and should”. The Appellate Body affirmed that a sustainable development objective ought to inform all WTO agreements in paragraph 129 of its report. The Appellate Body further interpreted the preamble of the WTO law, stating that “we note once more that this language demonstrates recognition by WTO negotiators that optimal use of the world’s resources should be made in accordance with the objective of sustainable development. As this language of the preamble reflects the intentions of negotiators of the WTO Agreement, we believe it must add colour, texture and shading to our interpretation of the agreements annexed to the WTO Agreement, in this case, the GATT 1994. We have already observed that Article XX (g) of the GATT 1994 is appropriately read with the perspective embodied in the above preamble”.19 As Gehring (2009) opined, the outcome of the case shows that the Appellate Body is aware of the concept of sustainable development informing WTO members’ intentions in all of the annexed agreements. It thus established that in this case, the concept of sustainable development has been accepted as integrating socio-economic development and environmental protection. This case reveals that the commitment to sustainable development guided the WTO Appellate Body in its rulings. However, the commitment to sustainable development is not yet clearly mainstreamed in the WTO regime.

4.4.2

Sustainable Development in Recent Decisions of ICJ and ITLOS

In recent decisions of international courts and tribunals, such as the International Court of Justice (ICJ) and International Tribunal for the Law of the Sea (ITLOS), the concept of sustainable development contributes to facilitating the integration of other norms regarding socio-economic development and environmental protection. It played such a role in Gabčíkovo-Nagymaros Hungary v Slovakia (1997)20 case at the International Court of Justice (ICJ). This case concerned the use of the Danube River by these two countries for an important hydropower dam project involving two facilities (one up-river and one down) based on the Budapest Treaty of 16 September 1977. The project began in 1977, but by 1989, Hungary suspended it and withdrew

Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, 114–185. 20 Gabčíkovo-Nagymaros Project (Hungary/Slovakia), Judgment, I.C.J. Reports 1997, p. 7 (25 September 1997). 19

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from the treaty because Slovakia had decided to continue with the project unilaterally, which would produce power by diverting the flow of the Danube away from Hungary in breach of the treaty. Hungary pleaded a state of “ecological necessity” as its basis for terminating the bilateral treaty and stopping the project. In judging the “necessity” of the environmental conditions, the ICJ accepted that Hungary’s “natural environment” was an “essential interest of the state” and quoted its Advisory Opinion on Legality of the Threat or Use of Nuclear Weapons.21 It also required the parties to renegotiate the treaty reasoning because ecological and water quality impacts were not properly taken into consideration during the design and construction period. The court asserted that “the Project’s impact upon, and its implication for, the environment are of necessity a key issue (. . .). Through the ages, mankind has, for economic and other reasons, constantly interfered with nature. In the past, this was often done without consideration of the effects on the environment. Owing to new scientific insights and to a growing awareness of the risks for mankind—for present and future generations—new norms and standards have been developed, set forth in a great number of instruments during the last two decades. Such new norms have to be taken into consideration, and such new standards given proper weight, not only when states contemplate new activities but also when continuing activities begun in the past. This need to reconcile economic development with protection of the environment is aptly expressed in the concept of sustainable development”.22 As Gillroy (2006) asserts, the ICJ did not only accept the importance of the environment in the planning measures of states but also recommended that sustainable development should be utilised by both countries to renegotiate the treaty. This vital use of the concept of sustainable development as a standard for decision-making by states would have been impossible if Hungary, in its pleadings, had not considered environmental concerns at the centre of its argument (Gillroy 2006). It is seen in the Gabčíkovo-Nagymaros Case that the ICJ accepted sustainable development as a principle of international law given its consideration that sustainable development should balance development with environmental concerns. In a separate opinion, Judge Christopher Gregory Weeramantry considered sustainable development “a general principle of international law recognized by civilized nations” and “an integral part of modern international law”, “by reason not only of its inescapable logical necessity, but also by reason of its wide and general acceptance by the global community”. With this separate opinion, Judge Weeramantry established that sustainable development is a principle of international law, which is gaining status as an erga omnes obligation.23

21 Legality of the Threat or Use of Nuclear Weapons, Advisory Opinion, I.C.J. Reports 1996, p. 226 (8 July 1996). 22 Gabčíkovo-Nagymaros Project (Hungary/Slovakia), Judgment, I.C.J. Reports 1997 p. 7 (25 September 1997); see pp. 77–78. 23 Gabčíkovo-Nagymaros Project (Hungary/Slovakia), Judgment, I.C.J. Reports 1997 p. 7 (25 September 1997); see pp. 88–95.

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The concept of sustainable development also finds expression in Southern Bluefin Tuna Australia and New Zealand v Japan (1999) case.24 In 1993, these countries entered into a trilateral regional agreement known as the Convention for the Conservation of Southern Bluefin Tuna, aimed at stopping the over-fishing of the fish. After concluding the treaty, Japan started a “scientific” fishing programme in which it took more than the country’s agreed upon quota. Japan was accused of breaching the 1993 trilateral regional agreement by exceeding its quota through “scientific” fishing. As the parties failed to resolve the case under the trilateral regional agreement, New Zealand and Australia brought the case before the International Tribunal for the Law of the Sea (ITLOS), charging Japan with the violation of the United Nations Convention on the Law of the Sea (UNCLOS).25 Australia and New Zealand argued that Japan’s “scientific” programme for fishing caused the depletion of southern Bluefin Tuna. The ITLOS ruled that Japan should stop its practice “to prevent serious harm to the marine environment” and called upon the parties to “act with prudence and caution to prevent serious harm to the marine environment”.26 This ruling reveals that the Tribunal appeared to have taken into account the principle of sustainable development as one of the compelling basis for its judgment.

4.5

Conclusions and Recommendations

This chapter reveals that, as a legal principle, sustainable development is reflected in some provisions of international soft law and hard law agreements as well as in some decisions of international courts and tribunals. As disclosed in this chapter, the principle of sustainable development is recognised in preambles important for the interpretation of treaties and operational provisions which are binding on contracting parties. Sustainable development is referred to as an objective that the subjects of international law must strive to achieve. However, the commitment to pursue sustainable development as a vital policy goal is articulated more in international soft law agreements than hard law agreements. Moreover, there is no international hard law agreement that sets out the commitments of states specifically on sustainable development. Existing hard law agreements should be amended to clearly accommodate the principle of sustainable development. Furthermore, a legal framework specifically for the promotion of sustainable development should be developed, requiring the subjects of international law to pursue the objectives of socioeconomic development and environmental protection. The legal framework should accommodate standards of sustainability that can be achieved by all states and

24

Southern Bluefin Tuna Cases; ICGJ 337 (ITLOS 1999); reprinted in 38 I.L.M. 1624 (1999). 1833 UNTS 3; reprinted in 21 I.L.M. 1261 (1982). 26 Australia and New Zealand v Japan, Provisional Measures, Order of 27 August 1999, ITLOS Reports 1999, paras. 77–80, 280–296. 25

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clearly articulate how competing socio-economic and environmental interests can be reconciled. As this contribution discloses, the WTO has not adequately accommodated environmental issues and sustainable development into its regime. In promoting trade liberalisation, the WTO should equally promote sustainability of its own trade by mainstreaming adequately sustainable development in its operation. A commitment to promote sustainable development in WTO regime requires, among others, that the organisation establish an applicable policy to consider the concept as one of the general exceptions of international trade as laid down in Article XX of GATT. This contribution highlights how international dispute settlement bodies recognise the relevance of sustainable development for addressing disputes. It reveals that the commitment to sustainable development has guided the WTO dispute settlement bodies in some of their rulings. However, there are still certain rules, such as those of the WTO that seem to contradict the objectives of sustainable development and the ambiguity of the concept to provide a normative imperative. Even though most of such rules can be resolved through interpretation, an integrated dispute settlement mechanism where all rules of international law can be considered and sustainability, as an adjudicatory norm, promoted will be essential for the progress of international law.

References Adams WM (1990) Green development: environment and sustainability in the third world. Routledge, London Albrecht E (2017) Geplante Obsoleszenz: ökonomisch sinnvolle Produktkonzeption oder vorsätzliche sittenwidrige Schädigung? In: Hoffmann J (ed) 15 Jahre Zentrum für Rechts- und Verwaltungswissenschaften an der Brandenburgischen Technischen Universität. Logos Verlag, Berlin, pp 103–126 Atapattu S (2016) Human rights approaches to climate change: challenges and opportunities. Routledge, Abingdon Barral V (2012) Sustainable development in international law: nature and operation of an evolutive legal norm. Eur J Int Law 23(2):377–400 Bartelmus P (2013) The future we want: green growth or sustainable development? Environ Dev 7:165–170 Brunnée J, Toope SJ (2010) Legitimacy and legality in international law: an interactional account. Cambridge Studies in International and Comparative Law, vol 67. Cambridge University Press, Cambridge Castagno NP (2014) Sustainable development and the international trade law paradigm: a relationship to be denounced? J Int Trade Law Policy 13(2):136–166 Cordonier Segger M-C (2017) Inspiration for integration: interpreting international trade and investment accords for sustainable development. Can J Comp Contemp Law 3(1):159–215 Cordonier Segger M-C, Khalfan A (2004) Sustainable development law: principles, practice and prospects. Oxford University Press, Oxford Fehling M, Nelson B, Venkatapuram S (2013) Limitations of the millennium development goals: a literature review. Global Public Health 8(10):1109–1122 Gehring MW (2009) WTO law and sustainable development. In: Armstrong D (ed) Routledge handbook of international law. Routledge, London, pp 375–391

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Gillroy JM (2006) Adjudication norms, dispute settlement regimes and international tribunals: the status of “environmental sustainability” in international jurisprudence. Stanford J Int Law 42:1–52 Gupta J, Arts K (2017) Achieving the 1.5  C objective: just implementation through a right to (sustainable) development approach. Int Environ Agreements: Polit Law Econ 18(1):11–28 Horn L (2011) Sustainable development – mere rhetoric or realistic objective? Univ Tasmania Law Rev 30(1):119–156 Hunter D, Salzman J, Zaelke D (2015) International environmental law and policy, 5th edn. Foundation Press, New York IUCN – International Union for Conservation of Nature and Natural Resources (1980) World conservation strategy: living resource conservation for sustainable development. IUCN, Gland. https://doi.org/10.2305/IUCN.CH.1980.9.en Kentin E (2004) Sustainable development in international investment dispute settlement: the ICSID and NAFTA experience. In: Schrijver N, Weiss F (eds) International law and sustainable development: principles and practice. Martinus Nijhoff Publishers, Leiden, pp 309–338 Magraw DB, Hawke LD (2007) Sustainable development. In: Bodansky D, Brunnée J, Hey E (eds) The Oxford handbook of international environmental law. Oxford University Press, Oxford, pp 613–638 MEA – Millennium Ecosystem Assessment (2005) Ecosystems and human well-being: synthesis. Island Press, Washington, D.C. Nanda VP, Pring G (2003) International environmental law and policy for the 21st century. Transnational Publishers Inc, Ardsley Sands P (2003) Principles of international environmental law, 2nd edn. Cambridge University Press, Cambridge Tladi D (2007) Sustainable development in international law: an analysis of key enviro-economic instruments. Pretoria University Law Press, Pretoria Viriyo A (2012) Principle of sustainable development in international environmental law. The Social Science Research Network. https://doi.org/10.2139/ssrn.2133771 Voigt C (2009) Sustainable development as a principle of international law: resolving conflicts between climate measures and WTO law. Legal Aspects of Sustainable Development, vol 2. Martinus Nijhoff Publishers, Leiden WCED – World Commission on Environment and Development (1987) Our common future. Oxford University Press, Oxford Zengerling C (2013) Greening international jurisprudence: environmental NGOs before International Courts, Tribunals, and Compliance Committees. Legal Aspects of Sustainable Development, vol 17. Martinus Nijhoff Publishers, Leiden

Terence Onang Egute is a lecturer and research associate at the Department of Public Law, with Focus on Environmental and Planning Law at Brandenburg University of Technology CottbusSenftenberg (BTU), Germany. Terence obtained a Ph.D. in Environmental Sciences (2012) and an M.A. in World Heritage Studies (2005) from the BTU, and a B.A. from the University of Buea, Cameroon (2000). Apart of teaching and research, he has developed and successfully managed many funded projects. His research interests are in the areas of natural and cultural heritage management, forest conservation and management, biodiversity conservation through legal instruments, international environmental law and policy, and environmental governance. Department of Public Law, with Focus on Environmental and Planning Law, Brandenburg University of Technology Cottbus-Senftenberg (BTU), P.O. Box 101344, 03013 Cottbus, Germany; Email: [email protected], [email protected].

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Eike Albrecht is Head of the Department of Public Law, with Focus on Environmental and Planning Law since 2004 in the Faculty for Business, Law and Administration at the Brandenburg University of Technology Cottbus-Senftenberg (BTU). Among several other positions at BTU, he is Dean of this Faculty (since 2016), head of the postgraduate study programme “Forensic Sciences and Engineering (M.Sc.)” (since 2011) and head of the postgraduate study programme “Business Law for Technological Enterprises – M.B.L.” (since 2006). His scientific focus is environmental law, international environmental law, energy law and the law of technology, and he is author of numerous publications in this field. Department of Public Law, with Focus on Environmental and Planning Law, Brandenburg University of Technology Cottbus-Senftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Tel: +49 355 69 3428; Fax: +49 355 69 3057; Email: [email protected]; Internet: https://www.b-tu.de/ fg-umweltrecht/. Kelvin Awanaya Egute is a barrister at law of the Supreme courts of Cameroon and Nigeria, and a notary public at the court of Appeal of the North West Region, Cameroon. Kelvin holds an LL.B. degree from the University of Buea, Cameroon (2006) and a B.L from the Nigerian Law School Abuja where he was called to the Nigerian Bar (2010). He was later called to the Cameroon Bar Association in 2011. Since then, he has been in active practice as a private general practitioner at Abie, Egute & Associates Law Firm, Bamenda, Cameroon. His research interest includes international environmental law, OHADA law and international human rights law. Barrister and Solicitor, Abie, Egute & Associates Law Firm, P.O. Box 920 Bamenda, Cameroon; Tel: +237 677 94 40 92; Email: [email protected].

Chapter 5

European Union Policy for Sustainable Development Eva Leptien, Ganna Mochalova, and Eike Albrecht

5.1

Introduction

Sustainable development has only recently manifested itself on the political agenda of the European Union (EU). The purpose of the founding of what we now know as the EU, namely the European Coal and Steel Community and later the European Economic Community, was to create economic interdependence and peaceful relations on the post-WWII European continent. Interdependence and economic integration have led to a unique legal and political order. The EU today is significantly more than an international organisation and takes on almost nation-state-like structures; however, it cannot quite be characterised as such.1 Unlike any other organisation, the EU is commissioned with a large variety of competences, ranging from the customs union to a shared competence in environmental legislation. Based on these competences, the EU can be described as a “quasi-state” (Schmidt 2006). This characterisation results in obligations that other organisations may not have. As an independent legal and political body with direct influence in all EU member states as well as influence on their trade partners, the EU must act towards making a difference when the globally-defined goal is to achieve greater sustainable development in all sectors, as is intended with the Sustainable Development Goals (SDGs). Unlike economic legislation, environmental and social policies were not on the EU’s political agenda for the first few decades. The competence for the environment

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Opinion of the Court (Full Court) of 18 December 2014, Case Opinion 2/13, ECLI:EU: C:2014:2454. E. Leptien (*) · G. Mochalova · E. Albrecht Department of Public Law, with Focus on Environmental and Planning Law, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Cottbus, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_5

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was introduced with the entering into force of the Single European Act2 in 1987, even though partially environmental issues were already regulated by the European Economic Community, e.g. with the 1967 Directive on the handling of dangerous preparations.3 However, the generally accepted definition of sustainable development today requires action in all three pillars, not only concerning the economy but also environmental and social issues. The term sustainability dates back to the eighteenth century (Schmithüsen 2013), with a later manifestation of its definition in the Brundtland report, which stated that the needs of the present should be met “without compromising the ability of future generations to meet their own needs” (WCED 1987). This definition was confirmed by the EU in the first revision of the Sustainable Development Strategy of 2006; the earlier definition of 2001 still had a significant economic focus (Council 2006; EC 2001). In addition to the three pillar structure, definitions of sustainable development take three spheres into account: the inter-generational, the inter-continental and the inter-sectoral (Marhold and Meimeth 2009). With the Brundtland definition of the term ‘sustainable development’, the concept has been detached from purely environmental policies to an interdisciplinary approach. This shift can provide the opportunity to apply interdisciplinary action in organisations like the European Union, which maintains a strong focus on economic policies (Marhold and Meimeth 2009) but also has competences in all pillars and influence on all spheres of that definition. The policies of the EU still reflect its early focus on economic integration, while environmental and social aspects have found their place only gradually. Today, after the Treaty of Lisbon,4 the principle of sustainable development is referred to in four articles of EU primary law (de Sadeleer 2015). With attempts to implement the global SDGs, the EU has finally reached a place where a balanced approach between all three pillars is possible not only within the EU but on a global scale. The aim of this chapter is to provide insights on the integration of matters of sustainability in various fields of EU law and policy. This chapter further aims to provide an introduction to the implementation of the SDGs within the EU and the role the EU can play for the global success of the SDGs. Finally, this chapter will consider the role the EU plays in leading value chains towards more sustainability. The objectives of the chapter can, therefore, be summarised as follows: • Introduce the process of including environmental and sustainability aspects into primary EU law, • Explain the status of implementation of the Sustainable Development Goals in the EU;

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Single European Act [1987] OJ L 169/1 (amending Treaty Establishing the European Economic Community, 25 March 1957, 298 UNTS 11). 3 Council Directive 67/548/EEC on the approximation of laws, regulations and administrative provisions relating to the classification, packaging and labelling of dangerous substances [1967] OJ 196/1. 4 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed at Lisbon on 13 December 2007 [2007] OJ C 306/01.

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• Provide an overview of EU efforts to move towards sustainable value chains, using the production of seeds as an example. This chapter starts with a historical overview of the inclusion of Title XX on the environment in the Treaty on the Functioning of the European Union (TFEU)5 and matters concerning sustainable development in EU legislation. Here the focus will be the evolution of environmental policies; namely, that development is only sustainable if it stays within the ecological boundaries. Thus, environmental aspects and policy integration are key concerns (Sjåfjell and Wiesbrock 2014). The chapter will continue by looking closely at primary EU law and discuss the references to sustainable development in such sources of law. This discussion will show that all European legislation must consider aspects of sustainable development (see Art. 11 TFEU). Consequently, this is followed by EU policies concerning sustainable development, finishing with implementation efforts for the global SDGs. The chapter finishes with an overview of the EU’s contribution to sustainable global value chains.

5.2

Sustainable Development in the European Union

The development of sustainability policy is closely linked to the inclusion of environmental policy in European law and decision-making. This section will consider the development of the environmental pillar of sustainability in the EU. Not only did the official recognition of sustainability within policy-making take time, the environmental title was missing for a long time until it was formally introduced in 1987. Even an early version of the 2001 Sustainable Development Strategy refrained from a clear environmental agenda. The chapter continues with a look at the legal manifestation of sustainable development and the way legislation is reflected in policy and political strategy making. It will examine that sustainable development was and is used as a trans-sector approach to tackle not only environmental problems, but also energy security and transition, social inequalities, and climate change. This section concludes by looking at the SDGs and the way the EU is ensuring the implementation of the global goals.

5.2.1

Development of Environmental Policy in the EU

For the first few decades, the European Economic Community had just that: a purely economic focus, emphasising a common market, economic prosperity, and peaceful relations among member states. With the increase in the number of member states, the competences of the organisation increased as well. However, it was more

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accidental that the 1967 Directive 67/548/EEC on the classification, packaging, and labelling of dangerous preparations also considered environmental issues while actually intended to harmonise trade activities (Jans and Vedder 2012; de Sadeleer 2015). It was in the 1970s that environmental policy and sustainable development started to gain importance globally. On the international level, the 1972 United Nations Conference on the Human Environment in Stockholm resulted in a Declaration6 with 26 principles of development and the environment. Simultaneously, environmental events like ‘Waldsterben’—the damage to forests through acid rain—and the depletion of the ozone layer, caused civil society to get involved and become passionate and active in demanding environmental political decision-making (de Sadeleer 2014). It was also not until the year 1972 that European institutions paid specific attention to environmental concerns. The Commission of the European Communities started to recognise that economic development must be accompanied by the protection of the environment, stating that “in the European spirit special attention will be paid to non-material values and wealth and to the protection of the environment so that progress shall serve mankind” (Secretariat of the Commission 1972, p. 16). The Commission hereby emphasised the importance of environmental policy at the same time requesting the launch of the First Environmental Action Programme7 in 1973. The era of European environmental policy and research funding8 had begun. While still lacking a proper legal basis for environmental policy-making, directives like Directive 85/210/EEC,9 concerning the lead content of petrol, were created. Former Art. 100 EEC, intended for the creation of a common market, was utilised as a legal basis to essentially create environmental law (Jans and Vedder 2012). With the Single European Act entering into force in 1987, the first major revision of the Treaty of Rome10 from 1957, the member states not only created a single market but also officially added political cooperation to their agenda (Jans and Vedder 2012). The revised Treaty now for the first time included provisions specifically phrased to protect the environment, requiring the European Community to actively pursue environmental policies (Jans and Vedder 2012). The ADBHU Case11 of 1985, just prior to the Single European Act, emphasised that environmental protection is an objective of the Community. The Danish Bottles Case,12 on the

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U.N. Doc. A/Conf.48/14/Rev. 1; reprinted in 11 I.L.M. 1416 (1972). 1st Environmental Action Programme 1973–1976 [1973] OJ C 112/1. 8 Council Decision 73/126/EEC adopting a research programme for the European Economic Community on the protection of the environment [1973] OJ L 155/11. 9 Council Directive 85/210/EEC on the approximation of the laws of the Member States concerning the lead content of petrol [1985] OJ L 96/25 repealed by Directive 98/70/EC of the European Parliament and of the Council relating to the quality of petrol and diesel fuels and amending Council Directive 93/12/EEC [1998] OJ L 350/58. 10 Treaty Establishing the European Economic Community [1957] 298 UNTS 11. 11 Case 240/83 Procureur de la République v Association de défense des brûleurs d’huiles usagées (ADBHU) [1985] ECR 531. 12 Case 302/86 Commission of the European Communities v Kingdom of Denmark [1988] ECR 4607. 7

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other hand, states that the purpose of environmental protection when initiating a deposit system for containers is legitimate; however, this cannot be done at the cost of requiring all producers to adjust their manufacturing processes. This shows that the prioritisation of economic development was still present. However, the revised Treaty now included provisions requiring environmental action. Specifically, with Art. 130r to 130t, environmental provisions and a legal basis for environmental decision-making were now official. It took until 1993, when the Treaty of Maastricht13 entered into force, that “respect for the environment” was manifested in the Treaty (Art. 2) and the requirement that environmental policies were to be pursued was put in place. Now that the Lisbon Treaty has entered into force, Title XX (Art. 191 and following) of the Treaty on the Functioning of the European Union is dedicated to the environment. The number of EU secondary laws concerning environmental protection increased significantly, including concerns of biodiversity, air pollution, and climate change. Economic interdependence among member states has developed considerably over the past 60 years. Although environmental and therefore also sustainability concerns had a slow start, environmental concerns are now reflected as one of the main objectives of the European Union. The integration of environmental protection into the European treaty system was a challenging and long process. The social dimension has gone hand in hand with economic development and has therefore also been an integral part of the European Union’s priorities. For example, upon the signing of the Treaty of Rome in 1957, signatories agreed to the legal manifestation of the equal pay for women and men. Social aspects of sustainable development include for example labour rights, parental leave, paid vacation time, and paid sick days as well as education, here in particular access to education for everyone. Many of the areas are still largely left to the member states: decisions on education, apart from the Bologna Process14 and Erasmus scholarships,15 are up to the member states. And even though social equality, the decrease of the gap between rich and poor, and equal pay for men and women are still far from perfect, this chapter focuses on the environmental dimension.

5.2.2

Sustainable Development in European Law and Policy

After an overview of the introduction of the environmental component of European law and policy, this section will look at sustainable development as a whole within 13

Treaty on European Union, signed at Maastricht on 29 July 1992 [1992] OJ C 191/1. Initiated with the Joint Declaration of the European Ministers of Education convened in Bologna on 19 June 1999 (not published in the Official Journal) for setting up the European higher education area. 15 Regulation (EU) No 1288/2013 of the European Parliament and of the Council establishing ‘Erasmus+’: the Union programme for education, training, youth and sport and repealing Decisions No 1719/2006/EC, No 1720/2006/EC and No 1298/2008/EC [2013] OJ L 347/50. 14

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EU primary law. To conclude, this section will consider how sustainable development is implemented through strategies and political action.

Sustainable Development in Primary Law Primary law is the product of the EU member states; it was created and agreed on by them and all member states have willingly transferred some of their sovereignty to the EU. With that in mind, all member states have committed to sustainable development, as the following will show. The second amendment of the 1957 treaties, the Treaty of Maastricht, which entered into force in 1993, made the first reference to sustainable development by calling for “sustainable growth”; it thereby deviates from the Brundtland definition while at the same time failing to provide its own definition of sustainable development. The Treaty of Amsterdam16 of 1997 (taking effect in 1999) introduced the principle of sustainable development in the preamble, additionally Art. 2 EC has been updated to include a direct reference to sustainable development, calling for “balanced and sustainable development of economic activities”. While still having a clear focus on the economy, the terminology, much more thoroughly reflected the WCED’s definition. Sustainable development was thereby introduced as one of the goals of the European Community. The amendments during Nice17 in 2003 made no notable changes to the significance of sustainable development. The Lisbon Treaty, which was passed in December 2007, was the most recent amendment and has maintained sustainable development as one of the core goals of the EU. However, for the first time, the focus has shifted: Art. 3 of the Treaty on the European Union (TEU)18 no longer speaks solely of economic activities and thereby recognizes all three pillars of sustainable development as equal, which implicitly recognises the importance of environmental and social provisions. Generally, TEU refers in two places to sustainable development, namely in Art. 3 and in Art. 21. The TEU is constitutional in character: it manifests the competences of the EU, establishes and describes the EU institutions, and concerns itself with EU foreign policy in a total number of 55 articles. A third reference, and likely the most far-reaching if implemented consistently, is found in the second source of primary law, the Treaty on the Functioning of the European Union (TFEU) in Art. 11 TFEU (ex. Art. 6 EC). Art. 11 calls for the integration of sustainable development into all EU policy-making, establishing the so-called “integration principle”. The TFEU consists of 358 articles and includes rules concerning the decision-making procedures, legal instruments and the four freedoms. It also includes a title on the

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Treaty of Amsterdam amending the Treaty on European Union, the Treaties Establishing the European Communities and Certain Related Acts [1997] OJ C 340/1. 17 Treaty of Nice amending the Treaty on the European Union, the Treaties Establishing the European Communities and Certain Related Acts [2001] OJ C 80/1. 18 Consolidated Version of the Treaty on European Union [2010] OJ C 83/01.

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Table 5.1 Sustainable development in EU primary law Reference to sustainable development in primary law Article 3(3)–(5) TEU

Article 21(2)(d)–(f) TEU Article 11 TFEU Article 37 EUCFR

Key points Goals of the EU, sustainable development of Europe with balanced economic growth, sustainable development of the Earth Sustainable development in external relations, particularly targeted toward developing countries Integration Principle: integrates environmental protection and sustainable development in all EU policy-making Establishes sustainable development as a principle to be integrated into policy-making

environment (Art. 191 and 192 TFEU), as previously discussed. Finally, sustainable development is also referred to in Art. 37 EUCFR, the European Charter on Fundamental Rights.19 Art. 3 (3) TEU establishes that one of the goals of the EU is the sustainable development of Europe. It combines the economic, environmental, and also the social agenda of the EU by variously referring to the internal market, the improvement of the quality of the environment, as well as social justice and discrimination (Lenz and Borchardt 2012). Even cultural and linguistic diversity is mentioned, both aspects which might be justified additions to the concept of sustainability. The EU must take “all its objectives into account”, as stipulated by Art. 7 TFEU, meaning that a balance must be found between the three pillars of sustainability. As there is no clear definition of sustainable development in either primary or secondary law, van Hees (2014, p. 72) suggests guidance in this balancing act and proposes a workable definition where “sustainable development means stimulating and encouraging economic development (. . .) whilst protecting and improving important aspects (at the global and European level) of nature and society (. . .) for the benefit of present and future generation”. This definition points primarily toward sustainable development being guided by economic aspects while this economic development may only take the next step if the environmental and social aspects are addressed. While this definition does give a sense of direction as to how the balance is to be achieved, one must look toward Art. 11 TFEU, which pronouncedly emphasises environmental protection (Table 5.1). Art. 11 TFEU stipulates that “environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development”. So, it requires that the EU integrate environmental protection measures into EU policy-making, in order to contribute to achieving sustainable development. While there is a balancing between all EU objectives required and policy integration of those goals (Art. 7 TFEU), Art. 11 particularly emphasises that such balancing must be within the

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Charter of Fundamental Rights of the European Union [2010] OJ C 83/02.

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boundaries of sustainable development, with a special focus on environmental protection. As Art. 11 demands policy integration, the duty is put on the institutions to take on this task as legislators. The European Council gives impetus, general direction and priorities (Art. 15 (1) TEU) upon which law-making institutions act. The more the heads of state or government push for policy integration and therefore for considering sustainable development, the easier it becomes to have measurable results; however, the European Council seems to also be very much driven by geopolitical interests (Sjåfjell and Wiesbrock 2014). Concrete measures and the implementation of the integration principle of Art. 11, is the task of the law-making institutions (the Commission, the Council and the Parliament). With the right of initiative, the Commission has the unique opportunity to propose laws that will eventually lead to greater sustainability and truly emphasise the duty to integrate environmental matters. It is also the Parliament, involved in the legislative process, that must ensure that in cases where the balancing of the goals shifts too much away from integrating environmental aspects, significant changes are made and the act is not passed as such (Sjåfjell and Wiesbrock 2014). Sjåfjell and Wiesbrock (2014) and also Lenz and Borchardt (2012) argue that the integration principle is a substantive duty, as it is “an overarching goal” (according to Art. 3 TEU) of the EU and the wording “must be integrated” leaves no room for a different interpretation; therefore, legislation which does not sufficiently result in the effective protection of the environment should be rejected in the legislative process. Ultimately a strict implementation of the integration principle would lead to a review of existing legislation and the creation of new, more sustainable law-making. Additionally, the Court of Justice has taken quite an active role, allowing the EU to make secondary law in the field of criminal law for reasons of environmental protection and providing the opportunity to adopt environmental legislation under any legal basis, as long as the requirements of such are respected (Sjåfjell and Wiesbrock 2014).20 Furthermore, as the authority concerning treaty interpretation, the Court must ensure that their interpretation also recognises the limits of Art. 11. Treaty infringement procedures provide the opportunity to hold member states accountable for their failure to act: in a most recent example, the European Commission referred Germany and five other member states to the Court of Justice of the EU for failure to comply with nitrogen dioxide thresholds and for neglecting action to reduce periods of exceedance as much as possible.21 While the above has a mostly inner European focus, Art. 3 (5) TEU must be seen in direct relation to Art. 21 (2) (d) TEU. Where paragraph 5 calls for the “sustainable development of the Earth”, Art. 21 adds that sustainable development must be seen 20

The role of the institutions is discussed in Sjåfjell and Wiesbrock (2014) and Sjåfjell (2009), where there is reference to the respective case law. See C-176/03 Commission v Council and C-440/ 05 Commission v Council, as well as C-62/88 Greece v Council (Chernobyl I), C-300/89 Commission v Council (Titanium Dioxide) and C-440/05 Commission v Council. 21 Breach of Directive 2008/50/EC as regards the respect of NO2 limit values in Germany [2018], infringement number 20152073.

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as having a holistic, three-pillar approach and that EU efforts must be particularly focused on developing countries and the “eradication of poverty” within those countries (d). Art. 21 continues by requiring the protection of environmental and natural resources (f), assisting in disaster risk reduction (g) and encouraging cooperation and good governance (h) in combination with the SDGs of 2015. Those two articles establish the obligation of the EU for effective global assistance towards sustainable development in all three spheres of the definition. The above Articles are mostly concerned with establishing sustainable development as an objective; the preamble and Art. 37 EUCFR establish sustainable development as a principle. Whether in its character and application it can be compared to the precautionary principle, for example, is debatable. Based on Art. 3 (3) TEU, Art. 37, which refers to environmental protection, the term ‘environment’ is not further defined and can, therefore, be interpreted broadly. The interpretation is based on the definition of the EIA Directive,22 which yet again takes a holistic approach by including air, soil, water, climate, flora and fauna, as well as human beings (Lenz and Borchardt 2012). Art 9 TFEU specifically addresses the social pillar of sustainability and provides a relevant obligation for the EU, wherein the fight against social exclusion and the protection of human health is manifested. Social matters are, therefore, also a crosscutting task of the EU (Lenz and Borchardt 2012); however, social matters are characterised as being less far-reaching than environmental policy integration. This may partially be due to the fact that, on the one hand, economic growth and environmental protection automatically benefit matters of social well-being, while on the other hand, some competences are still at the member states discretion, for example human health. Overall, in this section, we have seen that European legislation does significantly address different aspects of sustainable development. Nonetheless, the attempts may not be sufficient: the seemingly unstoppable problems arising from climate change are the best example here. In the following, we will now look at the political or rather strategic concepts of the EU, which are designed to get a step closer to a satisfactory level of sustainable development.

Political Strategy Before the year 2001, the idea of sustainable development was primarily seen as a tool to reduce trade-offs between continued economic growth and the protection of the environment (Lee 2014). The implementation of primary law was mostly achieved in the form of policy and strategic goals, which were influenced by 22

Directive 2014/52/EU of the European Parliament and of the Council amending Directive 2011/ 92/EU on the assessment of the effects of certain public and private projects on the environment [2014] OJ L 124/1, the most recent amendment of the Council Directive 85/337/EEC on the assessment of the effects of certain public and private projects on the environment [1985] OJ L 175/40.

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international processes concerning sustainable development. Agenda 21 at the Rio Earth Summit of 1992, Rio+10 in Johannesburg and Rio+20, with its decision on the global SDGs, as well as the EU’s Environmental Action Plans of the early days, are the basis of political action towards a sustainable Europe (Streinz 2012).23 Agenda 21 of 1992, Section 2, Chapter 8.6 (d)24 calls for the development and adoption of a “national strategy for sustainable development”. As a result, the winter summit of the European Council in 1997 called on the Commission to develop and prepare a strategy on the matter of implementing Art. 11 AEUV (Art. 6 EC at the time) to start fulfilling this obligation. This resulted in the Cardiff process, “Partnership for Integration”, which was aimed at introducing horizontal policy integration of the environment as had been intended since the Single European Act in 1987 (EC 1998). The Cardiff document emphasises the need for recognising all aspects of sustainable development, calling for an integrated approach to the implementation of ex Art. 6 EC. Most relevant here is the identification of indicators in order to ensure effective monitoring. The European Council adopted the first “EU Strategy for Sustainable Development (SDS)” in 2001. The SDS embraces the Brundtland definition of sustainable development. Following the precautionary principle, it aims for a long-term strategy at all levels, which includes international cooperation, political leadership, and a fulfilment of international responsibilities (EC 2001). The 2001 SDS recognises six main threats to sustainable development, namely global warming, threats to public health, poverty, an ageing population, the loss of biodiversity, and transport congestion. The SDS sets its priorities on the following four key threats, focusing on climate change and the implementation of the Kyoto Protocol: public health, including food safety and the management of chemicals (reflected in REACH, Reg. EC/1907/2006), the responsible management of natural resources, the improvement of the transport system, and land use management (EC 2001). The performance of the SDS is monitored and regularly reported based on a set of indicators. On a member state level, the adoption of the strategy led to the establishment of Sustainable Development Councils; in Germany, the “Council for Sustainable Development” has been advising the government since 2001. This council also engages in indicator setting and monitoring, and it further initiates projects for the implementation of greater sustainability (RNE 2018). A first stocktake of the progress of the Cardiff process was conducted in 2004; it recognised that vertical environmental regulation has been quite successful and environmental policy integration is progressing; however, with respect to the expected effectiveness of the SDS, further visibility of the environmental pillar is required (EC 2004). The first stocktake also kickstarted the first revision process of the original SDS; this was marked by the launch of a public debate on the renewal of

For a detailed account of international developments, see Chap. 4 “From Stockholm to Paris: Four Decades of Sustainability in International Law” in this volume. 24 Agenda 21 [1992] United Nations Conference on Environment & Development Rio de Janerio, Brazil, A/CONF.151/26/REV.1. 23

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the strategy. Having reviewed the outcomes of the participation process, the revised strategy was published in 2006 (hereafter SDS 2006). Apart from environmental protection, other intergenerational responsibilities such as social equity and cohesion, as well as economic prosperity are clearly stated as goals, thereby yet again acknowledging the Brundtland definition of sustainable development (Council 2006). It is stated that economic development should go hand-in-hand with social cohesion, public health and fundamental rights, cultural diversity, and the eradication of poverty worldwide (Council 2006). Simultaneously, the European Council launched the Lisbon Strategy in the year 2000 to confront the new challenges of globalisation and the new knowledge-driven economy (para. 1) (European Council 2000). The strategy initially covered a 10-year period, with a focus on employment, economic reform and social cohesion, with the goal of making Europe “the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth” (European Council 2000). Overall, this strategy can be considered to cover the economic and social pillar of sustainable development. The environment is mentioned; however, it is always with a reference to social or economic matters. The Lisbon Strategy was succeeded by “Europe 2020: A strategy for smart, sustainable and inclusive growth”. Europe 2020 is characterized by five interrelated headline targets: employment, the increase in spending on research and development, the 20/20/20 climate targets, education, and poverty risk reduction. The targets have shifted from a social and economic focus to include a clear emphasis on social issues and an inclusion of climate goals (EC 2010). The strategy further defines seven flagship initiatives to help with implementation, one of which stresses the efficient use of resources to work towards a low carbon economy (Streinz 2012). The EU continuously monitors the progress made concerning the goals set in the various strategies. The first monitoring report was published in 2005, with detailed reports following every 2 years. The goals are tested against a set of 100 indicators, of which eleven have been identified as headline indicators. Socioeconomic growth is, for example, indicated by a growth of GDP per capita, and the 2005 reports describe favourable change towards achieving this goal. On the other hand, the conservation of fish stocks as a natural resource shows clearly unfavourable developments. The same is the case for the goal of improving global partnerships (which is directly taken from the phrasing of the MDGs, the Millennium Developments Goals) indicated by the level of development assistance, as in 2005 it proved insufficient (EC 2009b). The 2011 report already shows some improvements, particularly with regard to the climate change related indicators. The economic crisis prior to the report, however, makes it difficult to compare the results, as the focus has very much been on averting economic recession (EC 2011b). The 2013 and 2015 reports have continued the assessment, and results vary (Popova et al. 2013; Kurkowiak et al. 2015). For example, the 2015 report indicates that international development aid is still insufficient. The 2015 report is, for now, the last report in that form as a new reporting cycle has started and a revised set of indicators is used with the implementation of the SDGs, more on this topic in the next section.

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All monitoring reports clearly state that they do not give an absolute assessment of the level of sustainability of the EU and that there is no political or even scientific consensus. All reports, however, do aim to give an assessment of the progress of sustainable development, but this does not necessarily indicate the level of sustainability of the EU itself. The SDS 2001 generally acknowledges the Lisbon Strategy’s focus on economic and social aspects of sustainability, including the combating of poverty and social exclusion and dealing with the economic and social implications of an ageing society (EC 2001). The revised SDS 2006, with a review in 2009, has been one of the central sustainable development policy document of the EU (EC 2009a). Both strategies combined, the SDS with a long-term perspective and a focus on the quality of life, equity and coherence between varying policy areas, explicitly including environmental matters and the Lisbon Strategy with a medium-term focus, covering social and economic development are the basis for European sustainable development efforts (EC 2011b). So, although primary law does not provide a workable definition or practical information on how to implement sustainable development, the SDS, with all respective amendments in combination with the Lisbon Strategy and Europe 2020, provide guiding principles for progress towards sustainable development and embrace the Brundtland definition. The less detail is provided, the harder it is to ensure implementation, as on the one hand policymakers may be unsure of the requirements of sustainability policies, and on the other, citizens cannot hold the EU accountable for failure to act. Additionally, it is becoming more difficult to involve the private sector, as their goals and means of implementation are also unclear (van Hees 2014). The political strategies, therefore, provide an effective addition to primary legislation, ensuring a detailed account of the goals.

5.2.3

Towards Implementing the Sustainable Development Goals

Global trends progressed towards sustainable development in the early 2000s, particularly with the MDGs. The eight MDGs were directed towards changes in developing countries, demanding assistance from the developed world in achieving various goals, including the eradication of poverty and hunger, gender equality, and the initiation of a global partnership for development. The Rio+20 negotiations in 2012 marked the start of working on new, truly global goals for sustainable development for post-MDG action. The SDGs were developed by the UN as a follow up to the MDGs. They are the result of General Assembly Resolution 70/1: “Transforming our world: the 2030 Agenda for Sustainable Development” of September 2015. The goals took effect, according to paragraph 21, on 1 January 2016 for a duration of 15 years. The approach of Agenda 2030 differs significantly from that of the MDGs. The SDGs

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are directed at all countries and regions of the world. Clearly, the demand remains in which the developed countries help the poorer to achieve these goals through global partnerships, financial assistance, and capacity building. This time, however, all economies, society as a whole and the treatment of the environment is under investigation and is regularly monitored for progress towards sustainable development. The European Commission’s response to Agenda 2030 is the Communication “Next steps for a sustainable European future: European action for sustainability” wherein it is stated that the EU is committed to implementing the SDGs. The document includes two work streams for effective implementation of Agenda 2030. The first work stream integrates the SDGs into the European policy framework and the priorities of the Commission, additionally it includes a definition of the greatest sustainability-related challenges. The second work stream aims for an assessment of the long-term implementation of the SDGs by focusing on sectoral policies after 2020, this includes an allocation of the EU’s budget towards this goal. In addition to political integration and budget allocation is monitoring identified as a key to effective implementation (EC 2016c). The Commission further argues that the SDGs reflect existing commitments to sustainable development in the EU policy framework (EC 2016c). Here, the SDS and Europe 2020 complement each other in achieving a successful Agenda 2030. A most practical document is the staff working document accompanying the Commission’s communication. It provides a detailed overview of EU legislation and initiatives which contribute to the implementation of each of the SDGs (EC 2016a). For example, SDG 4 on “quality education” is reflected in the cohesion policy, the Youth Guarantee programme,25 and also in Erasmus funding. Education is also included in “Priority 1: a new boost for jobs, growth and investment” of the Commission. SDG 13 on “climate action” is reflected in the 20/20/20 climate goals and in the ambitious targets set for 2030 to reduce greenhouse gas emissions; additionally, “there is a political commitment of devoting at least 20% of the EU budget to climate action” (EC 2016c). This is to be done in a climate mainstreaming process that integrates climate spending in various EU programmes. The EU appears to be on track concerning this goal, with the latest assessment demonstrating a budget commitment of 19% (EC 2016b). Goal 15, “life on land” reflects the first nature conservation directives, namely the Birds Directive (2009/147/EC replacing 79/409/EEC) and the Habitats Directive (92/43/EEC), establishing the Natura 2000 network of protected areas, which now cover 18% of EU land. Finally, the EU’s efforts for a global partnership for sustainable development (SDG 17) have been deemed insufficient by previous progress reports with respect to the SDS. The global partnership success is primarily measured in effective international development assistance, the Commission’s communication announced a commitment of 0.7% of GNI as Official Development Assistance (ODA) by 2030 (EC 2016c). According to the first monitoring report, in 2016 about 0.51% was achieved, this may partially be due to the fact that

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refugee assistance within Europe within the first year of their arrival can to a certain level be counted towards ODA. Nonetheless, the EU appears to be on track. The first monitoring report published in November 2017 by Eurostat provides an overview concerning trends toward SDG implementation (Kurkowiak et al. 2017). The report makes use of 100 indicators for the 17 goals and 169 subgoals of the SDGs. 41 of those indicators are multi-purpose, meaning they are used for more than one goal. The EU SDG indicator set is based on the indicators for monitoring the SDS. As reporting on the SDS ended in 2015, the SDS indicators are now replaced with the SDG specific set (EC 2017). The monitoring reports consider progress for a 5-year period of time within short evaluation reports, while long-term reports consider the past 15 years (Kurkowiak et al. 2017). Overall, it is evaluated that the EU has progressed significantly concerning the following Sustainable Development Goals: good health and wellbeing (SDG 3), affordable and clean energy (SDG 7), sustainable cities and communities (SDG 11), responsible consumption and production (SDG 12), and life on land (SDG 15). For example, concerning SDG 7, the indicators of “energy productivity” or “greenhouse gas emissions intensity of energy consumption” (an example of a multi-purpose indicator) show that efforts seem to be going in the right direction. Only energy dependence has increased severely, with half of the consumed energy since 2004 being imported. Russia is the main supplier, accounting for approximately one-third of imports. When considering SDG 1, with the socio-economic goal of aiming to end poverty, the results are even dimmer. Whether it is the long or short evaluation periods, reports have shown that the EU has taken a step back, according to the indicator measuring “people at the risk of poverty and social exclusion”. The key indicator, that of housing costs, has shown that the situation has become more challenging (Kurkowiak et al. 2017). Progress toward achieving a Sustainable Development Goal does not mean that efforts should cease and that the goal has been achieved. Sustainable development is a process and whether this process will ever be complete is debatable. To conclude this section, early policies towards sustainable development with the revised SDS, the Lisbon Strategy and Europe 2020 have prepared the EU for the implementation of the SDGs. However, in order to effectively contribute to a successful Agenda 2030, the EU must revise its SDS yet again and adapt it in a way that it reflects most recent international developments. The 2016 communication including the overview of relevant legislation provided in the staff working document can be considered the first step toward SDG specific action. Member states called on the Commission to provide a clear roadmap by summer 2018 on how Agenda 2030 shall be reflected in all EU policy areas (Council 2017).

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Contribution to Sustainable Global Value Chains

The EU is one of the key players in the world economic system and the second largest economy per GDP (CIA 2018). This gives the EU bargaining power to influence other global players and global economic processes. So, one may ask, are the high standards that the EU set for itself concerning environmental protection and sustainable development automatically transferred to economic partners or stakeholders? This section will focus on the EU’s attempt to influence global value chains (for a definition of the term, see Sect. 1.1 of Chap. 1) and not only ensure the EU’s economic success during a time of competition and globalisation but also contribute to sustainable development.

5.3.1

The EU and Global Value Chains

Within the current trends in international economic regulation, much of the decisionmaking concerning sustainability is left at the discretion of businesses. The mandatory and voluntary approaches were competitive, but eventually, the voluntary one was accepted (Antypas and Paszkiewicz 2016). Instead of centralised steering from the government, businesses obtained room for self-regulation. Thus, the responsibility to a certain extent is stipulated by market rules and not by legal instruments. For example, inside the supply chain, each actor is not only responsible to the final consumer but also to the next actor in the supply chain. One actor may therefore not accept products of the previous if it does not adhere to certain sustainability standards. Often, such actors are located outside the borders of EU, which makes standard setting challenging. With a holistic approach toward making the global production and consumption cycles more sustainable, supply chains have obtained a unique status. The responsibilities inside the supply chains have become an inevitable part of reliable and responsible business conduct. With the objectives set under Art. 3 (5) TEU and Art. 21 (2) (d)-(h), the EU is interested, even obligated to be a central player in achieving greater sustainability worldwide. In other words, instead of regulating only EU-internal processes, there is the challenge of influencing the processes taking place outside the Union too. For the EU, it is important to ensure that its activities are conducted in an environmentally sound, sustainable way while pursuing economic growth. Thus, the two prominent cross-cutting strategies regulating the progression of sustainable development, the SDS and Europe 2020, as explained in the previous section, act as the yardsticks in this case (EC 2015a). Additionally, the SDGs must play a guiding role in the EU’s active pursuance of sustainable development efforts, both internally as well as externally (EC 2016c). In order to achieve the overarching goal of sustainable development, whether within Europe or worldwide (Art. 3 (5) TEU), global supply chains play a central

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role. This creates a paradox: the EU mandatory requirements do not cover non-EU countries, but to achieve sustainable development (inter alia the SDGs), there is a need for regulation of the whole supply chain, and the EU does not have legislative power or jurisdiction over the entire supply chain. The main document devoted to this matter is the Communication on Corporate Social Responsibility (CSR) COM/2011/0681, which encourages EU enterprises to incorporate the CSR instruments (EC 2011a). The Communication on CSR attempts to achieve the implementation on a purely voluntary basis; no reference to mandatory requirements is made. International business relations, particularly concerning sustainability, are characterised by voluntary rules, and businesses are recommended to function according to internationally-recognised principles and guidelines: OECD Guidelines for Multinational Enterprises, the ten principles of the United Nations Global Compact, the ISO 26000 Guidance Standard on Social Responsibility, the ILO Tri-partite Declaration of Principles Concerning Multinational Enterprises and Social Policy, and the United Nations Guiding Principles on Business and Human Rights (EC 2011a). The Europe 2020 strategy warns about the danger to the EU coming from supply chains: “Our economies are increasingly interlinked. Europe will continue to benefit from being one of the most open economies in the world, but competition from developed and emerging economies is intensifying” (EC 2010, p. 7). Thus, this economic threat is taken into account by the EU in one of its prominent strategies. Further, it is stated that “an open Europe, operating within a rules-based international framework, is the best route to exploit the benefits of globalisation that will boost growth and employment; at the same time, the EU must assert itself more effectively on the world stage” (EC 2010, p. 22). This implies that this assertive approach is also used for sustainability concerns. The Europe 2020 strategy also mentions the Flagship Initiative, “An industrial policy for the globalisation era”, which is intended to cover international value chains, from access to raw materials to the sale of the final product and even the eventual recycling of the product (EC 2010). Another relevant document on the EU’s position on global supply chains is the Trade for All—New EU Trade and Investment Strategy. According to EU Trade Commissioner Cecilia Malström, who prepared a foreword for Trade for All, “We will use future EU agreements to improve the responsibility of supply chains” (EC 2015b). In the provision 2.1.5 of Trade for All, it is underscored that “the Commission will make the best use of existing mutual administrative assistance and promote the use by the EU’s trading partners of authorised economic operators programmes to address risks in global supply chains” (EC 2015b). It follows that this will be achieved by more effective communication and international cooperation, particularly concerning the coordination between customs and authorities and the exchange of risk information. Additionally, worth noting are “the implementation of trade facilitation rules in the WTO and bilateral agreements” proposed (EC 2015b). Thus, concerning the business of self-regulation, the EU’s approach is to provide an appropriate background for private sector involvement in the achievement of the SDGs.

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In order to fulfil the EU Treaty obligation on sustainable development, the assistance of developing countries and the eradication of poverty (see Art. 21 (2) (d)), the EU has stimulated trade with Least Developed Countries (LDC’s), freeing them from all trade tariffs or quotas. Further, the EU has simplified its GSP (Generalised Scheme of Preferences), which provides tariff preferences to developing countries when exporting to the EU. Particularly, there are relaxations in the GSP’s Rules of Origin, trying to on the one hand simplify whether the product may enjoy preferential treatment and on the other to increase access to preferential export to the EU (EC 2016d). Thus, explicit activity around the regulation of supply chains and its shift towards more sustainability is stimulated within EU policy, communication and strategy. However, due to the fact that regulation of business activity is dependent on market rules and responsibilities inside the value- and supply chains, the EU elaborates in a mostly contextual manner and recommends policies and documents.

5.3.2

Seed Production

On the EU level, there are mandatory requirements for particular links within value chains. The example of seed production reveals that there are twelve directives regulating the marketing of seed and propagation material. But due to the fact that some of them date back to the 1960s and others to the early 2000s, they cover mostly the technical part of the issue: namely, the characteristics of seeds and certification requirements. Even though seed production can be characterised as being one of the very first steps in the value chain, a direct contribution to sustainable development is not stipulated. This problem is solved by mandatory requirements in EU legislation regarding the reporting procedure. Large companies are now obliged to expand their financial reporting to encompass sustainability issues according to Directive 2014/95/EU26 regarding the disclosure of non-financial and diversity information by certain undertakings and groups. Therefore, in Preamble of the Directive, the following is stated: Preamble (6) In order to enhance the consistency and comparability of non-financial information disclosed throughout the Union, certain large undertakings should prepare a non-financial statement containing information relating to at least environmental matters, social and employee-related matters, respect for human rights, anti-corruption and bribery matters. Such statement should include a description of the policies, outcomes and risks related to those matters and should be included in the management report of the undertaking concerned.

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Corporate activity with regards to the concept of sustainable development can be better understood and monitored by means of mandatory reporting. For strengthening of the entire supply chain, the approach must be broadened. For instance, as an outcome of the International Conference on the EU and Sustainability in Global Value Chains on 7 December 2015, an instrument of synergies was proposed. Namely, the goal was greater synergy between stages of production, trade activities, and proper placement within landscape conditions. In order to achieve this, the use of “trade agreements, investment, natural capital accounting, standards, transparency, traceability and partnerships” was prescribed (Ministry of Foreign Affairs 2015). Coming back to the example of seed production, the EU Commission was working on a draft of a new regulation concerning seed production and published it in May 2013; however, the draft was later withdrawn. The Commission intended to replace existing Directives with one complex and holistic act (EC 2013). Despite efforts of the Commission to reform existing legislation, the content of the draft can be considered as threatening, because it maintained the technical approach and did not deploy the matter of sustainable development, even though the environmental aspect of biodiversity was at least mentioned in the draft, this is confirmed by Noah (2015). To conclude this section, until the new holistic act is in place, seed production will be regulated by existing directives. Environmental protection is guided by mandatory requirements concerning information disclosure. However, marketdistinctive features do not allow expanding the “must” nature to the whole supply chain, whereas seeds stay right at the beginning. So, while part of the supply chain is regulated as long as it falls within the jurisdiction of the EU, sections from the outside and the supply chain as a whole are under voluntary regulation. The most drastic but also effective and unfortunately unfeasible path the EU could take would be to only allow products to enter the EU that fulfil certain sustainability standards (which would have to be defined in detail). Another would be full sustainability screenings of supply chains, something which would contribute significantly to global movements towards sustainable development.

5.4

Conclusions

To conclude, this chapter provides an analysis of the distinctive features of the implementation of the concept of sustainable development at EU level. Alongside the historical overview of the progression of the concept in terms of policies and legislation, the major references from the primary EU law are summarised. The realisation of various political strategies and attempts to implement the SDGs is put under the focus. The chapter concludes with an overview of the influence that the EU has on global value chains. The research revealed that the integration of environmental protection into the EU legislative tradition took time and effort, but current European legislation gives

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considerable credit to all three pillars of sustainable development. The approach of the EU is often interpreted as insufficient and with room for improvement, as in the field of combating climate change and matters of development assistance with regards to the global partnership target. The chapter further shows that when EU primary law is not sufficient, it is complemented by Sustainable Development Strategies, the Lisbon process, and now by the structured implementation of the SDGs, which all provide guiding principles. The political strategies, in this case, are very useful additional tools to achieve sustainability, as they formulate specific goals measurable with the set of indicators. In the realm of value chains, the EU legislation is limited in its influence because the actors within a certain supply chain are often located all over the world. Though the EU as a standard-setting institution affects global approaches, from a legal perspective it plays mostly a contextual and recommending role. Using the example of seed production in the EU, it was shown that only European actors are supposed to comply with mandatory requirements of the Union; however, market rules assist in regulating the responsibilities of actors. The EU not only has the economic and political power to contribute to sustainable development regionally and more importantly globally, it can also influence market processes towards greater recognition of the relevance of sustainability.

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European Council (2000) Lisbon European Council 23 and 24 March 2000: Presidency conclusions. http://www.europarl.europa.eu/summits/lis1_en.htm. Accessed 31 Jan 2019 Jans JH, Vedder HHB (2012) European environmental law: after Lisbon, 4th edn. Europa Law Publishing, Groningen Kurkowiak B et al (eds) (2015) Sustainable development in the European Union: 2015 monitoring report of the EU sustainable development strategy. Eurostat Statistical Books 2015 Edition. Publications Office of the European Union, Luxembourg. http://ec.europa.eu/eurostat/docu ments/3217494/6975281/KS-GT-15-001-EN-N.pdf. Accessed 31 Jan 2019 Kurkowiak B et al (eds) (2017) Sustainable development in the European Union: monitoring report on the progress towards the SDGs in an EU context. Eurostat Statistical Books 2017 Edition. Publications Office of the European Union, Luxembourg. http://ec.europa.eu/eurostat/docu ments/3217494/8461633/KS-04-17-780-EN-N.pdf. Accessed 31 Jan 2019 Lee M (2014) EU environmental law, governance and decision-making. In: Modern studies in European law, vol 43, 2nd edn. Hart Publishing, Oxford Lenz CO, Borchardt K-D (eds) (2012) EU-Verträge Kommentar. EUV - AEUV - GRCh, 6th edn. Bundesanzeiger Verlag, Köln Marhold H, Meimeth M (2009) Sustainable development in Europe. A comparative discourse analysis. Denkart Europa | Mindset Europe, vol 10. Nomos, Baden-Baden Ministry of Foreign Affairs (2015) EU and global value chains: how can European policies strengthen sustainable global value chains – outcomes of the sessions, Amsterdam, 7.12.2015. https://www.euandgvc.nl/documents/leaflet/2015/december/10/outcomes/. Accessed 31 Jan 2019 Noah A (2015) EU seed law: revision of the EU law on the marketing of seeds and plant propagating material. https://www.arche-noah.at/files/15-03-18_faq_en-1_iga_-_final.pdf. Accessed 31 Jan 2019 Popova M et al (eds) (2013) Sustainable development in the European Union: 2013 monitoring report of the EU sustainable development strategy. Eurostat Statistical Books 2013 Edition. Publications Office of the European Union, Luxembourg. http://ec.europa.eu/eurostat/docu ments/3217494/5760249/KS-02-13-237-EN.PDF/f652a97e-e646-456a-82fc-34949bbff956. Accessed 31 Jan 2019 RNE – German Council for Sustainable Development (2018) The Council. https://www. nachhaltigkeitsrat.de/en/the-council/. Accessed 31 Jan 2019 Schmidt VA (2006) Democracy in Europe: the EU and national polities. Oxford University Press, Oxford Schmithüsen F (2013) Three hundred years of applied sustainability in forestry. Unasylva 64 (240):3–11 Secretariat of the Commission – Secretariat of the Commission of the European Communities (1972) The first Summit Conference of the enlarged Community. Bull Eur Communities 5 (10):9–26. http://aei.pitt.edu/56272/1/BUL090.pdf. Accessed 31 Jan 2019 Sjåfjell B (2009) Towards a sustainable European company law: a normative analysis of the objectives of EU law, with the takeover directive as a test case. European company law series, vol 3. Kluwer Law International, Alphen aan den Rijn Sjåfjell B, Wiesbrock A (2014) The greening of European business under EU law: taking Article 11 TFEU seriously. Routledge, Oxford Streinz R (2012) EUV/AEUV, 2nd edn. C.H. Beck, München van Hees SRW (2014) Sustainable development in the EU: redefining and operationalizing the concept. Utrecht Law Rev 10(2):60–67 WCED – World Commission on Environment and Development (1987) Our common future. Oxford University Press, Oxford

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Eva Leptien is research associate at the Department of Public Law, with Focus on Environmental and Planning Law at Brandenburg University of Technology Cottbus-Senftenberg (BTU), Germany. Eva received a B.A. in International Relations and International Organisation from the University of Groningen, Netherlands and holds a M.A. in World Heritage Studies and a M.Sc. in Environmental and Resource Management from BTU. She currently pursues her Ph.D. in the field of international climate change law and policy. Her research interests include the implementation of international climate law in the EU and on national level, environmental and climate justice, climate change migration and sustainability policies. Department of Public Law, with Focus on Environmental and Planning Law, Brandenburg University of Technology Cottbus-Senftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Tel: +49 355 69 2033; Fax: +49 355 69 3057; Email: [email protected]; Internet: https://www.b-tu.de/fg-umweltrecht/. Ganna Mochalova is research assistant at the Department of Public Law, with Focus on Environmental and Planning Law at Brandenburg University of Technology Cottbus-Senftenberg (BTU), Germany. She graduated with Bachelor Degree from the Faculty of Law at Zaporozhsky National University, and obtained her LL.M. at Chernivtsi National University, both in Ukraine. She has 2 years of experience as a legal advisor in Ukraine and recently has obtained M.Sc. in Environmental and Resource Management from BTU. Among her scientific interests are international environmental law, corporate social responsibility, sustainability standards. Department of Public Law, with Focus on Environmental and Planning Law, Brandenburg University of Technology Cottbus-Senftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Email: [email protected]; Internet: https://www.b-tu.de/fg-umweltrecht/. Eike Albrecht is Head of the Department of Public Law, with Focus on Environmental and Planning Law since 2004 in the Faculty for Business, Law and Administration at the Brandenburg University of Technology Cottbus-Senftenberg (BTU). Among several other positions at BTU, he is Dean of this Faculty (since 2016), head of the postgraduate study programme “Forensic Sciences and Engineering (M.Sc.)” (since 2011) and head of the postgraduate study programme “Business Law for Technological Enterprises – M.B.L.” (since 2006). His scientific focus is environmental law, international environmental law, energy law and the law of technology, and he is author of numerous publications in this field. Department of Public Law, with Focus on Environmental and Planning Law, Brandenburg University of Technology Cottbus-Senftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Tel: +49 355 69 3428; Fax: +49 355 69 3057; Email: [email protected]; Internet: https://www.b-tu.de/ fg-umweltrecht/.

Chapter 6

Sustainability in Trade and Investment Agreements Evita Schmieg

6.1

Introduction

This chapter will examine the links between sustainability and trade, and explore how sustainability issues are dealt with in Free Trade Agreements (FTAs), with special emphasis on labour issues. Recently, the discussion of whether FTAs contribute to or rather undermine countries’ efforts to improve the sustainability of their economies has become very controversial. Sustainability issues have not been dealt with explicitly in Free Trade Agreements for a long time. Efforts by the US and the EU to put labour standards on the agenda of the world trade negotiations beginning in 2001 failed due to the resistance of developing countries. They feared at the time that the issue would be used for protectionist purposes only, and would hinder the use of their comparative advantages, namely their low labour costs. Since then, the discussion has changed fundamentally. Several related developments have contributed to this change. First, developing countries are now required to comply with a range of private standards adopted by large retail companies. Second, civil society and parliaments in industrialised countries, above all the US and the EU, increasingly demand that labour issues be included in bilateral and regional FTAs. The reasons behind this change include human rights concerns as well as demands from private companies for a ‘level playing field’ in globalisation, including common starting points with regard to labour standards and thus also labour costs. Third, the agreement on Sustainable Development Goals (SDGs) within the United Nations in 2015 set a new basis for economic relationships and asked actors at all levels of activity to take sustainability concerns into account. Fourth, the negotiations for the Trans-Pacific Partnership Agreement (TPP) between

E. Schmieg (*) SWP – Stiftung Wissenschaft und Politik (German Institute for International and Security Affairs), Berlin, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_6

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the US and Pacific countries on the one hand, and for the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU on the other hand, have led to an unprecedented level of public interest and debate on how FTAs contribute to (or undermine) national sustainability goals, rules and regulations, resulting in a level of uncertainty regarding the future of such agreements. Behind these discussions, it turns out, are more fundamental concerns about the effects of globalisation, all of which are linked to sustainability issues, especially social issues. During the current period of globalisation, inequality has increased in almost all countries. In industrialised countries, labour unions lost negotiating power, while capital was able to move freely through the world in search of the biggest profit. The debate about trade issues is thus embedded in a far-reaching discussion about how to strengthen sustainability issues in globalisation in general. Against this background, this chapter will look at the state of the art in integrating sustainability issues into FTAs, and will examine how much this corresponds with the objectives set in the SDGs. The chapter is structured in the following way: The next section studies what kind of policy changes the SDGs demand from trade policy on FTAs. Section 6.3 looks at the way sustainability issues are currently dealt with in FTAs: in preparation and implementation (Sect. 6.3.1), in the legal texts (Sect. 6.3.2) and what the results of these efforts to include sustainability in trade have been so far. The final section provides recommendations for better integrating sustainability issues into trade policy in order to fulfil the demands of the SDGs.

6.2

The Demands of the UN’s Sustainable Development Goals for Changes in Trade Policies

The UN’s SDGs, agreed upon in 2015 in New York, define the agenda to follow in order to transform the world and achieve sustainable development by 2030 (UN 2015). Within each of the 17 general goals are more specific targets that describe necessary action at all levels of society. Some targets are directly related to trade issues, others indirectly, but altogether their fulfilment would require changes in the approach to trade policy. The SDGs demand a strengthening of the multilateral trading system and the share of poor countries within it (“Promote a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under WTO”, Target 17.10). More specifically, Target 17.11 calls to increase the exports of developing countries with the aim of doubling the least developed countries’ (LDCs) share of global exports by 2020. Target 17.12 picks up a decision that was already made within the WTO in 2005, but that has not yet been put into practice. It asks for the “timely implementation of duty-free and quota-free market access” for LDCs, which would be a way to contribute to increasing their share in world trade. Although the LDCs’ share of world exports increased from 0.5% of total trade in 1995 to 1.1% in 2014, it is still far from the set goal (WTO 2015, p. 28).

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Policy coherence for sustainable development is dealt with under the SDGs on a general level (Targets 17.14 and 17.15), as well as in specific areas. In the context of trade negotiations, the issue of policy space has thus far been much contested between industrialised and developing countries. On the one hand, it is the objective of FTAs to guarantee a stable and predictable framework for trade, and this is only possible by setting binding rules and thus restricting policy space. On the other hand, policy space, or the flexibility to follow public policy objectives, is needed in pursuing legitimate sustainability concerns. As the SDGs are making reference to these conflicting objectives, they can serve as a reference point for FTAs. They will not, however, be able to bring more light into the discussion, since the indicator selected to measure progress only refers to the use of a country’s own frameworks for development cooperation, and thus circumvents the long discussion on the linkage of policy space with trade agreements that has been taking place within WTO, UNCTAD, as well as bilateral and regional trade negotiations. The SDGs call for integrating sustainability issues into the trading system by, for example, asking to “Ensure sustainable consumption and production patterns” (SDG 12) and “Conserve and sustainably use the oceans (. . .)” (SDG 14). Target 12.c asks for the rationalisation of inefficient fossil-fuel subsidies and Target 14.6 for the prohibition of certain forms of fisheries subsidies that contribute to overcapacity and overfishing. With regard to the latter, the African, Caribbean and Pacific (ACP) Group of countries brought a proposal to the WTO Ministerial Conference in Nairobi in 2015 for the restriction of fishing subsidies. So far, support from big fishing nations for taking up this issue is lacking. The current world trading system and the negotiations under the Doha Development Round since 2001 do not reflect the pressing issues of world trade today, amongst them aspects of sustainability or the compatibility of the trading system with climate targets (Schmieg and Rudloff 2016). There is currently no agreement within the WTO on how to proceed with the completion of the Doha Round or whether to pick up new issues. The demands of the SDGs might help to make further steps towards taking up sustainability issues in the WTO, even though this appears very difficult in the current period, which marked by profound mistrust in multilateral processes in general, hindering solutions within the WTO or other international fora. Another target of the SDGs for integrating sustainability issues in the WTO has already been successfully reached: Target b of SDG 2 (“End hunger, achieve food security and improved nutrition, and promote sustainable agriculture”) calls for the elimination of agricultural export subsidies. The Ministerial Conference of the World Trade Organization (WTO) had already decided to do so in December 2015. Export subsidies for agricultural products granted especially by industrialised countries, but increasingly also by emerging economies, have for decades been distorting world markets and hindering local production in poorer countries. This decision is therefore to be weighed as an important progression; even if—due to high agricultural prices and low official budgets—export subsidies have ceased to play such an important role in industrialised countries’ agricultural policies anyway.

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The formulation of the SDGs does provide helpful reference points for the future anchoring of labour standards in free trade agreements (FTAs) and, hopefully, in the WTO over the long term. Labour issues have played an important role in discussions on the negative effects that trade flows have on sustainability. Child labour in cocoa harvesting and chocolate production is one prominent example, and working conditions and fire safety in Bangladesh textile production another. Under SDG 8 (“Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”), Target 8.7 aims at ending forced labour and the worst forms of child labour, while Target 8.8 demands the protection of labour rights and promotion of safe and secure working environments. These are all elements of the core labour standards of the International Labour Organization (ILO). However, it is interesting to note that another ILO core labour standard is missing: the “freedom of association and the effective recognition of the right to collective bargaining” (ILO 1998). To that effect, only an indirect reference (labour rights) is made in the SDGs. The indicator that has been chosen to measure progress in the area is not very ambitious either, since it is designed to measure the frequency rates of fatal and non-fatal occupational injuries, thus referring only to the issue of labour safety. This might indicate a lack of international agreement on the better anchoring of freedom of association and collective bargaining. Services as a subject of trade agreements are also affected by the SDGs. Target 8.9, for example, aims at the promotion of sustainable tourism (see Chap. 31 of this volume for more detailed information on sustainable tourism and its effects on tourism-related global value chains). According to the WTO’s definition of the services trade, tourism is an important export product for many countries. For some, e.g. in the Caribbean, it is a major export product contributing a large share to the GDP. Tourism therefore plays an important role in the liberalisation schemes of the WTO, as well as under bilateral and regional FTAs. The SDGs thus have to play a role during the implementation of such agreements, as well as in negotiating new ones. Also affecting the services trade is Target 10.7, which asks to “facilitate orderly (. . .) migration and mobility of people” as a contribution to SDG 10 “Reduce inequality within and among countries”. In trade negotiations, developing countries have often underlined that their comparative advantage would be a large labour force. FTAs should therefore open up opportunities for the “presence of natural persons (. . .) to supply a service” (GATS definition, WTO 1995), balancing demands from the side of industrialised countries to open up for investment and capital, e.g. in the banking and insurance sector. In a wide interpretation, the formulation of Target 10.7 could therefore be understood as demanding a more balanced approach with regard to services negotiations between industrialised and developing countries. In FTAs, language often is included to support corporate social responsibility. SDG 12 “Ensure sustainable consumption and production patterns” demands in Target 12.6 to “encourage companies (. . .) to adopt sustainable practices and to integrate sustainability information onto their reporting cycle”. This could support demands to include respective wording in FTAs. Even if such language is often not binding, it can facilitate the discussion on and thus strengthening of these issues in societies.

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Sustainability Issues in Free Trade Agreements

It has long been contested whether or not FTAs and trade liberalisation contribute to sustainable development. With regard to economic sustainability, traditional economic theory came to the conclusion that trade liberalisation would contribute to growth since it led to an increase in efficiency. Often, however, this was in contradiction to empirical evidence, which showed that trade liberalisation can threaten and destroy local production and lead to long-lasting unemployment. Theoretical and analytical research of the 1980s and 1990s led to a range of qualifications of trade theory (Schmieg 2006) and built the foundation for intense discussion under the auspices of the OECD and the WTO on Aid for Trade since the beginning of the century (OECD 2016). A convergence of views led to the assessment that trade can contribute to sustainable development under certain conditions and if complemented by supporting policies in other areas, such as labour markets, social policies, infrastructure and education, and that development cooperation will support positive outcomes of trade policy in developing countries. Modern FTAs therefore aim at integrating sustainability aspects into the preparation, negotiation and implementation of agreements. The main instruments making specific reference to sustainability issues are (1) sustainability impact assessments, (2) sustainability chapters in agreements as well as (3) monitoring procedures during the implementation of agreements. The fundamental requirement for sustainable agreements is, however, that the substantive provisions of the agreement ensure compatibility with sustainability objectives. Box 6.1 Sustainability Impact Assessments in European Union Trade Agreements The European Commission conducts four main types of assessments and evaluations in support of major EU trade negotiations: an Impact Assessment (IA) at the initial design stage of a trade agreement; a Sustainability Impact Assessment (SIA) during the negotiations; an economic assessment of the negotiated outcome before the signing of the agreement; as well as ex post evaluations after implementation. SIAs complement EC’s IAs by allowing a more in-depth analysis of the potential economic, social, human rights and environmental impacts of the negotiated trade agreement, as well as by involving a wider range of stakeholders in both the EU and partner countries. The concept of SIA has been modernised in order to better reflect the objectives of the UN’s Sustainable Development Goals after discussion with stakeholders in 2016. SIAs consist of a robust analysis of the potential effects of the agreement in the EU, the partner countries and third countries, as well as a consultation process with stakeholders. SIAs are supposed to be integrated, comprehensive, independent (continued)

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Box 6.1 (continued) (done by external consultants), evidence-based, transparent, participatory and proportionate. Source: Handbook for Trade Sustainability Impact Assessments, 2nd Edition (EC 2016b). In the preparation of trade negotiations, ex ante sustainability impact assessments (SIAs) can play an important role in identifying social and environmental issues linked with trade and thus in laying the groundwork to take these concerns into account during negotiations (see Box 6.1). The European Union uses them as an instrument to provide the Commission with an “in-depth analysis of the potential economic, social, human rights and environmental impacts of the trade agreement under negotiation” (EC 2016b, p. 8) and to allow for integrating sustainability aspects into the agreements from the start. The instrument has been improved recently, but the improvements only take into account some of the aspects, which have been criticised (Schmieg 2015, 2016). So far, SIAs have not been taken seriously as an instrument of European Trade Policy, nor are they seriously influencing the outcome of trade policy negotiations—however, their quality would also not in all cases allow for that. Stakeholder participation in preparation of SIAs is rudimentary, and the finalised SIAs are not intensively discussed within the European Council or the Parliament and thus not really influencing policy decisions on free trade agreements. The new EU Handbook on SIAs from 2016 does not mention how the results of SIAs shall be taken into account in policy-making. Often, SIAs are prepared when the negotiating mandate for the European Commission is already agreed upon.

6.3.1

Criteria for Sustainable Free Trade Agreements

The basic requirement for the sustainability of an FTA should be that its substantive provisions are formulated in a way to ensure coherence with sustainability objectives and to ensure that the implementation of the agreement contributes to sustainable development in all aspects. Theoretical criteria have been developed in the context of the discussion on the EU-ACP economic partnership agreements (Schmieg 2015). These criteria should aid in achieving objectives for poverty-reduction, sustainable development and regional integration. These are: • Asymmetrical liberalisation combined with real market access for developing countries: Within free trade areas, all parties have to liberalise market access in order to make the agreement compatible with WTO law. However, poorer countries do not have the economic structures to cope with opening their markets

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•

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to the same extent as industrialised countries. A sustainable agreement has to take these factors into account. Safeguards and flexibility for developing countries: All FTAs contain safeguard clauses to deal with the situation of quickly increasing imports that threaten local production. For developing countries, it is important that these clauses are not too strict and that the hurdle to benefit from these formulations is not too high. Additional flexibility is necessary to allow for the protection of infant industries and to secure other important policy instruments like, for example, export taxes. Sustainability and development as cross-cutting themes: Almost all FTAs do contain sustainability chapters (see below). However, it is important that social and ecological issues are taken into account throughout the agreement, with relevant provisions in the chapters on investment, government procurement and services. Integration of ‘new topics’ in the service of sustainable development: Poorer countries in particular argue that the negotiation of so-called WTO+ issues like government procurement or competition is not in their interest. However, there are possibilities to include such topics in a way that could be conducive to sustainable development, as the agreement between the EU and the Caribbean countries from 2007 (EU-CARIFORUM Economic Partnership Agreement, CEPA) showed. First, the Caribbean side only made substantive commitments where these were clearly in its own interest. Whether the underlying assumptions were correct will of course only become clear in the course of implementation and monitoring. Second, commitments under the agreement are tied to the granting of Aid for Trade where the necessary capacities are not yet present. Thus, for example, the implementation of commitments on geographical indications is tied to support through development aid. Third, wherever possible, the agreement has been configured in such a way as to strengthen the regional integration process. Fourth, innovative arrangements are defined. For example, the chapter on investment contains requirements concerning the behaviour of investors. Fifth, other chapters regulate cooperation, information exchange, technology transfer and development cooperation (e.g. technical barriers to trade and SPS) without demanding substantial commitments (e.g. expanded market access) in return. Review and monitoring: Whether an FTA is really able to contribute to sustainable development has to be proven during implementation. However, to become aware of potential positive and negative consequences for the environment—e.g. if foreign direct investment in the mining sector following liberalisation and an FTA threatens the quality of drinking water or the compliance with international labour standards—it is necessary to closely monitor the implementation process. Monitoring thus has to be present in FTAs and should include the participation of members of the population and important groups, such as the private sector, trade unions, civil society and academia. In the context of the negotiations between the EU and ACP countries, this has proven to be a very political issue. However, broad participation in implementation is not just necessary to detect possible negative consequences. Broad awareness of an agreement within a society is also a basis for realising positive outcomes from the start, since this can only happen

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when actors know about and are interested in the FTA. The EU now generally foresees the monitoring of implementation for all trade agreements negotiated. • Consideration for regional integration agenda and contribution to integration: Most countries have reached several bilateral FTAs or are part of closer regional integration schemes. The interdependency of these should be examined when FTAs are negotiated. The potential impact of a possible EU-US trade agreement on Turkey is a good example, since Turkey adopts all EU external tariffs according to the EU-Turkey FTA. Turkey is, however, not participating in EU-US negotiations, even though it will be affected by the outcome. Other countries, including LDCs, would also be affected. Another example is the Economic Partnership Agreement of the EU with the Southern African Development Community, signed June 2016, under which the EU treats imports from South Africa differently than imports from the other members. It has to be ensured that this does not complicate intended progress with SADC integration in the long run. • Centrality of Aid for Trade: Developing countries need support in preparing, negotiating and implementing FTAs to ensure that they can contribute to sustainable development. They are often lacking the human and financial capacities that are necessary e.g. to analyse the impact of trade liberalisation in specific sectors, to formulate modern investment laws that ensure their right to regulate social, ecological and economic issues, and to ensure financial benefits for the country. Successful implementation requires the financial means for administration, parliamentary processes, and infrastructure to allow poorer countries to reap benefits from trade liberalisation. Aid for Trade is designed to support these processes. The EU-ACP Economic Partnership agreements innovatively combine provisions on trade liberalisation, reforms and institution building with an analysis of capacity bottlenecks and support through Aid for Trade.

6.3.2

Sustainability Issues Within the Legal Text of European Free Trade Agreements

Labour standards have been increasingly integrated into trade agreements since the international community adopted the ILO Declaration on core labour standards in 1998. The US and the EU also tried to introduce labour standards as an issue in the WTO negotiating round that started in 2001, but failed due to the resistance of developing countries. Since then, labour provisions have increasingly become part of bilateral and regional trade agreements: In 2016, out of 260 agreements notified to the WTO 76 included labour provisions. The inclusion of environmental issues in trade agreements has also increased substantially during recent years. In his paper on “Environment and Regional Trade Agreements”, Clive George (2014) points out that the incidence of substantive provisions has increased from around 30% of agreements up to 2010, to over 50%

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in 2011 and close to 70% in 2012. Among these provisions, those related to environmental cooperation were the most common type throughout the period analysed. However, for the most part, wording on environmental issues is not binding. In general, more substantive regulation is included for labour than for environmental issues, as the following examples will show. The Economic Partnership Agreement between the member states of the Caribbean Forum and the European Union (CEPA) (EC 2008) is an example of a far-reaching agreement with regard to normative provisions and legal implications where social issues are concerned. As with most agreements today, it includes a general chapter that establishes the goal of supporting all aspects of sustainable development, including economic, social and environmental aspects. It underlines the equal status of these three dimensions of sustainability, which is an important point of reference for implementing the agreement and for handling trade disputes that may arise. A “single focus on economic elements”, of the kind found in traditional FTAs, that pursues only the restricted objective of trade liberalisation “is no longer acceptable” (Zampetti 2011, p. 192). The agreement contains a specific chapter on ‘social aspects’ (Chap. 5), in which the parties reaffirm their commitment to the ILO core labour standards and the Decent Work Declaration (Art. 191). The right to regulate according to individual development priorities is affirmed (Art. 192). Partners are obligated to avoid encouraging foreign direct investment by means of lowering social standards (Art. 193). Reference is made to establishing social cohesion policies at a regional level (Art. 194), thus underlining the interdependence of social conditions prevailing within a regional integration scheme. Cooperation between the Parties is envisaged in a range of areas, including the exchange of information, cooperation in international fora, the formulation of legislation, educational and awareness-raising programmes, enforcement issues and the promotion of corporate social responsibility (CSR). The agreement establishes far-reaching consultation and monitoring processes (Art. 195) that are linked to the Consultative Committee, one of the institutions created to accompany the implementation of the CEPA. This Committee at the time was a truly innovative institution composed of civil society representatives and academics as well as social and business partners. Amongst other things, it has the right to submit recommendations to the Parties on social issues. The consultation process also allows the parties and the institutions to seek advice from the ILO. In case a matter is not resolved satisfactorily through consultations between the parties, a Committee of Experts will be convened, which has to present a report on the matter to the CARIFORUM-EC Consultative Committee. The Consultative Committee itself has the right to bring the issue to the Trade and Development Committee (TDC), which is the institution designed to carry out all practical work during the implementation of the agreement. A dispute on social issues can also be brought to the dispute settlement (Part III) if it has passed through the consultation processes, thus creating the possibility of legal enforcement. The provisions established thus make the social and environmental chapter of the CEPA legally binding, even though trade sanctions are exempted from possible action.

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The chapter on the environment (Chap. 4) is structured similarly. The Parties reaffirm that the principles of the sustainable management of natural resources and the environment are to be applied. Reference is made to the Cotonou Agreement, which deals with these as crosscutting issues. Reference to the Parties’ obligations in international conventions is also made, but none is mentioned explicitly. Cooperation is foreseen on aspects including, but not limited to, voluntary standards and the building of awareness in society (including the private sector). Two areas are identified for technical assistance, one being product standards, the other the implementation of multilateral environmental agreements in their trade-related aspects. The other provisions—the right to regulate, reference to regional integration, upholding levels of protection with regard to foreign direct investment as well as the consultation and monitoring process—correlate to those in the chapter on social issues. The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EC 2016a) also contains substantial phrasing on social and environmental issues, but without making them subject to the dispute settlement system. Sustainability issues are explicitly and comprehensively dealt with in the chapters on trade and sustainable development (22), trade and labour (23) and trade and environment (24). High value is placed on sustainable development with the formulation: “The Parties affirm that trade should promote sustainable development” (Art. 22.3.2). Reference is made to the core labour standards and the decision on decent work in the ILO, as well as to all important international agreements in the area of environment. The right to regulate is underlined, and the Parties commit to encouraging high levels of social and environmental protection and to not encouraging trade or investment by means of weakening social or environmental standards. The agreement foresees cooperation in a range of activities, similar to those in the CEPA. The CETA includes far-reaching institutional provisions to follow up on the chapters on sustainable development. A Joint Civil Society Forum shall be created to conduct a dialogue on the sustainable development aspects of the Agreement (Art. 22.5). The comprehensive chapter on trade and labour also establishes that each Party shall convene a new (or consult its existing) domestic labour or sustainable development advisory group, which should be comprised of a wide range of stakeholders, including employers, unions, labour and business organisations and others. These groups may submit recommendations on their own initiative. Disputes regarding the sustainable development chapters shall be dealt with initially through consultations, including with the ILO or other third parties. As a next step, a panel of experts may be requested for its opinion. A further transmission of unresolved cases to the dispute settlement system (as is possible under the CEPA) is not possible under the CETA. However, the agreement explicitly keeps the possibility open to amend the dispute settlement system of the social provisions under the agreement. It is thus possible to take up the issue for further negotiation in the future. In the case of the CEPA, so far, no dispute has been brought up. However, important preconditions are only now coming into existence that might help to

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identify critical issues: The Consultative Committee has only been established since the end of 2014 and the monitoring process put forth by the agreement had not yet been implemented as of the beginning of 2019. Therefore, only the future will show the strength of the agreement and its provisions.

6.3.3

Effects of Labour Issues in Free Trade Agreements

In the meantime, there is some evidence of the practical impact of the inclusion of social and environmental issues in trade agreements. Ebert and Posthuma (2011, p. 24) found evidence in some cases of an impact on the labour situation of participating countries. However, the effect seems to depend to a large extent on the presence of strong domestic social partners, with other factors being the dependence of the beneficiary country on market access as well as its own technical capacity for the remediation of problems. The effect of labour clauses in trade agreements has been analysed in detail by a study of the ILO (ILO 2016). Not surprisingly, at a highly aggregate level no effect on labour markets of countries participating these trade agreements could be shown, apart from an increase in the labour force participation rate. Case studies, however, show that a combination of technical co-operation, monitoring mechanisms and the participation of civil society groups based on labour clauses in trade agreements could contribute to improving the labour situation in specific sectors. This is also confirmed by research of the author of this chapter on trade clauses in Columbian trade agreements (Schmieg 2018b). In the case of Colombia, trade agreements with the US, the EU as well as Canada all include labour provisions in different forms. The EU agreement had furthermore been complemented by a resolution of the European Parliament demanding concrete progress in labour issues. This combined pressure, together with the political will of the Santos government to modernise the country, above all by also becoming member of the OECD, was able to contribute to concrete legal and administrative steps for the improvement of the labour situation in the country and some first improvements on the ground can be observed. However, support for the reform process through technical co-operation proved to be crucial for progress, since the administrative and financial capacities of the government are limited. Weak capacities are in general a severe hindering factor in all developing countries.

6.4

Conclusions and Recommendations

The Sustainable Development Goals (SDGs) concluded in 2015 provide a foundation for better integrating sustainability into trade issues in the future, since they serve as a comprehensive agenda and a reference point for underlining necessary action. However, in most substantive points the SDGs do not go beyond existing

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international consensus on how to better integrate sustainability issues into trade policy and how to ensure that international trade is contributing to sustainable development. The added value that they do bring is that they contain a comprehensive view of the links between trade and development. They also function as a set of guidelines for all institutions and at all levels for how to restructure international trade relations in a way that gradually creates a sustainable trading system. It will be important in the years to come to really create awareness of the universal need to implement the SDGs. So far, this has mainly been seen as a task for the development and environment ministries of governments. It will be crucial that all ministries, as well as public and private institutions, review their modi operandi in order to establish sustainable approaches. Sustainability chapters in free trade agreements (FTAs)—as much as they are discussed today—are only a second-best solution, since trade is not currently sustainable (Schmieg 2017). This is not the fault of trade agreements or the actors involved, but rather a logical result of production and consumption patterns, which are not sustainable. The real challenge is thus to bring about sustainability in production and consumption, as is demanded by the SDGs. In the interim (which will probably be very long), it is sensible to include sustainability provisions in trade agreements, as is increasingly done. Currently, social chapters usually contain more substantive provisions—beyond aiming at improved cooperation—than environmental chapters, with one reason being that international consensus on labour issues has developed further within the ILO than comparable discussions on environmental issues. However, there is still scope for improvement in how to deal with sustainability issues in trade agreements (Schmieg 2018a). One important issue is how to follow up on non-compliance. It is heavily disputed whether sanctions can increase the effectiveness of labour issues in free trade agreements. US agreements since the turn of the century mostly included the possibility of trade sanctions for violations against labour provisions included in the agreements. However, Guatemala had been the only case where the dispute was brought until the final stage and the result was not encouraging. After a lengthy process of altogether nine years, the dispute settlement panel came to the conclusion that indeed Guatemala did not implement its labour laws sufficiently, but that this had not been relevant for trade flows and sanctions thus were not possible. This perspective will hardly have a chilling effect for countries concluding trade agreements. Trade sanctions are, however, a double-edged sword in any case. Increasing tariffs as a trade sanction would mean less exports from the country infringing upon labour standards. This usually even leads to a worsening of the situation of labour within the respective country, which will typically be a developing country and thus the weaker partner in the agreement. Whether one judges this as a ‘positive’ result depends on the original objective of the labour clause. If this has been to create a ‘level playing field’ and to protect local producers from unfair competition, sanctions can be considered a useful instrument, but it is never suited to improving the situation of labourers in the partner country. This can rather be achieved by financial sanctions, especially when the fees imposed are used for financing projects to improve the labour situation. Such provisions are foreseen for example in the

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Canada-Columbia Labour Agreement which accompanies the trade agreement. Trade agreements should therefore only foresee financial compensation. Trade agreements can be better used for supporting the role of civil society in trade. More sustainable production and consumption patterns demand change in society, i.e. adapting norms and institutions. Sustainability clauses in trade agreements can support such change and ownership within countries regarding sustainability issues, if they strengthen the participation of civil society in negotiation and implementation of trade agreements. EU trade agreements request such change and Columbia is an example where a strengthening of participation could be achieved. The co-operation of trade unions in the EU and Colombia played an important role in that context. However, participation could be further strengthened by introducing complaints procedures in Free Trade Agreements, which would allow civil society groups to file complaints against enterprises which do not comply with the sustainability provisions of trade agreements. For coherence purposes, it would make sense to use the example of the national contact points for the OECD guidelines for multilateral enterprises, since the instrument is already plurilaterally agreed upon. Coherence should be ensured in the sustainability demands directed towards developing countries by larger trade partners. There is a danger that larger trade partners try to push through their own ecological and social standards. Therefore, demands usually should be based on internationally agreed rules, standards and regulations, as the EU is already doing by referencing the ILO core labour standards. But there is also a danger that bilateral trade agreements overburden partner countries with regard to procedures. When each FTA has its own action plan, dialogue processes and monitoring procedures—as is the case today—heavy demands are placed on partner governments’ financial and administrative resources, because parallel structures must be set up. A case in point is Colombia, which is engaged in an action programme on labour standards with the US, a Labour Cooperation Agreement with Canada, the trade and sustainable development (TSD) chapter of its trade deal with the EU and the European Parliament’s road map, as well as the road map on labour issues under the accession process to the Organisation for Economic Co-operation and Development. Each of these is linked to reporting procedures, meetings and conferences as well as missions from FTA partners/OECD, even though, luckily, the US action plan in those cases served as a reference point. It is therefore of utmost importance that trade policy and agreements avoid mistakes that development policy is trying to overcome. In 2005, donors agreed in the Paris Declaration on Aid Effectiveness that developing economies should define their own development paths, around which donor support should be aligned, better coordinated and simplified. If trade policy now expands into partner countries’ internal political processes—which have so far been part of development policy—they must adhere to those same principles. In practice, this would demand that trade agreement partners improve co-operation and ideally align around one national programme. In the case of labour standards, this could be designed and implemented with the ILO’s support.

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However, with regard to the linkage between trade and sustainability, additional work remains to be done. Sustainability Impact Assessments should be improved and actively used to provide better knowledge on the issues at stake. The ability of the trading system to contribute to sustainable development is dependent upon public support for trade policy. Currently, in many Western democracies there is heavy criticism of the effects of globalisation and trade liberalisation, as well as resistance to trade agreements. Part of the reason is that the strong belief in the beneficial effects of the market forces, which has dominated policies since the 1980s, led to governments neglecting the negative social effects of globalisation. A better integration of sustainability issues as well as transparent and participatory processes of policy formulation could help to increase public support for the economic openness of countries. At the international level, it is urgent to work towards a consensus on how to revitalise multilateralism and integrate concrete sustainability concerns in trade policy. Different fora—trade negotiations, international organisations such as the WTO, UNCTAD and ILO—as well as informal contacts should be used for revitalising multilateral institutions and processes. It is urgent to do so in order to achieve, as the SDGs demand, “an open, rule-based, predictable, non-discriminatory trading and financial system” that is the necessary basis for trade that contributes to sustainable development and which is currently under enormous pressure.

References Ebert FC, Posthuma A (2011) Labour provisions in trade arrangements: current trends and perspectives. International Institute for Labour Studies of the International Labour Organization, Geneva. http://www.ilo.org/wcmsp5/groups/public/%2D%2D-dgreports/%2D%2D-inst/docu ments/publication/wcms_192807.pdf. Accessed 31 Jan 2019 EC – European Commission (2008) Economic partnership agreement between the CARIFORUM States, of the one part, and the European Community and its Member States, of the other part. Official Journal of the European Union L 289/I/3. http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri¼OJ:L:2008:289:0003:1955:EN:PDF. Accessed 31 Jan 2019 EC – European Commission (2016a) Annex to the proposal for a council decision on the signing on behalf of the European Union of the Comprehensive Economic and Trade Agreement between Canada of the one part, and the European Union and its Member States, of the other part, Annex 1, COM(2016)444final, Strasbourg, 5.7.2016. http://ec.europa.eu/transparency/regdoc/rep/1/ 2016/EN/1-2016-444-EN-F1-1-ANNEX-1.PDF. Accessed 31 Jan 2019 EC – European Commission (2016b) Handbook for trade sustainability impact assessments, 2nd edn. Publications Office of the European Union, Luxembourg. http://trade.ec.europa.eu/doclib/ docs/2016/april/tradoc_154464.PDF. Accessed 31 Jan 2019 George C (2014) Environment and regional trade agreements: emerging trends and policy drivers, OECD Trade and Environment Working Papers, 2014/02. OECD Publishing, Paris. https://doi. org/10.1787/5jz0v4q45g6h-en ILO – International Labour Organization (1998) ILO declaration on fundamental principles and rights at work and its follow-up, adopted by the International Labour Conference at its Eightysixth Session, Geneva, 18 June 1998 (Annex revised 15 June 2010). http://www.ilo.org/decla ration/thedeclaration/textdeclaration/lang%2D%2Den/index.htm. Accessed 31 Jan 2019

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ILO – International Labour Organization (2016) Assessment of labour provisions in trade and investment arrangements, studies on growth with equity. ILO, Geneva OECD – Organisation for Economic Co-operation and Development (2016) Aid for trade. http:// www.oecd.org/trade/aft/. Accessed 31 Jan 2019 Schmieg E (2006) Theorie der Regionalen Integration – die EU und die Karibik. Ph.D. diss, University of Leipzig Schmieg E (2015) Trade and investment agreements for sustainable development? Lessons from the EU’s Economic Partnership Agreement with the Caribbean, SWP Research Paper 6. Stiftung Wissenschaft und Politik, Berlin. http://nbn-resolving.de/urn:nbn:de:0168-ssoar-439933. Accessed 31 Jan 2019 Schmieg E (2016) Business and human rights: towards a German action plan and EU trade and investment agreements. Great Insights 4(6):40–41 Schmieg E (2017) External trade policy and the sustainable development goals: implementing the SDGs will meet justified criticisms of globalisation, SWP Comments 39, October 2017. Stiftung Wissenschaft und Politik, Berlin. https://www.swp-berlin.org/fileadmin/contents/products/com ments/2017C39_scm.pdf. Accessed 31 Jan 2019 Schmieg E (2018a) Comment: TSD chapters in EU FTAs – fig leaf or necessary tool for SDGs? Borderlex.eu, 28.02.2018. http://www.borderlex.eu/comment-tsd-chapters-in-eu-ftas-fig-leafor-necessary-tool-for-sdgs/. Accessed 31 Jan 2019 Schmieg E (2018b) Labour clauses for sustainability? Colombian Trade Agreements Exemplify Potential and Limits. SWP Comment 15, April 2018. https://www.swp-berlin.org/fileadmin/ contents/products/comments/2018C15_scm.pdf. Accessed 31 Jan 2019 Schmieg E, Rudloff B (2016) The future of the WTO after the Nairobi Ministerial Conference, SWP Comments 12. Stiftung Wissenschaft und Politik, Berlin. https://www.swp-berlin.org/fileadmin/ contents/products/comments/2016C12_scm_rff.pdf. Accessed 31 Jan 2019 UN – United Nations (2015) Transforming our World: The 2030 agenda for sustainable development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1 WTO – World Trade Organization (1995) General Agreement on Trade in Services (GATS). https://www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm#4. Accessed 31 Jan 2019 WTO – World Trade Organization (2015) International Trade Statistics 2015. WTO, Geneva. https://www.wto.org/english/res_e/statis_e/its2015_e/its2015_e.pdf. Accessed 31 Jan 2019 Zampetti AB (2011) Environment, social aspects and institutional provisions. In: Zampetti AB, Lodge J (eds) The CARIFORUM-EU Economic Partnership Agreement: a practitioners’ analysis. Kluwer Law International, Alphen aan den Rijn, pp 179–198 Evita Schmieg is an Associate in Stiftung Wissenschaft und Politik (SWP – German Institute for International and Security Affairs), Europe Division, heading a project on external economic affairs and the international sustainability goals, funded by the German Federal Ministry for Economic Cooperation and Development. Before, she headed the Globalisation, Trade and Investment Division in the Federal Ministry for Economic Cooperation and Development. Her professional experience includes devising the concept on development cooperation and conflict prevention for German Development Cooperation as well working in the European Commission in Brussels. Her scientific research, lecturing fields and evaluation experience include international (WTO) and EU trade policy, the interlinkage between trade and sustainable development, regional integration in developing countries, private sustainability standards and their interlinkage with trade policy as well as human rights issues in trade policy. She is an economist by profession. Her Ph.D. in 2006 is on new trade theories, the economic theory of regional integration and the Economic Partnership Agreement EU – Caribbean. In 2001 she was included in the “Who is Who of the International Historical Society”. Stiftung Wissenschaft und Politik (SWP), Ludwigkirchplatz 3-4, 10719 Berlin, Germany; Email: [email protected]; Internet: https://www.swp-berlin.org/.

Chapter 7

Capacity Building to Promote Sustainable Value Chains: The ValueLinks 2.0 Methodology Andreas Springer-Heinze

7.1

Introduction

In recent years, the term ‘value chain’ (VC) has received great attention in international cooperation and development. Several UN agencies, international donors and private development initiatives have given value chains a central place in their efforts. The German development cooperation runs an impressive portfolio of development programmes and public-private partnerships that turn around specific products and markets (Kaplan et al. 2016). While the term value chain is well known by now (see example of a definition in Sect. 1.1 of the editorial chapter and Sect. 7.2.1 of this chapter), the concept and methods of value chain development are still new for many. While no one expects unfettered markets to lead toward the sustainability of global or domestic value chains, the question is how to interfere and at what scale. What’s more, the terminology and the approaches are not uniform. Besides ‘value chain development’ (VCD), other concepts such as ‘market systems development’ (The Springfield Centre 2015) pursue similar ideas. The differences are in the particular scope and thematic priorities. Nevertheless, some basic ideas are shared widely: one is that value chains (and market systems in general) are economic and political constructs. This implies that institutional factors drive the exchange of goods and services—long-term relations and contracts, business associations, private and public regulations—and mutual trust. Promoting a value chain is always a collaborative undertaking and we need social skills and institutional capacity to advance. If the design of functioning market systems is difficult, moving to a sustainable, green economy poses even greater challenges.

A. Springer-Heinze (*) Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Eschborn, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_7

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The aim of this chapter is to show the importance of value chain development for achieving the transition towards greater sustainability. The chapter starts by describing the significance of the value chain concept in Sect. 7.2. The failure of private enterprises to coordinate innovation and investment and the fact that public institutions often lack the understanding of economic change explains why the food sector and other industries stagnate in many poor countries. To overcome these constraints, private and public actors need to engage in a long-term capacity building effort to create the requisite structures of collaboration and governance. Section 7.3 introduces ValueLinks 2.0 as a methodology and a collection of tools contributing to this objective. The partners in value chain initiatives utilise ValueLinks to analyse the current structure of a chain, get strategic orientation and learn how to devise solutions for the different elements of the value chain system, from innovating the business models to agreeing on rules. ValueLinks does not provide a formula for the transition towards sustainability but rather offers a way of thinking on development. Section 7.4 creates the link between VCD and the movement promoting sustainability with voluntary standards. The final Sect. 7.5 ends the chapter concluding that we have to conceive the transformation towards sustainability as an endogenous process of institutional change.

7.2

Significance of the Value Chain Concept for Sustainable Development

In a functioning economy, businesses coordinate their activities. Before agricultural producers can successfully improve their farming practices and increase production, they first need to have access to the necessary production inputs, to financial services and to the marketing channels absorbing the additional production. Conversely, downstream processors and traders have no incentive to expand their capacity unless farmers deliver the right produce in the right quantities. Similarly, the suppliers and service providers to farmers will only adjust their range of products if they can be sure that farmers will actually buy from them. The different players depend on each other and they need to collaborate to have success. Coordination allows actors to specialise in the business activities that they know best and that they can perform most efficiently.

7.2.1

Value Chains Are Socio-Economic Systems

The term ‘value chain’ reflects the systemic nature of the economy. It denotes a particular subsector or industry in which different enterprises serve the same final consumer markets. A value chain is the sequence of related business operations, from the provision of specific inputs for a particular product to primary production, transformation, marketing, up to the final sale of the product to consumers. At the

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same time, it stands for the set of enterprises performing these operations i.e. producers, processors, traders and distributors of the product in question.1 In contrast to a ‘supply chain’ which always refers to one company only, the value chain is a concept describing the organisation of an entire subsector or industry, with few up to large numbers of enterprises at every stage of the chain. The performance and competitiveness of a value chain is a function of the division of labour between the enterprises serving a particular market and of their ability to pursue complementary innovation and investment strategies. We also observe a connection between private enterprises and the providers of support services. Private investment often requires complementary action from collective institutions and public agencies, such as facilitating the access to technology and education, providing physical infrastructure such as road links and utilities for investment locations, and other measures. The linkages in a value chain are primarily economic, but they constitute social and cultural networks as well, organising the common interest of businesses, the negotiation of political claims and facilitating the exchange of information, often transcending geographic boundaries. Therefore, a functional value chain is a ‘market system’2 that includes private companies and their relationships as well as the required supporting actors. Which actors make up a value chain is a matter of defining a system boundary. A natural boundary is around those who share a common interest in serving a particular market effectively. Figure 7.1 presents the basic scheme of a value chain. Value chain maps of real cases show the patterns of interaction between the actors and thus describe the economic structure in visual terms. Such maps can refer to different system levels—from an entire subsector of the food industry (or, in fact, any industry) to specific value chains on to smaller market systems within a chain. The systemic concept of the value chain draws on several theories on economic and social relations. One theoretical foundation is social network theory and the concept of ‘embeddedness’ (Granovetter 1985). Value chains depend on mutual trust, on personal relationships and on actors referring to shared cultural values. This is also true for food chains, where cultural embedding is specifically relevant.3 Another important theoretical concept is ‘governance’—which means the public and private regulations on technology, products and property rights on one side (often referred to as rule of law), and the private business linkages and contracts on the other (Gereffi et al. 2005). The private rules and relations between global companies and their local suppliers defining the type of governance in global value chains is also applicable to many domestic chains. A functioning market relies on trust, on the confidence of enterprises that the regulatory framework is stable and that the great majority of actors will abide by the rules.

1

See the glossary of ValueLinks 2.0 (Springer-Heinze 2018). A term closely related to the value chain, see The Springfield Centre (2015) and Campbell (2014). 3 See, for example, Brinkley (2017). 2

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Functional sequence (chain stages) Provision of specific inputs

Provide - Equipment - inputs

Production

Grow Harvest Dry etc.

Transformation

Classify process pack

Commerce trade

End Product

Transport distribute sell

Categories of operators and their linkages Input providers

Primary producers

Packers, industry

Traders

Market (consumers)

Fig. 7.1 Basic scheme visualising an agricultural value chain (adapted from Springer-Heinze 2018)

The value chain is not only an analytical concept; it also helps in better understanding development problems. Value chain structures do not always emerge spontaneously. The widespread economic stagnation in many poor countries, especially in Africa, has to do with the failure of farms and enterprises to work together effectively. If enterprises cannot obtain the services and inputs they need locally, they experience great difficulties in finding and keeping skilled people. Since they cannot rely on the legal rules, they are additionally not likely to innovate and invest. Dysfunctional value chains explain many economic development problems, such as a low degree of specialisation, low rates of innovation and persistent underinvestment (Rodrik 2004). Structural deficits lead to development traps, a well-known problem in development economics.4 Cooperation and regulation are particularly important for the move towards sustainability. Environmentally and socially sustainable development will not come about by market forces alone. We need rules that delineate the space for economic activities and prevent the destructive use of ecosystems. Green and inclusive value chains thus increase the need for cooperation further. An important point is the close interaction between private companies and the state. Private companies can only protect the natural environment and the ecological foundation of their own business if the rules of competition in an industry enable them to do so. In the absence of regulations, firms save on the cost of environmental management to gain advantages. On the other side, governments depend on private companies to formulate practical and effective policies. Often, the private sector has the best insight into sustainable production practices. Here again, social embedding and good governance count. 4 See the publications by Justin Lin, Dani Rodrik and Joseph Stiglitz (e.g. Lin 2012; Rodrik 2004; Stiglitz 2011; Stiglitz and Greenwald 2014).

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Value Chain Development Means Building Capacity

The value chain concept also provides a rich framework for a dynamic perspective on sustainable development and thus the creation of better performing economic structures. Value chain analyses are the basis for identifying levers. Value chain development is a conscious effort to address coordination failures and common environmental and social problems. Essentially, this means building the structure of the value chain. UNDP defines capacity development as “empowering and strengthening the endogenous capabilities” of the economy (UNDP 2009, p. 8). These endogenous (internal) capabilities imply several aspects when applied to the value chain framework. The first is the institutional capacity of a value chain embodied in the stability of its business linkages and in the chain of governance. Other aspects have to do with the organisation of the value chain for collective action and the continuous search for innovation. In a well-organised chain, the actors invest into shared arrangements. This can be a contract farming scheme to ensure a particular product quality, an agreement on quality standards for a consumer product, or environmental regulations for an entire industry. Development includes addressing problems of access to technology and inputs, to financing and supporting services systemically, i.e. with regard to the entire chain. Developing a viable business case goes hand in hand with improvements in public regulation and/or self-regulation of an industry. The interested public parties and the private chain operators realising investments have to agree on objectives. Any move to upgrade the business requires some collective action beyond the market mechanism. Therefore, industry associations and multi-stakeholder platforms are a necessary component of the institutional capacity in any industry. They foster win-win relationships wherever the value chain actors are stuck. Building the structure and capacity is a long-term evolutionary process. The objectives and strategy of VCD takes off from the current development stage. The levers for change differ based on the current structure of a sector5 and its level of maturity6 (Molenaar et al. 2015). An important consideration is the fact that economic development engenders a continuous learning process. Introducing better technology and creating new business models implies learning from others, adapting their knowledge or building on it to create new solutions. The point is that “the accumulation of knowledge is inherently associated with (positive) externalities” (Stiglitz 2011), as there are

Please refer to Sect. 11.4 in Chap. 11 of this volume for the introduction to the ‘Sector Shapes’ model describing the degree of sector organisation and professionalisation of producers in this sector. 6 For the in-depth discussion of the various ‘phases of maturity’, and how to achieve a market transition from one phase to the next, please refer to Chap. 21 in this volume. And for specific examples from the palm oil and natural rubber industries please see Chaps. 22 and 27 respectively. 5

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“knowledge spill overs” between economic actors. The interactions within and between enterprises enable them to learn. This idea immediately applies to the contacts within the business community and, more specifically, to the business linkages along a value chain. A value chain therefore is a platform for learning by doing. The capacity of the value chain as a whole grows with the capacity of the actors constituting it.

7.2.3

Conveying the Skills and Knowledge Needed

Developing a value chain presupposes that the stakeholders understand the idea of a (sustainable) value chain to begin with. If enterprises are able to engage in collaborative chain solutions to upgrade their business, this proves that the chain is already functioning. Continuous development and self-improvement needs a certain degree of chain organisation. Wherever this is the case, there is no need for external interventions. However, the capacity for self-organisation and learning is often limited. Stagnating value chains are trapped in a low degree of development because the actors are not even aware of what it takes to move forward. This leads to another meaning of value chain development—the external promotion of projects to assist collaborative value chain investments. The scheme in Fig. 7.2 shows the connection between the internal, endogenous development efforts and external value chain interventions. Always providing that the reason for stagnation lies in the inability of chain actors to overcome market failures, external initiatives can give an impetus by creating “capacity to build capacity”. The capacity

Fig. 7.2 Two levels of capacity and learning in value chain development (Source: Springer-Heinze 2018)

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to facilitate and push ahead with chain development rests in the support service providers and in the leading public agencies and private companies that belong to the industry in question. Value chain development thus takes place at two levels. The lower level in the scheme above stands for the learning loop of sharing the knowledge about sectoral economic development with leading chain actors who, in turn, take part in the upper learning cycle of continuous value chain development. Both levels need the same tools to analyse the structure of value chains and take decisions on the way forward. All stakeholders involved must understand the principles and processes of chain development. The lead actors require competence for the design and the management of appropriate value chain strategies. The external chain specialists at the lower level of the scheme need particular know-how on how to facilitate value chain development measures rather than substitute the missing coordination and collaborative action. The question is, then, how to create the requisite knowledge. Chain development methodologies must fulfil several demands. They should enable the common understanding of the ideas among all stakeholders, provide the framework for addressing the sustainability issues of an industry and offer tools that are easy to use in practice. At the same time, they should leave enough space to the lead actors and investors to act of their own accord. A broad range of tools is available. The following development agencies provide important internet-based collections of pertinent guidelines and studies: • The Donor Committee for Enterprise Development (DCED)7 • International Labour Organization (ILO)/VCD8 • The US Agency for International Development (USAID)/MarketLinks9 Several UN agencies and bilateral donors have come up with specific guidelines and methodologies (Donovan et al. 2013). These include, among others, the Food and Agriculture Organization (FAO 2014), The UN Industrial Development Organization (UNIDO 2011), the International Trade Centre (ITC), and the International Centre for Tropical Agriculture (CIAT) (Lundy et al. 2014). One of the manuals is ValueLinks, the methodology for sustainable value chain development developed by GIZ in the context of programmes funded by the German government.

7 www.value-chains.org is a large database of documents from development agencies, on topics around VC development, private sector development and business services. 8 The website presents the work of ILO on VC development and has key documents and guidelines, see: www.ilo.org/empent/areas/value-chain-development-vcd/. 9 https://www.marketlinks.org is the new title of USAID’s collection of documents and experience in food chains and market facilitation.

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ValueLinks 2.0: A Methodology for Sustainable Value Chain Development

The first version of ValueLinks was published as a manual in 2007 and has been used as the basis of training courses and advisory work in numerous value chain development projects since then. Recently, GIZ published a new version of the manual— ValueLinks 2.0—building on years of experience and debate (Springer-Heinze 2018). The revised version is significantly larger and provides concepts and tools on a wide variety of economic, environmental and social issues in chain development.

7.3.1

Objectives and Principles of ValueLinks 2.0

The target group for ValueLinks are the public and private lead actors in value chain development. These include government agencies and large companies, private associations and standards initiatives as well as development agencies. Many actors participating in VCD initiatives will benefit as well. The methodology has been conceived as an approach and a structured collection of tools to choose from. ValueLinks 2.0 does not advocate any particular procedures and solutions but offers a way of thinking that builds on a set of key principles. The first of these is a clear commitment to the goals and values of the UN sustainable development agenda: value chains must make the transition to a green and inclusive economy. Second, ValueLinks understands that value chains are dynamic, self-organising systems. Development will always be the result of collective action in an open-ended process that no one can fully anticipate. The value chain system provides the intervening actors and development programs with a common reference. Value chain development is path-dependent: the potential impact of promotion and the change that is possible in any given time depends on the starting conditions. Therefore, every value chain initiative must choose its level of ambition carefully. The point is to make the right move in the given situation, even if it is only a small step and a partial solution. This implies managing the expectations of policy makers accordingly. Finally, ValueLinks 2.0 seeks the compatibility with other VCD methodologies. The idea is to provide strategic orientation, not a blueprint for value chain development or any prescriptions of what stakeholders should do. The point is to deliver a contribution alongside others. The users and the partners should be able to choose among tools from different sources freely.

7.3.2

Structure and Content

ValueLinks is a systematic compilation of methodological knowledge, concepts and tools to inform the utilisation of the value chain approach in sustainable development. The structure is in four columns and eleven modules as shown in the following overview (Fig. 7.3; see also Springer-Heinze 2018).

7 Capacity Building to Promote Sustainable Value Chains: The ValueLinks. . . Value chain analysis and strategy

Setting boundaries

1 Scope of

2

value chain development

3

Value chain analysis

Value chain solutions

5 Business models

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Information management

11 Managing data & monitoring

6 Business linkages Value chain strategies

4 Programs and projects

7

Services

8 Value chain financing

9 Quality and standards

10 Policy instruments Fig. 7.3 Structure of ValueLinks 2.0 (Source: Springer-Heinze 2018)

The first column sets the stage, with module 1 providing the criteria to define the scope of a value chain as a unit of analysis and area of action. This includes determining the development potential. The second column is the core of the methodology. It contains analysis tools to determine the current structure and performance of a value chain in module 2 and the tools to explore strategic options for development in module 3. Both modules structure the respective expertise according to the economic, environmental, and social dimensions of sustainability. ValueLinks has come up with nine strategic options for entering a pathway of sustainable growth. Growth strategies focus on technological and structural upgrading and correcting market failure problems. Environmental and social strategies look to resource efficient, green, and socially inclusive business models, and for an improved sustainability governance of the value chain and of the natural resources it relies on. Users can elaborate and combine these options flexibly. Module 4 places development initiatives and projects into the focus. It takes the position of the public and private lead actors planning and implementing concrete development measures. This includes project formats and tools for cooperation, steering, processes management, and learning. The module makes it clear that development initiatives can only make partial contributions to value chain development, confined by their scope, resources, and timeline. The third, largest set of modules deals with possible innovations and solutions for the different elements of a value chain. Module 5 starts with the operators—the building blocks of the value chain—and presents tools for the design of business models that respond to the market and to the regulatory context. Module 6 covers the appropriate linkages between the operators, including cooperative action. The following modules 7 and 8 deal with service arrangements and financing solutions at

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the micro level. The regulatory framework, i.e. quality and sustainability standards and policy regulations follow in modules 9 and 10. The business models are a cornerstone, as every chain innovation must furnish proof that it is technically feasible and financially viable. The final module is the management of data and information, especially for evaluation purposes. ValueLinks is being used to create capacity for value chain development. To be useful and effective, it has to be accessible. Several communication channels spread the expertise: the manual and a selection of materials is available for free download on the website www.valuelnks.org. Trainers and advisors are organised in the International ValueLinks Association e.V. and are available for sharing their knowledge and experience. It is an important principle of ValueLinks that the methodology remains open to revision and that users can combine it with instruments from other, compatible guidelines.

7.4

Sustainability Standards and Value Chain Development

Value chains play an important role in the world of sustainability standards, as most standards refer to globally traded commodities, and hence to global value chains (Schmitz-Hoffmann et al. 2014; ITC 2017). The obvious question is how the promotion of standards relates to value chain development. Certainly, the improvement of the regulatory governance is an important chain strategy to secure environmental sustainability and social justice. ValueLinks 2.0 advocates market regulation and the introduction of voluntary sustainability standards (VSS) as a key solution in module 9. In fact, the concept of a standard system fits well into the value chain. It is an institutional arrangement that builds on a multistakeholder agreement on sustainable practices in an industry and embraces services for accreditation and verification. A standard system shapes the business linkages between the operators because the flow of certified products is documented in a chain of custody. It often implies the horizontal cooperation of farmers as well. In a sense, introducing a sustainability standard system is emblematic of the capacity building nature of value chain development. In fact, standards are an important component in any strategy for chain development. Introducing VSS has positive impacts on other aspects of the value chain as well. Because standards imply coordination between actors, value chains following sustainability standards are almost inevitably better organised. Reversely, the movement promoting sustainability standards benefits from a broad view of economic structure and development (Molenaar et al. 2013). Reviews of the state of the art in VSS (Molenaar et al. 2015) show that the coverage and market share of VSS differs considerably between sectors.10 Standards

10 For the in-depth discussion on sustainable sector transformation please refer to Chaps. 11 and 21 in this volume; see also http://sectortransformation.com/.

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have gained high relevance in agricultural export commodities, such as coffee, due to favourable conditions. Intervening factors are end market demand for globally traded commodities and the presence of large companies that subscribe to the objectives. Where the degree of chain organisation is already favourable, the use of standards can spread rapidly. The fragmentation of chains, a weak connection to consumer markets and other critical factors hamper the transformation and often limit the use of standards to niches. Possible factors limiting the application to groups of producers are production costs, the average size of enterprises and the availability of technical and financial services, especially in smallholder-dominated tropical food chains. Another point is the complexity of products and production processes. Standards can only (and should only) regulate a limited number of parameters. Overly detailed criteria make the use of standards too cumbersome and reduces their effectiveness. Product-specific standardisation is thus more difficult for processed foods, in furniture, and garments than for the raw materials that go into these products. Regulatory solutions for (semi-)industrial VCs need better environmental laws and social regulations, such as the ILO labour norms. The effectiveness of VSS strategies differs between value chains. Introducing a voluntary standard thus has to clarify the overall development conditions in a VC. The strategy for sustainability transformation most likely will have to include solutions that are not regulatory in nature.

7.5

Conclusions and Recommendations

Sustainable development is about creating economic and social structures. An important concept for describing and analysing these structures is the value chain, networks of enterprises serving particular consumer markets. The value chain concept ties in well with current development thinking, which sees economic development embedded in social relations, rules and institutions. To become practical and effective, private and public leaders must translate theoretical insight to concrete measures. It is very important to keep in mind that the capacity for value chain development is endogenous and a function of the existing chain structure. It falls on the lead firms, the other enterprises and publicprivate partnerships to promote the upgrading of a chain. Therefore, we distinguish the endogenous capacity for sector transformation from external chain development projects that focus on facilitating and informing the chain actors so that they share the understanding and can become active. The chain concept is also relevant for the world of standards. Promoting voluntary sustainability standards is a good starting point but needs parallel strategies to achieve a comprehensive transition of value chains. The systemic nature of the value chain counts, including viable business models and the access of enterprises to financing and to the required services.

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References Brinkley C (2017) Visualizing the social and geographical embeddedness of local food systems. J Rural Stud 54:314–325 Campbell R (2014) A Framework for Inclusive Market System Development. Leveraging Economic Opportunities (LEO) Project Brief, USAID. https://beamexchange.org/resources/105/. Accessed 31 Jan 2019 Donovan J, Cunha M, Franzel S, Gyau A, Mithöfer D (2013) Guides for value chain development: a comparative review. CTA and World Agroforestry Centre, Wageningen. https://publications. cta.int/media/publications/downloads/1746_PDF.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2014) Developing sustainable food value chains: guiding principles. FAO, Rome. http://www.fao.org/3/a-i3953e.pdf. Accessed 31 Jan 2019 Gereffi G, Humphrey J, Sturgeon T (2005) The governance of global value chains. Rev Int Polit Econ 12(1):78–104 Granovetter M (1985) Economic action and social structure: the problem of embeddedness. Am J Sociol 91(3):481–510 ITC – International Trade Centre (2017) The State of Sustainable Markets 2017: statistics and emerging trends. ITC, Geneva Kaplan M, Bettighofer S, Brüntrup-Seidemann S, Noltze M (2016) Landwirtschaftliche Wertschöpfungsketten. Deutsches Evaluierungsinstitut der Entwicklungszusammenarbeit (DEval), Bonn Lin JY (2012) New structural economics: a framework for rethinking development. The World Bank, Washington, D.C. Lundy M, Amrein A, Hurtado JJ, Becx G, Zamierowski N, Rodriguez F, Mosquera EE (2014) LINK methodology: a participatory guide to business models that link smallholders to markets. Version 2.0. Centro Internacional de Agricultura Tropical (CIAT), Cali, Colombia. http://hdl. handle.net/10568/49606. Accessed 31 Jan 2019 Molenaar JW, Kessler JJ, El Fassi M, Dallinger J, Blackmore E, Vorley B, Gorter J, Simons L, Buchel S, Vollaard B, Heilbron L (2013) Building a roadmap to sustainability in agrocommodity production. Aidenvironment, IIED, NewForesight. http://www.aidenvironment. org/media/uploads/documents/201310_IFC2013_Building_a_roadmap_to_sustainability_ Phase_I_report.pdf. Accessed 31 Jan 2019 Molenaar JW, Gorter J, Heilbron L, Simons L, Vorley B, Blackmore E, Dallinger J (2015) Sustainable Sector Transformation: how to drive sustainability performance in smallholder-dominated agricultural sectors? White paper 1, commissioned by IFC, published by Aidenvironment, NewForesight and IIED. http://pubs.iied.org/pdfs/16584IIED.pdf. Accessed 31 Jan 2019 Rodrik D (2004) Industrial policy for the twenty-first century. John F. Kennedy School of Government, Harvard University, Cambridge. http://j.mp/2nRcNXi. Accessed 31 Jan 2019 Schmitz-Hoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) (2014) Voluntary standard systems: a contribution to sustainable development. Natural Resource Management in Transition, vol 1. Springer, Berlin, Heidelberg Springer-Heinze A (2018) ValueLinks 2.0 – manual on sustainable value chain development, vols 1 and 2. GIZ, Eschborn. http://valuelinks.org/manual/. Accessed 31 Jan 2019 Stiglitz JE (2011) Rethinking development economics. World Bank Res Obs 26(2):230–236 Stiglitz JE, Greenwald BC (2014) Creating a learning society: a new approach to growth, development, and social progress. Columbia University Press, New York The Springfield Centre (2015) The operational guide for the making markets work for the poor (M4P) approach, 2nd edn. https://beamexchange.org/resources/167/. Accessed 31 Jan 2019 UNDP – United Nations Development Programme (2009) Capacity development: a UNDP primer. United Nations Development Programme, Bureau for Development Policy, New York UNIDO – United Nations Industrial Development Organization (2011) Pro-poor Value Chain Development: 25 guiding questions for designing and implementing agroindustry projects. United Nations Industrial Development Organization (UNIDO), Vienna

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Andreas Springer-Heinze is a Senior Planning Officer at Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) in Eschborn, Germany. He holds a PhD in agricultural economics and has extensive experience in methodologies for sustainable development. Covering the topics of rural economic development and value chains, he works as a programme advisor, project planner, trainer and facilitator in Sub-Saharan Africa, South and South-East Asia as well as Latin America. The focus is on strategies for sustainable value chain development, inclusive business models, services, and market facilitation. He is the author of the ValueLinks methodology on value chain development. In the past 14 years, he has conducted numerous training seminars in a variety of value chains, mainly related to agribusiness and bio-trade, but also in handicrafts, small-scale manufacturing and tourism. In 2009, he founded the International ValueLinks Association e.V., together with colleagues engaged in value chain work. Division Climate Change, Rural Development and Infrastructure, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Eschborn, Germany; Email: andreas.springer-heinze@giz. de; Internet: www.valuelinks.org.

Chapter 8

Towards Mandatory Sustainability: Recent Lessons from Germany Robert Atkinson

8.1

Introduction

The aim of this chapter is to discuss the general feeling in German industry and business sectors that the concept of sustainability is gradually moving from voluntary to mandatory. The German government is increasingly becoming directly involved in the day-to-day business operations, particularly in the fields of sustainability. As a result, the burden of compliance for companies is growing rapidly. The chapter asks the question “is sustainability becoming mandatory in Germany?” and answers this by drawing together the author’s experience-based evidence from working with a broad range of industrial and business entities in the fields of large industrial facility licensing, technical due-diligence and corporate social responsibility; as well as the development of workplace safety, quality, environmental and energy management systems. Traditionally, sustainability has been a strictly voluntary concept. In fact, when drafting the international standard 26000—Guidance on Social Responsibility, the International Organization for Standardization (ISO) decided that the aim was to operationalise social responsibility by shifting the focus toward performance improvement and that setting concrete requirements would be contra to the spirit of this aim. Other systems such as the German Sustainability Codex (DNK) and the Global Reporting Initiative (GRI) also remain strictly voluntary, although they do include scoring mechanisms. Part of the reason for these decisions is that sustainability programmes in isolation are able provide enough tangible benefits to forgo the need for further reward schemes, as presented in Sect. 8.3 of this chapter. Section 8.4 goes on to discuss the available legislative tools for promoting sustainability with a particular focus on the developments in Germany. It also presents the idea that the more effective the tool, the more difficult it is to implement R. Atkinson (*) GUT Unternehmens- und Umweltberatung GmbH, Berlin, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_8

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and that general societal acceptance of the tool’s goals set a limit for the level of legislative action. In Sect. 8.5 two brief examples of current developments in Germany are discussed. The conclusions of the chapter, showing the synergies between the benefits of sustainability and the legislative developments, are drawn in Sect. 8.6.

8.2

Clarification of Terms

In the current political and economic climate, terms such as sustainability and sustainable development are lacking in clarity. While it is accepted by most that the concept of sustainability is supported by three pillars: environment, society and economy; the individual weighting of these aspects seems to be extremely fluid. Corporate entities tend toward a focus on the economic pillar, whilst using yearly sustainability reports to flaunt minimalistic social and environmental activities. Activist and political groups on the other hand often present sustainability as a decentralised form of micro-development, which equates to an antonym of neoliberalism and globalisation. For the purposes of this chapter the definition given by the Bruntland Report will be used, that is: “Sustainable development seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future” (WCED 1987, p. 40). It is important to note that this definition sees the aforementioned pillars as equal and interconnected. A further important concept for this chapter is Corporate Social Responsibility (CSR). CSR, also referred to as Corporate Governance, Corporate Citizenship or Corporate Responsibility, is a form of internal regulation, which functions as a set of ethical guidelines for business activities. While originally focusing predominantly on the social context of business decisions the concept has developed through numerous iterations to reach the current accepted definition: “A process to integrate social, environmental, ethical, human rights and consumer concerns into business operations and core strategy in close corporation with the stakeholders” (EC 2011, p. 6). In general, the idea of CSR goes beyond the defined scope of sustainability. While sustainable development focuses predominantly on maintaining a viable and usable environment for future generations while not hampering the development of current generations, CSR is focused on the present and deals with social and financial aspects such as equality and corruption, which have little direct bearing on the environment. Nevertheless, all facets of sustainability should be inherent in CSR. For this reason, any move to make CSR mandatory will perforce have a similar result for sustainability.

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Non-Mandatory Sustainability: Potential Advantages of Implementation

In an ideal world, pure philanthropy would be enough to drive large corporations to implement effective and lasting measures to protect the environment and improve the social situation of effected stakeholders. In reality, however corporations have a responsibility to their employees and shareholders to maximise profit, often at the expense of other considerations. Milton Friedman published a now seminal article in the New York Times in 1970 with the title “The Social Responsibility of Business is to Increase its Profits” (Friedman 1970). This article maintains that the singular responsibility of a business enterprise is to legally maximise profit and that attempts to support external factors such as society and environment can only lead to totalitarianism. More recent articles have challenged the Friedman Doctrine and presented empirical evidence that a robust approach to sustainable development does not have to be detrimental to profits. Oikonomou et al. (2014) for example demonstrated a positive correlation between social performance and corporate bond yield. Bauer et al. (2005) also demonstrated that ethical investment funds consistently perform on a par with more traditional funds. Experience in industry and business in Germany shows that sustainable development considerations can play a significant positive role in a company’s overall performance: • • • • • • •

Access to markets Improved data management Employee retention Preferential consumer purchasing Positive public perception Reduction of risk Increased access to funding These considerations will be discussed further in the following Sects. 8.3.1–8.3.7.

8.3.1

Market Access

Increasingly, suppliers of raw materials, intermediates and services, are being required to comply with a number of standardised systems to achieve market access. Examples of this phenomenon in Germany include compliance with DIN EN ISO 9001, DIN EN ISO 50001, DIN EN ISO 14001/EMAS III. These management systems all require certified companies to address their purchasing patterns, in general by requiring the consideration in the choice of suppliers, of quality, energy and environmental aspects respectively. In practice, this typically means that a certified company requires its suppliers to meet the same management system

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standards or that the classification as preferred or strategic supplier can only happen with the presentation of the relevant certifications. Municipal and state actors are also increasingly required to source goods and services from certified suppliers. A good example of this can be seen in the 2016 Green Procurement Guidelines for the German city of Hamburg. These guidelines set the requirements for all purchasing activities for the city and include: • Mandatory lifecycle cost analyses, • The requirement for service companies to provide proof of technical competence, for example through the presentation of an EMAS or DIN EN ISO 14001 certificate, • The mandatory use of recycled or FSC/PEFC certified paper and wood products, • The avoidance of dangerous or environmentally damaging chemicals, • Minimum requirements for energy efficiency in white goods and office equipment, • The preferential purchase of electric and other alternative energy vehicles, • And many other aspects. The city of Hamburg has an annual purchasing volume of 250 million Euros (Behörde für Umwelt und Energie 2016) and as such has a significant influence on the local and national goods and services market. Those companies wishing to continue doing business with the city are thus forced to comply with the strict requirements laid out in the guidelines, thereby improving their own sustainability performance.

8.3.2

Improved Data Management

The access to data about key factors of a company’s operation is paramount to effective decision making. By developing a robust process oriented system for the monitoring and improvement of sustainability performance, a company will start collecting and analysing information in new ways. Take for example the target oriented monitoring, which is a hallmark of ISO-Management Systems: A company sets for itself a strategic target for improving its sustainability performance, for example to improve energy efficiency over a certain time-frame. This means that the company needs to identify a suitable Key Performance Indicator (KPI) to represent efficiency, for example kWh/unit product. Following this, it is necessary to collect the relevant data to be able to monitor the development of this KPI. If a company is then serious about achieving strategic target, this would ideally be supported by operative targets focused on individual aspects of the production, each with its own KPI and relevant data collation. This top down cascade would allow the company to optimise individual parts of its production process based on real time and usable information.

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Employee Retention

It is the experience of the author that particularly in small to medium enterprises in the less traditionally attractive parts of Germany, employers are often faced with difficulties in recruiting and retailing highly qualified and talented employees. The problem is exacerbated by ageing workforce coupled with a growing trend of school leavers entering academic institutions, rather than learning a trade (Statistisches Bundesamt 2015, 2016).1 The demonstration of a robust and active CSR/Sustainability programme can “directly or indirectly affect the attractiveness of a company for potential employees” (Weber 2008, p. 249).

8.3.4

Preferential Consumer Purchasing Patterns

For producers of end-user products, consumer purchasing patterns, preferences and trends typically set the baseline for most strategic decision making. In a 2015 survey of more than 30,000 respondents, the Nielsen Company demonstrated that, at least in a direct question/answer scenario, a rising number of consumers and in particular millennials are willing to pay more for sustainable products (Nielsen 2015). Furthermore, Nielsen also established in the same report that across more than 1300 brands the sales performance of companies with a recognised sustainability commitment grew by 4%, while the performance of companies without grew by less than 1% over the same period.

8.3.5

Positive Public Perception

Stakeholder perception can have a significant influence on the operations of a company, quite aside from direct financial and job-market impacts. Public participation in the licencing process for example can hinder or expedite new development, depending on the actions of the involved stakeholders. Although this aspect has not yet been thoroughly researched, the experience of the author in the German licensing field supports the supposition that a company with a negative image is much more likely to receive adverse responses. On the other hand, a company, which through its sustainability measures engages with environment and society in a transparent way, will be likely to gain much more support for new development.

1 In the period from 1999 to 2015 the number of students beginning their 1st semester grew by 74% while in the same period the number of people starting vocational training dropped by 19%.

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Reduced Risk

A robust management orientated approach to sustainability can reduce a company’s risk in several ways. The ISO 14001 environmental management system has for example introduced a risk based approach as a mandatory requirement. In fact, most management system approaches to sustainable development or improved environmental performance require a systematic review of the potential impacts to stakeholders and valued ecosystem components. This requires a company to invest resources, first of all to identify potential hazards of an operation or facility and then to identify who or what will be effected. Our experience shows that this systematic approach often leads to the identification of heretofore unrecognised synergies between hazard and impact. While the simple recognition of a hazard is only a first step, due to basic financial expedience in general, this leads to consideration of corrective and preventative measures, as risks to environment and society are typically connected to high potential costs. Such measures are actually an integral aspect of a management system approach to environmental and sustainability performance improvement can also lead to improved performance and a reduction of capital and operative costs (Melnyk et al. 2003). These advantages are not limited to an internal reduction of risk but can also extend to the supply chain. Most large producing entities are to a varying extent reliant on their suppliers to maintain production stability. The advantages of a sustainability approach in this sense are twofold. Firstly, requiring suppliers to maintain the same level sustainability standards means that those suppliers are also bound to benefit from the direct risk reduction listed above. This in turn leads to an improved supply chain stability and hence increased planning security. Secondly, the consideration of risks should also extend to the supply chain itself. For example, when considering the potential impacts of climate change, it may become clear that a key supplier may face future difficulties in reaching demand due to changing weather patterns or that rising sea-levels have the potential to put the supplier out of business altogether. In such cases it would be prudent to consider alternative supply routes or in extreme cases alternative raw materials.

8.3.7

Increased Access to Funding

As stated by Cheng et al. (2014) the transparent reporting of CSR and sustainability initiatives provides potential investors with a wealth of knowledge, thus reducing the typical informational asymmetry in investor/company relationships. This allows for a more targeted decision making by investors by improving their ability to assess the risks of an investment. Furthermore Cheng et al. postulate that improved stakeholder engagement suggests that a company is less likely to be focussed on short term opportunistic gains and aims rather for long-term, strategic goals. This in turn results

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in a reduction in overall contracting costs, meaning that companies looking for investment in positive NPV-Projects are more likely to receive financing either through private investment or in form of a loan. Furthermore, the rise of green or sustainable investment portfolios, particularly in the US where more than 1 in every 5 dollars in 2016 were invested in sustainable assets (US SIF Foundation 2016), means that mutual fund managers and key investors are beginning to focus their investment activities toward companies who demonstrate strong sustainability performance.

8.4

Legislative and Political Tools for Promoting Sustainability

The range of legislative tools available to decision makers to influence the uptake and development of sustainability initiatives is broad; ranging from simple recommendations through to complete criminalisation of non-sustainable activities. For the purposes of this chapter, six levels of legislative action have been identified: 1. 2. 3. 4. 5. 6.

Recommendation Market Influence Incentivisation Taxation Mandate Criminalisation

As shown in Fig. 8.1 the potential impact of these actions rises with the difficulty of implementation. For example, a simple recommendation may be easy to produce Fig. 8.1 Ease of implementation versus potential impact of environmental legislative tools

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but without potential incentive or censure a company would have no real reason to implement. On the other hand, criminalising non-sustainable behaviour would lead to immediate change, however—at least in democratic societies—passing the necessary laws without significant, obvious and immediate positive consequences for society would be practically impossible. The following Sects. 8.4.1–8.4.6 discuss the advantages and disadvantages of the six legislative actions with each section presenting the current trends in Germany.

8.4.1

Recommendation

As previously mentioned, non-binding recommendations from government, without incentive or censure, are as easy to produce as they are for companies to ignore. Nevertheless, in combination with the advantages mentioned in Sect. 8.3 and the growing trends in corporate social responsibility, government recommendations can act to level the playing field by setting accepted standards for sustainable activities. This effect can counteract the difficulties many smaller companies may have in choosing the right sustainability measures for their business. Examples of government recommendations for sustainable practices are numerous, ranging from guidelines and information for citizens to help interpreting voluntary sustainability standards through to detailed technical guidance documents for specific industry sectors. Chapter 14 of this volume, for example, goes into detail regarding various tools promoting transparency in voluntary sustainability standards. At sector level, the EU Code of Conduct on Datacentre Energy Efficiency represents a current example, which has growing relevance in Germany. The EU Code of Conduct on Datacentre Energy Efficiency aims to combat the increasing energy used by datacentres by providing guidelines for best practices in a range of subsectors (Acton et al. 2017): • • • • • • • •

Physical building Mechanical and electrical plant Data floor and air flow Cabinets and air flow IT Equipment Operating system and virtualisation Software Business practices

Although the Code of Conduct (CoC) is certainly not binding, it promotes costsaving initiates and allows participants to demonstrate the implementation of best available techniques. Furthermore DCA-Certification based on the Data Centre Alliance benchmarking system, a widely-recognised industry standard for datacentres, requires the full participation with the CoC. As an added benefit to the scheme, the EU gives out yearly awards to the best performing participants.

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Nevertheless, recommendation as a model for the promotion of sustainability is lacking. Government agencies tend to move too slowly to adapt to market changes, especially in a field as dynamic as sustainability. In absence of a carrot (such as the uptake of the CoC by DCA) or a stick, it is the authors’ experience that simple recommendations tend to, at most, receive minimum attention from industry leaders. Rather, sector self-regulation via pressure from markets and supply-chains, has a much larger effect.

8.4.2

Market Influence

In 2014, the European Union passed Directive 2014/24/EU on public procurement, which laid the legal foundation for ‘green public procurement’ (GPP) in Europe. Among the many provisions in this legislation, requirements were set for the public procurement activities of the member states, which mandate compliance with certain environmental, social and other criteria. The basis of this legislation was the recognition that public procurement in Europe accounts for an annual purchasing volume of approximately 1. Trillion Euros or around 14% of Europe’s GDP (EC 2016). This represents a phenomenal purchasing power, which when properly applied “can make an important contribution towards local, regional, national and international sustainability goals” (Ibid. p. 4). GPP was defined by the European Commission as “a process, whereby public authorities seek to procure goods, services and works with a reduced environmental impact throughout their life-cycle when compared to goods, services and works with the same primary function that would otherwise be procured” (EC 2008). Evidence presented in a 2009 study suggested that significant positive impacts can be achieved through the implementation of GPP (PwC 2009): • A 25% reduction in CO2 emissions • A 10% reduction in construction costs • A general cost reduction of 1% when applying an average of 45% GPP In Germany, the implementation of the European Directive 2014/24/EU has already led to changes in the market. Procurement guidelines laid out by the federal, regional and local governments typically require that potential tender responders provide evidence of company and/or product compliance with a combination of schemes, these include: • ‘Bewertungssystem für nachhältiges Bauen’ (evaluation system for sustainable construction) in federal buildings • Blue Angel label for all office equipment and white goods • FSC or PEFC for wood and paper products • DIN EN ISO 14001 or EMAS management system • EU-Ecolabel for relevant products • Euro IV Emission levels for transport

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This means that any company wishing to do business with the public sector must demonstrate their commitment to sustainable development. Which in turn has a knock-on effect on the supply chain, with the producers of end-user products requiring their own suppliers to ‘go green’ to meet the requirements of the relevant labelling and certification schemes. There is currently no data available to quantify this impact however the authors have certainly experienced a positive trend, with a good number of clients requesting management system or labelling consultation and development to comply with requests for tender.

8.4.3

Incentivisation

This tool for promoting sustainability comprises non-binding recommendations from government, with direct advantages for compliance. While such advantages are typically of financial nature, e.g. a rebate or reduction of taxes or licencing fees, non-financial incentives are becoming increasingly important, such as a reduction in licencing and monitoring requirements for large industry or the achievement of preferred supplier status for product and service suppliers (see Sect. 8.3.1). In Germany, the Renewable Energy Sources Act (EEG), the Electricity and Energy Taxation Acts (StromStG and EnergieStG) contain provisions for significant tax rebates and for energy intensive industries. In addition, the Emissions Trading Act allows certain industries to obtain free emission allocations. While the reason for these incentives can be traced back to the avoidance of carbon leakage,2 in all cases in Germany large companies wishing to profit from these provisions are required to operate either a certified DIN EN ISO 50001 energy management system or a registered EMAS environmental management system. It should be noted that SMEs may alternatively, in certain cases, perform an energy audit based on DIN EN 16247 or DIN EN ISO 50002. Another German initiative, which promotes sustainable business practices, is the Federal CSR-Prize. In 2017, the prize was awarded in five different categories ranging from the size of the participating companies to specific sectoral performance such as the management of the supply chain or the integration of refugees in SMEs. The prizes consist of a trophy and the use of the award for marketing purposes. While not directly financial in nature the possibilities for marketing and public perception make this award a sought-after accolade in German industry and business. Germany has also used its complex and often costly licensing system to promote the implementation of environmental management systems in industry. Sectors with a significant potential for negatively impacting the environment are required to

Carbon leakage is the process by which businesses, due to the significant financial costs related to climate legislation, move their production facilities to countries with less stringent legal requirements.

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obtain operating licenses based on the Federal Immission Control Act (BImSchG). The cost of the licensing process varies between federal states but is typically somewhere in the region of 0.2–0.3% of the total investment volume. Most states however, reduce the cost of the licensing procedure by 20% for companies operating with a registered EMAS management system. EMAS and in some cases ISO 14001 can also lead to reduced monitoring requirements, particularly for facilities listed in the Industrial Emissions Directive (2010/75/EU), which are subject to mandatory monitoring audits through the competent authority.

8.4.4

Taxation

In 1999 the German government went ahead with a set of tax reforms aimed at restructuring the ecological tax-landscape. As a result of these reforms a bundle of taxes (including on energy, mineral oil and nuclear fuel) were amended and an electricity tax was introduced. The reform was intended to account for impacts to the environment and society through pollution. The environmental and societal impacts of industry and business are typically considered to be negative market externalities. That is, the financial cost of these impacts is carried neither by the producer nor by the consumer but rather by third parties who are not involved in the transaction. Although a number of mechanisms can be identified to internalise these costs, i.e. to account for them within the original transaction, the most common is the Pigouvian tax. A Pigouvian tax achieves internalisation by identifying the societal cost of an externality and taxing the producer or consumer accordingly, for example the taxation of tobacco products, which are intended to cover the increased burden on medical and welfare systems caused by the inherent negative health impacts of smoking. An additional impact of Pigouvian taxes is that the increased cost of environmentally and socially damaging behaviour leads to the development of alternatives through a growth in innovation and in general a reduction in the behaviour itself (Aldy und Stavins 2012). Nevertheless, taxation is a difficult prospect for many political institutions. The idea of increasing or introducing additional taxes typically meets with strong opposition. An example of this difficulty is the struggle to implement either a carbon tax or a cap-and-trade system in the United States, where political polarisation has dominated the discussion. In particular, the concept of increasing costs for consumers due to political activity of one side of the partisan division is an oft-used weapon on the campaign trail. This phenomenon is of course not limited to American politics and can be observed in most established representative democracies to some extent or other. Broadly speaking, the success of environmental taxation policies, not to mention environmental policies in general, rests with the political will of a ruling party and the willingness of the opposition to cooperate as well as the general opinion of the voting public.

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A final issue with taxation as a form of promoting sustainability is that this tool can only be applied in cases where an external cost to society can be quantified. Even with direct measurable impacts such as pollution or waste generation, the challenge of calculating the cost to society can be immense. Consider then such issues as ecosystem stability or gender equality. In both of these cases a direct cost to society is impossible to calculate and as such cannot be addressed by taxation.

8.4.5

Mandating

For the purposes of this section the term mandating refers to binding requirements for compliance with sanctions in cases of non-compliance. As such it is a part of command-and-control legislation, while not covering the criminalisation of a behaviour or activity. This type of legislative tool can be a very effective in driving sustainable development, particularly in cases where taxation is not an option. The governing body is able to implement direct behaviour change, without waiting for the market forces to respond and without requiring additional funding as with incentivisation. In Germany and in Europe as a whole a number of recent legislative changes have led to a dramatic increase in mandatory sustainability activities. These include: • EU CSR Reporting Directive 2014/95/EU whereby enterprises with more than 500 employees, which are of public interest are required to publish a yearly CSR-report alongside their financial report. • The Energy Services Act (EDL-G), which in Germany promulgated the requirements of EU Directive 2012/27/EU into federal law. This Act requires, among other things, that all companies with more than 250 employees or a turnover of more than 50 million Euros and a yearly balance sheet of 43 million Euros perform an energy audit based on DIN EN 16427 at least every 4 years or alternatively implement an ISO 50001 or EMAS management system. • Import/export limitations. For example, a strict import ban for certain types of wood based on Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and European Council Regulation 338/97/EC. A further example is the ban on the export of hazardous waste materials to non-OECD countries based on the Basel Convention. However, analogous to taxation the passing of such legislation requires a strong political position. All four of the examples above were laid out not by national legal institutions but by the European Union. This takes away the political pressure on heads of member states, as they are required by contract to implement the letter of the EU-legislation. Of course, it is possible for member states to implement requirements, which are more stringent than the directive given by the EU, the reverse however is not true. As EU laws by necessity take into account the requirements of all member states, and are in fact a result of prolonged negotiations between state representatives, the

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scope of the resulting legislation is typically limited. For this reason, such mandates tend to require implementation of private international standards such as DIN, ISO etc. rather than concrete legislative standards. In addition, if such mandatory requirements result in a significant burden for implementation without any obvious advantage, then some companies may simply be willing to pay the fine resulting from non-compliance.

8.4.6

Criminalisation

The criminalisation of non-sustainable activities is the most effective form of promoting sustainable behaviour as non-compliance typically results at a minimum in an immediate cease-and-desist order and in extreme cases hefty fines and jail time for the responsible actors (typically the managing directors of the guilty company). However, the criminalisation of a particular conduct requires a very high level of general acceptance that: 1. 2. 3. 4. 5.

The conduct is morally wrong The conduct causes harm There are no strong countervailing circumstances The conduct infringes on important rights The conduct creates unwelcome social circumstances (Asworth und Horder 2013)

These perquisites limit the potential scope of environmental criminalisation. Take for example the idea of criminalising CO2 emissions. While one can argue that contributing to climate change is morally wrong, causes harm, infringes on our rights and will create unwelcome social circumstances, the countervailing circumstances, i.e. that our society is heavily dependent on the results of CO2 emitting processes, are significant. On the other hand, if we look at the dumping of hazardous waste on common lands, all five prerequisites for criminalisation are met. As such, the dumping of hazardous waste carries heavy penalties in most legal systems. The perception of these perquisites is not absolute and may change over time. In the fourteenth century for example, the French government made bottom-trawl fishing a capital offence due the prevailing opinion was that such fishing methods would cause irreversible damage to the seabed. By nineteenth century however, this method of fishing had become standard and although it certainly contributes to overfishing and unnecessary bycatch alongside the destruction of seafloor habitats (Stiles et al. 2010) it is still common today. In the European Union, the legal basis for criminalisation of environmental matters is codified in the Directive 2008/99/EC, which had to be implemented in national law by 2010. This Directive is based on the precautionary and polluter pays principles and describes a list of environmental offences, which must be treated as criminal acts in all member states. This list did not introduce any new offences, rather it collates pre-existing offences from among 200 EU directives dealing with

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environmental matters. In addition to the list of offences, the directive lays down provisions for the prosecution of natural legal persons in whose name such criminal acts were permitted. The integration of the Directive 2008/99/EC into German law did not happen until December 2011 with the promulgation of the 45th Federal Criminal Code Amendment Act, which brought the following areas into line with European law: • • • •

the introduction of hazardous substances; the handling of hazardous and radioactive waste; the operation of hazardous facilities; and the endangerment or destruction of animals, plants, areas and the ozone layer.

For example, §327 of the German Criminal Code lays out the penalties for the unauthorised operation of a facility requiring a permit. Thereby, the illegal operation of a nuclear power plant can result in a prison sentence of up to 5 years or financial penalty accordance with the potential damages caused. The illegal operation of a facility requiring a licence based on the Immission Control Act, the Circular Economy Act, the Environmental Impact Assessment Act or the Water Act on the other hand can result in a prison sentence of up to 3 years or similarly a financial penalty. These provisions do not only apply to facilities without a license but also to facilities, which operate outwith the terms of their license.

8.5

Outlook

The legal situation in Germany is currently in a state of high flux, in particular in environmental and sustainability areas. The first half of 2017 has already seen significant changes to a number of high-impact laws, including: • The Environmental Impact Assessment Act (UVPG) • The Ordinance on Facilities for the Handling of Substances Presenting a Hazard to Water (AwSV) • The 4th Ordinance to the Federal Immission Control Act on Facilities requiring a Permit (4. BImSchV) • The 12th Ordinance to the Federal Immission Control Act on Major Incidents (12. BImSchV—Störfallverordnung) • The Circular Economy Act (KrWG) These changes have all resulted in a significant increase in the burden on operators of facilities, which have a potential for significant impacts on the environment. This represents the continuation of a trend, which has been evident for the last decade and demonstrates an increasing involvement of federal and state government in environmental and sustainability aspects. This trend is set to continue in 2018 and beyond. Two pieces of legislation in particular are expected to have a significant impact on sustainability in Germany. These will be discussed in the following Sect. 8.5.1.

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CSR-Reporting Directive 2014/95/EU

The CSR-Reporting directive will require large companies of more than 500 employees and of public interest to publish a yearly report detailing their CSR-activities. In Germany, it is likely that ‘public interest’ will be interpreted as any company active on a public stock exchange. The content of the report must include information regarding company activities and measures, including due diligence activities and relevant quantitative performance indicators, in the following areas: • • • • • •

environmental protection social responsibility treatment of employees human rights corruption and bribery diversity

If a company does not pursue any activities in the named areas or are not willing to disclose the relevant information then they are required to provide reasons why this is the case; an application of the Comply or Explain Concept. In reality many of the companies, which are expected to fall within scope of this Directive, already publish yearly CSR-Reports. For many of these, the promulgation into state law will have little impact on the day-to-day operations. However, up until now the content of a CSR-Report has been more or less voluntary. While the established CSR-Reporting guidelines such as the GRI and DNK also lay out certain rules for the report content, the depth and level of detail are decided by the reporting company. The new requirement for measurable performance indicators will require many companies to readdress their approach. Although the scope of the legislation is limited to large corporations, it is also expected to have a cascade effect throughout supply chains. Particularly the necessity to report due diligence activities will require reporting companies to carefully consider their choice of suppliers and service providers to ensure compliance with legal and CSR-policy requirements. This in turn will require the suppliers and service providers to report their own activities and those of their own suppliers and service providers. This means that the mandatory reporting requirements will in effect be passed on to all members of both regional and global supply chains, impacting companies far outwith the scope of the EU-Legislation. This Directive will certainly have a positive influence of the corporate social responsibility performance of both the business entities, which fall within the directive’s scope as well as those involved in the supply chain of these companies. Although there is no actual concrete obligation for participating companies to actually improve their sustainability performance, the requirement for publication of the results in combination with the negative impacts of poor sustainability performance (see Sect. 8.3) effectively mean that this legislation can be seen as a move towards mandatory sustainability in a broad sense.

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Regulation (EU) 2017/821 on Conflict Minerals

In May 2017, the EU passed a regulation which will require all EU importers of tin, tantalum, gold and tungsten to perform due diligence to ensure that they are only purchasing from responsible sources. The regulation is based in part on the OECD Guidelines for Due Diligence Guidance for Responsible Supply Chains from Conflict-Affected and High-Risk Area and will require companies to take a 5-step approach to avoiding the import of conflict minerals: • • • •

Step 1: Establish strong company management systems Step 2: Identify and assess risks in the supply chain Step 3: Design and implement a strategy to address the identified risks Step 4: Carry out independent 3rd party audits of smelter/refiner’s due diligence practices • Step 5: Report annually on supply chain due diligence (OECD 2016) It should be noted that this legislation does not make the import of conflict minerals illegal but rather puts the onus on the importers themselves and the potential influence on the market to reduce the finances flowing to conflict regions through trade. Essentially, this regulation will have an effect similar to the CSR-Reporting Directive. Although participating companies are not obligated to improve their performance, the fact that they will have to perform due diligence and report on the findings effectively takes away any possibility of turning a blind eye to the import of conflict minerals. While this legislation will remain isolated to a small market sector, the impact, at least in terms of a reduction of financing to conflict regions through trade, should be significant. As such, this regulation can also be seen as a further step towards mandatory sustainability.

8.6

Conclusions

In Sect. 8.3 of this chapter, it was demonstrated that the potential advantages of sustainability programmes for the business-case are broad-reaching and significant. In the current market situation in Germany, companies unable to demonstrate a commitment to sustainability/CSR face significant disadvantages, including: • • • • • • • •

limited market access; poorer data management; lower employee retention rates and poorer access to talent; poorer public perception and lower access to consumers for end-user products; higher costs; higher risks, and reduced access to funding.

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Fig. 8.2 Synergy between the advantages of sustainability and the legislative tools available to government

Furthermore, the legislative tools presented in Sect. 8.4, with the exception of taxation to an extent, are aimed at strengthening and/or codifying the existing advantages of sustainability. These synergies are demonstrated in the infographic shown in Fig. 8.2. This chapter started with the question “is sustainability becoming mandatory in Germany?”. It is the opinion of the author that this is the case. However as shown in the demonstration of the synergies between the inherent advantages of sustainability/ CSR and the legislative tools available to governments, this does not necessarily mean that in the future non-sustainable activities will be illegal. Rather the conclusion can be drawn that companies without robust approaches to demonstrating best practice in environmental, social and governance fields will face significant challenges in maintaining a successful business. As such it can be said that we are not simply approaching mandatory sustainability, we might already be there.

References Acton M, Bertoldi P, Booth J, Flucker S, Newcombe L, Rouyer A (2017) 2017 Best practice guidelines for the EU Code of Conduct on Data Centre Energy Efficiency – Version 8.1.0. JRC Technical Reports. Publications Office of the European Union, Luxembourg Aldy JE, Stavins RN (2012) The promise and problems of pricing carbon: theory and experience. J Environ Dev 21(2):152–180

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Asworth A, Horder J (2013) Principles of criminal law, 7th edn. Oxford University Press, Oxford Bauer R, Koedjik K, Otten R (2005) International evidence on ethical mutual fund performance and investment style. J Bank Financ 29(7):1751–1767 Behörde für Umwelt und Energie, Freie und Hansestadt Hamburg (ed) (2016) Leitfaden für umweltverträgliche Beschaffung der Freien und Hansestadt Hamburg (Umweltleitfaden). http://www.hamburg.de/umweltgerechte-beschaffung/. Last accessed 31 Jan 2019 Cheng B, Ioannou I, Serafeim G (2014) Corporate social responsibility and access to finance. Strateg Manag J 35(1):1–23 EC – European Commission (2008) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – Public Procurement for a better environment, COM(2008) 400 final of 16.07.2008. European Commission, Brussels EC – European Commission (2011) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – A renewed EU strategy 2011–14 for Corporate Social Responsibility, COM (2011) 681 final of 25.10.2011. European Commission, Brussels EC – European Commission (2016) Buying green: a handbook on public procurement, 3rd edn. Publications Office of the European Union, Luxembourg Friedman M (1970) The social responsibility of business is to increase its profits. N Y Times Mag Sept 13:32–33, 122–124 Melnyk SA, Sroufe RP, Calantone R (2003) Assessing the impact of environmental management systems on corporate and environmental performance. J Oper Manag 21(3):329–351 Nielsen (2015) The sustainability imperative: new insights on consumer expectations, October 2015. https://www.nielsen.com/content/dam/nielsenglobal/dk/docs/global-sustainabilityreport-oct-2015.pdf. Last accessed 31 Jan 2019 OECD – Organisation for Economic Co-operation and Development (2016) OECD due diligence guidance for responsible supply chains of minerals, 3rd edn. OECD Publishing, Paris. https:// doi.org/10.1787/9789264252479-en Oikonomou I, Brooks C, Pavelin S (2014) The effects of corporate social performance on the cost of corporate debt and credit ratings. Financ Rev 49(1):49–75 PwC – PricewaterhouseCoopers (2009) Collection of statistical information on Green Public Procurement in the EU: report on data collection results. PwC Sustainability, Amsterdam Statistisches Bundesamt (2015) Fachserie 11, Reihe 3, Bildung und Kultur. Statistisches Bundesamt, Wiesbaden Statistisches Bundesamt (2016) Fachserie 11, Reihe 4.1, Bildung und Kultur, Studierende an Hochschulen. Statistisches Bundesamt, Wiesbaden Stiles ML, Stockbridge J, Lande M, Hirshfield MF (2010) Impacts of bottom trawling on fisheries, tourism, and the marine environment. Oceana Central America, Belize City. http://oceana.org/ sites/default/files/reports/Trawling_BZ_10may10_toAudrey.pdf. Last accessed 31 Jan 2019 US SIF Foundation (2016) Report on US sustainable, responsible and impact investing trends 2016, 11th edn. Executive summary. https://www.ussif.org/files/SIF_Trends_16_Executive_Sum mary(1).pdf. Last accessed 31 Jan 2019 WCED – World Commission on Environment and Development (1987) Our common future. Oxford University Press, Oxford Weber M (2008) The business case for corporate social responsibility: a company-level measurement approach for CSR. Eur Manag J 26(4):247–261

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Robert Atkinson currently works as a project manager at the GUT Umwelt- und Unternehmensberatung GmbH in Berlin, Germany, where he offers consultancy services dealing with industrial project licensing, corporate social responsibility strategy and technical due diligence as well as the development and optimisation of quality, environmental, workplace safety and energy management systems. Prior to this he was an asset account manager for a major service company in the crude oil sector before switching sides by studying environmental and resource management at the Brandenburg University of Technology Cottbus-Senftenberg (BTU), Germany and working as a research associate at the Department of Environmental Planning. Alongside his work at the GUT, Robert also continues to teach at the BTU as a guest lecturer for the modules EIA/SEA and Measuring Sustainability. GUT Umwelt- und Unternehmensberatung GmbH; Email: [email protected]

Chapter 9

An Introduction to Sustainability in Australia’s Energy Policies Aleksandar Damjanovski

9.1

Introduction

This chapter aims to discuss sustainability in Australia with respect to its national energy policies. In particular, the chapter aims to give an introduction into what the Australian government has done to facilitate the transition towards furthering renewable energy and increasing energy efficiency, particularly by focusing on the Renewable Energy Target (RET). The biggest challenges to Australia’s progression towards sustainable energy generation is a mixture of the relationship between the nation’s coal and coal fired power plants, the political climate which has hampered much of the progress and the absence of a consistent, long-term goal for a proper transition. Australia produces some of the highest amounts of GHG emissions in the world per capita and a large portion (35%) of those emissions stem directly from the country’s electricity generation, indicating that action needs to be taken towards a more sustainable energy sector. This chapter will discuss the RET in detail, as the current national vehicle for promoting renewable energy, as well as several other policies designed to encourage energy transition, emissions reduction and energy efficiency. The RET is the current policy enabling households and businesses to invest both in small-scale and largescale renewable energy generation through market trading of renewable energy certificates, thus acting on financial incentives. Other policies are also discussed to varying extents, such as the carbon pricing scheme, which was another approach to tackling carbon emissions in Australia where liable entities were required to pay a price per tonne of emissions but was quickly repealed after its instalment. With this view, the chapter has the following objectives: A. Damjanovski (*) Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg (BTU), Cottbus, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_9

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• Introduce the reader both to the general nature of sustainable energy policy in Australia and the existing barriers; • Present brief case studies for several policy mechanisms in Australia (e.g. carbon pricing or solar feed-in tariffs); and • Itemise those key learnings for future development or implementation in an international setting. Section 9.2 begins with an outline of the current goals and targets before introducing the discrepancy between Australia’s standard of living and SDG performance, emphasising the justification for firmer action on the sustainable energy policy front. Section 9.3 discusses the overarching emissions reduction goals and details some of the vehicles, which Australia has employed to reach those goals, including (but not limited to) the RET and the carbon pricing scheme. Section 9.4 aims to extract some of the key learnings from the previous section in the hope of offering the reader inspiration and guidance regarding effective sustainable energy policy. The chapter ends with conclusions and recommendations in Sect. 9.5 with a summary of the chapter’s contents and brief comments by the author on the current state of affairs.

9.2 9.2.1

Energy and Sustainability Goals and Targets in Sustainable Energy

Goals and targets are the foundation for effective planning and are needed for any long-term or ambitious endeavour. They break down a mammoth task into smaller, measurable and manageable tasks that help towards achieving a main objective or desired outcome. To be specific, a goal sets the overall context for what is to be achieved and a target defines specific deliverables or conditions to be met on the way to achieving that goal. The United Nation’s Sustainable Development Goals (SDGs) are an excellent example to showcase how goals and targets are set and how they function. The list includes 17 specified goals that touch on the realms of environmental, economic and social pillars of sustainability, and include items such as the elimination of poverty and hunger, cleaner water, the provision of sanitation and so forth. Within these goals are specific targets that lay out the markers on the way to achieving that goal. For example, SDG 1 is devoted to “ending poverty in all its forms everywhere” (UN 2015). The targets it encompasses include: “by 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions”; “implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and vulnerable”; and “by 2030 build the resilience of the poor and those in vulnerable situations and reduce their exposure and

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vulnerability to climate-related extreme events and other economic, social and environmental shocks and disasters” (UN 2015) to name a few. In terms of sustainable energy, the key objective is often to ensure that safe, secure, reliable and affordable energy is supplied over the long-term, which is also ideally undepletable. Goals formulated in this context typically focus on increasing the proportion of energy to be generated by renewable sources (e.g. solar, wind and biofuels) while also reducing the dependence on fossil fuels and reducing wasteful or inefficient energy use. This could also mean creating a more diversified and independent energy market, such that a reliance on one fuel input type is minimised and alternatives are readily available in the event of a related market failure or similar occurrence. When discussing sustainable energy in the context of the United Nations’ SDGs, the goals of greatest relevance are SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Change)—most notably under the targets laid out in the SDGs such as “ensuring universal access to affordable, reliable and modern energy services by 2030” (SDG 7); “increasing the share of renewable energy in the global energy mix by 2030” (SDG 7); and “the integration of climate change measures into national policies, strategies and planning” (SDG 13) (UN 2015). In the realm of Australian energy policy, change is considered almost apprehensively when it involves a drastic or radical shift. This phenomenon is explained in the following section, which details the discrepancy between the energy generation and infrastructure related to coal and the need to switch to renewable energy sources. There is no doubt that Australia is incredibly fortunate to have the right conditions for a complete transition—a stable government, a highly educated workforce, a wealthy and prosperous economy, etc. It would seem, though, that these preconditions alone are not enough to secure a timely and concerted transition of the energy market and so a tactful approach to policy and planning must also be part of the equation (CSIRO 2015).

9.2.2

The Discord of Energy and Sustainability in Australia

Australia has long enjoyed a reputation as a nation endowed with natural resource wealth. Aside from boasting some of the largest reserves of iron ore, gold, copper, silver, tin, bauxite, nickel and lead in the world, the country is heavily invested in the production and exportation of thermal and metallurgical coal—accounting for nearly one third of international trade. The Office of the Chief Economist’s fourth quarter report for 2017 revealed that the volume of metallurgical coal exports in the previous year reached 188 million tonnes, while the volume of thermal coal exports for that same year reached 200 million tonnes. In monetary terms, these coal exports brought in nearly AU$54.3 billion during the 2016–2017 financial year, making it Australia’s second largest source of export income after iron ore, which illustrates the added value this revenue source brings in to Australia’s AU$1.69 trillion economy (Office of the Chief Economist 2017; ABS 2018). Coal has played a key role in driving the Australian economy and, because of the technological innovation and investment

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that has been made in the mining industry, has subsequently become the cheapest choice for electricity generation with the levelised cost of electricity per megawatthour for coal-fired electricity in Australia ranging between AU$78–91 versus wind’s AU$150–214 per megawatt-hour or solar’s AU$400–473 per megawatt-hour (Electric Power Research Institute cited in Productivity Commission 2011). It should therefore come as no surprise that Australia would find it difficult to envision a future that completely dismisses coal from the equation; encumbering the timely and smooth transition towards a sustainable, renewable energy sector. The departing mining boom of the 2000s is estimated to have increased the average Australian household’s real disposable income by 13%, real wages by 6% and lowered the unemployment rate by 1.25% (Downes et al. 2014). These increases subsequently raised the standard of living to a level comparable to that of Canada, Switzerland or the Nordic countries and is evident by the consistently high rankings in liveability indices that Australia receives. For example, Australia ranked second (scoring 0.939) on the Human Development Index, remaining on par with Switzerland and trailing only behind Norway (UNDP 2016, pp. 198–201). It would be reasonable to assume that, with such wealth and high standards of living, environmentally sustainable energy policies would be pushed further on the political agenda. Public support for wind and solar energy certainly presses the issue, with 75% of Australians believing that state and federal governments need to implement a plan to replace coal plants with clean energy (The Climate Institute 2016). A recent dashboard report assessed Australia’s performance on the UN’s SDGs and consequently ranked the country 20th out of 149 nations in overall progress (Sachs et al. 2016). The most notable shortfalls for the country stem from SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action); namely the level of carbon dioxide generated from energy use by both per capita (16.5 tCO2/capita) and per TWh (1.6 MtCO2/TWh), as well as the share of renewable energy in overall final consumption. A quick comparison in Table 9.1 putting Australia against a select number of other nations in the aforementioned SDGs shows an unenviable performance, whereby the emission of carbon dioxide equivalent per terawatt-hour produced fares as well as India and only slightly better than the USA on the per capita measure. Pairing these figures with those presented in Table 9.2 that illustrate the heavy reliance of Australia’s electricity generation in coal (64.7%) and gas (21.3%) fuels only highlights the source of the problem. Other performance indicators also highlighted Australia’s less than satisfactory performance in areas such as land clearing (SDG 14) or fisheries management and ocean health (SDG 15). In some ways, these issues reflect the challenges that are inherent in the natural geographic composition of the huge, sparsely populated, dry island-continent that makes Australia and certainly should not be dismissed in the overall discussion of national sustainability. Some of the concerns arise from a lack of consistent quality data on native fauna and flora species type and population (National Sustainability Council 2013). In others, it stems from the lack of manpower, resources and funding needed to effectively manage and monitor protected areas. Land on the eastern seaboard is also constantly contested between agricultural production, mining or low-density urban development and perhaps is a reflection of

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Table 9.1 Indicators from sustainable development goals 7 and 13 alongside population and density (Source: Sachs et al. 2016) Country Australia Canada China France Germany India Italy Netherlands Norway Russia Spain Sweden Switzerland UK USA

MtCO2 (per TWh) 1.6 0.8 N/A 0.6 1.2 1.6 1.2 1.5 0.3 1.5 0.8 0.2 0.6 1.3 1.2

tCO2 (per capita) 16.5 14.1 6.7 5.2 8.9 1.7 6.7 10.1 9.2 12.6 5.8 5.5 4.6 7.1 17.0

Population (million) 23 35 1357 66 80 1252 60 17 5 144 46 10 8 64 318

Pop. density (per km2) 3.1 3.7 146 122 230 400 200 412 14 8 91 22 191 268 33

Table 9.2 Source of electricity production in 2013 (Source: World Bank 2017) Country Australia Canada China France Germany India Italy Netherlands Norway Russia Spain Sweden Switzerland UK USA World

Coal (%) 64.7 10.0 75.4 4.4 46.8 72.8 16.7 27.3 0.1 15.2 16.5 0.7 – 37.0 39.9 41.1

Natural gas (%) 21.3 10.3 1.8 3.0 11.0 5.5 33.7 54.7 1.8 50.1 17.2 0.5 0.7 26.8 27.0 21.7

Oil (%) 1.4 1.2 0.1 0.4 1.1 1.9 5.1 1.2 – 0.8 5.1 0.3 0.1 0.6 0.9 3.6

Hydro (%) 7.3 60.1 16.8 12.4 3.7 11.9 21.1 0.1 96.0 17.1 14.2 40.1 54.3 1.3 6.3 16.1

Renewable sources (%) 5.3 2.7 3.6 4.6 20.6 5.0 22.3 12.0 1.7 – 25.9 13.9 3.8 13.7 6.3 5.4

Nuclear (%) – 15.8 2.1 74.7 15.5 2.9 – 2.9 – 16.3 20.8 43.4 39.3 19.8 19.2 10.6

where national interests lie, which might indicate a tendency to favour economic development rather than sustainability. However, the magnitude by which the nation is invested in the coal industry and coal fired power plants cannot be emphasised enough.

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Electricity generation is Australia’s largest source of emissions and accounted for 187 million tonnes of carbon dioxide equivalent in 2015, comprising 35% of the nation’s total emissions (DEE 2017a). This is a significant barrier to Australia fulfilling its commitment under the United Nations Paris Agreement of 2015—a reduction of emissions to 26–28% on 2005 levels (441 MtCO2eq) by 2030. Table 9.2 demonstrates the degree to which this reliance on coal for electricity production extends, which shows a comparative lag behind other OECD countries that draw more of their energy from natural gas, hydro or renewable sources. This is counterintuitive to Australia’s high standard of living, economic wealth, technological capabilities and abundant natural wind and solar resources, which would place Australia in an unprecedented and unparalleled advantage were it to fully utilise these renewable energy types. In addition, the current energy infrastructure is ageing and most future development plans continue to predict a steady population growth all along the eastern seaboard where the bulk of the coal-based power plants are situated, putting the future of the country’s energy infrastructure at a crossroads. A discussion on Australia’s sustainability performance should therefore particularly focus on Australia’s sustainable energy policy and how this will facilitate the transition from fossil fuels to renewable sources, as this would have major implications for the nation’s ability to meet future growth targets and reduce its carbon emissions. As discussed earlier, high up-front costs per unit of electricity for renewable sources as opposed to cheaper fossil fuel types has hindered the progress and uptake of solar and wind alternatives. Exacerbating this is the centralised generator power supply model in place, which developed in part thanks to the economically abundant supply of coal. As such, the historical implementation of large scale renewable technologies faced immense difficulties as institutions and consumers lacked the experience in dealing with the new network type—favouring instead existing electricity sources, which were more established, more familiar and faced less policy instability (Byrnes et al. 2013). Consumers, though clearly in support of clean energy and of the opinion that governments need to do more, in general cited “hip pocket” issues such as the cost of living, the state of the economy and tax reform as more pressing (The Climate Institute 2016). Geographic isolation of some renewable energy resources from infrastructure and markets adds to the challenge (Office of the Chief Economist 2015). Due to the Australian economy being primarily based on the extraction and production of raw materials, the concepts of sustainability and economic growth may unfortunately be seen as competing values rather than complementary. Australia’s performance nevertheless has been criticised as lacklustre and timid, albeit progressive and still showing signs of potential given that, at the least, clean energy installations have continued to grow. Much of the challenge for energy transition lies in navigating a difficult socio-economic and political landscape in order to capitalise on the country’s potential. A slew of government policies and initiatives exist on the federal and state levels to facilitate this transition, which would require its own dedicated literature for an exhaustive review.

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163

Policies Pursuing Sustainable Energy

The driving motive behind an increase in renewable energy penetration is unsurprisingly to reduce Australia’s emissions in the global effort to prevent climate change and limit the nation’s dependence on fossil fuels for energy by diversifying in viable future solar, wind, wave, biomass and geothermal sources. Additionally, it is expected that support for the commissioning of renewable energy will in turn lead to the lowering of installation and maintenance costs, to improved technologies and to added jobs. Several measures have been implemented to aid the transition towards renewables including the establishment of organisations such as the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC); and the introduction of policy instruments, such as the Renewable Energy Target (RET), the Carbon Pricing Scheme and state feed-in tariffs for solar PV installations. Australia also has two emissions reduction targets which best reflect government efforts to committing to sustainability in the energy sector. Australia’s 2020 target is a 5% reduction below 2000 levels by 2020. This target is in response to the second commitment period of the 1992 Kyoto Protocol (which was signed by Australia in 1998 but not ratified until 2007). According to the Department of the Environment and Energy (DEE 2016a), Australia is projected to surpass its trajectory of emissions reduction by 224 million tonnes of carbon dioxide equivalent. Two of the listed reasons for this rapid progression are the closure of the Hazelwood power station in Victoria and a lowering of electricity demand due to increased energy efficiency (DEE 2016a). The 5% reduction target has been criticised as insufficient in its contribution to the global goal of limiting warming to less than 2
and generally being less ambitious than other countries. It has been suggested that the target reduction could instead be revised up to 15%, under the justification that the current target would only postpone those intensive reduction activities during the 2020–2030 decade and that the current levels of overachievement are a clear indicator of greater potential (CCA 2014). Australia’s 2030 target is a 26–28% reduction below 2005 levels by 2030, translating to a cumulative emissions reduction of 990–1055 million tonnes of carbon dioxide equivalent over the 2021–2030 period. The target is in response to the Paris Climate Change Conference in 2015. The biggest challenges to this target are the increasing electricity demand, transport activity and livestock in agriculture, which are collectively linked to increasing economic and demographic growth. Policies that advance progress towards this target include the RET, the Emissions Reduction Fund and the National Energy Productivity Plan (DEE 2016b). These goals lay the course for the country and while the governing political parties may pose their own additional commitments, these can be—and have been— subject to amendments or complete suspension if an election is near or negotiations with the opposition are underway.

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In the following section several of the key instruments for achieving Australia’s energy targets are explored—some have proven somewhat successful in bringing Australia closer to its goals and others have left room for much criticism.

9.3.1

Renewable Energy Target

The Renewable Energy Target (RET) is the federal government’s plan for increasing the proportion of renewable energy generation and capacity in the overall energy market and is a self-imposed national target, whereby nearly one-quarter of Australia’s energy (the equivalent of 33,000 gigawatt-hours) is to come from wind, solar and hydro power generation by 2020 (CEC 2016b; DEE 2015). The target was, in fact, reduced from an earlier 41,000 gigawatt-hours figure in 2015 as a result of political negotiation between the federal government and the opposition at the time. These negotiations followed a drop in investor confidence demonstrated by a cut in investment in large-scale renewable energy projects of approximately 90% since the end of 2013. This stemmed from the uncertainty that arose from the publication of the Warburton Review, which recommended either ceasing the policy outright or slashing it “to a level that would lead to the devastation of the renewable energy industry” (CEC 2014). Additionally, the legislated biennial RET review was also removed as a result of the negotiations. Fortunately, investor confidence has subsequently returned, as has the necessary momentum to bring those eligible projects online (CEC 2015). The RET has its heritage dating back to 2001, when under the Howard administration it was known as the ‘Mandatory Energy Target’ and only required 2% of total energy generation to come from renewable sources. This figure had since been revised under successive administrations to the target figure it is today. Between 2001 and 2012, Australia’s renewable energy capacity increased from 10,650 MW to 19,700 MW—seemingly with the inclusion of small scale solar generation—but still only represented around 10% of total electricity generation in the country. In actual fact, up to 2011 the proportion of renewables in total electricity generation did not change significantly from its base measure in 2001 (where renewables accounted for around 8%). This was largely due to the growth in electricity demand, which was met by both a mix of renewable and non-renewable energy generation (Byrnes et al. 2013; CCA 2012). The key strategy for achieving the RET has been the creation of a market for trading certificates, representing the amount of energy generated by a certified renewable energy generator. The observed increase in renewable generation capacity is in part due to the sale of these certificates. Over the course of the RET’s existence, 500 new renewable generation plants have come online and almost 160 million certificates were created between 2001 and 2011. In 2011, 14,000 GWh of electricity was generated by RET-eligible facilities (CCA 2012). The RET operates in two parts; the Small-scale Renewable Energy Scheme (SRES), which encompasses the creation and trading of Small-scale Technology

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Certificates (STCs), and the Large-scale Renewable Energy Target (LRET) that likewise deals with Large-scale Generation Certificates (LGCs). The SRES works by incentivising the installation of renewable energy systems such as solar hot water systems, photovoltaics or small-scale (up to 100 kW) wind or hydro systems in a residential or small business settings. This incentive is achieved by creating STCs upon the installation of a SRES-eligible system, the value of which is determined by the amount of electricity the system is expected to produce over a 15-year period. Legislation then requires ‘RET-liable entities’ (most typically energy retailers) to purchase and surrender STCs to the Clean Energy Regulator. System installers therefore offer discounts or cash payments in return for the right to create STCs and sell these to retailers—thereby creating a market. The LRET works in a similar fashion with wind, solar and hydro power stations but the key difference rests in the creation of LGCs, which are created with each megawatt-hour produced by the power station (whereas under the SRES, the certificates are created up front). Once a LGC is created, it may be sold to an energy retailer who, not unlike the SRES, have an obligation to purchase and surrender LGCs to the Clean Energy Regulator. The revenue that the power station earns from the sale of LGCs is in addition to that received for the sale of electricity generated (DEE 2017a). The most recent briefing report by the Clean Energy Council (CEC) from June 2016, estimates that Australia’s renewable energy sector will need to produce an additional 18,000 GWh of renewable energy annually by 2020, which would require an additional 6000 MW of new generation capacity (CEC 2016b). At the time of publication, the report identified nearly 11,000 MW worth of projects, which had received planning approval and a further 6000 MW worth of projects, which were still going through the approval process. This suggests that a sufficient number of projects exist to meet the RET. Whether these projects will be executed in a timely manner to meet the peak obligations in 2020, or that all projects will go ahead as planned, remains to be seen. The regained investor confidence following the RET negotiations mentioned earlier does however give reason for confidence that the target will be met. Table 9.3 displays the number of wind and solar projects in terms Table 9.3 Wind and solar projects in the development pipeline (Source: CEC 2016b) State or territory VIC NSW QLD WA SA TAS ACT NT Total

Under construction (MW) Wind Solar 239 – 175 – – 20 – 10 118 – – – – – – 1 532 31

Approved (MW) Wind Solar 1729 180 2195 110 1045 2280 1184 – 1565 – 339 – – 15 – – 8057 2585

Awaiting approval (MW) Wind Solar 850 – 4835 – 345 – 170 – 453 – – – – 10 – – 6653 10

Total (MW) Wind Solar 2818 180 7205 110 1390 2300 1354 10 2136 – 339 – – 25 – 1 15,242 2626

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of capacity as given in the CEC report, with a visibly large contrast between the 563 MW under construction and the 10,642 MW which were approved. The report also acknowledged that “the rate of new build is currently insufficient to meet the future liability,” although a brief list of additional commitments set out by some state and local governments to further incentivise new projects was also provided. As the RET peaks in 2020 and remains until 2030, the CEC have asked for an increase to the target beyond 2020 in order to instil confidence that a sufficient return on investments will be seen by the investors. Given that the target lay previously at the 41,000 gigawatt-hours mark, a reversion would not be considered far-fetched. The argument put forward by the CEC is that forecasting LGC prices, particularly with respect to the aforementioned peaking, beyond 2020 is difficult and lowers investment into future projects due to the uncertainty that is created. Lifting the target beyond its 2020 peak would allow for the further growth of large-scale renewable energy generators in the market (CEC 2016b). Some criticism is however to be found in the inclusion of “waste coal mine gas” as an eligible activity under the LRET for the issuance of LGCs. “Waste coal mine gas” (WCMG) in the Regulation (The Renewable Energy (Electricity) Regulations 2001) is effectively referring to coal seam gas. The justification being that it would “provide transitional assistance for existing waste coal mine gas fuelled power stations that would be affected by the cessation of the NSW Greenhouse Gas Reduction Scheme on commencement of a carbon price” (Byrnes et al. 2013). In this respect, the integrity of the RET is somewhat compromised by allowing the effective subsidisation of non-renewable technologies for what is clearly designed to promote renewable types. However, the Regulation also stipulates that eligibility is voided if abatement certificates have been awarded pertaining to certain state legislation in certain jurisdictions (namely Queensland, New South Wales and the Australian Capital Territory). The Climate Change Authority in its 2012 review of the RET reaffirmed the inclusion of WCMG activity as a transitional measure and highlighted that the eligibility would only apply to existing power stations and that this eligibility was only applicable until 2020 (CCA 2012). The argument against the inclusion of new WCMG power stations at the time was that the (now defunct) carbon pricing scheme had come into operation. The effectiveness of the RET in encouraging renewables in the energy sector is arguable. Compliance under both the LRET and the SRES in 2015 was 99.7% and has remained consistently high over the years (CEC 2016b). The nation’s renewable energy capacity doubled between 2001 and 2012 and almost half (15,200 GWh) of the target amount had been generated by renewable energy in 2016 (CEC 2016b). However, future goals would suggest that great strides still need to be taken to eventually reach the target—although it is worth noting that the outcome of the political negotiations following the Warburton Review in 2015 could see a considerable boost to these efforts, as well as the funding from ARENA and the CEFC. Since its inception in 2001, the RET had initially received bipartisan support from both major political parties but the negotiations brought on by the Warburton Review, as well as the subsequent target revision in 2015, significantly undermined investor confidence. Bloomberg New Energy Finance estimated that investments

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into eligible projects under the RET for 2014 had dropped to AU$238 million compared to the previous year’s AU$2 billion (CEC 2014). Consequently, the greatest concern that has surrounded the RET is the inconsistency and fluctuation of political support. The RET, while having its own shortcomings and gaps, would prove considerably more successful in bringing Australia closer to a sustainable energy market than other initiatives launched by the residing federal government, in particular that of the carbon pricing scheme. While compromises were found for the RET, the carbon pricing scheme would find itself enduring tougher resistance in the political arena.

9.3.2

Carbon Pricing Scheme

The short-lived carbon pricing scheme (sometimes referred to as the “carbon tax,” particularly by the conservative camp) was introduced in Australia under the Clean Energy Act 2011 and aimed to reduce Australia’s greenhouse gas emissions by obliging certain facilities that emitted more than 25,000 tCO2eq per year to purchase permits (or ‘carbon units’) from the government, at an initial price of approximately AU$23 per tonne and subject to change. The first 3 years of its existence would have seen no limit on emissions until the end of the 3-year period, by which an annual cap would then be placed with the goal of reducing greenhouse gas emissions by 5% on 2000 levels by 2020 and then gradually progressing to 80% by 2050. Thus, the purpose of the scheme was to indirectly support investment in clean energy, increase the efficient use of energy, incentivise the reduction of pollution and further encourage growth in jobs, the economy and promote overall market competitiveness (Byrnes et al. 2013). The carbon pricing scheme encompassed some 75,000 businesses ranging from electricity, manufacturing, waste, mining, gas production, aviation, non-road transport and refrigerant users. Some industries such as aluminium production, steel manufacturing, paper manufacturing or cement production qualified for assistance under the Jobs and Competitiveness Program, the Energy Security Fund and the Steel Transformation Plan in the form of ‘free carbon units’ in order to remain competitive in international markets—in some cases only being required to pay as little as 5.5% of the standard rate (approximately AU$1.27) per tonne (Byrnes et al. 2013). Coal fired power stations were likewise eligible for free credits to help the Australian economy remain competitive by keeping energy costs low for manufacturers and other energy-intensive industries, with a gradual reduction in the awarded amount over time. For context, the Australian manufacturing industry had been steadily declining with a drop of 9.6% (99,000 jobs) over the 5 years leading up to December 2013 (Georgeson and Harrison 2015). The carbon pricing scheme came into effect in July 2012 but had lasted for only 2 years when it was repealed following a federal election and subsequent change in government from the Australian Labor Party to the more conservative LiberalNational Coalition. In the lead up to the election, the scheme had been fiercely

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contested to the point that it had become a key election issue. The rationale behind its repeal stemmed from concerns that costs, which were imposed on the liable parties through having to acquire the necessary permit, would later be passed on downstream to consumers and therefore the average cost of living for households and businesses would increase. The carbon pricing scheme was estimated to have raised around AU$15.4 billion in gross revenue and cost businesses AU$85 million in compliance costs each year (Department of the Environment 2014a). The Australian Treasury at the time had advised that households on average would save AU$550 from repealing the tax, as well as save on lower retail electricity prices by 9% (AU $200 per household) and retail gas prices by 7% (AU$70 per household) (Department of the Environment 2014b). The effect of the short-lived carbon pricing scheme remains difficult to determine, especially given the short period of its existence, which did not allow enough time for stakeholders and businesses to respond through investments and other activities. On the one hand, carbon pollution was reported to have decreased by about 7.4% (nearly 12 million tonnes less pollution from electricity generation) in the year after the commencement date under the justification that “the electricity supplied to the national grid has been cleaner since the carbon price started” and the emissions intensity of the National Electricity Market dropped from 0.92 tonnes of carbon dioxide equivalent per megawatt-hour to about 0.87 (Department of Industry 2013). According to the Office of the Chief Economist (2016) on the other hand, the removal of the carbon pricing scheme could also have attributed to the slight increase of coal’s proportion of total electricity generation in 2014–2015. The removal was also poorly timed in regards to international criticism—Australia had slumped from 51 to 57 out of 61 on a ranking of national climate change performance leading up to the UNFCCC talks in Warsaw, which put the country out of sync with the international community at a time where the inclusion of the United States and China brought the world one step closer to a global agreement (Crowley 2017). This would ultimately harm Australia’s attractiveness as a destination for renewable investments since the volatility from the political landscape would severely reduce investor confidence. Perhaps the most significant oversight of the carbon pricing scheme was the failure to build a strong support base that would see the policy through from concept to execution. A mechanism that imposed a cost on activities emitting carbon pollutants in a nation with a heavy dependence on fossil fuels was certain to face criticism and resistance by those stakeholders most negatively affected by it. Households were concerned that this meant costs in the family budget would increase overall. In contrast to the mechanism of imposing cost, however, is that of providing an incentive or reward, which is the role that feed-in tariffs would play.

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169

State Feed-In Tariffs

Feed-in tariffs in Australia provide the baseline for the amount to be paid to non-commercial producers of electricity and are determined on a state level rather than federal, as retail electricity prices fall under state jurisdiction. Tariffs can thus vary from state to state, however unsubsidised rates range anywhere between 8 and 12 cents per kilowatt-hour but some subsidy schemes have offered rates of up to 60 cents. These tariffs are typically applied to small-scale photovoltaic installations and have been the main drivers for the uptake in solar panels by households and businesses over the past years. In 2011 and 2012, over 300,000 new solar installations were registered across the country in both years (CEC 2016a). About 15% of Australian households are estimated to have solar PV systems installed on their rooftops. The role that feed-in tariffs have played in encouraging the uptake of small-scale systems is substantial. As shown in Table 9.4, the increase in installations from 2010 onwards ensured that these installation types would come to dominate the renewables scene. However, these feed-in tariffs are not without unfavourable views. This rapid increase potentially draws too much attention to capitalising on small-scale, decentralised solar PV generation, which adds pressure on the overall energy network that has to mitigate the day and night variable and subtracts from the effort needed in making medium and large-scale generation—which better address the sustainable energy needs of a greater demographic—more viable. The monetary benefits realised through the installations are only on the owner’s end, whereas the costs that are involved in upgrading the connection and network infrastructure are shared among all grid users. The argument put forward, then, is that the uptake of solar PV systems by households raises the utility bills for all users and unfairly disadvantages those who are unable to install their own small-scale system because of their disadvantaged financial position or living arrangements (such as tenants), i.e. the socio-economic inequality gap increases (Byrnes et al. 2013). In New South Wales (NSW) under the Solar Bonus Scheme, feed-in tariff subsidies of 60 or 20 cents per kilowatt-hour generated were offered, depending on the time of connection. The scheme commenced in 2010 with a starting tariff of 60 cents per kilowatt-hour for customers who joined in the first year (to incentivise early technology adopters) and the lower 20 cents offered to customers who joined the scheme from 2011 onwards. In cases where early adopters who were on the 60 cents tariff decided to increase the generating capacity of their installations, the added capacity had to be separately metered and was subject to the 20 cents tariff. The premiums assuredly contributed to the rapid growth in the number of applicants under the scheme and put pressure on government to curtail the costs of offering these subsidies. In 2014, the costs of the scheme to the government were projected at AU$1.248 billion, not including the contributions from energy retailers (NSW Trade and Investment 2014). The scheme’s costs were primarily funded by the state’s Climate Change Fund, which receives contributions from energy

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total

Year

Number of new solar photovoltaic system installations ACT NSW NT QLD 102 779 26 475 278 2890 88 3087 803 14,008 215 18,283 2323 69,988 637 48,697 6860 80,272 401 95,303 1522 53,961 513 130,252 2411 33,998 1024 71,197 1225 37,210 1026 57,748 1066 33,484 1197 39,510 999 29,796 1793 35,717 17,619 357,438 7024 501,387 SA 1037 3456 8569 16,705 63,553 41,851 29,187 15,166 12,084 12,682 205,946

TAS 26 161 1452 1889 2475 6364 7658 4207 2020 2580 28,882 828 2036 11,847 35,676 60,214 66,204 33,332 40,061 31,360 26,506 308,977

VIC

Table 9.4 Number of solar photovoltaic system installations in Australia by year, 2007–2016 (Source: CEC 2016a)

262 2068 11,157 22,293 51,667 42,653 21,600 23,496 20,799 25,302 221,533

WA

National 3535 14,064 66,334 198,208 360,745 343,320 200,407 180,139 141,520 135,374 1,648,805

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distributors in order to fund sustainable energy programmes and initiatives. As of 2017, both the 60 and 20 cent tariffs no longer apply, as the relevant legislation expired and has not been renewed. Owners of private solar installations instead receive tariffs of around 6–8 cents based on the benchmark ranges put forward by the Independent Pricing and Regulatory Tribunal (IPART 2017). This has also meant that participating customers are now forced to consider switching from gross metering to net metering, in order to best utilise their solar installations. Over 146,000 households had joined under the scheme and added an estimated 342 megawatts of renewable energy capacity to the grid in NSW (NSW Industry 2016). Such feed-in tariffs are applicable to those with an installed small-scale solar system but other incentives for businesses and households to improve their energy sustainability exist, should they not have the ability to install such a system on site. These alternatives will be covered in the following sections.

9.3.4

National Energy Productivity Plan

The National Energy Productivity Plan (NEPP), introduced in late 2015, is the framework and work plan for a 40% improvement in Australia’s energy productivity by 2030, which aims to boost competitiveness and growth, help households and business manage energy costs and reduce greenhouse gas emissions (COAG-EC 2015). This improvement in energy productivity is to be pursued through 34 measures under the NEPP that are subdivided into six overarching themes, namely: efficient incentives, empowering consumers, helping business compete, innovation support, competitive modern markets and consumer protections. For example, the lowering of thresholds for commercial buildings from 2000 to 1000 m2 will add an additional 1000 commercial buildings to the Commercial Buildings Disclosure Program (CBD), which requires energy efficiency information for office space that exceeds the aforementioned to be disclosed when on offer for sale or lease. The CBD is expected to deliver more than AU$50 million in energy savings and 3.5 million tonnes of emissions reductions over 5 years (COAG-EC 2016). The NEPP’s key performance indicator is the measure of economic output (gross domestic product) divided by the energy used (petajoules) (COAG-EC 2016). The NEPP Annual Report 2016 suggests that the NEPP, although in its infancy, is already progressing well due to the early advancement and implementation of some of its measures. The energy productivity for 2014–2015 was estimated to have risen to AU$274 million GDP per petajoule of energy consumed. However, the annual rate of improvement (1.48% in 2014–2015) was lower than both the 15-year average (1.69%) and the target average needed in order to achieve the NEPP’s 2030 target (2.26%), thus requiring that greater impacts must be made in later years of the NEPP. It is hoped that the NEPP can contribute more than a quarter of the savings required to meet Australia’s 2030 emissions reduction target (COAG-EC 2016). Another method for households and businesses to contribute to energy sustainability is through investing in renewable energy generators by way of displacing a

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proportion of the consumer’s electricity usage. This approach is further discussed in the following section.

9.3.5

National GreenPower Programme

GreenPower is a joint initiative established in 1997 by the state governments of New South Wales, Victoria, Tasmania, South Australia and Australian Capital Territory. It is a programme that allows households and businesses to displace a portion of their electricity usage with certified renewable energy by obliging their energy retailers to purchase the equivalent amount in LGCs from accredited renewable energy generators. The programme effectively allows customers to invest in those accredited generators. The aim of the GreenPower programme is to encourage growth in renewable energy in Australia by increasing the consumer demand for accredited renewable energy (“GreenPower”). The objectives of the GreenPower programme align with those of the RET, namely to reduce emissions from electricity generation and to increase investment into renewable energy. The RET lays out the groundwork for the functioning of the GreenPower programme by creating the market and conditions for the creation of LGCs, which form the basis for identifying and quantifying the amount of renewable energy that needs to be purchased. One key difference between the GreenPower programme and the RET is that the GreenPower programme relies on the voluntary participation of its customers to remain effective and not by mandatory legal action, ergo relying on self-promotion and adhering to the principles of free market. The LGCs that are purchased under the GreenPower programme cannot be used by the energy suppliers to fulfil their LRET obligations under the RET, thus ‘double counting’ is averted. The GreenPower programme also offers an opportunity for customers who may be limited by their financial or living arrangements (such as tenants) but wish to support the uptake of and transition towards more renewable energy projects on the grid. A total of 1,092,976 MWh of GreenPower had been sold to over 610,000 customers and since 2009 more than AU$500 million has been invested into accredited GreenPower generators (GreenPower 2016).

9.3.6

Emissions Reduction Fund

The Emissions Reduction Fund (ERF) is a voluntary scheme that aims to give incentives for organisations and individuals to adopt activities or technologies that would reduce their emissions. Eligible activities (labelled ‘methods’ under the ERF) would receive Australian Carbon Credit Units (ACCUs). Each ACCU represents one tonne of carbon dioxide equivalent that is either stored or avoided by a project and can then be sold back to the government through a carbon abatement contract or sold

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on the market to organisations looking to offset their own emissions. The objective of the ERF is to help achieve Australia’s 2020 emissions reduction target of 5% below 2000 levels by 2020. The ERF runs alongside and is complimentary to other programmes such as the RET; it is regarded as the central component in the government’s policy suite to reduce emissions. The ERF, in effect, emerged as the replacement for the carbon pricing scheme. In 2014, AU$2.55 billion was pledged to establishing the ERF, to be allocated across a flexible portfolio of emissions reduction projects, once abatements were realised (Commonwealth of Australia 2014). Methods that are eligible under the ERF span several sectors and include examples such as the reduction of fugitive coal mine emissions and the reduction of emissions from transportation, livestock or agricultural waste. Under the Facilities method, for example, electricity generators could earn ACCUs by reducing the emissions per unit of output through low emission fuels or installing high efficiency equipment. Up to 4.6 million tonnes of carbon dioxide equivalent have been accounted for under the ERF due to projects focusing on energy efficiency (DEE 2017c).

9.4

Key Learnings

What should be evident from Sect. 9.3 overall is the general success of those policies that have involved more incentive and less cost imposed on participants, suggesting that the offer of rewards may have a greater positive impact on the impact of green energy policies than the threat of punishment. The extent to which the specific context influences the potential of a green energy policy has not been determined but may present an interesting question for further research—for example, to what extent materialism and private wealth as virtues in the Australian capitalist society would play in explaining the rapid uptake of solar installations or the general demise of the carbon pricing scheme. Nonetheless, these considerations may provide valuable insight for those attempting to determine the most effective approach to sustainable energy transformation in a well-developed nation with a stable government and generally high levels of income. The second aspect identified in this chapter is the importance of building and maintaining a strong support base for those policies introduced. Consider for example, the effect of the negotiations between the political parties and the impact that the Warburton Review had in hampering investments and undermining the RET, which taken together had a significant negative impact on green energy development in Australia. Without unconditional bipartisan support, the RET found itself subject to change and scrutiny. This is not to suggest that policies should never be reviewed but rather that such undertakings should only be done under extenuating circumstances. Full consensus between stakeholders should be secured by the time of implementation, lest the integrity and credibility of a policy come into question if too many doubts are cast. Naturally, it is difficult to make full predictions

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or keep a full, extensive list of possible hindrances that may arise but these should not be taken lightly and every possible effort ought to be invested in its assurance and stability. Additionally, it can be said that successful communication is key. Looking at the NSW Solar Bonus Scheme and its closure, for example, even though the scheme’s closure was legislated in advance, confusion and frustration still lingered over the discontinuation of the tariff subsidy (Cormack 2016). Customers were urged to consult with their retailers regarding their options moving forward but continued to remain uninformed and in anticipation of the changes forthcoming. Some were oblivious of their participation in the scheme and others, though aware of its closure, were slow to make the necessary adjustments (EWON 2016). Much of the uncertainty that arose from the scheme could arguably have been avoided had clearer communication channels been established that explicitly laid out those terms and conditions affecting scheme participants and what was to be expected over the longterm. The NEPP, the National GreenPower programme and the ERF should highlight some of the alternative methods to promoting sustainable energy that do not centre on directly increasing renewable energy generation capacity. The NEPP targets maximum productivity of electricity generated, while the GreenPower programme works to add financial viability to large-scale renewable energy projects and the ERF rewards innovative energy efficient projects. These alternatives not only provide supplementary support to the collective effort but also allow a more incorporative approach, thereby not limiting the type of participants or customers.

9.5

Conclusions and Recommendations

As has been observed, many initiatives for the transition to sustainable energy exist in Australia on all tiers of government. A number of these make references to others policies and initiatives or intend to build upon their aims and goals. In some cases, they also appear to be optimistic, while not providing specifics on how overly ambitious targets may be met. From the discussion on the RET, it should be made clear that any commitments which are put forward in policies should be unwavering. Additionally, the targets set by the RET do not appear to be creating any significant impact on the energy generation mix, since the portion of renewable energy generation capacity up to 2011 continued to rest at around the 10% mark. Considering that the target had been revised from 41,000 GWh to 33,000 GWh and that about 18,000 GWh of renewable energy still needs to be contributed towards the goal that is only a few years away, the RET overall could certainly be described at this stage as lacklustre and disappointing. The RET would need to be redefined in such a way as to specify clear targets in increasing the renewable energy portion of the total energy mix. Furthermore, to support emerging renewables technologies, Australia needs to make greater efforts to wean itself off the dependency on fossil fuels and establish a

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clear global precedence in sustainable energy technologies—goals which lie well within the country’s capabilities. The greatest challenge by far is amassing the political willpower and cultivating the socio-cultural environment for a proactive and effective uptake of such technologies. It would seem, based on some of the policies shown in Sect. 9.3, that the best way moving forward would be to focus on programmes and schemes that incentivise sustainable behaviour (Martin and Rice 2015). At the time of writing, a review of Australia’s energy policies is taking place by the Department of the Environment and Energy, which itemises several focal points on which to assess the effectiveness of existing policies for meeting Australia’s 2030 and Paris Agreement commitments. Some of these items include: the viability of a sectoral breakdown of emission reductions; a long-term, post 2030 emissions reduction goal; research and development; and the impact such policies may have on Australia’s economy and development (DEE 2017b). Disclaimer Any views or opinions intentionally or incidentally expressed in this text are solely those of the author and do not necessarily reflect the official policy or position of any organisation or agency mentioned herein.

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COAG-EC – Council of Australian Governments Energy Council (2015) National Energy Productivity Plan 2015–2030. http://www.coagenergycouncil.gov.au/publications/national-energy-pro ductivity-plan-2015-2030. Last accessed 31 Jan 2019 COAG-EC – Council of Australian Governments Energy Council (2016) National Energy Productivity Plan 2015–2030. Annual Report 2016. http://www.coagenergycouncil.gov.au/publica tions/national-energy-productivity-plan-annual-report-2016. Last accessed 31 Jan 2019 Commonwealth of Australia (2014) Emissions Reduction Fund White Paper. http://www.environ ment.gov.au/climate-change/government/emissions-reduction-fund/publications/white-paper/. Last accessed 31 Jan 2019 Cormack L (2016) NSW solar bonus scheme ending but still ‘mass confusion’ for customers. The Sydney Morning Herald. http://www.smh.com.au/business/consumer-affairs/nsw-solar-bonusscheme-ending-but-still-mass-confusion-for-customers-20161223-gth3h6.html. Last accessed 31 Jan 2019 Crowley K (2017) Up and down with climate politics 2013–2016: the repeal of carbon pricing in Australia. WIREs Climate Change 8(3):e458. https://doi.org/10.1002/wcc.458 CSIRO – Commonwealth Scientific and Industrial Research Organisation (2015) Australian National Outlook 2015: economic activity, resource use, environmental performance and living standards, 1970–2050, October 2015. https://www.csiro.au/~/media/Major%20initiatives/ Australian-National-Outlook/CSIRO%20MAIN_REPORT%20National_Outlook_2015.pdf. Last accessed 31 Jan 2019 DEE – Department of the Environment and Energy (2015) Australia’s 2030 climate change target. http://www.environment.gov.au/climate-change/publications/factsheet-australias-2030-cli mate-change-target/. Last accessed 31 Jan 2019 DEE – Department of the Environment and Energy (2016a) Australia’s emissions projections 2016. http://www.environment.gov.au/climate-change/publications/emissions-projections-2016/. Last accessed 31 Jan 2019 DEE – Department of the Environment and Energy (2016b) Tracking to Australia’s emissions reduction targets. https://www.environment.gov.au/system/files/resources/9437fe27-64f44d16-b3f1-4e03c2f7b0d7/files/fact-sheet-tracking-emissions.pdf. Last accessed 31 Jan 2019 DEE – Department of the Environment and Energy (2017a) 2017 review of climate change policies. http://www.environment.gov.au/climate-change/publications/final-report-review-of-climatechange-policies-2017/. Last accessed 31 Jan 2019 DEE – Department of the Environment and Energy (2017b) The Renewable Energy Target (RET) Scheme. http://www.environment.gov.au/climate-change/renewable-energy-target-scheme/. Last accessed 31 Jan 2019 DEE – Department of the Environment and Energy (2017c) The emissions reduction fund – what it means for you. http://www.environment.gov.au/climate-change/emissions-reduction-fund/pub lications/what-it-means-for-you/. Last accessed 31 Jan 2019 Department of Industry – Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (2013) How Australia’s carbon price is working: one year on. https:// www.thepmr.org/system/files/documents/0045%20Carbon%20Price%20One%20Year%20On %2018_06%20d_1_0.pdf. Last accessed 31 Jan 2019 Department of the Environment (2014a) Repeal of the carbon tax – how the carbon tax works. http://www.environment.gov.au/system/files/pages/59388d77-a9b5-4e4c-87b7-d732baf7c45b/ files/factsheet-how-carbon-tax-works_1.pdf. Last accessed 31 Jan 2019 Department of the Environment (2014b) Repeal of the carbon tax – how the repeal will work. http:// www.environment.gov.au/system/files/pages/59388d77-a9b5-4e4c-87b7-d732baf7c45b/files/ factsheet-how-repeal-will-work_2.pdf. Last accessed 31 Jan 2019 Downes PM, Hanslow K, Tulip P (2014) The effect of the mining boom on the Australian economy. Reserve Bank of Australia Research Discussion Paper No. 2014-08. http://www.rba.gov.au/ publications/rdp/2014/pdf/rdp2014-08.pdf. Last accessed 31 Jan 2019 EWON – Energy and Water Ombudsman NSW (2016) Solar Bonus Scheme customers – act now to avoid bill shock. Media Release, November 2016. https://www.ewon.com.au/content/

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Document/Media%20releases/Media%20release-Solar-bonus-scheme.pdf. Last accessed 31 Oct 2019 Georgeson C, Harrison AH (2015) Regional impacts of the accelerated decline of the manufacturing sector in Australia. Research paper 1/2015. Office of the Chief Economist, Canberra GreenPower – National GreenPower Accreditation Program (2016) Annual Compliance Audit for 1 January 2015 to 31 December 2015. http://www.greenpower.gov.au/News/2015GreenPower-Compliance-Audit-released/~/media/B822A5B40D6043F0853E2E83B6BFF232. pdf. Last accessed 31 Oct 2019 IPART – Independent Pricing and Regulatory Tribunal (2017) Solar feed-in tariffs: benchmark range 2017–18. https://www.ipart.nsw.gov.au/files/sharedassets/website/shared-files/pricingreviews-energy-services-publications-review-of-solar-feed-in-tariffs-201718/solar-feed-in-tar iffs-201718-final-report-june-2017.pdf. Last accessed 31 Jan 2019 Martin N, Rice J (2015) Improving Australia’s renewable energy project policy and planning: a multiple stakeholder analysis. Energy Policy 84:128–141 National Sustainability Council (2013) Sustainable Australia Report 2013: conversations with the future. Department of Sustainability, Environment, Water, Population and Communities, Canberra NSW Industry – New South Wales Department of Industry, Skills and Regional Development (2016) The Solar Bonus Scheme closure: frequently asked questions. https://energysaver.nsw. gov.au/sites/default/files/2018-09/sbs-closure-faqs.pdf. Last accessed 31 Jan 2019 NSW Trade and Investment – New South Wales Department of Trade and Investment (2014) NSW Solar Bonus Scheme Statutory review: report to the Minister for Resources and Energy, August 2014 Office of the Chief Economist (2015) Energy in Australia 2015. https://archive.industry.gov.au/ Office-of-the-Chief-Economist/Publications/Documents/energy-in-aust/Energy-in-Australia2015.pdf. Last accessed 31 Jan 2019 Office of the Chief Economist (2016) Australian Energy Update 2016. https://www.energy.gov.au/ sites/default/files/2016-australian-energy-statistics.pdf. Last accessed 31 Jan 2019 Office of the Chief Economist (2017) Resources and energy quarterly, December 2017. https:// www.industry.gov.au/data-and-publications/resources-and-energy-quarterly-all. Last accessed 31 Jan 2019 Productivity Commission (2011) Carbon emission policies in key economies. Research report, Canberra. https://www.pc.gov.au/inquiries/completed/carbon-prices/report/. Last accessed 31 Jan 2019 Sachs J, Schmidt-Traub G, Kroll C, Durand-Delacre D, Teksoz K (2016) SDG index and dashboards: a global report. Bertelsmann Stiftung and Sustainable Development Solutions Network (SDSN), New York The Climate Institute (2016) Climate of the Nation 2016: Australian attitudes on climate change. http://www.climateinstitute.org.au/climate-of-the-nation-2016.html. Last accessed 31 Jan 2019 UN – United Nations (2015) Transforming our world: the 2030 agenda for sustainable development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1 UNDP – United Nations Development Programme (2016) Human Development Report 2016: human development for everyone. UNDP, New York. http://hdr.undp.org/en/2016-report/down load/. Last accessed 31 Jan 2019 World Bank (2017) World development indicators: 3.7 – electricity production, sources and access. http://wdi.worldbank.org/table/3.7. Last accessed 31 Jan 2019

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Aleksandar Damjanovski has experience working in the New South Wales Department of Industry, Skills and Regional Development within the Division of Resources and Energy. There he rotated between the Sustainable Energy Programs unit, the Energy Networks unit, the Energy Policy unit and the Investment Attraction team to bring forward renewable energy projects and activities in the state, which saw his involvement in the NSW Energy Savings Scheme, the Equipment Energy and Efficiency Program, the National GreenPower Program and the NSW Solar Bonus Scheme. His current focus is on sustainability and government policy in the housing sector. Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Email: [email protected]

Chapter 10

Governmentally Controlled Supply Chains in Areas Facing Food Security Challenges: The Case of Baladi Bread Supply Chain in Egypt and the Policy Transition After the 2011 Uprising Sarkis Nehme

10.1

Introduction

This chapter will discuss the bread supply chain in countries facing the challenges of food security and sustainable development. The focus will be on the Middle East and North Africa (known as the MENA region). In this area, wheat is a dietary staple, making it a powerful tool for governmental food security policies. Based on the International Food Policy Research Institute (IFPRI), this region includes: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Malta,1 Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, the United Arab Emirates, the West Bank and Gaza, and Yemen. This region is the world’s most dependent on food imports, and its countries are among the world’s largest importers of wheat (Breisinger et al. 2010). Additionally, its population almost tripled in 50 years, and its freshwater and arable lands are diminishing, becoming more vulnerable to climate change. Some countries in this region have recently witnessed a series of political changes, ranging from peaceful demonstrations to civil wars; the so-called Arab Spring, political instability, and terrorism severely affected this region’s economies (Ianchovichina et al. 2015). Some countries, like Syria, Yemen, Libya and Iraq, are still affected by conflicts, which are considered the main drivers of food insecurity (FAO 2015). Other countries, such as Egypt, the most populated country in the region, overcame these conflicts and have started to recover. Before the uprising, Egypt’s food security had been maintained since 1956

1

The World Bank does not consider Malta part of the MENA region.

S. Nehme (*) Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg (BTU), Cottbus, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_10

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thanks to its food and energy subsidy programme. After the uprising, however, Egypt was urged out of necessity to adopt a new development model that could deal with contemporary challenges and restore security. As a result, the new regime introduced an agenda for sustainable development known as the Sustainable Development Strategy: Egypt Vision 2030 (SDS 2030). When discussing food security in Egypt, wheat is the backbone of the food system, representing 51% of the total daily caloric intake. Therefore, a secure and stable wheat/bread supply chain is essential to maintain food security, which has forced some governments to exercise control over the supply chain. With this view, this chapter has the following objectives: • Study the role of the food supply chain in a country facing challenges of food security. • Understand the challenges within the food supply chain and the obstacles to its security and sustainability. In this context, this chapter supplements and continues the discussions on emerging sustainability policies, with a focus on areas of fragile food security. Section 10.2 will explain the policy backgrounds and the evolving concepts of food security and food sustainability. Section 10.3 will explain the context of food security and the importance of the wheat supply chain in the MENA region while providing country examples from Iran and the United Arab Emirates. Section 10.4 will introduce the food security system in Egypt and the role of wheat. Section 10.5 will explain the subsidised Baladi bread supply chain. Section 10.6 will explain the challenges within the supply chain. Section 10.7 will discuss the government’s policies and interventions. Section 10.8 will summarise key learnings. The chapter ends with conclusions and recommendations in Sect. 10.9.

10.2

Policy Backgrounds of Food Security and Food Sustainability

In 1943 the first international conference2 to discuss food and agriculture was held in the United States of America. It was attended by 44 nations and focused on the challenges of feeding the world’s growing population for the next 50–75 years. This conference created an Interim Commission to draft the constitution of a new permanent structure, known as the Food and Agriculture Organization (FAO), which was officially created in 1945 (Phillips 1981). The FAO’s mission was to feed the poor and rehabilitate the food and agriculture post-war systems; its motto 2 United Nations Conference on Food and Agriculture, 1943; the term ‘United Nations’ in the title of the Conference refers to the nations working together in the effort to win the World War II. The opening sentence of the declaration the conference adopted was: “This Conference, meeting in the midst of the greatest war ever waged, and in full confidence of victory, has considered world problems of food and agriculture and declares its belief that the goal of freedom from want of food, suitable and adequate for the health and strength of all peoples, can be achieved” (Phillips 1981).

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was Fiat Panis: let there be bread. However, the concept of food security with a broader understanding of hunger as a complex matrix was only discussed during the 1970s, after the global food crisis. It became policy in 1974, following the World Food Conference. Availability, access, utilisation, and stability subsequently became essential pillars for food security after the World Food Summit in 1990. In its publication on trade reforms and food security, FAO provided the following definition of ‘food security’: “Food security exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life” (FAO 2003, p. 29). In the MENA region, the FAO, alongside the World Food Programme (WFP), implemented many programmes and supported local governments in reducing hunger and maintaining food security. On the other hand, sustainable development started to emerge as a global strategy to overcome developmental obstacles imposed by the world’s growing population, globalisation, and climate change. Sustainable development aims at maintaining a balance between the need/right to develop and the capacity of our environment. Sustainable development was criticised by many scholars as reflecting developed countries’ visions while developing countries were still struggling to achieve minimum stability and thus could hardly achieve any sustainable development. In the context of sustainable development, a sustainable food system is “a system that will protect and respect biodiversity and ecosystems, be culturally acceptable, economically fair and affordable, nutritionally adequate, safe and healthy, while optimising the use of natural and human resources”.3 This definition did not reflect the importance of security, as most developed countries were already food secure. This gap led to the problematic question: what if meeting our urgent needs (security) exceeds our maximum limitations (sustainability)? This question reflects the dilemma of some developing countries on whether to prioritise their security or their sustainability. Insecure and unsustainable food systems are major challenges for developing countries, and neither food security nor sustainable development policies alone could tackle these challenges effectively. However, food security is being redefined, and a new emerging policy of Sustainable Food Security is taking place (Sonnino et al. 2014). Sustainable food security reflects the dynamism in implementing food security using sustainability tools, and it researches innovative ways of meeting the needs in respect to limitations.

3

In July 2014 the High-Level Panel of Experts on Food Security and Nutrition (HLPE), established in 2010 as the science-policy interface of the United Nations Committee on World Food Security (CFS), provided this definition.

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Food Security in the MENA Region and the Importance of Bread Supply Chain

The MENA area consists of 70% deserts and arid lands; at the same time, its arable lands are threatened by desertification and degradation. Due to water scarcity and limited domestic capacity, the region’s imports of cereals and other foods to feed its growing populations have increased dramatically. It is the only region worldwide where the number of chronically undernourished people doubled between 1990–19992 and 2014–2016, putting immense pressure on its food security (FAO 2015). The area also stands on 60% of the world’s oil and gas reserves. Highly import-dependent countries, such as Saudi Arabia, Kuwait, Bahrain, the United Arab Emirates, Oman and Qatar are considered food secure due to their high income from oil and gas exports, while most of the other middle or low-income countries still face challenges. The highest hunger rates were recorded in Iraq, Sudan, Syria, and Yemen, as well as in the West Bank and Gaza Strip. The diets in most countries within the region consist of a high percentage of wheat-based products, such as bread, pasta, and baked goods; thus, most governments exercise direct or indirect control over the wheat supply chains as a tool for securing food.

10.3.1 The Case of Iran Iran is one of the most highly-populated countries in the region, with nearly 80 million people. The country does not have an official poverty line; however, in 2014, it was estimated that 10.5% live below $5.5 per day (World Bank 2017). The government’s food security policy targets wheat self-sufficiency,4 as bread and other wheat-based products accounts for 47% of total daily caloric intake (Ahmed et al. 2013). The bread supply chain is governmentally controlled through a wheat-flourbread subsidy programme and is managed through large companies owned by the government and ministries. Agricultural lands, mills, and bakeries are mostly privately-owned but nevertheless strictly regulated by governmental policies to ensure stability and security. In addition, the government provides farmers with subsidised machinery, fertilisers, pesticides, credits and insurances. It provides bakeries with subsidised energy for bread production as well. Iran’s oil revenues, which make up to 60% of total revenues, enable wheat imports from the European Union (EU), Russia, Australia and other countries to cover shortages, estimated between 15 and 20%. Food security policies help the country keep undernourishment below 5% (FAO 2015). However, Iran still faces food security challenges: its rain-fed agriculture is vulnerable to repeated periods of drought, its freshwater

4

Domestic wheat production increased by 12% between 1990 and 2010.

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resources are being overused and depleted, and its economy still suffers from western sanctions, affecting its food security and access to global markets.

10.3.2 The Case of the United Arab Emirates The United Arab Emirates (UAE) is one of the driest countries in the world, with an average of 78 mm of precipitation per year, poor soil, and high temperatures. Arable lands comprise solely 0.6% of the total country area and are mostly used to cultivate dates and animal fodder (Ahmed et al. 2013). Wheat is not cultivated at all in the country; however, it makes up 27% of total daily caloric intake. As a result of its high oil revenues and small population, the UAE does not have any officially-recorded poverty. The government’s policy to maintain food security is through enabling and guiding private sector investments in agriculture abroad (e.g. Pakistan, South Sudan), in parallel with inland governmental investments in enlarging storage capacity for imported food and stabilisation of food prices to avoid shocks caused by global price changes.

10.4

Food Security in Egypt and the Role of Wheat

Studying the case of Egypt can be a stimulating example of a MENA country in a period of transition, considering the country’s recent changes after the Arab Spring and the new political strategy to restore security and stability with a new vision. Egypt is one of the MENA’s low-income countries, facing food security challenges such as high dependency on imports, high rates of poverty, political instability, and malnutrition. On the one hand, 90% of Egypt’s lands are deserts, and only 3.8% are agricultural lands (World Bank 2015). 75% of available freshwater comes from the Nile river, whereas 80% of total available freshwater is used for agriculture based around the Nile river and in the Delta. On the other hand, the population has increased from nearly 20 million in 1950 to 97 million in 2017 (UN DESA 2017), of whom 25% are affected by poverty.5 The Egyptian diet consists of 62.3% cereals, of which wheat alone amounts to more than half of cereal consumption (McGill et al. 2015). High use of wheat is attributed to cultural habits and the low prices of subsidised wheat bread; this explains the constant demand of wheat even as the Gross Domestic Product (GDP) per capita increases, allowing access to diversified diets (McGill et al. 2015). This high wheat consumption6 cannot be met with the limited domestic

5 Using $1.25 per day indicator; however, when taking the $2 per day indicator, this percentage increases to 45%. 6 Average per capita consumption of wheat in Egypt is around 150 kg per year (McGill et al. 2015).

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production, resulting in a yearly gap of 40–60% (FAO 2015). This gap is filled through frequent imports from Russia (biggest supplier), Ukraine, the United States, and other countries, making Egypt the world’s largest wheat importer.7 Egyptian households spend on average 40.6% of their expenditures on food, this percentage rises to more than 50% for the poorest. To maintain food security, Egypt subsidises bread, in addition to other basic food products. The food subsidy succeeded in stabilising Egypt’s food security between 1956 and 2005, until global food prices rocketed again, affected by the avian flu, increasing fuel prices, the global financial crisis, and the so-called Arab Spring (WFP 2013). For instance, the imported quantity of wheat between 2004/05 and 2008/09 increased by only 13%; however, due to price increases, the total bill increased by 111%.

10.5

The Supply Chain of Subsidised Baladi Bread

Baladi is the common name for the subsidised bread in Egypt. It is sold today at the price of 5 piasters (almost $0.01 per 130 g loaf), while it costs the government 34 piasters. By subsidising the Baladi bread in 1956, Egypt succeeded in reducing poverty and hunger by providing people with half of their daily caloric intake at a significantly low price. For instance, from 1999 to 2000, this bread subsidy helped to keep 730,000 individuals above the poverty line (Ramadan and Thomas 2011). The supply chain of Baladi bread consists of four activities: procurement, storage, milling the wheat, and baking the bread. The following sections will describe these activities.

10.5.1 Wheat Procurement and Storage: Domestic and Imported Domestic wheat is grown in the areas of the Nile Delta (north), Upper Egypt (central), and the reclaimed land by the Red Sea Governorate and Aswan (south). It is usually harvested between May and June and then sold to the Principal Bank for Development and Agricultural Credit (PBDAC). Farmers sell their wheat directly or via intermediaries, such as traders.8 Domestic wheat is not exclusively used by the government for the subsidised Baladi bread; in fact, the PBDAC buys an average of

7

An average of 10 million metric tons were imported between 2011 and 2013. Small scale farmers prefer to sell their wheat to traders because they don’t have the means to deliver the wheat as a mandatory step of the purchasing process. In this case, traders will pick up the wheat from farms and then deliver it. 8

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only 37%9 of the domestically produced wheat (FAO 2015). After inspection, payments are made directly, and the wheat is stored10 in inland facilities. In some rural areas with limited yields, wheat is consumed directly on-farm. In the case of imported wheat, purchases are made by the General Authority for Supply Commodities (GASC) all year round, except during May and June, i.e. the local harvest season. Tenders for purchasing are publicly released every two to three weeks on GASC website (www.gasc.gov.eg), stating required amounts and supply conditions. Selected suppliers usually have a limited time to ship the purchased wheat (e.g. a tender set out on 8 July may stipulate delivery between 21 and 31 August). Once received, wheat is stored at port storage11 facilities. Out of the total, it is estimated that the wheat storage capacity allocated for Baladi bread production is 1.0–1.5 MMT (million metric tons) annually, while the consumption is nearly 7 MMT. Stakeholders for procurement and storage of wheat include the government, farmers, middlemen, private sector storage companies, and suppliers.

10.5.2 Milling There are 231 mills in Egypt in total: 147 are public12 mills, producing 86% of Baladi bread flour, while the rest is milled in private mills contracted by the GASC. Normally, mills have a storage capacity of 10 days of wheat supply. Stakeholders of the milling sector include the government and privately-contracted mills.

10.5.3 Baking There are around 25,000 licensed bakeries operating in Egypt (Abdalla and Al-Shawarby 2018), producing around 240 million loaves daily (Kamal 2015). More than 88% of these bakeries are privately owned and produce about 60% of the Baladi bread needs. The bakers receive a monthly remittance13 from GASC as a contribution to the costs of production. Licensed bakeries receive the Baladi bread

9 Domestic wheat is bought with 15 to 25% higher prices than imported one to encourage domestic production. 10 Total inland capacity: 3.01 MMT, of which 30% are Silos and 70% flat storage known as Shonas. 11 Total capacity of storage is 3.3 MMT, around 12% governmental and 88% for private sector. 12 Owned by Food Industry Holding Company (FIHC) with governmental shares of more than 51%. 13 GASC paid the licensed bakers $18 for every 50 kg of flour baked (Kamal 2015).

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wheat flour at the subsidised price.14 Stakeholders of baking include the government, bakeries’ owners and the bakers themselves.

10.6

Challenges Facing the Security of Baladi Bread Supply Chain

The supply chain of Baladi bread faces three main challenges: targeting, leakages, and corruption, which will be discussed in the following sections.

10.6.1 Targeting The FAO estimates that subsidised Baladi bread benefits 75% of the non-poor, compared to 66% of the poor. Open access to subsidised bread has increased its consumption by higher-income groups who take advantage of the low price. Restricting access to the poorest quintile might face high opposition by other beneficiaries, and in addition, an effective control system might be highly expensive and logistically complicated to implement. Targeting affects all types of subsidised foods, not only bread.

10.6.2 Leakages There are no official statistics on leakages; however, it is estimated that 15–20% of the wheat for Baladi bread is wasted (Abdalla and Al-Shawarby 2018). Literature attributes the leakages to poor storage conditions, potential use of wheat as animal feed, weak infrastructure, and a lack of transparency on the micro-level (Kamal 2015). In addition, the price difference between subsidised and non-subsidised flour has motivated a profit-seeking black market.

10.6.3 Corruption Corruption is closely associated with leakages; many reform attempts have been made but have proved to be insufficient, as corruption persists. Recently, a committee assigned by the Egyptian Parliament undertook an investigation. “The 14 In 2013, the flour for Baladi bread cost the government $419/MT and sold exclusively for licensed bakeries for $26.5/MT.

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Committee of Truth Investigation, on the Topic of Corruption and Mafia Manipulation of Wheat Imports and Public Money Wasting in the Favour of Private Wheat Importers”15 delivered its final report16 (575 pages) in August 2016 to the parliament. The report is the first of its kind to undermine the corruption in the wheat sector. The report summarised the corruption17 in the following points: • Some storage units falsified their storage capacity to receive bigger quantities of wheat for unknown use; • Some domestic wheat inspection reports were proved to be fake; • Some storage units deny their storage capacity while obtaining domestic wheat to encourage purchases from private importers; • Some traders are mixing domestic and imported wheat, then reselling it as domestic for higher profits; • Some wheat is stolen from Shonas and resold in black markets; • Some of Shonas’s wheat is infected by insects, rodents and bird faeces.

10.7

Governmental Policy and Interventions

On the one hand, the governmental policy of subsidisation kept Egypt food-secure between 1956 and 2005 at a relatively high cost. On the other hand, dramatic changes in socio-economic conditions were beyond the government’s capacity; as a result, the uprising broke out in 2011. Between 2011 and 2014, Egypt faced internal and external challenges; this chapter will not cover this period, as official data is very limited. After 2014, the subsidisation policy was partially influenced by the new policies for sustainable development and vice versa. The government decided to gradually eliminate the energy subsidy while implementing reforms in the food subsidy, without any major changes. Subsidised bread was used as a powerful tool to maintain social security while enabling the implementation of sustainable development. The government believes that maintaining Egypt’s food security during the period of transition is crucial for the success of the SDS 2030.18 To better understand the rationale behind the governments’ policy, it is necessary to review the previous interventions, which have mostly reflected the policy of the regime in power:

15

Title of the committee is translated word by word from the Arabic language. Unpublished report (in Arabic language): The Report of the Committee of Truth Investigation, on the Topic of Corruption and Mafia Manipulation of Wheat Imports and Public Money Wasting in the Favor of Private Wheat Importers, 2016. Available online at: https://www.alborsanews.com/ app/uploads/2016/08/1472135950_333_22332439_.pdf, last accessed 31 January 2019. 17 The report included all documented corruption and drew accusations to individuals and entities. 18 Sustainable Development Strategy: Egypt Vision 2030; English summary is available at: http:// arabdevelopmentportal.com/sites/default/files/publication/sds_egypt_vision_2030.pdf, last accessed 31 January 2019. 16

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• 1805–1952 (Muhammad Ali dynasty): during the 1800s, compulsory wheat procurement was imposed as a means of provisioning the military. • 1956–1970 (President Abdel Nasser): the new government introduced subsidies to feed the poor and maintain security. The food subsidy remained stable during this period with aid received from the Soviet Union, the United States, and the Kingdom of Saudi Arabia. • 1970–1981 (President Sadat): after subsidising new food items, global food prices increased, and Egypt’s national debt multiplied ten times. Attempts to eliminate some subsidised foods failed due to the 1977 riots. • 1981–2011 (President Mubarak): the Economic Reform and Structural Adjustment Programme (ERSAP) was created, and targeting was improved with ration cards. People below the poverty line obtained access to all subsidised foods, while people around or slightly above the poverty line gained access to a limited number of subsidised foods. Subsidised Baladi bread has never been restricted to any class; however, the government gradually increased its price from 1 to 5 piasters/loaf, and its weight was reduced from 150 g to 130 g. Trade liberalisation regulations have been implemented and subsidy cost was cut down from 14% of GDP in 1981 to 4% in 2010. Unexpectedly, the rising food prices between 2005 and 2008, influenced by other factors, led to an increase in 47% of the cost of a minimum food basket. Food insecurity in Egypt increased to 17.3% in 2011 compared to 14% in 2009. Rising poverty levels reached more than 50% in rural Upper Egypt with a national average of 27.8% (World Bank 2015). • 2011–2014: uprising (official data shortage). • 2014–Present (President Sissi): the uprising in 2011 and the political instability until 2014 affected the economy severely. The new government decided to undertake deep reforms and achieve new goals, and the SDS 2030 summarises this vision (see Box 10.1). The energy subsidy was cut down to reduce the fiscal burden, while the food subsidy was kept stable. Targeting of subsidised bread was improved through a consumer smart-card, limiting access to five loaves per individual per day. Moreover, as of July 2013, subsidy smart-cards were limited to citizens whose monthly income is below 1500 Egyptian pounds, or $209. Box 10.1 SDS 2030: Food Security Strategy Egypt’s new Sustainable Development Strategy: Egypt’s Vision 2030 consists of ten pillars within three dimensions (542 indicators in total): 1. Economic: Economic Development; Energy; Knowledge, Innovation and Scientific Research; Transparency and Efficiency of Government Institutions 2. Social: Social Justice; Health; Education and Training; Culture 3. Environmental: Environment; Urban Development (continued)

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Box 10.1 (continued) Strategy for subsidy reform: “Continue efforts to rationalise the different kinds of subsidies and ensure that subsidies reach those who deserve them and continue developing the bread distribution system. Ensure the availability and quality of rationed commodities linked to the ration cards. Ensure the availability of goods and services, and their flow without complications or problems”. Targets to achieve food security: • Reduce poverty from 26.3% to 23% by 2020, and 15% by 2030 • Reduce the percentage of the population below extreme poverty line from 4.4 to 2.5 in 2020, and to 0 in 2030 • Reduce anaemia among children from 27% to 20% by 2020, and 15% by 2030 • Reduce stunting from 21% to 15% by 2020, and 10% by 2030 • Increase the proportion of the population with access to a sanitation system from 50% to 70% in 2020, and 100% in 2030 • Increase the percentage of people with access to safe drinking water from 99% to 100% in 2030 • Cut the fuel subsidy to 0% by 2020 Specific targets for the wheat sector (source: Ministry of Agriculture & Land Reclamation): • Increase wheat production to meet 74% of local demand • Reduce pre-and post-harvest losses by half

10.8

Lessons Learned

Maintaining food security while achieving sustainable development can be a very challenging policy, especially in developing countries with limited capacities. In the case of United Arab Emirates, high income from oil helped keep poverty low and guaranteed access to food; however, is an oil economy sustainable? Is an importbased food system viable? Recent changes show that the UAE, in addition to other oil-export countries in the MENA region, are trying to diversify their economies and to introduce new sustainable economic models that are not based on oil. One of the challenges these models must deal with is the limited capacity to produce food locally. In the case of Iran, increasing local capacity can be seen as a strategy towards self-sufficiency and building a sustainable food system; however, can the economy bear the costs of climate change and the repetitive droughts affecting its agriculture? Short-term and long-term risk management plans are essential parts of a sustainable food security system in Iran. In the case of Egypt, food security policies resulted in a high-cost governmental commitment to feeding the poor, which later proved to be

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beyond government’s capacity. Can Egypt regain its capacity through its sustainable development goals of SDS 2030? And therefore, can it continue to feed the poor until poverty eradication is completed? Emerging sustainability policies in areas of fragile food security are highly influenced by policies of food security in these regions. In the objective of maintaining food security, several governments in developing countries tend to offer short-term, effective solutions mostly focused on ensuring availability and increasing access to food; these measures can sometimes be highly expensive and unsustainable, yet they might succeed in maintaining national security and stability. On the other hand, the transition towards economic and/or sustainable development requires these governments to review food policies and sometimes take challenging decisions in favour of development. The transition towards sustainable development fundamentally requires an existing, sustainable food security system, or one that is flexible in making improvements without affecting national security. In the context of food security, it is necessary to identify challenges and to understand them in order to understand governmental policies. Challenges to food security can be natural (e.g. limited agricultural lands; limited freshwater; natural disasters; etc.), and in this case, adaptation is necessary and must not exceed a country’s capacity. In the case of human-induced challenges (e.g. unsuitable food diets; corruption; low capacity; etc.) mitigation is necessary, diets must be based on locally-grown foods, corruption must be eliminated, and local capacity to produce food must be prioritised over cash crops and other types of land use. Building a sustainable food security can be challenging but it is a necessary part of a sustainable development.

10.9

Conclusions and Recommendations

Comparing governmental interventions before and after the uprising in Egypt, the food security policy remains almost unchanged. Implementing reforms to the bread subsidy reflects the government’s belief that subsidised bread is crucial for food security, which is in turn crucial for successful sustainable development. Introducing the SDS 2030 reflects the government’s commitment to a strategic vision based on long-term sustainable development. A developed economy is believed to provide Egypt with the necessary means to strengthen its food security, following the models of United Arab Emirates and Iran. However, in the short-term, the government is reducing the subsidy burden through reforms. Recommendations can be classified into three categories: • Short-term: improve targeting by limiting access to poorest people; improve bread quality to improve nutrition, e.g. fortified flour; fight corruption through regular inspections.

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• Mid-term: improve supply chain infrastructure and technologies, e.g. modern storage, effective transportation, improved milling technologies, energy-effective baking; implement a unified computerised monitoring system for better control. • Long-term: introduce less water-intensive crops to reduce wheat dependency; increase food system resilience; improve agricultural productivity using modern technology and machinery to increase yields and reduce losses; diversify food diets to eliminate malnutrition and introduce wheat alternatives; increase the private sector’s involvement in the supply chain to increase competition.

References Abdalla M, Al-Shawarby S (2018) The Tamween food subsidy system in Egypt: evolution and recent implementation reforms. In: Alderman H, Gentilini U, Yemtsov R (eds) The 1.5 Billion people question: food, vouchers, or cash transfers?, World Bank Group, Washington DC, pp 107–150 Ahmed G, Hamrick D, Guinn A, Abdulsamad A, Gereffi G (2013) Wheat value chains and food security in the Middle East and North Africa Region. Duke University, Centre on Globalization, Governance and Competitiveness (Duke CGGC), Durham. https://gvcc.duke.edu/cggclisting/ wheat-value-chains-and-food-security-in-the-middle-east-and-north-africa-region/. Accessed 31 Jan 2019 Breisinger C, van Rheenen T, Ringler C, Nin Pratt A, Minot N, Aragon C, Yu B, Ecker O, Zhu T (2010) Food security and economic development in the Middle East and North Africa: current state and future perspectives, IFPRI Discussion Paper 00985, May 2010. International Food Policy Research Institute (IFPRI), Washington, DC. http://ebrary.ifpri.org/utils/getfile/collec tion/p15738coll2/id/2417/filename/2418.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2003) Trade reforms and food security: conceptualizing the linkages. FAO, Rome. http://www.fao.org/3/a-y4671e.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2015) Regional overview of food insecurity – near East and North Africa: strengthening regional collaboration to build resilience for food security and nutrition. FAO, Cairo. http://www.fao.org/3/a-i4644e.pdf. Accessed 31 Jan 2019 Ianchovichina E, Mottaghi L, Devarajan S (2015) Inequality, uprisings, and conflict in the Arab World. Middle East and North Africa Economic Monitor. World Bank, Washington, DC. http:// documents.worldbank.org/curated/en/303441467992017147/pdf/99989-REVISEDBox393220B-OUO-9-MEM-Fall-2015-FINAL-Oct-13-2015.pdf. Accessed 31 Jan 2019 Kamal O (2015) Half-baked, the other side of Egypt’s baladi bread subsidy: a study of the market intermediaries and middlemen in the system. Barcelona Centre for International Affairs (CIDOB), Barcelona McGill J, Prikhodko D, Sterk B, Talks P (2015) Egypt: wheat sector review. FAO, Rome. http:// www.fao.org/3/a-i4898e.pdf. Accessed 31 Jan 2019 Phillips RW (1981) FAO: its origins, formation and evolution 1943–1981. FAO, Rome. Also available online: http://www.fao.org/docrep/009/p4228e/p4228e00.htm. Accessed 31 Jan 2019 Ramadan R, Thomas A (2011) Evaluating the impact of reforming the food subsidy program in Egypt: a mixed demand approach. Food Policy 36(5):638–646 Sonnino R, Moragues Faus A, Maggio A (2014) Sustainable food security: an emerging research and policy Agenda. Int J Sociol Agric Food 21(1):173–188 UN DESA – United Nations Department of Economic and Social Affairs, Population Division (2017) World Population Prospects: The 2017 Revision, Key Findings and Advance Tables.

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Working Paper No. ESA/P/WP/248. United Nations, New York. https://esa.un.org/unpd/wpp/ publications/Files/WPP2017_KeyFindings.pdf. Accessed 31 Jan 2019 WFP – World Food Programme (2013) The status of poverty and food security in Egypt: analysis and policy recommendations, Preliminary Summary Report, May 2013. WFP, Cairo. https:// www.wfp.org/content/egypt-status-poverty-food-security-analysis-policy-recommendationsmay-2013. Accessed 31 Jan 2019 World Bank (2015) Egypt Data Indicators: Agricultural land (% of land area). https://data. worldbank.org/indicator/AG.LND.AGRI.ZS?locations¼EG. Accessed 31 Jan 2019 World Bank (2017) Country Poverty Brief: Middle East and North Africa: Islamic Republic of Iran. http://databank.worldbank.org/data/download/poverty/B2A3A7F5-706A-4522-AF995B1800FA3357/9FE8B43A-5EAE-4F36-8838-E9F58200CF49/60C691C8-EAD0-47BE9C8A-B56D672A29F7/Global_POV_SP_CPB_IRN.pdf. Accessed 31 Jan 2019

Sarkis Nehme is a Ph.D. candidate at the Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Germany, and Lecturer at Mont Rose College of Management and Sciences, London, England. With more than 20 years of experience in food and hospitality, his research interests are food sustainability and food security. His current research focuses on sustainability assessment of bread production. Sarkis holds a Masters’ degree in Economics and Management from the University of Perpignan Via Domita, France, a DESS in International Hospitality from the Lebanese University, Beirut, Lebanon and a Bachelor’s degree in Business Administration from the Lebanese Canadian University, Aintoura, Lebanon. Department of Environmental Planning, Brandenburg University of Technology (BTU) Cottbus-Senftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Email: Sarkis.Nehme@b-tu. de; Internet: https://www.b-tu.de/en/environmental-planning. Mont Rose College of Management and Sciences, London IG2 6NQ, England; Mobile: +447516872717; Email: [email protected]; Internet: https://mrcollege.ac.uk/.

Chapter 11

Tools of Transformation: From Small Scale Progress to Structural Change Guus ter Haar and Lucas Simons

11.1

Introduction

The UN’s 2030 Agenda for Sustainable Development, adopted three years ago, established 17 Sustainable Development Goals spanning 169 ambitious but concrete targets. Amongst these, it aimed at ensuring sustainability of growth—“to protect the planet from degradation, including through sustainable consumption and production, sustainably managing its natural resources and taking urgent action on climate change, so that it can support the needs of the present and future generations” (UN 2015, p. 2).1 Our definition of sustainable growth is related, but both simpler and more ambitious: “to ensure responsible consumption and production, aimed at protecting and regenerating ecosystems, minimising negative ecological and social impact, and building local capacity for stakeholders and ecosystems to support the needs of the present and future generations.” However, as the preceding chapters should make clear, we are still far from this ideal. In spite of the growth of tools such as Voluntary Sustainability Standards (VSS) and the certification schemes that drive their adoption, grave sustainability problems persist. How can this be? This chapter takes a step back, and asks why our current approaches to sustainability fail to have the impact we might expect—and should demand.

This chapter was prepared with support of Matthijs Maas and Niko Wojtynia. Note that this definition echoes the most widely used definition of ‘sustainable development’ as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED 1987, p. 41).

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Sections 11.2 and 11.3 describe the unsustainable nature of our global food system, and how this is a logical outcome of the way this system is organised. A transition towards sustainable agricultural sectors, we argue, can only be successful if initiatives manage to affect the broader forces which shape agricultural sectors. To guide such strategies, we introduce the ‘Sector Shapes’ and ‘Sector Forces’ models in Sects. 11.4 and 11.5, respectively. In Sect. 11.6 we continue by describing the ideal role of standards in such an approach—as well the limits to the fragmented way they are currently used. Finally, we propose a holistic approach to tackling the root causes of ‘unsustainability’ using a framework of six key elements in Sect. 11.7, concluding by describing what we think is needed for a sustainable future in Sect. 11.8. We recognise the models provided here are not perfect and simplify the complexity of real-world challenges. Our intention is to provide insights for furthering the discussion, asking the right questions, and agreeing on concrete next steps for driving sustainability in agriculture and beyond.

11.2

Our Global Food System: The Limits to Change

Have you ever wondered how it is that, in spite of all the funds and efforts spent on pursuing sustainability, progress continues to be at most frustratingly slow, and in many cases seems absent? Between 1960 and 2016, more than 4.5 trillion dollars (converted to the value of 2014 US dollars) in development aid has been transferred (World Bank 2018),2 with budgets accounting for many billions of dollars devoted to sustainability initiatives set to tackle the worst of the world’s problems. In the past decades, over four hundred standards, codes of conduct, and audit protocols on sustainability have been established (Giovannucci 2008).3 Yet while it is encouraging to see such efforts and resources pledged to improving the sustainability of our world, it is all the more troubling how deeply rooted and intractable these problems still appear to be. While progress is being made, such as in a degree of (mostly ecological) sustainability ensured by VSS in many commodity sectors, the pace of change is too slow—and its scope too narrow. Too often, measures of success remain focused on output (such as ‘number certified’), not outcomes (the positive and structural impact of an intervention); on relative performance rather than absolute progress. We ask ourselves “are we doing better than last year?”, or “are we doing better than our competitors?”; but too rarely do we ask ourselves “are we doing what is needed?” 2

For a more conservative estimate, see Qian (2015), who registers 3.5 trillion dollars (2009 US$) between 1960 and 2013. 3 At a conservative estimate. In 2016 the UN Forum on Sustainability Standards identified over 400 Voluntary Standards Schemes (UNFSS 2016, p. 5); moreover, as of January 2019 the ITC Standards Map identifies 250 standards (ITC 2019), and Ecolabel Index lists 463 sustainability labels and standards (Ecolabel Index 2019).

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Even today, after decades of effort, our global agricultural system—which provides livelihoods for one in every seven people on the planet (FAO 2012)—remains marred by poor working conditions, child labour (NCFH 2012), and pervasive poverty (Tittonell and Giller 2013; Carter and Barrett 2006; Barbier and Hochard 2015). This is not to mention its unsurpassed environmental impact: agriculture globally remains the largest drain on fresh water and the second largest source of greenhouse gas emissions (Russell 2014), as well as a primary driver of severe soil depletion, ground water pollution, deforestation, habitat destruction and biodiversity loss (WWF 2017; Newbold et al. 2015, 2016). Given the projected erosions in the carrying capacity of our agricultural ecosystems (Oliver et al. 2015; Isbell et al. 2011), the expected population boom to 9.7 billion by 2050 (UNDESA 2015), and the increase in animal-protein intensive diets, we can expect greatly increased pressure on our already-strained agro-food system and the ecosystems that support it (Garnett and Godfray 2012). Faced with this prospect, we will argue that the sustainability tools that we have been applying wide-scale so far are not enough to ensure long-term sustainable food production.

11.3

A Logical Outcome of an Unsustainable System

While there have certainly been victories for sustainability,4 it should be clear that over two decades’ worth of public and private spending on sustainability, as well as the implementation of hundreds of standards and certification mechanisms, have been unable to structurally address the issues discussed above. Instead, it appears we are still stuck on the road to increasing unsustainability—encountering unwanted behaviour and perverse incentives at every turn. Why has progress towards sustainability been so slow, so limited, so—to put it bluntly—insufficient? One of the key arguments in this chapter is that within the current agro-food system, these environmental and social problems are not incidental, but structural in nature. The aforementioned social and environmental externalities are a direct result of an inexorable ‘race to the bottom’ towards lower prices, with complete disregard for the impact that is accompanied by this type of production. Because price is the sole differentiating factor, and because this system operates in a political context that fails to counteract (or even recognise) these dynamics, our current system continues to reward unsustainable practices, and punish sustainable ones. These considerations should frame the discussions in this book; our food system is currently organised to be erosive to long-term considerations of sustainability. This means that progress on these challenges at a global or even just sectoral level, requires changing the way the system operates. We need a system that focuses not only on price, but also rewards other qualities—such as minimising and

4 For one famous example, see the restoration of the Loess Plateau—an area the size of Belgium (World Bank 2007; Mackintosh 2012).

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counteracting negative externalities in environmental and social terms (NewForesight and Commonland 2017). In fact, this is not just about making our system less bad (i.e. minimising negative impact), but about transforming into a net-positive, regenerative food system. To achieve such a comprehensive change in such a complex system, we need to understand how it operates: what catalyses sustainability, and what inhibits it. We argue that at present, there are three main barriers which inhibit a transformation towards sector wide sustainability: (1) there is no means to develop a shared vision on sustainability around which sector stakeholders and initiatives can organise themselves; which means that (2) there is fragmentation in public and private improvement efforts, standards and approaches, in value chains and across sectors, limiting impact; and ultimately (3) there is a lack of a viable business case for sustainable production, leading to a system which penalises sustainability frontrunners and creates no incentives to change the status quo. The complexity of agricultural organisation across production landscapes, commodity value chains, and national boundaries makes ‘off the shelf’ solutions ineffective. Still, a holistic look at the interplay of actors, market forces, and the political environment allows us to look beyond surface detail. In this way, we can identify the root causes of sector dynamics. As such, we will explore four important topics in this chapter, which can guide the development of strategies to overcome these barriers: (1) the sector ‘shape’, (2) the sector ‘forces’, (3) the role of supply chain driven tools such as VSS, and concluding with (4) the success factors for a holistic approach.

11.4

Pyramids and Diamonds: The Shape of a Sector

Have you ever wondered why it is that one sector or region is characterised by pervasive smallholder poverty, whereas in another the key sustainability problems revolve around massive deforestation, land grabs, or fertilizer overuse? What is the origin of this remarkably diverse spectrum of sustainability challenges we face? The answer to these questions lies in recognising that there are distinct ‘archetypes’ of (agri)commodity systems, each of which gives rise to different dynamics. A sector’s ability to structurally adopt and implement sustainable practices strongly depends on its archetypical shape—that is, the degree of sector organisation and professionalisation of producers (in the case of agriculture, this pertains mostly to farmers and processors). The sector shape is based on the intra-sector distribution of producers in terms of their organisation—a spectrum ranging from low-intensity, unorganised subsistence smallholders, through increasingly professionalised and organised entrepreneurial farmers, to highly-organised commercial producers (see Fig. 11.1). On the basis of the percentage of total land in the sector that is managed or exploited by a certain

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Fig. 11.1 Differential organisational capacity, from low-intensity smallholders to producer organisations (POs) and large competitive commercial farmers, set against the % of total land in the sector that is managed or exploited by this level of organisation (illustrative; Model © NewForesight)

Fig. 11.2 The relative economic performance of each sector shape, set against the capacity to adopt sustainable practices (Model © NewForesight)

level of organisation, we distinguish a total of five agricultural sector shapes, each with their own characteristics and dynamics (NewForesight 2013): (1) ‘flattened pyramid’, (2) ‘pyramid’, (3) ‘hourglass’, (4) ‘diamond’, and (5) ‘inverted pyramid’ (see Fig. 11.2; and Box 11.1 for descriptions). This ‘shape’ or demographic profile consequently has a large impact, not just on the average (and total) economic performance of the sector, but it also determines the dynamics of that economic performance; to what extent farmers primarily compete ‘on poverty’, on scale and efficiency, or on added quality (in terms of socially or environmentally responsible production).

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Box 11.1 A Guide to Key Sector Shapes 1. Flattened pyramid The textbook shape that defines many farming sectors in the developing world is a ‘flattened pyramid’ (Dixon et al. 2001). The ‘base’ consists of large numbers of generally poorly organised smallholders fully dependent on subsistence farming, whilst a small number of well-organised and professional farmers exist at the top. Under prevailing agricultural practices, a low level of skills and capital is used to produce the crop, and there is little government support, capital investment or infrastructure. Flat pyramid sectors generally compete solely on price instead of other product quality differentiators such as sustainable production, forcing smallholders further into poverty. Examples are the cocoa sector in Côte d’Ivoire and the organic cotton sector in India—which are marked by per-day per-family member incomes of US$ 1.55 and US$ 0.7–1.36 respectively, far below the World Bank poverty line. 2. Pyramid The pyramid is a more organised and developed version of its flat counterpart, with a larger portion of organised farmers’ collectives. These larger, better-organised farms make the sector more productive through economies of scale, but often lack the resources or incentives to produce sustainably, thereby leading to greater social and environmental externalities. Through economies of scale, these farmers drive prices low enough that only low-intensity, unorganised farmers who compete on poverty are able (and forced) to remain in the sector. 3. Hourglass The hourglass shape is a hybrid sector. On the one hand, a large number of professional large-scale farmers compete on maximising efficiency in production. On the other hand, a large number of low intensity, unorganised smallholders still manage to hold out by competing on poverty: eschewing sustainable practices for the cheapest methods of production (e.g. slave labour and slash-and-burn deforestation) in an under-regulated system. An example of this type of sector is the palm oil sector in Indonesia (see also Chap. 22 in this volume). 4. Diamond The diamond shape is the hallmark of more mature developing agricultural sectors, and is well represented in terms of medium-scale farmers (SMEs), which are able to obtain inputs for growth and have access to better infrastructure. In this sector, although poverty and subsistence (continued)

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NewForesight, unpublished research; IDH and True Price (2016), Fountain and Hütz-Adams (2015). NewForesight and CottonConnect analysis of field data; see also Vollaard and van Monsjou (2017).

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Box 11.1 (continued) farming still prevail at the narrower base of the sector, the majority of producers can diversify by selling products differentiated by quality characteristics (which can include sustainability characteristics), as market incentives reward such initiatives, amongst others through differential payments. A focus on quality means capital and skill requirements create barriers to entry, making these sectors less attractive to individual smallholders. Diamond-shaped sectors are prevalent in wine production and floriculture. The potential of diamond shaped sectors Improved adoption of responsible practices can occur through a wide range of interventions: e.g. government measures to implement strong agro-ecological production principles, initiatives which promote extension support, research, and carbon neutral sector practices (GIZ 2016), or through efforts to facilitate the implementation of Good Agricultural Practices (GAPs) (Snider et al. 2016), on-site processing so value is captured close to the producer base (Snider et al. 2017), and leveraging combined bargaining power for better prices. All of these interventions are made more effective and scalable by working not with fragmented smallholder producers, but with farmers that have organised themselves into cooperatives and SMEs. Therefore it is a reasonable to assume that diamond-shaped sectors have the most potential to develop into more sustainable sectors— provided we recognise that even in these sectors, different stakeholders need to work together to affect the ‘forces’ shaping the sector and collaboratively ensure progress (see Sect. 11.5). 5. Inverse pyramid As smaller farms consolidate into ever larger conglomerates, and are consequently able to outcompete small scale producers, agricultural sectors in more developed economies often move beyond the hourglass or diamond shape, to an inverse pyramid. The large-scale farms are the dominant players in this type of sector, with competition between them revolving around technology-driven economies of scale enabling cost-cutting efficiency. However, in terms of sustainability such sectors are not optimal, as the high output, low diversification, and commodification of products often leads to excessive exploitation of natural and social resources and the discounting of externalities. Soy and corn production in the Americas are good examples of this phenomenon. Based on this framework, we argue that not all types of agricultural sectors are similarly able to structurally adopt sustainable practices conducive to sustainability or carry the weight of sustainable intensification. In our experience, a sector’s strong presence of SMEs—entrepreneurial and professional farmers in farmer organisations and cooperatives—is a key success

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factor for intensifying production in a sustainable manner. Professional capacity and infrastructure puts these farmers in a better position to implement improved farm management practices, and diversify production. Their professionalism and ability to offer collateral also leads to increased opportunity for investment with lower risk, and more efficient extension services and investment (for instance in infrastructure) from the public sector. Finally, their high level of organisation helps provide them with collective guarantees which buffer the impact of market shocks, price volatility, or bad harvests, and benefits the regional sharing of best practices, ensuring sustainable practices are adopted by a critical mass of producers. From this, we conclude that a diamond shaped sector, characterised by strong SME presence, is the most suitable sector shape for sustainable intensification (Gorter 2014). Recognising the shape of a sector helps us to see which sectors might be particularly ‘ripe’ for sustainable transformation, and explain why certain efforts do not structurally alter a sector in the long run. However, it is only the first part of the puzzle. The second part in understanding structural change requires an appreciation of sector-specific forces which affect actors in the sector, and which determine both the opportunities for structural change—and the barriers to it.

11.5

The Rules of the Game: What Forces Shape a Sector?

We have just discussed the different shapes a sector can take, and how these affect the prospects for farmers—and for sustainability. Yet how do these different shapes exist and persist? Why does a sector take on one shape rather than another? To understand this, we have to examine the root causes behind the shapes. The key dynamics here are the sector forces which establish the environmental, economic, and regulatory parameters. Along with a typology of sector shapes, we have developed the ‘Forces Model’ (NewForesight 2013). Within this model, we identify the four main forces which influence sector dynamics. These forces are: Production characteristics, Market characteristics, Enabling environment, and Alternative livelihoods (see Fig. 11.3 for a detailed overview of these forces). The forces model acts as a thinking tool to identify sector dynamics, and the opportunities and bottlenecks to sustainability, in the context of a sector’s shape. For instance, in a ‘flattened pyramid’ sector, the sector is dominated by large numbers of smallholder farmers and few organised producers. Barriers to entry for this particular sector tend to be low, requiring little investment or skill to grow the crop. Producers thus tend to be poor, unorganised and with low levels of knowledge and skill. Because of their steady state of low wealth and lack of collateral they are excluded from financial markets, and therefore cannot invest in improved and more sustainable production. This ‘poverty trap’ further inhibits farmers in this type of sector from benefiting from any services (e.g. due to the high opportunity cost of attending GAP trainings) and inputs (e.g. due to the prohibitive cost of fertilizer or crop protection) that are available (Tittonell and Giller 2013; Carter and Barrett 2006). Since producers have limited access to information and no bargaining power, middle men and buyers hold much of the power on negotiating and tend to focus

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Fig. 11.3 The Four Forces that shape archetypical production systems (Model © NewForesight)

solely on the lowest price, meaning producers compete on poverty. This also means that farmers do not build up any capital to leave their profession for alternative livelihoods, meaning they (and likely their children) are farmers by default and not by choice. Compounding this is the fact that governments in ‘flattened pyramid’-type sectors often are unable or unwilling to invest in the agricultural sector, failing to provide basic infrastructure and extension services, or even imposing high taxes on the sector (Simons 2014). An understanding of the forces acting on a sector shape makes it clear that, to have lasting impact, direct support programmes (training, equipment, inputs) must be embedded into a structural sector-wide approach, which includes a clear business case for all players in the supply chain; otherwise, when support programmes are eventually terminated (which must happen, as resources, donor interest and political will are limited), the structural and negative-feedback loops that created system failure—failing markets, failing governance, and failing support systems for the production-base—will revert the sector back to its previous state. To turn around the structural failures in the food system, requires looking beyond ‘knee-jerk’ or symbolic interventions which at best address symptoms. Instead, we must look at tackling root causes, by addressing systemic negative-feedback loops which lock food systems into unsustainability and maintain the status quo.

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Taken together, this ‘Shapes and Forces’ model illustrates the structural nature of ‘unsustainability’, and helps us understand the root causes which effectively create an invisible ceiling to the impact of many sustainability interventions.

11.6

The Sustainability of Standards

So what is the role of standards in this whole story? Public and private initiatives have been driving the sustainability movement in (agricultural) commodity sectors worldwide. Arguably some of the most prominent and publicly visible sustainability initiatives are those collectively referred to as Voluntary Sustainability Standards (VSS), such as certification schemes, standard setting bodies, and certain benchmarking/rating initiatives. As should be evident from the arguments in this book alone, VSS have been a pivotal tool in driving sustainability across a wide range of sectors. They have proven to be instrumental in providing a common frame of reference to facilitate discourse and awareness, incentivising the adoption of sustainable practices, mobilising investments, and promoting transparency, assurance and traceability in supply chains. Driven by knowledgeable people committed to sustainable progress, VSS have a key role to play in driving sustainability, because they can influence some of the forces—specifically market and production characteristics—which shape a sector. VSS have been developed primarily as a market-driven instrument, one which in theory provides incentives for the type of behaviour that can help set sectors on the path towards sustainability. The VSS Theory of Change (see Fig. 11.4) entails that compliance with a standard mitigates negative social and/or environmental impacts,

Fig. 11.4 VSS Theory of Change (from Molenaar et al. 2015b)

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which (through effective assurance and communication) enhances the credibility of sustainability claims and brand value, in turn strengthening the incentives for other companies to pursue compliance, as the increased demand for certified products creates economic value (Molenaar et al. 2015a). On the basis of this premise, standards promise sustainability, but their true impact on sector-wide improvement is only partially made clear. However, the question we should ask is not just: ‘are standards effective at what they claim?’ (although we could certainly benefit from asking this more often), but really: ‘what is the sustainable vision we want to reach, what role do standards have to play in getting there, how do we optimise their use, and what other tools do we need for structural progress?’. On reflection, standards and certifications often focus on tackling a number of delineated challenges, so as to allow effective assurance, credibility, and reporting. Additionally, this enables VSS to present a compelling story that drives demand and thus grows impact. While in principle the pursuit of concrete impact measurement is laudable, this system as it is creates incentives for prioritising the treatment of symptoms with simple KPIs over dealing with complex root causes. For many years, VSS and similar initiatives have been viewed as goals in themselves; offthe-shelf solutions for public and private organisations to respond to internal or external pressures to address symptoms of sustainability challenges. While market shares of certified products are on the rise (Lernoud and Willer 2016), we argue that VSS as tools fail to show structural impact (Intact 2017), and therefore have limited effect on the improvement of a sector as a whole. And—as you may now have started to suspect—we argue that this is a result of the way they are currently applied: as tools in isolation, not as part of a holistic strategy focused on root causes.

11.7

Unlocking Progress with Six Key Elements

As discussed, standards are an indispensable tool. However, because they do not— and cannot—influence all forces at play in a sector, they cannot be a ‘silver bullet’. A useful and simple analogy here is one of building a wooden shed. Certainly, a hammer is an indispensable tool; you won’t get far without it. But if you expect to build your shed with only your hammer—and neglect to bring nails, measures, or a saw—you will not get far. In this analogy of creating a sustainable system, VSS are tools which only reach their full potential in the context of a full toolbox. This begs the question: what would that full toolbox look like? For sustainable intensification to occur, we need an approach that encompasses VSS, but also looks beyond those tools, and seeks to erode the real barriers to sustainability—or transform the drivers of unsustainability—by reconfiguring the larger sectoral dynamics; the shapes and forces. Concretely, achieving this requires an outcome-based focus and working with stakeholders throughout product value chains to nurture markets in which farmer professionalism, good agricultural practices, and sustainable production cycles are structurally rewarded. The longer-term ‘maturation’ of a market as it becomes more sustainable will be expanded upon in

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the introductory chapter for Part IV of this volume (see Chap. 21), where we also offer illustrative case studies of strategies which have proven successful in addressing dynamics of unsustainability within sectors. However, based on our experience with developing holistic approaches in such contexts, we have identified six key factors for success which must underpin any strategy aimed at structural change, which we refer to collectively as the Six Key Elements of Market Transformation: • Create a shared vision of sustainability within a sector, around which to convene a critical mass of forward-looking stakeholders; • Develop consistent, actionable strategies with room for regional prioritisation, grounded in an understanding of the shapes and forces and based on a clear Theory of Change, which allows local stakeholders to set and reach ambitious intermediate goals, ultimately leading the sector to its shared vision of sustainability; • Articulate clear roles and responsibilities (R&R) for different stakeholders in the network, leveraging local capacity, in order to maximise synergy, ensure scalability, and share costs equally; • Enable the transition to a responsible business case by clarifying the value proposition for responsible production whilst ambitiously seeking to shift the sector dynamics (shapes and forces) to reward the desired behaviour, using assurance tools and local intervention platforms for structural improvement of the supply chain; • Co-create a shared framework for progress tracking and reporting, including a shared system for measurement and evaluation with clearly defined outcomes and methods for measuring results and impact, to ensure accountability; • Organise for success through a fit-for-purpose, dedicated, and impartial backbone organisation; one which can support collaboration between organisations and key stakeholders, mobilize resources from a wide range of sources, translate global priorities to local relevance, safeguard long-term vision and ambition, and facilitate sector-wide communication and learning to drive continuous improvement. Seen through this lens, it is clear that we cannot rely on tools such as VSS in isolation, as doing so we risk limiting our impact with the illusion of progress certain standards provide. It is only by converging around an overarching strategy for sector transformation and taking into account the Key Elements needed for structural transformation that we can realign markets to work for us, not against us—in order to progress towards a more sustainable future.

11.8

Envisioning a Sustainable Future

The preceding chapters in Part I of this volume have focused on the positive and negative sides of the sustainability coin. In this concluding chapter, we have sought to shed light on the deeper, structural challenges still facing our agro-food system on

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the path to sustainability. We have spoken about the root causes of unsustainability; the archetypes of different sector shapes, and the forces which affect them. We have discussed the contributions and limits of the current strategies, which are narrowly based on standard-setting; and we have discussed key ingredients for a broader, more comprehensive approach to addressing the root causes of unsustainability in a full sector. So what’s next? How do we apply this in the field? We argued that adopting a more comprehensive approach is the logical next step—and a critical one. Fundamental to this approach is the understanding that there is no single ‘silver bullet’ approach, but that instead the levers for change differ based on the dynamics of a sector. We can already identify a number of sectors where a critical mass of stakeholders are moving ahead on this; on global level attempting to formulate a sector-wide strategy that allows local prioritisation and builds on current efforts, whilst on local level we see the emergence of result frameworks and outcome focused PPPs. However, initiatives linking both the global and the local level into an effective and holistic approach are in their infancy at best. Many commodity sectors are however increasingly maturing and thus more susceptible to this next step—all they need is a critical mass of dedicated front runners that use the abovementioned Key Elements as a guide alongside which to develop this holistic approach. Which sectors are ready to take such a next step? It is clear that the sector dynamics, barriers, relevant actors, and the level of connectivity and organisation will change as the sector ‘matures’—meaning that the strategies and interventions we pursue should change with them. An additional priority should therefore be to identify what stage of maturity a sector is in. For this in-depth discussion of these ‘phases of maturity’, and how to achieve a market transition from one phase to the next, we refer you to Chap. 21 and the specific examples from the palm oil and natural rubber industries in Chaps. 22 and 27 respectively. We hope that the arguments in this chapter inspire you and others to adopt a more holistic view when reading the contributions in this book, and identify barriers and opportunities for progress. Although we will have to work hard, collaboratively, towards a sustainable net-positive agricultural system, we are convinced that viewing the world using the framework of market transformation discussed here will be an essential element in identifying the barriers and opportunities for change, the conditions for effective interventions, and the changing dynamics as sectors progress towards a higher level of sustainability. We also recognise the models provided here are not perfect and oversimplify the complexity of real-world challenges, but we are convinced they provide insights for furthering the discussion, asking the right questions, and agreeing on concrete next steps. To any organisations committed to realising a sustainable world, such insights are not peripheral—instead, they are central to changing the future of our global society for the better. We ask these frontrunners to join us in challenging the status quo of sustainability efforts.

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References Barbier EB, Hochard JP (2015) Geographical poverty traps in rural areas: a growing global problem. http://blogs.worldbank.org/developmenttalk/geographical-poverty-traps-rural-areasgrowing-global-problem. Accessed 31 Jan 2019 Carter MR, Barrett CB (2006) The economics of poverty traps and persistent poverty: an assetbased approach. J Dev Stud 42(2):178–199 Dixon J, Gulliver A, Gibbon D (2001) Farming systems and poverty: improving farmers’ livelihoods in a changing world. Summary. FAO and World Bank, Rome and Washington, DC. http://www.fao.org/3/a-ac349e.pdf. Accessed 31 Jan 2019 Ecolabel Index (2019) Ecolabel Index – The global directory of ecolabels. http://www. ecolabelindex.com/. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2012) FAO statistical yearbook 2012: World Food and Agriculture. FAO, Rome Fountain AC, Hütz-Adams F (2015) Cocoa Barometer 2015. USA Edition. http://www. cocoabarometer.org/Cocoa_Barometer/Download_files/Cocoa%20Barometer%202015% 20USA.pdf. Accessed 31 Jan 2019 Garnett T, Godfray HCJ (2012) Sustainable intensification in agriculture. Navigating a course through competing food system priorities. Food Climate Research Network and the Oxford Martin Programme on the Future of Food, University of Oxford, UK. https://www.fcrn.org.uk/ sites/default/files/SI_report_final.pdf. Accessed 31 Jan 2019 Giovannucci D (2008) How new agrifood standards are affecting trade. In: ITC – International Trade Centre (ed) Trade – what if? New challenges in export development: consumers, ethics and environment. International Trade Centre, Geneva, pp. 99–112 GIZ – Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (2016) Voluntary Action for Climate-friendly Coffee from Costa Rica (NAMA). https://www.giz.de/en/worldwide/ 33738.html. Accessed 31 Jan 2019 Gorter J (2014) Sustainable Intensification at Scale. The New Agriculturist. http://www.new-ag. info/en/view/point.php?a¼3163. Accessed 31 Jan 2019 IDH – The Sustainable Trade Initiative, True Price (2016) The True Price of Cocoa from Ivory Coast. True Price, Amsterdam. https://www.chocolatemakers.nl/wordpress/wp-content/ uploads/2016/04/TP-Cocoa.pdf. Accessed 31 Jan 2019 Intact (2017) The 2017 Global Sustainability Standards Conference in Review. http://www.intactsystems.com/news/2017-global-sustainability-standards-conference-review/. Accessed 31 Jan 2019 Isbell F, Calcagno V, Hector A, Connolly J et al (2011) High plant diversity is needed to maintain ecosystem services. Nature 477:199–202 ITC – International Trade Centre (2019) ITC Standards Map. https://sustainabilitymap.org/stan dard-identify. Accessed 31 Jan 2019 Lernoud J, Willer H (2016) Global survey on voluntary sustainability standards (VSS): key figures. Research Institute of Organic Agriculture (FiBL), Frick, Switzerland. http://orgprints.org/ 29790/7/lernoud-VSS-2016-02-10.pdf. Accessed 31 Jan 2019 Mackintosh C (2012) Hope for a new era: before/after examples of permaculture earth restoration – solving our problems from the ground up. Permaculture News, Permaculture Research Institute. https://permaculturenews.org/2012/06/28/hope-for-a-new-era-before-after-examples-of-perma culture-earth-restoration-solving-our-problems-from-the-ground-up/. Accessed 31 Jan 2019 Molenaar JW, Dallinger J, Gorter J, Heilbron L, Simons L, Blackmore E, Vorley B (2015a) The role of voluntary sustainability standards in scaling up sustainability in smallholder-dominated agricultural sectors. White paper 4, commissioned by IFC, published by Aidenvironment, NewForesight and IIED. http://pubs.iied.org/pdfs/16586IIED.pdf. Accessed 31 Jan 2019 Molenaar JW, Gorter J, Heilbron L, Simons L, Vorley B, Blackmore E, Dallinger J (2015b) Sustainable Sector Transformation: How to drive sustainability performance in smallholderdominated agricultural sectors? White paper 1, commissioned by IFC, published by

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Aidenvironment, NewForesight and IIED. http://pubs.iied.org/pdfs/16584IIED.pdf. Accessed 31 Jan 2019 NCFH – National Center for Farmworker Health (2012) Child Labor in Agriculture. http://www. ncfh.org/uploads/3/8/6/8/38685499/fs-child_labor.pdf. Accessed 31 Jan 2019 Newbold T, Hudson LN, Hill SLL, Contuet S et al (2015) Global effects of land use on local terrestrial biodiversity. Nature 520:45–50 Newbold T, Hudson LN, Arnell AP, Contuet S et al (2016) Has land use pushed terrestrial biodiversity beyond the planetary boundary? A global assessment. Science 353(6296):288–291 NewForesight (2013) Sustainable Intensification at Scale: A Framework for Strategy Design. http:// www.newforesight.com/wp-content/uploads/2014/06/Sustainable-Intensification-Model_here. pdf. Accessed 31 Jan 2019 NewForesight, Commonland (2017) New Horizons for the Transitioning of our Food System: Connecting Ecosystems, Value Chains and Consumers. Discussion paper by NewForesight and Commonland with contributions from The Boston Consulting Group. http://www.newforesight. com/wp-content/uploads/2017/01/New-horizons-for-transitioning-our-food-system-discussionpaper.pdf. Accessed 31 Jan 2019 Oliver TH, Isaac NJB, August TA, Woodcock BA, Roy DB, Bullock JM (2015) Declining resilience of ecosystem functions under biodiversity loss. Nat Commun 6:10122. https://doi. org/10.1038/ncomms10122 Qian N (2015) Making progress on foreign aid. Annu Rev Econ 7(1):277–308 Russell S (2014) Everything you need to know about agricultural emissions. World Resources Institute, Washington, DC. http://www.wri.org/blog/2014/05/everything-you-need-knowabout-agricultural-emissions. Accessed 31 Jan 2019 Simons L (2014) Changing the food game. Routledge, London Snider A, Kraus E, Sibelet N, Bosselmann AS, Faure G (2016) Influence of voluntary coffee certifications on cooperatives’ advisory services and agricultural practices of smallholder farmers in Costa Rica. J Agric Edu Ext 22(5):435–453 Snider A, Gutiérrez I, Sibelet N, Faure G (2017) Small farmer cooperatives and voluntary coffee certifications: rewarding progressive farmers of engendering widespread change in Costa Rica? Food Policy 69:231–242 Tittonell P, Giller KE (2013) When yield gaps are poverty traps: the paradigm of ecological intensification in African smallholder agriculture. Field Crops Res 143:76–90 UN – United Nations (2015) Transforming our World: The 2030 Agenda for Sustainable Development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1 UNDESA – United Nations Department of Economic and Social Affairs (2015) World population projected to reach 9.7 billion by 2050. http://www.un.org/en/development/desa/news/popula tion/2015-report.html. Accessed 31 Jan 2019 UNFSS – United Nations Forum on Sustainability Standards (2016) Meeting Sustainability Goals: Voluntary Sustainability Standards and the Role of the Government. 2nd Flagship Report of the United Nations Forum on Sustainability Standards (UNFSS). https://unfss.files.wordpress.com/ 2016/09/final_unfss-report_28092016.pdf. Accessed 31 Jan 2019 Vollaard B, van Monsjou W (2017) Spinning it around: investing in the business case for organic cotton producers in India. The Organic Cotton Accelerator, Utrecht. http://www. organiccottonaccelerator.org/wp-content/uploads/2016/10/Article-OCA-Spinning-it-around. pdf. Accessed 31 Jan 2019 WCED – World Commission on Environment and Development (1987) Our common future. Oxford University Press, Oxford World Bank (2007) Restoring China’s Loess Plateau. The World Bank, Washington, DC. http:// www.worldbank.org/en/news/feature/2007/03/15/restoring-chinas-loess-plateau. Accessed 31 Jan 2019 World Bank (2018) Net official development assistance received (constant 2015 US$). The World Bank Databank. http://data.worldbank.org/indicator/DT.ODA.ODAT.KD. Accessed 31 Jan 2019 WWF – World Wide Fund for Nature (2017) Environmental Impacts of Farming. http://wwf.panda. org/what_we_do/footprint/agriculture/impacts/. Accessed 31 Jan 2019

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Guus ter Haar is senior strategy consultant at NewForesight. He is the firm’s in-house expert on regional and landscape-level sustainability strategies, having spearheaded a number of novel approaches to realize sustainability on a regional scale in sectors such as coffee, seafood, and palm oil. His specialty lies in ambitious sustainability projects that require the design of actionoriented strategies and business models to align interests of local, national, and international stakeholders, including industry, NGOs, and governments. In recognition of his work, he was named a Dutch Young Sustainability Leader. NewForesight, Arthur van Schendelstraat 750-760, 3511MK Utrecht, Netherlands; Tel: +31 30 227 1900; Email: [email protected]; Internet: www.newforesight.com; Twitter: @guusterhaar. Lucas Simons is founder and CEO of NewForesight, an international strategic consultancy dedicated to turn complex sustainability challenges into market op-portunities. Furthermore, he is CEO and founder of SCOPEinsight, a business in-telligence company dedicated to set the world standard for professionalisation of farmer organisations. Through his work Lucas has been active for almost 20 years in over 16 different sectors and markets and he is the trusted advisor of many large industry players in food and agriculture, governments, NGOs and leading international organisations like World Bank, IFC, FAO. He is author of the book ‘Changing the Food Game – Market Transformation Strategies for Sustainable Agriculture’, and teaches frequently at business schools and universities as visiting professor on the topic of market transformation and systemic change management. Lucas was honoured by the World Economic Forum as Young Global Leader and he was named Ashoka Fellow for being a systemic Change Maker for his work, and is a frequent listing in the Top 100 leading sustainability leaders in the Netherlands. NewForesight, Arthur van Schendelstraat 750-760, 3511MK Utrecht, Netherlands; Tel: +31 30 227 1900; Email: [email protected]; Internet: www.newforesight.com / www. scopeinsight.com / www.changingthefoodgame.com; Twitter: @lucas_simons.

Part II

New Trends in Sustainability Agenda: Private Sector Initiatives

Chapter 12

Sustainability Governance of Global Supply Chains: A Systematic Literature Review with Particular Reference to Private Regulation Marina Jentsch and Klaus Fischer

12.1

Introduction

In September 2015, the international community revitalised and re-confirmed the sustainability paradigm through the adoption of the new 2030 Agenda for Sustainable Development, comprised of 17 global Sustainable Development Goals (UN 2015). One of these goals directly addresses value creation in our globalised economy—SDG 8 “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all” with its associated 12 targets. But the question of how to deploy these rather abstract goals and make them (more) binding in increasingly globalised and complex economic systems without corresponding global political schemes remains. ‘Governance’, generally understood as “the sum of the many ways individuals and institutions, public and private, manage their common affairs (. . .) involving non-governmental organizations (NGOs), citizens’ movements, multinational corporations, and the global capital market” (Commission on Global Governance 2005, pp. 2–3) seems to be an adequate concept here. The concept originates from politics and is gaining increasing interest in management research (Tihany et al. 2014), in particular with regard to aspects of sustainability and corporate social responsibility (CSR) (see e.g. Aras and Crowther 2010; Benn and Dunphy 2007; Idowu et al. 2015; and Mason and Simmons 2014). Consequently, ‘corporate sustainability governance’ (Fischer 2017) is the underlying theoretical concept for the study presented in this chapter, focusing specifically on the sustainability governance of global supply chains. M. Jentsch (*) Institute for Technology and Work, Associated Institute of the University Kaiserslautern, Kaiserslautern, Germany e-mail: [email protected] K. Fischer FOM University of Applied Science, Study Centre Mannheim, Mannheim, Germany © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_12

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The topicality of this subject is also manifested in emerging governmental regulations on supply chain sustainability (cf. Dodd-Franc Wall Street Reform and Consumer Protection Act and similar initiatives in Europe), a growing interest in companies’ supply chain management in socially responsible investment (see the current Dow Jones Sustainability Index questionnaire, RobecoSAM AG 2018) and an increasing proportion of supply chain related questions in CSR reporting frameworks (see GRI Standards, Global Reporting Initiative 2018). Due to the snowballing complexity of supply chains and their expansion in often developing countries, a further increase of social and environmental risks in global production networks is to be expected. To mitigate these risks, existing sustainability governance instruments need to be analysed, evaluated and further developed; new instruments need to be generated against the background of experience and conclusions from previous initiatives. Against this background, a systematic literature review was conducted on behalf of GIZ, aiming to accumulate and expand knowledge on major governance mechanisms for sustainability in global supply chains (Fischer and Jentsch 2016). This chapter covers one of the analysed governance instruments—private regulation—as an excerpt from the study. As the influence of governments in buying (often developed) and producing (often developing) countries is estimated to be limited (see Geibler 2013, p. 39; Park-Poaps and Rees 2010, p. 317), private standards are expected to fill a ‘regulation vacuum’ (Vermeulen and Metselaar 2015, p. 227). Hence, a growing importance of this governance instrument can be anticipated. A thorough examination of private standards with a special attention to their legitimacy, effectivity and conditions for successful standard development and implementation is therefore essential for sustainability governance research. This chapter starts with the description of the research design of the systematic literature review, the findings of which provide the basis for the chapter (Sect. 12.2). Next, the governance instrument ‘private regulation’ is discussed, taking into consideration its effectivity, legitimacy and influencing factors as well as drawing attention to the need for future research (Sect. 12.3). Finally, conclusions and recommendations sum up the chapter and outline the agenda for further research on private regulation (Sect. 12.4).

12.2

Research Design and Overview of Results

The purpose of the systematic literature review was to depict the current state of the art in the field of supply chain sustainability governance by answering the following research questions: • Which governance mechanisms regulate the interaction of various actors involved in the process of sustainability governance of global supply chains? • Are these mechanisms estimated to be legitimate, effective and therefore applicable for sustainability governance? • What are the influencing factors crucial for success of the analysed governance mechanisms?

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Fig. 12.1 Research process

By identifying and describing governance mechanisms and their influencing factors, the study aims to accumulate and expand knowledge on sustainability governance of global supply chains and thus, prepare the ground for the development of legitimate and efficient governance instruments. As demonstrated in Fig. 12.1, the research process comprised three major steps.

12.2.1 Conceptual Preparation Prior to the literature research and analysis, preliminary conceptual preparations were made to structure the very broad field of ‘sustainability governance of global supply chains’. This step aimed to prepare relevant search terms and routines for the literature review. Therefore, a hypothetical framework of relevant governance mechanisms (comprising actors involved and their interactions) was depicted; different categories of governance mechanisms were deduced from the preliminary work of the research team.

Hypothetical Framework To make the broad search area more tangible and to concretise the term ‘sustainability governance of global supply chains’, the research team consolidated findings from its previous projects on various aspects of supply chain sustainability governance.1 From these aggregated results a hypothetical framework of sustainability governance mechanisms could be derived as shown in Fig. 12.2, which depicts the

These preliminary projects were “Sustainable Design of International Value Creation Chains: Actors and Governance Systems” (German acronym NAWAGO, 2008–2010); “Early Risk Indicator System for Corporate Social Responsibility” (2011–2012), “Corporate Responsibility in Procurement” (2013–2016) and a PhD thesis on Corporate Sustainability (Fischer 2017); for more detailed information see www.ita-kl.de. 1

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Fig. 12.2 Hypothetical framework of governance mechanisms; arrows stand for influence and flow of information between governance actors or, in case of companies, inside of organisations

variety of different categories of actors involved in governance processes and the complexity of their multiple relationships.

Derivation of Governance Mechanisms Classifying the above shown relationships between actors involved in governance processes regarding their underlying mechanisms, four relevant governance mechanisms (GM) for sustainability governance of global supply chains could be derived. Governance Mechanism 1: Public and Private Regulation The governance mechanism ‘public and private regulation’ comprises all forms of governmental regulation as well as of private (or semi-private) setting of norms and standards with regard to sustainability in global supply chains. These are national, international and supranational regulations and conventions (e.g. at UN or EU level) as well as guidelines and standards evolving from industry and multi-stakeholder initiatives (e.g. ISO 26000 or GRI Standards). Looking at the involvement and the role of governmental institutions, two governance instruments were furthermore distinguished (see Fischer and Jentsch 2016): ‘governance by government’ (state regulation and incentive instruments) and ‘governance with and without government’ (soft law and private standards). Governance Mechanism 2: Stakeholder Influence/Pressure Governance processes emerging from direct stakeholder influence and stakeholder pressure are much more informal than those mentioned above. Contrary to public and private regulation, they do not result in ‘officially’ negotiated soft or hard law

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such as social or environmental standards. They rather cause changes in supply chains through the direct exercise of power and the interaction of various actors involved in the governance processes, e.g. NGOs, labour unions and focal companies. From a resource-theoretical point of view (resource dependence approach, see Pfeffer and Salancik 2003), the power of a stakeholder group depends on its ability to influence the supply of critical resources for a company. Consequently, those groups who are delivering relevant resources themselves (e.g. manpower in case of employees or equity in case of shareholders) or those who are able to moderate the supply of resources (as trade unions through strikes or NGOs and media influencing politics or consumer behaviour) have a huge sustainability governance potential (Fischer 2017). Within the mechanism stakeholder influence/pressure, two governance instruments were distinguished in the literature review (see Fischer and Jentsch 2016): cooperation and confrontation/exercise of power. Governance Mechanism 3: Market/Sustainable Consumption Ideal-typically, governance in market-situations emerges from the price mechanism. Although it might be reasonably assumed that price competition alone mostly hinders the spread of sustainability and is thus a crucial factor in this context, other governance instruments are relevant in this context, too: In general, all decisions on consumption and purchase can have an impact on the way goods are produced and, thus, also on sustainability in value creation chains. Therefore, governance through market-mechanisms needs to comprise further governance instruments with a strong potential for positive impact on social and environmental aspects along the supply chain. In fact, such instruments were identified in the course of research (see Fischer and Jentsch 2016): consumer behaviour (sustainable consumption and consumer boycott), competition and market-shaping for sustainability. Governance Mechanism 4: Intra-Organisational Governance/Sustainable Supply Chain Management All the three previously described governance mechanisms explain interactions between different types of actors like NGOs, customers, focal companies etc. To understand how such mechanisms emerge, it is also important to study underlying internal decision processes and rationales within these actors of governance. For instance, cultural values, strategic goals or (formal and informal) incentive schemes within a company can affect its sustainability related corporate behaviour in a positive or negative way, including influence on social and environmental aspects in supply chains. Sustainability performance along the supply chain can be decreased, e.g., as a consequence of internal directives or organisational culture imposing purchasers to give cost reduction and short-term profits priority over longlasting supplier relations. Other important influence factors are the top management support for the integration of social and environmental standards in purchasing or supplier development processes or the organisation’s ability to carry out effective policy deployment for sustainability.

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In this study, the analysis of intra-organisational governance focused mostly on the main actors of the governance mechanism ‘focal companies’ and ‘suppliers’, but also on other organisations involved, e.g. ‘intermediaries’, ‘industry associations’ or ‘NGOs’ (see Fischer and Jentsch 2016). Consequently, the according governance instrument analysed in the literature review was the concept of Sustainable Supply Chain Management (SSCM).

12.2.2 Search and Selection of Publications In the second step of the research process, a sample of relevant publications was formed to analyse the four governance mechanisms delineated above. As shown in Fig. 12.1 this involved the development of search routines, the choice of database (Web of Science™) and two refinements of the sample. For the overview of the number of publications in the iterative evolvement of the sample see Table 12.1.

12.2.3 Systematic Analysis Finally, the selected relevant publications were analysed by two researchers using the reference management software Citavi5. First, relevant data was extracted from the literature and categorised; sub-categories were developed. Second, the statements from literature were consolidated and interpreted by the research team and the need for further research was derived from this analysis. As a result, out of consolidated and interpreted findings on the study’s research questions, fact sheets on the four governance mechanisms and their attendant governance instruments were composed. These fact sheets include consolidated statements regarding the legitimacy and effectivity of each governance instrument as well as regarding positive and negative factors of influence and propositions for further research (for a more detailed presentation of the results see Fischer and Jentsch 2016). Table 12.1 Number of publications after database search and refinements Governance mechanisms (GM) GM 1: Public and private regulation GM 2: Stakeholder influence/pressure GM 3: Market/sustainable consumption GM 4: Intra-organisational governance

Database search 73 113 109 457

Reading titles and abstracts 47 65 62 250

Reading articles 42 31 43 114

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Governance Instrument ‘Private Regulation’

As shown in the previous section, a total of four governance mechanisms were identified in the literature review. In this section, we highlight the governance instrument of private regulation as a part of GM 1. In the analysed sample of publications, considerable attention is paid to the instrument of private regulation. This fact reflects the growing importance of the instrument in the practice of sustainability governance as NGOs, sector associations or private companies spread product labelling for various social or environmental features. The hypothetical governance principle behind private regulation is quite simple: Labelled products can be better identified by consumers as sustainable. Thus, private labels increase market transparency on the consumer side and enable consumers to clearly voice their interest in sustainable products, and finally, to influence the way companies produce. On the macroeconomic level, this influence leads to an actual impact on the social and environmental situation in countries along global supply chains. Beside ‘private standards’ or ‘private regulation’, other terms were used in the analysed literature with the same or very similar meaning, e.g. ‘non-state sustainability standards’, ‘non-state market-driven governance’ (Geibler 2013), ‘private certification standards’ (Vermeulen and Metselaar 2015), ‘voluntary codes of conduct and certification’ (Vermeulen 2015), ‘voluntary consensus standards’ (Bagby 2013) or ‘private governance systems’ (Vermeulen and Kok 2012). Some publications focused on certain industries and analysed e.g. influencing factors in particular case studies. For better clarity in this chapter, we standardise the findings from these studies, while omitting the named differentiations (for detailed and diversified information see Fischer and Jentsch 2016).

12.3.1 Effectivity and Legitimacy In contrast to public regulation imposed by democratic institutions, private standards do not possess an a priori input legitimacy (Fischer 2017). Their legitimacy has to rather evolve over time based on stakeholder perspectives (Geibler 2013, p. 43) and needs a constant reaffirmation of the standards’ credibility (Miller and Bush 2015, p. 138). Referring to the study of Schouten and Glasbergen (2011) on the Round Table of Sustainable Palm Oil, Geibler (2013, p. 42) names the three strands of private standards’ legitimacy: legality which is the participatory legitimacy, moral justification which is philosophically normative and a wide acceptance of the right to rule. Various legitimacy criteria are named in the analysed literature especially for the processes of standards creation and implementation. Considering the novelty of private governance mechanisms, a comprehensive concept of legitimacy is still to be developed based on available studies (e.g. named in this chapter) and future empirical knowledge acquired during the use of standards.

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As for the effectivity of standards, some studies confirm a high potential of influence (e.g. Park-Poaps and Rees 2010, p. 318), whereas others point out the limited actual impact due to various reasons: • Sustainability labels still play a minor role in purchasing behaviour (Hornibrook et al. 2015, pp. 269–270, 273). • Private standards are often weak in content and implementation (Miller and Bush 2015, p. 138; Riisgaard 2009, p. 335), which can be explained by the intense influence of companies on the formation and realisation of standards even if they emerge within multi-stakeholder initiatives (Anner 2012, pp. 633–634). • Over the last years, a ‘sustainability market’ or a ‘market for certificates’ has evolved, which follows its own logics and is decoupled from the initial aim of private regulation to improve social and environmental situation in global supply chains (Mol and Oosterveer 2015, p. 12262). Therefore, a comprehensive instrument to measure the impact of private governance mechanisms still needs to be created. This instrument should reflect a differentiated view on effectivity, which would include the private standards’ influence on consumer behaviour, actual improvements in producing firms, communities or countries separate from improvements caused by other initiatives, possible negative side effects on sustainability and other indirect effects (see Vermeulen 2015, pp. 80–82; Vermeulen and Metselaar 2015, p. 231; Geibler 2013, pp. 44–45). Furthermore, the interaction between private standards and public governance (see Manning et al. 2012, p. 208), as well as their mutual influence on sustainability, should be systematically analysed under consideration of aspects of legitimacy and effectivity. Private standards are expected to be complimentary to state governance, while exceeding the variable application of law in the many different (often developing) countries along a supply chain (see Geibler 2013, p. 44; Park-Poaps and Rees 2010, p. 318). For the implementation of private standards, support or even guidance through national governments can be very useful, e.g. to increase transparency, enhance the quality of standards, endorse their adoption and promotion or to create demand for certified products through the regulation of public procurement (see Arimura et al. 2011, p. 170; Sarkis 2012, p. 206; Vermeulen and Kok 2012, pp. 191–194).

12.3.2 Influencing Factors Concerning the means to ensure effectivity and legitimacy, a range of criteria are named in the analysed literature. These influencing factors can be divided in three major groups: 1. coverage, 2. management and evaluation, 3. market diffusion of standards.

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Within the coverage category, we can distinguish between three dimensions: • product coverage: type and number of products covered by the standard; • content coverage: type and number of sustainability issues, objectives, intensity of implementation and evaluation; • supply chain coverage: number of supply chain levels. Standards with a high coverage of various products and sustainability aspects (e.g. Fairtrade) are considered to be favourable for a good recognition by customers and thus, for the distribution of standards (Vermeulen and Metselaar 2015, pp. 232–234; Geibler 2013, p. 44; Vermeulen 2015, p. 72). For buying firms, implementation of such so-called ‘all-inclusive standards’ can reduce costs and workload for pursuing various sustainability issues (Vermeulen 2015, p. 79). Standards focusing on only one or few particular products or product groups (e.g. one agricultural product) or specific and only well-known sustainability issues (e.g. some ecological aspects) are therefore estimated to be insufficient (see Riisgaard 2009, p. 335; Vermeulen 2015, pp. 82–83; Vermeulen and Metselaar 2015, pp. 231–232). Although, some examples prove that very specific standards can achieve substantial impact. E.g. the label Dolphin Safe, designed to protect dolphins during the tuna fishing actually resulted in a 95% reduction in the marine mammal mortality (Banterle et al. 2013, p. 775). Supply chain coverage is considered an important factor of influence on credibility, legitimacy and effectivity of standards i.e. actual effects on social and environmental conditions in producing firms and supplier sites (Vermeulen and Metselaar 2015, pp. 232–234; Geibler 2013, p. 44; Mueller 2009, p. 512). Moreover, standards covering only first-tier suppliers can be misleading: buying a labelled product, consumers may assume the entire production process including product components complies with the label’s sustainability promise. At the same time, standard implementation across supply chain levels can be extremely challenging because of the lack of transparency in the chain. Control of complex supplier networks is regarded an inherent Achilles heel of corporate sustainability management (Kogg et al. 2012, p. 162). Still, existing good practice examples demonstrate that with appropriate management instruments, transparency of supply chains can be achieved. A good example is the implementation of due diligence mechanisms to track and disclose the origin of conflict minerals (coltan, tantalum, tin, tungsten, gold or their derivatives) used in production, enforced by the Dodd-Frank Wall Street Reform and Consumer Protection Act, adopted in the USA 2010. Whereas after the law was made public, numerous companies and industry associations expressed their doubts on the feasibility of the Dodd-Frank requirements, currently, various guidelines, instruments and multi-stakeholder initiatives are available for manufacturers to track the minerals and to ensure their ‘conflict-free’ sourcing. Summing up, a distinct call for a wide coverage of private standards and even ‘allinclusiveness’ can be stated. At the same time, focused standards for certain products, issues or supply chain stages (e.g. raw materials or minerals only) can provide an advantage of precision and relevance accompanied by the disadvantage of confusion and disorientation for consumers and producers (see Vermeulen and

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Kok 2012, p. 193) in the jungle of standards. Therefore, further research should investigate whether, and in which fields of action and under which conditions, ‘allinclusive’ or, on the contrary, multiple focused standards can be more reasonable and effective. Case studies on successful standards, i.e. ‘good practices’, could be helpful as a research method for this objective. For the wide variety of existing standards, harmonisation strategies, e.g. proposed by Vermeulen (2015, p. 78) should be further developed to consolidate the landscape of private regulation and improve transparency. Influencing factors under the category management and evaluation include: • • • •

stakeholder integration during the phase of standard development; effective management structures; transparency of content and processes; scientific rigour of standard development, compliance control and impact assessment.

Ideally, the participation of all relevant stakeholders along the supply chain should be ensured to develop common or shared values as a solid basis for a private standard (see Miller and Bush 2015, p. 139; Mueller et al. 2009, p. 512; Geibler 2013, p. 44). In the practical application of private standards, this participation is mostly limited to a narrow circle of involved parties, sometimes with a strong influence of companies, which has been criticised for lowering the sustainability requirements and, consequently, the standards’ credibility. As an example, Anner (2012) describes the attempt of NGOs and labour unions to integrate a freedom of association provision into the Fair Labour Association (FLA) standard, which was developed in a multi-stakeholder initiative under a strong influence of member companies. Facing resistance of corporations, NGOs managed to make freedom of association one of the principles of the FLA Workplace Code of Conduct without being able to push a clear plan for implementation. This and other conflicts led to the exit of some labour unions and NGOs from the multi-stakeholder initiatives leaving more moderate NGOs to further develop the standard in accordance with companies’ expectations (Anner 2012, pp. 615–616). Concluding his observations on the FLA case study, Anner (2012, p. 634) states that corporations choose to support standards which promise them legitimacy without limiting their control of supply chains, e.g. in case of standards strengthening labour unions. To attract as many participating companies as possible, private standard developers might be inclined to attenuate the standard’s claims. To avoid such dilution, procedures for a well-balanced involvement of stakeholders with their different interests, power and legitimacy should be an integral part of the standard development, implementation and evaluation processes. Effective internal management structures for the implementation of standards constitute another influencing factor discussed in the analysed literature (Miller and Bush 2015, p. 142; Vermeulen 2015, p. 82). These structures should be able to support a coherent and feasible application of standards. Thus, management structures are directly related to another influencing factor which is crucial for the acceptance of private standards by consumers, buying firms and suppliers: a high

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degree of transparency of content, processes and results (see Miller and Bush 2015, p. 139; Mueller et al. 2009, p. 512). A clear understanding of the standard’s content and its implementation process is important for both consumers’ purchasing decisions and companies’ choice of standards to comply with. To achieve transparency and credibility, private standard setting organisations should therefore convey clear and accessible sustainability objectives (Geibler 2013, p. 44; Vermeulen and Metselaar 2015, p. 231) as well as provide comprehensive and traceable implementation and measuring instruments based on a solid scientific foundation (see Geibler 2013, p. 44; Miller and Bush 2015, p. 139). Scientific rigour should also be applied while designing and implementing instruments for both the independent control of compliance with standards and the measurement of their impact (Miller and Bush 2015, p. 139; Geibler 2013, p. 44). Whereas monitoring by third-party agencies has evolved into a standard procedure for sustainability assessment, some authors call for independent or fourth-party monitoring and impact assessment to control private regulation and explicitly the work of certification bodies (Vermeulen 2015, p. 80; Park-Poaps and Rees 2010, p. 318; Mueller et al. 2009, p. 519). This broad field could be further covered by existing accreditation bodies such as ANSI (United States), DAkkS (Germany) or UKAS (United Kingdom) which also accredit some international norms and standards related to sustainability (as ISO norms, EMAS or OSHAS) (ANSI 2017; DAkkS 2017; UKAS 2017). The category market diffusion of standards is regarded as being essential for the effectivity of private standards. Large market shares of sustainability labels enable their stronger positive environmental and social impacts, cutting costs of negative issues prevention per unit at the same time (Vermeulen 2015, p. 83). Further on, after achieving critical mass and gaining a monopoly status, some private standards move from being voluntary to become ‘de facto binding’ as companies cannot afford to neglect them (Bagby 2013). On the one hand, this side-effect of market diffusion is certainly positive for achieving sustainability goals. On the other hand, it can negatively influence the market position of small suppliers with limited capacities for the implementation of standards (Manning et al. 2012, p. 207; Lee and Gereffi 2015, p. 330) as private standards with a monopoly status are not only accepted and expected by governments or NGOs; they also become relevant for competition (Beske et al. 2008, p. 66). This phenomenon still needs to be further examined: In particular, the question of how exactly small suppliers are disadvantaged by private regulation and which options are available to reduce this negative side-effect and to better integrate small suppliers in the process of sustainability governance remains. As for the influencing factors favourable for market diffusion, the following criteria are considered to be most important: • market features and socio-cultural criteria; • influence of intermediaries; • standard design for ‘critical mass’.

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The characteristics of the market for sustainable products include sustainable consumer behaviour and competition or market-shaping for sustainability.2 Sociocultural criteria (e.g. disposable income and perceived cost of caring about sustainability issues, awareness and access to information; see Hingley and Manning 2013, p. 21; Hornibrook et al. 2015, pp. 272–273) determine the level of sustainable consumption, which is important for the spread of private regulations. Banterle et al. (2013, p. 778) compare for instance the spread of sustainability certificates for food products in Germany and Italy and state that the German market is much more sensitive for certified products. They even name two examples, whereby manufacturers offer the same products with a sustainability label in Germany and without it in Italy: Marine Stewardship Council (MSC) certified Iglo fish fingers (under the brand name Findus in Italy) and Chiquita bananas with a Rainforest Alliance logo. Intermediaries (e.g. buying agencies, traders, exporters, wholesalers) as transmitters of standards have a strong influence on their implementation and market diffusion (see Manning et al. 2012, pp. 206–207; Mosgaard et al. 2013, p. 144). However, the exact role and impact of intermediaries, their potential power and own interest in exercising this power for sustainability have hardly been explored. Corresponding research could enable a better involvement of these actors in the governance process. Finally, standard design aiming for a ‘critical mass’, e.g. through ‘all-inclusiveness’ (Vermeulen 2015, p. 79), is an effective influence factor. The pros and cons of this approach have been discussed previously in this chapter. If standard developers give high priority to the achievement of a ‘critical mass’ from the outset of the design process, giving attention to the intended product coverage, the standard’s content and the above-named market features, they certainly have a chance of reaching wider audience of customers and fostering a rapid market diffusion.

12.4

Conclusions and Recommendations

The systematic literature research addressed in this chapter contributes to the accumulation and expansion of knowledge of major governance mechanisms for sustainability in global supply chains. The chapter elaborates especially on private regulation as one of the governance instruments, which is currently gaining greater importance in sustainability related public, scientific and political discourse. The study findings were exemplified and interpreted taking into consideration the aspects of effectivity and legitimacy of private standards as well as the key factors of influence on their design, application and impact.

2

Each of the named characteristics is influenced by a range of factors. For the detailed analysis of the governance mechanism ‘market/sustainable consumption’ see Fischer and Jentsch (2016).

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Concerning the effectivity of private regulation, its influence if often expected to be high. However, the evidence of this influence is rather rare, which can be explained by the lack of evaluation tools of high scientific rigour. These tools still need to be created, however they should be able to evaluate the actual positive effects of private standards along global supply chains, while considering improvements due to other governance mechanisms as well as possible negative side effects. A thorough examination of the private standards’ effectivity is of particular importance, not only to produce evidence of positive effects on social and environmental aspects of global value creation, but also to create output legitimacy of this governance instrument (see Geibler 2013) and, thus, to verify its ‘license to operate’. Further on, the cumulated impact of the interaction of governance mechanisms, e.g. private and public regulation, should be studied to explore possible synergies. As for the influencing factors, which determine the impact of private regulations, a range of criteria could be identified in the course of the systematic literature review (see Fig. 12.3). Though the influencing factors are known, there is still a vast need for research on their exact impact. Expanding this knowledge can help to design private standards, which would meet requirements necessary for their market diffusion, longevity and maximum impact. Suggestions for further research discussed in this chapter can be summed up to three major problem areas in accordance with the groups of influencing factors illustrated in Fig. 12.3: • the coverage dilemma: In which situations and under which conditions are ‘allinclusive’ or rather specific standards most reasonable? • the effort dilemma: How can standard creation, implementation and evaluation processes be designed to meet the requirements of scientific rigour and still remain feasible so that potential participants (especially small suppliers dealing with scarce resources) are not discouraged by the level of effort required for implementation? • the market problem: How should private standards be designed and implemented to achieve a ‘critical mass’ and reach customers of different cultural backgrounds, especially those with (currently) little interest in sustainable consumption? As shown in this chapter, different mechanisms and processes of governance can potentially contribute to more sustainable paths of value creation in global supply chains and, thus, support the achievement of the newly adopted global sustainability goals as part of the 2030 Agenda for Sustainable Development. Adequate forms of private and semi-private governance could bridge the gap between different national

Fig. 12.3 Influencing factors determining the impact of private standards

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(thus, limited in a global context) legislation schemes on the one hand and often hardly assertive internationally adopted sustainability conventions on the other hand. However, it should be kept in mind that ‘governance beyond the state’ is always connected to certain politicisation of the actors involved and, thus, a privatisation of sovereign power (Palazzo and Scherer 2008). This fact generally requires a careful balancing of risks and opportunities associated with private regulation, which is also of particular relevance for sustainability governance of global supply chains.

References Anner M (2012) Corporate social responsibility and freedom of association rights: the precarious quest for legitimacy and control in global supply chains. Polit Soc 40(4):609–644 ANSI – American National Standards Institute (2017) Eco-Labeling/EPDs Program. https://www. ansi.org/Accreditation/environmental/eco-labeling/. Accessed 31 Jan 2019 Aras G, Crowther D (eds) (2010) A handbook of corporate governance and social responsibility. Gower Publishing, Farnham Arimura TH, Darnall N, Katayama H (2011) Is ISO 14001 a gateway to more advanced voluntary action? The case of green supply chain management. J Environ Econ Manag 61(2):170–182 Bagby JW (2013) Insights from U.S. experience to guide international reliance on standardization: achieving supply chain sustainability. Int J Appl Logist 4(3):25–46 Banterle A, Cereda E, Fritz M (2013) Labelling and sustainability in food supply networks. Br Food J 115(5):769–783 Benn S, Dunphy DC (eds) (2007) Corporate governance and sustainability: Challenges for theory and practice. Routledge, London Beske P, Koplin J, Seuring S (2008) The use of environmental and social standards by German firsttier suppliers of the Volkswagen AG. Corp Soc Responsib Environ Manag 15(2):63–75 Commission on Global Governance (2005, originally published 1995) Our global neighbourhood. The report of the commission on global governance. Oxford University Press, Oxford DAkkS – Deutsche Akkreditierungsstelle (2017) Who can be accredited? DAkkS accreditation activities. http://www.dakks.de/en/content/who-can-be-accredited/. Accessed 31 Jan 2019 Dodd-Frank Wall Street Reform and Consumer Protection Act. Pub. L. No. 111-203, 124 Stat. 1376, July 21, 2010. http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW111publ203.pdf. Accessed 31 Jan 2019 Fischer K (2017) Corporate Sustainability Governance: Nachhaltigkeitsbezogene Steuerung von Unternehmen in einer globalisierten Welt. Springer Spektrum, Wiesbaden Fischer K, Jentsch M (2016) Ergebnisse der Studie “Einflussmechanismen für Nachhaltigkeit in globalen Lieferketten”, working paper no. 29. Institut für Technologie und Arbeit e.V., Kaiserslautern Geibler J (2013) Market-based governance for sustainability in value chains. Conditions for successful standard setting in the palm oil sector. J Cleaner Prod 56:39–53 Global Reporting Initiative (2018) GRI Standards. https://www.globalreporting.org/standards/. Accessed 31 Jan 2019 Hingley M, Manning L (2013) Corporate and consumer social responsibility in the food supply chain. Br Food J 115(1):9–29 Hornibrook S, May C, Fearne A (2015) Sustainable development and the consumer. Exploring the role of carbon labelling in retail supply chains. Bus Strategy Environ 24(4):266–276 Idowu SO, Frederiksen CS, Mermod AY, Nielsen MEJ (eds) (2015) Corporate social responsibility and governance: theory and practice. Springer, Cham Lee J, Gereffi G (2015) Global value chains, rising power firms and economic and social upgrading. Crit Perspect Int Bus 11(3/4):319–339

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Manning S, Boons F, von Hagen O, Reinecke J (2012) National contexts matter: the co-evolution of sustainability standards in global value chains. Ecol Econ 83:197–209 Mason C, Simmons J (2014) Embedding corporate social responsibility in corporate governance: a stakeholder systems approach. J Bus Ethics 119(1):77–86 Miller AMM, Bush SR (2015) Authority without credibility? Competition and conflict between ecolabels in tuna fisheries. J Cleaner Prod 107:137–145 Mol APJ, Oosterveer P (2015) Certification of markets, markets of certificates: tracing sustainability in global agro-food value chains. Sustainability 7(9):12258–12278 Mosgaard M, Riisgaard H, Huulgaard RD (2013) Greening non-product-related procurement – when policy meets reality. J Cleaner Prod 39:137–145 Mueller M, dos Santos VG, Seuring S (2009) The contribution of environmental and social standards towards ensuring legitimacy in supply chain governance. J Bus Ethics 89(4):509–523 Palazzo G, Scherer AG (2008) Corporate social responsibility, democracy, and the politicization of the corporation. Acad Manag Rev 33(3):773–775 Park-Poaps H, Rees K (2010) Stakeholder forces of socially responsible supply chain management orientation. J Bus Ethics 92(2):305–322 Pfeffer J, Salancik GR (2003 originally published 1978) The external control of organizations: a resource dependence perspective. Stanford Business Books, Stanford Riisgaard L (2009) Global value chains, labor organization and private social standards. Lessons from East African cut flower industries. World Dev 37(2):326–340 RobecoSAM AG (2018) RobecoSAM - Corporate Sustainability Assessment. Metals and Mining. https://www.robecosam.com/csa/csa-resources/sample-questionnaire.html. Accessed 31 Jan 2019 Sarkis J (2012) A boundaries and flows perspective of green supply chain management. Supply Chain Manag 17(2):202–216 Schouten G, Glasbergen P (2011) Creating legitimacy in global private governance: the case of the roundtable on sustainable palm oil. Ecol Econ 70(11):1891–1899 Tihany L, Graffin S, George G (2014) Rethinking governance in management research. Acad Manag J 57(6):1535–1543 UKAS – The United Kingdom Accreditation Service (2017) Certification body accreditation. https://www.ukas.com/services/accreditation-services/certification-body-accreditation/. Accessed 31 Jan 2019 UN – United Nations (2015) Transforming our World: The 2030 Agenda for Sustainable Development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1 Vermeulen WJV (2015) Self-governance for sustainable global supply chains: can it deliver the impacts needed? Bus Strategy Environ 24(2):73–85 Vermeulen WJV, Kok MTJ (2012) Government interventions in sustainable supply chain governance: experience in Dutch front-running cases. Ecol Econ 83:183–196 Vermeulen WJV, Metselaar JA (2015) Improving sustainability in global supply chains with private certification standards: testing an approach for assessing their performance and impact potential. Int J Bus Glob 14(2):226–250

Marina Jentsch is research associate at the Institute for Technology and Work (ITA) at the University of Kaiserslautern, Germany. Her research interests include sustainable development and Corporate Social Responsibility in general as well as governance of environmental and social issues in global supply chains in particular. Since 2011 she has been working on these topics in fundamental and applied research and development projects in cooperation with German companies and institutions. Institute for Technology and Work (ITA e. V.), Trippstadter Straße 113, 67663 Kaiserslautern, Germany; Tel: +49 631 20583 25; Fax: +49 631 20583 83; Email: [email protected]; Internet: www.ita-kl.de.

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Klaus Fischer is Professor for Business Administration, in particular Sustainability and Strategic Management at FOM University of Applied Science, Germany. Since his studies of industrial engineering and management, he has been working on different aspects of sustainable development theory and practice in the fields of corporate sustainability, sustainability governance and sustainable municipal/urban development in third-party funded projects. He holds a Ph.D. (Dr. rer. pol.) in the field of corporate sustainability governance. FOM University of Applied Science, Study Centre Mannheim, Steubenstraße 44, 68163 Mannheim, Germany; Tel: +49 621 1789405 15; Email: klaus.fi[email protected]; Internet: www.fom.de.

Chapter 13

Chain of Custody and Transparency in Global Supply Chains Alexander Ellebrecht

13.1

Introduction

For a number of years, global value chains have been under pressure from multiple stakeholder groups to become more sustainable. Specifically, companies at the end of value chains, such as manufacturers, brands, and retailers, need to translate market needs in terms of sustainability into efforts in their sourcing strategy. Alongside price and product quality, the process of creating a product demands ever more attention. This is especially due to the fact that positive impact and progress on environmental and social aspects can be realised early in the value chain at farming, mining and processing levels. Selecting the right approach towards supply chain transparency is a key element in gaining insight into one’s own supply chain and in starting to make a change. There is a need to handle this complexity via creating a common value proposition and selecting the optimal technological support. The purpose of this chapter is to provide insights into three key elements that supply chain actors should consider during a supply chain system design: • Exploring the options for traceability via different chain of custody (CoC) models; • Different collaboration models to enable transparency; and • Technological innovations, such as blockchain. Following this introduction, Sect. 13.2 describes different CoC models that allow various levels of transparency and claims at the end of the supply chain. There are several options to improve transparency by means of different organisational approaches, which are highlighted in Sect. 13.3. Section 13.4 gives insights into

A. Ellebrecht (*) ChainPoint GmbH, Bonn, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_13

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technical innovations around shared ledger technologies (blockchain/distributed ledgers and private federated ledgers). Section 13.5 offers one example from the chocolate industry. Here, an approach is shown, which demonstrates how transparency supported by a shared ledger technology can help deliver sustainable impacts. The chapter ends in Sect. 13.6 with conclusions and recommendations that will help towards making the right decisions regarding the right level of transparency.

13.2

Chain of Custody Models: Successful Traceability Via Adaptability

According to ISEAL Alliance (2016, p. 2) chain of custody (CoC) and traceability have their own definitions but are linked to each other: “traceability is the ability to demonstrate the CoC”. Therefore, before exploring various CoC models, it is worth looking at the concept of traceability and its complexity. The traceability of products is increasingly important, driven by demand from different stakeholders along the value chain. According to Norton et al. (2014) there are different drivers for traceability improvements, such as Values and Efficiencies, Stakeholder Pressure, Regulation, and Global Alignment (e.g. across an industry). For example, 17 years ago the European Union introduced regulations that include a traceability aspect, with the aim of ensuring that products are safe and do not adversely affect human health. Since 2002 the General Food Law Regulation1 has been in effect to prevent the sale of unsafe food. Companies along food supply chains have to ensure traceability and must be able to identify their suppliers. Regulations like this, and market demands for traceability along supply chains, face different barriers. In food production, for example, quality variations, converging product streams, identification challenges, and low connectivity between physical and administrative product flows lead to an increased complexity regarding traceability (Wognum et al. 2011). Converging product streams lead to a continuous aggregation of products. Detailed data are then decoupled from the products but can be linked afterwards. Trienekens and Beulens (2001) call such points “Information Decoupling Points” (see Fig. 13.1). CoC models help to manage this complexity and to create different transparency levels according to the supply chain realities. ISEAL Alliance (2016, p. 2) has adapted a definition of the WWF and describes CoC as a “custodial sequence that occurs as ownership or control of the material supply is transferred from one custodian to another in the supply chain”. If a company makes a claim about its product, it needs to ensure that documents and mechanisms are in place to verify the traceability between the verified unit of production and the claim about the final product. Depending on the traceability and the chosen CoC model different claims are possible.

1 Regulation (EC) No 178/2002 of 28 January 2002 laying down the general principles and requirements of food law, OJ L 031, 01/02/2002, pp. 1–24.

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Fig. 13.1 Information Decoupling Point (modified from Trienekens and Beulens 2001)

13.2.1 Models and Claims Different CoC models exist to track products along supply chains. The selection is influenced by different important elements: the intended claim and the supply chain complexity. All share the fact that they need to ensure that volumes of certified material sold do not exceed the certified volumes bought (ISEAL Alliance 2016). The four main models, including identity preservation, segregation, mass balance, and book and claim, are explained below.

Identity Preservation (IP) “An IP model ensures that certified product from a certified site is kept separate from other sources. If used through the whole supply chain, it allows certified products to be uniquely traced through the production process from a production site and batch (sustainability certificate holder) to the last point of transformation or labelling of a product (or use of a claim)” (ISEAL 2016, p. 7). This model allows very specific claims, e.g. that a product comes from a certain certified farm.

Segregation Model (SG) “This model ensures that certified product is kept separate from non-certified sources through each stage of the supply chain, allowing assurance that the ingredients within a particular product originate from certified sources, though it may not be possible to identify which molecule came from which certified source” (ISEAL 2016, p. 8). If a product is segregated, a strong sustainability claim is still possible, but claims at the origin are less precise. For example, claims can be made that all material has been sourced from certified farms (see Fig. 13.2).

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Fig. 13.2 Segregation (ChainPoint 2019a; figure reproduced with kind permission of ChainPoint)

Fig. 13.3 Mass Balance (ChainPoint 2019a; figure reproduced with kind permission of ChainPoint)

Mass Balance Model (MB) “Mass balance is an overarching term for various slightly different types of chain of custody which involve balancing volume reconciliation” (ISEAL 2016, p. 9). The buying and selling of certified products takes place within defined time periods. Every organisation operating a mass balance CoC can define those periods. All mass balance models are alike in that mixing of certified with non-certified products is possible, if controlled and recorded (see Fig. 13.3). Some claims cannot indicate the amount of sustainable material that is in the product the claim belongs to, while others can give an indication, such as at least 90% coming from a certified farm.

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Book and Claim “In this model certified material is completely decoupled from sustainability data. Certified and non-certified product flows freely through the supply chain. Sustainability certificates or credits are issued at the beginning of the supply chain by an independent issuing body and can be bought by market participants, usually via a certificate or credit trading platform” (ISEAL 2016, p. 16). The claim via Book and Claim is not related to physical traceability anymore, but buyers of credits can redeem their credits and claim that they support efforts made towards sustainable production, for example. The selection of the right model depends on supply chain realities, thus what is feasible and in line with the added value. A combination of models is also possible, but switching from one model to another is only possible in one direction. Another key challenge is the standardisation of CoC models (see Box 13.1). Furthermore, it is obvious that moving to a different CoC model without losing any product characteristics can only be done in the following order: Identity Preserved ! Segregated ! Mass Balance ! Book and Claim

Box 13.1 Standardisation of Chain of Custody Models Standardisation of definitions is a key challenge to reach better understanding, and finally better data quality, when introducing and running a CoC model. Systems that rely on these models need to prevent unnecessary confusion, complexity and cost. Therefore, the Dutch ISO organisation, the Netherlands Standardization Institute (NEN), set up a committee with the objective of defining a generic sector independent CoC process framework (ISO/PC 308).

13.3

Transparency: A Core Supply Chain Challenge

Creating transparency along supply chains is an organisational challenge (see Box 13.2 for a definition of transparency). Supply chain actors need to be convinced to share data. Approaches analysing the value proposition of stakeholders help to reduce implementation risks before introducing web-based platforms, providing guidance in reaching the intended level of traceability. For example, Ellebrecht (2008) created a methodology to analyse the added value of IT systems that connect supply chains per actor. This model allows to rate system functionalities of IT systems based on the following parameters: benefit of time, increase in information, grade of conformance regarding data exchange, and interval for decision making. The outcome allows organisations to get better insight into advantages per user group and to consider those during system design or within an update.

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According to Norton et al. (2014), companies and stakeholders in complex supply chains need to collaborate in order to trace commodities. Multi stakeholder initiatives, such as the Forest Stewardship Council (FSC), have come together to trace commodities collaboratively. The following section provides an overview on collaborative approaches showing ways to work together from two perspectives, vertically and horizontally. Box 13.2 Definition of Transparency Transparency goes beyond gaining visibility into the extended supply chain. It is the process by which a company takes action on the insights gained through greater visibility in order to manage risks more effectively.

Source: Linich (2014)

13.3.1 Collaborative Approaches to Reach Supply Chain Transparency Working together with industry peers or external specialists can help to reduce cost and lead time for the development and implementation of sustainability programs. There are a number of ways to approach such a collaboration, each with their own benefits. 1. Individual Initiative. Every company can individually act to establish transparency in its supply chain. This can be a viable option for large enterprises, but for many smaller companies such a programme is often too big and costly to implement. Amongst the companies who have taken this approach are some of the world’s leading food and clothing retailers. Unilever (2018), for example, has invested into full transparency for its palm oil sourcing programme. 2. Joint Initiative. Another trend we see is establishing joint initiatives where multiple companies cooperate in evaluation of their suppliers. Together, they strengthen their cumulative power in the market and reach a higher level of standardisation. A good example of this approach is Fresh.Point, a collaborative monitoring platform for wholesalers and international traders in the European fruit and vegetable sector.2 It connects traders with food laboratories and supports the workflow of assigning, reporting, and analysing product tests. By sharing this online infrastructure, functionality, and knowledge, cooperating traders increase process and information quality whilst reducing costs of their engagement at the same time.

2 Detailed information about the Fresh.Point monitoring platform is available under http://www. freshpoint.nu/about-fresh-point/, last accessed 31 January 2019.

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3. Associate with Existing Standards. The third option is to join industry standard schemes and labels. For example, in the fruit and vegetable market, the GLOBALG.A.P. standard is well known. This is typically a very cost-effective approach to sustainability. Examples of standards exist in multiple industries. The leading standards in the textile and carpet sector are, for example, organic standards like GOTS (Global Organic Textile Standard), OCS (Organic Cotton Standard), and GoodWeave. Irrespective of the approach that supply chain actors take, they will probably need additional partners they can collaborate with in order to increase engagement of their supply chain and to achieve their sustainability goals. Figure 13.4 shows an example of a dashboard demonstrating sustainability impact in the field of child labour in own supply chain.

13.4

Shared Ledger Technologies Drive Change: Private Federated Ledgers (PFL) and Blockchains

In the last years many different technological innovations have emerged, innovations related to Artificial Intelligence and Internet of Things, amongst others. When discussing CoC and transparency, shared ledger technologies such as blockchain are often part of discussions. This section will explain different shared ledger approaches and highlight the main advantages and disadvantages, as both can facilitate the information flow along supply chains.

13.4.1 Public and Private Blockchains A blockchain is one particular type of a distributed ledger. Blockchains became popular in news due to cryptocurrencies such as Bitcoin. The name blockchain refers to how transactions are added to chains using a cryptographic signature. It creates a single source of truth, accessible for all actors involved. According to Sprenkelink (2017), blockchains have several advantages, such as data immutability. On the other hand, the maturity of blockchains is not very high, which creates risks, for example, those relating to authentication mechanisms. He explains that blockchains can be divided into public and private blockchains. A public blockchain allows anybody to connect to the existing infrastructure of the blockchain, while a private blockchain has more similarities with private federated ledgers (PFL). Another important aspect of blockchain is that a whole value chain needs to be on-board when starting the use of blockchain. Table 13.1 shows a comparison between public and private blockchains.

Fig. 13.4 Dashboard example on how to demonstrate impact in own supply chain

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Table 13.1 Key differences between public versus private distributed ledgers (modified from Sprenkelink 2017) Participation in network Transactional privacy Economic incentive for participation Transaction volume supported

Public blockchain Open Not prioritised Built-In Low

Private blockchain Closed Adjustable to participant wishes Contractually organised High

13.4.2 Private Federated Ledgers According to Ellebrecht and Schouten (2017), PFL’s are shared ledgers that are governed centrally. Data are private and not fully transparent, thus not publicly available. A buyer can indicate in a CoC platform based on a private federated ledger where he sources from, but he does not automatically have insight into the transactions of other actors on the platform. Compared to blockchain technology, data are not irreversibly recorded; they can be adapted by the system owner. Many standards and initiatives have relied on this shared ledger technology option for years. Ellebrecht and Schouten (2017) mention the Better Cotton Initiative as an example using a private federated ledger. Data are gathered and stored along the textile supply chain using a Mass Balance CoC model. PFL approaches offer a higher level of maturity, but supply chain actors need a central governance structure that the supply chain actors trust. Both shared ledger technologies can help to facilitate effective collaboration along supply chains. They will not replace the need to create a business case for all stakeholders involved and the need of high data quality.

13.5

How Does Transparency Affect Business: Example of Tony’s Chocolonely

Modern slavery and child labour are still big issues in the cocoa industry. Chocolate brands invest in supply chain transparency and traceability to eliminate unacceptable working practices. This work can become an integral part of some business models. One example is Tony’s Chocolonely. Norton et al. (2014) list different standards that include traceability and address sustainability in cocoa industry, such as Rainforest Alliance and Fairtrade. Those standards create impact, however, years ago Teun van de Keuken, a Dutch reporter, found that child labour was still a problem at the cocoa farm level. He produced the first Fairtrade Tony’s Chocolonely chocolate bars and tried to deliver 100% slave and child labour-free chocolate (Tony’s Chocolonely 2018). Tony’s followed that strategy and grew from €29 million net revenue in 2015/16 to €45 million net revenue in 2016/17.

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Tony’s Chocolonely defined sourcing principles that deal amongst others with long term relationships, a fair price, but also a segregated CoC for its beans to prevent the mixing of cocoa beans that come from the cooperatives Tony’s works with other sources. Monitoring the physical, financial and information flows along the whole supply chain is a huge challenge. Farmers harvest beans and pack those into bags. Those bags are sometimes repacked and processed into cocoa liquor, cocoa butter and cakes, and finally into chocolate. Tony’s decided to use a PFL technology to configure the BeanTracker platform. This platform includes data collection, traceability (segregation) from farmer cooperative up to chocolate producer, inventory management and reports (ChainPoint 2019b). In addition to the PFL approach, a blockchain pilot will be finalised in spring 2018. This will help to compare the added value of distributed ledger technologies in comparison with PFL technologies. Tony’s Chocolonely (2017) identified potential in extending their collaborative approach towards a joint initiative. Therefore, the BeanTracker allows other chocolate companies to use it for their own traceability and sustainability claims in order to create impact in their own cocoa supply chains.

13.6

Conclusions and Recommendations

Intelligent transparency, and therefore information sharing along supply chains, is instrumental in answering challenges such as the prevalence of child labour or in driving product quality. To reach those aims companies must be able to drill down to the relevant hot spots of their supply chain and be able to trace back upstream. Supply chain realities in terms of product aggregations and the value of the intended claims for the different supply chain actors should be taken into account. Via choosing a realistic chain of custody (CoC) model, along with the right collaboration model, projects can be introduced with lower resistances. Shared ledger technologies, such as private federated ledgers and distributed ledgers like blockchain, help actors along supply chains to establish more transparency. They will not, however, change the need to address the value proposition for each supply chain actor. Investments in social and environmental impact along the supply chain could lead to growth. The example of Tony’s Chocolonely shows that the implementation of CoC models and transparency along supply chains can be an integral part of companies’ strategies. Their sustainable sourcing strategy is one example of an innovative approach to improve farmer livelihoods and eliminate child labour in cocoa production. This can only be claimed at the end of the supply chain due to a segregated CoC and transparency on the progress that Tony’s is making. With every scale-up of such approaches, the demanded levels of CoC and documentation should be reviewed against the added value for the different actors.

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References ChainPoint (2019a) Supply chain traceability for commodities and products. https://www. chainpoint.com/solutions/supply-chain-traceability/. Accessed 31 Jan 2019 ChainPoint (2019b) Transforming the cocoa industry: stop child slavery. https://www.chainpoint. com/our-customers/tonys-chocolonely/. Accessed 31 Jan 2019 Ellebrecht A (2008) Nutzenbetrachtung intenetbasierte Informationssysteme im einzel- und überbetrieblichen Gesundheitsmanagment. PhD thesis, University of Bonn, Bonn Ellebrecht A, Schouten NGJ (2017) How shared ledgers facilitate the flow of information between suppliers and buyers in agri-food supply chains. Compact 4:31–36 ISEAL Alliance (2016) Chain of custody models and definitions: a reference document for sustainability standards systems, and to complement ISEAL’s Sustainability Claims Good Practice Guide. https://www.isealalliance.org/sites/default/files/resource/2017-11/ISEAL_ Chain_of_Custody_Models_Guidance_September_2016.pdf. Accessed 31 Jan 2019 Linich D (2014) The path to supply chain transparency: a practical guide to defining, understanding, and building supply chain transparency in a global economy. Deloitte University Press. https:// www2.deloitte.com/content/dam/insights/us/articles/supply-chain-transparency/DUP785_ ThePathtoSupplyChainTransparency.pdf. Accessed 31 Jan 2019 Norton T, Beier J, Shields L, Househam A, Bombis E, Liew D (2014) A guide to traceability: a practical approach to advance sustainability in global supply chains. United Nations Global Compact Office, New York Sprenkelink H (2017) Blockchain with great power comes great responsibility. Compact 4:37–42 Tony’s Chocolonely (2017) Tony’s Chocolonely Annual Fair Report 2016/2017. https:// tonyschocolonely.com/storage/configurations/tonyschocolonelycom.app/files/jaarfairslag/ 2017-2017/tc_jaarfairslag_2016_en_totaal_01.pdf. Accessed 31 Jan 2019 Tony’s Chocolonely (2018) Tony’s Chocolonely – how it all began. http://www.tonyschocolonely. com/us/about-us/how-it-al-began/. Accessed 31 Jan 2019 Trienekens JH, Beulens AJM (2001) The implications of EU food safety legislation and consumer demands on supply chain information systems. In: International Food and Agribusiness Management Association, Proceedings of the 11th Annual World Food and Agribusiness Forum, Sydney, Australia. http://www.agrifood.info/Agrifood/members/Congress/ Congress2001Papers/Symposium/Trienekens.pdf. Accessed 31 Jan 2019 Unilever (2018) We take a radical step on palm oil supply chain transparency. https://www. unilever.com/news/news-and-features/Feature-article/2018/we-take-a-radical-step-on-palm-oilsupply-chain-transparency.html. Accessed 31 Jan 2019 Wognum PM, Bremmers H, Trienekens JH, van der Vorst JGAJ, Bloemhof JM (2011) Systems for sustainability and transparency of food supply chains – current status and challenges. Adv Eng Inform 25(1):65–76

Alexander Ellebrecht is Prokurist and Manager Business Development at ChainPoint. He has extensive experience in sustainability, quality management and traceability along food and textile supply chains. Alexander’s expertise covers developing innovative business solutions in multiple global supply chain and sourcing networks. He has worked as an expert for governmental projects that envision establishing better sourcing strategies up to farm level, in Europe, Africa and Asia. Alexander holds a Ph.D. in agriculture and is a Guest Lecturer at the University of Bonn on the topic of precision farming. ChainPoint, Emil-Nolde-Straße 7, 53113 Bonn, Germany; Mobile: +49 170 905 62 20; Email: [email protected]; Internet: www.chainpoint.com.

Chapter 14

Clarity in Diversity: How the Sustainability Standards Comparison Tool and the Global Sustainable Seafood Initiative Provide Orientation Friederike Sorg, Jens Kahle, Niklas Wehner, Max Mangold, and Silke Peters

14.1

Introduction

For many years, concern about the environmental and social consequences of global production and trade was not very high on the public agenda. The collapse of once abundant natural resources, such as the Grand Bank cod fishery in 1992, the disaster at Rhana Plaza in April 2013 that led to the deaths of more than one thousand workers in the garment industry, and many other examples have increased awareness among consumers and industry. They have realised that global production and trade have unintended environmental and social effects that need to be controlled. Sustainability standards are broadly accepted as an instrument to mitigate or avoid these effects. The compliance with certain standards has become, in many sectors, a de facto ‘licence to operate’. Thus, it is not a surprise that environmental and social standards ‘pop up’ all over the world and in nearly every sector: as of October 2019, the Ecolabel Index lists 463 ecolabels in 25 industry sectors,1 around two thirds of which emerged in the last decade (Poynton 2015). They are set by different organisations, build on different system architectures, and often reflect individual histories. On the demand side, the need for transparent and secure value chains has become so high that a completely new business segment has developed: the offer for certification, auditing, and consultancy services around standard implementation has developed into a highly competitive and steadily growing market. Those who rely on standards in their decision making—producers, retailers and consumers—easily lose orientation in the wide landscape of standards and

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http://www.ecolabelindex.com/, last accessed 31 October 2019.

F. Sorg · J. Kahle · N. Wehner · M. Mangold · S. Peters (*) Programme of Sustainable Value Chains and Standards, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Eschborn, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_14

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initiatives. It has become increasingly difficult to differentiate between credible standards and certification schemes that are driven by the motivation to assure more sustainable supply chains and those that represent quick-win business offers that take advantage of the market but do not strive for any real change. Identifying a credible and robust verification scheme can be a challenge, as the underlying systems are complex and not always transparent. Various initiatives have been formed to provide different user groups with solutions. Benchmarking has emerged as a popular approach. Depending on whether the user is a consumer, public procurement officer, retailer, or producer, their priorities regarding verification schemes are likely to vary. Consumers expect their products to come from sustainable sources and want to be able to trust the label they see. Public procurement is often guided by broader national policies and underlying detailed guidelines. Quite similarly, retailers rely on standard systems as integral parts of their buying policies to fulfil sustainability commitments and build customer trust in their brands. They need to know that a scheme actually does what it claims to do—ensuring sustainable production through a sound set of criteria and a robust assurance system. Complying with standards and proving it through third party verification has become a market entry requirement for producers across many sectors. Where multiple sustainability standards exist, producers are facing the challenge to choose a scheme that is adequate for their circumstances and recognised by the market. Acknowledging the variety of user interests is of key importance in understanding the existence and purpose of different benchmark initiatives. This chapter discusses how assessment and comparison tools can contribute to more informed decisionmaking in global value chains. It analyses the added value and the limitations of benchmarking, presenting two approaches as an example: First, the Sustainability Standards Comparison Tool (SSCT) is an initiative by the German government that focuses on the demand side of global supply chains. It aims to enable users of sustainability standards to have a better understanding of their content and their specific goals. Based on a sound methodology for the assessment and comparison of environmental and social standard systems, three web portals have been developed. They are each customised to meet the information needs of different user groups: consumers, public procurers, and globally sourcing companies. Second, the Global Sustainable Seafood Initiative (GSSI) is a partnership of seafood companies, NGOs, governmental and intergovernmental organisations, and experts, who joined forces to develop a collective, non-competitive approach to provide clarity on seafood certification, drive improvement and ensure confidence in certified seafood. Through its Global Benchmark Tool, GSSI aims to deliver recognition of seafood certification schemes that are aligned with the FAO Guidelines while increasing comparability and transparency. Following this introduction, Sect. 14.2 focuses on SSCT and its methodology. It also describes the three, user-customised front-ends. These can be seen as blue prints that can be easily adapted to other needs. The approach of GSSI and the specific information needs of the industry are discussed in Sect. 14.3. The chapter ends in Sect. 14.4, with an analysis of how the presented tools contribute to more sustainable supply chains and includes additional user cases e.g. in sector wide multistakeholder approaches.

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14.2

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The Sustainability Standards Comparison Tool (SSCT) contributes to Germany’s National Action Plan for Sustainable Development (Schmieg 2014). It can be seen as an answer to the governmental task to ensure access to reliable information and the possibility to choose. This requirement refers to the Consumer Bill of Rights postulated 1962 by John F. Kennedy: (1) the right to security, (2) the right to choose, (3) the right to information, and (4) the right to be heard. These rights are not legal rights but rather one base of consumer policy. In combination with the guiding principle of sustainability, the crucial task is not only to provide reliable information, but also to expand the scope for action (Schrader et al. 2013). This scope is mainly given by consumption patterns, as scientists have quite unanimously stated: “(. . .) for over 50 years, researchers and politicians have been pointing to the need for changes in present consumption and production patterns, which have been proven to be detrimental to individual and collective well-being, as well as to nature” (Thoeresen et al. 2015, p. 1). Sustainability standards address social and environmental issues along the value chain and define requirements that have to be fulfilled during production or handling of a product. As such, these standards are one instrument that guides consumption and production patterns today. States want to make sure that there are more sustainable alternatives and that these can be recognised. By providing an instrument that enables consumers as well as procurers in public institutions and companies to make well-informed purchasing decisions, the government itself tackles this challenge. By providing transparent information, it supports the demand for and, consequently, the supply of products that have been produced in an environmentally-friendly manner and in accordance with the needs of society. Sustainability standards can include independent certification but might also be based on self-assessment. Some sustainability standards follow a membership-based approach like BSCI,2 some are based on supporting structures and continuous improvement, while others demand third party audits with requirements that come into effect during the certifying audit. Some standards directly handle the means of production. They require, for example, that wastewater is treated in an environmentally-friendly way, or that all employee contracts are in accordance with ILO core conventions. Others refer to the specifications of the product exclusively. These lifecycle-oriented standards guarantee, for example, that a product is low in energy use, or that it contains a specific amount of recycled materials. In short, the ‘landscape’ of different approaches and system architectures of sustainability standards is as manifold as the standard setting organisations and initiatives that are

2 For info on Business Social Compliance Initiative (BSCI) see http://www.amfori.org/content/ amfori-bsci/, last accessed 31 October 2019.

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behind them. There is no objective general ‘right’ or ‘wrong’. There are different standards for addressing different sustainability issues, and they fit different purposes. As a result of this huge variety of approaches, those who demand sustainably produced products see themselves as being confronted with a lack of information and transparency.3 They have to trust that the standard they pick will lead to positive social and environmental impacts. They can research intensively, consulting the webpages of the respective organisations, but apart from the fact that this is very time-consuming, the results are often not comparable. This leads to a considerable risk, particularly for governmental buyers and industry leaders, as they need to have good arguments as to why they chose a specific product. Private consumers also face similar challenges. According to a survey by the German Consumer Association, 66% of consumers would like to buy more sustainable food. Upon being asked why they don’t do so, nearly two-thirds answered that they lack the necessary information (VZBV 2016). Media reports of fraud in the ecolabelling sector result in even higher mistrust and disorientation. This perception of fraud and misinformation is ultimately counterproductive. It weakens the positive impact of significant and credible sustainability standards. The German Federal Ministry for Economic Cooperation and Development (BMZ) is trying to counteract this risk. For many years, it has been supporting the ITC Standards Map,4 a web-based assessment tool that gives a neutral overview of existing standards. The SSCT complements the information provided by Standards Map. The tool answers to the specific information needs of the demand side; in particular, they provide information for public procurement officers, for employees in purchase departments of retailers, and for private consumers. It is helpful to find credible standards that address relevant hotspots in the respective product group. By offering these target groups orientation and a solid base for informed decisionmaking, the Ministry wants to increase demand for responsibly produced products, which would consequently close the gap between production and demand and strengthen the global implementation of credible sustainability standards. Within Germany, since sustainable consumption is a cross-sectional task, the BMZ project became an initiative of the German Government.

14.2.1 A Sound Methodology The methodological foundation of the SSCT looks at both the content of the standard (i.e. social and environmental requirements), as well as the implementation system around it (see Fig. 14.1). Roughly 200 national and international experts from

3 This was the outcome of a qualitative market research among consumers that was conducted on behalf of GIZ. 4 https://sustainabilitymap.org/standards, last accessed 31 October 2019.

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Fig. 14.1 SSCT methodology differentiates between the sustainability level and the credibility level

Content (Sustainability Level)

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Social

governmental organisations, standard systems, academia, the corporate sector, and civil society were consulted in the development process of the methodology. These include e.g. ISEAL Alliance, ITC, Öko-Institut e.V., the German Federal Environmental Agency and the Global Ecolabelling Network (GENICES). It is continuously revised and further adapted for new product groups. During the first project period up to the end of 2016, the final decision on the set of criteria was made by the Steering Committee of SSCT, which was comprised of representatives of six Federal German Ministries. The data is hosted in the database of the International Trade Centre (ITC) that also feeds Standards Map website (https://sustainabilitymap.org/standards). Content criteria assess which issues are actually covered by a standard. For example, if there is a requirement that refers to child labour, or a requirement that makes sure that no prohibited chemicals are used. This is not simply a check to see if the requirements are addressed by a standard (in form of a ‘yes’ or ‘no’ selection); rather it requires more in-depth information. For this reason, the evaluation includes two further aspects: • the degree of intensity; • the degree of obligation. The degree of intensity assesses how strictly the requirement has been formulated. If it refers, for example, to the ILO convention No. 182 on the worst forms of child labour,5 the question is whether continuous documentation is mandatory, or the owner just needs to sign a declaration and does not need to prove the implementation by documents. The degree of obligation indicates if the requirement needs to be fulfilled immediately, within a fixed period of time or if it is formulated as a recommendation. These aspects are combined with a numerical score. The higher numerical score, the stricter the requirement is and the sooner it must be implemented. The overall content score again depends on the general weighting of the respective issues. The weighting reflects that certain criteria may be of high importance in 5

Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour (ILO Convention No 182), entered into force in November 2000; 2133 UNTS 161; reprinted in 38 ILM 1207 (1999); also available online at http://www.ilo.org/dyn/ normlex/en/f?p¼NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C182, last accessed 31 October 2019.

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Scheme Management

e.g. governance, finance, impact

Standard Setting

e.g. standard review, consultations

Assurance Claims & Chain of Custody

e.g. certification, accreditation procedures e.g. claims use policy, traceability requirements

Fig. 14.2 The set of criteria for the assessment of the system is divided into four themes

one sector but of lower importance in another. For example, the cleaning of waste water is of high relevance during the dyeing of tissues, but in the manufacturing of IT-products it is not necessarily a hotspot. Thus, the score of the sustainability level also reflects whether the relevant topics are addressed by the standard. It is therefore different for each product group. The level of credibility is measured by the same set of criteria across all product groups. As shown in Fig. 14.2, it consists of four main chapters that are based on the 10 ISEAL Credibility Principles.6 The aim is to find out if a standard system is reliable and robust, if it keeps what it promises, and if it has an impact on the ground. How, for example, is the implementation of the requirements assessed? Is it done by an independent third party audit or by a self-assessment? Are mechanisms in place to sanction non-compliances? How transparent is the system? Have interest groups been involved in the standard setting procedure? The variety of credibility aspects is huge. Some standard systems focus on capacity building and training, while others mainly rely on ‘hard facts’ like laboratory tests. SSCT tries to reflect all procedures that are seen to be reliable without discrimination. The set of criteria, particularly the weighting and scoring, is developed by a group of experts who consult intensively with various other national and international experts.

14.2.2 Product Group Specific Assessment Grids Reflect Relevant Sustainability Issues When developing the methodology of SSCT, the project team was very soon confronted with a conflict of objectives that is immanent to benchmarking: on the one hand, we wanted to create a reliable base for comparison, while on the other hand, the assessment should consider product group-specific aspects. Issues that are of huge importance in one product group may be of less importance in others. While 6

https://www.isealalliance.org/credible-sustainability-standards/iseal-credibility-principles, accessed 31 October 2019.

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Chemicals

Water usage

Waste water quality

...

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Waste water quantity

...

Fig. 14.3 The structure of a set of criteria in the environmental section

standards for textile production should address, for example, the use of chemicals during the process of dyeing, the focus of standards in the paper industry is on the usage of recycled fibres. The IT sector, on the other hand, has completely different hotspots, such as the use of conflict minerals and energy use during the production phase. In order to cover these product group specific aspects SSCT uses different sets of criteria to assess the content of sustainability standards. Each set of criteria consist of several themes, sub-themes, and criteria. In order to keep the comparability between the standards, the structure and the highest level criteria remains practically the same (see Fig. 14.3). As mentioned above, the relevance of an issue with regards to sustainability is reflected in its weighting. The chapter ‘water’, for example, which covers water usage and wastewater treatment, among other things, has a much higher weighting in textile production than in the production of laptops. This is not only valid on the level of issues but also on the following two levels. This set-up is crucial for the calculation of the score: a number of points between 0 and 100. The score indicates how intensively and rigorously a standard addresses the issues that have been found to be the most relevant for a specific sector. The content criteria refer wherever possible to international regulations like the ILO Core Conventions and EU regulations. They are not designed as a best-practice benchmark, but rather reflect actual challenges and sustainability requirements in each product group. Thus, no standard can reach the 100-point score in all sections. The aim of the concept is much more to leave space for improvements and innovations. Issues that might not traditionally have been high on the agenda are intentionally included. For example, the existing standards in the IT sector do not address labour conditions during the manufacturing phase. By integrating these criteria in the social set of criteria SSCT aims to initiate improvement processes among standard setting organisations. The central outcome of the assessment is the score. It gives orientation about the focal points and claims of a standard. It is also helps to foster comparability across different standards in a similar product group. A direct comparison across product

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Fig. 14.4 Presentation of the set of criteria and resulting scores in the Expert Tool

groups is not feasible and will therefore not be provided as analysis function on the user front-ends. The user front-end provides assessment results per area, topic, subtopic, and criteria (see Fig. 14.4). It allows a deep dive into the methodology used and the assessment results per standard system. Users who are interested in a deeper analysis of a standard system can proof compliance of a standard with each individual criterion and check objective evidence, meaning the original text of the standard. The assessment section also indicates which life cycle phase is addressed by the standard: Does it cover primary production exclusively, or is manufacturing covered as well? Or, is it a standard that focusses on the product use and consumption phase? This information is crucial to get a better understanding of the content and claim of a standard. For example, standards that refer to cotton production often cover only the very first phase in the life cycle of a garment. Thus, a T-shirt with a certified cotton label might have been produced under less than optimal circumstances. The cotton standard simply does not cover the manufacturing part of the production.

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14.2.3 Aligned Interpretation of Data and a Joint Database The core of any assessment or benchmarking tool is reliable and consistent data. SSCT assigns external experts to collect the data. The assessment is based on documents that are publicly available (collected by web research) as well as on internal documents. The challenge is to consistently link the references throughout the assessment with the set of criteria. If the standard requires, for example, that the certified company must comply with the principle of non-discrimination in the form of a written declaration, this can be interpreted as a criterion addressing sexual harassment in a workplace context. It can be also seen as a too-general form of compliance. There are arguments for both interpretations. In the first case, the data collector ticks ‘yes’ when it comes to the respective criteria, in the second ‘no’— even if the paragraph in the standard is the same. This example shows that consistency in the data collection process is crucial for the outcome of the assessment. In order to minimise space for individual interpretation, SSCT continuously revises the guidance documents and puts a lot of effort into training and continuous advice for the data collectors. In order to keep the process transparent and fair, the procedure also includes several feedback rounds with the standards before it is published. Furthermore, pre-conditions for the appearance on both the consumer portal and the sustainability compass for public procurement is a plausibility check and the final confirmation by the Steering Committee. Once the data is collected and confirmed by the standard organisation, it is entered into the T4SD Database of the International Trade Centre (ITC). This is a global database that has been built by ITC in order to increase opportunities for sustainable production and trade. It contains information on the scope of each standard (product and geographical scope), the requirements, the verification or certification process, governance aspects, the standard setting and review policies, the monitoring and evaluation processes, as well as research material. It is paid by the Swiss Government, the German Federal Ministry of Economic Development and Cooperation (BMZ), the EU, and the UN. As such, it can be considered a public good. The front-end, the web-portal https://sustainabilitymap.org/standards, may be used free of charge. It simply shows the data; all interpretations or conclusions have to be made by the users themselves. The use of T4SD does, however, go beyond this. The database is also used by different organisations, such as the Worldwide Fund for Nature (WWF), the Global Sustainable Compliance Programme (GSCP), and the Flower Sustainable Initiative (FSI), all of whom process the data using their own assessment systems. The fact that they all refer to T4SD as a joint database shows their efforts to avoid a proliferation of too many competing benchmarking systems. Nevertheless, it is inevitable that the results of their assessments vary depending on the underlying system. The Certification Assessment Tool (CAT) of WWF, for example, focuses on the general mission of WWF, i.e. on biodiversity and conversation.7 In the case of SSCT, the 7 A factsheet about WWF’s CAT can be found at http://wwf.panda.org/?228430/WWF-Certifica tion-Assessment-Tool-CAT/, last accessed 31 October 2019.

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involved experts tried to evaluate the relevance of each requirement for the related product group. The qualitative classification expressed in the respective SSCT-score is accordingly one form of interpretation. It is the outcome of an intensive exchange between various experts and reflects the current discourse. As such, it sets a frame of reference: which criteria should be covered by a credible and demanding label in a certain product group? The set of criteria is based on the existing standards, but it also addresses issues that have not yet been covered sufficiently by these standards. Therefore, it also serves as a learning tool for standard organisations. A short survey of standard organisations assessed by SSCT shows that this methodology succeeded in reflected the standards and standards systems as they see themselves. More than three-quarters of the interviewed organisations also confirmed that the data collection process initiated internal revision activities.

14.2.4 Customised Front-Ends: Applicable Knowledge for Different Target Groups The Consumer Portal ‘Siegelklarheit.de’ The main target of the consumer front-end ‘Siegelklarheit.de’ is to give consumers orientation. The German Government, therefore, decided to work with selfexplaining icons (Smileys), so that users recognise at a glance which standard systems are recommended. In order to come to this classification, the Steering Committee decided to define minimum criteria. These vary among the product groups, reflecting the hotspots in the respective value chain. In the textile industry, for example, credible standards should verify—through an independent assessment—that labour rights are in accordance with the ILO Core Conventions. Furthermore, the issue of occupational health and safety should be addressed. Meanwhile, in the product group of laptops and mobile phones, a specific focus is on aspects that define the environmental footprint of electronics, such as energy consumption during use and the ability to recycle product components. This is reflected in the different minimum criteria among the product groups. The minimum criteria in the section of ‘credibility’ are the same across product groups. This makes sense, since they refer to the implementation system of a standard. This should always be of a robust, trustworthy and transparent nature. A differentiation between the product groups doesn’t make sense in this case. All minimum criteria have been elaborated by expert groups, revised in regular time periods, and define a ‘yes’ or ‘no’ threshold. The first step of any assessment is thus checking whether a standard system fulfils minimum criteria. If a standard complies with all minimum criteria in the credibility section and all criteria either in the environmental or social section, a detailed assessment follows. If not, the standard system is not recommended by the government. This means that the standard will be described on Siegelkarheit.de but only in a short paragraph in the so called ‘grey category’.

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Grey Category

Very good choice!

Does not meet the minimum requirements.

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First assessment step: Meets the minimum credibility as well as environmental and/or social criteria

Second assessment step: Further analysis using the complete set of criteria

Good choice! Score of under 70 for credibility and environment and/or social

Fig. 14.5 The validation logic used on the consumer portal Siegelklarheit.de

As shown in Fig. 14.5, the classification as ‘Good choice!’ is again divided into two categories. In this second assessment step, the score a standard system reaches is crucial: in order to be recommended as a ‘Very good choice!’ the score has to be over 70 points in both the credibility section and either the environmental section or in the social section. This rule ensures that purely environmental or purely social labels are able to perform as highly as labels that combine environmental and social aspects. This system allows all who are more interested in getting a quick overview and orientation to quickly discern the most important results: they may use the smileys and graphs to make a speedy, well-informed decision. To choose for or against a label, they can also consult the compare section, which allows for a comparison between labels from the same product group. In the detailed assessment section on Siegelklarheit.de, users can dive very deeply in the assessment results. Those who are interested in getting information about the hotspots of a product group and the particularities of a specific standard system find every detail of the assessment including a link to the respective reference document. The App ‘Siegelklarheit’ provides this service even at the point of sale or wherever the user may need it: one can simply scan a label and immediately get the assessment results.

Fostering Sustainable Public Procurement: The Sustainability Compass The public sector, by virtue of its overall demand for goods and services, can have a large influence on manufacturing conditions, consumption patterns and market structures. Even though “information on procurement expenditure is generally scarce” (Ragoussis 2016), it accounts for approximately 12% of GDP and 29% of government expenditure in OECD member countries (OECD 2018). In Germany alone, public procurement amounts to an estimated volume of 300 Billion Euros per year (BMWI 2016). Besides fostering innovation through procurement, there is also room for manoeuvre to pursue strategic objectives regarding sustainability standards in producer and consumer countries alike. By integrating social and environmental standards in invitations to tender, and thereby purchasing more sustainable works,

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supplies, and services, the public sector can promote human rights, better working conditions, and environment protection along globalised supply chains. This potential leverage effect has also been recognised by institutions and agenda-setters on the international, national, and subnational level. Target 12.7, from the recently adopted Sustainable Development Goals (SDGs) of the United Nations, explicitly states the promotion of “public procurement practices that are sustainable”. The Federal German Government has placed emphasis on Sustainable Public Procurement (SPP) in its recently revised Sustainable Development Strategy. Several German States (Länder) have integrated social as well as environmental sustainability requirements into their respective procurement regulations. Furthermore, the European Union public sector procurement Directive 2014/24/ EU was transposed into Federal German procurement law in April 2016. It is now easier for procurement officers to integrate sustainability aspects of all kinds in tendering procedures, provided that the requirements are linked to the subject matter of the contract. Social and environmental criteria shall be taken explicitly into account as basic principles of awarding contracts, thereby complementing transparency, non-discrimination, and economic efficiency. Moreover, the use of labels has been made easier, although under strict legal conditions. Art. 43 of 2014/24/EU and § 34(2) of the German procurement regulation (Verordnung über die Vergabe öffentlicher Aufträge) allow procurement officers to require a specific label as means of proof that the works, services or supplies correspond to required sustainability criteria. However, this represents a major challenge for many procurement officers and public institutions. Although possibly committed and open-minded towards sustainability issues, procurement law is nevertheless fragmented and demanding. Sustainability standards and labels put yet another challenge on procurement officers. Time is limited and comprehensive information is often lacking. It takes time to find out which social and environmental issues should be considered when purchasing certain products, which labels are trustworthy and cover the respective issues, and how social and environmental criteria can be integrated into the procurement process in accordance to the respective legal framework. However, time is limited, and comprehensive information is often lacking. The Sustainability Compass,8 developed in close cooperation with practitioners and experts, bridges this gap by offering comprehensive information on how to integrate sustainability aspects and standards in the procurement process and tools geared specifically to procurement officers: 1) Product search, also by a European standardised CPV-Code; 2) Information on the most severe social and environmental challenges along the supply-chain to be considered in the procurement process for the respective product group;

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http://sustainability-compass.com, last accessed 31 October 2019.

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3) Information on possibilities to integrate sustainability aspects in different phases of a tendering procedure, reaching from a requirement analysis to the technical specifications, award criteria, and contract performance conditions; 4) A special Service for Municipalities that contains many best-practice examples, information on the respective regional or municipal legal framework, including a description of the room for manoeuvre to integrate sustainability aspects, and a schedule with events and seminars dealing with the topic of SPP; 5) The integrated Sustainability Standards Comparison Tool, which helps procurement officers to identify trustworthy labels, covering the required criteria regarding social and environmental sustainability aspects to be considered and serve as a means of proof; 6) A list of potential suppliers offering products to be procured and certified with the respective labels; 7) Ready-made text modules to directly integrate into the invitation to tender according to the selected social and environmental criteria. All in all, procurement officers can find a lot of relevant information on the web-portal Sustainability Compass, thereby saving time and using the actual room for integrating social and environmental standards in the procurement process and in the end contributing to sustainable development through more sustainable consumption.

An Expert Learning Field: The Expert Tool The heart of the methodology and assessment that is used in the customised portals can be explored using the so called ‘Expert Tool’. Many functionalities of this tool will be integrated in the new version of ITC Standards Map. In contrast to the two other portals, the Expert Tool displays the assessment results without linking them to the recommendations of the German Government or to public procurement regulations. The comparison and analysis features of the Tool rather allow users to get a systematic overview about the content, the ambition and the credibility of a standard system. By using the product group-specific scoring and weighting system, users get a qualitative rather than a quantitative result. It is up to the user, however, how to interpret and use this result. A special feature even allows the user to adjust weightings according to preferred buying priorities. When a company has, for example, a specific focus on climate friendly production, the purchasing department can use the tool to find out which standards set strict requirements with regards to energy saving or the use of renewably energies. The target groups of the Expert Tool are accordingly experts working in globallysourcing companies, as well as consultants in the area of sustainable global value chains. A survey of experts who used the tools identified several key use cases: • It gives orientation about the hotspots in a specific product group. • It serves as justification for use of a specific standard system as an instrument of supply chain management or sector transformation strategies.

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• It is a base for recognition procedures in multi-stakeholder initiatives (like the Partnership for Sustainable Textiles9), e.g. which standards to accept as an indicator for ‘sustainable production’. • It offers the information that is needed to feed due diligence processes. Feedback from standard organisations also showed that the methodology is highly appreciated as a learning tool for internal improvement procedures. For example, Berry Ververs, Certification Associate at EPEA/Cradle to Cradle,10 gave the following comment about the data selection procedure of SSCT: “We are very grateful for the opportunity to participate in this project and appreciate the feedback we received. Steps are already underway to improve in areas where we scored low and further strengthen those areas where we scored high.”

14.3

The Global Sustainable Seafood Initiative

Fish consumption per capita has more than doubled since 1961, and the Food and Agriculture Organization of the United Nations (FAO) estimates that, by 2030, the world fish production from capture fisheries and aquaculture will have to increase by more than 20 million tonnes (to 187 million tonnes) to meet this growing demand. Today, the seafood sector has a trade value of US$ 140 billion, and 3.1 billion people depend on seafood as the source for a minimum of 20% of their average animal protein intake (FAO 2016, p. 4). This high demand puts enormous pressure on aquatic resources. According to FAO, about 28% of global fish stocks were overexploited and another 4% were either depleted or recovering from depletion (Washington and Abbabouch 2011, p. 4). Management systems for fisheries and aquaculture can vary significantly, from completely unregulated to well-managed. To allow differentiation in the marketplace, certification has become an important tool, responding to the consumer’s growing concerns over the negative impact of how seafood is being farmed and caught. Between 2003 and 2015, the combined amount of certified seafood from fisheries and aquaculture increased from close to 0% to over 14% of the entire global seafood production (Potts et al. 2016). Despite growth in certified seafood production, the gap between supply and demand is increasing. In particular, retailers from Europe and North America drive this tendency. Many committed to source only sustainably harvested seafood and are now facing challenges when trying to meet their self-set goals (Potts et al. 2016, p. 63). The gap between supply and demand for certified seafood has led to a significant proliferation of seafood certification schemes and confusion about their credibility. This is particularly an emerging problem for aquaculture operations. When selling to

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www.textilbuendnis.com/en, last accessed 31 October 2019. Cradle to Cradle: http://www.epea.com, last accessed 31 October 2019.

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different markets, they often have to bear multiple audit costs for different seafood certification schemes to satisfy buyers’ demands. For smallholders, the costs involved to be certified against even one scheme are often too high, let alone getting certified against multiple schemes. Fisheries often face quite a different challenge, with local or regional certification schemes not being recognised at the international level, as their performance is not well understood. The proliferation of seafood certification schemes and decreasing transparency has led to challenges for producers and consumers alike when choosing a scheme or certified product. It is fair to say that the story of seafood certification began with the first international effort to find a common definition of responsible fisheries. These initiatives were led by the United Nations Food and Agriculture Organisation (FAO), which resulted in the adoption of the FAO Code of Conduct for Responsible Fisheries (CCRF) in 1995. The FAO Committee on Fisheries (COFI) and its Sub-Committee on Fish Trade started developing guidelines on the ecolabelling of wild caught fish. These guidelines were supposed to provide a commonly agreed-upon set of principles, definitions, and minimum requirements, as well as procedural and institutional aspects for fishery certification schemes. This process resulted in the adaptation of the FAO Guidelines for the Ecolabelling of Fish and Fishery Products from Marine Capture Fisheries in 2005 (FAO 2009). Among other aspects, the Guidelines require certification schemes to be consistent with the United Nations Convention on the Law of the Sea (UNCLOS), the FAO Code of Conduct for Responsible Fisheries and World Trade Organization (WTO) rules and mechanisms (Washington and Abbabouch 2011, p. 36). In 2011, the FAO Guidelines for the Ecolabelling of Fish and Fishery Products from Inland Capture Fisheries and Technical Guidelines on Aquaculture Certification11 followed. Even though these efforts increased the understanding and set minimum requirements for fishery and aquaculture certification schemes, a concrete tool to assess conformity with the guidelines was still missing. There was no way to verify which certification schemes would adhere to the FAO Guidelines. For producers, it remained unclear which certification would give them optimal market access as the number of certification schemes continued to increase. In April 2009, representatives from seafood industry, NGOs, certification schemes, FAO and governments came together to discuss certification related challenges at the OECD Round Table on Eco-Labelling and Certification in The Hague. All participants agreed that there should be a neutral and commonlysupported benchmarking effort for seafood certification schemes. It was suggested that the efforts toward development of this assessment tool should follow the example of the Global Food Safety Initiative (GFSI) (OECD 2009, p. 23).

11 Hereinafter the FAO Guidelines for the Ecolabelling of Fish and Fishery Products from Marine Capture Fisheries (FAO 2009), Guidelines for the Ecolabelling of Fish and Fishery Products from Inland Capture Fisheries (FAO 2011a), and the Technical Guidelines on Aquaculture Certification (FAO 2011b) are referred to as FAO Guidelines.

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This request for more transparency and a common benchmark for seafood certification schemes was answered by a group of leading seafood companies, NGOs, experts, governments and FAO. Together they founded the Global Sustainable Seafood Initiative (GSSI).

14.3.1 GSSI: Development and Governance GSSI started as a strategic alliance between leading actors in the seafood industry, NGOs and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH in 2013. It was implemented by GIZ on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) as a public-private partnership until December 2016. The priority objective was the development and running of a benchmarking tool that would operationalise the FAO Guidelines and related international instruments to measure and compare the performance of certification schemes against them. This tool should furthermore help improve existing schemes and build confidence in those schemes that have been recognised as adhering to the Guidelines by GSSI. Today, GSSI is a global multi-stakeholder platform and partnership of more than 80 organisations globally. These include seafood companies, several NGOs, experts, governmental, and intergovernmental organisations. All partners of GSSI are members of the Partners Council, which meets annually and provides advice to the GSSI Steering Board. The GSSI Steering Board is the initiative’s principal decision-making and governing body. It consists of representatives of GSSI partners, constituting a fair representation of the diversity in role, geography, and key stakeholders of the global seafood sector12 (GSSI 2016). GSSI maintains a close relationship with the FAO, which has been part of the Steering Board since the initiative’s formal launch in 2013. The organisational management, the implementation of the benchmark process and all other daily activities are carried out by the GSSI Secretariat. GSSI partners joined forces with a shared vision to provide more sustainable seafood for everyone. Their mission is to ensure confidence in the supply and the promotion of certified seafood, as well as to promote improvement in seafood certification schemes. Through GSSI, they built a platform on which all stakeholders can exchange knowledge and collaborate on seafood sustainability. This successful multi-stakeholder involvement was of key importance for the development of a globally-accepted benchmark tool for seafood certification schemes. Therefore, representatives from the seafood industry, NGOs, FAO and experts participated in GSSI’s Expert Working Groups (EWGs) who were tasked to develop this benchmark tool.

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Key stakeholders include: harvesters and producers of seafood, processers and manufacturers of seafood, retail and food service companies, NGOs, academics and international organisations (see GSSI 2016, p. 10).

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14.3.2 Development of the GSSI Global Benchmark Tool In June 2013, the Steering Board set up three multi-stakeholder Expert Working Groups to develop a benchmark tool based on an operationalisation of internationally agreed-upon and accepted documents, namely, the FAO’s Code of Conduct for Responsible Fisheries, the FAO Guidelines, as well as ISO normative standards and ISEAL Codes. Strong engagement of FAO staff in all EWGs was crucial to ensure the adequate interpretation and operationalisation of the Guidelines and global support for the working groups’ result: the GSSI Global Benchmark Tool. To ensure a robust benchmark, the tool needed to cover technical requirements for fisheries and aquaculture operations, as well as criteria for the governance and management of certification schemes. Therefore, these needs were reflected in the set up of three EWGs: one considering the certification process, one considering aspects of scheme management and governance, one for fisheries standards and one for aquaculture standards. After more than half a year of discussions and exchanges among experts and stakeholders in the three EWGs, the first draft of the GSSI Global Benchmark Tool was released for a 60-day public consultation in June 2014. This consultation included expert workshops in Australia, Canada, Germany, Italy, and Thailand. Over 30 organisations submitted more than 2000 comments through an online consultation between June and August 2014. The comments were assessed by the GSSI Steering Board and used by the Expert Working Groups to update the draft Global Benchmark Tool. This updated draft was tested during a pilot that involved eight internationally and nationally active seafood certification schemes. These privately and publicly owned schemes completed the first three steps of the benchmark process (see Fig. 14.6). This included the submission of an application document with evidence for all GSSI Components, a desktop review of this evidence by GSSI’s independent experts as well as visits to the schemes’ offices to review further documentation and discuss the submitted evidence. The independent experts were previously trained through a two-day workshop on the GSSI Benchmark Tool and Process. Their experience of actually applying the tool provided crucial feedback for its further development. The pilot test thus helped to review and validate the Components of the GSSI Benchmark Tool as well as the process through which schemes are being assessed. Scheme owners had the unique opportunity of experiencing the tool and process and of providing feedback on the applicability and relevance of the Components. These results, in combination with the outcomes of a second public consultation, provided GSSI’s Expert Working Groups with the required input to prepare a final draft of the Global Benchmark Tool, which was approved by the Steering Board in September 2015. On 8 October 2015, FAO and the GSSI partners celebrated the launch of the GSSI Global Benchmark Tool on 20th anniversary of the Code of Conduct for Responsible Fisheries.

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Fig. 14.6 Key steps and responsibilities in the GSSI Benchmark Process (Source: GSSI 2015; figure reproduced with kind permission of GSSI)

14.3.3 The GSSI Global Benchmark Tool: Framework and Methodology Next to GSSI, there have been several other approaches to benchmark certification schemes. The most prominent example is certainly the Global Food Safety Initiative (GFSI), which proposes a voluntary benchmark process for food safety schemes against the GFSI Guidance document (GFSI 2015). In 2007, 2009, and 2012, the

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World Wide Fund for Nature (WWF) published notable benchmark studies on a wide range of aquaculture and fisheries certification programs. The International Trade Centre’s Standards Map and SSCT’s Expert Tool draw from a constantly updated common database, including all sorts of certification schemes and labels, allowing comparisons against individually-adjusted criteria. Despite all of these efforts trading under the name of benchmarking, significant differences exist, especially with regard to processes and results (see Table 14.1). GSSI, for instance, publicly recognises certification schemes that successfully complete the benchmark process. Unlike other efforts, GSSI does not calculate a score by which recognised schemes could be compared. However, in contrast to GFSI— which also recognises schemes—GSSI’s methodology is guided by a twofold approach. The seafood sector was in need of an approach that would create transparency and be easier to decode messages across the certification landscape. GSSI responded to this need by creating the GSSI Essential Components, which are grounded in the FAO’s Code of Conduct (CCRF) and the Guidelines. A scheme has to be in alignment with all applicable GSSI Essential Components in order to become recognised by GSSI. A second category of components was introduced to strengthen incentives for improvement and allow stakeholders to understand where differences exist. Schemes that wish to demonstrate their diverse approaches are given the opportunity do so through the GSSI Supplementary Components, which are not required for recognition (GSSI 2015). They are grounded in the CCRF, related FAO documents, ISO normative standards and ISEAL codes and outline the status of existing practices in seafood certification. Any scheme that wishes to apply for GSSI’s voluntary benchmark process will be assessed against the Benchmark Framework. This framework includes all Components and is made up of four sections, covering governance (Section A), operational management (Section B), aquaculture (Section C), and fisheries certification standards (Section D). All seafood certification schemes will be assessed against Sections A and B. Depending on their scope, they will also be assessed against either Section C or D or both. Section A sets out the Components for the governance of a scheme. This includes criteria for the organisational set-up, transparency, and stakeholder engagement, as well as scheme management and standard setting. The latter outlines the organisation and regulation of processes regarding the standard, such as the revision and implementation for which the scheme owner is responsible. Section B covers the operational management of seafood certification schemes. The Global Benchmark Tool is based on the concept of third party certification. Therefore, the Components of this section specify how scheme owners shall manage accreditation and certification. This is also where GSSI defines how scheme owners shall ensure that the chain of custody concerning certified products is maintained. Sections C and D include the technical requirements for aquaculture and fishery certification standards. Section C covers all aspects from aquatic animal health management to impacts on water resources, which need to be addressed by

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Table 14.1 Selected methodological differences between benchmarking initiatives Evaluation done by Scheme involvement

Visit to the office of the scheme Public consultation Review of Evaluation

Approval of process and results Benchmark result and display

Follow up after approval of results

a

GFSIa Benchmark expert

GSSI Independent experts

Scheme hands in completed application and can provide further information throughout process No

Scheme hands in completed application and can provide further information throughout process Yes

WWF studiesb WWF expert team and consultant Scheme hands in supplementary selfassessment which is considered for independent assessment No

Yes

Yes

No

No

Benchmark Committee

Benchmark Committee (4–6 trained experts; open to all stakeholders that meet technical qualifications) GSSI Steering Board

WWF expert team

(1) GIZ project team + ITC validate data in T4SD database (2) “Plausibilitätsgremium” (expert committee installed by steering committee)

WWF expert team

Project Steering Committee

Summary description and average score across all criteria; no detailed evidence for individual criteria

Scorec, assessments published online

None. Benchmark studies are updated and repeated as required

Annual data review

GFSI Board

Recognition statement; no public benchmark report

Monitoring of continued alignment

Recognition statement and publicly available benchmark reports with evidence and conclusions for alignment on each component Monitoring of continued alignment to account for changes within scheme and GSSI Benchmark Tool. Automatic re-benchmark after 3 years

SSCT Expert Tool External consultant

Scheme provides further information if necessary and needs to confirm data

No

For more information see GFSI (2015) For more information see James Sullivan Consulting (2012) c For further explanations of the scoring system see Sect. 14.2 on SSCT b

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aquaculture certification schemes. Likewise, Section D covers all areas that need to be addressed by fishery certification schemes wishing to become GSSI recognised.

14.3.4 The Benchmarking Process The expert-led benchmark process involves objective assessments made against the Components laid out in the Benchmark Framework in an independent, impartial and transparent manner. It is important to acknowledge that GSSI’s Benchmark Process is voluntary. Certification scheme owners apply for benchmarking if they expect recognition to be relevant for the improvement and market access of their scheme. The process involves close information sharing between the applicant scheme owner and GSSI, with independent experts assessing alignment with the GSSI Components. This is done through a desk based review, as well as a visit at the certification scheme owner’s office (Steps 2 and 3 in Fig. 14.6). Furthermore, the process provides several opportunities for interested stakeholders to engage as part of GSSI’s commitment to transparency. This includes a four week online public consultation, during which GSSI seeks feedback on the Benchmark Report (see Step 5 in Fig. 14.6). But even before the consultation, which is open to everyone, experts have an opportunity to engage in the process. A unique Benchmark Committee is convened for each applicant certification scheme and acts as quality control during the entire process. Experts from across the seafood sector can apply to become Benchmark Committee members and are selected by the GSSI Steering Board based on expertise and the absence of a conflict of interest. The committee also provides recommendations (not) to proceed to the public consultation, reviews the outcome, responds to the consultation, and recommends recognition to the GSSI Steering Board (Step 5 in Fig. 14.6; GSSI 2015). Finally, the GSSI Steering Board is provided two weeks to scrutinise the report before publicly announcing its recognition of the applicant certification scheme for a defined scope. In case a scheme is not recognised, the scheme owner is provided with a detailed rationale. Recognised schemes are subject to a continued monitoring of alignment with the GSSI Components, which includes reporting changes to GSSI and a reassessment every three years (Step 7 in Fig. 14.6).

14.3.5 Results and Outlook As of January 2019, seven certification schemes had successfully completed the Benchmark Process (GSSI 2019): in July 2016, the GSSI Steering Board announced its recognition of the Alaska Responsible Fisheries Management (RFM) Certification Program for the scope of Fisheries Certification. In November 2016, the Iceland Responsible Fisheries Management Certification Programme followed as the second GSSI recognised certification scheme, and the Marine Steward Ship Council

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achieved recognition in March 2017. Best Aquaculture Practices Certification was recognised in October 2017 and GLOBALG.A.P Aquaculture Certification System in April 2018. The latest two additions to the GSSI portfolio of recognised certifications schemes were Aquaculture Stewardship Council Certification (August 2018) and Audubon G.U.L.F. RFM Certification Program (October 2018). With the Benchmark Process gaining traction, retailers and other large scale buyers pledged their commitments to accept all GSSI-recognised certification schemes when sourcing certified seafood. Through its Global Benchmark Tool, GSSI increases transparency, sets a strong incentive for improvements in the certification schemes, and is expected to drive down costs by reducing the need for multiple certifications. For producers, this will result in more options to opt for a scheme that fits their needs. To seafood buyers, GSSI offers more consistent data to guide their purchasing decisions. And for NGOs, it means more open and validated information to help promote environmental sustainability (GSSI 2015). Certification schemes also benefit from the input and information they receive during the benchmarking process. Some have embraced the tool as an orientation for the revision of their standards. The Iceland Responsible Fisheries Foundation stated in the work plan for the revision of their Fisheries Certification Programme that the Technical Committee shall “review [it against] the GSSI Benchmark Tool and confirm alignment, as appropriate” (IRFF 2015, p. 2). As a global multi-stakeholder platform, GSSI provides its partners across the seafood industry with an opportunity to work on a leading knowledge-exchange initiative and to collaborate on topics that are shaping the seafood sector’s future. The Global Benchmark Tool advances the understanding of third party certification in the seafood sector as well as the implementation of international guidelines. Throughout the development of the benchmark tool, the FAO supported GSSI to collaborate with stakeholders from important producer regions around the world, including from developing countries. GSSI and FAO organised three regional workshops in Chile, South Africa, and Thailand in 2015 to further the understanding of the FAO Guidelines and the Global Benchmark Tool. These workshops provided important feedback for the future development of the tool. One of GSSI’s principles to drive long term-change is to engage with small and less developed schemes and to provide them with a pathway towards recognition. As a part of the Tool’s pilot test, GSSI worked with government-owned aquaculture certification schemes from Indonesia, Thailand, and Vietnam. For now, the GSSI partnership’s main concern is environmental sustainability. However, other issues, such as sector-wide improvement strategies and social responsibility, are becoming an increasingly important aspect of the global seafood sustainability debate. GSSI has often been confronted with the question of how it will engage in this debate. To tackle this question, GSSI may use its multistakeholder platform and the ties to international organisations to discuss and develop a common effort to engage in addressing these issues.

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Conclusions and Recommendations

Systems like the Global Sustainable Seafood Initiative and the Sustainability Standards Comparison Tool are an answer to the information gaps in a highly-globalised world. They define reference systems in the area of global value chains where national regulations are insufficient or don’t exist. Standards and standard systems strive to substitute the lack of regulations by gaining control over unintended social and environmental side effects. But, as they are private-law contracts, there are broad varieties of quality and system architectures among standard systems. Benchmark systems bring transparency to this variety. Benchmarking is not a reason unto itself, nor is data collection performed just for the sake of it; the concept is rather to strengthen the development of robust and reliable standard systems. If done in an elaborate way, benchmarking can help identify credible sustainability standards. That way, it indirectly contributes to better working and living conditions in production countries. Successful benchmarking needs to make sure that tools are accepted and perceived as legitimate. To achieve this, according to our experiences, the following four conditions are crucial: 1. The set of criteria has to be developed in a participatory way that integrates all available expert knowledge. It should by dynamic enough to cope with the ‘state of the art’, otherwise it risks impeding innovation. 2. Data collection has to be conducted by qualified experts who can refer to elaborate guidance that supports consistent interpretation. The systems that are assessed should be closely involved in the data collection process to ensure all available information is considered and interpreted appropriately. 3. The results of the assessment have to be provided in a way that answers the information needs of the target group. Detailed research about the target groups is thus a key part of elaborate benchmarking projects. Public validation can be an important step to increase legitimacy and uptake of results. 4. There should be guidance on how to interpret results in order to reduce complexity. Those who rely on benchmarking should not feel exposed to excessive complexity but receive clear orientation. Both presented tools try to comply with these conditions, although they follow different concepts. GSSI refers to the FAO Guidelines as a threshold for quality and credibility of standard systems. In order to define this threshold, GSSI first had to translate the FAO Guidelines into a concrete set of requirements for seafood and aquaculture. An elaborated evaluation procedure now leads to the public recognition of standard systems that are in alignment with the FAO Guidelines. As such, benchmarking serves as a methodology to define an industry-wide level playing field. In the case of SSCT, the assessment grid varies depending on the product group. It has been elaborated upon within various expert groups and in broad consultations. There is no threshold, but rather a score that gives validation. The aim is not to define

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one baseline, but to offer a reference system that enables comparison and gives incentives for improvement. Both systems ensure that the set of criteria is continuously revised and that all procedures are transparent. They acknowledge that tackling social and environmental challenges of global production and trade is an ongoing development bringing up new approaches like those presented as VSS 3.0 in Chap. 15 of this volume. Considering this highly-dynamic environment, neither GSSI nor SSCT will ever be ‘final’. Rather, they are agreements that serve as a starting point for further discussion. While GSSI has been developed in cooperation with industry representatives, NGOs, international experts and FAO, SSCT is carried mainly by public and scientific institutions. Both concepts work well. Nevertheless, a future concept could be to open both systems to a broader group of stakeholders.

References BMWI – Bundesministerium für Wirtschaft und Energie (2016) Innovation Policy. https://www. bmwi.de/Redaktion/EN/Dossier/innovation-policy.html. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (1995) Code of Conduct for Responsible Fisheries (CCRF). FAO, Rome FAO – Food and Agriculture Organization of the United Nations (2009) Guidelines for Ecolabelling of Fish and Fishery Products from Marine Capture Fisheries, Revision 1. FAO, Rome. http://www.fao.org/docrep/012/i1119t/i1119t.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2011a) Guidelines for Ecolabelling of Fish and Fishery Products from Inland Capture Fisheries. FAO, Rome. http:// www.fao.org/docrep/015/ba0001t/ba0001t00.htm. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2011b) Technical Guidelines on Aquaculture Certification. FAO, Rome. http://www.fao.org/3/a-i2296t.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2016) The State of World Fisheries and Aquaculture 2016. Contributing to food security and nutrition for all. FAO, Rome. http://www.fao.org/3/a-i5555e.pdf. Accessed 31 Jan 2019 GFSI – Global Food Safety Initiative (2015) GFSI Guidance Document, Sixth Edition, Version 6.4, November 2015. GFSI, Issy-les-Moulineaux. https://www.cgcsa.co.za/wp-content/uploads/ 2017/03/GFSI_Guidance_Document_2015.pdf. Accessed 31 Jan 2019 GSSI – Global Sustainable Seafood Initiative (2015) GSSI Global Benchmark Tool, Version 1.0, October 2015. https://www.ourgssi.org/wp-content/uploads/2019/04/GSSI-Global-BenchmarkTool-V.1-October-2015.pdf. Accessed 31 Aug 2019 GSSI – Global Sustainable Seafood Initiative (2016) GSSI Charter, Version 2, April 2016. http:// ourgssi.org/assets/RESOURCES/GSSI-Charter-April-2016.pdf. Accessed 31 Aug 2019 GSSI – Global Sustainable Seafood Initiative (2019) GSSI Recognized Certification Schemes. http://ourgssi.org/benchmarking/recognized-schemes/. Accessed 31 Jan 2019 IRFF – Iceland Responsible Fisheries Foundation (2015) IRFF Technical Committee (TC) revision of IRFM standard. Work Plan 2015/2016 (Revision 1). https://www.responsiblefisheries.is/files/ tc-work-plan-standard-rev-1.1.pdf. Accessed 31 Jan 2019 James Sullivan Consulting (2012) Smart Fishing Initiative: Comparison of Wild-Capture Fisheries Certification Schemes. World Wide Fund for Nature (WWF), Gland. http://awsassets.panda.org/ downloads/wwf_report_comparison_wild_capture_fisheries_schemes.pdf. Accessed 31 Jan 2019

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OECD – Organisation for Economic Co-operation and Development (2009) Round Table on Eco-Labelling and Certification in the Fisheries Sector, 22–23 April 2009, The Hague, The Netherlands: Proceedings. http://www.oecd.org/tad/fisheries/43356890.pdf. Accessed 31 Jan 2019 OECD – Organisation for Economic Co-operation and Development (2018) Public procurement. http://www.oecd.org/gov/public-procurement/. Accessed 31 Jan 2019 Potts J, Wilkings A, Lynch M, McFatridge S (2016) State of Sustainability Initiatives Review: Standards and the Blue Economy. International Institute for Sustainable Development (IISD), Winnipeg, MB. http://www.iisd.org/sites/default/files/publications/ssi-blue-economy-2016.pdf. Accessed 31 Jan 2019 Poynton S (2015) Beyond Certification. Dō Sustainability, Oxford. http://www.scottpoynton.com/ beyond-certification. Accessed 30 Aug 2019 Ragoussis A (2016) Government Agoraphobia: Home Bias in Developing Country Procurement Markets. Discussion Paper 5/2016. Deutsches Institut für Entwicklungspolitik, Bonn. https:// www.die-gdi.de/uploads/media/DP__5.2016.pdf. Accessed 31 Jan 2019 Schmieg E (2014) The role of voluntary standards in German Development Policy. In: SchmitzHoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) Voluntary standard systems: a contribution to sustainable development. Natural Resource Management in Transition, vol 1. Springer, Berlin, Heidelberg, pp 115–132 Schrader U, Liedtke C, Lamla J, Arens‐Azevêdo U, Hagen K, Jaquemoth M, Kenning P, Schmidt‐ Kessel M, Strünck C (2013) Verbraucherpolitik für nachhaltigen Konsum – Verbraucherpolitische Perspektiven für eine nachhaltige Transformation von Wirtschaft und Gesellschaft: Stellungnahme des wissenschaftlichen Beirats Verbraucher‐ und Ernährungspolitik beim BMELV. Bundesministerium für Ernährung, Landwirtschaft und Verbraucherschutz, Berlin Thoeresen V, Didham RJ, Martinez-Roca C, Mimica LF, Rutivi C, Kalkan S, Pierre F, Abbas K, Cruypenninck H (2015) Pathways to Sustainable Lifestyles: Global Stocktaking Report, Published Draft. The 10-Year Framework of Programmes on Sustainable Consumption and Production (10YFP), United Nations Environment Programme. http://www.oneplanetnetwork. org/sites/default/files/draft_pathways_to_sustainable_lifestyles_-_global_stocktaking_report. pdf. Accessed 31 Jan 2019 VZBV – Verbraucherzentrale Bundesverwand (2016) Infografik: nachhaltig produzierte Lebensmittel. Repräsentative Umfrage von TNS Emnid im Auftrag des VZBV, Januar 2016. https://www.vzbv.de/infografik/infografik-nachhaltig-produzierte-lebensmittel. Accessed 31 Jan 2019 Washington S, Abbabouch L (2011) Private standards and certification in fisheries and aquaculture: current practice and emerging issues. Fisheries and Aquaculture Technical Paper 553. FAO, Rome. http://www.fao.org/docrep/013/i1948e/i1948e.pdf. Accessed 31 Jan 2019

Friederike Sorg studied business administration at the Johannes Gutenberg University in Mainz. During her studies she already started working as an intern for the former Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ). After her internship, she worked in the department for the cooperation with the private sector (develoPPP.de) and in the Secretariat of the German Global Compact Network. Afterwards she led a program on evaluating and comparing social and environmental standard systems (benchmarking). Today, Friederike Sorg is manager of a project on sustainable fisheries and aquaculture, which is part of the special initiative “One World - No Hunger” of the German Federal Ministry for Economic Cooperation and Development (BMZ). Division Rural Development and Agriculture, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Eschborn, Germany; Tel: +49 6196 79 2368; Fax: +49 6196 79 80 2368; Email: [email protected]; Internet: www.giz.de.

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Jens Kahle is advisor to the Global Programme on Sustainable Fisheries and Aquaculture for the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. From 2014 to 2016 he was Project Manager of the Global Sustainable Seafood Initiative (GSSI). With a Ph.D. in Natural Science, he previously spent 5 years on a Research and Development project concerning the “Development of environmentally friendly aquaculture production systems for sustainable culture of marine organisms”, funded by the German government. As scientific manager of WAB Trading International, he implemented the “Organic Shrimp Project” in Bangladesh and India from 2007 to 2014 and participated in the EU funded project “SustainAqua” from 2007 to 2008. Division Rural Development and Agriculture, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Eschborn, Germany; Tel: +49 228 4460 1027; Fax: +49 6196 79 80 2368; Email: [email protected]; Internet: www.giz.de. Niklas Wehner is an Advisor to the Sector Programme on Sustainable Fisheries and Aquaculture at the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and supports the Secretariat of the Global Sustainable Seafood Initiative (GSSI). His responsibilities include coordination of GSSI’s communication activities as well as general management of GSSI’s activities, including facilitating the GSSI Process Expert Working Group. Niklas also represents GSSI and GIZ at various international seafood conferences. Before joining GIZ he worked for the French Secretariat-General for European Affairs where he supported coordination of the French government’s positions on reforms of the EU’s Common Agricultural and Fisheries Policies. Niklas currently pursues an MSc in Environmental Management and Policy at the University of Lund (Sweden). Division Climate Change, Rural Development, Infrastructure, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Eschborn, Germany; Tel: +49 171 101 9381; Email: [email protected]; Internet: www.giz.de. Max Mangold is Advisor to the Sector Programme on Sustainability Standards and Public-Private Responsibility at the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. There he works on sustainable public procurement, social and environmental standards in globalised supply chains and in particular supports and promotes the website www.sustainability-compass. com. Before joining GIZ, he worked for the European Movement Germany and various providers of political education. He has a Bachelor’s degree in International Cultural and Business Studies and a Master’s degree in European Studies. Division Economic and Social Development, Digitalisation, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Bonn, Germany; Tel: +49 228 4460 3424; Fax: +49 228 446080 3424; Email: [email protected]; Internet: www.giz.de. Silke Peters studied Economy and Latin American Studies at the University of Cologne. After various assignments at non-governmental organisations and at the German Committee for UNICEF she specialised in the field of social and environmental standards and sustainability governance of global value chains. From 2004 until 2010 she was managing director of the international association Flower Label Program, a multi-stakeholder project of the horticultural sector. Today, Silke Peters is head of the component “Sustainable Consumption and Sustainable Public Procurement” in the department of Social and Economic Development of GIZ GmbH. Division Economic and Social Development, Digitalisation, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Bonn, Germany; Tel: +49 228 4460 3735; Fax: +49 228 446080 3735; Email: [email protected]; Internet: www.giz.de.

Chapter 15

Future Role of Voluntary Sustainability Standards: Towards Generation 3.0? Mathieu Lamolle, Sandra Cabrera de Leicht, Regina Taimasova, and Aimee Russillo

15.1

Introduction

The number of sustainability standards has been steadily increasing over the last 30 years, with more rapid growth especially between the years 1990 and 2010. As of October 2019, the Ecolabel Index lists 463 ecolabelling systems in 199 countries and across 25 industry sectors.1 Ecolabel Index defines ‘ecolabel’ as “A sign or logo that is intended to indicate an environmentally preferable product, service or company, based on defined standards or criteria”.2 These schemes represent a wide range of types, from single issue, Life Cycle Assessments, to private and government standards. This chapter focuses on voluntary sustainability standards (VSS), many of which are associated with ecolabels. We define VSS as “non-governmental, voluntary, usually third party-assessed (i.e. certification) norms and standards relating to environmental, social, ethical and food safety issues, adopted by companies to demonstrate the performance of their organisations or products in specific areas”. The landscape of VSS has changed quite a lot in the last few years, as their role in trade and development agenda makes them key drivers for sustainable development and tools for enhancing marketing strategies (e.g. Palekhova and Pivnyak 2014). After a period of rapidly emerging initiatives during the decade 1995–2005 and standards covering an ever increasing, sometimes overlapping scope of

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M. Lamolle (*) · S. C. de Leicht · R. Taimasova International Trade Centre (ITC), Geneva, Switzerland e-mail: [email protected]; [email protected]; [email protected] A. Russillo LiSeed Consulting, Berea, KY, USA e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_15

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sustainability issues, the movement is now entering a new phase of maturity, consolidation and interoperability. VSS are highly diverse in terms of the scope of issues covered (e.g. wild predators’ protection in open-air production fields, the respect of basic human rights in factories employing thousands of workers), sectors (e.g. cocoa production, electronics, tourism) and approaches (life cycle, single issue, supply chains). It is clear that the sustainable development agenda will continue to advance and science will help identify new areas deserving the attention of the private and public sector—hence a continuous need for ‘standards’ to be developed, reviewed and implemented in a sound and credible way. However, will their role or substance remain the same? Will sustainability standards continue to operate with the same compliance-based approach that they have used over the last 30 years, or is there a new type emerging, a ‘generation 3.0’ that embraces innovation and technology with a focus on the process of becoming more sustainable, not just the output of an audit? VSS arose primarily in a context where they seemed to be the sole solution to lack of governments’ and companies’ interest or ability to pursue the sustainability agenda and its implementation. The overall awareness of sustainability challenges at all levels of supply chains has increased significantly since the early 1990s, leading to businesses, NGOs and governments developing what they believed was the right solution. The increased number and diversity of VSS has raised questions about their relevancy and effectiveness among many actors, including users, and many practitioners are now calling for some change, or at least expecting it. The public sector is now more than ever looking closely at sustainability from all angles: environmental, social, economic and ethical. There is also a focus on the quality of trade transactions, urged by the collective drive towards sustainability. This collective effort is illustrated through the recently-adopted United Nations Sustainable Development Goals (SDGs) and the EU Member States’ commitment to sustainable development (UN 2015; EC 2016). Private companies are also increasingly involved in sustainability, as consumers demand to know about their products, particularly the products’ origin and their potential impacts on the environment or society. As such, VSS have become an instrument of choice mostly for businesses to develop their sustainable sourcing strategies and reduce supply chain risks, specifically related to the production methods, rather than product characteristics (the Sustainable Agriculture Network-Rainforest Alliance standard, for instance, focuses on social and environmental issues of production processes rather than on product quality). Investing in production and business practices that comply with VSS is becoming a major determinant of firms’ competitiveness. Doing so, however, promotes higher quality products and services in a sustainable way (ITC 2015). According to the Nielsen Global Corporate Sustainability Report 2015 (Nielsen 2015), the sales in 2014 of consumer goods from brands with a demonstrated commitment to sustainability have grown more than 4% globally, while those without grew less than 1%. The voluntary nature of the sustainability standards, and sometimes what is described as an arbitrary development of new standards and sets of indicators, has

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been criticised by organisations such as the ISO and WTO. These organisations have argued that these standards sometimes are not based on scientific findings (Liu 2009) and are most likely to create obstacles to trade and create more confusion than positive impacts, especially in developing countries. Nevertheless, VSS are continuously being developed and their numbers continue to grow, presenting an organic set of solutions for the private sector to address sustainability concerns and risks in supply chains. This chapter will assess, review and analyse the future role of sustainability standards and will provide answers to these key questions: • • • •

What are the main trends in the field of VSS? What has been achieved so far, and is there a means of measuring this impact? What are the challenges and changes of traditional assurance systems? Are industry platforms developing new credible models for sector-wide transformation towards more sustainable production?

The authors of this chapter are developing assumptions and projections based on their extensive experience working with over 200 standards organisations and partners on developing and maintaining the largest and most comprehensive database of sustainability standards, called the Standards Map.3 Following this introduction, the chapter moves to detailing the trends and providing insights on the evolution of sustainability standards in Sect. 15.2. Section 15.3 explores what has been achieved so far by implementing VSS, as well as the models being used to quantify and assess VSS potential impacts. Section 15.4 gives an overview of traditional models of assurance and a critical analysis. Section 15.5 outlines industry platforms from the perspective of developing sector-transformation processes towards sustainability. Section 15.6 sketches out prospects for the next generation of sustainability standards. This chapter wraps up with conclusions and recommendations in Sect. 15.7.

15.2

Voluntary Sustainability Standards: Evolution and Recent Trends

The voluntary sustainability standards movement has been evolving since the first standards were established in the late 1960s. These earliest systems mainly covered agriculture products and organic production. VSS later evolved to address a multitude of other issues (e.g. fair trade, environmental and ethical initiatives) and sectors (e.g. aquaculture, textiles, carbon, tourism, forestry, mining, etc.).

3 Standards Map (https://sustainabilitymap.org/standards) is an online tool developed by the International Trade Centre, which provides information on more than 200 voluntary sustainability standards. Users can identify, review and compare sustainability standards, as well as run a selfassessment and evaluate their practices against the requirements of selected standards.

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Fig. 15.1 Evolution of VSS (Source: ITC and EUI 2016)

Figure 15.1 shows the number of VSS appearing each year within the period of 1967–2014. The figure is based on the data of 181 standards4 included in the Standards Map database and comes from the policy paper developed by the International Trade Centre and the European University Institute (ITC and EUI 2016). Figure 15.1 clearly displays the increasing trend in the emergence of the new standards, which is closely related to the developments in the international sustainability agenda over the last 25 years. One prominent example is the United Nations Conference on Environment and Development held in Rio de Janeiro in June 1992 that has immensely triggered the rise of standard initiatives. Another example is the adoption of the Kyoto Protocol in 1997 on reducing greenhouse gas emissions by its State Parties (ITC and EUI 2016). More recent examples include the adoption of UN’s Millennium Development Goals in 2000 and the Sustainable Development Goals as their follow-up in 2015 (see Chap. 2 in this volume by for the discussion of latest developments in the UN’s agenda for sustainable development). Various other factors contribute to explaining this increasing number of VSS, namely:

4 There are not many tools which provide information on voluntary sustainability standards. Standards Map and Ecolabel Index are examples. The number of standards featured in Standards Map continually grows, and at the time when the ITC-EUI research was conducted, the number was 181. Ecolabel Index as of October 2019 contained information on 463 ecolabels. Since there is no uniform definition of what VSS is, each entity interprets it in its own way, hence the difference in numbers.

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• Globalisation of trade: Companies source their products from suppliers all over the world, with increased demand for traceability of their sustainability attributes. • Information technology: Supply chain management solutions tailored to companies’ needs and business requirements (among which sustainability) do operate mostly in vacuums for confidentiality reasons and tend to create new ‘standards’ rather than building on existing solutions. • Concentration in food processing and retailing: More power is kept in the hands of processors and retailers, which enables them to impose more technical requirements to their suppliers, including quality and sustainability embedded in codes and standards. • Changing consumer preferences: More and more consumers base their purchasing choices not only on conventional features such as price and quality, but also on sustainability factors such as social justice, environment protection, etc. Consumers willing to pay extra for products or services that are produced by companies committed to positive sustainability impacts increased from 45% in 2011 to 55% in 2014 (Nielsen 2014). • Shifting responsibility from public to private sector: Private companies such as retailers, brands and manufacturers are held accountable for all aspects of their products: quality, but also sustainability issues going beyond the mandatory regulations and legislations enforced by governments. • Competition between market players: The constant competition between companies influences their adoption of ever stricter standards and requirements (Liu 2009). This collective drive towards more sustainable practices has led not only to the increase in number of VSS, but also to the expansion of land area and diversity of products compliant to these standards. For instance, the Roundtable on Sustainable Palm Oil (RSPO) standard compliant land area expanded 30-fold between 2008 and 2014 reaching 3,145,133 hectares, which represents 14.51% of the global palm plantation area. Fairtrade International certified coffee plantations reached an area of 1 million hectares in 2014 which represents 10% of the global coffee plantation area (Lernoud et al. 2015). Within the relatively short history of the evolution of the VSS, there are several trends, which provide insight into the future development of the field of sustainability standards. Firstly, developing countries are increasingly establishing their own VSS; secondly, demand for VSS-certified products is growing both in developed and developing countries; thirdly, product scope of VSS is growing to cover non-traditional items such as services; lastly, more governments and private companies are embedding their sustainability commitments in legislation and corporate strategies using VSS mechanisms. Most of the VSS have traditionally emerged in developed countries; however, there is a trend for more standards being established by entities based in developing countries. ITC-EUI research on VSS shows that Brazil, South Africa, India and Kenya are the countries with the highest numbers of VSS headquarters among developing countries (ITC and EUI 2016).

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The increase of VSS being established in developing countries is related to various factors: • Sustainability is becoming a concern also in developing countries, for example local producers’ associations increasingly develop their own standards (e.g. Amaggi Responsible Soy Standard in Brazil); • Recognition of the cost effectiveness of using local systems, including local assurance mechanisms to conduct compliance assessments; • Retention of ownership of countries’ own sustainability agenda, including interpreting international schemes for local issues; in China, for instance, authorities develop national VSS instead of participating in the development of international standards. These national VSS serve as a substitute for major international standards, e.g. Chinese Social Compliance Management System CSC9000T is a national Chinese response to Fair Labour Association (FLA), Social Accountability International (SAI) and Ethical Trading Initiative (ETI) (Dietmar et al. 2011; An and Schaller 2014). Demand for VSS-certified products is still much higher in developed countries, with consumers in developed countries more aware and demanding products that have been produced in a sustainable way. Nonetheless, consumers in the developing world are also becoming increasingly aware of sustainability. According to the survey conducted by Nielsen (2014, p. 6), 63% of respondents in Latin America are willing to pay extra for products and services from companies with a positive social and environmental impact; the number has increased by 13% from 2011. In the Asia-Pacific region, the percentage of consumers was 64% in 2014, which is 9% more than in 2011. With respect to the scope of the VSS in the value chain, Standards Map data shows that the majority of VSS cover the extraction and primary production parts of the value chain; however, more standards are emerging that cover services such as tourism or financial services. In the 1990s, VSS focused on commodities such as coffee, cocoa, tea etc. and these products still represent the largest group of sustainably certified products; nevertheless, VSS-certified services are also gaining a market niche. The tourism sector, for instance, is the largest service sector where VSS are applied, with the VSS Travelife certifying more than 1300 hotel members around the world. With the increasing number and diversity of standards there is a question of their effectiveness and potential duplication. In the case where different buyers impose or require different standards, additional costs may be imposed on producers. Where VSS are being used in the development context, the burden then falls on those actors intended to benefit from VSS. In order to reduce the challenges and costs of compliance with different systems, some VSS and companies collaborate and create mutual recognition agreements, i.e. when one standard can be recognised as equal by another standard and eliminate a second compliance assessment. This is especially relevant when standards contain requirements that are very similar and overlap. See Box 15.1 for one example. Further examples of mutual recognition are presented in Sect. 15.4.

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Box 15.1: Friend of the Sea (FoS) and GLOBALG.A.P. Certification Schemes Collaboration In 2014, FoS began recognising GLOBALG.A.P. certified aquaculture farms as only needing to be assessed against a few additional sustainability criteria to become eligible to use the international consumer sustainability FOS label for aquaculture. This recognition reduces duplication of farm audits and costs. In return, FOS certified farms can add the GLOBALG.A.P. audit with the next annual re-certification audit. This recognition covers more than two million tonnes of labelled product available to consumers. As a response to the increase in number and diversity of VSS—with different criteria, methodologies, governance and coverage—several meta-initiatives have been established in recent years to facilitate transparency through ‘benchmarking’. These tools help users navigate and analyse information about VSS. These initiatives support evaluations of standards’ performance against user-defined preferences and benchmarks, support mutual recognition between standards, and help people understand what influences the performance of standards. Standards Map has emerged as a leading platform for navigating VSS information and coordinates a Technical Working Group with various institutions, experts and benchmarking initiatives to streamline data gathering on VSS and to ensure interoperability of data sharing about VSS. Benchmarking methodologies and tools are using the Standards Map platform as a starting point to develop their reviews and assessments of VSS (refer, for example, to Chap. 14 in this volume). Governments are also increasingly recognising the value of working with VSS as a mechanism to meet their sustainability commitments. Depending on rules, Governments may not explicitly reference specific VSS, but increasingly reference in procurement guidelines the underlying criteria of VSS or create lists of VSS that meet these criteria. Public procurement can be a major market factor, accounting for 10% and 15% of gross domestic product in the US and EU respectively, and up to 30% in some countries. Governments are increasingly creating guidelines and rules for green public procurement driving demand for and adoption of VSS in supply chains. For example, as reported by Carey and Guttenstein (2008), governments have essentially built a national forest code using the FSC standard (e.g. Bolivia) and a number of governments require FSC or PEFC certification in their public procurement guidelines (including Denmark and Japan). Governments can make use of VSSs to reinforce their legislation covering environmental, social, quality and food safety product related matters. For instance, VSS can be applied as mechanisms of co-regulation, as exemplified by the EU’s Renewable Energy Directive (RED), when the EU Commission set a process of recognising private standards which satisfy mandatory sustainability criteria of the EU RED (Gaebler 2014).

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Box 15.2: Nestlé’s Sustainable Sourcing Strategy Nestlé has designed its sustainable sourcing strategy based on its own codes: the Nestlé Supplier Code, which defines non-negotiable minimum standards that Nestlé suppliers and their sub-tier suppliers are asked to respect and to adhere to when conducting business with Nestlé; and the Nestlé Responsible Sourcing Guideline (RSG), which complements the Nestlé Supplier Code and is applicable to all stages of the upstream value chain back to the primary production level. The Code and the Guideline cover a group of commodities such as coffee, cocoa, sugar, dairy, meat, palm oil, paper, fish and seafood, soy, hazelnuts, shea and vanilla. Nestlé has made clear linkages and recognition of standards through benchmarking: Fairtrade, UTZ, RSPO are among the schemes reviewed and assessed by Nestlé on compliance with the Nestlé’s standards. For instance, Responsible Sourcing Guideline states that “under certain circumstances, Bonsucro and the Sustainable Agricultural Network (SAN) certification are accepted as verification of compliance with the RSG.” Governments’ recognition of VSS improves not only the sustainability outcomes, but also the positioning of their national products and brands in international value chains. Private companies principally use VSS to achieve three objectives (Komives and Jackson 2014): 1. Ensuring continued supply by addressing sustainability issues (environmental, social or economic related problems); 2. Linking suppliers and buyers by using the VSS recognised by both sides; and 3. Exercising control and driving change at the production level, since the linkage is already provided and the producer/supplier will answer to the buyer’s demands given to the long-term business relationship. Many examples exist of sustainable sourcing commitments of major multinationals that take into account long-term sustainability concerns. These take the shape of sourcing programmes where the companies work together with other actors of the supply chain to move toward sustainability. Examples include companies such as Ikea, Coca-Cola, The Home Depot and Unilever. Due to the number and diversity of VSS, companies often can’t easily identify which standard is the best investment and fit for their objectives, whether covering their risks or meeting consumer demands. For this reason, companies increasingly develop their own principles/code of conduct and then select standards which are in line with the code (see Box 15.2). An emerging trend that brings together much of the evolution of VSS (growth and diversity of VSS, interoperability, demand for evidence, government adoption and emerging economy development) is the jurisdictional or landscape approach. The

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landscape approaches use tools (such as VSS) to reconcile productive resource use (agriculture, fishery, mining, forestry, etc.) with sustainability (social, economic and environmental). Some VSS have taken a landscape—versus site specific—approach as a starting point (e.g. Alliance for Water Stewardship), while others are testing and building aspects of this into their existing system (e.g. RSPO, BCI). Governments, particularly in developing countries with key commodities, are looking at how the various actors can work together using VSS.

15.3

What Has Been Achieved So Far by VSS?

VSS are driven by their mission to address some of the core challenges faced by our society, such as the protection of the environment, respect for human rights and workers’ rights, ethics etc. However, limited empirical evidence on what VSS have achieved and the longer-term impacts exists. Most of the lack of evidence is due to the methodological challenges of measuring change in complex, development contexts with robust quantifiable methodologies and indicators and the underinvestment in assessment. Collective impact is even harder to measure, as VSS each have different natures and definitions of sustainability and focus on different areas. Few monitoring and evaluation programmes attempt to review and assess VSS performance, the way the standards are implemented and their potential impacts. VSS are however responding to the demand for more evidence in many ways, both individually and collectively. Many are developing more robust and comprehensive monitoring and evaluation systems, sets of indicators and practices with an aim to better assess their potential impacts and progress towards reaching their goals and fulfilling their mission. ISEAL Alliance, a sustainability standards membership organisation, has developed a Code of Good Practice for Assessing the Impacts of Social and Environmental Standards Systems (Impacts Code) that helps standards organisations in their effort to better assess and review the progress and effectiveness of their sustainability efforts (ISEAL Alliance 2014). Annual reports on performance monitoring and impacts assessments are increasingly being published by VSS bodies, and the number of independent evaluations of VSS has dramatically increased in the past 5 years. ISEAL Alliance, WWF and the Sustainable Food Lab collaborated to compile studies on the impacts of ISEAL members. They also recently launched the “Sustainability Impacts Learning Platform”5 to facilitate access to studies and support the work of researchers, practitioners and standards organisations themselves. With a similar objective of enhancing the assessment of impacts of VSS, the Committee of Sustainability Assessment (COSA) has developed widely adopted, scientifically rigorous methodologies and tools to measure and manage information about the impact of various agriculture sustainability standards.

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Any achievement of standards on the ground is quite complex to assess for multiple reasons. Methodologically, there is a wide array of external factors influencing the results and it is often complex to determine whether the identified sustainability impact is due to the implementation of one specific standard, or to some other factor. “It is often more correct to say that an impact is the result of multiple contributions rather than to identify it as the result of a single attribution” (COSA 2013, p. 30). In addition, some sustainability impacts are not easily quantifiable and are more appropriately assessed qualitatively. The International Institute for Sustainable Development (IISD) is also involved in producing reports on sustainability standards. In its most recent publication, “The State of Sustainability Initiatives Review: Standards and the Blue Economy”, the IISD reviews the performance trends and market uptake of seafood certification schemes (Potts et al. 2016). The review reports a rise from 0.5% in 2005 to 14% of global production of seafood, which can be considered in 2015 as certifiably ‘sustainable’. However, this claim does raise the question of what is meant by sustainable seafood, and the authors acknowledge that the majority of certified seafood does not cover a comprehensive set of workers’ rights and social compliance issues (Potts et al. 2016). Two immediate takeaways can be highlighted from the recent increase in tools and reporting: First, quantifying sustainability impacts is extremely complex and very few VSS and assessment programmes offer sound and robust scientific processes to assess performance of standards and their potential impacts on the ground. Standards Map data shows that out of 181 standards only 32 have explicit written procedures for monitoring and evaluation (M&E) of sustainability activities. COSA is among the few programs that have built their methodologies and processes to collect and interpret data on scientific-based processes, but it still recognises the high complexity of making a claim that sustainability aspects found on the ground can be linked to standards’ implementation—except in few cases where external factors’ influence is not prominent or can be identified easily and removed from the analyses. Second, the sustainability standards back their sustainability claim on the basis of a VSS-specific assurance process of compliance against an established set of criteria based on the definition of sustainability that is specific to each standard. There is no universal or widely acceptable definition of sustainable products or services. The IISD review shows that there is still an inherent variance in the way sustainability is defined, how verification indicators are included in a standard scheme and then interpreted during an audit process—leading to variance in impact. The overall lack of precise understanding on what impacts VSS have been achieved so far has had an influence on the way private companies are using VSS. Private companies are indeed facing an increasing pressure by markets to be accountable for all aspects of their supply chains. VSS seem to be a potential solution for companies to achieve their sustainability objectives. Companies are relying on VSS as risk mitigation tools to ensure that supply chains are compliant to VSS sustainability requirements. However, this is easier said than done.

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In the next sections, we will review in more detail the different models of standards and explore the differences that exist between traditional systems and new approaches. But at this stage, trying to answer the question of “What has been achieved so far?” does not yield a straightforward response.

15.4

Traditional Models for Assurance: An Old Story?

Traditionally, sustainability standards can be described as systems composed of two major components: a set of requirements (“what to do”) and a set of processes (“how to do it”). How standards operate is composed of how standards are developed, how the standard organisation is managed, as well as how standards are implemented and assurance provided of the truthfulness of the sustainability claims associated with the certified product and operation. Many reviews focus on the sustainability requirements of VSS and the differences in scope of sustainability (e.g. labour rights, water conservation). This section focuses on the processes or how the VSS operates, a dimension that is as critical when discussing sustainability standards. This includes the standards’ models of implementation and assurance, in particular, the verification of compliance (assurance, certification) processes, as well as other key factors affecting legitimacy and credibility such as stakeholders’ involvement, complaints and grievance processes and governance of the scheme. The earliest schemes implemented, exhibit a model based on an independent expert—the auditor—who checks the compliance of some entity to the standard requirements and issues a certificate based on this assessment. Robust and wellidentified processes are described by ISO/IEC standards6 on how such certification audit should be conducted, with independence of the audit results, hence supporting the credibility of the sustainability standard and its related claims. A traditional and widely applied model for implementing sustainability is to apply the standard set of requirements and have an independent, accredited auditor assess compliance. This traditional approach has proven to be effective in ensuring credibility of the process itself. However, recent trends show that such a model is not efficient for scaling-up, firstly because of the costs of implementation, secondly, because of the challenges of maintaining consistent auditors’ integrity and experience and thirdly, because of duplication of audits of the same suppliers in the supply chains. Recent adaptations to the models include group certification and proxies. Group certification assesses a sample set of producers, rather than all the producers in a group, which reduces the cost of field audits. Taking into consideration the wide range of standards that exist, and therefore that could cover the sustainability risks in supply chains, companies are increasingly using benchmarking tools or methodologies to identify which standards are

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acceptable to them. Benchmarking of standards and interoperability of the standards is becoming a new way for companies to use standards in their supply chains. Whereas the traditional model of certification operates mostly in silo, i.e. one audit for one standard, assurance systems are developing to enable one audit for multiple standards. Certification bodies are generally accredited against multiple VSS and have developed tools to certify simultaneously against more than one standard. VSS themselves are entering into agreements with other systems to recognise all or parts of the requirements of other standards as being equivalent. VSS recognise the need to align requirements, especially when working in the same supply chains. There is sometimes a large overlap of target audience between VSS, as well as overlap of their requirements. This situation and the alignment between VSS and mutual recognition lead to expanding at a lower cost and investment at the base of their certified operations. Nonetheless, these models of aligning standards’ requirements, enabling combined audit checklists7 and applying group certification models are based on traditional assurance methods. Thus, the costs are disproportionately high for small enterprises and even more of a burden in developing countries. As such, the traditional assurance model may be a barrier to scale up VSS; therefore, VSS have encouraged alternative models, or generation 3.0 of VSS, that go beyond the traditional audit and certification system. These models include selfdeclaration as a first step towards recognised compliance, and the development of new concepts for shared responsibility/accountability in supply chains. In these new approaches, business partners share responsibility and do not rely exclusively on the use of external assurance providers to ensure that sustainability requirements are covered in their supply chains. Traditionally, risks would be outsourced to external assurance providers, using credible samples and audit methodologies as defined in ISO/IEC standards and related codes of good practice. The responsibility is therefore not with the company sourcing its products, but with the assurance provider and/or the certified operation. The emerging trends and consumer pressure to hold brands, retailers, and manufacturers accountable have encouraged new models to develop. It is no longer feasible for a company to say publicly that they were not aware of a sustainability issue in their supply chain. Consumers expect the company to know, handle, manage and implement best practices to ensure that the products they sell are produced in safe, high quality and sustainable production processes. Companies are engaging themselves proactively and sharing responsibility with their suppliers. Companies can monitor and report on their own performance, rather than delegating 100% of the task to an auditor. An example of a new approach in assurance and implementation is the Sustainable Agriculture Initiative (SAI) Platform model (see Sect. 15.5.5).

7

See also Declaration of Abu Dhabi as an initiative to develop a shared common set of indicators for good agricultural practices: http://www.declaration-of-abu-dhabi.org, last accessed 31 October 2019.

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From a sustainable sourcing perspective, companies recognise the need to align their requirements as it brings both efficiency and reduces costs in their supply chains. Industry players are developing common metrics and tools in a precompetitive way. Companies are defining which standards can meet their needs and benchmarking tools and methodologies that assess VSS in terms of their potential to address sustainability issues. Retailers, manufacturers, industry associations and non-governmental organisations (NGOs) are collaborating to develop analytical tools to benchmark and assess the performance of VSS. ITC is helping various companies and organisations develop customised tools leveraging the Standards Map website and its underlying extensive database with detailed system information on ca. 200 VSS, thus aligning criteria and reducing duplication of VSS information (see Box 15.3). Box 15.3: Examples of Customised Tools Using the Standards Map Database The Soy Sourcing Guideline Benchmark was developed for FEFAC8 for responsible soy; the Floriculture Sustainability Initiative (FSI) developed a tool with IDH9 to compare and assess equivalency of floriculture standards; and the quick-scan tool developed for Global Social Compliance Program (GSCP)10 as a joint portal supporting the GSCP Equivalence Process. Governments11 and NGOs have also been developing benchmarking frameworks to help assess standards in a credible and most impactful way. WWF has developed the Certification Assessment Tool (CAT) as a benchmarking framework to review and assess the performance of VSS against best practices aligned to WWF mission and strategy. The Sustainability Standards Comparison Tool (SSCT), a German Government initiative and the Global Sustainable Seafood Initiative (GSSI), a multi stakeholder benchmarking initiative, are detailed in Chap. 14 of this volume. The ITC through its T4SD Technical Working Group convenes leading partner organisations in harmonising their benchmarking tools and methodologies to provide increased transparency for the VSS systems and ensure these various benchmarking initiatives are developed (and used) in an open, participatory way. This facilitates the uptake of the Standards Map database as a central source of quality information, reducing duplication of efforts, as well as ensures that the various benchmarking initiatives are robust and consistent. This will minimise the

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http://www.standardsmap.org/fefac/, last accessed 31 October 2019. http://www.standardsmap.org/fsi/, last accessed 31 October 2019. 10 http://www.standardsmap.org/gscp/, last accessed 31 October 2019. 11 See for instance the European Commission Sustainable Procurement Policies and Regulations and the United States Environmental Protection Agency’s environmentally preferable purchasing program. 9

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confusion created with benchmarking initiatives proliferating on top of the already crowded VSS landscape.

15.5

Industry Platforms: Leading the Way on Sectoral Transformation?

Analysing the evolution and trends of voluntary sustainability standards systems and their ‘requirements’ and ‘processes’ components is key to understanding the origin of industry platforms: initiatives that have been created and are being collectively led by governments, the private sector and NGOs as multi-stakeholder platforms. Such platforms function by following a collaborative approach, addressing concerns regarding VSS, such as the difficulty to match demand and supply of certified products (market component); credibility of the governance structure and assurance model; accessibility of all supply chain actors to the system; and the capability to deliver sustainability impacts. Two of the first examples of industrial platforms are initiatives like RSPO and RTRS, the first signs of a sector-wide transformation towards more sustainable production practices. Reviewing the information of the VSS in the Standards Map database, it is evident that the VSS are working on addressing the challenges mentioned above. Sometimes VSS try to solve those individually through market development or capacity building activities. They may attempt to increase the transparency in their governance structure by including stakeholders of the entire value chain/sectors or creating specific tools (e.g. developing guidelines, processes, policies and creating technical and oversight committees) to make their assurance procedures accessible and transparent. However, VSS cooperation and collaborative efforts have responded to the new challenges by developing sector coalitions that reflect a collective vision advancing towards the sustainability of a whole sector. One of the recent challenges is the proliferation of standards and the variety of their requirements, even when operating in the same sector. On the one hand, diversity of standards gives a choice to users (producers and supply chain actors) as to which VSS they want to be certified. However, on the other hand, it may also lead to additional costs. It can be the case that several companies source their inputs from one supplier, who eventually needs to comply with the VSS or audit protocols requested by each buyer. Such audit duplication is costly. Another challenge in the field is the fact that assurance models are still resource intensive in terms of time and money, both for the buyers and the suppliers. As options to tackle those challenges, the industrial platforms have flourished in the last couple of decades, addressing two major goals: to contribute to transparency in the development and implementation of the VSS and to achieve sustainability outcomes on all levels of the value chain. These collaborative efforts make use of collective expertise, promote inclusiveness of all actors and transparency along the value chain, and create harmonisation

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among the components of the standard systems (requirements and processes). Benchmarking and mutual recognition initiatives are used for that purpose, together with technological tools for building up traceability systems and sound Monitoring and Evaluation Systems. Some examples of initiatives that attempt to bring change at a sector level or along global supply chains are: RSPO, GCP, FEFAC, LBCS and SAI platforms. Below is a description of each of those platforms that will give an idea of the different objectives they pursue towards the sustainability of certain sectors, as well as the mechanisms they use to achieve them.

15.5.1 The Roundtable on Sustainable Palm Oil (RSPO) The Roundtable on Sustainable Palm Oil (RSPO) is a global multi-stakeholder initiative on sustainable palm oil. Members and stakeholders of RSPO come from many different countries and backgrounds, including plantation companies, processors and traders, consumer goods manufacturers and retailers of palm oil products, financial institutions, and environmental and social NGOs from many countries. Members of the RSPO represent all stages in the supply chain and the world’s largest palm oil producing regions. As members, they have a say in the RSPO’s decision-making, shaping efforts to make sustainable palm oil the norm. RSPO counts on an international certification scheme and a trademark that signals the use of RSPO certified sustainable palm oil. As an ISEAL full member, RSPO complies with the ISEAL Standard Setting Code and is making good progress towards compliance with the Impacts Code and Assurance Code that came into force in 2010 and 2012, respectively. Also, more than 2282 members in 78 countries have joined RSPO, a strategic platform that gives them access to markets, where the demand for sustainability is growing; a global supply chain representation, connecting supply and demand; a space to create and influence policies and key decisions, benefiting from best practices on agricultural, environmental and social aspects. The vision is supported on a global scale, having national commitments, or country-level initiatives, to work together towards Certified Sustainable Palm Oil commitments.

15.5.2 The Global Coffee Platform (GCP) The Global Coffee Platform is an inclusive multi-stakeholder sustainability platform aligning the activities of a diverse network of stakeholders to set into action the global commitments made through Vision2020 and thus create a thriving and sustainable coffee sector (please refer to Chap. 21 in this volume for detailed overview of the Global Coffee Platform). Merging the membership of the 4C Association together with the pre-competitive activities of the Sustainable Coffee Program, the Global Coffee Platform (GCP) works with a bottom-up approach,

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bringing together public and private sector actors to create a common vision on the most critical sustainability challenges at a producing country level and feeding these national priorities into a global agenda. Making use of the Baseline Common Code (4C Code), a set of baseline principles and practices for coffee production and processing, GCP aims to enable sector wide adoption of minimum sustainability requirements and create a levelled playing field for collectively reporting and measuring improvements. GCP as well as RSPO offer the creation of National Platforms that integrate public and private stakeholders to drive change at a national level contributing to the global agenda towards sustainable coffee.

15.5.3 The European Feed Manufacturers’ Federation (FEFAC) The European Feed Manufacturers’ Federation (FEFAC) consists of 25 national associations in 24 EU Member States as full members as well as associations in Switzerland, Turkey, Norway, Serbia and Russia with observer/associate member status. The mission of FEFAC is to represent, defend and promote the interests of European compound feed industry vis-à-vis European Institutions. FEFAC represents another example of a platform trying to drive change at a sector level; it aims to support its members in their transition towards responsibly produced soy. Therefore, FEFAC has developed Soy Sourcing Guidelines to define a baseline level for imported soy to the European market. Responsible soy schemes can go through a benchmarking process against the FEFAC Guidelines and see whether soy certified to a scheme conforms to the baseline requirements of soy imported to the European market.

15.5.4 Basic Guidelines for Sustainable Cocoa, Lineamientos Básicos para un Cacao Sostenible (LBCS) Although the growing global demand for sustainably produced cocoa presents opportunities for farmers in Latin America, global market access and gaining sustainability certifications still remains a challenge. The ITC Trade for Sustainable Development (T4SD) project and Swisscontact, brought together associations of small-scale farmers and initiated a programme to incorporate a set of basic guidelines for sustainable cocoa named LBCS (Lineamientos Básicos para un Cacao Sostenible) for both producers and organisations into a customised version of the Standards Map online tool to empower cocoa producers in Colombia and raise

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awareness around sustainability issues required by certifications such as Fairtrade, UTZ and Rainforest Alliance. LBCS is an online tool, accessible through www.standardsmap.org/lbcs. It allows producers and their organisations to start their journey towards improved sustainability by focusing on fundamental requirements. The LBCS tool was created by taking into account the challenges specifically faced by small producers and therefore set out realistic expectations. It keeps producers and their organisations informed about sustainability criteria in frequently required international certifications, while providing Swisscontact’s set of basic sustainability criteria aimed at organisations and producers for sustainable cocoa. The tool is based on five (5) aspects of sustainability: crop management (good production practices and environmental considerations), environmental protection and biodiversity, working conditions and social protection, and economic sustainability and transparency. The level of compliance with the requirements of LBCS, of which some are specific to organisations and others to producers, can be evaluated through an assessment tool created by the ITC, which does not need an Internet connection. The results are verified by the Swisscontact Foundation and may be used as a way to promote sustainable products without incurring significant costs. Going forward, T4SD will expand current efforts to include three distinct user populations in the LBCS tool—farmers, farmer associations, and the National Cocoa Network of Farmers (Red Cacaotera), further develop a wrap-around module on farmer assessment and create targeted dashboards for each user group. The user reports will be shared with ITC’s Sustainability Network (a marketplace platform developed by T4SD launched in 2017) in order to connect producers to traders and buyers. The aggregated information will also allow buyers and traders to target specific farmers or farmer groups with whom they want to engage. Lastly, the data will enable analysis that will allow the National Cocoa Network and cooperatives to better target their interventions. The ultimate goal of this initiative is to empower those organisations of Colombian cocoa farmers as owners of the tool, allowing free use by improving their sustainable practices in cocoa production and sales, increasing their competitiveness and ability to access sustainable global supply chains.

15.5.5 SAI Platform In 2002, Nestlé, Unilever and Danone established the Sustainable Agriculture Initiative (SAI) Platform to facilitate the sharing of their knowledge and best practices to support the development and implementation of sustainable agricultural practices at a precompetitive level. Developed by SAI Platform members, their suppliers, farmers and external stakeholders, the Farm Sustainability Assessment (FSA) offers a unique framework used by leading food and drink companies to source sustainably produced agricultural materials.

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SAI’s 2020 vision is: “Implement secure and thriving agricultural supplies chains and protect the earth’s resources through widespread adoption of sustainable practices that deliver value to our members, farmers, farming communities, and consumers”. In order to achieve its vision, the SAI Platform seeks involvement from all food chain stakeholders and develops (or co-develops) tools and guidance to support global and local sustainable sourcing and agriculture practices. Examples of recently developed resources include the Practitioner’s Guide for Sustainable Sourcing, recommendations for Sustainability Performance Assessment (SPA) and the Farm Sustainability Assessment (FSA). A good example of those tools is the Farm Sustainability Assessment tool developed by SAI, accessible to its members, to assess, improve and communicate on-farm sustainability across food supply chains. The online version of the tool developed in 2014 in a joint collaboration with the ITC’s T4SD programme, creates one single, industry-aligned, widespread tool to help farmers and companies meet their sustainability targets. It works for all players in the value chain by reducing the burden of multiple assessments needed when using different schemes and codes and it saves time and resources by sharing information across business partners. Along these examples of industrial platforms, a new generation of voluntary sustainability standards schemes are driven by the imperative of “shared responsibility” along global supply chains pursuing sustainability.

15.6

Towards the Generation 3.0 of VSS

The constant development of the VSS landscape is shaping the future of these schemes and their relevance and effectiveness in achieving sustainable development objectives. Market components pave the way to the increased demand for VSS, as reflected by the increasing number of consumers in developing and developed countries orienting their purchasing decisions towards more sustainable products and services. Developing countries are taking the stage in the development of their own national sustainability schemes, and/or cooperating with VSS to foster the positioning of their products in international markets as well as managing their development agenda. The VSS movement is experiencing challenges that contribute to its transformation: the ongoing development of new standards and the complexity of some assurance models do generate high costs and efficiency issues in supply chains. As described in the previous section, producers and standard-setting organisations sometimes organise into collaborative platforms to harmonise their overall approach towards addressing major sustainability issues. Companies also are evolving from developing common standards or codes towards developing common IT solutions that allow them to assess across suppliers and manage supply chain information on suppliers’ compliance with sustainability standards or frameworks. This new generation, or generation 3.0 of VSS is usually based on a common set of sustainability

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requirements that define minimum sustainability levels against which suppliers selfassess themselves, report, and get verified or certified at some stage (e.g. SAI Platform Farm Sustainability Assessment—FSA). Such new models and systems driving sustainability are bringing a new type of collaborative approach to the entire standard development, implementation and certification process. They also introduce a concept of shared responsibility within the platforms, when producers, as a first step of assurance procedure, can go through a self-assessment process online or offline and, as a second step, can be assessed by independent third parties. Responsibility for assurance results, therefore, is partly shifted from auditors to producers. There are some distinctions and trade-offs between self-assessments and third-party audits with regards to transparency, opportunities for stakeholder input and accountability, which can affect the credibility of results. On the other hand, one has to consider not only “pass or fail” outcomes of the audits, but also the contribution of learning and continuous improvement objectives when producers can improve their sustainable production practices step-by-step and implement better management practices from a learning, rather than a strict compliance approach. Data on assessed suppliers can be then shared among platform members to reduce multiplication and fatigue of audits (e.g. SEDEX, BSCI, ICS, AIM-PROGRESS). Self-assessment process and data sharing systems considerably reduce the number of audits, and, as a consequence, the costs associated with audits, which will make such systems even more attractive to companies in the future. Most of the standard assurance and implementation models of VSS are based on traditional third-party auditor/certifier, which is rigorous but cumbersome, lengthy and not costs effective model. Innovations and new models, generation 3.0, imply a more IT-based distance approach to assurance and conformity assessment, allowing for a shared responsibility among the supply chain actors rather than delegating the task to auditors only. Another feature is that this new type of collaborative approach introduced by generation 3.0 systems and platforms may ultimately facilitate impact assessment on various sustainability dimensions by harmonising the approach and definition of sustainability across the supply chain. This makes it easier to monitor and evaluate based on commonly defined criteria or VSS used by different companies rather than trying to evaluate the impact of each individual VSS. Such systems and platforms can eventually also contribute to the landscape approach in primary production (agriculture, fishery, mining, forestry etc.) as discussed in Sect. 15.5, by defining minimum criteria for sectors with the aim to harmonise and bring to a common denominator various VSS in a sector; developing IT tools to reduce audit duplications and assurance costs as well as to facilitate assessments of actors in all parts of a supply chain. The latter, particularly, have a great potential and role in the field of VSS and sustainability initiatives, since they open the possibility to share the data with all the actors interested within a region or a country, e.g. public authorities, NGOs, research institutions, companies, etc. (subject to the approval by the owners of the data) to identify and tackle specifically the problems within the sustainability area in which the original landscape approach is driving its efforts.

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Conclusions and Recommendations

VSS have been expanding both in terms of the number of standards and the number of products and territories certified to certain VSS. Certain recent trends can be identified, which can project future development of the sustainability field. Firstly, developing countries are increasingly establishing their own VSS; secondly, demand for VSS-certified products is growing both in developed and developing countries; thirdly, the scope of VSS is growing to cover non-traditional items such as services; finally, more governments and private companies are embedding their sustainability commitments in legislation and corporate strategies. Assessing impacts of VSS remains complicated due to the lack of methodologies and resources, however few initiatives and standards are engaged in M&E and impact assessment. Collective impact is even harder to measure, as VSS each have different natures, definitions of sustainability and different areas of focus. Benchmarking initiatives or industry platforms are potential drivers or catalysts for harmonising and aligning both the sustainability criteria (content requirements) and the process requirements of different VSSs. However, for most of them, the challenge of achieving sustainable impacts remains. Collective sectoral transformation towards more sustainable production is clear when one looks at the various industry platforms in the sustainability field. They focus on different products and processes, but pursue a common aim of contributing to more efficient sustainable production within a single sector. Traditional assurance and implementation models are being challenged to ensure rigour in a cost-effective way. Therefore, new approaches are being increasingly adopted, which implies the use of IT based solutions for conformity assessments involving both producers’ self-assessments and third-party audits. The new approach, or generation 3.0 of VSS, introduces a concept of shared responsibility within industry platforms or the so-called multi-stakeholder platforms in specific product/service sectors or along supply chains. Evidence and information sharing across VSS and among other actors such as governments, industry platforms and research organisations is a critical piece for collective reporting to facilitate collective action on sustainability objectives. The latter can be leveraged by landscape approaches undertaken to solve sustainability issues for major commodities. There is a strong need for robust data management systems and open data approaches.

References An N, Schaller E (2014) Issues and opportunities for implementation of VSS in China. In: SchmitzHoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) Voluntary standard systems – a contribution to sustainable development. Natural resource management in transition, vol 1. Springer, Heidelberg, pp 243–251

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Carey C, Guttenstein E (2008) Governmental use of voluntary standards: innovation in sustainability governance. ISEAL Alliance, London COSA – The Committee on Sustainability Assessment (2013) The COSA measuring sustainability report: Coffee and Cocoa in 12 countries. COSA, Philadelphia. https://thecosa.org/wp-content/ uploads/2014/01/The-COSA-Measuring-Sustainability-Report.pdf. Last accessed 31 Jan 2019 Dietmar R, Shepherd I, Taras D, Thomas-Dirla P (2011) A brief introduction to voluntary standard systems and related trends in China. An overview prepared in the Framework of the SinoGerman Corporate Social Responsibility (CSR) Project. German Society for International Cooperation (GIZ) GmbH, Beijing EC – European Commission (2016) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and The Committee of the Regions: next steps for a sustainable European future European action for sustainability, COM/2016/0739 final, Strasbourg, 22.11.2016. https://eur-lex.europa.eu/legal-content/EN/ TXT/PDF/?uri¼CELEX:52016DC0739&from¼EN. Last accessed 31 Jan 2019 Gaebler M (2014) Recognition of private sustainability certification systems for public regulation (co-regulation): lessons learned from the EU renewable energy directive. In: SchmitzHoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) Voluntary standard systems – a contribution to sustainable development. Natural resource management in transition, vol 1. Springer, Heidelberg, pp 99–112 ISEAL Alliance (2014) Assessing the impacts of social and environmental standards systems: ISEAL Code of Good Practice, Version. 2.0, December 2014. ISEAL Alliance, London ITC – International Trade Centre (2015) SME Competitiveness Outlook 2015: connect, compete and change for inclusive growth. ITC, Geneva ITC – International Trade Centre, EUI – European University Institute (2016) Social and environmental standards: contributing to more sustainable value chains. ITC, Geneva Komives K, Jackson A (2014) Introduction to voluntary sustainability standard systems. In: Schmitz-Hoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) Voluntary standard systems – a contribution to sustainable development. Natural resource management in transition, vol 1. Springer, Heidelberg, pp 3–19 Lernoud J, Potts J, Sampson G, Voora V, Willer H, Wozniak J (2015) The state of sustainable markets: statistics and emerging trends 2015. ITC, Geneva Liu P (2009) Private standards in international trade: issues and opportunities. Working paper presented at the WTO’s Workshop on Environment-related Private Standards, Certification and Labelling Requirements, Geneva, 9 July 2009. http://www.fao.org/fileadmin/templates/est/AG_ MARKET_ANALYSIS/Standards/Private_standards___Trade_Liu_WTO_wkshp.pdf. Last accessed 31 Jan 2019 Nielsen (2014) Doing well by doing good, Nielsen Global CSR Report, June 2014. http://www. nielsen.com/content/dam/nielsenglobal/apac/docs/reports/2014/Nielsen-Global-CorporateSocial-Responsibility-Report-June-2014.pdf. Last accessed 31 Jan 2019 Nielsen (2015) The sustainability imperative: new insights on consumer expectations, October 2015. https://www.nielsen.com/content/dam/nielsenglobal/dk/docs/global-sustainabilityreport-oct-2015.pdf. Last accessed 31 Jan 2019 Palekhova L, Pivnyak G (2014) Exploring market strategies based on voluntary environmental certification in a post-Soviet transition economy. In: Schmitz-Hoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) Voluntary standard systems – a contribution to sustainable development. Natural resource management in transition, vol 1. Springer, Heidelberg, pp 165–175 Potts J, Wilkings A, Lynch M, McFatridge S (2016) State of sustainability initiatives review: standards and the blue economy. International Institute for Sustainable Development (IISD), Winnipeg. http://www.iisd.org/sites/default/files/publications/ssi-blue-economy-2016.pdf. Last accessed 31 Jan 2019 UN – United Nations (2015) Transforming our World: The 2030 Agenda for Sustainable Development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1

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Mathieu Lamolle is Senior Advisor on Sustainability Standards & Value Chains at the International Trade Centre (ITC). With more than 10 years of experience in international trade, market access and sustainable development, he leads the development of the Standards Map global repository of sustainability standards, codes of conduct and audit protocols (https:// sustainabilitymap.org/standards). He coordinates partnerships with private companies and NGOs and provides technical assistance to develop sustainable sourcing strategies, helping companies to integrate sustainability in their supply chains and meet international markets’ requirements. He holds a Master’s degree in International Economics and Management from the Solvay Brussels School of Economics and Management (SBS) and speaks English, French and Spanish. International Trade Centre (ITC), 54–56 rue de Montbrillant, Geneva, Switzerland; Email: [email protected]; Internet: https://sustainabilitymap.org Sandra Cabrera de Leicht is Advisor on Sustainability Standards & Value Chains at the International Trade Centre (ITC). With 9 years of experience in international trade and development, she is responsible for analysing the sustainability standards and contributing to the development of the Standards Database of Standards Map as well as for developing and coordinating projects and collaborations with partner organizations. International Trade Centre (ITC), 54–56 rue de Montbrillant, Geneva, Switzerland; Email: [email protected]; LinkedIn: https://www.linkedin.com/in/sandra-leicht-cabrera-5ba2191a/; Internet: https://sustainabilitymap.org Regina Taimasova is Advisor on Sustainability Standards & Value Chains at the International Trade Centre (ITC). She works on analysing and referencing voluntary sustainability standards in the Standards Map database, she is also involved in developing customized projects such as standards’ benchmarking, producer assessments and provides trainings on standards in developing countries. Previously she worked at the World Trade Organization in Trade Policies Review Division. Regina holds an M.Sc. Degree in International Economics from Essex University, UK. International Trade Centre (ITC), 54–56 rue de Montbrillant, Geneva, Switzerland; Email: [email protected]; Internet: https://sustainabilitymap.org Aimee Russillo is an independent consultant with over 25 years of practical experience in the in the area of social and environmental standards for sustainable development in practical terms. She works with supply chain, NGOs and government actors to integrate sustainability into operations, strategic decision making and more effectively managing for impact under real world conditions. LiSeed Consulting; Email: [email protected]; LinkedIn: https://www.linkedin.com/in/ aimee-russillo

Part III

Monitoring and Evaluating Progress Towards Sustainability

Chapter 16

Measuring Progress Towards Sustainability: A View of the Main Approaches to Evaluation Keith Child

16.1

Introduction

In this chapter, we examine the broad contours of the science of sustainability evaluation through a look at some of the dominant approaches in use today. By approaches, we mean an “integrated set of options used to do some or all of the evaluation”.1 While there are many elaborate ways to classify evaluations (e.g., purpose, methodology), here we restrict our review to those that are most commonly used to measure sustainability and subdivide approaches as primarily experimental, quasi-experimental, or observational. This is not intended to be a definitive guide to all evaluation approaches, but rather a concise attempt to navigate the tricky world of sustainability evaluation through a pragmatic and selective review of those that are most frequently employed within an agricultural development context. In recent years, the need for sustainability evaluations has become evident to policy makers, consumers, supply chain and programme managers, producers and other stakeholders who are increasingly challenged as they attempt to determine when and where investments are warranted to increase sustainability. Early attempts at measuring sustainability tended to be piecemeal or anecdotal, leaving major questions unanswered.2 Fortunately, newer approaches are gradually providing a more rigorous information base as both evaluation approaches and a growing cadre of professional evaluators emerge to fill an expanding niche. 1 Approaches, Better Evaluation: http://www.betterevaluation.org/en/approaches, last accessed 31 January 2019. 2 For example, observing samples that are not representative or focusing on one or two aspects such as productivity but failing to note the concomitant outcomes such as negative environmental consequences.

K. Child (*) Impact Works Inc., Chelsea, QC, Canada e-mail: [email protected]; [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_16

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We begin the chapter with a brief discussion of what makes a sustainability evaluation particularly challenging. Before an evaluation approach is selected, critical decisions need to be made about the purpose and scope of the evaluation. We then examine the use of programme theory (alternatively called Theory of Change, a Programme Story or Intervention Logic) in evaluation as a means of helping to answer these key questions.3 Framing the boundaries of an evaluation is an essential step in choosing an evaluation approach. We then review selected evaluation approaches, highlighting both their strengths and limitations. Finally, we conclude with a few general observations about potential issues common to all sustainability evaluation approaches.

16.2

Establishing the Evaluation Framework

Evaluating sustainability has never been easy. In Our Common Future, the Brundtland Commission famously defined sustainable development as “development that meets the needs and aspirations of the present without compromising the ability of future generations to meet their own needs” (WCED 1987, p. 41). It was well understood that, sustainability did not hinge on natural resources alone; but also encompassed social and economic resources (some have added ‘governance’ to later iterations of the concept). These three essential ‘pillars’ of sustainable development are clearly very different (i.e., they are not directly comparable), and yet in real world situations, trade-offs are almost always an unavoidable reality. Embedded within this definition of sustainability are some vexing conceptual and implementation challenges that, while not exclusively unique to sustainability evaluations, are ever-present. A simple list includes: Scale: Sustainability can be assessed over a range of geographic and social scales. Setting boundaries for an evaluation is essential but also somewhat counterintuitive when the purpose of evaluation is to consider sustainability questions. This is because the three ‘pillars’ of sustainability (i.e., social, environmental and economic) are not discrete silos, but parts of a dynamically interconnected system. Defining the unit of analysis, therefore, requires a dose of analytical pragmatism. For example, the subject of evaluation may be variously defined as (1) a development programme, (2) a geographic area ranging from a confined field trial up to a landscape dimension, (3) an intervention strategy, (4) a target group, and so on. Delineating the scale of evaluation is a necessary step that will influence the evaluation question(s), along

3

Flexible convention of terminology has led to confusion about the appropriate nomenclature for different kinds of theory. A useful discussion of this point can be found in Blamey and Mackenzie (2007), who contrast Weiss’s (1995) use of ‘programme theory’ with her use of ‘implementation theory’. In this chapter, we acknowledge that different kinds of theory are best suited for different kinds of evaluation approaches. Realistic evaluation, for example, tends to make use of programme theory, while theory of change approaches tend to focus (though not exclusively) on implementation theory. Here, we are simply referring to theory in general.

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with theoretical and methodological considerations. Kennedy et al. (2009) provide a thorough examination of the challenges of monitoring at different magnitudes of scale. Complexity: The more complex the subject of evaluation, the more difficult it is to attribute a cause and effect relationships (Marjanovic et al. 2017).4 Sustainability already traverses inherently complex natural and social systems. Overlaid against these systems are programme interventions that may be equally complex, involving multiple objectives that include social and biophysical goals, multiple stakeholders, multiple intervention components that are administered over multiple scales, complete with non-linear and emergent properties. For example, those working within an integrated agricultural research for development context (IAR4D) often find that innovations are scaled-up as part of a ‘package’ of innovations with intended outcomes and impacts at a system level. Isolating a single cause and effect, therefore, became a sometimes distant possibility. As complexity increases, so too does the potential for outside contamination, increased time lags between inputs and impacts, and the emergence of multiple causal pathways with the direction and strength of marked change fluctuating over time. Time: When to evaluate impacts is a difficult question for any development project, but particularly so for ones that target sustainability. How long should a project manager wait before they expect to see a difference in any one of the three sustainability pillars? Once they identify a change (positive or negative), can they assume that the change will continue in a linear and monotonic rate? Woolcock (2009) argues that an understanding of a project’s impact trajectory, or ‘functional form’, is essential for any impact assessment.5 For instance, the functional form of a time critical project rarely resembles a rising straight line representing the slope on an XY graph but is more likely to take the shape of a J-curve or the S-curve of a step function. It stands to reason that if we wrongly assume the shape of the function and where on the function our data is situated, we are likely to draw wrong conclusions (e.g., if our end-point evaluation falls on the bottom of a J-curve function, we will conclude the project is a failure, even though an evaluation at a further point along the curve could support the opposite conclusion). Despite the typical shorter term imperative for donor reporting evaluative

4

It is useful to make the distinction between complicated and complex. Complicated involves lots of component parts that come together like a big jigsaw puzzle. Complex implies emergent properties and components that are adaptive over time. In short, all the initial components of a complex intervention can be identified in advance (with some effort), but by definition, complex interventions morph and change overtime so it is impossible to identify all the final intervention components in advance. There is a wealth of literature on the topic of conducting a complexity-responsive evaluation. I recommend Bamberger et al. (2015) as a primary resource on the topic. 5 Woolcock defines ‘functional form’ as “the impact that reflects the underlying ‘technology’ of the project and that is deemed to be (in effect) independent of scale, context and implementation effectiveness.”

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research often needs to look for impacts that realistically occur after one or even many decades. Reflecting these conceptual challenges are a number of more grounded and concrete questions. Answers to these overarching questions form the boundaries of the evaluation and help to establish clear expectations. 1. What is an evaluation for? Is the evaluation intended to be a forward looking, ‘formative evaluation’ that is intended for learning and adaptive management or a ‘summative evaluation’ that attempts to assess what has happened? While both types of evaluation are important, our focus there is primarily on the latter. 2. What are the evaluation questions that need to be answered? For example, is it enough to know if an intervention works (evaluative questions) or should the focus of the evaluation be on how, why and for whom it works (causal questions)? Alternatively, evaluations are commonly intended to answer a descriptive question (e.g., what has happened?) or provide guidance for future action (e.g., what should we do?). 3. What does ‘success’ look like? Some criteria need to be agreed upon for judging performance. This is particularly important for a sustainability evaluation. For example, to be sustainable, are trade-offs allowed between sustainability pillars (sometimes referred to as ‘weak’ sustainability) or must sustainable development emerge from the surplus generated above and beyond a set level in each pillar (sometimes referred to as ‘strong’ sustainability)? Today, it is generally conceded that different evaluation approaches all have their strengths and weaknesses. However, by clearly framing the boundaries of an evaluation at an early stage it is more likely that an appropriate evaluation approach will be selected. Framing the evaluation questions early on also tends to sharpen programme or intervention design.

16.3

Using Programme Theory for Evaluation

Many evaluation approaches (both quantitative and qualitative) are deductive. That is, they are premised on an idea, or theory, of how a project has led to a sustainability outcome and then proceed to develop a specific design in order to test it. A clearly articulated programme theory or ‘theory of change’ that is associated with an intervention is a fundamental step in measuring whether that approach resulted in the desired impact. However, this step is often overlooked or inadequately established. It is much more than a mission statement; it helps explore the assumptions, outputs, outcomes, impacts and contextual information upon which both hypotheses and indicator selection can be built. The theory of change thus helps to delineate some of the overarching evaluation framework questions that guide the selection of the evaluation approach. We argue that a theory of change is an essential component for all the evaluation approaches examined here.

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Navigating Different Types of Evaluation Approaches

Outputs are the goods and services that are produced by a project, investment, or intervention. For many years, managers were happy to report on outputs because they were immediate, easy to count and could be attributed to the project without controversy. Attribution was simply a matter of following project inputs to the goods and services it produced—the outputs. All of this began to change when the development community took its first step toward a results-based aid regime at the Monterrey Conference in 2002. The conference was seminal because for the first time there emerged a broad-based international support for managing development spending to achieve desired results, not merely desired outputs (OECD-DAC and World Bank 2006). The Conference was followed by other milestones, including the international roundtable on results in Marrakech in 2004 and the Paris High-Level Forum on Aid Effectiveness in 2005. The Paris Declaration, outlined commitments for both donors and aid recipient countries to manage for results and, very importantly, to use information “to improve decision making.” Within the boundaries of these events a significant turning point occurred, marking a gradual but decisive shift from output reporting to outcome and impact evaluation. The question that surfaced in virtually every donor report thus shifted from “what did we do?” to “what positive difference did we make?”. Today, there are different ways to understand sustainability outcomes from selfassessments to independent impact assessments. Some evaluation approaches are best for answering “did it work?” type questions, while others are better suited for understanding questions of the “how and why” variety. Still others are most valuable for building a deep contextual understanding. Any choice essentially represents a compromise between the accuracy or credibility of the information and the level of cost or effort that is required. The options are by no means mutually exclusive and the optimal approach often integrates a mix of speedy and low-cost information gathering with more rigorous knowledge of impacts and their pathways for action. Below we examine a number of common evaluation approaches that use either an experimental/quasi-experimental or observation design.

16.5

Rise of Experimental and Quasi Experimental Approaches

Parallel to the development community’s embrace of results based management (alternatively called managing for results, managing for outcomes, or performance management) frustration on the part of practitioners, academics, philanthropic organisations and others led in 2006 to the publication of the Center for Global Development’s influential report: When Will We Ever Learn? (Savedoff et al. 2006). The report asked why, after spending billions of dollars, the development community knew relatively little about the impact of the programmes it had financed over the course

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of decades? The problem, the authors of the paper argued, was an ‘evaluation gap’ and their proposed antidote was more rigorous experimental impact evaluations. Here, we want to distinguish between (1) experimental designs, where subjects are randomly assigned to a treatment and control group and (2) quasi-experimental designs which still make use of a comparison group but do not randomly assign treatments and control groups. Each of these is briefly discussed below. For those who wish a more in-depth look at each, a wide assortment of authoritative reference materials is available including Ruerd Ruben’s chapter in this volume (see Chap. 18).

16.5.1 Randomised Control Trials A Randomised Control Trial ([RCT] also called an experimental or randomised design but is not merely random sampling) is a type of applied quantitative research that uses a randomised selection process to assign subjects to a treatment group (also called an intervention group) and a control group (non-treatment group). Researchers then manipulate an independent variable (e.g., fertilizer for a crop, a new seed variety) so that only those in the treatment group are influenced by it. These two features of an RCT allow for quantitative analysis (‘descriptive statistics’ followed by ‘inferential statistics’) and increase the likelihood that any effect that is observed after the treatment is a direct result of the treatment. Through the use of random assignment researchers are able to eliminate selection bias that may distort observed effects. Also, because one group received a treatment and anther did not, it is possible to construct a robust counter-factual evaluation (i.e., what would have happened in the absence of the intervention). The great strength of an RCT is that it is possible to demonstrate a causal link with very high confidence. In many ways, the movement toward experimental impact evaluations, and Randomised Control Trials (RCTs) specifically, has been a remarkable success. Citing Edward Leamer’s 1983 critique of empirical economics as their baseline, Angrist and Pischke (2010) argue that empirical microeconomics has experienced a “credibility revolution, with a consequent increase in policy relevance and scientific impact.” Indeed, prominent advocates for experimental methods like the Bill and Melinda Gates Foundation, the International Initiative for Impact Evaluation (3ie) and the Jameel Poverty Action Lab (J-PAL) have successfully promoted RCTs as a ‘gold standard’, against which the rigor of other methods is judged. If sheer volume counts for anything than RCTs have entered the mainstream, with governments and institutions spending more than ever to generate evidence. Since it was founded in 2003, J-PAL has created a searchable database of over 830 randomised evaluations, while 3ie (founded in 2008) has 1985 RCT impact evaluations in its database.6 Interestingly, while RCTs are generally regarded as

6 3ie has 4260 impact evaluations in its database as of 17 May 2017. However, only 1985 use an RCT method.

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highly desirable, only a small number of RCTs in the 3ie database address a dimension of sustainability as the term is used here.7 One reason for this may be that RCTs are suited to answering “does it work?” questions but incapable of answering other questions that may be important, such as “how could it be improved?”. Likewise, Ravallion (2009) points out that while internal validity is a particular (though still contested) strength of RCTs (what works here and now), their great weakness is external validity (would it work somewhere else?). A second reason may be the ethical red flags that inevitably occur when a treatment (presumably with a positive effect) is assigned to some people who may need it (those in the treatment group) but not others (the control group). If resources exist to extend the treatment to everyone than this challenge can be overcome through a phase-in design in which the order of treatment of individuals or groups is randomly assigned (Heard et al. 2017).

16.5.2 Quasi-Experimental Research A quasi-experimental evaluation design is closely related to an RCT but lacks random assignment. From a distance, a quasi-experimental design is often assumed to be inferior to an RCT in respect to internal validity, but they are more frequently implemented than their randomised cousins for a variety of reasons, (e.g., time, financial resources, logistics issues, ethical considerations, etc.). There are a wide variety of different types of quasi-experimental designs (e.g., regressiondiscontinuity designs, non-equivalent group designs, proxy pre-test design, etc.) each of which is most appropriate under specific conditions.8 While quasiexperimental designs are able to overcome a number of the difficulties associated with RCTs, considerable effort must be made to reduce the threat to internal validity. Also, like their RCT cousins, quasi-experimental designs are appropriate to answer only a limited number of evaluations questions.

16.6

Observational Approaches

Observational approaches (non-experimental) to evaluation attempt to establish the effect of a treatment, but do not usually assign subjects to treatment/control groups nor do they deliberately manipulate the intervention. Instead, observational designs

A search for RCTs with the word “sustainable” somewhere in the title yielded 10 results, of which only 2 qualified as targeting an aspect of environmental sustainability in the field of agriculture. 8 The Research Methods Knowledge Base provides a comprehensive review of quasi-experimental designs. For more information, please visit: http://www.socialresearchmethods.net/kb/quasiexp. php, last accessed 31 January 2019. 7

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include a wide number of evaluation approaches in which the researcher is primarily an observer of a particular intervention. In 1997, Carol H. Weiss helped to usher in a significant shift in evaluation, with the publication of her paper in New Directions for Evaluation, entitled “TheoryBased Evaluation: Past, Present and Future” (Weiss 1997).9 Weiss observed that “evaluation needs to get inside the black box (of cause and effect) and do so systematically.” Because of its explanatory power, her solution was the increased use of theory-based evaluation, which at the time was utilised primarily in the fields of health promotion and risk prevention. Theory-based evaluations are now widely used, particularly when an evaluation question asks why did an intervention work? In general, theory-based evaluations attempt to understand an intervention through the creation of a theory of change using a mechanistic or process interpretation of causation, rather than through the use of a counterfactual.10 Coryn et al. (2011) reviewed the use of theory-based evaluations over a decade from 1990 to 2009. Mayne and Stern (2013) have more recently made a persuasive argument for the use of theory-based impact evaluations for natural resource management research (NRMR), which they characterise as “playing an important role in improving food security and reducing poverty and malnutrition in environmentally sustainable ways.” Others, like Conservation International (2012) and Bours et al. (2014) promote theory-based evaluation tools as essential for measuring sustainability impacts.11

16.6.1 Realist Evaluation Realist evaluations stem from a ‘realist’ view of the world, which holds the understanding to be true that even if all the ingredients for a successful programme are in place, there is no guarantee a similar impact can be achieved in different places, times, or scales of activity. In effect, this means that realist approaches attempt to identify how the ‘mechanisms’ initiated by a project and the particular context in which they are embedded lead to a desired impact (also called a Middle Range Theory). In other words, realist approaches take projects to be ‘open systems’, composed of their own politics, staffing capacity, organisational imperatives, and so on, that are themselves positioned within a particular or unique context, that together or separately, can affect the impact of a project. Pawson and Tilley (1997) express this simply as “mechanisms + context ¼ outcomes”.

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Some academics give this honour to Chen (1990). White and Phillips (2012) argue that a good theory-based impact evaluation finds empirical evidence to support the assumptions of the theorised explanation, but also demonstrates that evidence is absent for alternative counterfactual hypotheses. Thus, the counterfactual is implicit to the evaluation. 11 Here, ‘adaptation interventions’ are regarded as meaning the same as sustainability interventions. 10

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Here, causation is understood as generative, that is, one causal mechanism leads to another and so on until a desired effect is observable. The approach eschews tunnel vision or the oft unrealistic attribution of impact to a singular causal aspect and thus benefits from allowing for the complexity that tends to affect the outcome or impact. This notion of causation involves an iterative process of theory building (called a Context Mechanism Outcome [CMO] configuration), testing and refinement, which allows ‘attribution’ claims to be made. Realist approaches can make use of a wide variety of quantitative and qualitative data collection techniques in order to understand better how a CMO creates impact. While experimental/quasi-experimental methodologies can more readily be taught, realist methodology is less clearly articulated (though recently Pawson [2013] has attempted to provide clear direction). According to White and Phillips (2012, p. 30), “realist evaluation is more of a logic of evaluation than a methodology.” This reality has led to some flexibility in interpretation, with the result that evaluation quality tends to fluctuate considerably according to the skill of the researcher.12

16.6.2 Contribution Analysis Contribution analysis (CA) is a theory-based evaluation approach that can provide credible cause and effect assessments by validating a project ToC, while also taking into consideration other contributing factors external to the project. Because CA is an over-arching analytical frame, both quantitative and qualitative evidence can be utilised for analysis. Whereas realist evaluation relies on the identification of mechanisms, CA relies on processes identified in the project theory of change. To paraphrase Mayne (2012), CA is based on testing the postulated theory of change for the intervention. It examines this theory against logic and the evidence available or results observed. It also examines other influencing factors. The aim is to reduce uncertainty about the actual contribution an intervention is making to the observed results. To do that it seeks to understand the roles played by the intervention and also by other influencing factors to determine why expected results did or did not occur. Mayne has laid out the necessary iterative steps in CA, which taken as a whole build a convincing, evidence-based contribution story13: • Step 1: Set out the attribution problem to be addressed. • Step 2: Develop a theory of change and note the risks to it. • Step 3: Gather the existing evidence on the theory of change.

Rick Davies points to the characterisation of realist evaluation as a mere “way of thinking”. For details, please see: http://mande.co.uk/2016/uncategorized/two-useful-papers-on-the-practicalitiesof-doing-realist-evaluation/, last accessed 31 January 2019. 13 Each step is explained in more detail in Mayne (2012). 12

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• Step 4: Assemble and assess the contribution story and challenges to it. • Step 5: Seek out additional relevant evidence. • Step 6: Revise and strengthen the contribution story. Like realist approaches, a good CA relies on a skilled evaluator to avoid a particularly pernicious form of bias that may arise from the “systematic tendency to either under- or over-estimate the strength of a causal relationship” (White and Phillips 2012, p. 20).14

16.6.3 Most Significant Change Most Significant Change (MSC) is a participatory approach that involves the systematic collection of personal accounts of change using a structured process that typically involves stakeholders to both contribute MSC stories and to select those that provide insight for the purpose of learning. Unlike the other approaches identified here, MSC is not appropriate by itself for impact evaluation because it tends to focus on extremes and outlier results, rather than typical experiences (medians). For this reason, MSC is often regarded as a data collection technique. It can, however, be usefully employed to help explain how and when change happens. Combined with other evaluation approaches, MSC can provide a layer of qualitative depth to help make better sense of data. For example, it can be used effectively with either realist evaluation or CA to help identify mechanisms or processes of change. Davies and Dart (2005) devised ten steps to implementing MSC, which can be more concisely summarised as: 1. Deciding on the ‘domain of change’ (i.e., what types of stories to collect) 2. Collecting MSC stories from stakeholders 3. Reflecting on the MSC stories with contributors and other stakeholders in order to encourage learning Qualitative analysis of the sort involved in making sense of MSC stories can be a daunting task, particularly in cases where a very large number of stories have been collected. For such large-scale tasks, qualitative analysis software like SenseMaker, Raven’s Eye and many others can be useful accessories to process the research.

14

Recently, there has been a growing interest in how to assess the level of confidence underpinning a contribution claim. For example, Befani and Stedman-Bryce (2017) have developed a method for theory-based approaches, coined “Contribution Tracing,” which combines the principles of Process Tracing and Bayesian Updating to increase the level of confidence in a contribution claim, as well as reduce the risk of bias. While this approach appears promising, we do not discuss it here.

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Limitations and the Need to Innovate

Approaches to sustainability evaluation are numerous and while the ones outlined here are among the most widely used, they are merely indicative of a larger universe of evaluative research. For each approach, we have identified key limitations that should be considered before the approach is selected for use. In general, however, nearly all sustainability evaluations need to pay careful attention to the following three issues:

16.7.1 Theory As the number of evaluations that make explicit use of a programme theory increases, so too has the incorrect use of ‘theory’. Today, it is all too frequent that in place of a viable programmatic theory that clearly identifies mechanisms of change we find instead implementation theories that list a few activities leading directly to outcomes. These latter theories provide no explicit causal mechanisms or processes of change, and add very little of substance that could be used for replication, improvement or scaling. Instead, they simplistically rely on unlabelled arrows that progress from one positive outcome to the next.15 Fortunately, recent innovations in systemic review methods are helping to increase the veracity of programme theories. Through the development of Evidence Gap Maps (EGM), experts in evidence synthesis have designed ways to visually represent the findings and research quality of sustainability evaluations. At a glance, EGMs show where impact assessments and systematic reviews provide strong, high-quality evidence and where there are obvious gaps in our understanding. McKinnon and Hole (2015) provide an excellent example of how they developed a theory of change model for an ecosystem-based adaptation intervention using evidence synthesis to underpin the causal linkages in their theory. The approach developed by the Collaboration for Environmental Evidence is another that engages evidence synthesis in the areas of environmental policy and practice.16 To date, the International Initiative for Impact Evaluation has taken the lead in this area by developing a number of EGMs in areas like forest conservation, peacebuilding, and primary and secondary education.

16.7.2 Listening It has been 30 years (1987) since the seminal Farmer First workshop was held at the Institute of Development Studies (IDS) at the University of Sussex and although 15 16

For a well-constructed theory see, for example, Tilley (2000). http://www.environmentalevidence.org/, last accessed 31 January 2019.

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participatory approaches and methods have rightly brought into focus farmercentred priorities and ways of understanding, it is sometimes difficult to appreciate this in the context of increasing vertical integration within the agro-industrial food complex and the ongoing shift from public to private agricultural research. Nevertheless, the simple act of listening, through a process of participatory research can make all the difference between an evaluation that makes sense of the (always) complex reality of rural life and one that ‘just does not get it.’ Various participatory approaches can be employed in a sustainability evaluation. One example is called ‘Participatory Impact Pathways Analysis’ (PIPA).17 PIPA was developed from work at the International Center for Tropical Agriculture (CIAT) on ‘innovation histories’ in 2005 and has since been employed with subtle variation across a wide range of development initiatives (Douthwaite et al. 2008). PIPA is designed to allow workshop participants an opportunity to describe how they think a development process works (i.e., their theory of change). Through a process of guided discussion, workshop participants develop a hypothesis of cause and effect, making clear their assumptions and ways of understanding. The hypotheses gathered through this sort of participatory processes are then used as the basis for a sustainability evaluation. By shifting the burden of hypothesis creation from the sole responsibility of the evaluator to one that is shared with the actors who make change happen, a more context sensitive understanding of local realities can help to make sense of available evidence and to guard against researcher bias. Another critical area of listening is often overlooked and yet can be very valuable in avoiding both large and small mistakes in the interpretation of the data. Collaborative Outcomes is an approach that conducts post-evaluation validation with the key stakeholders, particularly those who were subjects of the evaluation such as farmers or cooperatives, and seeks systematic feedback on the findings. The Committee on Sustainability Assessment (COSA) has noted how this function, which they typically conduct as local workshops, consistently adds value both by preventing misunderstandings about subtle but important topics as well as aiding in the local integration of the information coming from the evaluation.

16.7.3 Indicators There is a great deal more to indicators than at first appears obvious. To most people, an indicator is a quantitative or qualitative variable that provides a simple means for measurement. Consequently, indicators are used for virtually every type of research.

17 For information on PIPA visit: http://boru.pbworks.com/w/page/13774903/FrontPage, last accessed 31 January 2019.

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If we want to measure sustainability, then an indicator, or group of indicators, would seem like an obvious necessity. However, if sustainability is reduced to a set of numbers then it’s easy to stop thinking about the moral/ethical/political reasons for why we measure sustainability and instead to think of only the technical process of how to do it. We must be conscious of the limitations of any tool. It is undoubtedly true that analysing sustainability through the lens of an indicator dataset can be much more effective than typically acknowledged (Rosin et al. 2017) and for most people and purposes, indicators are foundational to understanding. From our vantage point, the real problem is that sustainability indicators and metrics are in a nearly constant state of flux, with no clear agreement among evaluators on a common set of indicators that are capable of measuring the three pillars of sustainability in a way that allows for comparison across countries and agricultural commodities. Instead, what has emerged is a rapidly growing baroque compendium of sustainability indicators that seem distinguished by a redundancy of form (Sanbonmatsu 2004). For example, in their analysis of 84 scholarly articles on sustainability indicators published within the field of commodity agriculture between 1995 and 2015, Rasmussen et al. (2017) recorded the existence of 626 indicators, of which 294 were categorised as unique. Employing rarefaction curves, they “show that indicators are being generated continuously (particularly those used to track environmental sustainability).” While, in some cases, a new indicator may be warranted, in most cases inventing new and slightly different indicators is problematic for advancing shared learning. Novel indicators can be like introducing rare foreign words in a conversation. They may or may not be accurate but they nonetheless prevent a shared conversation unless the words and their meanings are shared. More importantly, different indicators, or similar indicators but measured or used in different ways, hinder cumulative learning over time. Even though indicators will undoubtedly continue to proliferate, the high price of data collection combined with a practical need to align with global norms, ranging from those of the International Labour Organization to the Sustainable Development Goals, is helping to bring some order to an otherwise crowded house. The thoughtful use of comparable, standardised indicators holds enormous potential for helping us learn. For example, imagine the potential for comparative analysis and understanding if at least some typical aspects of crop sustainability was measured the same way across countries. Fortunately, organisations like the Committee on Sustainability Assessment have turned years of effort developing sustainability indicators and metrics into international public goods that are freely available to everyone.18 Indicators, as a rapid and consistent way to communicate progress are increasingly being utilised to both understand impact pathways and the performance of an initiative or intervention, while the intervention is being conducted rather than

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www.thecosa.org, last accessed 31 January 2019.

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waiting for the post-intervention conclusions of impact evaluation. The Chapter on “Performance Monitoring” in this volume looks at how common indicators can be readily applied to this valuable purpose in several different types of settings, including within fast-changing supply chains (see Sects. 19.3 and 19.4 in Chap. 19).

16.8

Reducing Evaluation Costs

Finally, measuring sustainability is expensive regardless how it is done. Bamberger et al. (2012), along with many others, have specialised in developing innovative techniques for conducting an evaluation under “real-world evaluation constraints” that increase evaluation rigour without breaking the bank. New Technologies (e.g. tablets for data entry, electronic data platforms, GPS devices, mobile phones, etc.) have helped reduce the cost of conducting an impact evaluation, but not eliminated it. Increasingly, ongoing and routine performance monitoring is employed to measure sustainability gains because it offers a fast and more affordable approach to measuring sustainability performance. Routine data collection can be integrated into normal intervention activities at a fraction of the cost it would take to conduct a rigorous impact evaluation and, if done correctly, can provide an almost instantaneous dashboard of indicators that can help to inform iterative learning and adaptive management. While performance monitoring is not a replacement for an impact evaluation, it can lead to better sustainability outcomes and contribute to reducing the cost of a more robust impact evaluation through the provision of longitudinal data. A more complete discussion is available in Chap. 19 of this volume.

16.9

Concluding Remarks

Ultimately, the most important innovation in measuring sustainability might not be a technology or methodology, but the growing awareness among evaluation managers of the inherent limitations of individual approaches and the various options and resources available for overcoming them. Bob Piccioto, the influential Director General for the Evaluation of the World Bank Independent Evaluation Group championed this approach and influenced many UN bodies and agencies such as 3ie and COSA with his perspective that it is critical to adapt the appropriate tool to the task and not rely on one or two approaches. Patton (2008, cited in Rogers 2009) sums this up as “situational responsiveness.” Speaking to the World Bank, he argued persuasively for the need to move beyond fashionable designs and methods in favour of choosing the best method for the situation. As he put it, “the methodological gold standard here is appropriateness, not any one particular method.”

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Rogers PJ (2009) Matching impact evaluation design to the nature of the intervention and the purpose of the evaluation. J Dev Eff 1(3):217–226 Rosin C, Campbell H, Reid J (2017) Metrology and sustainability: using sustainability audits in New Zealand to elaborate the complex politics of measuring. J Rural Stud 52:90–99 Sanbonmatsu J (2004) The postmodern prince: critical theory, left strategy, and the making of a new political subject. Monthly Review Press, New York Savedoff WD, Levine R, Birdsall N (2006) When will we ever learn? Improving lives through impact evaluation. Center for Global Development, Washington, DC. https://www.cgdev.org/ sites/default/files/7973_file_WillWeEverLearn.pdf. Accessed 31 Jan 2019 Tilley N (2000) Realistic evaluation: an overview. Paper presented at the Founding Conference of the Danish Evaluation Society, September 2000 WCED – World Commission on Environment and Development (1987) Our common future. Oxford University Press, Oxford Weiss CH (1995) Nothing as practical as good theory: exploring theory-based evaluation for comprehensive community initiatives for children and families. In: Connell JP, Kubisch AC, Schorr LB, Weiss CH (eds) New approaches to evaluating community initiatives: concepts, methods, and context. Roundtable on comprehensive community initiatives for children and families. The Aspen Institute, Washington, DC, pp 65–92 Weiss CH (1997) Theory-based evaluation: past, present, and future. New Dir Eval (76):41–55 White H, Phillips D (2012) Addressing attribution of cause and effect in small n impact evaluations: towards an integrated framework, 3ie Working Paper 15. International Initiative for Impact Evaluation, New Delhi. http://www.3ieimpact.org/evidence-hub/publications/working-papers/ addressing-attribution-cause-and-effect-small-n-impact. Accessed 31 Jan 2019 Woolcock M (2009) Toward a plurality of methods in project evaluation: a contextualised approach to understanding impact trajectories and efficacy. J Dev Eff 1(1):1–14

Keith Child is an expert in evaluation and impact methodologies for complex, research focused programs, and is the CEO for a Canadian registered evaluation company called Impact Works Inc. He received his Ph.D. from Queen’s University in 2003 where he developed a strong interest in complexity-aware and theory-based research designs. He is a Senior Advisor to the Committee on Sustainable Assessment (COSA) and to the CGIAR’s Water, Land and Ecosystems (WLE) CRP. He has held senior evaluation roles at the International Livestock Research Institute (ILRI), the International Food Policy Research Institute (IFPRI), the Center for International Forestry Research (CIFOR) and the Independent Evaluation Arrangement (IEA-UNFAO). He has also served in executive functions at the Aga Khan Foundation and has worked as a Professor of political science at several Canadian universities. CEO, Impact Works Inc., Chelsea, Quebec; Mobile: +1 (819) 661 5755; Email: [email protected]; Skype: keithchildinfo; Find a meeting time: http://doodle.com/ impactworks.

Chapter 17

Transformational Change: The Challenge of a Brave New World Jyotsna Puri

17.1

Objective and Introduction

What is transformational change? Can we define it? Can we measure it? Will we know a transformational change when it occurs? In the book Soonish (Weinersmith and Weinersmith 2017), the authors discuss transformational technologies: Ideas such as asteroid mining and cable cars that run up into space require technologies whose times have not yet come, but represent important ways in which the world’s existing woes—including the problem of resource constraints—may be solved. Most multilateral development agencies aim for change that is ‘transformational’ or that ‘shifts the paradigm’. Arguably, transformational change has become the holy grail in development assistance. Most development and environmental aid agencies aspire to support transformational change, referring in turn, at least in spirit if not in letter, to something that will change the way our work is done or the way we think about the impact of our work (Levine and Savedoff 2015). Despite this, definitions of what constitutes transformational change remain elusive, resulting in the near absence of evidence related to transformational change. In this chapter we discuss some experiences of organisations that have aimed to define and measure transformational change. We then discuss whether or not these definitions are necessary and sufficient, and explore potential ways in which measurement may occur. The idea of transformational change or paradigm shift has been around since Thomas Kuhn’s classic work on scientific revolutions (The Structure of Scientific Revolutions, 1962), in which he refers to paradigm shifts. An example of a

This paper was first published as a Working Paper as part of the series published by the Independent Evaluation Unit (IEU) of the Green Climate Fund. J. Puri (*) Independent Evaluation Unit (IEU), Green Climate Fund, Incheon, Republic of Korea e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_17

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transformational change or one exhibiting a paradigm shift was the discovery of a ‘heliocentric’ universe. This led to a move away from the prevailing ‘geocentric’ paradigm. However, the move away from the geocentric view of the universe (or paradigm), where the earth is at the centre towards a view where the sun is at the centre (the ‘heliocentric view’) did not occur suddenly. Till the 1600s the world believed Ptolemy’s geocentric view. In 1543 Copernicus wrote De Revolutionibus Orbium, and argued for the heliocentric view. The world did not adopt this new paradigm immediately. A shift in the prevailing paradigm only began when the world had accumulated data that could not be explained (or ‘anomalies’) and, additionally, had the technology to verify this. For example, the geocentric paradigm could not explain the different phases of Venus. Then in the early 1600s, Galileo constructed a telescope that helped verify Copernicus’ paradigm—that the Earth did move around the sun. This evidence also explained the different phases of Venus. In the end it was a combination of theory (paradigms), anomalies and evidence that led to a new paradigm that was accepted around the world. Kuhn called this move ‘revolutions’. He deconstructed revolutions that lead to paradigm shifts or transformations into three phases: The first part is the ‘pre-paradigmatic phase’, where activities and most conceptual thinking occur within the old paradigm. The second phase is of ‘normal science’. During this phase, experimentation takes place and there is a quest and accumulation of data and verification. This phase occurs within the reigning paradigm and is aided by new scientific techniques and technology. If the reigning paradigm of thinking (and action) is the right one, most scientific inquiry confirms this paradigm. On the other hand, if experimentation, data and research are unable to verify these phenomena, we witness a third phase— the phase of anomalies. These occur when experimentation, observations and research cannot explain our observations or the effects of prevailing practices. Once these anomalies accumulate, we witness a revolution, a transformation or a paradigm shift. The aim to support or catalyse a transformational change has been espoused by many multilateral organisations (see Table 17.1), at a time when they are striving to make a difference and to justify the importance of their work to donors. On the other hand, there are few examples in which transformational change or paradigm shift have been evaluated. Arguably, judging if transformational change is occurring is a critical tool for organisations, both from a learning perspective (is a transformation occurring, and if one is, what facilitated the change and can it be replicated elsewhere at other times?) and from an accountability perspective (are agencies that aspire to be transformational, actually causing this change?). If a contribution is being made by an agency, then how much of a contribution is it? Can we quantify it? Can we explain it? We discuss these questions in this chapter. During our study we find that agencies employ ‘proxy indicators’ (or surrogate indicators) to ‘indicate’ transformational change. Multilateral and bilateral agencies around the world use and report indicators related to change and effectiveness. Typically, indicators related to ‘value for money’ and ‘sustainability’ are used as surrogates for transformational change that illustrate and prove transformation (see Table 17.1). In many cases, we have seen an intentional strategy of leaving the

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Table 17.1 Reference to and treatment of ‘transformational change’ by selected multilateral organisations in their strategy and vision documents Agency Green Climate Fund (GCF)

Key vision/strategy document source Initial Strategic Plan: Green Climate Fund (GCF 2016)

Who we are: Green Climate Fund (GCF 2017)

Global Environment Facility (GEF)

GEF 2020 Strategy (GEF 2015)

Guidelines on the project and program cycle policy (GEF Secretariat 2017)

Mentions of ‘transformational change’ “[The action plan] serves to address policy gaps and to invest the Fund’s resources in transformational climate action in a country-driven manner.” “What is crucial, however, is that the Board’s ambition to get the Fund off the ground and up to scale swiftly does not compromise on its ambition to promote cutting-edge innovation and real transformation towards the low-emission and climate-resilient future that the global community committed itself to in the Paris Agreement.” “As an operating entity of the financial mechanism of the UNFCCC and of the Paris Agreement, and the largest multilateral climate fund, the GCF will promote the paradigm shift towards low-emission and climate-resilient development pathways by providing support to developing countries to limit or reduce their greenhouse gas emissions and to adapt to the impacts of climate change, taking into account the needs of those developing countries particularly vulnerable to the adverse effects of climate change.” “[GCF] seeks to promote a paradigm shift to low-emission and climateresilient development, taking into account the needs of nations that are particularly vulnerable to climate change impacts.” “GEF2020 emphasizes the need for us to support transformational change and achieve impacts on a broader scale.” “The 2020 vision for the GEF is to be a champion of the global environment building on its role as financial mechanism of several multilateral environmental conventions (MEAs), supporting transformational change, and achieving global environmental benefits on a larger scale.” “The GEF recognizes there is a need to act differently to support sustainability by embracing transformational change (continued)

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Table 17.1 (continued) Agency

Climate Investment Funds (CIF)

Key vision/strategy document source

Annual report 2014 (CIF 2014)

Annual report 2016 (CIF 2016)

Transformational Change Approach Paper (CIF 2017)

World Bank (WB)

The World Bank Group Development Committee (WBG DC 2013)

Mentions of ‘transformational change’ in order to strengthen the resilience of ecosystems, social systems and responses to climate change.” “[Since 2008], the CIF have been leading efforts to deliver investments at scale to empower transformations in the energy, transport, and forestry sectors and climate-resilient development.” “The CIF is financing policy and regulatory work that is critical to achieving transformational change.” “Supporting the transformation to low-carbon, climate-resilient development is an overarching goal of the CIF, and a key priority globally as articulated in the Sustainable Development Goals (SDGs) and the Paris Agreement.” “However, questions remain regarding how the term ‘transformation’ is interpreted (and to whom) and operationalized within the CIF context, and the extent to which CIF activities and investments are designed and implemented to support transformational change.” “We are committed to actively participating in setting a collective Post-2015 Agenda that is ambitious and transformational and that encompasses ending extreme poverty and building prosperity for all in a sustainable manner.” “Transforming the trajectory to maintain the historical trend requires a concerted effort by the international development community to bend the ‘natural arc’ of history.” “Jobs are a driver of poverty reduction and shared prosperity not only by increasing the earnings of the poor, but also by being a force for transformation—jobs empowering women lead to greater investments in children and efficiency increases as workers get better at what they do and as more productive jobs replace less productive ones.” (continued)

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Table 17.1 (continued) Agency

Key vision/strategy document source

Lessons from World Bank Group Experience (WB IEG 2016)

IFAD

IFAD strategy (IFAD 2014)

IFAD strategic framework (IFAD 2016a)

Mentions of ‘transformational change’ “As a Group, we need to be more selective and identify activities for truly transformational development impact. We need to move decisively beyond the remnants of a one-size-fits-all approach and recognize the full extent of the diversity and complexity of our client base, then tailor solutions to each client.” “Moving further, the new Strategy will lay out a framework to sharpen the focus of World Bank Group activities on transformative products and services that leverage the World Bank Group’s scarce resources and deliver development solutions that are sustainable.” “Transformational engagements are a critical pillar of the World Bank Group’s strategy for achieving its twin goals of extreme poverty elimination and shared prosperity.” “As an integral part of the emerging post-2015 global development agenda and vision, IFAD envisages a post2015 world in which extreme rural poverty is eliminated through inclusive and sustainable rural transformation (. . .)” “IFAD continues to develop and innovate in its areas of expertise and comparative advantage. It responds to the key drivers of change that affect smallholder agriculture and rural transformation and adjusts its operational priority areas accordingly.” “[IFAD’s fifth Strategic Framework] responds to the evolving global environment and positions IFAD to play a crucial role in the inclusive and sustainable transformation of rural areas.” “[IFAD’s] unwavering focus on smallholder agriculture and rural development, its specialized experience and expertise, and the strengths and qualities of its approach give it a comparative advantage and strategically position it to play a stronger role at (continued)

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Table 17.1 (continued) Agency

Food and Agriculture Organization (FAO)

Key vision/strategy document source

Transformation Expert Meeting (FAO and CIFOR 2017)

FAO policy and vision (FAO 2018)

Evaluation of FAO’s contribution to the reduction of rural poverty (FAO OED 2017)

Mentions of ‘transformational change’ national and international levels in promoting inclusive and sustainable rural transformation and in contributing to the SDGs.” “The meeting is part of a process being undertaken by FAO and CIFOR on structuring the Paradigm-Shift/ Transformational potential on land-use and REDD+ related policies and most importantly on the ground, of projects and programmes and their overall contribution to low-carbon and climateresilient development pathways.” “Paradigm Shift in the context of REDD+ was defined as ‘a fundamental change in the current pattern of unfolding the complex REDD+ initiatives and in the pattern the organization (REDD+ projects and programs) has been conducting business’.” “There is no agreed definition of transformational change, however Brockhaus and Angelson define it in the context of REDD+ as ‘a shift in discourse, attitudes, power relations and deliberate policy and protest action that leads policy formulation and implementation away from business as usual policy approaches that directly or indirectly support deforestation and forest degradation’.” “FAO’s strategic vision has been adjusted to the transformative vision and ambitions of the 2030 Agenda.” “Food and agriculture must be transformed if countries are to achieve the SDGs, and FAO is working closely with governments and their stakeholders to select national targets implement and monitor progress in line with the overall vision and aspirations of the 2030 Agenda.” “FAO’s approach to rural poverty reduction is relevant and has an overall sound intervention logic. There has been a progressive evolution and refinement of the approach, based on the concept of ‘inclusive rural (continued)

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Table 17.1 (continued) Key vision/strategy document source

Agency

Inter-American Development Bank

Institutional Strategy (IDB 2015)

Mentions of ‘transformational change’ transformation’. This evolution reflects due consideration of key challenges and the emergence of new themes relevant for rural poverty reduction.” “For this Update of the Institutional Strategy, the vision of the InterAmerican Development Bank (IDB) is to increase productivity and reduce inequality in a sustainable way to transform Latin America and the Caribbean into a more inclusive and prosperous society.”

definition of ‘transformational change’ ambiguous. One such example is the Green Climate Fund, which has yet to define ‘transformational shift’ and ‘paradigm change’,1 recognising implicitly that the concept will apply in different ways to different sectors, and differently at different times. This chapter has two objectives: First, it reviews what international organisations are doing to understand, measure and assess transformational change. Second, it discusses a paradigm within which at least some aspects of transformational change may be identified and measured. We also provide some steps that organisations may adopt while thinking about and measuring transformational change. We argue that there are now scientific technologies available that could lead to a better understanding of what transformational change may encompass. However, understanding and developing strategies related to transformational change will require concerted thinking, a devolution2 of measurement capacities and a wider recognition of technologies and techniques as well as cross-systems thinking. In Sect. 17.2 we take stock of how agencies have incorporated the idea of transformational change into their own strategies and plans. This is followed in Sect. 17.3 by a review of what selected organisations are finding as part of their assessments of transformational change, while Sect. 17.4 discusses these results and Sect. 17.5 concludes.

17.2

What Are Organisations Doing?

Table 17.1 presents a summary of where and how a selection of international organisations refer to transformational change in their strategies. In the mission statements of all these organisations, there is an implicit assumption that they will

1

See the Governing Instrument document of the Green Climate Fund. Devolution refers to the fact that measurement capacities need to exist not just in centres or HQs but also at the field level. 2

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be undertaking transformational or paradigm-shifting work. Also evident in all the statements are self-referencing declarations that agencies are ‘additional’ and contributing in measurable ways to improving the world, while there is a supplementary assumption that transformational change would not be possible without the technical and monetary support they provide and galvanise. Below, we review the experiences of the World Bank (WB), the International Fund for Agriculture Development (IFAD) and the Global Environment Facility (GEF), in the evaluations they undertook to examine their own contributions to transformational change.

17.3

A Discussion of Agency Experiences

17.3.1 The Experience of the International Fund for Agricultural Development (IFAD) As part of its strategic vision for 2016–2025, IFAD has committed to eliminating “extreme rural poverty” “through inclusive and sustainable rural transformation” (IFAD 2014, p. 1). In the same strategy document, the authors note that IFAD will respond to the key drivers of change that affect smallholder agriculture and rural transformation and “adjust its operational priority areas accordingly” (IFAD 2014, p. 8). A large part of this strategy rests upon reports and assessments that were put forward as part of the ninth replenishment of IFAD’s resources (IFAD9). From these, the IFAD Executive Board concluded that resources needed to be invested if IFAD wanted to understand the impact of its financed activities, which resulted in their support for the IFAD9 IAI (Impact Assessment Initiative). The IFAD9 IAI in turn recognised the importance of IFAD generating “evidence of the success of IFAD projects so as to learn lessons for future ones” (IFAD 2016b, p. iii). In 2016 the IFAD Board concluded that the “approach to IFAD9 IAI was scientific, systematic and comprehensive” (IFAD 2016b, p. iii). The IFAD9 IAI provided IFAD with significant lessons and results, and concluded that as a result of IFAD investments (see Fig. 17.1)3: • 44 million people will see substantial increases in agricultural revenues; • Of those targeted by IFAD programmes, many will see improvements in their assets: more than 29 million people will see a rise in the amount of poultry they own, while 23 million will see increases in their livestock; • More than 10 million beneficiaries will witness an increase in each of the following: overall assets, productive assets, gender empowerment, dietary diversity and reduction in shock exposure.

3 This is not a comprehensive summary of their conclusions. We urge the reader to refer to the original document (IFAD 2016b).

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Fig. 17.1 Impact of IFAD projects expressed as projected number of beneficiaries, by indicator (Sources: IFAD 2016b, p. 11; Garbero 2016, p. 80; figure reproduced with kind permission of IFAD)

As a consequence of these findings, and the evidence to support them, the IFAD Board concluded that IFAD had indeed ‘transformed’ rural agriculture, although clearly more needed to be done. Simultaneously the Board also recognised challenges to identifying and measuring IFAD’s potential transformational impact. Amongst these, the impact assessment report identified three main categories upon which the secretariat would need to focus if it was expected to shape IFAD’s transformational impact in a reliable and credible manner. The first amongst these was that the IFAD secretariat would need to collect better, high-quality baseline data and regular project-level data that would show the fidelity of programme implementation (IFAD 2016b). Secondly, since IFAD9 IAI was compelled to use ex post impact assessment methods, which tend to be expensive in terms of time and effort, the report concluded that a selection of projects would include impact assessments in their design to enable impact measurement and impact evaluations “to facilitate and maximize learning” (IFAD 2016b, p. iii).4 The Board therefore requested that there be adequate data collection to measure impact (henceforth called ‘impact surveys’).5 This process was to be participatory and multi4

IFAD9 IAI committed IFAD to producing and reporting on 30 impact assessments, all of which would use either ex ante methods or ex post methods (one-fifth needed to use ex ante impact evaluation methods), while moving to ‘succinct accounts (of results reporting) that are focused on impacts and outcomes achieved’. 5 GC 35/L.4 commits IFAD to “Raising the level of compliance with the requirement for projects to have a baseline survey by the end of their first year of implementation” (IFAD 2012, p. viii).

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stakeholder. The IFAD Board also concluded that it is important to systematically review the portfolio, to dynamically measure where the possibility of maximum impact lay for IFAD funded projects, and also to identify gaps in evidence. Thirdly, the report concluded that a framework for measuring development effectiveness needed to be developed. Last but not least, in the Report of the Consultation on the Ninth Replenishment, IFAD also made a commitment to “strengthening national monitoring and evaluation systems by enhancing the capacity of project management staff and implementing partners, particularly at start-up and early project implementation through the systematic engagement of monitoring and evaluation (M&E) experts during design and supervision missions” [italics added] (IFAD 2012, p. vi). It is also important to note that the IFAD9 IAI led to a revision of the IFAD results management framework, and specifically a move away from the overall single indicator that IFAD was using (of moving people out of poverty) toward the inclusion of three additional indicators to be adopted at the strategic level. One other activity reported by IFAD9 IAI was to examine the validity of claims made by Project Completion Reports (PCRs). PCRs are used widely by organisations and are supposed to note what happened as a result of a project. An assessment was made of 70 PCRs that made a total of more than “4,000 unique claims of project success”. These included claims that projects had improved commerce and value chains as well enhancing economic mobility. However, when IFAD9 IAI examined theories of change and causal claims, it found that 78% of the claims could not be validated. This was true across all reported claims (see Fig. 17.2). It is also

Fig. 17.2 Evidentiary support for result claims made in Project Completion Reports (Sources: IFAD 2016b, p. 13; Garbero 2016, p. 82; figure reproduced with kind permission of IFAD)

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interesting that most claims in PCRs were made on outputs and outcomes—far fewer were made on impact. The IFAD study also found many more outcomes than outputs, indicating that theories of change were poorly articulated.

17.3.2 The Experience of the Global Environment Facility (GEF) In their strategy paper, the GEF underscores the importance of transformational change in tackling climate change (see Table 17.1). To understand whether the GEF was indeed being effective and transformational, the GEF Independent Evaluation Office (IEO) studied GEF activities in 2017. The aim of the evaluation was to identify both designs and implementation structures that have proven transformative. The GEF IEO (2017, p. 11) defined transformative engagements as: (. . .) engagements that help achieve deep, systemic, and sustainable change with large-scale impact in an area of global environmental concern.

For the evaluation, the IEO asked GEF agencies to self-identify transformational interventions. The IEO explored two evaluative questions: • What are the necessary and sufficient conditions for GEF interventions to achieve transformational change? • What causal factors make a difference in the outcome? To answer these questions, the study reviewed and aggregated findings of eight cases listed in Table 17.2. The GEF IEO conducted a desk review of final evaluation reports for eight projects. Answers to questions were scored in terms of relevance, depth of change, sustainability and presence and quality of evaluative evidence (e.g. is there evaluative evidence? Yes/No). The review explored market processes for depth and scale of change, as well as the possibility for evaluators to review ‘other types of qualitative change’. The GEF IEO review assessed transformational mechanisms in these projects by examining factors that helped (or did not help) to mainstream projects; project capacity for replication or its use for demonstration; and the potential for catalytic effects beyond project intervention. The review also assessed ‘other types of transformational mechanisms’. Both internal and external factors that could affect the success of a transformational intervention were also assessed, for effects ranging from negative to positive for a number of pre-specified areas. Outcomes were assessed using two main parameters—depth and scale of change to the market and/or system, and sustainability. Finally, the evaluations were aggregated6 and combined with a cross-case analysis to assess the presence of conditions that have

6 The GEF IEO called it a ‘meta-evaluation’, although it wasn’t a meta-evaluation in the strict sense of the word. For example, see Borenstein et al. (2009) for definitions.

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Table 17.2 Self-identified examples of ‘transformational change’ assessed by the Independent Evaluation Office of the Global Environment Facility (Source: GEF IEO 2017) No. 1

Project name Lighting Africa (LA)

2

China Renewable Energy Scale-up Program (CRESP)-Phase I

3

Uruguay Wind Energy Programme (UWEP)

4

Sanjiang Plain Wetlands Protection Project

5

Sustainable Land, Water, and Biodiversity Conservation and Management for Improved Livelihoods in Uttarakhand Watershed Sector Project

Description of project and evaluation conclusion This project aims to catalyse the market for modern off-grid lighting in Africa. It aims to provide off-grid lighting for 250 million people by 2030. Evaluation conclusion: Transformation was achieved by leveraging capital inputs in multiple areas of the business cycle and by alleviating policy barriers. Grants to develop China’s policy, legal and regulatory framework to promote renewable energy, and investing in the local sustainable energy equipment manufacturing industry. Evaluation conclusion: The success of the programme was attributed to a multi-year preparation period used to achieve consensus and cohesiveness on key policy directions and reforms, complemented by pilot investments in renewables. The programme deployed capital to overcome economic barriers to developing the commercially viable wind energy industry, and overhauling existing policy framework to remove a number of barriers. Evaluation conclusion: The programme created a stable framework for investment along with tariff incentives, which has, in turn, secured private sector support for the new market. The investment aimed to facilitate sustainable economic development in selected wetland and forest areas to alleviate the status of globally threatened species. Evaluation conclusion: The project was effective in securing the rehabilitation of wetland areas; however, improvements noted in species indicators could not be attributed to the project. GEF investment in decentralised water management aimed to improve source sustainability and security as well as to facilitate biodiversity conservation and management. Evaluation conclusion: Participatory, community-based approaches and capacity building at both local governmental and (continued)

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Table 17.2 (continued) No.

Project name

6

Namibia—Strengthening the Protected Area Systems (PAS)

7

Amazon Protected Areas Program (ARPA)Phase I

8

Promoting Payments for Environmental Services (PES) and Related Sustainable Financing Schemes in the Danube Basin

Description of project and evaluation conclusion water user levels, have fostered ownership and sustainability. GEF funding to improve the management of protected areas, as well for consolidating and expanding them. Evaluation conclusion: The efforts were successful due to political and regulatory support and uptake, as well as due to the creation of synergies between already present expertise and development activities. The program aims to consolidate the management of existing protected areas and their expansion. The main activity of the project was to establish a fund to meet these costs. Evaluation conclusion: Stakeholder participation in the project’s preparation has built capacity to sustain project results past completion. However, government budgeting challenges have made the results reliant on continued donor support. The programme piloted sustainable resource management and PES practices to improve and protect biodiversity in the lower Danube region. Evaluation conclusion: Government participation in project development and capacity building allowed for continued adoption and ownership. However, long-term financial sustainability was not secured.

facilitated transformative change. The review used qualitative comparative analysis (QCA), which creates causal inferences using Boolean algebra (the values of variables are true/false, denoted as 1 or 0) to inform this cross-case analysis. The review found each of the eight self-identified cases contributed fundamentally to transforming either a system or a market. It also concluded that five of these had accomplished their transformation targets, while the remaining three did not meet financial sustainability targets at the time of project completion. The five projects that were financially sustainable cases had harnessed market forces or secured allocations of government budget. The projects that had successfully leveraged market forces helped in removing regulatory barriers and facilitated technological advancement, which in turn helped to reduce costs. Projects that managed to secure government budgetary allocations accomplished this by building consensus to promote supportive policy, including government ownership of projects in some instances (see Table 17.2).

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17.3.3 The World Bank’s (WB) Study of Transformational Change In 2013 the World Bank Group strategy laid out the importance of enhancing its impact and catalysing fundamental change in promoting prosperity in developing countries (see Table 17.1). To help achieve these aims, the WB commissioned the Independent Evaluation Group (IEG) to undertake a study published in 2016, named ‘Supporting Transformational Change for Poverty Reduction and Shared Prosperity: Lessons from World Bank Group Experience’ (WB IEG 2016). The IEG based their work on the following definition of transformational engagements (WB IEG 2016, p. xi): (. . .) interventions or series of interventions that support deep, systemic, and sustainable change with the potential for large-scale impact in an area of a major development challenge. Such engagements help clients remove critical constraints to development; cause or support fundamental change in a system; have large-scale impact at the national or global level; and are economically, financially and environmentally sustainable.

The IEG identified four dimensions to the definition (see Table 17.3) to select and screen a range of cases from the WB Group’s areas of operation. It drew on evaluative evidence from 1990, but had a particular focus on the period from 2000 to 2014. The IEG also used these dimensions to then employ three approaches to inform and measure the idea of transformational change. These approaches are briefly discussed here. First, the IEG study used counterfactuals. They identified engagements they considered to not be transformational and matched these (as ‘comparison’ groups) for those that were using a menu of attributes. Comparison engagements were Table 17.3 Dimensions of transformational change (Source: WB IEG 2016, p. 3) Dimension Relevance

Description Addresses a major development challenge (or societal or global concern) such as poverty, equity.

Depth of change

Causes or supports fundamental change in a system or market; addresses root causes to support a change in trajectory. Causes large-scale impact at the national or global level.

Scale of change

Sustainability

Impact has been economically, financially, environmentally sustainable in the long run.

Characteristics Evidence from diagnostic or analytical work showing the constraint or problem addressed was of critical importance. Evidence of market change, systemic change or behavioural change. Evidence of scaling up of approaches and innovations and replication; catalytic effects; demonstration effects; positive spill-overs and externalities; acceleration/discontinuity in a development indicator. Evidence of financial, economic, environmental sustainability of results after engagement.

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matched using attributes such as country context, objective and scope. Thirty seven country engagements were chosen and organised into 17 clusters (dyads). These clusters were then used to assess whether the country had witnessed a significant reduction in poverty, whether it had made sustained and significant progress in its social sectors, and whether it had achieved broad-based and inclusive economic growth over an extended period of time during the review period. The IEG study examined the following three main WB initiatives with this approach across four dimensions (see Table 17.3): • Transition from centrally planned to market-based economies (transition initiative): 1989–present; • Poverty Reduction Strategy (PRS) Initiative: 1998–present; • Fragile and conflict-affected states initiative (focusing on countries that graduated from this status): 2002–present. The second approach the IEG team used was an analytical/statistical framework. They compiled a list of 83 developing countries that had achieved sustainable and inclusive development. An accompanying database featured data on GDP in real terms, headcount poverty, the Human Development Index and income inequality. Differentiation between countries was made on the basis of environmental sustainability, social inclusion, WB Group lending and private sector engagement. Each country was ranked according to its annually sustained progress in regard to GDP growth, poverty reduction, life expectancy, rate of schooling and changes in income inequality. This list was divided into the top 25%, middle 50% and bottom 25% by the pace of change exhibited by the countries. The third approach examined whether a country transitioned from the low-income classification to the middle- or high-income classification over the 1990–2013 period, along with the average of each country’s Country Policy and Institutional Assessment (CPIA) score from 2000 to 2010. While the IEG study recognised that there is no single policy to best catalyse transformational change, it identified four mechanisms that had the potential to significantly support transformational change: • Binding constraints: identifying and addressing the binding constraints to progress toward a development objective; • Cross-sectoral approaches: adopting systemic approaches that address multiple constraints in interrelated parts, including through cross-sectoral approaches; • Scaling up innovations: scaling up and replicating both effective approaches and innovations, and novel financing instruments; • Behavioural change: changing behaviours by modifying incentives of beneficiaries, introducing market forces, or increasing the flow of information. The WB IEG evaluation also identified a number of factors that facilitated transformational engagement: good diagnostic work, building consensus, building capacity and adaptively addressing evolving challenges with the use of monitoring and reporting systems, were all seen as being important steps.

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Discussion

In all the studies of transformational change, several common features emerge in the definitions that these studies employed (see Table 17.4). In Table 17.4 we also include two other still-ongoing studies of transformational change being undertaken by Climate Investment Funds (CIF) and the UK Climate Impacts Programme (UKCIP). Complete and final results from these studies are not yet available but in this investigation of transformational change, it is useful to also examine their approaches. Table 17.4 shows that most studies acknowledge the importance of seeing change that is not only large and has scale, but also has depth. On this basis, a large change in a small pilot programme ostensibly should not count. But neither should a small change among many people. What counts, one imagines, is a large change that covers large areas. Several agencies also considered the idea of lowering costs and removing barriers as an important attribute of what would potentially be transformational. Several referred to ‘systems change across sectors’ (WB, GEF and Table 17.4 A review of definitions and attributes employed for defining and studying ‘transformational change’, across international agencies

GEF LDCF/ SCCF

UKCIP

Maybe

No

No

Yes

Yes

No

No

No

Yes

Demonstration project logic (Theory of Change)/Catalytic

Yes

No

Yes

Yes

No

Removing barriers/lower costs

Yes

No

Yes

?

No

?

Yes

Yes

?

Yes

Research and learning

Yes

No

Yes

?

No

Systems and across sectors

No

Yes

Yes

Yes

Yes

Long-term change

No

Yes

Yes

Yes

Yes

Behaviour change

No

Yes

No

No

Yes

Capacity building

No

No

Yes

No

No

Attribute of transformational change

CIF transformational change

Measured transformational change?

No

Specific/consistent indicators

Scale effects (spatial)

WB transformational engagement

IFAD

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UKCIP) and others consider the time dimension in their conceptualisation of transformational change. We suspect that this latter aspect is important to all other organisations but it is not explicitly mentioned in the available documents. In this discussion section we consider two important aspects of these measurements. The first is building last-mile considerations into discussions and conceptualisations of transformational change. The second is the importance of considering high-quality evidence as an agent of transformation.

17.4.1 The Importance of Examining the Last Mile: Using Behavioural Insights One of the most interesting insights from the book Medical Reversals (2015) is provided when Prasad and Cifu discuss how in the presence of incontrovertible evidence, actions do not change. This is true not only for medicine but also for development practices. It can be seen in cases where people know certain actions are individually beneficial (e.g. not smoking, going to the gym, etc.), but they do not adopt them. This is especially true for development and environmental projects. Olbadistan and his colleagues have written extensively in the field of psychology on the absence of ‘pro-environment’ behaviour, even in the presence of good knowledge and attitudes.7 One of the things we need to overturn in our current paradigmatic thinking is the notion that knowledge and attitudes are sufficient for changing behaviour. This is clearly not true. Whether this is the case with doctors and their hand-washing habits (Davis 2015), doctors adopting proven methods for reducing mortality in early-birth mothers (Crowley et al. 1990; Pittet et al. 2000; Nicolay 2006; Davis 2015), households adopting and using efficient cookstoves (Burwen and Levine 2012), farmers adopting actuarially fair insurance instruments (Barooah et al. 2017), citizens not paying their taxes even though this is the right thing to do (Shahar et al. 2015; Halpern 2015), people not throwing out garbage in the open (Chong et al. 2013) or citizens not reacting to information about the honesty of their electoral candidates (see Banerjee et al. 2014; and Woon and Kanthak 2016), there are many slip-ups between the cup and the proverbial lip of action. We call this the problem of the ‘last mile’. If programmes are to be transformative, this last-mile problem needs to be addressed. There are emerging paradigms that can help to take away or mitigate this last-mile problem, especially in climate change. Important ways in which lastmile problems can be dealt with include ensuring high-quality formative work and making sure that planners dealing with critical bottlenecks within the theory of change are well informed of previous evidence and of formative work on the ground.

7

See, for example, Osbaldiston (2013) and Osbaldiston and Schott (2012).

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17.4.2 A Missed Opportunity: The Transformational Potential of High-Quality Evidence In most cases, transformational change—whether you look at medicine,8 education, forestry (Samii et al. 2014; Börner et al. 2016), agriculture (Rogers 2003) or community-driven development (White et al. 2018), or cash transfers (for example, see Davis et al. 2016)—change has resulted from a progressive build-up of credible evidence, and evidence that shows that an approach has the measured impact (not just once or twice, but repeatedly). In scientific parlance, this is called replicability (see, for example, Ioannidis 2005a, b). Indeed, many interventions and programmes that were ‘believed’ to have been successful, were on the contrary quickly dislodged when it was proved with rigorous replicated evidence, that they didn’t work (Prasad et al. 2013). Unfortunately, it has almost never been true that a single piece of evidence has transformed action or practice. In almost all cases, it has been many, repeated pieces of evidence gained from a multitude of studies (see, for example, Pereira et al. 2012) that prove the success or failure of an action or intervention.

17.5

Conclusions: Implications for Organisations

The challenge of transformation is not just in implementing good programmes. It is arguably in conceptualising what transformational change could look like, which may be informed by ‘science’ in the current paradigm of thinking, discovering anomalies or not through good observation and evidence that identifies transformational change (did a transformational change occur?) and measuring it, to inform these anomalies. Revolutions or transformational change occur, once the evidence has reached a critical point. In this section we briefly discuss some actions that organisations can take to increase this evidence that can help identify and measure transformational change in credible and robust ways. • Examine the evidence that already exists: Clearly knowing previous scientific evidence and synthesising it is important. Attributes associated with transformational change—including changes in scale, depth, sustained change and systemic change can benefit from being informed by existing evidence to the greatest extent possible. In this context, creating evidence databases and synthesising evidence is an important first step. • Set up ex ante theory-based impact evaluations and impact measurement systems: To measure the effects of actions and intervention in the current paradigm,

8

The introduction of evidence-based medicine, or just more operationally, handwashing or a change in doctors’ practices with respect to how they treat malaria or tuberculosis, the use of vaccines, the use of checklists (see, for example, Gawande 2009).

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we need to measure causal impact. Causal impact measurement needs to be planned for at the inception of programmes and projects. Methods that use counterfactuals are one way of doing this. However, other methods can also be used to measure causal change in rigorous ways. Combining these with qualitative approaches while ensuring that they are guided by theory is an important second step. However, it is clear, that not all development programmes have measurement systems built into them. We also advocate doing multi-site studies that investigate the same set of interventions and outcomes in different contexts. • Implementation research: Monitoring programmes and projects closely is another important requirement. Most programmes build datasets that in the end are not very useful, primarily because the data is not of good quality. It is necessary to ensure that good monitoring data is produced, along with good protocols. • Building buy-in: Studies have shown the benefits of effective planning in understanding and overcoming nuanced constraints that even robust evidence faces. Building engagement with planning for, and using high quality evidence, from the beginning is clearly important. • Replicate: Ensuring that evidence isn’t one-off and that it is replicable is important (see, for example, Pereira et al. 2012). Engaging a multiplicity of actors and methods to triangulate results and evidence from different experiences and contexts is clearly important. Further research and examination of this phenomenon is something we recommend that organisations undertake. A key starting point for agencies seeking to evaluate transformational change is to perform a systematic review of evidence in areas where good evidence is available, so that causal inferences can be made. Examining what factors are associated with large effects is one way of approaching such an evaluation. Pereira et al. (2012), for example, explore this and review the available literature for meta-analyses that contain statistical aggregates. To conclude, it is clear that the aspiration to be transformational is creditable. However, for claims to be credible, organisations will need to invest a lot more in deliberation and design, and measuring and informing transformational change. This in turn requires critical thinking and investments by international agencies that can help inform not just their own actions but possibly a larger and more important global good.

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www.gefieo.org/sites/default/files/ieo/evaluations/files/transformational-engagement-2017.pdf. Accessed 31 Jan 2019 GEF Secretariat – Secretariat of the Global Environment Facility (2017) Guidelines on the Project and Program Cycle Policy, GEF/C.52/Inf.06/Rev.01. GEF, Washington, DC. https://www. thegef.org/council-meeting-documents/guidelines-project-and-program-cycle-policy-0. Accessed 31 Jan 2019 Halpern D (2015) The rise of psychology in policy: the UK’s de facto council of psychological science advisers. Perspect Psychol Sci 10(6):768–771 IDB – Inter-American Development Bank (2015) Update to the institutional strategy 2010–2020: partnering with Latin America and the Caribbean to improve lives. IDB, Washington, DC. https://publications.iadb.org/handle/11319/7515. Accessed 31 Jan 2019 IFAD – International Fund for Agricultural Development (2012) Report of the Consultation on the Ninth Replenishment of IFAD’s Resources, GC 35/L.4. IFAD, Rome. https://webapps.ifad.org/ members/gc/35/docs/GC-35-L-4.pdf. Accessed 31 Jan 2019 IFAD – International Fund for Agricultural Development (2014) A strategic vision for IFAD 2016–2025: enabling inclusive and sustainable rural transformation. IFAD, Rome. https:// webapps.ifad.org/members/repl/10/2/docs/IFAD10-2-R-2.pdf. Accessed 31 Jan 2019 IFAD – International Fund for Agricultural Development (2016a) IFAD strategic framework 2016–2025: enabling inclusive and sustainable rural transformation. IFAD, Rome. https:// www.ifad.org/web/knowledge/publication/asset/39369820/. Accessed 31 Jan 2019 IFAD – International Fund for Agricultural Development (2016b) Synthesis of lessons learned from the IFAD9 Impact Assessment Initiative, EB 2016/117/R.8/Rev.1. IFAD, Rome. https:// webapps.ifad.org/members/eb/117/docs/EB-2016-117-R-8-Rev-1.pdf. Accessed 31 Jan 2019 Ioannidis JPA (2005a) Contradicted and initially stronger effects in highly cited clinical research. JAMA 294(2): 218–228 Ioannidis JPA (2005b) Why most published research findings are false. PLoS ONE Med 2 (8):696–701 Levine R, Savedoff W (2015) Aid at the frontier: building knowledge collectively. J Dev Effect 7 (3):275–289 Nicolay CR (2006) Hand hygiene: an evidence-based review for surgeons. Int J Surg 4(1):53–65 Osbaldiston R (2013) Synthesizing the experiments and theories of conservation psychology. Sustainability 5:2770–2795 Osbaldiston R, Schott JP (2012) Environmental sustainability and behavioral science: a metaanalysis of proenvironmental behavior experiments. Environ Behav 44:257–299 Pereira TV, Horwitz RJ, Ioannidis JPA (2012) Empirical evaluation of very large treatment effects of medical interventions. JAMA 308(16):1676–1684 Pittet D, Hugonnet S, Harbarth S, Mourouga P, Sauvan V, Touveneau S, Perneger TV (2000) Effectiveness of a hospital-wide programme to improve compliance with hand hygiene. Lancet 356(9238):1307–1312 Prasad V, Vandross A, Toomey C, Cheung M, Rho J, Quinn S, Chacko S, Borkar D, Gall V, Selvaraj S, Ho N, Cifu A (2013) A decade of reversal: an analysis of 146 contradicted medical practices. Mayo Clinic Proc 88(8):790–798 Rogers EM (2003) Diffusion of innovations. Free Press, New York Samii C, Lisiecki M, Kulkarni P, Paler L, Chavis L (2014) Effects of decentralized forest management (DFM) on deforestation and poverty in low and middle income countries. Campbell Syst Rev 10(1):1–88. CEE Review 13-015a. https://www.environmentalevidence.org/wpcontent/uploads/2015/01/Samii_DFM_Review-formatted-for-CEE.pdf Shahar A, Gino F, Barkan R, Ariely D (2015) Three principles to REVISE people’s unethical behavior. Perspect Psychol Sci 10(6):738–741 WB IEG – World Bank Independent Evaluation Group (2016) Supporting transformational change for poverty reduction and shared prosperity: lessons from World Bank Group experience. World Bank Group, Washington, DC. https://ieg.worldbankgroup.org/sites/default/files/Data/Evalua tion/files/WBGSupportTransformationalEngagements.pdf. Accessed 31 Jan 2019

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Jyotsna Puri leads the Independent Evaluation Office of the Green Climate Fund. Previously, she was the Deputy Executive Director and Head of Evaluation at the International Initiative of Impact Evaluation (3ie). Dr. Puri is also adjunct associate professor at the School of International and Public Affairs (SIPA), Columbia University, New York where she teaches development evaluation. She has more than 22 years of experience in policy research and development evaluation and has worked in several organisations including the World Bank, Columbia University and the UN. Her dissertation-related work was instrumental in identifying biases that creep into policy evaluation and specifically in environmental policy. She was also amongst the first researchers to examine the question of measuring the poverty impacts of rural road building. In other research she has demonstrated and advocated for applications of economic theory and modelling with disaggregated data and measuring heterogeneous impacts. She has undertaken and led evaluation-related work for UNDP, UNICEF, GEF and the MacArthur Foundation. Dr. Puri has examined and advised on evidence based climate change and environmental policy, advocacy for policy and behaviour change, community based engagements for improving vaccine coverage, methods for rigorously evaluating effectiveness of humanitarian action, behaviour change and climate change policies. Her research has focused on analysing poverty impacts of policy and infrastructure investments in Asia and Latin America. Her other areas of work include examining impacts of policies in the areas of environment, agriculture, health and climate change. Dr. Puri was also a contributing author of UNEP’s green economy report. At UNEP she provided thematic and strategic advice on program development and engaging governments at various levels for effective delivery of outcomes for equitable, growth transitions. Her academic qualifications include a Ph.D. and M.Sc. in Resource Economics and a M.Sc. in Development Economics. She is a reviewer for the Journal of Environment and Development, and for the Journal of Environment. Dr. Puri has led large teams successfully in both the academic arena and in the policy arena. Independent Evaluation Unit (IEU), Green Climate Fund, Songdo International Business District, 175 Art Center-daero, Yeonsu-gu, Incheon 406-840, Republic of Korea; Tel: +82 32 458 6191; Email: [email protected]; Internet: https://ieu.greenclimate.fund/home; Twitter: @jo_puri.

Chapter 18

Impact Assessment of Commodity Standards: Pathways for Sustainability and Inclusiveness Ruerd Ruben

18.1

Introduction

This chapter aims to identify and discuss key factors that influence the effectiveness of different types of commodity standards for reaching development goals. We focus on the international value chains of tropical agricultural commodities that are characterised by a large number of smallholder suppliers and major upgrading activities located close to market outlets. Consequently, competitive relationships tend to be rather unbalanced, and value added distribution is biased towards the downstream side of the supply chain (Kaplinsky and Morris 2001). This implies that value chain dynamics is strongly influenced by (a) the contracts and rules that enable exchange relationships along the supply chain; and (b) the governance mechanisms that support stakeholder interactions within the supply chain. Commodity standards are increasingly used as instruments to enhance the integration and upgrading of value chains. Most standards are based on voluntary coordination and pursue improvements in resource management and welfare creation (mostly for the benefit of primary producers and workers). However, private business standards promoted by specific companies—often in association with non-governmental organisations—are gaining ground (Komives and Jackson 2014). Despite a growing number of studies that intend to identify the outcomes and benefits of certification for commodity sourcing and local procurement, the evidence base of supply chain-wide impact on improved exchange relations and governance mechanisms is still surprisingly scarce (Dammert and Mohan 2015; Vagneron and Roquigny 2011).

R. Ruben (*) Wageningen Economic Research (WEcR), The Hague, The Netherlands e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_18

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The concept of value chains provides a useful approach for analysing the potential impact of commodity standards. A value chain refers to the full cycle of transformation of a product, from design and material sourcing, to production, processing and transport, and finally to consumption and disposal/recycling. It involves multiple stakeholders and their mutual relationships, which are guided by the criteria of risk, transaction costs and trust. Therefore, any analysis of value chain standards cannot be limited to a simple measurement of compliance with rules (i.e. accountability), but needs to focus instead on registered behavioural change. A wide range of empirical methods and approaches for value chain analysis is readily available, but impact analysis asks for insights into net effects at different scale levels (e.g. farm, chain, landscape, sector) and for different types of stakeholders (e.g. farmers, workers, traders, processors, etc.). Moreover, multiple performance indicators can be targeted (i.e. sustainability, inclusiveness, innovation), and thus trade-offs between objectives might occur. In this context, impact analysis is not only done in order to capture reliable information and robust insight into key performance outcomes. It should also become useful for enhancing the responsiveness of supply chain agents and for creating tangible, long-term business benefits. Therefore, common procedures for assessing impact (like propensity score matching, difference-in-difference, randomized control trials need to be complemented with more dynamic and interactive approaches (e.g. real time, gaming, simulation) that provide insight into behavioural change. This chapter is structured around a stylised outline of impact pathways and the underlying theory of change that motivate the establishment of commodity standards. This requires a through understanding of the structure, dynamics and performance of tropical value chains, as well as adequate insights in the drives of change for key performance indicators, and precise methods and assessment criteria for their empirical measurement. The main focus of this chapter is to provide an overview of the key mechanisms that are used to make commodity standards influence the value chain relationship, and to analytically explain some major pitfalls that current procedures for impact assessment face for adequately capturing behavioural change in multi-stakeholder contracts and relationships. This paves the way for outlining an alternative strategy for assessing sustainability and inclusiveness in global value chains, one that is capable of addressing key behavioural change interfaces. The remainder of the chapter is structured as follows: Section 18.2 presents the theoretical framework for an impact assessment of the role of commodity standards in agricultural value chains, looking at the underlying theory of change and relevant impact pathways. Section 18.3 focuses on impact methods and provides evidence of several pitfalls and problems arising in classical impact analyses and illustrates the importance of multiple-agency approaches for capturing behavioural change in value chain relationships. Section 18.4 presents major conclusions, methodological implications and some practical recommendations for assessing the impact of value chain programmes, highlighting opportunities and challenges for simultaneously enhancing sustainability and inclusiveness.

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18.2

329

Impact of Commodity Standards in Value Chains: Objectives, Pathways and Interfaces

The usual goal of impact studies is to exercise accountability (“are we doing the right things”) and to demonstrate attribution (“are we doing things right”). This implies that leading questions are related to the relevance, effectiveness and efficiency of interventions for reaching development outcomes. Value chain evaluations also pursue additional goals: they need to provide insights into changes in mutual relationships between stakeholders and to assess the contractual terms under which exchange takes place (Baumann et al. 2010). Impact analysis starts with the identification of major pathways for reaching certain performance outcomes, and the adjustment mechanisms that give room for these responses. It is considered critical to understand the behavioural changes—in knowledge, attitudes and practices—that are likely to take place in reaction to changes in production, exchange or procurement conditions. The verification of the theory of change can make use of a wide range of quantitative, qualitative and (preferably) mixed methods approaches (Skalidou 2015). It requires intensive and detailed fieldwork to be able to assess the empirical validity of these causal chains of intervention.1 Within this context, the evaluation of the role of commodity certification in value chain optimisation can be approached from two different angles. In Sect. 18.2.1, we will outline the instrument-oriented impact pathways that focus on specific incentives for modifying value chain performance. Thereafter, in Sect. 18.2.2, we present an alternative framework for behaviour-based impact pathways that focuses on changes in the relationships between value chain agents as the driving force for improving sustainability and inclusiveness.

18.2.1 Impact Pathways for Value Chain Certification Empirical impact studies regarding commodity certification in tropical value chains usually focus attention on the analysis of specific instruments that modify the incentive structure for key participants in the value chain (producers, processors, retailers and consumers). This implies that the theory of change supposes that these agents modify their resource allocation and their production routines in such a way that their welfare (utility) increases (Podhorsky 2015).

1 Impact pathways describe in detail how delivered outputs (direct and tangible results) are related to outcomes (e.g. changes in practices, knowledge and skills resulting from activities), and which internal and external factors are relevant to understand causal claims. A theory of change articulates the assumptions about the process through which change occurs, and specifies the ways in which all direct and intermediate outcomes are related to achieving the desired long-term impact (Anderson 2006).

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Major impact pathways underlying commodity certification include four intervention strategies: (1) pricing; (2) access to markets; (3) bargaining; and (4) premium payments. These interventions are expected—each by itself or in combination—to deliver farmers and workers prospects for higher incomes and more sustainable resource management practices. Figure 18.1 provides an overview of how these four key instruments support commodity certification programmes. It should be noted that these instruments often do not operate independently of each other and that there are several complementarities between them in place (e.g. linkages between input and output markets). In the following section, we discuss the underlying theory of change that motivates the expected effects. Different types of standards also focus on specific impact priorities. Fairtrade stan-dards were originally introduced with the purpose of supporting equitable market access and sustainable livelihoods for smallholder producers. Sustainability standards focus more specifically on the responsible use of external inputs (chemicals, fertilisers, pesticides), the upgrading of product quality and the reduction of environmental externalities. Private (business to business) standards are more tailored to premium market segments and intend to guarantee consistent deliverables. The theory underpinning the rationale for commodity certification is based on a number of likely impact pathways. We discuss the assumptions behind the four key instruments for enabling changes in production behaviour and/or value chain exchange relationships, and identify the basic conditions under which these are expected to be effective. First, the pricing instrument is based on the assumption that farmers who adhere to a commodity standard are expected to receive either a guaranteed minimum floor price (Fairtrade) or opportunities for higher market prices due to better product quality (UTZ Certified, private company standards), which provides access to

Fig. 18.1 Key instruments for commodity standards

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more rewarding market segments. The minimum product price should cover direct production costs and guarantee a ‘reasonable’ farmer income. However, in practice, guaranteed prices have only been effective under conditions in which world market prices were extremely low (Durevall 2015). The pricing mechanism is meant to provide economic protection to farmers and enhance their willingness to invest labour and capital in improving production conditions. Small-scale producers who face less price volatility are usually better able to maintain short-term household consumption and can afford to make some medium/long-term in-depth investments. Stabilising price expectations is therefore critical for supporting changes in production and investment behaviour. Guarantees for minimum living wage payments to the labour force have only recently received more attention (van Rijn et al. 2016; reffer also to Chap. 35 in this volume discussing the issue of a ‘living income’ within agricultural value chains). It is usually supposed that employment guarantees will support workforce loyalty and enhance labour productivity. The pricing instrument has received major criticism. Interventions in markets can be considered as potential distortions that could easily lead to perverse incentives (Maseland and de Vaal 2001). They might lead to further expansion of production and they tend to mainly attract less-efficient producers. Certified farmers also specialise their production systems more (Rijsbergen et al. 2016), and there are risks of increasing rural income differentiation between producers. Indeed, pricing has become less effective due to overcertification (de Janvry et al. 2010), and less relevant due to increasing quality competition between labels (Ruben and Zuniga 2010). Second, value chain integration provides farmers with access to market outlets and guarantees traders access to products. This implies that producers are expected to deliver committed volumes to traders/processors at the agreed moments in time and at a specified frequency. These mutual commitments thus guarantee secured access to market outlets and secured uptake of the product by the market. In practice, however, these guarantees cannot always be maintained. Producers may be inclined to participate in side sales if market prices are favourable. Traders can usually only take up a part of the certified produce, and therefore security of market outlets cannot be guaranteed. More importantly, the mutual character of value chain integration remains partial as long as only commitments from suppliers are included. The security of sales contracts was supposed to offer opportunities to guarantee timely access to input finance, either through pre-finance provided by the trader/processor or by using delivery contracts as a collateral for borrowing. These pre-finance or advance payment arrangements (e.g. interest-free early payment of 50% of the harvest value) are critical to enable smallholders to get rid of traditional early sales contracts with local traders at depressed prices. However, pre-finance is not generally part of certification, and where it is, it is mostly funded by institutional agents (development banks, IFAD, NGOs, social lenders like Root Capital and Oikocredit, etc.). Consequently, links between output sales and input provisions are not adequately guaranteed. This may also complicate the enforcement of sustainable practices and improved quality compliance (Francesconi and Ruben 2013).

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Third, empowerment is a part of commodity standards that support the creation of social commitment and reinforce the internal coherence of farmer (or worker) groups. This is important for contributing to economies of scale and scope (input provision and sales) and for reinforcing internal trust and cohesion. Scale is required for enabling opportunities for joint bargaining on input deliveries, labour conditions and sales contracts with favourable conditions. Certification bodies provide support to independent organisations of smallholder producers and workers to develop and implement strategies for sustainable development based on their own aspirations and priorities. However, it is usually difficult to disentangle whether income effects are the result of better internal organisation or the outcome of improved external bargaining (Francesconi and Ruben 2014). Development of bargaining power is based on (1) pooling of resources; and (2) commonly-agreed-upon rules regarding internal governance. Both processes require some homogeneity in ambitions and a shared vision. Stronger farmer organisations can reduce transaction costs and control free riding risks, but standards could also undermine internal cohesion. Standards and cooperatives can thus mutually support each other, but perceive essentially different objectives (Develtere and Polet 2005). Fourth, premium payments of a lump sum to producer or worker groups after deliveries of the harvest are used as an opportunity for public goods creation. The premium resources are generated when consumers are willing to pay a higher price for certified products. The premium payment was originally intended to be used for investments in cooperative or joint village facilities (e.g. drinking water, schools, road improvement, etc.), but funds are increasingly allocated to individual households. The basic ideas behind premium payment under Fairtrade standards are that it reinforces social capital (thus supporting the bargaining position of certified households) and that it provides an additional incentive for delivering the produce to certified market outlets (thus reducing free riding behaviour). Premium payments under UTZ Certified and other business standards focus more on the recognition of specific intrinsic quality features of the produce that can be sold at premium market segments. In a similar vein, organic production standards have access to specific market outlets that pay substantially higher prices. In summary, the four impact pathways that constitute the ‘instrumentalist’ vision on commodity certification are basically focusing on (1) changing the (output or input) prices; and (2) increasing the market volume of certified products, thus influencing the performance of the agricultural production system and eventually improving net farm-household income. Price guarantees and secured market outlets mostly enhance extensive growth (i.e. area expansion of certified products), whereas empowerment strategies and premium payments could stimulate more intensive growth patterns (i.e. more input use and quality upgrading). While the former two instruments are likely to support the inclusive development of poorer farmers, the latter two instruments contribute more to sustainability objectives and influence input-output relations, and thus also resource efficiency. While prices and premiums are related instruments, (vertical) chain integration and (horizontal) cooperation for empowerment may also reinforce each other. These instruments are strongly linked, and different standards rely on specific combinations of these elements.

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18.2.2 Alternative Framework An alternative framework for assessing the effectiveness of commodity standards on value chain performance is based on the impact pathways of behavioural change, focusing on relationships between value chain agents as the driving force for improving sustainability and inclusiveness. This approach considers the effect of value chain interventions on the interactions between value chain agents that give rise to adjustments in production practices and improvements in procurement procedures for delivery transactions. The fundamental focus of this alternative framework looks at the dynamic interactions and behavioural assumptions underlying the theory of change, based on a deep understanding of the likely responses of value chain partners to changes in governance and contracts. Key attention is paid to the links between value chain agents and the interfaces that guide supply chain performance. The physical exchange of commodities and the performance of concrete activities are not the only important factors for optimal value chain performance. The contributions of information networks, exchange networks and shared values need to be acknowledged as well. The latter aspects are of key relevance for understanding the rules, norms and procedures that govern the links between supply chain agents, and that shape the interfaces for their mutual transactions. Impact analysis at value chain level is based on the supply chain structure and the coordination dynamics that govern interactions amongst agents. These interactions are guided by price and non-price commitments. While the price commitments result in net (expected) value added that each of the agents can capture from the transaction, the non-price elements are of vital importance for the exchange of information between the value chain agents (e.g. commitment, reliability and trust) and the behaviour of the value chain agents (e.g. quality compliance, loyalty in deliveries, etc.). These aspects influence transaction costs in the supply chain and guide decisions regarding input use, technology choice and market outlet choice. The behavioural approach to impact assessment is based on the theory of change that outlines the contribution of commodity standards to supply chain performance. It focuses attention on the verification of the key behavioural change assumptions underlying the value chain development pathways (instead of measuring nominal changes in physical or monetary outcomes). Figure 18.2 outlines three key elements that influence the exchange relationships between value chain agents, namely:

Fig. 18.2 Agency behaviour and value chain interactions

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(1) risk; (2) mutual trust; and (3) transaction costs (Chiles and McMackin 1996; Fafchamps 2004). These three aspects are considered of critical importance to support the smooth coordination between value chain agents and to enhance the adoption of the improved agricultural production and sustainable business practices that are pursued under different commodity standards. The selection of the three key variables mentioned above is based on theoretical insights regarding agency behaviour. The adoption of good agricultural production practices (GAP) and good business practices (GBP) are commonly understood as investment decisions that require capital and labour resources, as well as access to knowledge, information and training. These investment decisions are mainly guided by perceived risk (Barham et al. 2014; Feder et al. 1985). Commodity standards intend to reduce risk perceptions by influencing the mental modes (e.g. willingness to invest) and the social interactions (e.g. knowledge diffusion) of value chain agents (Ramirez 2013). In addition, individual characteristics like gender, age, education, firm size, wealth and proximity to the market could lead to differences in the anticipated uptake of improved practices. The analysis of behavioural drivers for investments should also distinguish between risk attitudes for particular types of practices, thus anticipating different uptake rhythms for specific types of producers. The collaboration and compliance relations within supply chains are considered to be largely determined by mutual trust between value chain partners (Laeequddin et al. 2010; Kwon and Suh 2005). Loyalty in deliveries (i.e. contract compliance), as well as a control on free-riding and opportunistic behaviour (side sales) are key factors for optimal capacity utilisation in processing, storage and trade. Committed relationships between supply chain partners thus require mutual trust. If trust can be reinforced, it will increase the likelihood of successful supply chain deliveries (reduced moral hazards) and improved value chain performance (i.e. the reliability and timeliness of deliveries). Agency interdependencies, integrity and transparency in contractual relationships are considered key underlying determinants of trust. Procurement relationships between value chain partners and the added value generation in the supply chain are largely governed by transaction costs. Investments in quality upgrading are facilitated by reduced transaction costs for search, negotiation and control (Hobbs 1996). Contracts that reinforce reciprocity and reduce default options (simplified compliance) provide a governance structure that reinforces quality compliance. Transactional attributes (such as scale and frequency) and clear contractual rules (specified quality standards, payment systems, etc.) permit the reduction of search and supervision costs and thus optimise value chain outcomes. In summary, the behavioural change approach for the appraisal of the effectiveness and impact of commodity standards gives more attention to the interactions between value chain agents and the rules and procedures for coordination. This implies that the drivers of and constraints for production, investment and exchange decisions are analysed, with a focus on the direct implications for agency welfare (payoffs) and on the prospects for long-term sustainability (e.g. based on repeated transactions).

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Impact Assessment of Value Chain Performance

Current impact assessment approaches face major problems when analysing typical value chain interfaces that involve multiple stakeholders who pursue different— sometimes even opposing—interests and objectives, and that have to operate within a dynamic (inter)national market environment. In such settings, conventional impact assements only can offer partial insight and can sometimes even draw inadequate conclusions, overlooking important behavioural responses and disregarding market interaction effects that may lead to different outcomes. We will first illustrate some typical outcomes and possible biases of classical certification impact assessment studies in Sect. 18.3.1. We will then indicate the importance of some alternative tools for interactive value chain impact analyses in Sect. 18.3.2. Whereas most classical impact studies tend to focus on accountability (by calculating achievements in terms of net effects) and attribution (by comparing the outcomes of certified and non-certified farmers), evaluations looking at value chain improvement and upgrading are usually more interested in understanding behavioural responses.

18.3.1 Pitfalls of Certification Impact Studies Different methods and approaches are used to assess the effectiveness and impact of commodity certification at the farm-household, village, and cooperative levels (see Chap. 16 in this volume). In the 1990s, most studies were based on interviews and case studies reporting early experiences with fair trade certification in coffee and bananas (Rochi 2002; Bacon 2005). From 2000 onwards, a growing number of survey-based impact studies appeared that registered the welfare and sustainability effects of different types of certification for smallholder producers in major agrofood commodities, like tea, cocoa, cotton, fish, trees, fresh fruits, honey, nuts, flowers, etc. (for systematic overviews, see: Nelson and Pound 2009; Chan and Pound 2009; ITC 2011; Tallontire et al. 2012; Oya et al. 2015). More recently, attention has been extended to the impact of certification on wage labourers working on coffee farms and banana plantations (SOAS 2014; van Rijn et al. 2016). Most robust impact evaluations that rely on counterfactual analysis include a comparison between what actually happened and what would have happened in the absence of the intervention. This enables to identify causel effects of certification and permits to control for potential selection biases and confounding factors that could influence the results. For the evaluation of the effectiveness of certification, comparisons are usually based on certified farmers versus neighbouring (and otherwise identical) non-certified farmers.2 Consequently, the registered changes in outcome 2 Sometimes, impact assessments compare farmers that were certified in an early stage with farmers that received their certification in later periods (so-called pipeline approach).

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from such ‘difference in difference’ analyses can be directly attributable to the intervention. Some studies apply randomised controlled trials (RCTs) to assess the role of certification in consumer willingness to pay a premium (Jayawardhenaa et al. 2016).3 At the producers’ end, field studies rely on experimental games in order to gain greater insights into the impact on risk attitudes, trust and intra-household bargaining (see Ruben and Hoebink 2015). With the proliferation of labels, attention has shifted to comparative studies that assess differences in performance between standards (e.g. between Fairtrade, Rainforest Alliance and UTZ Certified) within and across regions. International markets for agricultural commodities are becoming increasingly demanding in terms of quality and production conditions, whether related to social or environmental sustainability (Henson and Humprey 2010). Therefore, in addition to the measurement of direct income or welfare effects, due attention is given to environmental effects (soil erosion, pesticides use) and to climate change preparedness. Moreover, social standards try to enforce payments that guarantee a decent living wage and the elimination of child labour. Given the wide range of certification schemes, certified products and countries involved, it is not surprising that instrument-oriented impact evaluation studies reach rather different results. Many studies report mixed findings, with some positive and other negative elements, and cases where effects are only marginal (Tallontire et al. 2012; Nelson et al. 2013). Some studies even found that certification schemes may actually undermine the incomes of the poorest farmers (Henson and Jaffee 2008), while some report significant impacts for some—mainly private company and organic—certification schemes, but not for others (Chiputwa et al. 2015; Ruben and Zuniga 2010). Moreover, several studies find effects only for richer farmers (Hansen and Trifković 2014), while others argue that certification schemes help raise rural smallholder incomes and reduce poverty (Maertens and Swinnen, 2009). In a similar vein, some of the impacts of certification on environmental indicators (soil erosion, deforestation, biodiversity) are acknowledged, but the overall effects remain difficult to trace (Blackman and Rivera 2010). In order to better understand these modest impacts of agro-food certification, we need to better understand the different fallacies and drawbacks that commodity certification programmes meet in practice. We argue that secondary effects that include (1) local adaptive responses; and (2) dynamic effects fall outside the common scope of impact studies and are therefore systematically neglected or overlooked. In some cases, this leads to a reduction of the envisioned impact,

3 RCTs are a type of impact evaluation which uses randomised access to programmes as a means of limiting bias and generating an internally valid impact estimate. It then compares outcomes between those two groups; this comparison gives us the impact of the program. RCTs do not necessarily require a ‘no treatment’ control—randomisation can just as easily be used to compare different versions of the same programme, or different programmes trying to tackle the same problem. In a similar vein, RCTs can be used to assess the willingness to pay for reducing environmental footprints (carbon labelling); see Gadema and Oglethorpe (2011) as well as Sect. 16.5.1 of Chap. 16 in this volume.

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Table 18.1 Impact fallacies and result biases of commodity standards (Source: Ruben 2016) Secondary effect Farm-level resource reallocation Disloyalty and side sales Copying behaviour and spill overs Over- & Multi-certification Reduced risk averseness Reliability in value chains Innovation towards sustainability Gender equity & living wage

Over estimation X X X X

Under valuation

X X X X

while other effects may reinforce the expected impact. Table 18.1 provides an overview of these secondary effects and their likely effect on impact estimates. First, we identify several local adaptive processes that tend to reduce the immediate impact of commodity standards for target populations. These are as follows: • Farm-household resource substitution: certified farmers specialise in certified crops and reduce cultivated areas and labour for the production of other (food and cash) crops. Farmers shifting to organic production systems also need more (family) labour for crop maintenance. Consequently, farmers become overly dependent on revenues derived from certified crops, whereas incomes from other activities are diminishing. These substitution effects may fully outweigh the certification effects. • Cooperative disloyalty and side sales: certified farmers easily become disloyal to their cooperative if other market outlets offer better prices or immediate cash payments. Due to the absence of pre-finance in many certification schemes, cooperatives have very limited cash resources for paying farmers upon delivery. This provokes substantial ‘side sales’ that affect internal cooperative coherence and reduces the contractual reliability of scheduled market deliveries by the cooperative. • Regional copying and spill over effects: initial effects of certification may vanish after a few years, when neighbouring farmers replicate the proposed changes in cropping practices that prove to be rewarding in the market. The practice of copying can result in positive overall effects at regional level, but therefore it also reduces specific advantages for certified farmers, who incur major costs when obtaining certification. • Over- and multiple-certification: since certification tends to enhance both farm specialisation and area expansion, the market supply of certified crops is rapidly increasing. In fact, it is increasing to such an extent that market saturation is already occurring. Farmers and cooperatives adhere simultaneously to different labels in order to be able to deliver to different market outlets. Second, certification programmes may also provoke other, more dynamic behavioural changes in value chain agents that tend to be systematically neglected

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or overlooked. These effects are not fully captured in standard impact pathways (as outlined in Sect. 18.2.1), and they may lead to a more robust impact in the medium and long run. These effects include: • Decreasing risk aversion: certification contributes to stable access to output markets and to a reduction in price and delivery uncertainties. This is important for allowing farmers to reduce their risk averseness and increase their ability to invest (Ruben and Fort 2012). Decreasing risk aversion is vital for enabling farmers to engage in the input intensification of cropping systems, which is required for reaching quality upgrading and for guaranteeing more stable market deliveries. • Innovations for sustainability: investments in sustainable resource management and environmental care are frequently part of voluntary certification programmes. Certification may enhance the investment behaviour of value chain agents, and could also stimulate investments that favour process innovation and sustainability. Landscape certification also gives attention to spatial resource use effects. • Reliability in value chain: certification is expected to enforce the reliability of value chain partners, which results in reduced control requirements and shorter lead times, as well as substantial gains in terms of agrologistics procedures. Reliability is a necessary condition for engaging in sustainable resource management, and it enhances long-term investments that require coordination amongst value chain agents. • Gender equity & living wage: to guarantee equitable outcomes, standards may include specific requirements for social participation, especially for women and wage workers, as criterion for obtaining commodity certification. Gender equity and decent living wages are increasingly becoming part of codes of conduct. To achieve the long-term outcomes of improved nutrition and education, such changes in social participation are considered of vital importance. This overview of the secondary effects of commodity standards on the behaviour of farmers, cooperatives and villages implies that current impact studies that focus mainly on farm-level outcomes are likely to reflect some systematic biases. Some of these so-called secondary effects of certification might even be considered of primary importance and thus deserve far more attention in impact studies. Therefore, the analysis of the character of the transactions and interactions between value chain agents that give rise to adjustments in production practices, resource allocation and investment decisions, and procurement procedures in delivery transactions, are of key importance when assessing dynamic impacts.

18.3.2 Towards Interactive Value Chain Impact Assessment There are several reasons why our insights into the outcomes and impacts of commodity standards are still rather limited. Most studies focus attention only on the primary production stage, while devoting limited attention to changes in

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relationships and governance regimes throughout the value chain (Lemeilleur 2013). Moreover, implications for intra-household (gender) issues and for value chain cooperation and governance are rarely addressed (Terstappen et al. 2013). The empirical evidence generated by impact studies on agro-food certification remains ambivalent and focuses mainly on directly-observable economic effects (prices, yields, wages, sales). Sustainability is usually only considered within farm boundaries (Blackman and Rivera 2010). Far less attention is given to the systematic verification of the underlying assumptions for achieving impact, to the secondary effects of certification at farm, village and regional levels, and to the possible behavioural implications of certification (e.g. changes in risk attitudes, willingness to invest, bargaining power, trust, etc.). These behavioural and dynamic effects receive far more attention in interactive impact assessments. Certification creates dynamic advantages at the farm-household and cooperative/ village levels (e.g. increasing willingness to invest) and reinforces upstream or downstream linkages with other value chain partners (e.g. greater trust and higher reliability, which reduces transaction costs and risks). Therefore, interactive approaches to impact analysis need to consider different types of interfaces, like: (a) possible trade-offs between multiple objectives, especially between short-term welfare and long-term sustainability; (b) simultaneous engagement in multiple activities (mixed livelihoods) and production processes (including waste and sub-products); (c) multiple agents involved in value chains that perceive different coordination structures (e.g. trust, reliability, quality compliance, lead time, etc.); (d) complex coalitions of agents with different bargaining interests at the household, village and cooperative levels; and (e) complex partnerships between private supply chain contracts and public governance structures (that could generate joint effects due to complementarities or multiplers through additionalities). In order to capture these value chain interactions, impact analyses should be based on interactive approaches that are able to reveal behavioural drivers and constraints for value chain coordination. Such experiments are usually designed in a real-time, multiple agent environment (that includes farmers, workers, traders, processors and retailers), and can be supported by agent-based modelling (ABM) to assess possible alternative outcomes (Tykhonov et al. 2008). The latter can be used to analyse alternative performance scenarios under different market assumptions, and thus can generate a counterfactual (reference) scenario for comparative purposes. The value chain laboratory (VC Lab) approach is a responsive learning and assessment framework for analysing the behavioural impact of supply chain support programmes (Verwaart and van den Broek 2015). It provides a framework for supply network simulation in a market environment that enables participants to make decisions on investments and to bargain within supply chain transactions and delivery conditions (price, volume, quality and frequency). Participants are expected to optimise their net welfare (¼ income maximisation + risk minimisation) by making informed choices regarding trade volume, quality, frequency and loyalty. Relevant decisions regarding interactions between supply chain agents are analysed within a dynamic (multi-period) transaction framework. Agents can first decide

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about their deliveries, and are subsequently provided with market information and other agents’ choices to account for the effects of information and communication. The specific effects of training and learning can thus be assessed through a comparative analysis of adaptive behaviour. The value chain simulation lab is particularly useful to test some critical hypotheses regarding the role of standards in value chain optimisation. As derived from the literature (see also Sect. 18.2.2), attention is focused on the following relationships: a. contractual arrangements for deliveries between value chain partners will reduce risk averseness (and increase willingness to invest); b. higher trust and loyalty between supply chain partners will improve quality compliance and increase perceived prices; c. stronger (and repeated) supply chain interactions will reinforce inter-agency trust; d. better foresight regarding contractual arrangements leads to lower transaction costs. Alternative scenarios might be developed to simulate the possible responses to different types of contractual regimes (e.g. spot market exchange, multi-period contract farming, service provision arrangement, etc.), to different stakeholder goals (welfare maximisation, risk minimisation, sustainable resource use, etc.) and to different supply chain environments (high/low trust, high/low loyalty, etc.). The design of a typical value chain simulation experiment is based on two principles. First, the decision framework includes at least three levels: (1) the objectives for each individual agent (sometimes including intra-agency bargaining to account for gender differences, just to give one example); (2) the interfaces for transactions with upstream and downstream agents; and (3) the value chain environment (market conditions and public rules and regulations). Within this multi-layered framework, the value chain simulation experiments pursue three different goals: (1) understanding through the simulation of exchange transactions between value chain agents; (2) performance evaluation by assessing the impact of commodity standards on changing production, investment and trade behaviour; and (3) social learning through information exchange on alternative options for improved value chain integration. The interactive impact assessment of value chain transactions thus provides a gaming simulation where participants can virtually interact and share information about their decisions, and subsequently assess the outcome of their transactions. The game mimics supply chain network relationships that include multiple agents (input providers, farmers, cooperatives, processors, traders and retailers) and multiple time periods (reflecting different seasons) to enable the development of trust through repeated transactions. Transactions between these agents are guided by their set of individual optimisation objectives (welfare/revenues), which are pursued under different market and policy conditions. The gaming simulation can be made forward-looking by using agent-based simulations in which artificially intelligent agents simulate the decisions and actions of value chain actors, thus offering an environment for testing hypotheses about value chain optimisation opportunities.

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The behavioural outcomes for the key value chain coordination variables—changes in risk, trust and transaction costs—are assessed through interactive field experiments.4 Reduced risk is considered an incentive for the adoption of innovations (which result in more reliability in production supply or better product quality), enhanced trust has a payoff in terms of greater loyalty in deliveries (robust supply chain), and lower transaction costs may result in a price premium.

18.4

Conclusions and Outlook: Beyond Impact

Empirical assessments of the impact of commodity standards provide important insights into the theoretical foundations (i.e. theory of change) and the methodological implications (i.e. impact pathways) of different types of causal claims regarding likely or expected effects. In this chapter, we discussed mainstream and alternative options for assessing the impact of commodity standards on value chain performance, highlighting opportunities and challenges for simultaneously enhancing sustainability and inclusiveness. Most current certification regimes are strongly focused on farm-level production practices and on the improvement of some village/cooperative services. This may be useful to increase the (short-term and static) comparative advantage of sourcing from certified farmers compared to non-certified farms, but is insufficient to achieve longterm, dynamic competitive advantages in trade (Kogut 1985). The latter are of a more strategic nature and usually focus on intangible aspects of supply chain governance practices that enable the reduction of transaction costs and risk. Based on evidence from field studies enriched with analytical reviews of certification trajectories, two general conclusions emerge. First, many certification programmes generate rather heterogeneous effects at village and regional levels, since farmers’ responses widely vary, depending on their resource endowments, risk attitudes and adjustment capacities. Insights into this impact heterogeneity are usually lost if only average treatment effects are reported (Plewis 2002). Differences in terms of risk behaviour, trust and transaction costs are likely to be predictors of expected outcomes. Second, resource adjustments at farm and cooperative levels are usually not fully considered, thus overestimating the effects of certification and overlooking likely substitution effects and strategic behaviour. This may lead to an overly-optimistic impression of the possible impact of commodity standards if these are considered in isolation from other local and (inter)national development trends. It is therefore of utmost importance to include interactions with other value chain agents in the impact analysis framework.

4 External shocks (e.g. natural disasters, market disruption) can be introduced to further assess supply chain resilience and options for adaptive behaviour.

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These practical conclusions also have important methodological implications. In order to achieve better insights into the behavioural outcomes and dynamic effects of commodity standards, it is of foremost importance to rely on interactive (experimental) methods, panel data, and experiments based on multiple agency approaches for impact analysis. This enables the capture of key drivers of change in (internal) resource allocation and (external) exchange transactions, including responses to price incentives and non-price effects that arise from different value chain interactions. Moreover, such a framework can also be applied for an ex-ante simulation of impact, providing insights into the likely outcome of certification (Taylor and Filipski 2014). Finally, we can outline a few practical implications for the future design of impact research on commodity standards. First, it is important to identify both price and non-price effects of certification, and to disentangle value chain agents’ responsiveness to these incentives. This requires reliance on novel experimental methods of data collection. Second, field studies should pay more attention to key institutional variables, like the role of the cooperative (representing farmers) and intra-household dynamics (gender bargaining power). These are of critical importance for understanding distributional effects and equity outcome. Third, impact studies at the value chain level need to consider opportunities for strategic behaviour (e.g. free riding) and resource adjustment. This enables a better understanding of learning and innovation (generated through improvement standards) that supports dynamic impact pathways towards value chain sustainability and inclusiveness.

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Nelson V, Pound B (2009) The last ten years: a comprehensive review of the literature on the impact of Fairtrade. Natural Resource Institute, Greenwich Nelson V, Opoku K, Martin A, Bugri J, Posthumus H (2013) Assessing the poverty impact of sustainability standards: Fairtrade in Ghanaian cocoa. Natural Resource Institute, Greenwich Oya C, Johnston D, Muchiri E, Schaefer F, Skalidou D, Dickson K, Stansfield C (2015) Protocol: effects of certification systems for agricultural commodity production on socio-economic outcomes in low and middle-income countries: a systematic review. The Campbell Collaboration, Oslo Plewis I (2002) Modelling impact heterogeneity. J R Stat Soc Ser A (Stat Soc) 165(1):31–38 Podhorsky A (2015) A positive analysis of Fairtrade certification. J Dev Econ 116:169–185 Ramirez A (2013) The influence of social networks on agricultural technology adoption. Soc Behav Sci 79:101–116 Rijsbergen B, Elbers W, Ruben R, Njuguna SN (2016) The ambivalent impact of coffee certification on farmers’ welfare: a matched panel approach for cooperatives in Central Kenya. World Dev 77:277–292 Rochi L (2002) The impact of fair trade on producers and their organizations: a case study with Coocafé in Costa Rica. PRUS Working Paper No. 11, June 2002. Poverty Research Unit at Sussex, University of Sussex, Brighton Ruben R (2016) Impact assessment of commodity standards: towards inclusive value chains. Enterp Dev Microfinance 28(1–2):82–97 Ruben R, Fort R (2012) The impact of fair trade certification for coffee farmers in Peru. World Dev 40(3):570–582 Ruben R, Hoebink P (2015) Coffee certification in East Africa. Impact on farmers, families and cooperatives. Wageningen Academic Publishers, Wageningen Ruben R, Zuniga G (2010) How standards compete: comparative impact of coffee certification schemes in northern Nicaragua. Supply Chain Manag Int J 16(2):98–109 Skalidou D (2015) The impact of Fair Trade: a literature review with a systematic approach of the existing evidence. Food Stud Interdiscip J 5(4):1–21 SOAS (2014) Fairtrade, Employment and Poverty Reduction in Ethiopia and Uganda. SOAS, University of London, London. http://ftepr.org/wp-content/uploads/FTEPR-Final-Report-19May-2014-FINAL.pdf. Accessed 31 Jan 2019 Tallontire A, Nelson V, Dixon J, Benton TG (2012) A review of the literature and knowledge of standards and certification systems in agricultural production and farming systems. NRI Working Paper Series on Sustainability Standards No. 2. Natural Resource Institute, Greenwhich. http://gala.gre.ac.uk/11620/1/Doc-0249.pdf. Accessed 31 Jan 2019 Taylor EJ, Filipski MJ (2014) Beyond experiments in development economics. Local economywide impact evaluation. Oxford University Press, Oxford Terstappen V, Hanson L, McLaughlin D (2013) Gender, health, labor, and inequities: a review of the fair and alternative trade literature. Agric Human Values 30(1):21–39 Tykhonov D, Jonker C, Meijer S, Verwaart T (2008) Agent-based simulation of the trust and tracing game for supply chains and networks. J Artif Soc Soc Simul 11(3):1 Vagneron I, Roquigny S (2011) What do we really know about the impact of fair trade? A synthesis, January 2011. La Plateforme pour le commerce équitable (PFCE), Paris. https://greenbeanery. ca/pages/what-do-we-really-know-about-the-impact-of-fair-trade. Accessed 31 Jan 2019 Van Rijn F, Judge L, Fort R, Koster T, Waarts Y, Ruben R (2016) Fairtrade certification in the hired labour banana sector, LEI Report 2015-056. LEI Wageningen UR, Wageningen, The Netherlands. https://www.wur.nl/upload_mm/d/e/9/8d34a466-9c6e-4853-a627-47be4753a256_2015056%20Rijn_final.pdf. Accessed 31 Jan 2019 Verwaart T, van den Broek E (2015) Agent-based simulation of competing sustainability enhancing strategies for the pork supply chain. LEI Wageningen UR, Wageningen, The Netherlands. https://www.wur.nl/upload_mm/d/8/9/16614962-6e5f-4a4a-aa51-e411db3a6225_Presenta tion_Broek_Evd.pdf. Accessed 31 Jan 2019

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Ruerd Ruben is professor of impact assessment at Wageningen University and coordinator of research programmes on food systems and agri-food value chains at Wageningen Economic Research (WEcR), The Netherlands. His research concerns the prospects for smallholder participation in tropical food value chains, the effectiveness of rural cooperative organizations and the impact of certification in value chains. Ruben lived and worked for 14 years in Central America where he was engaged in programmes of land reform, cooperative development and smallholder agriculture. He also coordinated collaborative interdisciplinary research programmes on food security and sustainable resource management in several sub-Saharan African countries. He was director of the Independent Policy and Operations Evaluation (IOB) department at the Netherlands Ministry of Foreign Affairs and professor in Development Effectiveness at the Centre for International Development Issues (CIDIN) of Radboud University Nijmegen. Recent publications focus on determinant of healthy food choice and incentives for improving quality performance of tropical value chains. Coordinator Food Security, Value Chains & Impact Analysis, Wageningen University and Research Centre, The Hague, The Netherlands; Tel: +31 70 335 83 10; Fax: +31 70 361 56 24; Email: [email protected]; Twitter: @RRuerd.

Chapter 19

Performance Monitoring: An Agile New Tool for Facilitating Sustainability in Value Chains Jessica Mullan, Heather Esper, and Daniele Giovannucci

19.1

Introduction

Among the many organisations that invest in sustainability programs and projects, the extent of sustainability measurement is often limited to data concerning the output of the intervention itself (i.e., services provided, number of people trained, etc.). While it is beneficial to track data on investments and activities, collecting this information alone obscures a true understanding of the sustainability performance of those interventions within the system. Thus, providing services is hardly sufficient; it is necessary to know if those services are utilised and to what extent they are providing the intended benefits. As a solution, COSA and WDI have advanced the use of technically functional Performance Monitoring tools within diverse supply chains in developing countries in order to provide information feedback loops to management and track sustainability performance during the project lifespan. Performance Monitoring is distinct from and yet complementary to Impact Assessment. Impact Assessment methodologies offer the actual impact and attribution using more rigorous approaches whose complexity and cost can make them less available to sustainability or value chain managers (Gertler et al. 2016). Performance Monitoring is designed to provide simple and low-cost information to guide program managers towards effective sustainability management on a regular and ongoing basis (COSA 2013; Sustainable Food Lab 2016). This is important because, as the COSA Measuring Sustainability Report (2013) states, “Impacts can take many years to evolve and manifest, sometimes making them difficult to follow and measure. In

J. Mullan (*) · D. Giovannucci The Committee on Sustainability Assessment (COSA), Philadelphia, PA, USA e-mail: [email protected] H. Esper William Davidson Institute (WDI), University of Michigan, Ann Arbor, MI, USA © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_19

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the meantime, interventions and investments continue and require ongoing direction and decision making.” This is where Performance Monitoring can be most useful. This chapter distills the benefits and key features of Performance Monitoring while also presenting evidence of its broad application potential. Section 19.2 examines the benefits of implementing Performance Monitoring systems in supply chains. Section 19.3 provides an overview of how the system can be operationalised within a supply chain (indicator development, survey development, sampling methodology, and reporting). Section 19.4 details two case studies reflecting work conducted with leading global firms: Mondelēz International and Danone and exemplifies the benefits and best practices of Performance Monitoring in action. Section 19.5 discusses the limitations of the system and specifies the relationship with more scientifically robust Impact Assessments.

19.2

Value and Purpose of Performance Monitoring (PM)

Effective sustainability management requires measuring progress toward goals. Well-informed value chains can substantially improve managerial ability to reduce risk, strengthen competitiveness, and ensure future supply relationships. PM systems can provide vital data for supply chain managers and other stakeholders throughout the value chain, including low-income producers or consumers. Such data not only informs management decision-making, but does so in real-time, which facilitates adaptive management. The ability to share data throughout the supply chain— including with respondents—allows for a regular dialogue to occur between multiple stakeholders in the value chain. When done well, PM utilises methods that are respectful of low-income stakeholders and enables all parties to better understand each other’s needs and co-develop solutions. In smallholder agricultural value chains, PM systems can improve the effectiveness of sustainability programmes and investments that seek to improve farmer livelihoods and advance practices that protect communities and the environment. The PM tools developed and employed by COSA and WDI offer several unique and valuable benefits: • • • • •

Accuracy for credible data that can be compared at a global scale Speed for real-time decision-making and learning Flexibility for local adaptation Low-cost and practical Respectful of respondents

Sustainability measurement is often practice-based, relying largely on compliance to checklists or standards. PM is designed to go beyond the measurement of practices only (which often obscures a true understanding of sustainability) to instead look at programme or project performance. For example, delivery of training is a common practice-based sustainability measurement—an organisation may look at the types of training delivered, number of attendees, hours or costs associated with

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providing training, etc. While these are important indicators of a project’s internal working, they are not achievement indicators of the project itself—that is, they do not provide information on the performance of those trainings and how (or if) they are contributing to programme success (for example, if participants are adopting practices as a result of training) (COSA 2013). PM moves beyond practice-based measurement by using well-targeted indicators that offer punctual insights into how programs and investments are progressing towards their goals (e.g., improving business skills, increasing productivity, raising the level of engagement of young people and women, etc.) on a regular and ongoing basis. Regular and quick data flow is beneficial for any programme or investment— PM delivers data on Key Performance Indicators (KPIs) to managers during the lifespan of an intervention, not at the end of the year or after the fact. By placing emphasis on real-time data analysis and integration with current business operations, PM helps avoid a static approach to sustainability and instead drives continuous improvement. By leveraging key performance indicators for efficient data collection, PM can be low-cost to administer and is also practical and respectful of respondents. When globally standardised, the system permits learning and benchmarking across countries and projects that is critical for scaling-up the sustainability of supply chains. These qualities enable PM to generate insights that improve service delivery, effectiveness, and scalability of investments and interventions. There is no singular way to implement PM; it is flexible in how it can be adapted to different contexts. While there are other approaches to monitoring (e.g. tracking direct data from value chain information systems) this chapter is focused on collecting PM data using surveys, as this is an optimal approach for building relationships throughout the supply chain and providing more nuanced and actionable data.

19.3

The Tool and How It Works

The PM tools developed and employed by COSA and WDI are formulated on the basis of the more in-depth scientific methods utilised in Impact Assessments that, when distilled, form an easy-to-use tool that helps managers quickly and affordably measure the performance of their programmes and investments.1

1

Note that Performance Monitoring (PM) and Impact Assessments are complementary tools that have different functions, but can be paired for maximum results. While a comprehensive Impact Assessment can tell you if an investment or project has had its intended effect over a period of time (usually multiple years), PM allows you to capture a point-in-time picture of a project to contribute to ongoing strategic decision making for overall project success.

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PM thus offers a lightweight and low-cost approach to sustainability measurement while achieving significant levels of quality and accuracy. To accomplish this, effective PM tools tend to incorporate the following attributes: a. Customisable—tracks KPIs and mission-critical questions b. Rapid—gathers quick, actionable data during normal field operations or at ‘touch points’ in a manner that is respectful of respondents c. Real-time—data output on indicators is systematically integrated as feedback loops to management d. Auditable—can be verified or paired with more in-depth research to improve the accuracy and credibility of results e. Standardised—for internal and external entities and can be compared across countries and projects There are three critical stages of activities for the successful execution of PM within a supply chain:

19.3.1 Select the Right Indicators to Measure Central to the design of any PM system are the indicators, i.e., what specifically is being measured. While there may be many different sustainability indicators to choose from, we have found that the most valuable and useful indicators will meet the following criteria, which will provide global consistency (allowing the ability to audit or compare across regions) and improve the accuracy and usefulness of the work: a. Alignment with international norms ensures validity and credibility. It is best practice to use indicators that have been developed through broad participatory processes and that are benchmarked to international agreements—for example, using labour indicators that have been benchmarked to the International Labour Organisation or health indicators that reflect World Health Organization standards. b. Follow SMART principles—there are multiple criteria that can be used for selecting quality indicators. COSA and WDI prefer using SMART principles that suggest a useful indicator exhibits the following characteristics2: • Specific in definition, so that the same thing is measured in the same way across programmes and regions • Measurable with reasonable cost and effort—relying on proxies where necessary

2 COSA uses the SMART principles in the design of indicators to quantify and clarify sustainability information in smallholder agricultural systems in a manner that promotes the understanding of key environmental, economic, and social issues (https://thecosa.org/what-we-do/our-approach/definethe-pathway/).

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• Achievable and actionable—the indicator is practical and provides information that can inform programmes and investments • Realistic—avoiding theoretical or naïve indicators • Trackable and oriented to capture change over time, allowing enough sensitivity to show incremental and directional change c. Ensure a multi-dimensional framework—sustainability necessitates balancing social, environmental, and economic factors, otherwise organisations can be at risk of missing key factors that can compromise projects, investments, and reputation (e.g., increasing productivity or returns while polluting the surrounding environment or engaging in harmful labour practices) (London 2009). When selecting which sustainability issues to measure, it can be tempting to select a long list of indicators. For PM, it is important to be selective in finalising a set of key indicators so that the tool remains simple.

19.3.2 Determining and Executing the Optimal Data Collection Approach PM uses a flexible approach to data collection that supports the level of rigour an organisation needs. PM can thus provide credible information while maintaining flexibility to reduce costs. Key considerations for data collection include: who collects the data, where, when, and how to ensure optimal results and representativeness of the targeted programme or population.

Survey Development Once the set of key performance indicators is defined, a simple data collection tool, such as a survey, is developed and can be administered at different points throughout the supply chain. This means that managers as well as end-users can be targeted as sources of data. PM data collection tools should be quick and lightweight so that they can be applied with minimal effort (for instance, surveys should ideally not be longer than 10–20 min). While surveys can always be expanded to collect additional information, keeping surveys short facilitates the ability to administer surveys regularly for ongoing insights and allows easy integration into normal business operations (Acumen 2015). The survey questions themselves should also be straightforward and easy to answer; using closed-ended questions (e.g., multiple choice and scaled) is one way to achieve this and to also simplify data analysis. Note that surveys should also be contextualised to local conditions so that the questions are relevant to the population being surveyed. This includes adaptations for any unit conversions, specific terminology, and the inclusion of specific practices associated with an intervention. Best practice is to pre-test survey questions using cognitive interviews with individuals who are representative of the target population (Willis 2005). The cognitive interviews

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focus on how the respondent interprets a question and assesses whether each question in the survey is actually asking what it is supposed to measure and, based on the findings, the survey can be adapted accordingly. All of these features combine to create data collection tools that are practical and respectful of respondents—critical elements of a Lean Monitoring System (Lean Research Initiative 2015). A note about field surveying: Data collection, especially in poorer regions is an intrinsically difficult undertaking. Various technologies have evolved in recent years to facilitate the process—many based on electronic tools such as mobile phones and tablets, which are becoming increasingly available (Acumen 2015). Digital data collection is often preferred over traditional paper surveying as it can make collecting, verifying, analysing, and sharing sustainability data quick and easy. For example, the ability to add skip logic and built-in validations to a survey reduces input errors, which increases accuracy and substantially reduces the time required for data cleaning. These features can also make the interview process speedier and more naturally conversational between interviewers and respondents. It is important to consider that survey software with robust offline functionality will be needed for use in difficult areas where connectivity is limited. It should also be noted that even with all the benefits of digital data collection, paper surveys may still be preferred in some cases, especially when working in dangerous areas subject to theft or when technology creates barriers between the respondent and interviewer.

Sampling Methodology Data collection in PM systems is relatively low-cost and simple because, unlike Impact Assessments, it does not require the identification and assessment of a control group. Controls may be used for PM but are uncommon and not required. This is because the focus of PM is not on the impact of an intervention, but rather to gauge an intervention’s progress towards goals over the course of its implementation. Impact Assessments use the scientifically rigorous process of identifying a control group because it acts as a counterfactual, which allows the ability to truly understand and attribute the impact of a programme or investment on a population over time (Gertler et al. 2016; COSA 2013). PM, on the other hand, is chiefly concerned with ensuring that the sample population is representative of the target population. Because of this, there is more flexibility in the data collection approach—for example, rough field sampling, focus groups, or voluntary participants are all acceptable sampling methodologies (if representative) that can reduce costs and provide data that is of sufficient quality.3 In smallholder agricultural settings in particular, PM has the added advantage of allowing data gathering in collective settings where farmers naturally congregate (training centres, processing stations, selling locations, etc.) instead of on individual farms where surveying for Impact Assessments typically occurs.

3 For focus groups in particular, the approach will require some adaptation to accommodate the dynamics of a group and reduce the bias of groupthink.

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In order to maintain scientific rigour, surveying for Impact Assessments is generally conducted by trained third-party researchers who can provide unbiased and highly accurate data. Because PM is primarily a management tool that utilises simple data collection methods and is meant to inform operations, organisations can rely on their own staff (for example, field technicians or extension agents) instead of third party surveyors to collect data during normal operations. Staff engagement is essential, as it is assumed that PM will be conducted regularly and continuously over the course of an intervention, and staff participation helps embed the monitoring practice into daily operations. While PM sacrifices part of the accuracy and credibility of Impact Assessments, it is designed to serve more as a knowledge management system that provides good enough information for day-to-day decision making and to manage costs across multiple projects or supply chains. While the above characteristics represent the basic PM surveying and sampling methodology, organisations can always integrate more robust methodologies if they want additional credibility of results (for example, using more rigorous sampling methodologies or verification mechanisms). Such additional investments can be valuable, especially in select applications to confirm information or ensure accuracy and reliability of the results. Box 19.1 Building Local Capacity Applying local knowledge to the design and implementation of a monitoring system can provide superior results. It is considered best practice in doing any field monitoring or assessment work to engage a local credible institution to achieve a better scientific process that features local relevance and contextual understanding while adhering to standards for global consistency. The benefits can include: • More reliable information • Reduced bias in sampling strategies • Trained local surveyors to provide quality control over time

19.3.3 Real-time Reporting & Better Informed Decision Making To maximise the adaptive management potential from ongoing field monitoring, data should be analysed and presented in a way that facilitates quick and easy learning. Dashboards are a good tool for presenting results on an organisation’s key performance indicators that allows data to be viewed and understood right away, avoiding the lag time that is otherwise inherent in typical reports from the field. Integrated technology solutions (software that combines data collection, storage, analysis, and presentation capabilities) greatly facilitate this rapid flow of information. This allows managers to easily integrate learning from the field into their day-to-day operations.

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Fig. 19.1 Example of digital dashboard

Digital Dashboards (Fig. 19.1) greatly facilitate the quick and effective sharing of data among project partners. With key partners involved, overall accountability (and transparency) can be greatly enhanced. Visual results also contribute to better learning and active participation of all stakeholders involved in a project. Beyond presenting results on an organisation’s key performance indicators, dashboards can also be useful for providing information on the process being conducted in the field (trainings conducted, time spent administering surveys, number of surveys completed, location, etc.), which allows managers the opportunity for a real-time quality control of field staff and the data.

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Case Studies

19.4.1 Mondelēz International and the Committee on Sustainability Assessment In 2012, the multi-national company Mondelēz International launched a $200 million plan with the goal of empowering one million coffee entrepreneurs by the year 2020. The investment was designed to make “coffee farming more profitable, sustainable and respected” for the mostly small farmers in their global value chains. The initiative involved funding appropriate programmes such as agronomic, business skill, environmental protection, and social training programmes. These activities were delivered through supply chain partners to maximise efficiency. The Committee on Sustainability Assessment (COSA)4 helped Mondelēz to design appropriate metrics along with other partners. COSA then created an integrated system for Monitoring and Evaluation to effectively understand the economic, social, and environmental outcomes of the programme with sound scientific rigor. The informed management system started with a baseline of the farming systems in select countries and then a tailored PM was used to track ongoing progress of each project toward the overarching objectives. The PM focused on six projects across three continents. It was designed by COSA to be globally comparable so that managers could quickly see the results they were getting and either alter or scale up efforts as learning occurred. COSA led the formulation of the indicators about Profitability, Sustainability, and Respect for coffee farming as a profession using a consensus-building process of multi-stakeholder conversations. This process centred on balancing multiple competing priorities while still reflecting the core attributes of a good lean monitoring system. In this context, the process was designed with the following attributes in mind: 1. Relevance: The indicators chosen by the multi-stakeholder group represented practical ways to monitor progress toward the high-level objectives and were identified by mapping the key issues that the organisation faced and setting priorities. Mapping and prioritisation are necessary strategic precursors to picking the right indicators. 2. Balanced perspectives: Participants in the indicator formulation-discussions included representatives from Mondelēz as well as several NGOs. Indicators were selected to balance multiple dimensions of sustainability—environmental responsibility, farm economics, social conditions, and perceptions—which offered a more holistic understanding of progress and challenges.

4 COSA (https://thecosa.org) is a non-profit and independent, global consortium of partners dedicated to accelerating agricultural sustainability through robust information systems that is financed in part by leading agencies including the Swiss Government (SECO), Ford Foundation, and the Inter-American Development Bank.

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3. Pragmatism: the PM questionnaires were designed to be unambiguous and easy to answer. They were right-sized for the objective, taking roughly 12–30 min to answer. 4. Comparability: Although each survey was customised for relevance to the area, project, farm conditions, and language, the responses from the surveys neatly fed a common set of global indicators and could be readily compared to the baseline findings that used the same indicators. To keep costs low, the technicians from the local organisations were trained to administer the surveys to a representative sample of farmers in each supply chain. The surveys relied on farmer recall and were largely conducted in collective settings using appropriate methods. The simplicity of the system and the COSA technology allowed rapid data results to be presented on individual project dashboards. This allowed managers to observe programme performance and to provide relevant feedback in a timely manner. The transparency was unprecedented because supply chain partners and other stakeholders had access to these programme dashboards that tracked the intervention’s key performance indicators. This allowed stakeholders to see and participate in the reporting, opened an unparalleled ability to collaborate, and improved accountability all around. Managers reported an increased understanding and expected to improve the efficiency and the effectiveness of field operations. PM quickly revealed some of the strengths and weaknesses in the programme. It also provided clarity about the areas to target that had the greatest potential for future positive impact. The framework established with local partners allowed continual observation of key sustainability issues in the system that previously could take years to observe including: 1. Practice adoption as a result of training 2. Productivity in light of environmental and efficiency indicators to ensure that increased production is profitable for the farmer and does not come at the expense of the environment 3. Participation of women to ensure programmes remain on target for achieving their goals The comprehensive data management system not only helped track progress toward their 2020 goals, but was also intended to give decision makers an effective and holistic understanding of the return on the investments (ROI). This effort was continued when Mondelēz was merged into Jacobs Douwe Egberts (JDE) until its results were integrated. Perhaps one of the best hallmarks of effectiveness has been the continued use of this PM model by project implementers. A major coffee exporter that gathers 14,000 farmers in Honduras, Honducafe, appreciated the functionality and the useful management information enough that they have applied their own funds to continue to utilise the PM system for gathering data across their thousands of producers. Ultimately, this was a novel and very welcome achievement of the Mondelēz—JDE initiative that demonstrated how smart data can indeed contribute to farming success and sustainability.

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19.4.2 Danone Ecosystem Fund and the William Davidson Institute at the University of Michigan Employing low-income individuals in emerging markets brings unique challenges that require businesses to adapt. One such project, Semilla, has a mission to improve the well-being of its employees through formal sector employment and training, but at the same time it faces issues of employee turnover, low sales and difficulty in the measurement of its impact.5 The project was developed by Danone Mexico and its local partners, Ashoka and CAUCE with funding support from the Paris-based Danone Ecosystem Fund. Semilla employs individuals to sell Danone products door-to-door. These salespersons meet at micro-depots located across the city in the morning to load their carts before selling on assigned routes. At the end of the work day, the salespersons return to the micro-depot to report their sales with their supervisor. Salespersons receive training on life skills and sales, as well as benefits such as access to childcare, healthcare, and a housing fund. The William Davidson Institute at the University of Michigan (WDI) partnered with Danone Ecosystem Fund to develop and conduct a study on Semilla’s impact on its salespersons (WDI 2015). The results of the impact assessment provided datadriven solutions to meet some of the venture’s challenges. Additionally, the in-depth impact assessment study identified priority indicators for Semilla to continue to track through PM to regularly inform decision-making. These indicators include individual economic stability, self-efficacy, and pride in working for Semilla. These indicators were selected as they represent three different areas of well-being: economic, capability and relationship. The study also found that these variables were associated with retention, hence regular monitoring can inform key decisions related to improving retention. Additionally, pride in working for Semilla was also associated with sales, thus tracking it can inform key decisions related to improving sales. For example, to further improve retention and sales, Semilla may decide to focus training material more on improving self-efficacy and pride for Semilla, and through regular collection of the priority indicators they can track whether the relationship between the variables and sales and retention continues to hold or levels out and then allocate resources accordingly. These priority indicators could be integrated into a Management Information System (MIS) with basic demographic characteristics of Semilla workers, training information, and weekly performance data such as quantity of sales and salary. Systemically collecting such data using a Management Information System (MIS) that is tightly integrated with the day-to-day operations of the company would afford Semilla the opportunity to conduct real-time and nearly instantaneous analyses of factors affecting employee performance and retention. Additionally, the impact of

5 See the Danone Ecosystem Fund website for details about the Semilla project: http://ecosysteme. danone.com/projectslists/semilla/.

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changes in company practice and policy could be assessed using historical employee performance data.

19.5

PM Limitations

While PM gives managers rapid insights into the performance of their programmes and investments, its application has some limitations that are worth reiterating. PM is not designed to evaluate programme impacts. Impact Assessments have more robust methodologies and are better suited to indicate whether an investment or project has had its intended effect over a period of time (usually multiple years). Impact Assessments use scientific methods to provide insight into an investment’s intended and unintended effects (both positive and negative) through conducting rigorous baseline and endline evaluations with a target group and a control group. This information can be used to inform practical solutions to sustainability challenges and more effective investments or policies. In contrast, PM captures ongoing pictures of a project and provides decisionmakers with regular and timely information to ensure that projects and investments are progressing as planned and that any obstacles to success are identified immediately. Although PM can be used as a stand-alone tool, it is ideally paired with Impact Assessments for a more comprehensive and multidimensional understanding of the sustainability of a programme or investment (Giovannucci et al. 2014). Performance Monitoring can be made more robust through more rigorous sampling or surveying methodologies. This could include using third party or professional surveyors, selecting a control group for comparison, etc. While valuable, this can increase time and resource costs. Regardless, when PM is aligned with Impact Assessments it can serve as a credible signpost for the expected Impact Pathways facilitating sharper and likely more accurate decision-making.

19.6

Conclusion

Performance Monitoring (PM) is a solution designed to help managers make decisions in real-time about the sustainability investments and programs in their supply chains. The objective is improved results. The PM tool is designed to be simple, low-cost to administer, and flexible to account for a range of conditions and available resources. Both COSA and WDI continue to evolve their Performance Monitoring tools in order to create functional systems that work across diverse supply chains and contexts in developing countries. The chapter highlights best practices in indicator development, survey development, sampling methodologies, and reporting as a foundation for successfully implementing PM across regions or supply chains. The case studies provide examples of two distinct applications of the system and key aspects relating to their success. Performance Monitoring remains one part of understanding the impact

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pathway—when Performance Monitoring is coupled with Impact Assessments, strategic long-term objectives are met with tactical short-term decision-making to help projects remain on course to reach their goals and have their desired impacts over time.

References Acumen (2015) The lean data field guide: tips for collecting customer data to build more impactful businesses. http://acumen.org/wp-content/uploads/2015/11/Lean-Data-Field-Guide.pdf. Accessed 31 Jan 2019 COSA – The Committee on Sustainability Assessment (2013) The COSA measuring sustainability report: Cocoa and Coffee in 12 countries. COSA, Philadelphia Gertler PJ, Martinez S, Premand P, Rawlings LB, Vermeersch CMJ (2016) Impact evaluation in practice, 2nd edn. Inter-American Development Bank and World Bank, Washington, DC. https://doi.org/10.1596/978-1-4648-0779-4 Giovannucci D, von Hagen O, Wozniak J (2014) Corporate social responsibility and the role of voluntary sustainability standards. In: Schmitz-Hoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) Voluntary standard systems: a contribution to sustainable development. Natural resource management in transition, vol 1. Springer, Berlin, pp 359–384 Lean Research Initiative (2015) The lean research framework: principles for human-centered field research. http://fic.tufts.edu/assets/LeanResearchGuideRev8.15.pdf. Accessed 31 Jan 2019 London T (2009) Making better investments at the base of the pyramid. Harv Bus Rev 87 (5):106–113 Sustainable Food Lab (2016) Towards a shared approach for smallholder performance measurement: common indicators and metrics. http://www.sustainablefoodlab.org/performance-mea surement/tools-resources/deep-dive/. Accessed 31 Jan 2019 WDI – William Davidson Institute (2015) Danone Ecosystem Fund: Semilla Impact Assessment. http://wdi.umich.edu/programs-projects/danone-ecosystem-fund-semilla-impact-assessment/. Accessed 31 Jan 2019 Willis GB (2005) Cognitive interviewing: a tool for improving questionnaire design. Sage Publications, Thousand Oaks

Jessica Mullan is the Senior Measurement Systems Manger at COSA where she leads diverse aspects of the organisation’s advanced measurement systems including the work on Performance Monitoring and the development of SMART Indicators among partners and clients. She has a strong background in agricultural sustainability, working in both large-scale and smallholder systems. Her expertise extends to climate change and greenhouse gas measurement systems that she helped develop. Jessica has consulted to the Bill & Melinda Gates Foundation, the Sustainable Food Lab, and led several strategic projects including the development of the FAO’s SAFA smallholder indicators and survey instruments. The Performance Monitoring systems she has helped develop are being used by a number of leading global organisations to assess the sustainability practices in their supply chains. The Committee on Sustainability Assessment (COSA), Philadelphia, PA, USA; Email: [email protected]; Internet: www.theCOSA.org. Heather Esper is the Senior Program Manager of the Performance Measurement Initiative at the William Davidson Institute at the University of Michigan (WDI). At WDI she specialises in designing and implementing customised monitoring, evaluation, research and learning systems to assess and improve the economic, social, and environment performance and outcomes of organisations and businesses operating in emerging economies. Her research focuses on exploring solutions to current measurement challenges in order to improve organisation’s effectiveness,

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scalability and sustainability. Esper co-developed a versatile tool and methodology with a multidimensional view of poverty that is used by ventures to assess their poverty alleviation outcomes. Esper holds a Masters of Public Health and Bachelors of Science in Global Health from the University of Michigan. William Davidson Institute at the University of Michigan (WDI), 724 East University Avenue, Wyly Hall, 1st Floor, Ann Arbor, MI 48109; Email: [email protected]; Internet: www.wdi. umich.edu. Daniele Giovannucci is President of the Committee on Sustainability Assessment (COSA)—a global consortium of institutions advancing innovative ways to measure and manage the sustainability of our agri-food systems. COSA partners with leading companies and agencies to generate better management of their economic, social, and environmental impacts. A former food company executive he has served as a strategic adviser to a number of governments, companies, and major institutions such as the World Bank Group and led the global teams formulating the strategic input to “The Future of Food and Agriculture” for the United Nations Division for Sustainable Development. The Committee on Sustainability Assessment (COSA), Philadelphia, PA, USA; Email: [email protected]; Internet: www.theCOSA.org.

Chapter 20

Evaluating the Potential of a Green Economy in Tunisia: A System Dynamics Modelling Approach for the Solid Waste Management Sector Salma Halioui, Michelle Heese, and Michael Schmidt

20.1

Introduction

With the passing of the 30th anniversary of the famous mile stone in the establishment of a sustainable future for our planet—the Brundtland Report—and its appeal to meet “the needs and aspirations of the present without compromising the ability of future generations to meet their own needs” (WCED 1987, p. 41), it is time to recapitulate on the efforts taken. The latest Living Planet Index visualises again how fragile the state of the planet still is, and which continuing losses to the natural environment this world is still facing (WWF 2016). This impact of humanity is dramatically interfering with the environment and will lead to an even higher degradation of global ecosystems in the near future. The current trend of misuse and misallocation of resources makes it clear that an urgent shift to greener management of environmental and economic activities is needed. However, while there is obviously a need for the establishment of a green economy and a transition to global sustainable development, a clear, universal path to a successful green economy has yet to be defined (Allen and Clouth 2012). Due to mismanagement problems, increased population and industrialisation, waste management issues are growing at an alarming rate in Tunisia. The implementation of different strategies related to waste management has failed to solve the problem. Recently, the government has put a green economy strategy in place, with numerous projects in several key sectors, such as solid waste management (UNECA 2016). This chapter aims at evaluating the performance of implementing a green economy for the waste management sector in Tunisia, using system dynamics based on the Threshold 21 (T21) modelling approach. The main purposes of implementing a S. Halioui (*) · M. Heese · M. Schmidt Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Cottbus, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_20

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green economy are: minimising the impacts of increasing development on the physical environment, raising social well-being, and sustaining the competitiveness and the economic performance of the sector. With the ideology of a green economy, economic competitiveness and environmental sustainability do not have to be contradicting concepts. If used in the right and efficient way, a green economy can foster economic growth better than the conventional economy could and lead to positive macroeconomic results (UNEP 2011a). The system dynamics modelling approach has been used for this research to simulate the waste management sector between 2016 and 2036 under the green economy and the Business as Usual (BAU) scenarios. The model results reveal that, under the green economy scenario, the recycled waste would contribute to the decrease of landfill, therefore reducing environmental challenges and health problems. The chapter is structured as follows: first, Sects. 20.2 and 20.3 describe the green economy and discuss this concept in the Tunisian context. Sections 20.4 and 20.5 describe the methods used for modelling the green economy and introduce the Threshold 21 approach based on system dynamics modelling. Section 20.6 describes the solid waste management sector in Tunisia. Section 20.7 presents the developed model and describes the scenarios used. Finally, Sect. 20.8 details and discusses the main simulation results.

20.2

Green Economy: Concept, Principles and Philosophy

Green economy is one of the key terms that has become quite prominent in the sustainable development discussion during the last decades. This concept could change the ongoing trend of an endangering state for the environmental and social systems. The term was first mentioned in 1989 in the publication “Blueprint for a Green Economy” (Pearce and Turner 1994) and since then, it established itself as an enduring buzzword in the political discourse of any green-striving development worldwide (UNEP 2014a).1 The most commonly used definition of green economy would be the one used by UNEP, which states that a green economy will lead to an “improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities” (UNEP 2011b, p. 2). The main goals,

1

For an overview over the debates and achievements in the sustainable development discussion please consider: Rio Declaration on Environment and Development, Agenda 21, Forest Principles, Convention on Biological Diversity, Framework Convention on Climate Change (UNFCCC), United Nations Convention to Combat Desertification, Johannesburg Declaration on Sustainable Development, Plan of Implementation of the World Summit on Sustainable Development, The Future We Want, 2030 Agenda for Sustainable Development, Millennium Development Goals (MDGs), Sustainable Development Goals (SDGs). Please refer to Chap. 4 in this volume for an in-depth review of the evolution and incorporation of sustainability in international law from the 1972 United Nations Conference on the Human Environment to the 2015 Paris Climate Conference.

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linking it inseparably to sustainable development and green growth, are to reduce poverty, degradation of the environment all over the world, while conserving resources for future generations. This ideology of sustainability, which is also a core component of many other green concepts that have emerged over the last decades, is vital for the green economy concept as well (Allen and Clouth 2012). This said, the same as for the conceptual idea of sustainability and sustainable development, there is no single definition of the term ‘green economy’, but rather a common ground to target within environmental, economic and social measures. Reviewing literature on the scope of green economy revealed that the priority areas of this concept are sustainable agriculture and supply chains in food system, sustainable tourism, renewable energy, green transport, green buildings and resource efficiency in urban functions, fisheries, forests, water management, and waste management (Renner et al. 2008; EEA 2010). A Green economy also shows a clear link between ecological behaviour and economic growth in the long run. With the successful implementation of the concept of green economy an increasing sustainable economic growth can be achieved that not only enhances the environment but will also lead to a higher economic potential (UNEP 2011b). This means that with an established green economy, a qualitative improvement within all sectors can be achieved with a steady increase in positive outcomes and a decrease in negative ones.

20.3

Green Economy in the Tunisian Context

The highly diversified economic activities in Tunisia increase the dependency on natural resources while raising pollution problems and Green House Gas (GHG) emissions. In addition, the conventional economic model currently implemented in Tunisia contributes to the increase in unemployment, especially among women and younger generations. Accordingly, a new economic policy that solves unemployment problems and other social issues, as well as promotes environmental sustainability should be implemented. Hence, the Tunisian government has introduced a national sustainable development strategy (2014–2020), which sets the focus on implementing a green economy and identifying the most challenging problems related to the conventional economic model that has been followed in Tunisia for decades (UNECA 2015). As part of this sustainable development strategy the national green economy strategy (2016–2036) has been formulated within the sustainable agenda (2014–2020) (UNECA 2016).2 Recently, the green economy has gained a lot of interest, and Tunisian policy makers have given more importance to the integration of the green economy

2 The green economy strategy in Tunisia aims at enhancing the sustainable management of natural resources, promoting sustainable consumption and production, balancing regional development, capacity building for adaptation to climate change, promoting renewable energy, improving life quality, achieving social equity and enhancing knowledge (UNECA 2016).

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principles, but these efforts are still limited, ineffectively integrated, highly fragmented and the objectives and targets of the strategy are still unclear. Also, peer reviewed articles in the field of green economy are still limited (UNEP 2013). Cai et al. (2011) have utilised the input-output modelling method to examine the role of green economy in increasing employment. Gouvea et al. (2013) used a quadruple helix framework for investigating how water intensive nations promote green economy. Furthermore, based on game theory, Carfì and Schilirò (2012) investigated the role of the green economy in reducing climate change problems. However, these approaches do not consider the dynamic nature, complexity and the crosssectorial dimensions of the green economy. Thus, the T21 modelling approach has been used for this research. This model links economic, social and environmental aspects for solid waste management in Tunisia. Based on system dynamics, a model for the solid waste sector is developed and simulated under both a Business as Usual (BAU) scenario and a green economy scenario. The simulation results can help policy makers to successfully implement their green economy policy.

20.4

Modelling the Green Economy

A well conducted green economy model can predict the outcomes of long-term policies, strategies and measures of green development and is helpful to represent the economic, environmental and social systems. Since relationships can be shown, possible impacts projected, synergies identified and effects analysed, it assists in the designing process and assessment of any policy planning (UNEP 2014a). During the last decades, a variety of models have emerged that could be used on a national planning level (UNEP 2011b). There is, however, no universal methodology or model that approaches the Green Economy Policy Assessment (GEPA) best (UNEP 2014b). Different modelling approaches work for different situations and backgrounds. Thus, models and methodologies must be established on an individual basis for each specific country and background. The models used should be flexible enough to be used in accordance with the necessities, abilities and means that a country has, in order to implement the most effective green economy policies (UNEP 2014a).3 When searching for the right approach for a Green Economy Policy Assessment (GEPA), one must assess and compare the environmental, social, and economic implications of alternative policy options. An effective evaluation approach takes not only methodology into account, but also considers the variation in outcomes that can occur between static data frameworks and dynamic modelling approaches (UNEP 2011a, 2014a). Static data frameworks are generally used for the

3

For a list of best-practice criteria for defining the policy assessment approaches please refer to Sect. 2.2.2 “Model creation and customization” of the UNEP report “Using Models for Green Economy Policymaking” (UNEP 2014b, pp. 10–11).

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investigation of present and past systems, as well as monitoring purposes in the short term, especially since historical data are needed. Dynamic modelling approaches on the other hand, are more useful for any planning process and the prediction of future scenarios (UNEP 2014a, b). Also, while using green economy models, a number of various analysis methodologies can be combined, or a conglomeration of different models into one extensive model can take place (UNEP 2014a). In the following paragraphs, some of the most commonly used methodologies and models for a Green Economy analysis will be briefly4 presented. Static data framework methodologies/models include indicators, input-output (I-O) frameworks, the social accounting matrix (SAM), geographic information systems (GIS) and the computable general equilibrium (CGE) (UNEP 2014a, b). Dynamic modelling approaches include the econometrics approach, optimisation, system dynamics (SD) (Threshold 21) and system engineering models (MARKAL/ TIMES5 and LEAP6). Certain modelling types are more useful for specific analyses than others. Next to their scope it is necessary to choose a model according to its national implementation possibilities as well as the possible constraints a country might have regarding their time horizon, their budget, the data availability, the applicability of the model and so on (UNEP 2014b). Table or matrix-based input-output frameworks that show interindustry relationships are very useful for the green job market analysis as it measures how certain inputs and outputs can relate to each other (UNEP 2014a, b). A social accounting matrix (SAM), which is used as a basis for a computable general equilibrium (CGE) model, models the transaction of inflows and outflows and can therefore properly estimate any economic flow between main actors. The static or dynamic CGE model, which uses SAMs as well as I-O models, gives projections of economic flows and variables, and can be explicitly used for budgetary purposes. System engineering models like MARKAL/TIMES, WASP and LEAP are specifically created for the integrated planning of the energy sector. Finally, SD models like the Threshold 21 (T21) model are a good medium for a long-term planning approach that work on a global level rather than just a sectorial or thematic one. They are useful for an overall assessment, as they tend to have a larger range than other existing models (UNEP 2011b, 2014a). This flexibility and the resulting possibility to tailor make the assessment is also one reason why this is one of the predominant systems used by UNEP for their GEPA modelling (UNEP 2014a, b). All models might face some drawbacks and limitations as well. For example, the empirical tools of I-Os, SAMs and GIS are normally quite data intensive, do not 4

For a detailed overview of various models please refer to the UNEP publications: A Guidance Manual for Green Economy Policy Assessment (UNEP 2014a) and Using Models for Green Economy Policymaking (UNEP 2014b). 5 Model generators that help representing the evolution of an energy system over a long period of time up to 100 years, while taking into consideration the environmental and economic situation. 6 The long-range energy alternative planning (LEAP) is mainly used for assessing and analysing climate change impacts. It helps planning for GHG emissions.

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cover the whole range of economy assessment dimensions and are—because of their static background—more useful in a short-term assessment (UNEP 2014b). The long-term assessment of a system dynamic model on the other hand might include an extensive and long-lasting implementation process, and is highly dependent on available information. To determine the most suitable policies and the best economic instruments for a green economy is not an easy task. An adaption to each specific case is needed to select the most appropriate modelling tool that can successfully predict the outcome of short- and long term political strategies and economical decisions.

20.5

The Thresholds 21 Modelling Approach in the Context of Greening the Solid Waste Sector in Tunisia

The solid waste industry represents a complex sector that involves various elements, including stakeholders with different objectives and conflicting points of view. Assessing the components of the sectors in isolation does not provide a full comprehensive vision of the system, nor does it adequately tackle the problems related to this sector or promote its sustainability. The used approach, the Thresholds 21 (T21), is inspired by the UNEP (2011b). The T21 uses SD to assess the impacts of the green investment for solid waste management in Tunisia. The threshold 21 model is a quantitative approach developed by the Millennium Institute, which is based on system dynamics and is used to simulate possible future alternatives (Bassi 2010). The T21 can be identified as a set of interconnected sectors that integrate economic, environmental and social sustainability pillars. It helps generate scenarios that are used for visualising the future consequences of strategies through comparing policy alternatives in order to support policy making. Clearly, the adoption of this model appeals to sectors and countries across the globe (USA, Italy, Mozambique, Malawi, etc.). No matter where it is used, the developed model should always involve the specific issues that may affect the development of the green economy in the country, while taking the geographical context as well as the political and social situation into consideration (UNEP 2014a).

20.6

Solid Waste Management as a Key Sector of the Green Economy in Tunisia

The environmental situation has been long-neglected in Tunisia, and waste production has always been considered a challenging problem. The country produces around 2.3 million tons of waste a year, and 20% of this waste is disposed in inappropriate areas (residential districts, coastlines, and even touristic regions,

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etc.), which has caused the degradation of the environment, contributed to health problems and reduced the touristic attractiveness of the country (UNECA 2014). This problem has been accentuated following the Jasmine Revolution, as “a proliferation of uncontrolled landfills and a sharp deterioration of conditions in the controlled landfills” occurred (UNECA 2014, p. 10). Only 5% of the waste is recycled and 0.5% is composted, while 70% is dumped in landfills (the majority of which do not meet the minimum sanitary standard requirements) and 21% of the waste is dumped in uncontrolled landfills.7 Being aware of these problems, the government is starting to give more importance to waste management. Implementing green economy principles in the solid waste sector will contribute to an increase of employment, an improvement of social well-being, a reduction of health problems, as well as an improvement in energy production and a reduction in GHG emissions (Elagroudy et al. 2016). Greening the solid waste sector means avoiding, reducing, reusing and recycling waste, rather than using the conventional solid waste management practices (based on disposing of solid waste in landfills) that have failed to solve waste problems in Tunisia for decades. Implementing the green economy principles in the solid waste sector will not only protect human health, but also will create employment and reduce carbon emissions and resource overexploitation. Furthermore, greening this sector can introduce new economic services and products (agricultural, transportation, industry, etc.) (Emery et al. 2007).

20.7

Modelling the Solid Waste Sector in the Context of the Green Economy in Tunisia

This section shows the results of simulating the solid waste municipal sector and assess its impact on the three sustainability pillars (economic, environmental and social) under two different scenarios.

20.7.1 Scenarios and Sensitivity Analysis Following the study produced by the United Nations Programme for the government in Mauritius to study the transition of a green economy approach for the solid waste sector, two scenarios are developed, a green investment scenario and a Business as Usual (BAU) scenario. The BAU scenario assumes the continuation of the same practices related to the solid waste sector. It describes the solid waste management sector operation from 2016 to 2036 with no fundamental policy changes. This 7

The data has been provided by the Tunisian Ministry of Agriculture and the Environment.

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scenario will be used to compare the outcomes of the green economy to the conventional economy policy that has been used in Tunisia for decades. The green economy scenario assumes that additional adjustments are undertaken. The assumptions under the green economy scenario are articulated around three sustainability pillars: 1. Environmental sustainability: reducing the waste generation and encouraging recycling while implementing waste prevention strategies and raising the awareness of consumers and industry leaders. 2. Economic sustainability: cost effectiveness in waste management through a cost minimisation of waste disposal and reusing produced waste for other economic activities. 3. Social sustainability: reducing health problems, improving social well-being and reducing poverty (creating employment).

20.7.2 Model Development The main indicators selected for building up the model are used for addressing health problems, economic concerns and environmental aspects associated with the implementation of the green economy principles for the solid waste management sector.8 The figure below presents the system dynamics model developed in the context of this research. The model describes how the waste is being generated in Tunisia, and shows the major waste management techniques used in the country. Furthermore, it illustrates the impacts of waste management on the population (health, employment). The model is simulated under two scenarios using Vensim PLE.9 For the conventional economy, the Gross Domestic Product (GDP) is used as an economic indicator; however, for the green economy the GDP is calculated as the difference between the GDP (according to the conventional economy) and the environmental and social impacts (Cai and Liu 2013). The green GDP formula proposed by Cai and Liu (2013) is presented as follows: Green GDP ¼ Economic Aggregate  Total Loss of Waste Discharge The total loss of waste discharge refers to the losses caused by resource consumption and losses due to pollution damage.

8 The elements of the model were selected based on a literature review about solid waste management and the green economy in Tunisia (policy regulation, existing management techniques and the macroeconomic context), and with the help of selected international experiences on developing SD models for the solid waste sector, e.g. Cai and Liu (2013). 9 An open source software used for simulating the System dynamics models.

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increased health problem Employed population

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COMPOSTING PORTION

Stock of Composted waste

composted waste

Stocks: Represent accumulations (State of the system) Flows: Represent the state of change (Stock change via flows) Auxiliary variables

Fig. 20.1 The System dynamics model of the solid waste sector in Tunisia

The model shown in Fig. 20.1 represents a stock and flow diagram10, which is based on several equations (Forrester et al. 1976). The simulation results help in determining how increasing recycling under the green economy scenario affects the other elements of the system, in comparison to the simulation results under the BAU scenario. Data used for simulating the model are collected from the Tunisian National Institute of Statistics (INS), the National Agency for the Protection of the Environment (ANPE) and the National Agency for Waste Management (ANGed). The following graph shows the forecasted solid waste generation in million tons over the period of 20 years. Figure 20.2 demonstrates that the quantity of solid waste generated from 2016 to 2036 is predicted to double, reaching around five million tons by 2036. The increase in solid waste generation will, among other impacts, raise pollution problems, affect human health and decrease social well-being. Therefore, it is important to manage the solid waste in a sustainable way that would decrease pollution and health problems and increase employment in the solid waste management sector.

10 The model helps to visualise the feedback structure of a given system. Furthermore, it helps to simulate the value of any given element of the system for a specific period.

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Fig. 20.2 The predicted growth of solid waste generation in Tunisia from 2016 to 2036

20.7.3 Main Results of the Model While using system dynamics models can potentially give exact future simulations, they typically provide an idea of the behaviour of the system for a specific period of time. In the following sections the main results of the models are illustrated.

Recycled Waste Following PAGE (2015), it is assumed that under the green economy scenario the annual share of recycled waste will increase from 5 to 50% of the total generated solid waste by 2036. As shown in Fig. 20.3, under the BAU scenario, the recycling rate will remain stable at 5%. As compared to the BAU scenario, the recycled amount of waste will be around six times higher under the green economy scenario by 2036. In order to increase the share of the recycled waste, it is necessary to invest in more treatment facilities (see Fig. 20.6).

Landfilled Waste The increased recycled waste under the green economy scenario will contribute to the reduction in the quantity of landfilled waste, which is expected to reach around 3.4 million tons in 2036 under the BAU scenario compared to 1.3 million tons under the green economy scenario as shown in Fig. 20.4. Decreasing the amount of the landfilled waste under the green economy scenario will have the added impact of reducing GHG generated from waste disposal. It should be noted that an estimation of the GHG emissions from the landfilled waste is out with the scope of this research. The decrease in landfilled waste will reduce the number of jobs in the waste disposal sector; nevertheless, these job losses are offset

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Fig. 20.3 The yearly amount of recycled waste

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Fig. 20.4 The yearly amount of landfilled waste in million tons

by the increase of jobs in the recycling sector. As shown in Fig. 20.5, the employment for the solid waste sector under the green economy scenario will increase.

Employment in the Solid Waste Sector Employment in a green economy can be defined as the employment in environmental service sectors and sectors using environmental goods (Cadogan-Cowper and Johnson 2011). Under the BAU scenario, the jobs are mainly related to collecting

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Employee Population

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Fig. 20.5 The employment generation from the solid waste management

and disposing waste, whereas it is assumed that under the green economy scenario jobs are mainly related to the recycling sector. In Tunisia, 988 companies are working in the waste management sector, of which 26% are working in the hazardous solid waste management sector (Mourad and Bonezzi 2011). This study focuses on the non-hazardous solid waste management sector, which represents about 731 businesses. The employment effect is expressed through the number of jobs related to solid waste management. Under the green economy scenario, the impact on employment is negligible in the short to medium term. The growth of employment reaches around 1.5% until 2036. The employment under the green economy scenario is slightly better than the BAU scenario; it represents 3% over the period from 2016 until 2036 (see Fig. 20.5).

Investment Cost effective investment in the waste sector should result in affordable infrastructure facilities and technologies. Furthermore, investments should be local, maintained for the long term and promote environmental and social sustainability (Williams et al. 2013). Investing in a green economy should afford sustainable employment for the local population (Lehr et al. 2012). The investment effect is expressed through the proposed funding for the municipal investment plan for the period 2011–2014. As demonstrated in Fig 20.6, the economic investment under the green economy scenario seems to be immense compared to the BAU scenario; it reaches 4000 million Tunisian dinars (TND) by 2036. However, it is obvious that the investments for waste recycling under the green economy scenario are less than the avoided costs

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“Physcial capital (accumulated investment)” : BAU scenario “Physcial capital (accumulated investment)” : Green economy scenario

Fig. 20.6 The accumulated investment for the solid waste management sector

of waste disposal. In this context, PAGE (2015) found that the avoided costs of waste disposal in Mauritius are more important than the recycling waste treatment investment. Also, Williams et al. (2013) suggested that the costs of investments in the green economy should be “considered from an integrated perspective” and take into consideration not only the economic costs, but also consider the impacts on the economy and the environment.

Health Borj Chakir, Jayara and Sidi Hassine are the most-known waste collection sites in Tunisia, where people are suffering from contaminated air, water and soil. The inhabitants of Borj Chakir, who live close to the landfill, are suffering from respiratory illness and even more serious health problems like cancer (Szakal 2015). Currently however, there is no data on the effects of poor solid waste management on the health of inhabitants in Tunisia. For this study, it is assumed that all the population leaving nearby these landfills are exposed to health problems. This population can be representative of inhabitants affected by the health problems induced by the landfilled solid waste. Figure 20.7 shows that the number of inhabitants exposed to health problems is increasing under the BAU, which can be explained by the increasing number of population in Borj Chakir, Jayara and Sidi Hassine and the disposed waste into these landfills. Under the green economy scenario, the number of people exposed to health problems decreased to reach 40.89 thousand inhabitants by 2036.

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Health Problems

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Time (Year) Health : BAU scenario Health : Green economy scenario

Fig. 20.7 The potential number of the affected inhabitants from solid waste

20.8

Conclusion

Given the challenging situation and the hazardous impacts of the solid waste sector in Tunisia, the country has opted for greening this sector to limit the negative environmental impacts, to promote economic growth and enhance the social wellbeing of its citizens. The Thresholds 21 modelling approach, which is based on system dynamics modelling, had been used for this research. The developed model was simulated for a period of 20 years under the Business as Usual (BAU) and the green economy scenarios that include macroeconomic, social and environmental indicators related to the implementation of the green economy for the solid waste sector in Tunisia. The development and simulation of the model had been done with the software Vensim PLE. It is clear that shifting to a green economy requires significant investments; the investment under the green economy scenario is estimated to reach 4000 million Tunisian dinars (TND) by 2036. However, this investment is crucial to afford sustainable employment and will increase the social and environmental sustainability of the country. Under the green economy scenario, the percentage of recycled waste will increase to 50% by 2036 compared to the increase of only 5% under the BAU scenario during the same period. Furthermore, under the green economy scenario the landfilled waste will decrease to 1.3 million tons in total compared to the 3.4 million tons the BAU scenario would lead to. Also, employment in the field of waste management (working in the field of non-hazardous solid waste) under the green economy will increase by 3% until 2036. Besides that, the green economy scenario will lead to a decrease in the number of the population that is currently living close to the landfill in Borj Chakir (representative of the population exposed to health problems) down to 40.89 thousand by 2036.

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Being aware of the importance of using the green economy for the waste municipal sector in Tunisia, and taking the research findings into consideration, it is important to enforce regulations for greening the waste sector in all Tunisian municipalities, and strengthening policy regulations at the legislative level for a successful implementation of the green economy principles. In order to enhance the role of the green economy in promoting sustainable development in the waste management sector of Tunisia, municipal capacities need to be improved. These improvements should include their social and financial situation and the crucial cooperation between the government, municipalities and other important stakeholders affecting the sustainability of the sector needs to be effectively in place. Furthermore, the role of the private sector should not be ignored; financial incentives should be provided to in order to encourage investment in the green economy sector.

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Mourad T, Bonezzi B (2011) State of the Art Green Entrepreneurship in Tunisia. Regional Activity Centre for Cleaner Production (CP/RAC), Barcelona, Spain. http://www.cprac.org/docs/state_ of_art_ge_tunisia.pdf. Accessed 31 Jan 2019 PAGE – Partnership for Action on Green Economy (2015) Green Economy Assessment Mauritius. United Nations Environmental Programme, Geneva. http://www.un-page.org/files/public/mau ritius_green_economy_assessment_2.pdf. Accessed 31 Jan 2019 Pearce D, Turner RK (1994) Economics and solid waste management in the developing world. CSERGE Working Paper, WM 94-05. The Centre for Social and Economic Research on the Global Environment (CSERGE), University of East Anglia, Norwich. http://pickar.caltech.edu/ me105/materials/garbage/wm_1994_05.pdf. Accessed 31 Jan 2019 Renner M, Sweeney S, Kubit J (2008) Green jobs: towards decent work in a sustainable, low-carbon world. United Nations Environment Programme, Nairobi, Kenya. http://www.ilo.org/global/ topics/green-jobs/publications/WCMS_158727/lang%2D%2Den/index.htm. Accessed 31 Jan 2019 Szakal V (2015) Investigation into the landfill at Borj Chakir: Causes and effects of poor waste management. Nawaat. http://nawaat.org/portail/2015/05/17/the-landfill-at-borj-chakir-a-seri ous-threat-to-a-decent-life-and-clean-environment/. Accessed 31 Jan 2019 UNECA – United Nations Economic Commission for Africa (2014) The green economy in Tunisia: An implementation tool of the new sustainable development strategy (2014–2020). UNECA, Office for North Africa. https://www.uneca.org/sites/default/files/uploaded-documents/SROs/ NA/AHEGM-ISDGE/egm_ge-_tunisa_eng.pdf. Accessed 31 Jan 2019 UNECA – United Nations Economic Commission for Africa (2015) Industry and the green economy in North Africa: Challenges, practices and lessons learned. https://www.uneca.org/ sites/default/files/PublicationFiles/sro-na_green_economy_in_north_africa_print_eng_0.pdf. Accessed 31 Jan 2019 UNECA – United Nations Economic Commission for Africa (2016) Methodologies and tools for integrated assessment of inclusive green economy policies. ECA Policy Brief ECA/2016/PB009. https://www.uneca.org/publications/eca-policy-brief-009-methodologies-and-tools-inte grated-assessment-inclusive-green/. Accessed 31 Jan 2019 UNEP – United Nations Environment Programme (2011a) Modelling global green investment scenarios: supporting the transition to a global green economy. https://www.environment.gov. za/sites/default/files/docs/green_economy_modelling.pdf. Accessed 31 Jan 2019 UNEP – United Nations Environment Programme (2011b) Towards a green economy: pathways to sustainable development and poverty eradication – a synthesis for policy makers. UNEP, Nairobi, Kenya. https://sustainabledevelopment.un.org/content/documents/126GER_synthe sis_en.pdf. Accessed 31 Jan 2019 UNEP – United Nations Environment Programme (2013) Green Economy Scoping Study: South African Green Economy Modelling Report (SAGEM) – Focus on Natural Resource Management, Agriculture, Transport and Energy Sectors. UNEP, Nairobi. http://wedocs.unep. org/bitstream/handle/20.500.11822/18316/SAModellingReport.pdf. Accessed 31 Jan 2019 UNEP – United Nations Environment Programme (2014a) A Guidance Manual for Green Economy Policy Assessment. UNEP, Nairobi, Kenya. http://www.un-page.org/files/public/content-page/ unep_assessment_ge_policymaking_for_web.pdf. Accessed 31 Jan 2019 UNEP – United Nations Environment Programme (2014b) Using models for green economy policymaking. UNEP, Nairobi. http://www.un-page.org/files/public/content-page/unep_ models_ge_for_web.pdf. Accessed 31 Jan 2019 WCED – World Commission on Environment and Development (1987) Our common future. Oxford University Press, Oxford Williams R, Ricci M, Newman D, Stadler H (2013) Sustainable Solid Waste Management and the Green Economy The International Solid Waste Association (ISWA), Vienna. https://www.iswa. org/index.php?eID¼tx_iswaknowledgebase_download&documentUid¼3217. Accessed 31 Jan 2019

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WWF (2016) Living Planet Report 2016: risk and resilience in a new era. WWF International, Gland. http://awsassets.panda.org/downloads/lpr_2016_full_report_low_res.pdf. Accessed 31 Jan 2019

Salma Halioui is a Ph.D. candidate and research associate at the Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Germany. Her Ph. D. research deals with the potential of Strategic Environmental Assessment (SEA) for promoting sustainable economic growth in the tourism sector of Tunisia. She holds a Masters in Finance and a Bachelor in High Commercial Studies, both obtained from the Institut des Hautes Etudes Commerciales de Sousse (IHEC), Tunisia. Her research interests include strategic planning, sustainable tourism management, supply chain management and environmental planning. Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Email: [email protected]. Michelle Heese is a research associate at the Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Germany. She is currently project coordinator for the DAAD funded project of the national “Heritage Conservation and Site Management” master with focus on “Heritage in Conflict” at the Helwan University in Cairo, Egypt. She holds a MA in World Heritage Studies from BTU (2015) and a BA in Cultural Studies from the European University Viadrina in Frankfurt (Oder), Germany (2012). Next to her assistant work at the university, she works as a scientific freelancer in the fields of cultural management, cultural and natural heritage and as cultural project coordinator. Her research interests include subjects next to identity and regional studies, historical cultural landscapes, rural development and the assessment and management of cultural and natural values and elements. Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Tel: +49 (0)355 69 3418; Fax: + 49 (0)355 69 2765; Email: [email protected], [email protected]; Internet: https://www.b-tu.de/en/environmental-planning. Michael Schmidt is Professor and Head of the Department of Environmental Planning at the Brandenburg University of Technology Cottbus-Senftenberg (BTU). At BTU, he initiated the international study programmes “Environmental and Resource Management” and “World Heritage Studies”. In 2002 he received the “Award for Excellence in International University Cooperation” from the German State Federal Ministry of Education and Research (BMBF), and in 2005 the Dr. h.c. of the National Mining University, Dnepropetrovsk, Ukraine. Since 2011 he is Dean of the Faculty of Environment and Natural Sciences. His scientific research and lecturing fields include environmental planning with focus on cultural landscapes. He led various research projects funded by EU, BMBF, BMZ/GIZ that were dealing with environmental targets and thresholds in spatial planning, risk assessment methods in the context of land use change, natural disasters and climate change. Recently he initiated a series of DAAD curriculum development projects aimed at strengthening the internationalisation of the World Heritage Studies programme at BTU. Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Tel: +49 355 69 2454; Fax: + 49 355 69 2765; Email: [email protected]; Internet: https://www.b-tu.de/en/environmentalplanning.

Part IV

Sector Transformation Towards Sustainability: Selected Initiatives

Chapter 21

Designing Progress Towards Sustainable Sectors: The Four Phases of Market Transformation Guus ter Haar and Lucas Simons

21.1

Introduction: Structural Change in our Food System

What opportunities and barriers do sectors face in the transition to becoming more sustainable? Which strategies are appropriate at which point in time, to push the sector towards improvement? To guide a sector on the path towards sustainability, we must find clear and actionable answers to these questions. In this chapter, we will explore the main phases of ‘sustainable maturity’, evaluate the required pre-conditions and strategies for making the transition to the next phase, and discuss practical examples of how this theory helps us gain practical insights when applied to key commodity sectors. As discussed in Chap. 11 “Tools of Transformation: From Small Scale Progress to Structural Change”, realising meaningful progress on sustainability requires deliberately-designed strategies based on insights into sector shapes and forces, which are focused on key elements of sustainable change. We have discussed the contributions and limitations of many current strategies, which are in many cases focused solely on compliance and certification, and we have discussed ingredients for a broader, more comprehensive approach to addressing root causes of unsustainability in a sector. But how then should we practically approach structural change on this level? In tackling the complex sustainability challenges of any sector, we promote a systemic approach; aiming to understand the particular dynamics which drive continued unsustainable behaviour in a sector, despite seemingly disastrous social and ecological outcomes. Only through a systemic approach—working with

This chapter was prepared with support of Matthijs Maas and Niko Wojtynia. G. ter Haar (*) · L. Simons NewForesight, Utrecht, The Netherlands e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_21

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stakeholders throughout the value chain to build local systems and an enabling environment in which farmer professionalism and sustainable production practices are rewarded—can we erode the barriers to sustainability, and transform our food systems. Sustainability is not a linear path to a single goal, but a gradual and often chaotic process in which sectors go through phases of sustainable maturity. These phases are distinguishable by different approaches to sustainability and growing awareness, sector organisation, and shared responsibility. Subsequently, each phase calls for a different set of strategies and tools to preserve the momentum and gains already achieved. This chapter dives into the changing dynamics of commodity sectors as they develop towards ‘sustainable maturity’. Following the introduction into the thinking behind this chapter and the argument that transitions towards more sustainable sectors occur in distinct phases, Sect. 21.2 continues with a presentation of the framework that identifies and characterises these phases. This allows readers to identify the level of maturity for the different sectors that they are concerned with. This section identifies four distinct phases of development (Inception; First movers; Critical mass; and Institutionalization) on the path towards sustainability. For each phase, the chapter explores the key dynamics, challenges and opportunities. Building on this thinking, Sect. 21.3 describes what is needed to actually transition from one phase to the next. Through a series of case studies, we discuss how to enable the transition to the next phase of sustainability and provide practical insights into key drivers of success in organising these transitions. Understanding the features of each phase enables stakeholders to redesign their strategies to account for—rather than working against—the prevailing dynamics of their sector. This is key to recapture the initiative in sustainability and kick-start meaningful and longoverdue transitions in sectors in all phases of development. In Sect. 21.4 we discuss what it means to reach the ‘final’ phase of the ‘Sustainability curve’, and whether a sector can ever truly be considered sustainable. Finally, we conclude this chapter in Sect. 21.5 by highlighting the limitations of this model, as well as suggesting how to overcome them: by using a more holistic approach that makes use of multiple tools and insights.

21.2

The Four Phases of Sustainability

In our experience, markets operating at different levels of sustainable maturity demonstrate different dynamics. What we have found in almost a decade of catalysing sustainable transformation in over a dozen sectors,1 is that these levels of maturity can be distinguished into four phases: (1) the Inception phase, where sector stakeholders first recognise the existence of the problem and set up projects; 1

Most notably organic cotton, coffee, cocoa, seafood, soy, and palm oil.

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3. Critical mass

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% sector sustainable

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Fig. 21.1 The Sustainability curve (S-curve) showing the four phases in a sector’s development towards sustainability. The X-axis represents an ideal timeline as the sector progresses through the phases of maturity

(2) the First-movers phase, where stakeholders and their individual projects compete on sustainability; (3) the Critical mass phase, where stakeholders begin to recognise and collaborate on sector-wide issues and set shared goals to tackle structural problems; and (4) the Institutionalization phase, where sustainable practices are institutionalized by governments into policy and regulation, creating a level playing field and penalising or even outlawing unsustainable practices. These phases can be visualised in a simplified way in the shape of a ‘Sustainability curve’—or ‘S-curve’ (see Fig. 21.1). This conceptual model recognises that, as a sector moves sequentially from one phase of sustainability maturity to the next (the X-axis), there is a steady progression in key topics related to sustainability (the Y-axis), such as: public (and sector) awareness of sustainability issues; broader stakeholder recognition of responsibility; recognition of market opportunities in addressing the issues and costs of not acting; the proportion of producers adopting responsible practices; cooperation between stakeholders on sustainability; and pre-competitive organisation of stakeholders on a sector level. It is also important to note that this curve is fractional—that is, it describes not just how these dimensions change at an aggregate global level, but can also describe the dynamics and incentives at the regional or sectoral level, all the way down to the organisational level, where it tracks the internalisation of sustainable norms and practices into a company’s core activities and decision making. As such, a single region or company can be ahead of (or behind) its sector. Meanwhile, it is not possible to skip a phase: applying approaches that are suitable in more sustainably mature sectors to other—less mature ones—will often be ineffective or even counter-productive. In Box 21.1, we will first discuss the features of the four phases, after which we provide insight into the drivers of progress to the subsequent phase, including case studies where theory meets reality. These case studies are meant to serve as food for thought, hopefully enabling stakeholders to (re-)design their strategies to shape and leverage—rather than struggle against—the dynamics of their sector. This is key if we are to further empower current initiatives and accelerate meaningful progress towards sustainable commodity sectors.

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Box 21.1 A Guide to Four Phases in a Sector’s Development Towards Sustainability 1. Inception phase: awareness and projects After years of business-as-usual, a major crisis emerges, rocks the sector, and raises public awareness of underlying sustainability problems that have long been ignored. Initially, most industry stakeholders downplay the problem or deny responsibility. However, sustained public attention and pressure ensure that some companies ahead of the curve eventually concede that a problem exists and resolve to do something about it. Important to note is that in certain sectors, such as natural rubber (see also case study in Box 21.2 below), there is near to zero public awareness and quite limited NGO attention, but industry actors nevertheless drive the inception phase based on a new understanding of supply or reputation risk, and seeing a potential competitive advantage to being a first mover. This begins the Inception phase in which these frontrunner companies set up isolated projects and undertake high-profile interventions to demonstrate their recognition of the problem and their willingness to address it. Since the underlying drivers of the sector’s issues are not yet clear, these projects are often symbolic and do not achieve positive change in a structural way, while failing to address the root causes of the problem. 2. First-movers phase: competition on sustainability In the second phase, market demand for sustainable products drives an increasing realisation by smart industry players that sustainability can be a product differentiator by establishing standards and product claims in an otherwise crowded market. This can provide them with a competitive advantage—provided they move quickly enough to establish themselves as sustainability frontrunners. First movers start to set up and promote more organised and visible sustainability initiatives with multiple local stakeholders. As industry competitors see that they are being outmanoeuvred on sustainability, they will mimic but not always follow—defining their own standards and claims to also capture first-mover advantages. For instance, in the coffee sector, after both Kraft Foods and Nespresso announced new partnerships with the Rainforest Alliance (the Sustainable Coffee Initiative, and the AAA Sustainable Quality Program, respectively) in October 2003 (GreenBiz 2003; Nespresso 2013), it took mere months for Douwe Egberts to follow suit in March 2004 with a commitment towards UTZ Certified (originally Utz kapeh). Once several standards and claims are established and accepted by the market, more and more laggards will start to adopt them in an effort to keep up, generally leading to the dominance of several large standards and (continued)

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Box 21.1 (continued) several ‘niche’ standards. The market differentiation provided by sustainability claims results in an explosion of sustainability-promoting activities, as dozens of standards, programs, and ethical market claims arise and begin to compete on their added value. 3. Critical mass phase: sector cooperation The third phase is fuelled by an increasing understanding amongst sector stakeholders that investing in sector-wide responsible production is in their shared interest—not just to farmers or society at large, but also to companies themselves in the form of supply chain risk management. Additionally, as initiatives like certification become a license to operate instead of an added value, their competitive advantage disappears. As a result, organisations begin to engage and work together to tackle challenges that cannot be tackled by individual organisations, nor by tools such as certification used in isolation. In this ‘Critical mass’ phase, structural change begins to truly take place, as challenges are approached in a holistic way. Success is no longer defined based solely on output (e.g. number of schools built or number of farmers trained), but as desirable outcomes (e.g. % increase in literacy or farmer productivity/income) that have been established in an inclusive manner. Many tropical commodity sectors (well-known examples being coffee and cocoa) are somewhere in the third phase. In this phase, multistakeholder initiatives have been set-up which convene industry, government, civil society, and academia. These initiatives are key in defining an overall strategy to tackling sector-wide sustainability challenges, and to translate this to region-specific interventions. 4. Institutionalization phase: a level playing field In the final phase, ‘Institutionalization’, the sustainability curve reaches its full potential, as desired, sustainable practices—once unthinkable—are now perceived as the ‘new normal’ by companies, consumers, and policymakers alike. In this phase, the sector has effectively put an end to certain practices that are environmentally damaging or socially undesirable. Still, that does not mean that all is well with the world, as the sustainability landscape is complex and changing. As soon as (or usually, well before) responsible standards become the ‘new normal’, another crisis exposes new dimensions of unsustainability, and the sector goes through the different phases again. It is with this growing awareness that forward-looking companies start developing their own agendas—pushing the boundaries of industry responsibility for sustainability, and dealing with major social issues like water, sanitation, and hygiene, as well as nutrition.

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Sustainable Evolution: Mapping the Transitions from One Phase to the Next

Based on insights into the phase and characteristics of a sector, we need to determine where to focus our efforts to drive the sector further. This involves identifying the relevant barriers to change, effective interventions, and which partners and coalitions can effectively organise and drive progress. We will explain the dynamics of these transitions and illustrate them with a number of brief case studies of current, retrospective, and forward-looking sector transitions. For an overview of sector shapes and their dynamics, please refer to Chap. 11 in this volume.

21.3.1 Phase 1–2: From PR Problem to Competitive Opportunity The actual impact of addressing sustainability issues in Phase 1 remains limited by a project-focus, a narrow scope, and a fragmentation of efforts. Worse, the public visibility of projects, and the salience of the tangible (yet short-term) alleviation of symptoms can often make it attractive to remain stuck in this phase. To industry stakeholders, straightforward, symptom-alleviating projects offer a relatively low-investment, low-stakes way to deflect accusations of unsustainable exploitation which plague their industry. All the while entire industries are being built, mainly inhabited by the NGO community, to set up and run these projects. In most sectors, this phase can last for decades before stakeholders realise that they are nowhere near a more sustainable sector.

Preconditions for Change Towards Phase 2 The transition towards the second phase is dependent on two main drivers of change: (1) the emergence of new crises or scandals, or the positive actions by industry frontrunners, continue to drive public awareness of the problem and make clear that the individual projects of the inception phase have at best addressed the symptoms of sustainability problems, but not their actual causes; and (2) first mover companies identify a competitive opportunity in being first working towards solving problems instead of symptoms. An example of a sector that is currently in the middle of this phase shift is natural rubber.

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Box 21.2 Case Study: Natural Rubber

Situation: • The market for natural rubber has grown steadily over the past two decades, in large part driven by a rise in motor vehicle sales. Production is concentrated in Thailand, Vietnam, and Indonesia (together accounting for two-thirds of world output; see Worldatlas 2017), all displaying flat pyramid sectors, dominated by smallholder producers with power concentrated among a smaller number of processors and traders. • The sector is only now starting its first steps towards sustainability with two major industry players (General Motors from automotive and Michelin from tire manufacturing—tire production being the dominant user with 85% of demand) committing to a sustainable sourcing policy (Grady 2017; WWF 2018), and limited but growing application of sustainability tools such as standardisation or certification. • Sustainability issues are similar to those in other smallholder-dominated tropical commodity sectors, including low producer income, producers lacking access to information and support services, deforestation, and a loss of biodiversity. Barriers to progress • Price instability/volatility and low urgency creates hesitance to invest in sustainability initiatives.

• Lack of sector governance, as existing industrial, intergovernmental, and research associations take no concerted action or official position on sector issues.

• Weak downstream demand for responsible products; the market is dominated by tire manufacturers which experience little external pressure to change.

Opportunities for progress • Availability of mature tools and approaches to drive sustainability, such as VSS (Voluntary Sustainability Standards) and frameworks for FPIC (Free, Prior, and Informed Consent to avoid social conflict) and HCV (High Conservation Value to ensure conservation of biodiversity). • Industry frontrunners are leading the way with sustainable sourcing policies, and experience from other sectors suggests that others will follow once sustainable sourcing is proven to lead to de-risking the supply of natural rubber. • Industry-wide dialogue, which started to gain traction in 2018, and increased interaction with NGOs is building momentum for sustainability.

(continued)

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Box 21.2 (continued) Outlook: If the tire and automotive companies can successfully pull their supply chains in the direction of the sustainable sourcing they have committed to, they have a good chance of leading the sector towards a broader sustainability strategy. It should be noted that, despite efforts by sector frontrunners, there remains relatively little public awareness of the problems in the natural rubber sector, and little awareness that current efforts are largely failing to resolve the sector’s structural issues. Moreover, governments of leading producer countries are not showing support. Natural rubber lacks the urgency of a sectorwide crisis, and thus responsible production remains of little business value. The general lack of urgency is expected to create tension and pockets of inertia as one part of the sector is starting to move up from the ‘Inception phase’ (#1) to the ‘First-movers phase’ (#2), whilst another part of the sector has arguably not even made it to the inception phase, thus offering a ‘hiding place’ for sustainability laggards. Concerned sector stakeholders that strive to move the natural rubber sector to its next phase should consider the following priorities: (1) continue to build public awareness, linked to sustainability developments in related sectors; (2) identify, engage with, and reward frontrunners, creating first-mover advantages; (3) formulate a clear and compelling business case for companies to pursue responsible natural rubber sourcing, including first-mover advantages and supply-chain de-risking. For an in-depth analysis of the natural rubber sector and overview of what is needed for its transformation, written from the perspective of an experienced practitioner in sustainable sectors, please refer to Edward Millard’s chapter on natural rubber sector in this volume (see Chap. 27).

21.3.2 Phase 2–3: From Competition to Collaboration In their focus on their own supply chain actors, sustainability efforts in Phase 2 are often still unable to address all systemic, negative feedback-loops as mentioned in Chap. 11 of this volume (i.e. failing markets, failing governance, and failing support systems). Moreover, while tools such as VSS are valuable for helping Phase 2 firstmovers generate competitive advantages from sustainability, these standards can become regarded as goals in themselves. This is a problem because VSS are ultimately limited by their emphasis on rewarding single supply chain actors, an emphasis on primary producer-level interventions, and the preference for solutions that focus on ‘media friendly’ problems. There is an additional issue: the first-mover market dynamics—which rely on the appreciation of sustainability as a ‘competitive advantage’—mean that the ‘First-

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movers phase’ (#2) is untenable in the long run. Near the end of this phase, more and more ‘laggard’ companies mimic the first movers, and the market becomes saturated with labels, commitments, and programmes. Media and consumers no longer pay much attention to the nth new label, reducing the differentiating power of standards. As standards lose added value for the supply chain, we see the rise of more lenient standards, and new standards offering other means of creating added value (e.g. stronger marketing or additional credibility). This continued proliferation inspires the formation of new organisations which compare and benchmark the plethora of standards—spurring a new wave of improvement. Meanwhile however, the realisation grows that the sector is not solving the structural issues that continue to plague it. This is a critical juncture on the sustainability roadmap: the transition from Phase 2 (‘First-movers’) to Phase 3 (‘Critical mass’) is one of the most difficult ones. The gradual lack of differentiation coupled with limited impact, eventually hollows out the competitive advantage of individual sustainability efforts. Companies in Phase 2 may spend a lot on their sustainability initiatives; but with a growing lack of results and business value, and continued criticism and sourcing risk, they will begin to critically review the business case of sustainability. This juncture is also where some sustainability journeys fail; if a sector is not able to mature towards Phase 3 it can remain ‘stuck’ in the second phase, developing new tools that increasingly strive to serve either business interests or the agendas of critical NGOs. This does little but creates sector-wide cynicism and widens the gap between industry and NGOs.

Preconditions for Change Towards Phase 3 Achieving the leap from Phase 2 to Phase 3 requires a growing awareness with industry stakeholders of the need for and value of joint action in tackling the systemic issues affecting the sector as a whole. This marks a shift in industry thinking away from “how can we beat our rivals at sustainability?” to “how can we effectively organise the path towards a sustainable and healthy sector?”. With growing awareness that tackling structural issues lies beyond the capacity of single organisations, competitors start to collaborate on these topics. The results of this collaboration show the first signs of breaking the stale-mate that has existed on these topics and help build trust. As concluded in Chap. 11, this type of collaboration revolves around six key elements for success: • • • • • •

Create a shared vision of what constitutes a sustainable sector; Develop consistent, actionable strategies; Articulate clear roles and responsibilities; Enable the transition to a responsible business case; Co-create a shared framework progress tracking and reporting; Organise for success with a fit-for-purpose and neutral backbone organisation to convene the sector.

These elements enable stakeholders to articulate a shared long-term vision for sustainability in their sector—and to agree on an approach for getting to that point.

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NewForesight was intimately involved in shaping the transition of the cocoa sector from Phase 2 to Phase 3 in the early 2010s. The case study presented in Box 21.3 below briefly discusses our experiences in this transition. Box 21.3 Case Study: Cocoa in the Early 2010s

Situation: • Certification schemes and NGO partnerships did not solve the cocoa sector’s entrenched systemic issues, such as child labour, which require far-reaching societal change and large-scale stakeholder involvement. Shockingly, the International Cocoa Initiative estimates that more than 2 million child laborers still work in the sector. • As a response, the early 2010s saw the emergence of non-competitive initiatives as an attempt to tackle these issues: The World Cocoa Foundation (WCF) launched the Cocoa Livelihoods Program and African Cocoa Initiative, and public-private partnerships such as the Cocoa Sustainability Partnership and the Dutch Initiative for Sustainable Trade (IDH) likewise started to address sector sustainability. Barriers to progress • Entrenched competitive behaviour and a lack of trust between companies. • NGO community stuck in ‘naming and shaming’, pinning all of the sector’s issues on the industry, with no real option for companies to be recognised as doing good. • Individual organisations unwilling to abandon their own ‘flagship projects’ and unwilling to align or collaborate.

Opportunities for progress • Leadership among several key industry players to move forward, united behind a shared vision of sustainability. • Several large NGOs starting to adopt a new stance towards industry, seeing the potential for using constructive dialogue and collaboration. • Capacity and mandate of World Cocoa Foundation to act as the backbone organisation to sector-wide coordinated efforts.

Looking back – the transition to Phase 3 in the cocoa sector: The leading role of the industry—born in part from growing frustration with continued criticism from NGOs and civil society, as well as the seeming (continued)

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Box 21.3 (continued) lack of structural impact of individual sustainability efforts—led to the founding of CocoaAction in 2014. CocoaAction was the shared sustainability strategy of the then 12 biggest chocolate- and cocoa-sourcing companies to align their sustainable sourcing efforts and to actively collaborate with governments of Ghana and Côte d’Ivoire, the two largest cocoa producing countries in the world. One decisive factor in this strategy is also that two thirds of the world’s cocoa was (and is) produced in these two geographically adjacent countries, which created the opportunity for engagement with key governments in a way that has not been possible in other more dispersed sectors. CocoaAction was, for a large part, the result of a small group of frontrunners and big thinkers. The initiative marked the start of a critical dialogue on the success factors for progress: discussing the integration of shared and individual sustainability goals under one shared vision and strategy, shared roles and responsibilities, shared measurement and reporting, and increasingly active collaboration between industry, NGOs, and origin governments. The development and implementation of CocoaAction marked the sector’s transition into the third phase. Outlook: Currently, the sector is in the third phase. Following the results from the first years of implementation, sector stakeholders have been able to evaluate their progress. Although good progress is being made, it is also becoming clear that current efforts do too little to tackle structural issues that require broader stakeholder action. Examples of these challenges are climate change mitigation, living wage and the farmer business case, gender-inequality, and enforcement of sustainability legislation. These grand challenges will continue to require more concerted effort by sustainability stakeholders from the cocoa sector as well as other primary sectors, whilst more strongly empowering and incentivising local governments to act. These concerted sector-wide efforts require coordination by neutral facilitators, who help competing, rival organisations to understand their joint interest in sector sustainability, raise ambitions beyond the ‘lowest common denominator’, and enable stakeholders to work together and share best practices, results, and experiences.

21.3.3 Phase 3–4: Joint Action Towards a Sector Tipping Point When a sector makes it to the ‘Critical mass phase’ (#3), it has already cleared many hurdles, and it is finally well on its way to addressing deep sustainability issues. Stakeholders have begun to align on a shared, common vision of sector

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sustainability. Governments are beginning to come on board with coalitions and roadmaps to improve regulation and enforcement to combat undesirable behaviour. The ultimate goal is for governments to institutionalize the sector’s sustainability agenda and accelerate change by improving the enabling environment for responsible production. Things are markedly improving. But our work is not done yet. Many challenges remain even in this phase of sustainable maturity: in the first place, even as there is now a broad sector consensus on the need for cooperation, not everyone is eager to join up. Some stakeholders resist the transition—claiming that they have not been appropriately included in the negotiations, or that the distribution of roles, costs, and value benefits others more than it does them. Simultaneously, some companies seek to ‘free-ride’; continuing to reap the benefit of unsustainable behaviour, whilst riding the wave of an improving industry image. Such actors strain cooperative initiatives and pose risks to the public image of the sector. On the other side of the equation, NGOs, standard-setting organisations, and other change agents who have led the push for sustainability throughout Phase 1 and 2 may feel left out or find it hard to accept that industry is now genuine in their commitment to sustainability.

Preconditions for Change Towards Phase 4 As sustainability becomes mainstream, it is institutionalized through government directives and regulation on the local, national and sometimes international level. Law-making processes are aligned with the overarching vision and targets articulated by public and private sector stakeholders in Phase 3. By ensuring that laggard organisations and free-riders are finally required to adopt responsible practices in line with the prevailing norm (the ‘new normal’), this institutionalization effort helps to ‘lift’ the whole industry onto a new, level playing field of sustainable production—defeating the patterns of unsustainable behaviour which have plagued the sector for so long. Concretely, to make the final transition several elements are required, including: • The involvement and empowerment of authorities at various levels; • Willingness of the market and financial sector to structurally invest in and reward responsible production; • Globally recognised and locally relevant change agendas, combining a ‘landscape approach’ (NewForesight and Commonland 2017) and a supporting policy framework (see also Chap. 22 in this volume for an example of landscape approach in palm oil); • Local Public-Private Partnerships (PPPs) and other efforts with the resources and expertise to implement these agendas successfully.

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Box 21.4 Case Study: Palm Oil

Situation: • Certified palm oil has begun to reach the mainstream with 19% of global palm oil production certified by the Roundtable on Sustainable Palm Oil by Q2 2018. • RSPO acts as a convening platform rather than merely a certification standard, facilitating collaboration and dialogue between sector stakeholders. • Large scale, systemic sustainability problems persist, with recent forest fires as well as labour abuse findings (Amnesty International 2016) drawing worldwide attention to the sector. • At the same time, companies are increasingly cooperating with governments and NGOs to act on commitments to limit negative impacts. Barriers to progress • Structural low demand for certified sustainable palm oil from substantial and growing market segments (e.g. Asian consumer markets, biofuels) set to upset the global balance between supply and demand in lieu of non-certified palm oil. • Current certification schemes are reaching their limit: they struggle to include all producers in responsible production, and lack mechanisms for broader stakeholder involvement to tackle structural issues such as zero deforestation and social topics.

Opportunities for progress • Developments in remote sensing and the availability of reliable, cheap, and highly detailed geodata creates unpreceented opportunities for peformance measurement, continuous improvement, and accountability. • Producer country governments and the financial sector show increasing willingness to invest in initiatives that drive responsible production, through innovative financial tools and products. • Development of new business approaches and initiatives for concerted sustainability efforts that go beyond certification (e.g. jurisdictional/landscape approaches; Palm Oil Innovators Group), unlocking the realization of sustainability on regional level and clarifying the link between investment and regional impact. • Companies and local authorities are moving from commitment and regulation to action and enforcement, whilst societal awareness allows for stronger pressure on sector stakeholders to support responsible production.

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Box 21.4 (continued) Outlook: The opportunities identified above show that the palm oil sector’s transformation through the third phase of the S-curve is in motion, even though the next phase will still take time to achieve. Three elements will be critical in making a successful transformation towards the Phase 4, while the sector continues to grow: (1) full support and ownership of producer country governments, particularly at the local level where land use change can be controlled; (2) local and international—emerging—market recognition and buy-in to sustainable products; and (3) a holistic approach that encompasses the larger scale participation from and benefits to smallholders and local communities in this transition. Please refer to Chap. 22 in this volume for a more in-depth look at the palm oil sector and what is required for it to truly transition—written from the perspective of one of the sector’s most dedicated change-makers.

21.4

Looking Beyond the S-Curve

What happens when a sector has reached Phase 4 of the S-curve? Will that sector have become perfectly sustainable, free of issues? That question highlights the difficulty of capturing reality in a model. There are a number of reasons why no sector will ever be fully in Phase 4: • Sustainability is complex. This may seem like stating the obvious, but when applying this framework, it is important to realise that a sector may be in Phase 4 on a certain topic, whilst being stuck in Phase 2 on another. The progress on individual topics can be mutually reinforcing due to a general increase in awareness of sustainability, but the pace of progress for each is strongly influenced by a myriad of factors such as initial momentum and severity of crises, political will, societal awareness, and regulatory framework. • Sustainability is a moving target. Although Phase 4 may seem like the terminal station for a sustainability topic, our understanding of sustainability will shift and change thanks to better understanding of long-term effects, improved insight into cultural differences and human behaviour, and a growing body of research and data on impact. Additionally, regional or global developments, or a new crisis may create a whole new set of issues for the sector to worry about, and the whole transformation starts over. At the same time, if done right—meaning in a coordinated, holistic manner; aimed at outcomes and structural change; focused on measurement, continuous improvement, and learning—driving progress towards sector-wide sustainability can yield great results.

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Designing Progress Towards Sustainable Sectors: The Four Phases of. . .

21.5

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Conclusion

Too often, today’s approaches to sustainability implicitly aim at finding the silver bullet to a sector’s sustainability challenges—a single formula or tool that can be applied repeatedly until ‘sustainability’ is achieved. This magic-bullet approach deeply misunderstands the complex ways in which (agribusiness) sectors actually operate and mature towards sustainability. In this chapter we have set out a conceptual framework for the development of actionable, holistic approaches towards sustainability. With it, we have strived to explain the importance of determining the phase of a given sector on the path to truly responsible production, and understanding how this maturity alters a sector’s dynamics. Consequently, we have sketched out how to achieve the transitions between each of these phases. This four-phase S-curve model of sustainable development is not just of theoretical relevance in understanding commodity sectors; it is also of practical importance for understanding how to act upon them in the pursuit of greater accountability and sustainability. Especially when combined with the Shapes and Forces model from Chap. 11, this set of tools allows the identification of key allies and factors for success (or failure). To establish long-term net-positive practices and achieve positive outcomes for all stakeholders involved requires increasing degrees of cooperation and communication. A crucial enabler regardless of how far along the S-curve a sector is, is a shared framework for measurement, dialogue, and learning. We hope that the framework, examples, and recommendations in this chapter enable you and other change-makers to more critically evaluate the other chapters in this book. Combined with the insights from other chapters in the volume we trust you will be able to constructively challenge and engage stakeholders in the sector (s) you are active in. The pursuit of sustainability will require us all to take on the role of ‘constructive critic’; to not be driven solely by passion or emotion, but to stay sharp and critical, reflecting on the inputs, outputs, outcomes, and impact of sustainability efforts. This will prove key to recapture the initiative in sustainability and kick-start meaningful and long-overdue transitions in sectors in all phases of development.

References Amnesty International (2016) Indonesia: the great palm oil scandal: labour abuses behind big brand names. https://www.amnesty.org/en/documents/asa21/5243/2016/en/. Accessed 31 Jan 2019 Grady B (2017) GM, Michelin put brakes on deforestation linked to rubber. GreenBiz. https://www. greenbiz.com/article/gm-michelin-put-brakes-deforestation-linked-rubber/. Accessed 31 Jan 2019

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GreenBiz (2003) Kraft Foods Partners with Rainforest Alliance on Sustainable Coffee Initiative. GreenBiz. https://www.greenbiz.com/news/2003/10/08/kraft-foods-partners-rainforest-alli ance-sustainable-coffee-initiative/. Accessed 31 Jan 2019 Nespresso (2013) History of the Nespresso AAA Sustainable Quality Program. https://www.nestlenespresso.com/asset-library/Documents/Nespresso%20-%20AAA%20Program%20-%20His tory%20of%20the%20Nespresso%20AAA%20Sustainable%20Quality%20Program.pdf. Accessed 31 Jan 2019 NewForesight, Commonland (2017) New Horizons for the Transitioning of our Food System: Connecting Ecosystems, Value Chains and Consumers. Discussion paper by NewForesight and Commonland with contributions from The Boston Consulting Group. http://www.newforesight. com/wp-content/uploads/2017/01/New-horizons-for-transitioning-our-food-system-discussionpaper.pdf. Accessed 31 Jan 2019 Worldatlas (2017) The Leading Natural Rubber Producing Countries in the World. https://www. worldatlas.com/articles/the-leading-natural-rubber-producing-countries-in-the-world.html. Accessed 31 Jan 2019 WWF – World Wide Fund (2018) Transforming the global rubber market. https://www. worldwildlife.org/projects/transforming-the-global-rubber-market/. Accessed 31 Jan 2019 Guus ter Haar is senior strategy consultant at NewForesight. He is the firm’s in-house expert on regional and landscape-level sustainability strategies, having spearheaded a number of novel approaches to realize sustainability on a regional scale in sectors such as coffee, seafood, and palm oil. His specialty lies in ambitious sustainability projects that require the design of actionoriented strategies and business models to align interests of local, national, and international stakeholders, including industry, NGOs, and governments. In recognition of his work, he was named a Dutch Young Sustainability Leader. NewForesight, Arthur van Schendelstraat 750-760, 3511MK Utrecht, Netherlands; Tel: +31 30 227 1900; Email: [email protected]; Internet: www.newforesight.com; Twitter: @guusterhaar. Lucas Simons is founder and CEO of NewForesight, an international strategic consultancy dedicated to turn complex sustainability challenges into market opportunities. Furthermore, he is CEO and founder of SCOPEinsight, a business intelligence company dedicated to set the world standard for professionalisation of farmer organisations. Through his work Lucas has been active for almost 20 years in over 16 different sectors and markets and he is the trusted advisor of many large industry players in food and agriculture, governments, NGOs and leading international organisations like World Bank, IFC, FAO. He is author of the book ‘Changing the Food Game – Market Transformation Strategies for Sustainable Agriculture’, and teaches frequently at business schools and universities as visiting professor on the topic of market transformation and systemic change management. Lucas was honoured by the World Economic Forum as Young Global Leader and he was named Ashoka Fellow for being a systemic Change Maker for his work, and is a frequent listing in the Top 100 leading sustainability leaders in the Netherlands. NewForesight, Arthur van Schendelstraat 750-760, 3511MK Utrecht, Netherlands; Tel: +31 30 227 1900; Email: [email protected]; Internet: www.newforesight.com / www. scopeinsight.com / www.changingthefoodgame.com; Twitter: @lucas_simons.

Chapter 22

What’s Next for Transforming the Palm Oil Sector: More of the Same or Better Embedded? Johan Verburg

22.1

Introduction: “Welcome to the Hotel California”

At a time when I had only been engaged in the palm oil sector for a few years and had supported the establishment of criteria and certification rules for the Roundtable on Sustainable Palm Oil (RSPO), I thought I could check out any time I liked and move on to a next commodity sector. It was 2007 and I couldn’t have been more wrong; more than ten years later, I feel I can never leave. The involvement of an international social/development perspective in the palm oil sector remains highly needed, despite significant progress made through the voluntary standards approach, which is reaching a fragile but critical mass in the sector. This chapter will argue that in order to achieve positive impacts for both people and sustainable development, there is a need for continued efforts and for better embedding market transformation in wider sector changes and landscapes. There are exciting and encouraging new developments, for example, the financial sector providing an extra push and governments actually taking up their responsibilities. Checking out and moving on never happened because my interest in the palm oil sector continues to be fed. Lessons, challenges and innovations—I am convinced— are equally relevant and inspiring to those active in other sectors. This chapter describes my story looking back as well as forward, largely from my internationally, socially and insider focused perspective (with an emphasis on Indonesian smallholders, land rights and RSPO). The chapter starts by describing some sector characteristics—including the various stakeholders in the palm oil sector—that have helped or hindered in bringing about sustainable changes for people and the environment. Section 22.3 then highlights some critical milestones in the history of sustainable palm oil and how

J. Verburg (*) Oxfam Novib, The Hague, Netherlands e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_22

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crisis has been turned into opportunity. Section 22.4 assesses progress so far, using the models that have been presented earlier in this volume in Chaps. 11 and 21 by Guus ter Haar and Lucas Simons. The section not only presents conclusions about the transformation of the palm oil sector but will be highlighting recommendations that should also be useful for practitioners in other sector transformation initiatives. Section 22.5 turns specific attention to outcomes that have and have not led to positive results for palm oil smallholders. Subsequently, the section offers a deeper analysis of the elements needed for the next transformative step in the palm oil sector to be better embedded in sustainable landscapes. The chapter ends in Sect. 22.6 with a call to action for each stakeholder group.

22.2

What Makes Palm Oil Problematic and for Whom?

22.2.1 Sector Characteristics: Growing Need for Land Land use change for palm oil has caused significant impact on deforestation, greenhouse gas emissions, land conflicts and smallholder exploitation. Global demand for palm oil has risen in the past decades and will continue to do so by at least 7% per annum (USDA 2018; Beekmans et al. 2014; Zion Market Research 2016). Continuously growing areas of land are needed for production because palm oil is an efficient and very versatile ingredient to food, fuel1 and hygiene products: it is estimated that it is ‘hidden’ in half of the packed supermarket products (WWF 2018). Food technology using palm oil has helped in feeding increasing populations with changing food habits. The history of palm oil goes back to colonial days—including the heritage of some of its large-scale and top-down practices—but boomed mostly since the 1990s due to demographic and market developments.

22.2.2 Main Palm Oil Stakeholders’ Power Map: A Delicate Balance Indonesia and Malaysia jointly produce almost 90% of the globally traded palm oil volumes, which are mainly consumed in emerging Asian markets but also supply all major western brand companies. While the traditional multinational companies have gone through vertical disintegration (i.e. selling operations in the value chain and concentrating increasingly on branding and marketing products) the sector is dominated by integrated Southeast-Asian multinationals who hold the major capital

1

This text does not go into discussing the various initiatives and standards (e.g. RSB, ISCC) relevant for bio-energy applications of palm oil, although in terms of volume growth this sector has had significant impact.

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Fig. 22.1 Palm oil sector shape (Model © NewForesight)

assets in plantations, mills, logistics, trading and further processing. Five out of six palm oil refineries in The Netherlands for example are wholly or partly owned by Malaysian or Singapore based parent companies. Just 10 large companies control 30% of the planted area (Beekmans et al. 2014). The palm oil business is backed by a relatively small number of banks and investors, many working out of Singapore and Jakarta (Forests & Finance 2018). On the other hand, roughly 40–45% of the land is farmed by millions of family farms, in Indonesia with the typical size of 2 ha, determining the sector shape in NewForesight’s model as an hourglass, as pictured in Fig. 22.1 (please refer to Sect. 11.4 in this volume for a detailed review of the ‘Sector Shapes’ model). The enabling environment for sustainable production has long been weak on many accounts, whether provided from the public or private sector; palm oil production was presented as a single livelihood option, especially to (trans)migrants; production characteristics and market characteristics have not worked in favour of sustainability either, as I will argue below. Typically, the small family farms are bound as outgrowers or through middlemen to a single company mill since their fruits are very perishable. Contrary to the 48 h within which fresh fruits must be processed, the planting cycle is long (25 years) and oil palms can only be harvested three years after first investments. Prices are volatile both locally and globally. I would argue that trade is neither producer-driven nor market-driven and the same applies to the sector’s sustainability dynamics. A delicate power balance can be observed between large producers and multinational buyers. As a consequence of the commodity characteristics of palm oil trade (with competition on price only, irrespective of practices and locations of production) costs tend to get externalised. This, on one hand, explains the risk of exploiting people and the environment. On the other hand, it underscores the necessity of the multi-stakeholder approaches taken so far, since no single stakeholder can effectively tackle the sustainability challenges in isolation. In view of bringing economic development, the role of the Indonesian government has mostly been supportive to the large-scale growth model of the sector (Pramudya et al. 2016). Palm oil is the third largest export earner for Indonesia at $18.1 billion or 13.7% in 2015 (Indonesian Sustainable Palm Oil Forum 2017). The

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development model has been leaning heavily on the companies to provide capital investments and inputs as well as capacity building to the supply base of small farmers. However, in many cases the latter were not delivered, while the community land and labour contributions to the ‘development deal’ were poorly rewarded. Authorities gave out land use rights easily to the large plantation companies, adding to a history of land conflicts and deforestation. Initially, the wake-up calls from local civil society and international NGOs about environmental and social problems were ignored by public and private sector alike, except for a few individual company projects.

22.3

From Crisis Towards Structural Change

22.3.1 A Short History of Sustainable Palm Oil The first widely acknowledged crisis emerged for the palm oil sector in 1997 when large-scale forest and peatland fires in Indonesia generated air pollution for weeks, reaching as far as neighbouring countries across the Straits of Malacca (Dudley et al. 1997). The haze triggered initial alarms among governments in the region, as well as among global investors and buyers of palm oil. Activists in orang-utan suits were seen protesting at the doorsteps of UK supermarkets. Soon the foundations were laid for the establishment of the Roundtable on Sustainable Palm Oil, in 2003, to develop voluntary market governance, with—among others—criteria for protecting High Conservation Values (HCVs) and securing community support through Free Prior and Informed Consent (FPIC). The annual manmade phenomenon saw further devastating versions of the haze season in especially 2015, which may have become the landmark of a next phase of sector transformation with a focus on climate and carbon. Some key dates in the process of the development of sustainability policies and standards in the palm oil sector, by both market and public sector, are summarised in Table 22.1 (see Vis et al. 2012 for an earlier historical overview).

22.3.2 Reflecting on History: Never Waste a Good Crisis The selected milestones mark a bumpy road, describing the interaction between NGO, government and private sector action and inaction. Although not in the table of formal events, protests, walk-out or expulsion of members, litigation, revocation of concession permits, trade suspensions (e.g. versus Sinar Mas, see Unilever 2009) or even the threats thereof have undoubtedly had a role to play. Using NewForesight’s S-curve as a lens (as explained in Chap. 21 and illustrated in Fig. 22.2 below) we can observe that the environmental sector practices have gone

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Table 22.1 Milestones in palm oil sector transformation (compiled by author) Year 2002

2003 2005 2006/07 2008

2009 2009 2010 2011 2012 2013

2014 2015

2015 2016

2016 2017

Milestone The Association of Southeast-Asian Nations, ASEAN, signs the Agreement on Transboundary Haze Pollution for legally binding concerted national efforts and international co-operation to mitigate forest and land fires. Inauguration of the Roundtable on Sustainable Palm Oil by founding NGOs, Asian producers and multinational companies. Formally established in April 2004. RSPO Principles and Criteria (P&C) developed by a multi-stakeholder process and adopted by its General Assembly, starting a pilot phase of 2 years. RSPO Verification systems adopted, enabling certification against the P&C, plus a Code of Conduct and reporting requirement (Annual Communications of Progress). First certification achieved. Maiden shipment to Rotterdam. RSPO systems for trade, traceability, claims and communication developed, enabling the procurement of certified sustainable palm oil, kick-started by certificates/credits trade (Greenpalm). RSPO Complaints Panel assumes its role, subsequently supported by mediation services from the Dispute Settlement Facility. World Bank Group starts a review of its palm oil investment strategy following a complaint to its Ombudsman, led by Forest Peoples Programme (Teoh 2010). NGOs continue to demand credible impact of sustainable palm oil initiatives, including Greenpeace’s iconic Kit Kat campaign. Indonesian President Susilo Bambang Yudhoyono establishes first moratorium on deforestation with REDD+ support committed from the Norway government. First audits performed by ISPO (Indonesian Sustainable Palm Oil) to assure compliance with relevant Indonesian legislation. Wilmar and subsequently the other largest palm oil growers, traders and buyers begin to adopt commitments to No deforestation, No planting on carbon-rich peatlands, No exploitation of communities and smallholders Indonesia becomes the tenth and last country to ratify the ASEAN Agreement on Transboundary Haze Pollution In addition to the reviewed version of the P&C (2013), voluntary additional criteria are adopted in RSPO NEXT. In parallel, the Palm Oil Innovators Group develops criteria to verify progressive commitments. First initiatives with a jurisdictional approach to sustainable palm oil emerge. Various platforms and initiatives come and go, including the Indonesian Palm Oil Pledge (IPOP), the Sustainable Palm Oil Manifesto (SPOM), Malaysian Sustainable Palm Oil (MSPO) and UNDP-facilitated Indonesian Palm Oil Platform (InPOP). Indonesia President Widodo instructs a 5-year moratorium on new palm oil concessions and establishes Peatland Restoration Agency RSPO adopts a Smallholder strategy, a Theory of change and starts another review of its Principles and Criteria

through three cycles of transformation: the first with campaigns focused at awareness raising around threatened species, resulting in some scattered projects; the second with a technocratically dominated response through certification efforts, notably on HCV assessment and management, gradually reaching a critical mass and broader set of institutions; the third slowly acknowledging the limitations of certification and then possibly pointing towards more preventative and comprehensive (low carbon development) objectives around new plantings and a more purposedriven private and public sector policy wave.

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Fig. 22.2 Palm oil sector transformation (modified from Aidenvironment et al. 2015, Model © NewForesight)

The move along the Transformation S-curve regarding the social dimensions of sustainability has been comparatively slow, which will be discussed in further detail in the next sections. As a sign of hope, however, the smallholders who have often been seen as important part of the forest fires problem are also increasingly recognised as a necessary part of the solution to the same problem, as we will also see later in this chapter. Although public sector governance remains underdeveloped—including governments characterised as only paying lip service to palm oil smallholders2—there are sparks of hope since Indonesia’s President has acted in response to the haze crisis by establishing new policies (moratorium on new palm oil concessions) and institutions (the Peat Restoration Agency, the Crude Palm Oil Fund, law enforcement in peat and forest fires). Arguably triggered by NGOs acting as ‘agents of change’ and the 2015 haze crisis as ‘critical juncture’ (Green 2016), company commitments to protecting high carbon stocks have stepped up. Transformations need an (emerging) crisis to trigger paradigm shifts. Such shocks or events, therefore, should never be underestimated or underutilised. Major companies in the palm oil sector3 as well as the Roundtable and the Indonesian government have crossed critical junctures in response to or in anticipation of crises. NGOs have skilfully played a role as critical friends that were initially disliked but later often appreciated for providing early warning signals (like your alarm clock may do in the morning—often causing irritation but nevertheless useful!). Such steps often cannot be planned but practitioners in sector

2

The argument that Indonesian Palm Oil Pledge (IPOP) was not pro-smallholder was used to undermine the frontrunner initiative, eventually leading to the group of growers/traders disbanding (see for example Taylor 2015). 3 Examples include: Golden Agri Resources, Wilmar, Bumitama, IOI, Nestlé.

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transformation initiatives can prepare for them, having the required elements ready—as discussed from a more structural perspective in the next section. In conclusion, it is good advice to ‘never waste a good crisis’, whether it is another haze disaster or a multi-stakeholder meeting running out of hand.

22.4

Strengths and Weaknesses of Palm Oil Market Transformations So Far

This section will be using the Key Elements of Market Transformation as introduced in Chap. 21 of this volume to focus—in hindsight—on RSPO. The reflections provide relevant insights for other sectors moving from ‘first movers’ to ‘critical mass’. In this phase the market—or more precisely the RSPO and its certification system—is serving as the main ‘change agent’, with a few links to other certification initiatives and Indonesian government action. Subsequently, we will look at the question if more certification is better, as the sector moves to ‘institutionalisation’.

22.4.1 RSPO’s Key Elements in the Ongoing Transition Step to Critical Mass 1. RSPO’s shared vision has been to transform markets to make sustainable palm oil the norm. In other words, successful transformation was supposed to be a concerted effort involving stakeholders in and around the value chain, in an endeavour to embed sustainability in the mainstream sector. Today’s better practice was supposed to be standardised into common practice (the Principles and Criteria), understood through multi-stakeholder dialogue. To paraphrase Lewis Carol’s Cheshire Cat: “If you don’t know where you’re going to, any road will get you there.” So, practitioners should know and keep focussing on jointly determined end goals. This helps practitioners to focus and avoid the technocracy trap; technocratic or bureaucratic tools such as traceability and certification are considered means to an end. Certificate trade for example, which contributed at one point in time in RSPO to get the engine running, may become obsolete after a certain tipping point in a market is reached. Similarly, traceability-focused efforts may do more harm than good when taking up resources not resulting in sustainable impacts. 2. RSPO’s Theory of Change (ToC),4 therefore, started off with standardisation and stepwise implementation: The approach builds on current sector characteristics, mainly determined by the usual practices in commodity trade, to pragmatically 4 In retrospect, RSPO’s Theory of Change at the time has now been formally documented; see https://rspo.org/about/impacts/theory-of-change/, last accessed 31 January 2019.

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and consistently introduce new ways of working in production, which are independently verified and then rewarded by market uptake of the certified sustainable palm oil. Still, in transformations, first movers are faced with advantages and disadvantages. So, practitioners should develop separate theories of change and value propositions (as discussed below under 4) for early and late adaptors as well as for laggards in the supply chain (including the possibility to terminate free-riding members who are not responsive to complaint cases: you cannot wake up a person who is pretending to sleep). How mainstreaming and upscaling is expected to be achieved needs specific attention in a theory of change, differentiating subsets of the commodity market (e.g. European versus Southeast Asian volumes, food and biofuel markets) and stepwise approaches (e.g. partial certification and standards for segregated as well as mass/balance trade). There may be different incentives and disincentives, e.g. for emerging economies, with new tools and tactics (e.g. a jurisdictional approach). Looking more broadly into ‘selling success’ it helps to look beyond commodity trade and look at markets for land use, for carbon, for investments. Additional powers such as governments or the financial sector may provide welcome leverage or influence. Practitioners should do power maps and market research to sell up to saturation points and beyond tipping points because “it ain’t over ’till it’s over.” 3. RSPO roles and responsibilities have been developed to ensure RSPO and each of its stakeholder groups know what to do and can be accountable to each-other. Standard setting, capacity building and implementation, verification, trade and traceability, communication and product labelling rules all had to be trusted, actionable and scalable. Monitors and wake-up calls will continue to be needed. What cannot be fixed can possibly be facilitated through complementary governance systems or appropriate alliances (e.g. the Consumer Goods Forum and governments in the Tropical Forest Alliances TFA2020, or frontrunner companies teaming up with advocacy NGOs with relevant expertise). If you can’t beat them join them, if this fits your ToC and vision. If an issue keeps you awake at night, it is often wiser to increase common influence first and only then try to jointly change and increase impact. Practitioners should embrace complementary roles and approaches, establishing different coalitions, also using efficiencies and sharing of costs and risks to their advantage. 4. RSPO’s business case, typically in this phase of transformation, applies certification as a market differentiation factor. Nothing in essence works better in a market-based system than regulation through the very forces of competition and a race to the top. Incentives, however, must include a carefully established set of both carrots and sticks. To pragmatically progress certification, the RSPO e.g. applies the so-called anti-flagship requirement to prevent company members who operate several mills from only certifying their best operations and maintaining business-as-usual in

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the rest. The bigger companies must submit a sufficiently challenging timebound plan to cover all their operations. The rule allows a gradual approach to keep the certification threshold equally demanding for both smaller and bigger plantation companies, as well as accessible to both early and late adopters. The anti-flagship rule in RSPO is a good example of a measure taken with the larger transformation goals in mind. First steps in broad sector transformation always tend to focus on managing risks in global value chains, excluding and making unsustainable practices unattractive. A good system of complaints handling, in addition, shows that non-compliance is not tolerated. Practitioners should, however, also continue to make the business case for more sustainable business opportunities, such as investments in longer term supply security and market access. 5. RSPO’s accountability system includes impact measurement with an academic research programme monitoring RSPO’s impacts (RSPO 2016).5 More importantly, the system of annual progress reports—including timebound plans—by each member, increases transparency of past and future commitments and provides some security for future demand and supply trends. As such, no member can be excused for siting on the fence. Certification and traceability numbers help monitor progress but may be misleading in what they fundamentally achieve; concerns over impact will not be alleviated through more certification only. The fact, for example, that smallholders have been certified does not necessarily mean their livelihoods have materially improved. I’ve often said, “Smallholders don’t eat certificates”. Therefore, practitioners should both measure and report on outcomes (and on dilemmas!) as well as on impacts, identify best and worst practices, and learn to adjust interventions accordingly: Mark milestones, but deliver impacts. 6. RSPO’s backbone, which ensures it is organised for success is its multistakeholder governance structure and an annual gathering of members in roundtable conferences to facilitate dialogue on expectations and to exchange learning. In order to ensure its capacity to deliver, the RSPO has been clever in setting up its revenue model to grow with the growing market (1$ fee per tonne), properly resourcing its secretariat and building institutional capacity (expertise, communications, funding). Even more important than money, initiatives like the RSPO need to earn respect and establish their mandate. The annual conferences, including many interactive sessions such as World Cafés, provide a good context for learning while doing. Key issues may be at different stages of transformation. Therefore, practitioners should be aware of synergies and trade-offs between the various social and environmental objectives. Don’t throw the baby out with the bathwater, e.g. by excluding smallholders while they may be holding the biggest opportunity gaps in using existing land more productively. 5 See a range of impact research reports on http://www.sensorproject.net/, last accessed 31 January 2019.

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22.4.2 Critical Reflections on Progress to Mainstreaming Have these ingredients been a recipe for success? More importantly, will a successful sector transformation further progress with RSPO’s approach? Is more certification better? Let us first review how the world outside of RSPO has responded, or in other words how well market transformation is embedded in sector transformation. After the RSPO had started to establish its system for certification, the young organisation of first movers was finding itself struggling to deliver on the high expectations. NGO criticism did not calm down but on the contrary started pointing its arrows at the RSPO for resolving issues, e.g. complex land conflict and HCV cases (including discussions on cut-off dates, possible compensation grounds etc.), in which individual companies were not responsive. Similarly, the palm oil industry regularly called upon the RSPO expecting it to mitigate issues beyond its strict control, such as protecting it against health-related criticism or ensuring market premiums. Two important realisations seem to have helped. Firstly, the RSPO decided not to be ‘the fixer’ for every problem (and competing with other ‘fixes’) but rather the platform from which different stakeholders could start addressing issues. This, as a second point, underscored the formulated mission that speaks about transforming the market to make sustainable palm oil the norm. Although certification is a dominant element in this, it can also extend to supporting other initiatives. This was most prominently realised when other up-and-coming initiatives such as the locally grown Indonesian Sustainable Palm Oil (ISPO) were welcomed not as a competitor but a complementary initiative addressing the legal compliance of Indonesian producers as a possible local stepping stone towards compliance with the global standards of the RSPO. As such, collaboration with initiatives such as ISPO can help to reinvigorate the duty of governments to protect environmental and human rights.6

22.4.3 Are the Forces Shaping Transformation Into the Right Direction? If we look at the progress in transformation, the sector seems to be moving to a next level from critical mass towards institutionalisation. But is more of the same also better? Hopeful trends that can be seen towards more mainstream sector change are regular reviews of instruments such as the continued relevance and effectiveness of the standard (2007 and 2013 versions and current 2018 ongoing revision) and other

6

This is well in line with the approach promoted in the UN Guiding Principles on Business and Human Rights with government duties to protect and company duties to respect. The UNGP framework, by the way, next to these two pillars also promotes a third pillar: the access to remedy. RSPO’s complaints handling applies this in addressing land conflicts and environmental destruction cases.

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system elements (such as the FPIC tool considering company and NGO experiences) from the perspective of contribution to the mission. Let’s observe the transformation in terms of the four main forces, which influence sector dynamics, and which shape the production systems, as presented in NewForesight’s archetypical models. These forces are: Production characteristics, Enabling environment, Alternative livelihoods and Market characteristics (please refer to Sect. 11.5 in this volume for a detailed discussion of the ‘Forces Model’).

Sustainable Production Practices Need More Supporting Rules and Tools First, regarding production characteristics, additional social improvements are to be expected from support mechanisms for labour and for palm oil smallholders, which are now available. Even with rules and tools that should prevent smallholders from being excluded (see Table 22.2), however, production characteristics among smallholders have not yet changed to their benefit. If only looking at the numbers of smallholders certified, current certification-focussed approaches have not been substantively effective in actively including smallholders and helping them improve both their sustainability performance as well as their livelihoods (Schweithelm et al. 2016). Smallholders remain largely dependent on powerful companies or scattered NGO support.

Enablers Do Not Work Holistically on All Sustainability Issues Secondly, the transformations in the enabling environment look hopeful: local authorities are reinvigorating their enforcement roles, e.g. through ISPO. Commitments to ‘no deforestation’ have been negotiated in detail, rolled-out and brought Table 22.2 Measures available in RSPO for supporting smallholders (compiled by author) 1. 2. 3. 4. 5. 6. 7. 8. 9.

RSPO Rules and Tools for Smallholders The unit of verification covers both core plantations as well as the supply base that consists of small farmer schemes A grace period for smallholders to achieve full compliance Certification requirements interpreted for smallholders Guidance documents for smallholder certification in groups Guidance documents for simplified implementation and documentation of technical requirements Working groups dedicated to smallholder support Funds to support smallholder grouping and smallholder certification A smallholder strategy promoting the inclusion of smallholders in the RSPO system as well as their need to improve livelihoods, through certification and complementary measures Emerging jurisdictional and other approaches at the landscape level to reach large numbers of smallholders

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into practice. For some smallholders this results in secured land tenure, improved access to finance, inputs and extension services. The hecks and balances in both public regulation mechanisms as well as in certification systems are however still lenient and are receptive to fraud and other weak governance dynamics. The social auditing capacities for example are of poor quality and the assurance and oversight over third party certification bodies still weak (Brasser 2016). This poor institutionalisation undermines the credibility of claims. The inclusion of smallholders is for a lucky few and not structural. Similarly, newly emerging initiatives such as the Palm Oil Innovators Group (POIG) and higher standards such as RSPO NEXT could be subsequent steps. Moreover, the financial sector’s application of similar criteria in their approach to environment, social and governance risks contributes to embedding sustainability in longer-term investment decisions (rather than only in the short-term commodity purchasing decisions). RSPO can play a role in connecting different efforts or tools before and beyond certification. Although some sustainability issues have successfully found their way onto the agenda, into policy commitments and gradually into implementation, verification and evaluation, other issues are yet to be acknowledged and addressed (e.g. labour abuses, gender discrimination, food security impacts, water constraints etc.) or they are progressing only slowly (e.g. compensation for environmental and social litigation issues, and smallholder inclusivity—see the next point). The enabling environment seems to support single issues instead of a holistic approach.

Alternative Livelihoods Remain Out of Scope Third, ‘islands’ of certified palm oil ignore the broader landscape with its diversity of land uses, crops and alternative livelihoods. Even suggesting that food security is threatened when a formerly self-supportive province turns to rice-imports only leads to shrugging shoulders or defensive responses. In response, Oxfam has been developing an alternative business model—FAIR Partnerships—for the relations between companies and host communities. The concept, as further outlined in the next section, supports smallholder inclusion in the value chain and takes responsibility for broader livelihood needs and food security in the production landscapes which are currently dominated by oil palm.7

7 Some observers say the large-scale concession model will become obsolete; see e.g. Kuepper et al. 2016.

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Market Forces Work in Some Sustainable Value Chains But Not in Others Lastly, looking at market characteristics, outcomes of certification are encouraging: In May 2017, the percentage of RSPO-certified palm oil reached its highest point, with 21% of the global production volume. Furthermore, the large buyers are able to trace their palm oil procurement back to its source. However, traceability and certification reduce risks in some value chains but not in others. Without further mainstreaming, the most powerful value chain actors will have secured and claimed certified supplies but will just have externalized risks to less visible parts of the sector. Demand for certified oil is coming from selective markets only, helping to reach a first tipping point towards the mainstream but still maintaining commodity market characteristics and not reviewing how costs and benefits are shared. Other (growth) markets are still staying behind (Indonesian consumption market, export markets India and China, large parts of the—rapidly growing—biofuels market). Producers complain about lack of market reward. Smallholders are not receiving adequate returns to get certified or to retain their certifications once project support dwindles. Certification leads to isolated success and does not yet ensure better collaboration and embedded controls in adjacent chains, resulting in certification of already existing best practices and “islands of certification in seas of business-as-usual”.8 Let alone does certification warrant improvements there where the biggest sustainability gaps still exist (communities in land conflict, human rights abuses, clearance of forests and high-carbon peatlands with significance to alternative livelihoods and to climate change mitigation, laggards or free-rider members). Despite some strengths and significant achievements from various sustainability initiatives in the private and public sectors, many challenges remain. If the palm oil sector wants to become fully future-proof, it needs to step up collaboration across public/private boundaries and across scales to be economically attractive. Moreover, with the 25-year planting cycles, any approach should also aim at future generations and apply a youth- and gender lens. In conclusion, the RSPO seems to function well as an aggregator and facilitator of exchange and learning; however, translating this to a roadmap for change is still needed, especially with the aim to contribute to the Sustainable Development Goals on poverty alleviation, food security, sustainable production and consumption, green growth and partnerships. The next section discusses which elements to keep and what to address additionally in order to ensure structural improvements in the social dimensions of sustainability, benefitting smallholders and communities. We will advocate that this requires a more collaborative and embedded approach.

8 See also the community of practice for inclusive business Seas of Change: https://www.wur.nl/en/ project/seas_of_change2.htm, last accessed 31 January 2019.

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Where Transformation Should Go for Palm Oil Communities

22.5.1 Introduction: Making the Palm Oil Sector More Inclusive Section 22.5 will address the threats and opportunities for communities and their small family farms, which in the palm oil sector are usually not larger than two hectares. Often smallholders have been organised by company-established cooperatives that tend to work in the interest of the mill rather than for the farmers. While progress with regards to the environmental goals has developed and matured already, the way the sector is dealing with smallholders is possibly only just going into its second stage of change: from preventing exclusion to proactively promoting inclusion of smallholders. The RSPO has been reviewing its smallholder strategy after having realised that certification has brought neither the coverage nor all the impacts anticipated. Not only with regards to smallholders but more generally, the sector initiative is increasingly looking at certification and beyond. More supportive models are being developed—including FAIR Partnerships described below, using the same model from Chap. 11—as well as closer collaboration with local governments in jurisdictional approaches (Proforest 2016). The Indonesian government, with support from UNDP, has also started planning the inclusion of smallholders in ISPO and in its National Action Plan for sustainable palm oil (Indonesian Sustainable Palm Oil Forum 2017).

22.5.2 FAIR Partnerships: Key Elements for Institutionalised Socio-Economic Transformation 1. FAIR Partnerships shared vision: Smallholders can become more valued as business partners who can provide the land assets to materialise green and inclusive growth scenarios in palm oil. The interest in the smallholder supply base will increase while local authorities’ and large companies’ sustainable production needs are limited by the availability of land for low-carbon development. The FAIR Partnerships model (Beekmans et al. 2014) envisions that the company-community partnerships will result in economically diverse mosaic landscapes with well-balanced, where necessary negotiated, diverse land uses. These landscapes will be more resilient, prosperous and conflict-free, while also enabling ecological and carbon conservation functions. 2. FAIR Partnerships Theory of Change: Small scale farms in Indonesia have been constrained in good agricultural practices, notably for replanting and adopting climate-friendly practices, due to exploitative company-community relations,

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weak farmer organisations, insecure land tenure, poor access to finance, and limited governmental and market support. Therefore, the objective of FAIR Partnerships is that palm oil companies engage and support their host communities to enable inclusive green growth. In turn, investors and buyers from these palm oil companies engage and support them through longer-term loyalty in business relations. The value chain approach will be embedded in a broader landscape approach with the longer-term objective that FAIR Partnerships enable inclusive green growth of palm oil production which benefits small scale farmers and their village enterprises, communities, plantation companies, investors and buyers at scale. 3. FAIR Partnerships roles and responsibilities are in essence about transformations in the local and global level relations. The acronym FAIR describes the four FAIR principles for the partnership relation between company and community, with responsibilities on both sides: Freedom of choice, Accountability, Improvement and sharing of benefits, Respect for rights and the environment. The FAIR partnerships will generate replicable business, social and climate benefits from using a smallholder-inclusive value chain approach (triggered by the stakeholders in the ‘vertical’ trade relations) in combination with a participatory land use planning approach (in a ‘horizontal’ multi-stakeholder forum of interests in land-based livelihood opportunities in a production landscape). 4. FAIR Partnerships business case: Smallholders can become more valued as business partners (with income security and market access), especially if they see the benefits of organising in entrepreneurial units and more ‘competing on quality’ (i.e. competing on land efficiency, sustainability and livelihoods rather than ‘competing on poverty’—cf. Fig. 22.1). Higher productivity can be enabled through the provision of training in good agricultural practices and supporting replanting, especially if local governments, buyers and the financial market are willing to reconsider how risks and benefits of land and capital investments are fairly shared (shared value creation). The development of land use plans will safeguard adjacent land uses (forests, peat land, subsistence farms, diversification) and increases resilience. Moreover, this will better include the perspectives of women and youth. This lowers risks for investments by the farmers (as micro entrepreneurs), their SMEs and for financial service providers. Inclusive green value chains provide value chain partners an opportunity to meet consumerfacing sustainable production claims. Local authorities benefit from low-emission rural development, harmonisation of public policies, market regulation and replicable better practices. 5. FAIR Partnerships accountability: The FAIR Partnerships pilots will apply bottom-up, participatory approaches to land use and business planning. Moreover, they will include a participatory system for monitoring, evaluation and learning (MEL). The project will not be run as traditional civil society projects but also actively involve the private and public-sector stakeholders in drawing lessons. Joint analysis of opportunities and constraints encountered at landscape level should feed advocacy for policy changes in public and private sector networks. Furthermore, participants in the FAIR Partnerships are expected to

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demonstrate and replicate emerging best practices for wider sector adoption through their existing peer/business networks, including the RSPO and national platforms, and possibly to other commodity sectors. 6. FAIR Partnerships backbone/learning while doing: Oxfam will design and convene demonstration projects to substantiate the business and social case for the alternative business model. The projects will be governed by multistakeholder structures. A structure for knowledge and innovation management will also be built as an umbrella covering the pilots ran by Oxfam and others with a land use planning and/or smallholder inclusivity approach. This will also take care of the required building of capacities and embedding transformation in the sector institutions beyond the level of the demonstration projects. For example, one of Oxfam’s partner organisations, the young union of independent smallholders SPKS (Serikat Petani Kelapa Sawit) is quickly gaining the attention of the sustainability initiatives and companies in the sector, providing an indication of emerging changes.

22.5.3 Sector Forces at Work in FAIR Partnerships to Reshape Sector What promise does the FAIR Partnerships concept hold in terms of the forces which influence sector dynamics, and which shape the production systems (in line with models presented in Chaps. 11 and 21)? The current shape of the palm oil sector is typically hourglass shaped with high numbers of both large and small farms with poorly managed linkages. FAIR Partnerships could result in a more diamond shaped sector when the predominant arrangement would be close engagements between the big companies and their organised smallholder business partners, with mutual support, accountability and loyalty as described in the FAIR principles (Beekmans et al. 2014). This would be supported by changes in the four main forces: Firstly, the production characteristics of FAIR Partnerships would increase the valuation of land assets, bring in investments for higher quality seedlings and support for good agricultural practices. Companies are guests in the landscape, welcomed by host communities and host governments. Secondly, both private and public sector involved in FAIR Partnerships will provide the enabling environment forces in support of transformations in the sector (shape). There will be a business case for the provision of longer term securities, including access to land and infrastructure, access to markets, access to credit as well as access to extension services and inputs. Thirdly, alternative livelihood options will result from the participatory land use planning approach of the FAIR Partnerships, ensuring commodity cropping fits into the resilient and diverse production landscape, or mosaic, also attractive to youth and women.

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Finally, changes towards more supportive and engaging market forces would be characterised by increased transparency and traceability, in more dedicated and longer-term business relations (i.e. security) both in production countries as in international trade and investment. Eventually, palm oil could be presented to consumers with fame for its rural development opportunity rather than as a hidden ingredient ashamed of deforestation and exploitation.

22.6

Call to Action

The transformation of the palm oil sector can further progress if it would collectively broaden its scope beyond the trade and market-based approaches and embrace a more embedded, collaborative and inclusive growth strategy for palm oil. With the FAIR Partnerships model, I have argued that in the interest of sustainable development, the palm oil sector should shift from a product focus and market transformation only (even if sustainability is approached as a pre-competitive goal) to a more holistic look on production landscapes with diverse opportunities, needs and contributions. This final section summarises this into expectations towards the various stakeholders or—rather—keyholders who could make those desired changes materialise by doing things differently than before: Palm oil communities, including farmers, should claim their lead role in determining and voicing their livelihood aspirations and building their capacities to achieve them. Palm oil growers should behave as ‘guests’ in the ‘host community’ landscapes, engaging host communities and micro entrepreneurs in the development of their planting and milling activities, and supporting smallholder production as key factor in local economic growth. Palm oil buyers should look beyond their commodity market controls and engage and reward growers in landscape level partnerships, supporting responsible sector growth. Palm oil traders rather than just following supply and demand, should take full responsibility for the commodity flows they handle, driving inclusive production and growth. Palm oil investors should focus on long-term ‘triple bottom lines’ and direct agricultural investments to green and inclusive production growth opportunities. Local governments should promote agricultural reform, notably by securing land tenure and oversight in support of smallholder production and growth, balancing, securing and enforcing land use plans. Platforms such as RSPO should consolidate good practices (including enforcement) and should facilitate learning and disseminating the newly emerging best practices, facilitating the interplay between the global expectations and support with the local capacities to transform and deliver.

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Knowledge institutions should support impact measurement, evaluation of success of system safeguards and drawing of lessons about effective pathways of change. NGOs and civil society organisations should move from ‘no-no-no messaging’ to designing and promoting ‘yes-please’ innovations and critically monitoring long term changes.

22.6.1 Lessons for Other Commodity Sectors Whether you are a campaigner, a CSR professional, a researcher, responsible for sourcing, for investments, for policy-making, or for capacity-building, these conclusions should hopefully assist all practitioners to influence sector transformation more effectively. The relevance of sustainable development for both producers and consumers confronts the key characteristic of commodity trade in which these were disconnected and origin became immaterial. Increasingly now the big powers, whether they are companies in the supply chain, banks and investors or governments, northernbased or southern-based, will have to take responsibility as forces for good. But as an important part of their roles they will have to team up in partnerships with other sector stakeholders. The dominance of large agricultural players over small producers and the inherent risks of exploitation will have to make way for a healthy interconnectedness between large and small. Only operating in a healthy society and a healthy environment will ensure healthy business in the future.

References Aidenvironment, NewForesight and IIED (2015) Case study report: Palm oil in Indonesia. http:// exchange.growasia.org/system/files/palmoilindonesia.pdf. Accessed 31 Jan 2019 Beekmans A, Dallinger J, Molenaar JW (2014) Fair company–community partnerships in palm oil development. Oxfam Discussion Papers, May 2014. Oxfam GB, Oxford. https://www.oxfam. org/sites/www.oxfam.org/files/file_attachments/dp-fair-company-community-partnershipspalm-oil-210514-en.pdf. Accessed 31 Jan 2019 Brasser M (2016) Improving Social Auditing: Recommended Actions for the RSPO (unpublished) Dudley N, Jeanrenaud J-P, Stolton S (1997) The year the world caught fire. A report to WWF International Forests & Finance (2018) The banks and investors exposed to deforestation risks in Southeast Asia. http://forestsandfinance.org/. Accessed 31 Jan 2019 Green D (2016) How change happens. Oxford University Press, Oxford Indonesian Sustainable Palm Oil Forum – Forum Kelapa Sawit Berkelanjutan Indonesia (FoKSBI) (2017) Indonesian Sustainable Palm Oil National Action Plan (NAP) Draft 6.0 July 2017

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Kuepper B, Steinweg T, Thoumi G (2016) Palm oil frontiers: lessons learned from SE Asian Corporate Expansion to Africa. Chain Reaction Research, Washington, DC. https:// chainreactionresearch.com/reports/palm-oil-frontiers-2/. Accessed 31 Jan 2019 Pramudya PE, Hospes O, Termeer CJAM (2016) Governing the palm-oil sector through finance: the changing roles of the Indonesian State. Bull Indones Econ Stud 53(1):57–82 Proforest (2016) Implementing responsible sourcing – using landscape or jurisdictional initiatives. Proforest Responsible Sourcing and Production Briefings 03. https://www.proforest.net/ proforest/en/files/bn03_rsp_web.pdf. Accessed 31 Jan 2019 RSPO – Roundtable on Sustainable Palm Oil (2016) RSPO Impact Report 2017. https://www.rspo. org/key-documents/impact-reports/. Accessed 31 Jan 2019 Schweithelm J, Paoli G, Glenday S (2016) Indonesian oil palm smallholder farmers: sustainability challenges and recommendations for the design of smallholder support programs. Daemeter, Bogor, Indonesia Taylor M (2015) Big palm oil’s pledge to preserve forests vexes Indonesia. Reuters Online, October 7, 2015. https://www.reuters.com/article/us-indonesia-forests-insight/big-palm-oils-pledge-topreserve-forests-vexes-indonesia-idUSKCN0S02SX20151007. Accessed 31 Jan 2019 Teoh CH (2010) Key sustainability issues in the palm oil sector: a discussion paper for multistakeholder consultation. World Bank, Washington, DC. See also www.ifc.org/palmoilstrategy. Accessed 31 Jan 2019 Unilever (2009) Unilever Takes a Stance Against Deforestation. Press Release, 11 December 2009. https://www.unilever.com/news/press-releases/2009/09-12-11-Unilever-takes-stance-againstdeforestation.html. Accessed 31 Jan 2019 USDA – United States Department of Agriculture, Foreign Agricultural Service (2018) Oilseeds: World Markets and Trade. https://www.fas.usda.gov/data/oilseeds-world-markets-and-trade/. Accessed 31 Jan 2019 Vis JK, Teoh CH, Chandran MR, Diemer M, Lord S, McIntosh I (2012) Sustainable development of palm oil industry. In: Lai O-M, Tan C-P, Akoh CC (eds) Palm oil: production, processing, characterization, and uses. AOCS Press, Urbana, pp 737–783 WWF – World Wildlife Fund (2018) Which Everyday Products Contain Palm Oil? https://www. worldwildlife.org/pages/which-everyday-products-contain-palm-oil. Accessed 31 Jan 2019 Zion Market Research (2016) Palm Oil Market Analysis by Derivative (Crude Palm Oil, Palm Kernel Oil, Palm Kernel Cake, and Others), and for Edible Oil, Cosmetics, Bio-diesel, Lubricants, Surfactants and Other Applications – Global Industry Perspective, Comprehensive Analysis, and Forecast, 2015–2021. https://www.zionmarketresearch.com/report/palm-oil-mar ket/. Accessed 31 Jan 2019

Johan Verburg is a strategic advisor on inclusive value chains and multi-stakeholder partnerships. He is advocating, developing and facilitating responsible international business, in particular to improve social and environmental policies and practices. He has been representing Oxfam in the board of governors and various working groups of the Roundtable on Sustainable Palm Oil. He is the initiator of the FAIR Partnerships model, the landscape approach to smallholder inclusive growth outlined in this chapter, which has been co-created with private sector (sustainable trade and impact investment) and civil society allies. Johan was trained as an environmental scientist (Utrecht University) and has over 25 years experience of driving change in complex and intercultural local-to-global and global-to-local working environments, with civil society as well as with business, in consultancy (KPMG Sustainability a.o.) and NGO roles (Oxfam Novib, the Dutch affiliate of the international development NGO). After this contribution had been completed Verburg changed jobs to the Sustainability Dialogue and Policy at Rabobank, since January 2019. Oxfam Novib, The Hague, Netherlands; Email: [email protected]; Skype: johan. verburg1.

Chapter 23

The Global Coffee Platform: An Innovative Approach to the Coffee Sector Transformation Friederike Martin, Lars Kahnert, Annette Pensel, and Jishoy Vithayathil

23.1

Introduction

The coffee sector has come a long way in organising itself and driving sustainability forward. Coffee is regarded as a pioneering commodity where voluntary sustainability standards (VSS) have reached the mainstream (Reinecke et al. 2011). Today, more than one third of the global coffee production meets one or more sustainability standard. As with many primary crops, the global coffee sector has been defined by volatility and price decline over the last decades. Public and private donors as well as numerous initiatives and projects have been supporting the sector to improve social and environmental practices. This has been driven by an increase in reputational risks and supply chain assurance issues due to changing consumer expectations. Furthermore, the aim has been to ease the continuing challenges of this typical smallholder dominated industry such as poverty, vulnerability or the depletion of natural resources as well as to increase the stability and predictability of the market. Even though a lot of progress has been made in terms of sustainability standard outreach as well as at individual project level, the sector continues to face systemic threats related to working conditions, low productivity, climate change, pests and diseases or aging trees, hampering productivity and farm profitability further. Moreover, where agriculture cannot secure sustainable livelihoods, younger generations turn their back to coffee production and agriculture at large. F. Martin (*) · L. Kahnert Programme Sustainable Agricultural Supply Chains and Standards, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Bonn, Germany e-mail: [email protected] A. Pensel Global Coffee Platform, Bonn, Germany J. Vithayathil DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH, Cologne, Germany © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_23

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Recognising the shortcomings and limited effectiveness of VSS and individual project approaches in addressing critical and systemic sector challenges at the necessary scale, the 4C Association together with the Dutch Sustainable Trade Initiative’s Sustainable Coffee Programme (IDH-SCP) evolved into the Global Coffee Platform to bring together all relevant stakeholders to work towards a sustainable, thriving coffee sector.

23.2

The Coffee Market

Coffee is one of the world’s most valuable agricultural commodities and is grown in more than 80 countries. In 2015/2016, 144.8 million 60-kg bags were produced (Panhuysen and Pierrot 2014). Arabica and Robusta are the main types of coffee and production is mainly concentrated around the equator in Latin America, Africa and Oceania. About 25 million smallholder families are directly involved in the cultivation of coffee and more than 100 million people are engaged in its production and processing. 70% of the world’s coffee supply is produced by smallholders and their families, whereby an estimated half of the work is done by women. While coffee once stood for a prosperous life, the coffee crisis in 1989 had a severe effect on the market and its producers. Between 1963 and 1989, a large share of the coffee market was regulated by the members of the International Coffee Organization (ICO). However, outside of this group of coffee producing countries, there was a growing market share which was not organised under the umbrella of the ICO. The communist country Vietnam, which rose in the 1990s to be one of the most important Robusta coffee producers worldwide, was not governed by the International Coffee Agreement (ICA) negotiated by the ICO and only joined the ICA in 1991 (Lewin et al. 2004). In addition, in 1989 the ICO failed to negotiate a new agreement which led to the suspension of the quota and controls implemented to regulate the coffee price (ICO 2013). As a result, the coffee market was fully liberalised and oversupplied. In the following years, the price for coffee failed to stabilise and between 2000 and 2014 prices have been fluctuating between 41.17 US cents per pound (September 2001) to 231.24 US cents per pound (April 2011) (Panhuysen and Pierrot 2014; see also Fig. 23.1). These uneconomical prices are a visible indicator of the lack of governance in the coffee sector and make the financial viability of production largely unpredictable for its producers. This has meant that poverty reduction has become a prominent and continuous challenge across the sector. Additionally, while low prices may sound beneficial to consumers at first, they eventually lead to both a reduction in overall production volume as well as sustainable, high quality coffee supplies in the long term. Another challenge for the coffee sector is the asymmetry of market power and information. Coffee farmers are in many cases not well organised and thus lack market information and have little bargaining power. Additionally, input costs have been rising in many countries and prices continue to be volatile. This has discouraged producers from making necessary investments and has led to a limited interest in adopting good agricultural practices (Hartmann 2007). More than 80% of globally produced coffee is traded internationally (Panhuysen and Pierrot 2014). In 2016/2017, more than 117.6 million 60-kg bags were exported

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Fig. 23.1 ICO composite indicator price since 2000 (ICO 2016a; figure reproduced with kind permission of ICO)

and about 151.6 million bags were produced—barely unchanged compared to the prior year (ICO 2016b). While the production of Arabica coffee has increased by 4.4% to 93.5 million bags (additional 3.9 million bags compared to 2015/2016), Robusta1 production has gone done by 6% (3.7 million bags less) in the same period (ICO 2016b). The popularity for coffee continues to grow, mainly due to expanding middle-classes and improved livelihoods especially in Asia have given the market share a boost and India and Indonesia are projected to show a greater thirst for coffee (Panhuysen and Pierrot 2014). However, droughts and other climate-related effects have affected the production of Robusta, which led to an overall reduction.

23.2.1 Voluntary Sustainability Standards and the Coffee Market Certification initiatives in the coffee sector first emerged more than 20 years ago, although the roll-out of sustainability practices in line with these initiatives have only reached the mainstream within the last 10 years, leading to the success of newer schemes, such as UTZ or the 4C Entry-level Standards of the former 4C Association. In 2014 about 4.3 million metric tons of standard-compliant coffee was produced by the biggest certifiers: Rainforest Alliance, UTZ Certified, Fairtrade International

1 Robusta coffee is grown in warmer tropical climates, has generally higher yields, with lower production costs, and therefore prices. Robusta is predominantly used in soluble coffee, due to the higher yields compared to Arabica. The growth in Robusta demand is due in part to consumption growth in emerging markets which often start with a lower cost beverage.

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and the 4C Association (4C Association 2015). About 1.2 million metric tons were sold as standard-compliant (28% of standard-compliant production, 14% of global production, and 18% of global exports) with Brazil and Vietnam as largest producing countries. Coffee is mainly imported by the European Union (63%), followed by the USA (22%) and Japan (7%). Until early 2000s, the certified coffee market could only be considered as a niche market, mainly served by Fairtrade, Organic and the Rainforest Alliance (Reinecke et al. 2011). However, after the coffee crisis in 2001, the uptake of VSS has gradually increased. This was also a reaction to the media campaigns carried out by Oxfam and other NGOs, demanding a sustainable procurement of coffee. Even though the existing certification schemes could provide some answers to the problem, they were not able to find solutions for the whole coffee sector. This is when major private sector players started to join sector wide initiatives such as the Common Code for the Coffee Community Association (later communicated as 4C Association) and the Sustainable Agriculture Initiatives Platform (SAI). These initiatives opened up a new phase in which private companies integrated multi-stakeholder, standard-based initiatives across their supply chains (Alvarez et al. 2010). The most important VSS in the coffee sector in terms of volumes are: the 4C Entrylevel Standards & Verification by 4C Association (the 4C Code of Conduct since April 2016, operated by the Coffee Assurance Services (CAS)2); the Fairtrade Labelling Organisations International (FLO); Organic (IFOAM); Rainforest Alliance (RA) and UTZ Certified.3 Additionally, Starbucks and Nespresso have their own private standards, mainly concentrating on quality and sustainable coffee production. All sustainability standards have a different focus but they overlap in terms of environmental, economic and social goals. Furthermore, many of them offer farm advisory services, establish guidelines on how to deal with environmental and social issues, implement auditing and (third party) verification or certification,4 and raise consumer awareness. In 2008, only about 15% of the global coffee production was certified. But the share of standard-compliant coffee rose to 40% of world production by 2014. The coffee sector has the highest rate of VSS uptake both in supply and demand; continuing to grow across all sustainability standards within the sector. The main drivers are the maturity of the market, increasing consumer and private sector awareness since the coffee crisis in 2001, the high concentration in manufacturing and limited processing between production and consumption, and coffee as a product with no or little added ingredients. The last two characteristics particularly help the consumer to recognise certified products more easily (Potts et al. 2014).

2

In 2018, CAS renamed to 4C Services GmbH, see https://www.4c-services.org/, last accessed August 2019. 3 In January 2018, the Rainforest Alliance merged with UTZ. It is planned that in 2019 a single, new agriculture certification programme built upon the best elements of both existing programmes will be published. Both the Rainforest Alliance and UTZ schemes will continue to run in parallel until the publication of new programme at the end of 2019. 4 Verification is a process that tells if a product is compliant with a certain set of requirements, whereas certification is defined as procedure whereby a third party gives a written assurance that a product is compliant with certain standards (ISO Guide 2 1996).

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Certified coffee is mainly produced in Latin America. About 60% of Columbian coffee production is either certified or verified as sustainable. In Brazil, about 40% is standard compliant, mainly 4C verified. The share of sustainable coffee from Africa is currently still very low. Nevertheless, verified and certified coffee production in countries such as Kenya, Uganda, Ethiopia and Malawi has been rising. However, while the demand for certified coffee has been rising, there is an undeniable gap between demand and supply of sustainable coffee. Factors such as quality, including taste and origin, blurred statistics and multiple certifications influence the gap. Multiple certifications may lead to an over-estimation of the total volume. According to Panhuysen and Pierrot (2014), figures by IFOAM are especially difficult as they overlap by 50–70% with FLO certified coffee. Gaps range from only 20% for 4C verified coffee to 50% of organic coffee that is sold as such. This means that the potential benefits from certification, such as better market access, direct commercial relations and the receipt of premiums might not be available for producers and thus hampers the entry of new producers that are not yet certified (Panhuysen and Pierrot 2014). This is one of the reasons why concerns about the impact of VSS have been articulated (ITC 2011). In a broad study on sustainability in the coffee and cocoa sector, COSA identified that VSS have several positive impacts and can be regarded as the best available tools in agriculture but the success of their interventions often depend on a particular context (COSA 2013; Blackman and Rivera 2010; WWF 2010). While the overall impact appears to be positive, there are several challenges a VSS alone cannot address, such as failures in policy and governance at national or community level. Therefore, the potential impact of VSS may be overestimated and raise false expectations (Molenaar et al. 2015a). Overall, the market for sustainable coffee has undergone a rapid transformation “from a niche market to a fully recognised strategic business management tool for mainstream and specialty coffee companies alike” (SSI 201, p. 166). While the production of certified and verified coffee has increased tremendously over recent years, the annual growth rate of global verified and certified production continues to outpace the growth rate of coffee production itself by 4%. Nevertheless, if the market for sustainable coffee continues to grow at the current pace, it can be expected to reach the critical mass of more than 50% of global production within the next years. Additionally, as companies, traders and roasters have begun to invest in the coffee sector through public private partnerships, it might help producers to become less vulnerable to boom-bust-cycles (Panhuysen and Pierrot 2014).

23.3

The Establishment of the Multi-Stakeholder Platform: 4C Association

The “Common Code for the Coffee Community” (4C) was initially launched in 2003 as public-private partnership (PPP) project as a reaction to the unsustainable structural balances of the coffee sector. The German Coffee Association (Deutscher

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Kaffeeverband—DKV)5 approached the Federal Ministry for Economic Cooperation and Development (BMZ) to plan a joint initiative. The project was implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, which executed 10 pilot projects, based on vast experience gained from former projects in the coffee sector, and channelled back the results into the 4C process. The 4C Association established a multi-stakeholder platform, through which the major players could draw up a common code of conduct for social, ecological and economic sustainability in the mainstream coffee industry, after institutionalisation of this multi-stakeholder dialogue into a membership association by end of 2006. Within the first five years of negotiation, the 4C Association developed into a full verification-based sustainability standard to verify producer groups against the 4C Code of Conduct. A secretariat was set up in Germany, and over the years several regional offices, such as in Eastern Africa, Central America, Vietnam, Indonesia and Brazil were opened to support members and farmers in producing countries and build partnerships with local stakeholders as well as local sustainability standards. From the beginning of the cooperation, it was vital to set low barriers to involve as many stakeholders as possible along the value chain. Another objective was to make value chains more efficient and sustainable, rather than to set prices and premiums (Peláez Jara 2014). Due to its success, the PPP quickly found many supporters: in 2005, the European Coffee Federation joined; soon followed by the Swiss Federal Department of Economic Affairs. In 2011, the two largest coffee roasters, Nestlé and Mondelēz International, incorporated 4C compliant coffee as a major pillar of their global sourcing policy and committed to 100% of at least 4C compliant sourcing within a short timeframe. Targeting the mainstream market through a baseline code and refraining from consumer communication and product labelling, the 4C Association aimed at inclusivity and positioned itself as stepping stone towards more demanding sustainability certifications. This is not only because of low costs, but also because the implementation of 4C literally provided a first step (i.e. the establishment of an internal management system), making the next step towards Rainforest Alliance, UTZ and other sustainability standards less of a barrier. This in turn also had great effects on growth in terms of volume and sales over the years. Up until the end of 2014, the 4C Association had attracted 333 members from around the world including leading coffee roasters and trading companies, producer associations, and civil society bodies. In addition, the three largest standards in the coffee sector, namely Fairtrade, UTZ and the Rainforest Alliance, are members of the 4C Association. The importance of the 4C Association is also mirrored in the coffee market statistics. In 2014, more than 300 4C verified producing units in 21 countries accounted for more than 30% of the world coffee production. In total, over 2.6 million metric tons of 4C compliant coffee beans were produced by more than 1.4 million coffee farmers, many of them smallholders (4C Association 2015). The

5 The DKV is the umbrella organisation for German coffee roasters, traders and soluble coffee producers.

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coffee was cultivated on more than 1.6 million ha worldwide. The main producing countries are Brazil, Vietnam and Columbia, which accounts for about 90% of the 4C verified production in 2012. Even though sustainability standard initiatives were established to achieve sustainable production and supply chains, they have failed to efficiently tackle the structural, systemic challenges agricultural sectors face as a whole, such as the adverse effects of climate change, supply chain imbalances, limited access to finance and profitability. Entry barriers in terms of compliance, organisation, implementation and audit cost, coupled with a perceived lack of demand also prevented standards from reaching impact at broad scale. This has led to a situation where VSS have created “islands of sustainability, rather than creating the systemic changes that are needed to reach the majority of smallholders” (Molenaar et al. 2015a, p. 8). Thus, the developers of VSS are responding with complementary and alternative approaches. Especially in smallholder-dominant sectors, where capacity building, access to land and finance are essential, the mainstreaming of sustainability requires a “more holistic model to achieve scale beyond individual supply chains” (Molenaar et al. 2015a, p. 3). The need for a scaling up of activities between the Sustainable Coffee Programme (SCP)6 and the 4C Association has, over the years, become clear. The current perception is that, in order to tackle systemic issues beyond certification and verification, only a sector-wide approach, involving all relevant stakeholders, such as private businesses, producers, civil society, as well as governments and donors can support the process for a sector transformation (see Box 23.1). Thus, the development of strategy process towards an open and inclusive multi-stakeholder sustainability platform has begun.

23.4

Sector Transformation

In order to tackle the most critical sustainability challenges, which often occur at the macro level, and ensure a bigger collective impact on the livelihoods of farmers and the natural environments of coffee farming communities, the 4C Association reformed itself. In March 2016 the 4C Association’s membership platform merged with the Sustainable Coffee Programme (SCP) of the Dutch Sustainable Trade Initiative (IDH) to form the Global Coffee Platform (GCP). The aim thereby was to combine the membership of the 4C Association with the pre-competitive activities of the SCP. Furthermore, the GCP builds upon the similar structures of the SCP to support the development of new National Coffee Platforms in producing countries and to engage with pre-existing systems for collective action, including the

6 The SCP was established in 2012 and aimed to increase the export availability of sustainably grown coffee. Through the programme, the livelihood of 4 million smallholder families benefitted from higher yields and quality, improved access to finance, and strategies to mitigate the effects of climate change.

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Fig. 23.2 Timeline of development from 4C Association to the GCP (© Global Coffee Platform)

elaboration of National Sustainability Curricula.7 Through this integration, the GCP plans to bring knowledge and sector-wide involvement to all stakeholders and topics. The members of the GCP have committed themselves in terms of financial and human resources to work jointly on systemic coffee sector issues with a farmercentric approach, in co-operation with governments (GCP 2016b). With the establishment of the GCP, the verification operation of the 4C Code of Conduct is being taken over by the newly founded Coffee Assurance Services (CAS). While CAS operates the 4C Code, GCP maintains the Baseline Common Code (BCC) as a global reference. Therefore, the 4C Code and the BCC may diverge over time (see Fig. 23.2). GCP aims at a global recognition of the Baseline Common Code as a sector-wide minimum reference code and that it will “serve to pave the way in the understanding and implementation of sustainability in coffee production and processing” (GCP 2016a, p. 4). IDH will continue engage in the coffee sector through support of the GCP as well as through their own Coffee Programme which will focus on piloting innovative strategies in the sector (with emphasis on Service Models and Blended Finance) and co-funding the implementation of field level projects. The GCP has three core functions. First, a dynamic and neutral global platform, which—based on a common sector vision, known as Vision2020—aims to develop a shared commitment to sustainability in the coffee sector, defines agenda and priorities in order to support the implementation of these priorities at local, national and global level in form of work streams and programmes through members and in collaboration with partners and National Coffee Platforms in producing countries (see Box 23.2). Secondly, the Global Progress Framework, a tool to report, measure and promote sustainability efforts based on an agreed set of performance and progress indicators, as well as drive improvements, will be established. And lastly,

The National Sustainability Curriculum is a practical field manual for public and private sector stakeholder in a producing country on addressing the most prominent challenges in production through sustainable farming techniques.

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the Baseline Common Code, a global reference for baseline sustainability practices, which together with the Equivalence Mechanism aims to guide members and the coffee sector towards 100 per cent baseline sustainability practices over time. Box 23.1 Sustainable Sector Transformation Aidenvironment, NewForesight and IIED have developed a theoretical framework8 with five important blocks that need to be addressed for a successful sector transformation. The first block, sector alignment and accountability, addresses the need for a joint vision on farm and sector quality with a step-wise approach supported by all relevant stakeholders. All stakeholders have to contribute to the key performance indicators. Progress shall be monitored and the strategy shall be adapted if required. In the second block, strengthening market demand, the market should support the vision, and procurement systems shall reward good and exclude worst practices. Buyers can become “preferred buyers to producers” and additional support, such as capacity building or agricultural inputs, can be provided (Molenaar et al. 2015b, p. 9). The third block, public sector governance, deals with the importance of the public sector. If market failure or an incapability of the market to self-regulate is apparent, the public authorities have the power to regulate and support the transformation of a sector. In the next block, organisation of the production base, the role of well-organised producer groups is strengthened in order to reach a large-scale promotion of sector quality. Organising producers enables the reward of good, and the exclusion of worst practices by the farmers. Organisation of the service sector is identified as the final block. It addresses the importance of service provision, such as extension, inputs and finance, which “need to be accessible, demand driven, bundled where possible, and of high quality” (Molenaar et al. 2015b, p. 10). In a situation where services are not provided by the private sector, the public sector or buyers could offer the stated services “alongside the complementary—possibly non-competitive—investments to build a professional service sector” (Molenaar et al. 2015b, p. 10). Taxes are named as one possible instrument to financially support development of this sector. Source: Sustainable Sector Transformation: How to drive sustainability performance in smallholder-dominated agricultural sectors? (Molenaar et al. 2015b)

8 More details about the sustainable sector transformation model, including whitepapers, reports and case studies, can be found at: https://www.iied.org/scaling-sustainability-smallholder-dominatedagricultural-sectors and https://www.newforesight.com/frontrunnersfeatured/, last accessed 31 January 2019.

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23.4.1 Vision2020 The need for an increased, global scale impact in the coffee sector was already recognised in 2013. And thus, under the leadership of the 4C Association, the International Coffee Organization (ICO) and IDH, the basis for the Vision2020 was set. Following a participatory process, defining Vision2020 as a sector wide vision for sustainable coffee sector, a Memorandum of Understanding between ICO, 4C Association and IDH was signed in March 2015, and Vision2020 for collective impact for coffee communities was launched in September 2015 during the Global Coffee Forum in Milan. Sustainability challenges at national production level will continue to be identified and feed into this global agenda. This global framework aims to achieve a sustainable coffee sector, where the farmer is at the core of all sustainability efforts. After joining forces with farmers, public and private sector stakeholders, priorities were identified at national and international levels and activities will be harmonised accordingly. This approach has three main elements, the first of which is Vision2020, which reflects global themes and outcome objectives to achieve collective impact for the resilience and livelihoods of coffee farming communities and the sector as a whole. The second element is comprised of national agendas, which shall translate priorities into actions through public-private partnership platforms. The final element is the Global Progress Framework—a common reporting framework to ensure transparency, measure impact and support the process for improvement (GCP 2016a; also see Fig. 23.3). The GCP has been established as vehicle for Vision2020 as it works alongside the principles of Vision2020, with a farmer-centric, bottom-up approach, joining forces with the public and private sectors. The GCP (2016e) sees that sector sustainability requires “a collective accountability and long term success depends on our ability to work together and share responsibilities”. Thus, recommendations during the workshop prior to the General Assembly of the 4C Association in Addis Ababa, Ethiopia in March 2016 were used to develop Vision2020 further. Additionally, between June and August 2016, workshops at national level in Brazil, Colombia, Indonesia,9 Tanzania, Uganda, Vietnam, Honduras, and Peru were held to gain input and feedback from public and private stakeholders in coffee producing countries on their sustainability priorities with view to the Sustainable Development Goals (SDGs), and to refine the goals and the concept of Vision2020. These consultation workshops where organised together with all countries. With the exception of Peru all participants have already developed a national coffee strategy. However, “most of [these strategies] are not directly aiming at sustainability issues and may not represent the whole of the national coffee sector” (GCP 2016c, p. 5). Each country has therefore identified its priorities for the improvement of the coffee sector towards sustainability. The most prominent topics among the countries were “collaboration on access to additional co-funding”, “access to GCP’s knowledge hub”, and “being able to provide input to ICO meetings and discussions”. 9 In Indonesia, no formal Vision2020 workshop was held but a meeting organised by the coordinating Ministry of Economic Affairs.

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Fig. 23.3 Vision2020 and its mission and functions (© Global Coffee Platform)

In Vietnam for instance, youth is a priority, but not gender, whereas Honduras wants to put more emphasis on climate change as it is one of the most vulnerable countries in Latin America. To support the process, National Coffee Platforms (see Box 23.2), National Coffee Advisory Boards, national coffee dialogues and roundtables were involved to provide input and feedback on the priority validation process (GCP 2016c, g). In 2015, country strategies 2016–2020 for Brazil, Colombia, Indonesia, Tanzania, Uganda and Vietnam were developed by SCP and aligned with national government strategies for the coffee sector. These country strategies resulted from a multi-stakeholder process within each country. The additional consultations on Vision2020 priorities, and the discussions on SDGs to which the coffee sector can contribute specifically, led to a prioritisation of activities, of which some have been translated into a GCP work plan. Keeping in mind that the timeframe for the Vision2020 framework is rather short, activities need to be put in practice in order to reach the joined goals. According to GCP, targets of the Vision2020 shall serve as orientation for public and private investments and interventions. To ensure further commitments and collective goals beyond 2020, the Vision2030 will be developed together with GCP, ICO and further partners.

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Box 23.2 National Coffee Platforms Every country has different challenges to address in the coffee sector. IDH’s Sustainable Coffee Programme (SCP) supported already existing National Coffee Platforms or helped to build the environment for new platforms. In total, the SCP engaged in six countries, namely Brazil, Colombia, Indonesia, Tanzania, Uganda and Vietnam. Today, National Coffee Platforms are an important tool to bring together government representatives, policy makers, producers, and trade, industry, and knowledge leaders to influence policies, promote more sustainable coffee production and management skills and decide on necessary training interventions. Each national platform has its own secretariat that “facilitates communication and provides mediatory functions between stakeholders who may not previously have been willing or able to collaborate” (GCP 2016b, p. 4). Additionally, the involvement of the government and private sector is crucial as this “strengthens the ability of the National Coffee Platforms to connect with the market and gain international recognition” (GCP 2016b, p. 4). Source: National Coffee Platforms: Public/Private Alignment for a Sustainable Coffee Sector (GCP 2016b)

23.4.2 Thematic Work Streams As a multi-stakeholder initiative, the GCP shall serve as a supportive platform for its members’ initiatives as well as independent initiatives “providing access to membership, and/or Secretariat support time, financial support, and ensuring coordination, alignment and contribution to the bigger goals of Vision2030” (GCP 2016f, p. 8). Members’ or independent initiatives are able to suggest topics to work on that contribute to Vision2020 as well as to Vision 2030 goals. So far, the elected GCP Board has prioritised the following work streams:

Climate Smart Agriculture Climate Change is one of the most pressing challenges for the coffee sector at the moment, putting coffee production, livelihoods of coffee farmers and their families around the world at risk. GCP plans to cooperate with the Coffee & Climate Initiative, through which farmers shall be supported to increase their knowledge on how to adapt to climate change. Three core objectives are put in focus: sustainably increase agricultural productivity and incomes, adapt and build resilience of agriculture and food systems to climate change, and reduce and/or remove greenhouse gas emissions, where appropriate.

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Gender and Youth Men, women and youth share all the same challenges when it comes to securing their incomes and a decent livelihood, as well as access to education, infrastructure and financial capital. Additionally, if women in developing countries had the same access to agricultural inputs as men, yields would increase by up to 30% per household. This in turn, would again lead to an increase of 2.5–4% in agricultural output (FAO 2011). Additionally, coffee production has become less attractive for the younger generation, which puts coffee production under severe threat. Thus, one work stream, led by the Coffee Quality Institute, will advance on the issue of gender equity and youth inclusion. They plan to develop an engagement guide and a framework for gender indicators which will include testing gender metrics in several projects, to be later on related to the Global Progress Framework.

Economic Viability of Coffee Farming The profitability of coffee farmers has been low in the last decades and many have been unable to cover their costs of production. The cost of production is continuously rising and the market price for green beans stays low. While productivity is rising slightly, this has not led to a decent livelihood for farmers in most cases (ICO 2016a). Therefore, the topic of economic viability of coffee farming is essential to the coffee industry. The focus of this work stream will be on national level publicprivate dialogue on the topic, as well as exploring more facts and figures to contribute to the discussion and intended solutions (GCP 2016f).

Global Progress Framework In order to work towards a more sustainable and resilient coffee sector, the GCP is developing a Global Progress Framework. It shall enable all stakeholders involved in the coffee sector to share and monitor data through a common way to measure progress. Through this approach, progress shall be made more transparent and risks of duplications shall be reduced. In cooperation with the Sustainable Coffee Challenge, the GCP aims to establish it as a sector-wide accepted framework for measuring performance. Through agreed key performance and progress indicators members shall measure their contribution towards the Vision2020 collective aims and by this to the SDGs.

GCP Portal: GCP Connect GCP Connect10 is intended to become a key tool for GCP members “to engage, exchange ideas, collaborate and contribute to achieving the GCP vision of creating a

10

For further information, please visit http://gcp-connect.coffee/, last accessed 31 January 2019.

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thriving and sustainable coffee sector” (GCP 2018). It will allow its users to collaborate virtually through online discussions, minutes and meeting calendars. Furthermore, it aims to identify opportunities for engagement through highlighting projects or work streams to engage or invest in and thus ensures that no parallel structures evolve. It will give access to knowledge and information around the activities of the GCP and its members. Additionally, it will present member’s business cases to show their engagements. It also aims at increasing market linkages through presenting commercial profiles and sustainability performance through screening potential partners by origin, volumes, and performances (GCP 2016f).

23.4.3 Baseline Common Code The Baseline Common Code (BCC) is comprised of 27 principles covering economic, social and environmental topics that are based on good agricultural and management practices as well as international conventions and guidelines accepted in the coffee sector. Additionally, it includes 10 unacceptable practices which must be eliminated. The BCC shall serve as a reference baseline to phase out unacceptable practices and guide farmers around the globe to reach a minimum set of sustainability practices for the entire coffee production. Through the Equivalence Mechanism, existing standards, schemes and programmes such as Rainforest Alliance, Fairtrade International or UTZ, or other innovative approaches can become accredited operators to further spread the adoption of baseline sustainability practices. The BCC as global reference can be integrated into national sustainability strategies and reflected in National Sustainability Curricula, to enable further scaling of baseline sustainability practices. Going forward, data from BCC equivalent systems and schemes will be included in the Global Progress Framework to measure the increase of adoption of practices via performance indicators and improvements and the change at impact level via progress indicators. According to the GCP, “the Baseline Common Code will establish a new basis for competition in the green coffee chain by developing baseline standards performance in key areas, including decent and humane working conditions and improving the environment by reducing the use of certain chemicals” (GCP 2016d, p. 4). It especially aims at addressing coffee producers who are not yet participating in the sustainable coffee market and bring them to be in line with a minimum level of sustainability.

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Conclusion

The coffee sector has been constantly renewing itself to tackle its challenges and achieve greater sustainability. It has been the testing ground for many sustainability initiatives and it can be named as one of the most mature markets currently in operation. The challenges named are not new and have been discussed widely among coffee sector stakeholders. Nevertheless, many pressing issues have not been solved. Systemic factors such as climate change, the overall profitability of coffee farming, and rural employment cannot be tackled by sustainability standards alone. To date, no single initiative has reached its goal towards an environmental, economic and socially sound coffee sector. Therefore, a new sector-wide approach is needed which includes all relevant stakeholders from the coffee sector to support the process to achieve a sustainable sector in the near future, such as the GCP. First and foremost, the GCP has to prove its business model toward their stakeholders and has to ensure its longevity. Since this initiative has only been formed recently, it is difficult to predict its success. Their targets are ambitious and an initiative that includes a high variety of stakeholders will also meet intensive challenges. However, this holistic approach enables the chance to use the synergies of all sector stakeholders, including private and public actors, farmers and civil society. While their approach covers all blocks of the sustainable sector transformation model by Molenaar et al. (2015b), it will be vital to actively engage members, partners and other initiatives to overcome fragmentation, prove the value propositions, deliver change on the ground while improving the enabling environment for coffee production over time and dynamically adjust itself and its strategy in line with the needs of its stakeholders.

References 4C Association (2015) Annual Report 2014: Collectively Building on Progress, June 2015. https:// www.globalcoffeeplatform.org/assets/files/Documents/Reports-Brochures/AR2014_EN_ Final_110615_WEB_small.pdf. Accessed 31 Jan 2019 Alvarez G, Pilbeam C, Wilding R (2010) Nestlé Nespresso AAA sustainable quality program: an investigation into the governance dynamics in a multi-stakeholder supply chain network. Supply Chain Manag: Int J 15(2):165–182 Blackman A, Rivera J (2010) The evidence base for environmental and socioeconomic impacts of “sustainable” certification, Discussion paper. Resources for the Future, Washington, D.C. http:// www.rff.org/files/sharepoint/WorkImages/Download/RFF-DP-10-17.pdf. Accessed 31 Jan 2019 COSA – The Committee on Sustainability Assessment (2013) The COSA Measuring Sustainability Report: Coffee and Cocoa in 12 countries. COSA, Philadelphia. https://thecosa.org/wp-content/ uploads/2014/01/The-COSA-Measuring-Sustainability-Report.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2011) The State of Food and Agriculture 2010–2011. Women in agriculture: closing the gender gap for development. FAO, Rome. http://www.fao.org/docrep/013/i2050e/i2050e.pdf. Accessed 31 Jan 2019

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GCP – Global Coffee Platform (2016a) Baseline Common Code, Version 2.1, April 2016. https:// www.globalcoffeeplatform.org/assets/files/GCP_Doc_01_Baseline-Common-Code_v2.1_en. pdf. Accessed 31 Jan 2019 GCP – Global Coffee Platform (2016b) National Coffee Platforms: Public/Private Alignment for a Sustainable Coffee Sector, October 2016. https://www.idhsustainabletrade.com/uploaded/2016/ 10/National-Platfrom-Booklet-7-10-16.pdf. Accessed 31 Jan 2019 GCP – Global Coffee Platform (2016c) Results of National Consultations on Vision2020: Summary Report. https://www.globalcoffeeplatform.org/assets/files/Report-Vision-2020-national-stake holder-consultation_August-2016.pdf. Accessed 31 Jan 2019 GCP – Global Coffee Platform (2016d) Rules of Participation – The Business Code, Version 4.0. https://www.globalcoffeeplatform.org/assets/files/GCP_Doc_02_Rules-of-Participation_v4.0_ en.pdf. Accessed 31 Jan 2019 GCP – Global Coffee Platform (2016e) Shaping Vision2020 goals: public-private consultation workshops in coffee producing countries. http://www.globalcoffeeplatform.org/latest/2016/ vision-2020-consultation-workshops/. Accessed 31 Jan 2019 GCP – Global Coffee Platform (2016f) Summary GCP Strategy Framework & Proposed Annual Plan 2017, unpublished internal document GCP – Global Coffee Platform (2016g) Vision2020 – what will we have collectively achieved by 2020? Guidelines for consultation of public and private stakeholders in several key coffee producing countries during June & July 2016. https://www.globalcoffeeplatform.org/assets/ files/V2020-stakeholder-consultation-guidance_20160622.pdf. Accessed 31 Jan 2019 GCP – Global Coffee Platform (2018) GCP Connect. http://www.globalcoffeeplatform.org/theglobal-platform/gcp-connect. Accessed 31 Jan 2019 Hartmann A (2007) The Common Code for the Coffee Community – Das Potential des Multistakeholderansatzes zur Überwindung der Kaffeekrise (The potential of the multistakeholder approach to overcome the coffee crisis). Thesis, Zurich University, Switzerland ICO – International Coffee Organization (2013) International Coffee Organization 1963 to 2013: 50 years serving the world coffee community. ICO, London. http://www.ico.org/documents/ cy2012-13/history-ico-50-years-e.pdf. Accessed 31 Jan 2019 ICO – International Coffee Organization (2016a) Assessing the economic sustainability of coffee growing. ICO, London. http://www.ico.org/documents/cy2015-16/icc-117-6e-economic-sus tainability.pdf. Accessed 31 Jan 2019 ICO – International Coffee Organization (2016b) Coffee Market Report, December 2016. http:// www.ico.org/documents/cy2016-17/cmr-1216-e.pdf. Accessed 31 Jan 2019 ITC – International Trade Centre (2011) The impacts of private standards on producers in developing countries. Literature Review Series on the Impacts of Private Standards – Part II. International Trade Centre, Geneva. http://www.intracen.org/The-Impacts-of-Private-Stan dards-on-Producers-in-Developing-Countries/. Accessed 31 Jan 2019 Lewin B, Giovannucci D, Varangis P (2004) Coffee markets: new paradigms in global supply and demand. Agriculture and Rural Development Discussion Paper 3. World Bank, Washington, D.C. Molenaar JW, Dallinger J, Gorter J, Heilbron L, Simons L, Blackmore E, Vorley B (2015a) The role of voluntary sustainability standards in scaling up sustainability in smallholder-dominated agricultural sectors. White paper 4, commissioned by IFC, published by Aidenvironment, NewForesight and IIED. http://pubs.iied.org/pdfs/16586IIED.pdf. Accessed 31 Jan 2019 Molenaar JW, Gorter J, Heilbron L, Simons L, Vorley B, Blackmore E, Dallinger J (2015b) Sustainable Sector Transformation: how to drive sustainability performance in smallholderdominated agricultural sectors? White paper 1, commissioned by IFC, published by Aidenvironment, NewForesight and IIED. http://pubs.iied.org/pdfs/16584IIED.pdf. Accessed 31 Jan 2019 Panhuysen S, Pierrot J (2014) Coffee Barometer 2014. Hivos, IUCN-NL, Oxfam Novib, Solidaridad, WWF. https://hivos.org/sites/default/files/coffee_barometer_2014_report_1.pdf. Accessed 31 Jan 2019

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Peláez Jara M (2014) The Creation of the Common Code for the Coffee Community and the 4C Association. In: Rüther LL, Martínez CA, Müller U (eds) Global funds and networks: narrowing the gap between global policies and national implementation. Nomos, Baden-Baden, pp 221–235 Potts J, Lynch M, Wilkings A, Huppé G, Cunningham M, Voora V (2014) State of Sustainability Initiatives Review 2014: Standards and the Green Economy. International Institute for Sustainable Development (IISD), Winnipeg. https://www.iisd.org/pdf/2014/ssi_2014.pdf. Accessed 31 Jan 2019 Reinecke J, Manning S, von Hagen O (2011) The emergence of a standards market: multiplicity of sustainability standards in the global coffee industry. Organ Stud 33(5–6):791–814 WWF – World Wide Fund for Nature (2010) Certification and roundtables: do they work? WWF review of multi-stakeholder sustainability initiatives. WWF International, Gland, Switzerland

Friederike Martin is advisor in the Programme Sustainable Agricultural Supply Chains and Standards at the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, assigned by the German Ministry Economic Cooperation and Development (BMZ). Her main focus areas have been sustainability standards for agricultural commodities, deforestation-free supply chains, gender and agriculture as well as IT-based monitoring and impact assessment toolkits for agricultural commodities. Before joining GIZ, she worked together with the China Agricultural University in Beijing on organic agriculture in China. Friederike holds a Master’s degree in Integrated Natural Resource Management of Humboldt Universität zu Berlin. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Programme Sustainable Agricultural Supply Chains and Standards, Friedrich-Ebert-Allee 13, 53113 Bonn, Germany; Tel: +49 228 4460 3521; Fax +49 228 4460 803521; Email: [email protected]; Internet: www.giz.de. Lars Kahnert works on sustainable agricultural supply chains with GIZ. Previously, he was Programme Manager at the Global Coffee Platform and its predecessor, the 4C Association, for nearly 12 years. He has a degree in geography, development studies, and South Asian philology from Free University of Berlin and the Central Institute of Hindi, Agra, India. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Programme Sustainable Agricultural Supply Chains and Standards, Friedrich-Ebert-Allee 13, 53113 Bonn, Germany; Tel: +49 228 4460 4119; Email: [email protected]; Internet: http://www.giz.de. Annette Pensel is the executive director of the Global Coffee Platform. She has extensive experience in the international coffee sector and in the field of development cooperation, including corporate sustainability, public-private partnerships, voluntary standards development and capacity building. Annette holds a degree in Latin American Studies from the University of Cologne. Global Coffee Platform, Charles de Gaulle Straße 5, 53113 Bonn, Germany; Tel: +49 228 85050 24; Email: [email protected]; Internet: www.globalcoffeeplatform.org. Jishoy Vithayathil holds a BSc in Economics from the University of Bonn and completed his MA in Development Economics at the Georg-August-Universität Göttingen in 2016. Currently, he works as an Environmental and Social Specialist in the Sustainability and Corporate Governance Department of the Deutsche Investitions- und Entwicklungsgesellschaft (KFW-DEG) focusing on financial intermediaries. In addition, his responsibilities include the climate activities of KFW-DEG. Before that, he supported the sector project Sustainable Agricultural Supply Chains and Standards at the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) in Bonn and worked at the KFW-DEG on the textile standard Cotton Made in Africa (CmiA) and the accompanying project Competitive African Cotton Initiative (COMPACI). Deutsche Investitions- und Entwicklungsgesellschaft (KFW-DEG), Kämmergasse 22, 50676 Cologne, Germany.

Chapter 24

Cocoa Certification in West Africa: The Need for Change Enrique Uribe-Leitz and François Ruf

24.1

Introduction

The goal of this chapter is to discuss various implementation challenges of current cocoa certification schemes at the farm level in West Africa. To this end, the chapter presents a selection of certification criteria (requirements) from the two leading certification schemes: UTZ Certified and Rainforest Alliance. The criteria selected exemplify typical implementation problems in the West African cocoa sector, though they are by no means an exhaustive list. Perhaps nowhere is the term ‘mass certification’ more deserved than in the cocoa sector. Today, more than 30% of global cocoa production is under certification, and this is concentrated in Côte d’Ivoire (Lemoud et al. 2017). Although there is a considerable amount of double and triple certification (Fountain and Hütz-Adams 2015), it is evident that cocoa certification is not a niche market. Nevertheless, despite these high percentages, current certification schemes are largely not successful in delivering what they stand for: sustainable (social, environmental and economically viable) cocoa production for the farmers. We argue that current practices will come to a “dead-end” within a few years in the cocoa certification business in West Africa, leading to farmers not participating in certification schemes, industry actors not profiting from certified products, and consumers no longer trusting certification labels. Therefore, this chapter aims to shed some light on the roots of the ‘non-compliances’ from cocoa farmers (producer groups) with the requirements laid out by E. Uribe-Leitz (*) French Agricultural Research Centre for International Development (CIRAD), UMR Innovation, Montpellier, France Development Economics Group, Wageningen University, Wageningen, The Netherlands e-mail: [email protected] F. Ruf French Agricultural Research Centre for International Development (CIRAD), UMR Innovation, Montpellier, France © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_24

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certification schemes, as well as the consequences thereof, e.g. a different perception of the concept of certification by cocoa farmers (producer groups) and little credibility from the user/consumer side. By doing so, we expect to motivate all actors involved in the cocoa certification business to re-think their strategy and adjust accordingly. The main focus of this chapter is to illustrate why the current certification criteria cannot deliver intended outcomes in the West African scenario. With this view, the chapter has the following objectives: • Showcase some certification criteria that are unachievable; • Illustrate why these certification criteria cannot by achieved by the average cocoa farmer; • Question current certification practices; and • Propose some discussion points for improvement. Our observations come from several data collection rounds made in Côte d’Ivoire (or the Ivory Coast) and Ghana between 2013 and 2015. Furthermore, additional data and observations come from key informant interviews and secondary data found in cocoa-related studies. In this context, this chapter supplements and continues existing studies on the impacts of certification at the farm level (KPMG 2012; Ingram et al. 2014). The chapter starts by giving a short overview on the certification schemes of interest in Sect. 24.2. Thereafter, Sect. 24.3 highlights and discusses the challenging certification criteria. The chapter ends with conclusions and recommendations in Sect. 24.4, highlighting the need to reconsider many elements of today’s certification systems.

24.2

Cocoa Certification Schemes

This chapter presents a selection of compliance criteria found on the two most active certification schemes in the cocoa sector in West Africa: UTZ and Rainforest Alliance.1 Criteria defined by these certification schemes are presented and major challenges for successful implementation are discussed. This chapter only addresses the ‘on-farm criteria’ and thus, it does not cover the chain of custody aspects (traceability requirements) of the schemes. This section starts with a brief presentation of UTZ and Rainforest Alliance certification schemes, followed by a presentation of the different certification criteria found to be difficult to comply with at the farm level.

1 In January 2018, the Rainforest Alliance merged with UTZ. It is planned that in 2019 a single, new agriculture certification programme built upon the best elements of both existing programmes will be published. Both the Rainforest Alliance and UTZ schemes will continue to run in parallel until the publication of new programme at the end of 2019.

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24.2.1 Rainforest Alliance Certification Scheme The Rainforest Alliance certification scheme is based on a Sustainable Agriculture Standard developed by the Red de Agricultura Sostenible (also known as Sustainable Agriculture Network or SAN), which is a coalition of independent non-profit conservation organisations that share the mission of being the global network transforming agriculture into a sustainable activity (SAN 2019). For this section, the authors have reviewed the SAN standard version 3, July 2010 (SAN 2010), which at the moment of writing this chapter was used in certifications at the farm level and which has been studied over the last years in Côte d’Ivoire and Ghana. The SAN standard is composed of 10 principles. Each principle is divided into criteria, of which there are 100 in total.2 There are two types of criteria: ‘critical’ and ‘normal’. The latter may apply depending on the individual circumstances of each producer. Out of all criteria, there are 47 which have to be assessed in all cases (i.e. are not subject of the non-applicability rule), and only 16 ‘critical criteria’ that have to be complied with at all times by any farmer seeking certification.3 Additionally, there other standard documents that need attention. One is the group certification standard (SAN 2011), since this document defines the criteria that must be met by a group, i.e. training and capacity building, risk assessment, and internal management system. This document has 16 criteria, of which five are critical. The second set of documents are the regional indicators established for sustainable cocoa production, which have been defined exclusively for Ghana (SAN 2009b) and Côte d’Ivoire (SAN 2009a). These documents should be consulted in addition to the generic sustainable agriculture standard. Each document addresses the peculiarities of each country and thus are slightly different, i.e. the criteria covered are not the same.4 Finally, it is worth mentioning that the SAN launched its new standard version 2017 in September 2016 (see SAN 2017 for the latest version 1.2, July 2017).5 This new document presents many changes compared to the previous version; however, since this standard has not become obligatory by the time of writing, the 2010 version will be mainly considered in this chapter.

Principle number and total number of criteria within principle are presented as “x.y”, where “x” is a number of principle and “y” is a total number of criteria within this principle, e.g. principle 1 and 11 criteria within it are presented as “1.11”. Here is the total listing of criteria: 1.11; 2.9; 3.6; 4.9; 5.19; 6.20; 7.6; 8.9; 9.5; 10.6 ¼ 100. 3 See pages 9 and 10 of the Sustainable Agriculture Standard (SAN 2010). 4 Ghanaian covers criteria in principles: 1, 2, 3, 5 and 8, while Ivorian covers criteria in principles: 2, 3, 5 and 10. 5 On 31 August 2017, the Rainforest Alliance (RA) and the Sustainable Agriculture Network (SAN) signed an agreement for the transfer of ownership of the shared SAN/RA certification system entirely to the Rainforest Alliance. The RA became the sole owner and operator of the certification scheme on 1 January 2018. 2

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Table 24.1 Number of control points in UTZ Standard Applicable to (audited/inspected on) Group level Group level + Member level Member level

Number of Control Points 61 (3) ¼ 64 45 (3) ¼ 48 12 (1) ¼ 13

24.2.2 UTZ Code of Conduct (Standard) The UTZ Code of Conduct (hereafter referred to as ‘standard’) is defined by the UTZ Certified Foundation, a multi-stakeholder organisation based in Amsterdam, the Netherlands. The UTZ standard has two versions, one for producer groups and one for individual producers. Since individual certification is not relevant to the cocoa sector in West Africa, it will not be further discussed in this chapter. Thus, we focus on the core Code of Conduct for group and multi-group certification version 1.1 (UTZ 2015b). The UTZ standard is divided into 4 blocks, representing the four pillars of sustainable agriculture: A—Management, B—Farming Practices, C—Working Conditions, and D—Environment. Each block is divided into control points. There are two types of control points: mandatory and additional. UTZ defined a number of control points that have to be complied with after each year of certification. This is seen as continuous improvement, an example of which would be 64 control points in the first year vs. 112 control points in the fourth year. Besides the main standard, UTZ has defined some control points which are only applicable to cocoa production, which can be found in the Code of Conduct cocoa module (UTZ 2015a). The following Table 24.1 summarises of the control points applicable to the UTZ standard. Brackets indicate the number of additional control points from the cocoa module.

24.3

Challenging Certification Criteria

In this section we present different certification criteria of both the UTZ and Rainforest Alliance schemes. Each criterion is presented in italics as defined by the certification standard. UTZ criteria are presented follows: UTZ + Reference to document, e.g. Group certification ‘G’ (or ‘CO’ for cocoa module) + block in the document, e.g. ‘A’ and number of criterion: [UTZ G.A.1.1] text of a criterion [M/G/G+M 1–4]. This last indication refers to who has to comply with (M ¼ Member, G ¼ Group, and G+M ¼ both Group and Member) and the year they need to comply with this criterion (i.e. year 1, 2, 3 or 4). Rainforest Alliance criteria are presented as follows: [SAN/RA + Gh/CI (when local indicator defined for Ghana or Côte d’Ivoire is being referred to) + number of criterion].

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24.3.1 Issue of Definition and the Abusa Case Certification schemes set up definitions to delimit their scope of action. These definitions encounter some complications. For example, the SAN standard defines ‘farmer’ in the following way: [SAN/RA 2010] Farmer: For the purpose of this standard, the person or entity that manages a farm or group of farms. It may be a company, an individual farmer, a cooperative or other organisation or individual responsible for managing a farm.

In West Africa, labour arrangements are complex. In cocoa growing regions, we find the ‘abusa/abunu’ labour arrangement, where sharecroppers are granted permission to work the land (cocoa plot) and in return the landowner receives one third (abusa) or half (abunu) of the harvest. In Ghana, the abunu contract may also designate a sharing of the cocoa farm itself between the landowner and the person who clears the land and plants cocoa. In Côte d’Ivoire, this arrangement takes the more explicit name of ‘Planter-Partager’, literally plant-and-share (Colin and Ruf 2011). Additionally, there are communal or traditional working arrangements (e.g. ‘weeding gangs’) where a task is done by a group or people, including the farmer, family members, hired labourers, and/or shareholders (abusa/abunu are the terms used for both the contract and the contracted persons). As we can see from the definition above, standards6 fail to address the actual labour arrangements (i.e. abusa), which is problematic because potential benefits of certification (e.g. training and inputs) are not provided to the person doing the work at the farm level. As described by Glin (2014) for the organic cocoa sector, the lack of addressing the abusa in the cocoa certification systems constitutes a source of distrust, since landlords (farm owners) keep the benefits of the premium for themselves—although all the work is done by the abusa. Our empirical observations reaffirm these statements. Firstly, some abusa may have a deeper knowledge of cocoa farming than the owner/inheritor. They may influence the decision process, as well. For instance, we observed cases of abusa obliging their landlords to buy fertilizers under the threat of leaving the farm (Ruf et al. 2014). Secondly, the proportion of cocoa farmers hiring abusa varies enormously from one region to another. It depends on the size of the farm and on the life cycles of the farm and the farmer. An old farmer with an old but well-maintained 10-hectare cocoa farm may require three abusa contracts, while a young farmer with two hectares of young cocoa will rely on his own labour force.7 Availability of family labour also plays an obvious role. Farmers who send their children to school need more abusa. In addition, regions close to borders usually benefit from an abundant supply of

UTZ Certified refers to ‘sharecropper’ in their definitions; however, their certification system has no provision in place to ensure that sharecroppers directly benefit from certification. 7 The conjunction of the life cycles of the cocoa farmer and his/her cocoa farm is one key element of cocoa cycle’s productivity (Ruf and Siswoputranto 1995). 6

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labour in general and from a surplus of candidates taking abusa/abunu contracts. Last but not least, when a survey focuses on certification, farmers may tend to declare the abusa working in the certified farm plot and deliberately “forget” the abusa hired on a non-certified farm plot. For instance, in our data collection in 2013, only 12.2% of the UTZ certified farmers8 declared having abusa/abunu working for them. In our other sample of farmers certified by UTZ and Rainforest Alliance, with a high proportion of old farms and farmers and 20% of the sample along the Ghanaian border, the percentage rises to 40% for the same year (2013).9 Along the Ghanaian border, in the regions of Aboisso, Abengourou, Agnibilikrou, at least 50% of the farmers reported hiring abusa. Finally, despite a general decline due to inheritance and the division of farms between several inheritors, the estimates for the percentage of farmers in Côte d’Ivoire who hire abusa are around 20% in 2017/18, a significant portion of which have some valuable knowledge of cocoa farming. The abusa/abunu is not only excluded from monetary benefits from certification, but is also completely absent in the certification process. In some cases, abusa/abunu are not even documented (identified) within the internal management system of the producer groups. Although certification schemes can react relatively quickly to these definition flaws (if identified) by amending their documents,10 it remains to be seen whether the introductions of new definitions in the newer versions will lead to an improvement. An effective improvement measure would be to introduce or amend criteria to ensure that the standards benefit (or embrace) excluded actors. Independently of the definitions and control points chosen by the certification schemes, it is doubtful that the complex societal arrangements of these West African countries can be controlled (and improved) through the approach of currently available certification schemes, since these rely on the auditing of documented procedures and contracts.

24.3.2 Intermingled Issues In most of the cocoa belt in West Africa, ‘traditional’ land arrangements, as well as non-existent or weak property rights concerning land tenure and forest resource management are a reality. These factors are of course intermingled with a series of further complications, such as national policies, law enforcement issues, massive migration waves, economic growth, etc. The aspects of land use and tenure, deforestation, and shade trees are closely interrelated. However, for the sake of illustration, these three issues are discussed separately below.

8

Sample size 98 farmers, Côte d’Ivoire only. Sample size 140 farmers, Côte d’Ivoire only, 120 certified. 10 SAN/RA version 2017 now includes the terms ‘smallholder’, ‘group member’ and ‘worker’. 9

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Land Use and Rights In most of the cocoa belt in West Africa, traditional land arrangements are still in place. There is a constant struggle between “landowners” or, more precisely, individuals who claim landownership rights and those individuals who already have access to this land. These landowners may be local “kings” (or similar), or a politically connected person, or more simply farmers who claim indigenous rights to the land (i.e. autochthon farmers). These landowners, or ‘rightful’ persons, mainly grant farming rights to the migrants willing to become cocoa farmers or those who wish to expand their cocoa farms. However, these landowners have very uncertain rights to their land. Actually, as already discovered by Dozon (1975), land sellers affirm a right to land by the act of selling it. However, buyers do not usually receive a land title. Furthermore, the assets (woods, minerals) of that land can be exploited by the rightful landowner at any time. A typical example is transferring timber rights to loggers in areas where cocoa is being cultivated by a farmer. This creates uncertainty towards on-farm investment by the cocoa farmers cultivating the land and thus, to the ways the land is managed. However, the fascinating cocoa booms of Côte d’Ivoire and Ghana demonstrate that this uncertainty does not prevent farmers from clearing forests and investing in cocoa farms. This can be explained by the uncertainty of land ownership rights in the West African scenario, where land itself is seen as private property by multiple actors at once and/or as a common resource, resulting in rather something in between. Farmers may claim ownership of their land once they have cultivated it, including unclaimed land, which might be in protected forests and national parks. This means cutting or burning down forest to establish a cocoa plot (or similar). This is the “tragedy of the commons” (Boni 2005; Ruf and Varlet 2017; Woods 1999), since cocoa farmers seek to maximise their returns in terms of migration/establishment costs: during the first decades of their settling as cocoa farmers, not much consideration is given to the forest, soil fertility, or the environment—which could be considered a rational strategy in light of the risks at stake from the farmers’ point of view. Below is an example of the criteria to be controlled for by the certification schemes at the farm level regarding land use and tenure: [SAN/RA 7.6] The farm must have a legitimate right to land use and tenure, demonstrated by presenting the appropriate official documentation. If there is no such documentation the farm must show either: a. The absence of significant disputes on land use, tenure and access, or; b. The consent of local communities, regarding the land, natural and agricultural resources.

Bearing in mind the actual land ownership structure in West Africa, we see this criterion as unachievable in most parts of the cocoa belt in West Africa. The assumption that these stipulations must be met raises the question of audit credibility, since such criteria cannot be audited by external parties entering a community for merely a few hours. We will return to audit integrity and the robustness of the oversight mechanism in the conclusion.

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Deforestation in Cocoa Production and Certification Deforestation rates in West Africa have been significant in the last decades, and there are various reasons behind this. It is clear that the primary forest is almost gone. Remaining national parks are under high pressure (Gockowski and Sonwa 2011). A major driver for this continuous deforestation is the expansion of the cocoa frontier. In Ghana between 2001 and 2006, the cocoa production area increased by 15% (Ruf 2007). In Côte d’Ivoire, the 12 years of politic-military crisis from 2000 to 2012 relaunched cocoa migrations at the expense of protected forests with impressive annual rates of deforestation, up to 6% in the eastern regions (BNETD et al. 2016). Figure 24.1 below presents the tree cover loss, clearly illustrating that areas most affected are cocoa growing areas.

Fig. 24.1 Tree cover loss in Côte d’Ivoire 1990–2000 (orange) and 2000–2015 (red) (Source: BNETD et al. 2016; map reproduced with kind permission of BNETD)

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In Côte d’Ivoire, four out of six reserves surveyed by Bitty et al. (2013) were found to be transformed into cocoa plantations. A further spectacular showcase is the forest reserve of the Haut-Sassandra, with its 100,000 hectares converted into cocoa farms in less than 10 years (Barima et al. 2016). Other national resources, if available, clearly state that the timber resources are degraded and that the volumes of timber deforestation are hard to estimate, due to the high amount of illegal extraction (Ghana FRI 2014). In 2017, the ‘zero-deforestation’ slogan put forward by several companies and institutions, which have begun fearing environmental lobbies, remains a myth (Ruf and Varlet 2017). Deforestation remains intense. Despite this, the UTZ certification criteria include the following: [UTZ G.D.109] No deforestation or degradation of primary forest occurs or has occurred since 2008. [M 1] [UTZ G.D.110] No deforestation or degradation of secondary forest occurs, unless: – a legal land title and/or landowner permission and/or customary land rights are available, and – government permits are available (if required). [M 1] [SAN/RA 2.1] Critical Criterion. All existing natural ecosystems, both aquatic and terrestrial, must be identified, protected and restored through a conservation program. The program must include the restoration of natural ecosystems or the reforestation of areas within the farm that are unsuitable for agriculture. [SAN/RA 2.2] Critical Criterion. (. . .) the farm must not destroy any natural ecosystem. Additionally, from November 1, 2005 onwards no high value ecosystems must have been destroyed by or due to purposeful farm management activities. If any natural ecosystems have been destroyed by or due to purposeful farm management activities between November 1, 1999 and November 1, 2005, the farm must implement the following analysis and mitigations (. . .)

As we can see, certification requirements are classified as ‘critical’ (SAN/RA) or obligatory from year one (UTZ). We also see that these criteria set a certain date as reference for the acceptance of deforested or degraded land as cocoa plot. However, it is clear that with the precarious data availability at hand, these certification criteria cannot be audited, as there is no system in place that records deforestation—not to mention the temporal scale. In other words, it is impossible to verify these criteria at farm level. In cases where certification wbodies rely on the applicant (producer interested in receiving the certificate) as a source of information, the result is obvious. This gives an example for “system induced responses”,11 where the farmers are narrating the information they have been trained to tell within the certification trainings. This way, an auditor will hear what he needs to hear during the certification audit. As a result, all farmers in West Africa are able to comply with these criteria and thus, achieve certification. Finally, the identification and protection of “natural ecosystems” or “areas within the farm unsuitable for agriculture” are very abstract notions that are understood differently by different actors, making these terms essentially meaningless at the farm level. 11

Other examples are: tree density, child-labour, protection equipment, etc.

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Shade Trees and Agroforestry Systems Certification schemes support the concept of ‘agroforestry systems’ by fixing a minimal number of ‘shade trees’ that should be present per hectare. The following requirements are being set: [UTZ CO.B.1] At least 12 shade trees per hectare are maintained and distributed evenly on cocoa plots. [M 2] Clarification for Compliance: Enough suitable trees are planted to eventually have 12 mature trees per hectare. Newly planted trees are taken care of, and are non-invasive, and/or nitrogen fixing, and/or highly nutritious species that provide optimal canopy cover (at maturity). Trees can be used for other purposes (e.g. wood or fruit), as long as the number of 12 trees per hectare is maintained. [UTZ CO.B.2] Group members have access to enough shade tree seeds or seedlings to meet their needs. If they cannot obtain them themselves, a program is in place for distribution. [G 2] [SAN/RA 2.7] The farm must establish and maintain vegetation barriers between the crop and the areas of human activity (. . .) [SAN/RA 2.8] Farms with agroforestry crops located in areas where the original natural vegetative cover is forest must establish and maintain a permanent agroforestry system distributed homogenously throughout the plantations. The agroforestry system’s structure must meet the following requirements: a. The tree community on the cultivated land consist of minimum 12 native species per ha on average (Interpretation guide: Fruit trees, may be counted among the 12 species of item (a) of the criterion). b. The tree canopy comprises at least two strata (stories). c. The overall canopy density on the cultivated land is at least 40%.

As we can see, these requirements on the number of shade trees per hectare focus on the long term. At the same time, the credibility of the control mechanisms in place to guarantee these criteria is dubious. For example, the inspection of these criteria during an audit would require an unfeasible length of time. Optimistic scholars find that certified cocoa agroforestry systems are already more profitable than conventional (i.e. full-sun) cocoa farming systems. For example, Gockowski et al. (2013) estimate that certified cocoa plots will lead to higher revenues in a 20-year production cycle, due to the sales of timber originating from the shade trees. The optimistic assumption behind their calculation is that the timber will be sold as additional revenue by the cocoa farmers, which implies that the land and tree tenure problem(s) mentioned above will be solved in within 20 years as well as all the regional challenges that lead to deforestation in the region. Although this is desirable, we are still very far from an economic timber-related benefit for cocoa farmers in West Africa. In sum, certified farms are not required to have mature shade trees above the cocoa canopy, but rather simply a plan to get there one day. In other words, certification schemes allow full-sun cocoa plantations with tree-seedlings planted

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on the cocoa plots. This makes sense, since it reflects the full-sun cocoa reality of the field; however, it exemplifies that the actual aim of the criteria might never be achieved, although a plan is audited yearly. From the farmers’ perspective, full-sun plots tend to have higher yields, although there are various downsides, such as higher input need and possibly shorter tree life (Asare et al. 2016). However, full-sun practices are common in the certified cocoa plots of Côte d’Ivoire and Ghana. For example, the 45-year old cocoa belt in the Soubré region has not collapsed. On one hand, a few young farms were still established in the 1990s by clearing the very last pockets of classified forests between Soubré and the Taï National Park. On the other hand, technical changes and innovations also explain a true resilience. Ageing cocoa farms were maintained through increasing pesticide treatments and adoption of chemical fertilizers in the 1990s, followed by the adoption of chicken manure in the 2000s/2010s (Ruf 2015). In addition, and despite their interdiction by certification, herbicides were massively adopted to make for the increasing labour cost. Finally, there is an occasional strategy of letting spontaneous timber trees regrow when the cocoa trees are ageing, a strategy adopted by 30% of the cocoa farmers, which also started long before the certification (Sanial 2015).

24.3.3 Criteria Out of Reach? Certification schemes also try to address issues that are not only out of the reach of the individual farmers and/or producer groups, but also out of the reach of entire communities and even national governments. For example: [SAN/RA 5.17] The farm must have mechanisms to guarantee access to education for the school-age children that live on the farm. Schools established and administered by certified farms must have the necessary resources, personnel and infrastructure to be able to provide an educational experience that complies with national legal requirements. [SAN/RA 2017 4.31] The farm management and group administrator provide access to health care and basic education to all workers.12

Although the above criteria are well intended, the attempt to shift the responsibility of access to basic education and health care to farm management is an aberration. Many West African countries struggle to achieve these goals through their national governments and infrastructure-related projects, even with the support of international donors/strategies. As a result, such criteria give certification schemes—and the entire cocoa industry using them—a negative effect on their applicability and credibility. At the same time, these criteria incentivise a regional segregation of the producers based on the local infrastructure and/or context, since those farmers (groups) based in more privileged regions (e.g. where public schools 12 This criterion is new to the latest revision of the SAN standard and was not present in its 2010 version (see SAN 2017).

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are available) will most likely have a lesser investment (cost) in order to achieve 100% of the certification criteria compared to those farmers that are in less suitable regions (with less infrastructure available). This is a clear disadvantage for those farmers in such areas. Therefore, we see more certified farmers in regions where the infrastructure is more developed and where governments can provide more services, e.g. at the side of the main roads or bigger villages. For example, in 2013, when we established a sample of 14 cooperatives to launch a fertilizer test, the chocolate companies involved in the project oriented us toward cooperatives that were all settled on the main roads. Certified cocoa farms were closer to roads than non-certified ones, which can lead to cooperatives buying ordinary cocoa in the bush and occasionally re-labelling it as certified cocoa.

24.3.4 The “Cooperative” (Producer Group) Problem There is a large body of literature about the benefits that cooperatives (or other forms of producers groups) can bring to small holders or more broadly, for producers in the agro-food sector (Calkins and Ngo 2010; Mangnus 2015). The more recent type of “hybrid” cooperative arrangements (Ménard 2007), which deviate from “typical” cooperatives, can be even more beneficial to producers. However, the West African cocoa sector has important historical aspects that need to be understood and considered, namely the “Groupement à Vocation Coóperative” (GVCs) in Côte d’Ivoire and farmer umbrella organisations set up by COCOBOD in Ghana. In Côte d’Ivoire, for example, GVCs were introduced by the government as a way to organise the countryside (Woods 1999). Due to various reasons outside the scope of this chapter, GVCs failed; however, what is important is that they left behind a profound lack of trust among farmers especially regarding the “collective action” principle of a cooperative (Sissoko 1994; Yapo 1989). This is very apparent when doing data collection on the cooperative level in these regions. Since certification was introduced on a large scale in West African countries (ca. 200813), many projects were launched by international traders, exporters and NGOs in the region to establish (or reactivate) “cooperatives” in order to access the certification process. At the same time, many local cocoa traders transformed their business into cooperatives. The size of the groups varies from country to country, as we see in Fig. 24.2 below. Such group sizes are not achieved out of intrinsic farmer motivation and devotion to the cooperative, they are a result of external influences. Traders becoming head of cooperatives know their job, which is in favour of the sustainability business, but their dependence upon external support and premiums may have a detrimental effect on this sustainability in the long run.

Our dataset indicates 2008 as year when certification was first achieved by various cooperative (groups).

13

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Fig. 24.2 Average number of producers per group (cooperative) in Côte d’Ivoire and Ghana and the number of certificate holders (n)

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Ghana (n=9)

Côte d'Ivoire (n=78)

4368 2223

1720

1080 301 # GROUP MEMBERS

YEAR 1

334 YEAR 2

The extent of the externally created cooperatives is illustrated by Fig. 24.2. There we see a total of nine certificate holders embracing an average of 4468 members (producers) in Ghana and 78 cooperatives embracing an average of 1080 members (producers) in Côte d’Ivoire (Uribe Leitz et al. 2015). Years 1 and 2 on the middle/ right are the average number of certified producers within the total number of producers. This also indicates that not all producers within a group achieve certification on the same year. Functional and long lasting cooperatives (farmer groups) seem to be successful when established and managed with the external support of industry partners or NGOs14 (Uribe Leitz 2014). For a further example of successful organic certification in Ghana with external support see Glin (2014). Finally, we have the social capital dimension. Social capital encompasses cooperation, social organisation, and human interactions and is measured by proxies such as trust reciprocity and networks; therefore, high social capital is reflected in low-transaction costs within an economy, well-functioning institutions, and widely recognised and accepted social norms within a society (Svendsen and Svendsen 2009). At the cooperative level, this means that in order for cooperatives to benefit from certification, high levels of social capital are needed (Snider 2016; Snider et al. 2016). Therefore, we can conclude that cooperatives in the context of West Africa are more often family businesses or cocoa buying centres than true cooperatives. These groups, which are created and maintained with external support (due to lack of social capital from within), are doomed to fail without the external support that guarantees transparent governance and service delivery mechanisms that benefit cooperative members. Consequently, for cooperatives to be certified independently in the future in West Africa, all actors need to invest in building social capital and trust at the farm level.

14 Our dataset indicates that only 3 farmer groups (out of 28 interviewed) are farmer-led. All other are led by ‘partners’ in the value chain (exporters, middlemen, etc.) or NGOs.

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24.3.5 “Training” and Farmers’ “Sensitisation” Training for farmers has been available in West Africa for decades. For example back in 1975 in Côte d’Ivoire, as detailed by Yapo (1989), “(. . .) the ‘Groupements à Vocation Coopérative’ (GVC), gathered cocoa (and coffee) farmers and trained them to follow a detailed agricultural calendar hand in hand with the provision of necessary inputs. In return, the farmers received a non-reimbursable premium per hectare”. However, Ruf (1987) reported that only 18% of the new cocoa plots created in the 1970s benefited from the premium and associated training (hybrid planting material, nursery techniques, planting in line, etc.). More than 80% of the farmers continued to utilise their own labour-saving and capital-free methods of planting, namely, direct sowing at high density, which proved to be quite a defendable system when forests were abundant and the land was fertile. In addition, farmers acknowledge that many beneficiaries of the subsidy abandoned the farm plots in the 1980s. Farmers who really wished to create new plantations in the 1970s did not need any premium, while most beneficiaries of the premium planted mostly for this monetary advantage. This shows the relative inefficiency of premium payments and training of good agricultural practices over a long period. But it also shows that farmers can adopt a technique when they need to. In the 2010s, most farmers adopted the technique of nurseries because of the environmental changes related to massive deforestation: less useful rainfall, lower fertility, and higher weed pressure. Farmers even innovate and find their own solutions to make the nursery techniques and transfer of seedlings to the fields more efficient, especially by using deeper holes and applying animal manure. This illustrates that the system of “training” farmers with unsuited techniques at a given period and “rewarding” them with a premium has already been used in the past, with very limited success. To a certain extent, certification programmes repeat the same mistakes, proposing labour-consuming techniques that farmers are already familiar with and may apply in the future when (if) the average size of the cocoa farm drops below two hectares and thus these techniques become attractive again. Today, the average is still above four hectares. However, today’s certification schemes continue listing long and unsuitable training curricula as a central part of their systems: [UTZ G.A.19] Training is provided to group members and to operators of farms on all topics relevant to them in the following areas: Block A) Management Block B) Farming Practice Block C) Working Conditions Block D) Environment Trainings are carried out by a competent person(s) and include tests or checks that the training content has been understood. Training records are kept for each training. [G 1] Clarification for Compliance: Trainings are sufficient in number and duration to meet the group members’ needs. Trainings are clear and understandable to group members.

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At least two topics are addressed per year in a training(s). By the end of the fourth year, all of the following topics have been covered by internal or external trainers: Block A) Management: – Traceability Block B) Farming Practices: – – – –

Good farm maintenance and productivity IPM approach and measures Crop diversification Safe handling and use of permitted pesticides, including pre-harvest intervals and re-entry times – Harvest and postharvest practices – Product quality and food safety – Record keeping skills Block C) Working Conditions: – Occupational health and safety Block D) Environment: – – – –

Protection of water bodies Protection of flora and fauna Climate change Waste management

Competence of the trainer(s) can be demonstrated by official qualifications, and/or attendance certificates of training courses, and/or proven experience. Each training record indicates the date, topics, summary, length, and name of the trainer(s). Attendance lists include participant signatures/fingerprints and gender. [UTZ G.A.20] Awareness raising activities are held and documented for group members and group member workers, and their families, to inform them about: Block C) Working Conditions. [G 1] Clarification for Compliance: At least two topics are addressed per year. By the end of the fourth year all of the following topics have been addressed by internal or external trainers: Block C) Working Conditions: – – – – – – – –

Worker’s rights Child labor, including hazardous work and trafficking Importance of education Equal rights and opportunities for women Sexual harassment, diversity and discrimination Health and safety including HIV/AIDS, re-entry times and hygiene Family nutrition and other issues that improve general health Other relevant topics

[SAN/RA 1.9] The farm must implement a training and education program in order to guarantee the effective execution of the social and environmental management system and its programs. The training topics must be identified according to the standard, the position, and type of work carried out. Records must be kept that include the participants’ signatures, topics covered and the instructor’s name for each training or educational event. The required training must be paid as part of the normal workday.

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In sum, it is not a matter of endless training for farmers. Today, current certification programs have the same elements as the concepts in the 1970s and the actors behind certification schemes do not seem to reflect on the lessons learnt in the last decades. We need to start looking at the roots of why farmers are not able (or not interested) in applying the knowledge gained in these decades of trainings. The main answer lies in labour productivity and risk management. Most techniques taught in the field schools of certification programmes (two harvests per month, forbidding herbicides, digging holes for compost, etc.) require additional labour per unit of surface, while labour diminishes in availability (Ruf et al. 2013; Uribe Leitz et al. 2015). Some criteria, such as wildlife conservation (e.g. termites) are wholly undesirable for farmers whose cocoa trees are attacked by termites. The only new element of today’s system is that certification bodies are independent organisations which independently audit the results. A side effect of the training curricula and the way it is being controlled (i.e. audits) has led to the awareness of cocoa farmers providing the ‘right’ answer in the presence of visitors to their farms. Cocoa farmers are well aware of all issues that have been thought and can recite the learnings (Ruf et al. 2014). However, they are also well aware that there is no evident or direct benefit or added value for them in implementing their learnings or simply, there are no resources for implementation. The roots of the problems are not yet understood and there is little effort being made in order to address this. Therefore, we urge all involved stakeholders to better understand the situation of the farmers and adjust their certification systems accordingly.

24.3.6 On-Farm Practices: IPM, Fertilizers, Pruning, etc. On paper, certification schemes sufficiently cover all on-farm practices. However, the major drawback is precisely that: the record keeping. In order to make the certification system auditable, there must be thorough record keeping. This is a major impediment, not only because many cocoa farmers are illiterate, but because no farmer sees a benefit in recording their daily operations. Furthermore, many on-farm practices required by certification schemes can be impossible to achieve by the farmer, due to local infrastructure or service provision (e.g. proper disposal of empty agrochemical containers, etc.). Finally, since the control mechanism (audit) is not able to control for on-farm practices in a reliable manner and farmers do not see any added value, they have little incentive to adopt them. The following are a few examples.

Soil Fertility, Fertilizer Use and Agrochemical Application Soil fertility is the backbone of a successful crop production system. Proper management of soil fertility assumes knowledge of the types of soils, their nutrient availability, and most importantly the nutritional demands of the crop. These aspects are difficult to determine at the farm level without the necessary equipment (pH-meter, etc.) and/or

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accessible service provision (capable extension services). Additionally, in West Africa, there are nation-wide cocoa fertilizer recommendations that do not pay attention to the types of soil where cocoa is being produced or the age of the plantation, which is not an optimal solution on the long term and brings many challenges (Snoeck et al. 2016). This does not give cocoa farmers a good starting point. In relation to soil fertility and fertilizer use, we find the following criteria: [UTZ G.B.46] Measures are taken to improve soil fertility according to the nutritional needs of the crop, including compensation for nutrients lost from harvests. Fertilizers used (organic and inorganic) are used efficiently to maximize uptake. [M 3] Clarification for Compliance: Measures to improve soil fertility include e.g.: – – – –

Planting nitrogen-fixing species Agroforestry practices Composting Application of inorganic fertilizer

Measures to correct low soil pH are implemented when possible. If soil pH is low, acidifying nitrogen based fertilizers are avoided or are used in combination with lime. Efficient fertilizer use considers the prescribed dosage, period or timing and intervals of application, and release properties. [SAN/RA 9.2] The farm must have a soil or crop fertilization program based on soil characteristics and properties, periodic soil or foliage sampling and analysis, and advice from a competent and impartial professional or authority. (. . .)

Due to infrastructure limitations and scarce information availability in the cocoa growing areas, it can be assumed that few of the farmers can satisfactorily comply with these requirements. Similarly, one can argue that information availability and general knowledge about further inputs, such as agrochemicals (pesticides, fungicides, etc.), is very scarce in cocoa growing regions. Furthermore, agrochemical composition (i.e. active ingredients) and country-and-crop-specific registration is a very complex subject that we cannot address further here. However, it is clear that these aspects of legal compliance and knowledge about the used inputs impose a big impediment for farmers. More importantly, for many years, certification programmes remained reluctant to provide chemical fertilizers. As mentioned above, they focused on compost, which was too labour-intensive and never demonstrated its efficiency on cocoa yields. In addition, when fertilizers are provided through the exporter/cooperative system, farmers have no say and must take what has been chosen for them. This is another way to infantilise farmers precisely when, in that specific case, infrastructure and external support—information about new inputs recently available on the market, and foliar and soil analysis to achieve the right fertilization schemes—would be useful. Assuming that farmers are able to access the (appropriate) inputs for cocoa at the farm level, certification schemes have these criteria: [UTZ G.B.51] Pesticides listed on the Banned Pesticides List cannot be used at any stage of production, or stored for use on the certified crop.

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Pesticides listed on the Pesticides Watch List can only be used if: – all IPM measures have been applied, – less hazardous alternatives are not available, and – specific recommendations are followed to mitigate or reduce the risks related to the hazardous nature of the product. [G+M 1] Clarification for Compliance: A system is in place to monitor the use of pesticides listed on the Pesticides Watch List. [UTZ G.D.107] Pesticides and inorganic fertilizers are not used: – within 5 meters from any permanent or seasonal water body that is 3 meters wide or less (or within 2 m if the farm is less than 2 ha), – within 10 meters from any permanent or seasonal water body that is over 3 meters wide, or – within 15 meters from any spring. Run-off from organic fertilizer is minimized. [G+M 1] Clarification for Compliance: Clear instructions are in place for all persons who apply fertilizers and pesticides. [SAN/RA 6.5] Personnel who apply or handle agrochemicals must have examinations necessary to determine the potential effects of the agrochemicals they handle before initiating such activities on the farm. These workers must not suffer from chronic diseases, hepatitis or renal diseases, or respiratory diseases nor have been declared mentally challenged. Only males between the ages of 18 and 60 are permitted to apply agrochemicals. On farms where organophosphates and carbamates are applied, cholinesterase examinations must be carried out every six months or as stipulated by law, whichever is more frequent. (. . .)

As we can see, these criteria assume a high level of information and knowledge on the farm. Not only there are lists distinguishing between ‘banned’ and ‘watch list’ chemicals, but there is also an implied distinction between less and more hazardous chemicals.15 Additionally, considering the small cocoa plots must respect all safety parameters mentioned, substantial percentages of the farms could potentially be excluded from the agrochemical applications. This would be counter-productive in terms of the Integrated Pest Management (IPM), since those parts of the cocoa plot would be incubating pests and diseases. While the requirement for routine medical examinations for the persons making the agrochemical applications is a respectable goal, it is questionable whether this can be performed in the cocoa growing areas.

These lists, where products are being categorised as ‘banned’ or in the ‘watch list’ are being defined by the certification schemes. These lists usually take as a basis internationally recognized lists of the UN, FAO and or WHO. Additionally, certification schemes restrict these lists even further with the intention of reaching higher environmental goal. Unfortunately, there are no studies that prove whether the objective of the certification is being achieved. For example, there are substitution effects among active ingredients and/or these lists create regional production restrictions for those producers where there are no chemical alternatives available. Therefore, more research needs to be done regarding the consequences of these lists at the farm level in different growing regions.

15

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According to some surveys, certification projects facilitate farmers’ access to pesticides (Ingram et al. 2014). In our own surveys, we could not identify any difference, with an average two rounds of pesticides per year (Ruf et al. 2013; Uribe Leitz 2014; Uribe Leitz et al. 2015). In any case, if increasing the pesticide use by certified farms is one of the direct outcomes of certification, should it be considered an achievement? Is this in line with the objective of IPM which aims to reduce the use of pesticides per hectare? Finally, regardless of the input amounts, increased cocoa yields should compensate as a positive effect of certification. After almost 10 years of certification, this remains highly debatable. Some surveys conclude that certification had no impact on cocoa yields (Ruf et al. 2013). Others find a slightly positive impact (Ingram et al. 2014). However, slightly higher yields in certified farms do not prove an impact of certification per se. There are many important factors involved, such as impacts of better farming practices, access to inputs (i.e. within the certification programme), the regional conditions for cocoa farming or further socio-economic aspects. Additionally, there is a selection bias within the certification process, which tends to filter better-performing farms and compare these with the least productive ones. For example, autochthon famers of the central-west and western regions are rarely organised in cooperatives, and thus rarely certified (Lemeilleur et al. 2015). Thus, they are more likely to be taken as control samples of non-certified famers. However, as they have smaller farms than average, lower access to labour and poorer yields, it is likely that comparisons between certified and non-certified farms is turned into comparison between migrant and autochthon famers or comparison between two different regions (which includes differences in soils, precipitation patterns, etc.). That does not prove that certain farmers in a region are not benefitting from the certification, but it illustrates the attribution impediment towards its real impact. Finally, another bias is the incentive given to the certified farmers and cooperatives to deliberately convert ‘ordinary cocoa’ from non-certified farms into ‘certified cocoa’ in the expectation of a premium. However, this is extremely difficult to prove, since these practices are carefully hidden by farmers and/or cooperatives making these conversions.

24.3.7 Premiums Certification schemes should not only bring environmental and societal benefits to the cocoa growing communities, they also aim to bring higher economic profits. To this end, they have the certification premiums, which is usually an additional amount of money paid to the producers (producer groups) for certified cocoa beans. [UTZ G.A.26] A “Use of UTZ premium” procedure is in place and is communicated to the group members. The UTZ premium clearly benefits group members in cash and/or in kind. [G 1]

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Clarification for Compliance: The “Use of UTZ premium” procedure and records include: – group management spending (e.g. audit cost), – products and services delivered to the group (e.g. training, storage facilities), and – Group Member premium: benefits in form of cash or tangible goods (in kind). Records are kept updated.

Table 24.2 reveals various issues: first of all, that there is no fixed premium amount and that the results of the premium negotiation between the groups vary. Considering that the premium granted to the producer group itself is supposed to cover the implementation cost of the certification programme, we see that there are big differences in the cost management at the group (cooperative) level and thus improvement possibilities. Finally, it is important to note that in Ghana, due to the strong government intervention in the cocoa sector, the government is able to capture a percentage of the premium. Although our data collection recorded increasing number of farmers receiving premiums between 2009 and 2015, the total amount of cocoa sold as certified remains below 10% on average.

24.3.8 Diversification Strategies: Role of Other Products Certification standards try to encourage diversification of crops and herewith income sources. Here the UTZ criteria as example: [UTZ G.B.43] Diversification of agricultural production and/or other sources of income is encouraged and practiced to adapt to market and/or climate change. [G+M, optional control point during all years, i.e. 1 to 4] Clarification for Compliance: Diversification considers intercropping, establishment of home gardens with highly nutritional plants, or any other type of diversification.

In the following we present data regarding diversification strategies in Côte d’Ivoire (Uribe Leitz 2014). Here we see that, in our sample, 36% of the farmers had identified and planted rubber (Hevea brasiliensis) as the best income diversification option besides cocoa. Rubber was found at all different stages of development. The main incentive for the farmers is the constant income throughout the year, since rubber is harvested and sold on a monthly basis (unlike the main harvest season of cocoa, followed by a smaller harvest a few months later). At the same time, the downside of rubber production is that it takes seven years before it can be harvested. Table 24.2 Premium repartition per kg in Côte d’Ivoire and Ghana in USD (year 2014/15)

Received by Producer groups Farmers COCOBOD a

On average

Côte d’Ivoire 0.019–0.097 0.039–0.097 n.a.

Ghana 0.017–0.113 0.064a 0.020

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Only 2% of these farmers reported rubber to be in production and as a reliable and constant income source. Another important diversification crop in the same sample was palm oil (Elaies guineensis). One identified reason was that a local company had a strong support programme for farmers, including free plantlets, etc. Additionally, once in production, palm oil not only brings additional income but it is also being consumed by the producers as palm-wine or cooking oil. The box plot presented in Fig. 24.3 shows the range of crops that cocoa farmers have on their plots under cultivation besides cocoa. In our dataset, almost 70% of the farmers receive ‘non-cocoa income’, which is generated from the other cultivated crops and/or from paid labour to the farmers. Furthermore, our data shows a significant correlation between non-cocoa income and other tree-crops, since rubber, palm oil and coffee fall under this category and are the most logical cocoa substitutes. However, current certification schemes focus only on one commodity and fail to give added value to other crops being produced. In other words, current certification schemes have no impact on diversification, since they focus on keeping famers concentrated on cocoa production.

15,00 13,00 12,00

NR_ _OTHER_ _CROPS

11,00 10,00 9,00 8,00 7,00 6,00 5,00 4,00 3,00 2,00 1,00

Ghana

Côte d'lvoire

COUNTRY Fig. 24.3 Number of other crops cultivated by cocoa farmers in Ghana and Côte d’Ivoire

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Conclusions and Recommendations

24.4.1 Conclusions Cocoa certification in the West African context is challenging. This chapter reviewed the two biggest certification schemes active in cocoa, namely UTZ and Rainforest Alliance, and their criteria demanded at the cocoa farm level. We identified criteria that have major issues during the implementation at the farm level, which relate to: • Labour arrangements: certification schemes fail to embrace the complexity of the West African labour arrangements and thus, the benefits of the certification are not always being perceived by all actors involved in cocoa production (e.g. abusa/abunu, family members, etc.). • Cocoa production is directly linked with deforestation and this is partly related to land use rights. These overlapping components have an effect on how the cocoa plantations are being managed, including the zero-shade strategy applied during a long period of the life cycle of the cocoa farm, regardless of the number of shade trees mandated by the criteria. The major problem with these criteria is that they cannot be checked during an audit (within the oversight system) either because there is no information available (deforestation), because the arrangements are so complex (land use) or because it is simply not realistic to control for such issues (number of shade trees per hectare/canopy density). • Criteria out of reach of the certification systems, such as access to education or medical assistance, are also being assigned as a ‘responsibility’ of certification schemes. On one hand, this is impossible for some farmers to achieve, while on the other hand this is clearly not the responsibility of the certification scheme (or private industry) to comply with and inspect. • Current certification schemes are mainly in the hands of externally-created cooperatives or farmer groups. On the one hand, the fact that many cooperatives have been created by traders transforming their business into ‘cooperatives’ offers a degree of business sustainability, since the head of the cooperative is a trader who knows his job and who can take quick decisions. On the other hand, it can be reasonably assumed that these type of ‘cooperatives’ generate strong asymmetries at the expense of their members, the cocoa smallholders. Finally, most of these cooperatives might have not been created without the premium and without external support. Therefore, the cooperative as the key unit of the certification system may trigger conflicts and do not appear to be socially sustainable. • Farmer training is problematic. Unfortunately, training curricula fail to address the reasons why farmers are not changing their on-farm activities and/or adapting new techniques. Training has been provided for a few decades now. This is an example of inefficient time and resource allocation for both the farmers and the actors implementing the certification standard(s). • In order to perform correctly Integrated Pest Management (IPM) and fertilizer applications, there is a demand for information, tools and equipment that have to be available for cocoa famers. Unfortunately, these are not available in cocoa

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growing areas. Moreover, the oversimplification of management techniques (i.e. standardise fertilizer application for an entire country, the choice of fertilizer imposed by the certification project, or the application of agrochemicals during the cocoa year) can become counter-productive on the long run. • In order to achieve economic benefits, premiums are being used by the certification schemes. Although this is welcomed, most of the production is not being sold as certified and thus, premiums are only paid for a small fraction of the cocoa sold. • Cocoa farmers produce much more than cocoa, in average around 4–6 other crops. Approximately 70% perceives a ‘non-cocoa’ income, which is essential to sustainability and resilience of ‘cocoa farms’. Unfortunately, certification schemes are only able (if at all) to provide an added value to the cocoa crop. In sum, we see significant issues with current certification schemes at the farm level. At the same time, we see a very active communication of these scheme owners towards the consumers. Having seen so many implementation flaws at the farm level, it is questionable whether the claims towards the consumers can be sustained. Moreover, we see a twofold hidden objective in the service delivery of certification schemes for the cocoa industry: first, it binds producers to their buyers through mid-term certification projects, which rely on bonding contracts (a spot-market for certified cocoa is not at the farm level, but down the chain). Secondly, mass certification is a paradox in itself. On the one hand, it aims to boost cocoa production in West Africa, as the premium is an attempt by the chocolate industry to make cocoa production look more attractive than other crops (e.g. rubber). On the other hand, sustainability requires diversification. In principle, certification schemes aiming at sustainability should provide a premium for crops other than cocoa, something which cannot be addressed by the cocoa industry itself. Therefore, the sustainability agenda needs to be addressed at the level of entire regions, including several commodities and value chains. Certification schemes need to capitalise on their current momentum to integrate other sectors such as palm oil, rubber and coffee, and together bring about real change in the associated West African growing communities. Independently of the certification criteria, it is doubtful that the complex societal arrangements of the West African countries can be monitored (and improved) through the current approach of the certification schemes at hand, since these rely on auditing of documented procedures and contracts. Today’s certification criteria and auditing raises many questions about the credibility of the system. Therefore, we suggest exploring new oversight mechanisms, such as the certification of the companies creating and supporting cocoa farmer groups and not the certification of the cocoa farmers themselves, since this is not reliable. Furthermore, for certification to work in the future in West Africa, all actors involved need to invest in building social capital and trust at the farm level.

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24.4.2 Recommendations The roots of the implementation problems at farm level are not yet understood, and there is little effort being made in order to address this issue. Therefore, we urge all involved stakeholders to better understand the situation of the farmers and adjust their certification systems and training accordingly. If the objective is to make cocoa more environmentally friendly, which presupposes more agro-ecological approaches, crop diversification (e.g. timber, palm oil, coffee and rubber sectors) and husbandry (sheep, pigs, chicken, etc.) involved in these farming systems, then all these elements should be considered in the certification programmes. A new approach to the certification as a whole should include certifying timber trees as the main target of an agro-forestry system as well as the water quality on farm, etc. as environmental indicators. These examples of indicators are directly affected by the (mono-)cropping systems and practices. If the objective is to ‘train’ farmers, it is the role of the certification schemes to identify why farmers’ knowledge and capacity for innovation has been repeatedly underestimated and to adjust their training curricula and eventually the implementation methods accordingly. Current mass certification is driving agricultural extension backwards, to the top-down approaches of the 1960s. In this context, we see a global need to (re-) start considering farmers’ innovations and study how they can be accompanied and amplified. Only by understanding farmers’ situation and embedding them in the development and study of their surroundings we will be able to create a sustainable system. In relation to certification schemes, this especially includes the establishment of criteria that pursue ‘what is good for the farmers’, which should not be so strongly influenced by the industry and public as it is today.

References Asare R, Asare RA, Asante WA, Markussen B (2016) Influences of shading and fertilization on on-farm yields of cocoa in Ghana. Exp Agric 53(3):416–431 Barima YSS, Kouakou ATM, Bamba I, Sangne YC, Godron M, Andrieu J, Bogaert J (2016) Cocoa crops are destroying the forest reserves of the classified forest of Haut-Sassandra (Ivory Coast). Global Ecol Conserv 8:85–98 Bitty EA, Bi SG, Mcgraw WS (2013) Accelerating deforestation and hunting in protected reserves jeopardize primates in southern Côte d’Ivoire (Poster Abstract). In: The 82nd Annual Meeting of the American Association of Physical Anthropologists. http://meeting.physanth.org/program/ 2013/session20/bitty-2013-accelerating-deforestation-and-hunting-in-protected-reserves-jeopar dize-primates-in-southern-cote-divoire.html. Accessed 31 Jan 2019 BNETD, EtcTerra, RONGEAD, ONU-REDD, Ministère de l’environnement et du développement durable (2016) Analyse qualitative des facteurs de déforestation et de dégradation des forêts en Côte d’Ivoire. Rapport Final, 10 novembre 2016. BNETD, Abidjan. https://www.nitidae.org/ files/b24e760c/161216081210_161214_analyse_facteurs_def_deg_ci_rapport_final.pdf. Accessed 31 Jan 2019

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Boni S (2005) Clearing the Ghanaian forest: theories and practices of acquisition, transfer and utilisation of farming titles in the Sefwi-Akan area. Institute of African Studies, University of Ghana, Legon Calkins P, Ngo A-T (2010) The impacts of farmer cooperatives on the well-being of cocoa producing villages in Côte d’Ivoire and Ghana. Can J Dev Stud 30:535–563 Colin J-P, Ruf F (2011) Une économie de plantation en devenir. L’essor des contrats de PlanterPartager comme innovation institutionnelle dans les rapports entre autochtones et étrangers en Côte d’Ivoire. Revue. Tiers Monde 207:169–187 Dozon JP (1975) La problématique agricole de la région de Gagnoa. Orstom, Abidjan, Côte d’Ivoire Fountain AC, Hütz-Adams F (2015) Cocoa Barometer 2015. VOICE Network. http://www. cocoabarometer.org/cocoa_barometer/Download_files/Cocoa%20Barometer%202015%20. pdf. Accessed 31 Jan 2019 Ghana FRI – Forestry Research Institute of Ghana (2014) Annual Report 2014. Council for Scientific and Industrial Research (CSIR), Forestry Research Institute of Ghana, Kumasi Glin LC (2014) Governance of global organic agro-food networks from Africa. PhD thesis, Wageningen University, Wageningen. http://edepot.wur.nl/311276. Accessed 31 Jan 2019 Gockowski J, Sonwa D (2011) Cocoa intensification scenarios and their predicted impact on CO2 emissions, biodiversity conservation, and rural livelihoods in the guinea rain forest of West Africa. Environ Manag 48(2):307–321 Gockowski J, Afari-Sefa V, Sarpong DB, Osei-Asare YB, Agyeman NF (2013) Improving the productivity and income of Ghanaian cocoa farmers while maintaining environmental services: what role for certification? Int J Agric Sustain 11(4):331–346 Ingram V, Waarts Y, Ge L, van Vugt S, Wegner L, Puister-Jansen L, Ruf F, Tanoh R (2014) Impact of UTZ certification of Cocoa in Ivory Coast: assessment framework and baseline. LEI Wageningen UR, Den Haag, The Netherlands. https://utz.org/wp-content/uploads/2016/03/ Impact-of-UTZ-certification-of-cocoa-in-Ivory-Coast_2014.pdf. Accessed 31 Jan 2019 KPMG (2012) Cocoa Certification: Study on the costs, advantages and disadvantages of cocoa certification commissioned by The International Cocoa Organization (ICCO), October 2012. KPMG Advisory N.V., Arnhem, The Netherlands. https://www.icco.org/about-us/internationalcocoa-agreements/doc_download/302-study-on-the-costs-advantages-and-disadvantages-ofcocoa-certification-october-2012.html. Accessed 31 Jan 2019 Lemeilleur S, N’Dao Y, Ruf F (2015) The productivist rationality behind a sustainable certification process: evidence from the Rainforest Alliance in the Ivorian cocoa sector. Int J Sustain Dev 18 (4):310–328 Lemoud J, Potts J, Sampson G, Garibay S, Lynch M, Voora V, Willer H, Wozniak J (2017) The state of sustainable markets: statistics and emerging trends 2017. International Trade Centre (ITC), Geneva Mangnus E (2015) Organising trade: a practice-oriented analysis of cooperatives and networks trading cereals in South Mali, PhD thesis, Wageningen University, Wageningen. https://library. wur.nl/WebQuery/wda/2098686. Accessed 31 Jan 2019 Ménard C (2007) Cooperatives: hierarchies or hybrids? In: Karantininis K, Nilsson J (eds) Vertical markets and cooperative hierarchies. Springer, Dordrecht, pp 1–17 Ruf F (1987) Politiques et encadrement agricole: partage des tâches en Côte d’Ivoire. In: Raymond G, Ruf F (eds) Etats, développement, paysans: Actes du VIe séminaire d’économie rurale, Montpellier, 16–20 septembre 1985. CIRAD-MESRU, Montpellier, France, pp 14–27 Ruf F (2007) The New Ghana Cocoa Boom in the 2000s: from Forest Clearing to Green Revolution. CIRAD. https://agritrop.cirad.fr/543453/1/document_543453.pdf. Accessed 31 Jan 2019 Ruf F (2015) La fertilisation des cacaoyères en Côte d’Ivoire, 35 ans d’innovations villageoises. Agriculture, Environnement et Sociétés (5):65–74. http://www.agronomie.asso.fr/fileadmin/ user_upload/Revue_AES/AES_vol5_n2_dec2015/AES_vol5_n2_pdf/AES_vol5_n2_11_Ruf. pdf Ruf F, Siswoputranto PS (1995) Cocoa cycles: the economics of cocoa supply. Woodhead Publishing Limited, Cambridge, UK

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Ruf F, Varlet F (2017) The myth of zero deforestation cocoa in Côte d’Ivoire. ETFRN News 58, June 2017. European Tropical Forest Research Network (ETFRN), Wageningen. http:// www.etfrn.org/file.php/389/etfrn%20news%2058%203.3.pdf. Accessed 31 Jan 2019 Ruf F, N’dao Y, Lemeilleur S (2013) Certification du cacao, stratégie à hauts risques. Inter-reséaux: Developpement rural. http://www.inter-reseaux.org/ressources/article/forum-certification-ducacao/. Accessed 31 Jan 2019 Ruf F, Bourgeois M, Kiendré J, Boniface B (2014) A ‘cocoa livelihood project’ through a decade of conflicts: Some lessons learnt in Côte d’Ivoire. CIRAD, Montpellier, France SAN – Sustainable Agriculture Network (2009a) Interpretation Guidelines – Indicators for Sustainable Cocoa Production in Cote d’Ivoire (Ivory Coast), April 2009. Sustainable Agriculture Network and Rainforest Alliance, San José, Costa Rica SAN – Sustainable Agriculture Network (2009b) Interpretation Guidelines – Indicators for Sustainable Cocoa Production in Ghana, April 2009. Sustainable Agriculture Network and Rainforest Alliance, San José, Costa Rica SAN – Sustainable Agriculture Network (2010) Sustainable Agriculture Standard, July 2010 (Version 3). Sustainable Agriculture Network Secretariat, San José, Costa Rica SAN – Sustainable Agriculture Network (2011) SAN Group Certification Standard. Sustainable Agriculture Network Secretariat, San José, Costa Rica SAN – Sustainable Agriculture Network (2017) Sustainable Agriculture Standard for farms’ and producer groups’ crop and cattle production, Version 1.2, July 2017. Sustainable Agriculture Network Secretariat, San José, Costa Rica. https://www.sustainableagriculture.eco/s/SAN-SSP-1-V12_SAN_Sustainable_Agriculture_Standard_July_2017.pdf. Accessed 31 Jan 2019 SAN – Sustainable Agriculture Network (2019) About us: Our mission is to be a global network to transform agriculture. https://www.sustainableagriculture.eco/our-vision/. Accessed 31 Jan 2019 Sanial E (2015) À la recherche de l'ombre: analyse du retour des arbres associés dans les plantations de cacao ivoiriennes, Master Thesis, Université Jean Moulin Lyon 3, France Sissoko A (1994) Sociologie des groupements à vocation coopérative (GVC) dans la Zone d’Ayamé (Côte d’Ivoire). Centre d'étude d'Afrique noire, Institut d'études politiques de Bordeaux. http://lam.sciencespobordeaux.fr/sites/lam/files/td44.pdf. Accessed 31 Jan 2019 Snider A (2016) The Role of Small Farmer Cooperatives in the Management of Voluntary Coffee Certifications in Costa Rica, PhD Thesis, Collège Doctoral Languedoc-Roussillon, Montpellier. https://agritrop.cirad.fr/581903/1/Snider_2016_Coffee-Certifications%26Cooperative_phd.pdf. Accessed 31 Jan 2019 Snider A, Kraus E, Sibelet N, Bosselman AS, Faure G (2016) Influence of voluntary coffee certifications on cooperatives’ advisory services and agricultural practices of smallholder farmers in Costa Rica. J Agric Edu Ext 22(5):435–453 Snoeck D, Koko L, Joffre J, Bastide P, Jagoret P (2016) Cacao nutrition and fertilization. Sustain Agric Rev 19:155–202 Svendsen GT, Svendsen GLH (2009) Handbook of social capital: the troika of sociology, political science and economics. Edward Elgar, Cheltenham Uribe Leitz E (2014) Summary of Ivory Coast Dataset. CIRAD, Montpellier Uribe Leitz E, Ruf F, Burger K (2015) The business case for UTZ certification from the perspective of cocoa farmers in Côte d’Ivoire and Ghana. CIRAD, Montpellier UTZ (2015a) Code of Conduct Cocoa Module, Version 1.1. UTZ, Amsterdam. https://utz.org/wpcontent/uploads/2015/12/EN_UTZ_Cocoa-Module_v1.1_2015.pdf. Accessed 31 Jan 2019 UTZ (2015b) Core Code of Conduct for group and multi-group certification, Version 1.1. UTZ, Amsterdam. https://utz.org/wp-content/uploads/2015/12/EN_UTZ_Core-Code-Group_v1.1_ 2015.pdf. Accessed 31 Jan 2019 Woods D (1999) The politics of organising the countryside: rural cooperatives in Côte d’Ivoire. J Mod Afr Stud 37(3):489–506 Yapo S (1989) La coopération en Côte d’Ivoire: rapport entre État et membres des G.V.C. (Groupements à Vocation Coopérative). IRECUS, Université de Sherbooke, QC Canada. https://savoirs.usherbrooke.ca/handle/11143/8725. Accessed 31 Jan 2019

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Enrique Uribe Leitz is an AGTRAIN Ph.D. fellow concluding his joint doctoral degree between SupAgro Montpellier, CIRAD (French Agricultural Research Centre for International Development) and the University of Wageningen. His research focuses on the impacts of certification throughout the cocoa value chain. He performed most of his field work in Côte d’Ivoire and Ghana and to a lesser extent in Indonesia and Mexico. Previously to his Ph.D., he worked at GLOBALG.A. P., where he was responsible for the benchmarking process. Today, he is a technical expert at the standards development department of GLOBALG.A.P., where he is responsible for the development of add-ons. Additionally, he is the head of the Monitoring and Evaluation programme and young academics’ programme, which enables further liaisons between GLOBALG.A.P. and universities and research centres. AGTRAIN Programme: www.agtrain.eu | CIRAD French Agricultural Research Centre for International Development, Avenue Agropolis, 34398 Montpellier Cedex 5, France; Internet: www. cirad.fr | Wageningen University and Research, Droevendaalsesteeg 4, 6708 PB Wageningen, Netherlands; Email: [email protected]; Internet: www.wur.nl | GLOBALG.A.P. c/o FoodPLUS GmbH, Spichernstr. 55, 50672 Köln, Germany; Tel: +49 221 577 76 690; Fax: +49 221 577 76 1999; Email: [email protected]; Internet: www.globalgap.org. Francois Ruf is a Senior Economist Researcher at CIRAD, the French Agricultural Research Centre for International Development. His first assignment was in Côte d’Ivoire in 1979 which determined his specialization in cocoa economics. He has spent a total of 30 years in Côte d’Ivoire, Ghana, and Indonesia and has published several articles and books on cocoa, such as “Cocoa Cycles: The economics of cocoa supply” (1995), “Booms et crises du cacao: Les vertiges de l’or brun” (1995), and “Economics and Ecology of Diversification: The case of Tropical Tree crops” (2015). His current work focuses on an improved version of his cocoa supply theory and the strategies to fight the ‘unavoidable’ cocoa busts following the cocoa booms and how to face the re-internalised costs of massive deforestation. He pays particular attention to smallholders’ diversification strategies and more broadly their technical and social innovations to address the risks of cocoa recession. He holds a Ph.D. in Human Geography and a Habilitation à Diriger des Recherches (HDR) in Economics. CIRAD French Agricultural Research Centre for International Development, Avenue Agropolis, 34398 Montpellier Cedex 5, France; Email: [email protected]; Internet: www. cirad.fr.

Chapter 25

Sustainability in the Banana Sector: Development and Success Factors of the German Action Alliance for Sustainable Bananas Alexandra Kessler and Christoph Hermann

25.1

Introduction

Bananas are the second most frequently consumed fruit in Germany and the country is among the top four banana importing countries worldwide. Thus, Germany represent a significant market for exporters and retailers of this tropical fruit. The related consequences of production, trade and marketing of bananas are, however, familiar only to a fraction of consumers. Particularly the negative impacts caused by banana production, which farmers, workers and surrounding communities are exposed to, are manifold. They include health and labour rights issues, deterioration and erosion of soils and watercourses, as well as social and financial inequities. These challenges are addressed in different international and national initiatives, some of which have developed standardised certification systems for farms and plantations. While considerable progress has been made, many social, ecological and economic challenges in major exporting countries remain. Due to this, the multistakeholder initiative Action Alliance for Sustainable Bananas, which will be introduced in this chapter, was founded at the end of 2014. As with most other commodities, retailers are important players in the banana market. Shops and supermarkets constitute a crucial link between consumers and producers. Their role can best be described as a gatekeeper, since it is only through their retail outlets that commodities reach the vast majority of consumers. By offering both certified, more expensive bananas and conventional bananas with a A. Kessler (*) Collaborating Centre on Sustainable Consumption and Production (CSCP), Wuppertal, Germany e-mail: [email protected] C. Hermann Collaborating Centre on Sustainable Consumption and Production (CSCP), Wuppertal, Germany Hochschule Bonn-Rhein-Sieg (H-BRS), Sankt Augustin, Germany © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_25

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lower price, most retailers want to guarantee a “freedom of choice” to their clients. Consumers on the other hand, often do not reflect on the consequences their consumption may have on distant ecosystems and livelihoods. In this context, the German National Action Plan on Human Rights, based on the UN guiding principles for business and human rights, is important since it asks retailers and importers to prevent human rights violations along the entire value chain. This due diligence obligation, if incorporated in national law as in some other countries, shifts the responsibility for sustainable production from the consumers to the companies. This chapter aims at giving an overview of existing initiatives, identifying their gaps and proposing possible points of intervention to fill these. The chapter starts with a description of the banana sector, the characteristics of the German banana market and the challenges faced in producing countries in Sect. 25.2. Section 25.3 describes existing certification scheme initiatives and standards and Sect. 25.4 lays out the multi-stakeholder approach of the Action Alliance for Sustainable Bananas, designed to identify possible ways to increase the sustainability of bananas on the German market. The chapter ends with conclusions in Sect. 25.5 highlighting necessary steps for a successful sector transformation towards a more sustainable banana production.

25.2

The Global Banana Sector

About 20% of global banana production is traded internationally (the bulk is produced for domestic markets) and export production is almost entirely focused on a single variety, the ‘Cavendish’ banana. It is cultivated in monocultures of all sizes from small to large scale in both tropical and sub-tropical regions. Latin American countries, which have been supplying European and North-American markets for many decades, are dominating international banana exports, with a share of approximately 80%. Around 15% is exported from Asia (mainly from the Philippines) and the rest by growers from African countries, which can be seen as emerging competitors for producers from Latin America (FAO 2014a, 2015). Multinational food production companies such as Chiquita Brands International, Dole Food Company, Del Monte Food, Fyffes or Bonita play a major role in the banana trade, as they are involved in all phases of the supply chain: production, sourcing, transport, sale and marketing. They create important economies of scale with their extensive fleets, ripening facilities and distribution networks in the importing countries. However, their range of operations and influence over the banana trade have changed over time, mainly due to a disengagement from production. The combined market share of Chiquita, Dole and Del Monte of approximately 65% in the 1980s, has gradually declined since 1990 to around one third in 2013. Their main focus now lies within logistics instead of controlling the entire supply chain. As a consequence, other companies now account for over half of all exports. Major supermarket chains in the United States and the European Union (EU) have e.g. become important players on the global banana market due to their dominance in

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the retail segment and the fact that they increasingly source from smaller wholesalers or directly from growers (Arias et al. 2003; FAO 2014b).

25.2.1 The Banana Market Structure in the EU and Germany The EU is the single largest importer of bananas (around 30% of the world market according to FAO 2015) and its import regime has been and is still undergoing changes, with direct impacts on exporting countries, their producers and labour force. Innovations in logistics, a growing demand for organic and fair trade bananas, as well as a continuous consolidation in the retail sector are the most important factors affecting the banana market (FAO 2015). Preferential trade agreements between the EU and Caribbean countries has influenced the political sphere of EU banana imports for many years. Dating back to 1992, a series of disputes in the World Trade Organization was concluded in November 2012 when the Geneva Agreement on Trade in Bananas was signed. It was negotiated in 2009 between the EU and Latin American banana producers. The agreement resulted in the adoption of new commitments on MFN1 tariffs on bananas by the EU. In 2009 the EU reduced its import tariffs and the maximum rates are set to decline until 2017 (earliest) or 2019 (latest) (Anania 2015). German banana imports account for about 6.6% of the global banana trade, thus belonging to the four global top importers for bananas (together with United States, Belgium and Russia) (Workman 2019). It is the second most popular fruit consumed in Germany after apples. In 2015, banana imports amounted to over 1.3 million tonnes, with an import value of over €844.5 million (BMEL 2015). In Germany each household consumes on average about 11 kg of bananas annually. Bananas are known to be a key value item—a product which can terminate the customers’ choice of a supermarket based on its price (Humbert 2014). The banana is a key product for German retailers because of large turnovers and associated profits (Humbert 2014). As Table 25.1 shows, almost 90% of bananas Table 25.1 Top 4 producer countries of German banana imports 2015 (Source: BMEL 2015 and own calculation) Origin Ecuador Colombia Costa Rica Panama Total imports top 4 TOTAL imports

1

Most Favoured Nation.

Tons 448,913 419,607 243,718 63,198 1,175,436 1,356,016

[€] 1000 229,113 286,518 161,400 33,771 710,802 844,581

[%] of total imports 33.11 30.94 17.97 4.66 86.68 100.00

[%] of total € 27.13 33.92 19.11 4.00 84.16 100.00

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sold in Germany are imported from Latin American countries. Four multinational companies (Chiquita, Dole, del Monte and Fyffes) supply approximately 40% of the bananas exported to the EU. This figure used to be significantly higher but, due to changes in global trade strategies, retailers have taken more control over supply chains through cooperation with vertically integrated fruit companies, which have become preferred suppliers (BASIC 2015). In addition, retailers play an important intermediary role in linking the food industry with consumers, and they act as gatekeepers between producers/suppliers and consumers. The trend of retailers buying directly from producers, which has been observed on the UK market during the last years, seems not to play a significant role in the German market. This type of direct sourcing has led to an increasing price pressure on farmers and workers (Baur 2016). In Germany, retailers and discounters usually have ‘fixed contracts’ with their importers with a minimum duration of 3–12 months (BASIC 2014, p. 13). The spot market seems to have no relevance on the German market because it does not meet the retailers’ high requirements on quality and transparency (Baur 2016). The high market shares of retailers and a rapid market concentration during the past two decades have left Germany’s food retail sector—the biggest market for food and beverages in the EU with €180.4 billion turnover in 2013 (USDA Foreign Agricultural Service 2014, p. 2)—dominated by five major companies, accounting for well over three-quarters of the total turnover. While in the year 1999, German consumers had a choice between eight large retail companies sharing approximately 70% of total German retail markets, the five left today share the same percentage in food retail alone (Bundeskartellamt 2014, p. 9; von Schlippenbach and Pavel 2011, p. 2). This results in very few alternative sales options for producers and suppliers. The companies—Edeka (Edeka and Netto, 20.3%), Schwarz Group (Lidl and Kaufland, 14.5%), Rewe Group (Rewe and Penny, 14%), Aldi (11.1%) and Metro Group (Real and Metro, 4.8%) (Lebensmittel Zeitung 2018)—are also among the 10 retailers sharing 50% of the EU grocery market (BASIC 2015, p. 12). Their size of box unit orders of bananas significantly influences power constellations on the market, providing them with considerable negotiation power. Additionally, Germany has the highest share of discounters with 34.6% in 2012 compared to an EU average of 7% (BASIC 2014, p. 7). All these factors together create fierce competition over customers and market shares, which is directly affecting the supply-chain, in particular small-scale banana producers and the plantation workers who represent the most vulnerable market actors. Retailers generally use the price of bananas as an indicator of the overall price level in the retail outlet for price-sensitive customers. As a result, bananas are often cheaper than locally grown German apples. During 2001 and 2015, wholesale prices decreased by ca. 25%, and retailers’ profit margin increased by between 36 and 43%. At the same time, profits for producers dropped by 25–50%. while production costs sharply increased (up to 130%) due to a number of factors, including compliance with EU standards and certification, use of fertilisers, agrochemicals, fuel, irrigation, etc. This increase was also mirrored by the rising living costs in most producer countries (BASIC 2014; USDA Foreign Agricultural Service 2014; BASIC 2015).

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25.2.2 Socio-Economic and Environmental Challenges As the German fruit and vegetable market is characterised by low prices, strong competition and market saturation, low margins can only be balanced by high turnovers (USDA Foreign Agricultural Service 2014, p. 2). Those most affected by this war over prices are producers, whose businesses are threatened by low purchase prices. Banana overproduction further affects the market and lowers international prices. The current trade system, with its unbalanced power constellation coupled with partly unsustainable production methods, have direct consequences for employees, farm owners and adjacent communities. These challenges are summarised below in Box 25.1. Box 25.1 Summary of Social, Economic and Environmental Challenges in the Banana Sector Social challenges • Workers on plantations often do not earn enough to live with their families (BASIC 2014). • Minimum wages are underscored by unpaid overtime (Hütz-Adams and Ertener 2012, pp. 9–10). • Migrant workers and women face discrimination (Morazán 2012, p. 27). • Workers often feel pressure not to organise in trade unions (Humbert and Braßel 2016, p. 4). Economic challenges • Banana supply chains are global and span a wide range of stakeholders. There is often a lack of transparency in cost distribution along the supply chain (BASIC 2015, p. 48) • A few European retailers control a large part of the market giving them a great influence on the entire value chain, from the conditions of production to communication to consumers in the supermarket (FAO 2014a, p. 1). Environmental challenges • Most bananas are cultivated in monocultures on huge plantations. This makes them particularly susceptible to pests and requires a high use of pesticides (Morazán 2012, p. 28). • These chemicals are frequently sprayed by aircraft and spread throughout the region. Workers who are on the plantation during this time or shortly afterwards are exposed (BASIC 2015, p. 32). • There is a lot of waste as the bananas are wrapped in plastic bags for protection during growth, also with pesticides (HützAdams and Ertener 2012, p. 6). • Banana producing regions face increased soil-erosion, groundwater contamination and the destruction of aquatic ecosystems due to the imbalanced use of agrochemicals. (Morazán 2012, p. 28).

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Existing Initiatives

When talking about challenges in the banana sector and specifically in production countries it is important to acknowledge that there is a general awareness among stakeholders—producers, importers, retailers, NGOs, policy makers—about the need for action. In 1998 the first international banana conference was held and over 300 delegates from 45 banana-producing and consuming countries were in attendance (IBC 2005). Further examples of activities initiated in the past are the first Rainforest Alliance certified banana plantation in 1993 (FAO 2017) and the first Fairtrade certified bananas, available since 1997 (FLO International 2004). Today, there is a wide array of activities and initiatives at different levels—local, regional, national, international—in the private and civil society sphere as well as partnerships between those sectors. Some of them have managed to become established organisations constantly working on improving their impact. A few selected initiatives with relevance for the German market are presented in the following section.

25.3.1 The World Banana Forum As the value chains of bananas are global in nature and, in most cases, involve supply chain actors from different countries, the idea was formed to establish a World Banana Forum (WBF). Prepared by international meetings and conferences over a time span of more than four years and involving up to 250 stakeholders, the World Banana Forum held its first meeting at the end of 2009. The WBF is hosted by the Trade and Markets Division of the Food and Agriculture Organization of the United Nations (FAO) and has established a steering group and an executive board that are governing the forum. Working groups are addressing the most pressing issues: (WG01) Sustainable Production Systems and Environmental Impact, (WG02) Distribution of Value, and (WG03) Labour Rights. The first group focuses on environmental challenges, such as carbon and water footprints and diseases with the aim of developing an online best practice portal on sustainable banana production and trade. The second group maps the distribution of value and estimates costs along the supply chain as well as develops a methodology to calculate living wages at the farm level. The third group works on gender issues, discrimination and women workers’ rights as well as on freedom of association and collective bargaining. The activities of the working groups are complemented by a task force on Fusarium Wilt Tropical Race 4—a fungus strain that causes the Panama Disease, which kills banana plants—and a Banana Occupational Health and Safety Initiative (BOHESI). The latter is working on a best practice manual, training materials and also seeks to conduct training and capacity building programmes at the farm level. Producers, importers, retailers, NGOs, unions, governmental and intergovernmental bodies and researchers are represented in the WBF. By joining the forum, members commit to an active participation in the forum and receive access to the project database and materials of the WBF.

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25.3.2 Private Sector Activities on the German Market The dominating supermarket chains and discounters are already active when it comes to corporate responsibility within the banana sector. The most common way for retailers to guarantee a certain level of sustainability is to rely on certification schemes. German retailers usually have three price categories with different sustainability requirements: an entrance price, the premium brand/private label and the organicFairtrade banana. Approximately 60% of organic bananas in the German market are also Fairtrade certified and 100% of Fairtrade bananas are also ecologically certified (Baur 2016). The majority of bananas in the German market (ca. 80%) are either Rainforest Alliance or organic—and/or Fairtrade (10%) certified, especially because discounters now also require a Rainforest Alliance certification of their range (Baur 2016). In 2018, Lidl announced their plan to change their whole banana assortment to fair trade bananas, including conventional bananas. So far, only bio certified bananas also carried the Fairtrade label (Fairtrade Deutschland 2018). That would mean that the dominating retail chains, which account for a market share of about 80%, offer almost solely certified bananas. Retailers state that certification facilitates the monitoring of production conditions, for which they do not have own resources. Furthermore, certification allocates competencies and increases quality, and as such it is not only seen as a tool for public relations (Baur 2016). The most relevant certification schemes on the German market and their most important criteria can be found in Table 25.2. Table 25.2 Certifications schemes with relevance for the banana trade Rainforest Alliancea

Fairtrade

GLOBAL G.A.P. All Farms Base Standards

Sustainably Grown Certified

a

The four overarching principles are: (1) Biodiversity conservation; (2) Improved livelihoods and human wellbeing; (3) Natural resource conservation; (4) Effective planning and management system. The standard includes social, environmental and economic sustainability criteria, for example: • Fairtrade minimum price and the Fairtrade premium; • Traceability of bananas, contracts between producers and buyers, specification on environmental protection. • In order to acquire and maintain certification, a site needs to comply with 100% of ‘Major Musts’ and at least 95% of ‘Minor Musts’. • The following areas are covered: food safety and traceability, environment, workers’ health, safety and welfare, animal welfare and quality management. • Focus on environmental, socio-economic and product integrity. • Covered areas: energy efficiency and associated reduction on greenhouse gases, packaging resources minimisation, integrated waste management, worker safety and training, product quality, safety and purity

In the beginning of 2018, Rainforest Alliance and UTZ, a leading certification programme for coffee, cocoa, tea, and hazelnuts, announced the merger of their two organisations. The new organisation carries the Rainforest Alliance name (Rainforest Alliance 2018)

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The two largest retailers have set up their own, additional programmes. Rewe has established a multi-stakeholder advisory board, which assesses the hotspots of several products according to certain criteria and labels these store brand products with corresponding measures as ProPlanet certified. In the case of bananas, a Rainforest Alliance certification is necessary to be labelled as a ProPlanet product. Furthermore, Rewe has set up a banana fund (700,000 Euro in 2018), which supports projects in production countries focussing on improvement of living, working and environmental conditions. Edeka has also started a pilot project for store brand bananas, which are offered in addition to Fairtrade and organic bananas. In cooperation with the World Wildlife Fund (WWF), additional criteria have been developed which build on the Sustainable Agriculture Network (SAN) standard. These criteria mainly focus on environmental aspects but also take into account social issues such as working conditions and occupational health and safety.2 ‘BanaFair’ provide no certification services themselves but are a non-profit organisation which, apart from ideological work on the topic, import and sell organic/fair trade bananas themselves. Their operations have been certified by ‘EU-Bio’, ‘Naturland’, ‘Fairtrade’, ‘Naturland Fair’, and the ‘Weltladen Dachverband’ to conform with fair trade and organic standards.

25.3.3 Complementing Existing Initiatives The selected examples show that some actors are acknowledging their responsibility and are already taking action. The WBF brings together relevant actors and is an appropriate platform to discuss approaches on how to tackle challenges, generate knowledge and distil best practices to promote further activities. The approach of the German retail market to sell mainly certified bananas and in some cases set additional criteria for the certification process is indeed a promising development that deserves acknowledgement. The questions here are which aspects do the currently used certification schemes cover, how credible the systems are3 and how gaps in terms of issues addressed and credibility could be bridged by other activities. Certification schemes may improve certain aspects in single value chains but have limited capacities to address overarching systemic challenges; these can only be tackled in broader alliances, which also include governments and civil society. It is important to acknowledge the positive influence of the afore mentioned initiatives. However, the main challenges in banana production remain, and it is crucial to understand why that is and how these challenges can be addressed. How

2

Assessment is based on publicly available information on websites of the projects. The sustainability standards comparison tool developed by the GIZ (also presented in this volume, see Chap. 14) offers a promising approach for such an analysis. 3

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can retailers be motivated to take a more action and impact driven approach and integrate CSR strategies into their core business? How can pre-competitive, sector wide cooperation improve conditions in production countries? Which support is necessary to enhance existing certification schemes? Which role do consumers play and how to increase their appreciation of fresh fruits? Which role do governments and civil society organisations in producer and consumer countries have to play?

25.4

Multi-Stakeholder-Approach of the Action Alliance for Sustainable Bananas

The German Action Alliance for Sustainable Bananas (Aktionsbündnis für nachhaltige Bananen—ABNB) aims to bridge the gap between individual activities of single actors as well as certification schemes and discussions on the global level. The ABNB is a dialogue and action forum. It brings together representatives from retail, import, and politics as well as from consumer protection, civil society, and trade unions. The goal is to bundle the activities of various actors in Germany and to promote more responsibility along the entire value chain—from production to the consumer. This is intended to make a significant contribution to the improvement of working and living conditions in the countries of production. The activities at the national level are closely aligned with the World Banana Forum, which pursues these objectives at an international level. The cooperation with the WBF in terms of structural adjustment and knowledge exchange is an integral part of the further development of the Action Alliance for Sustainable Bananas. The Action Alliance was initiated by TransFair in autumn 2014. Since October 2015, the Deutsche Gesellschaft für internationale Zusammenarbeit (GIZ, German Federal Enterprise for International Cooperation) on behalf of the German government, is funding the ABNB and also supports in an advisory capacity. In addition, membership fees are charged. The Collaborating Centre on Sustainable Consumption and Production (CSCP) is, on behalf of the GIZ, responsible for the design and implementation of the development process of the Action Alliance and assumes the role of the Project Secretariat. The overriding objectives of the ABNB are laid down in the Memorandum of Understanding. At the time of writing this chapter, the following members signed this Memorandum: • • • • • •

Fyffes Global Nature Fund (GNF) Kaufland SÜDWIND TransFair e.V. (Fairtrade Germany) World Wide Fund for Nature (WWF)

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The reasons and motivations for joining the ABNB are varied, however members can benefit from the following advantages: • Access to consultancy services through the network of experts within the ABNB (individual and confidential cooperation); • Knowledge exchange between members and inspiration for new activities; • Finding project partners, advising on funding opportunities, joint public relations work and addressing consumers; • Moderated, credible, constructive, and objective dialogue between representatives of industry, civil society, and politics; • Efficient resource use for shared goals; • Support in developing and submitting project proposals to improve conditions along the value chain.

25.4.1 Approach and Objectives The overall objective of the Action Alliance for Sustainable Bananas is to make all bananas sold in the German market increasingly sustainable along the entire value chain. To achieve this goal, ABNB works through the development of projects aiming at improving the conditions along the value chain; by creating a dialogue with standards organisations to discuss challenges and solutions; and by involving political stakeholders with the ability to make changes at a system level. As a basis for common activities, the participants of the Alliance jointly developed a framework for action, which establishes the fields of activity for a more sustainable value chain. Sustainable banana production respects human and labour rights, promotes environmental protection as well as biodiversity, and creates a long-term economic perspective for all parties involved. To achieve these goals, signees are asked to declare their willingness to implement activities at different stages along the banana value chain. To scale up successful projects and improve knowledge transfer the ABNB is in close interaction with the WBF. While joint efforts are encouraged (for example, in the field of biodiversity loss), the platform’s focus lies on pre-competitive cooperation. The concept of sustainability in the ABNB covers social, ecological, and economic dimensions along the entire value chain. The focus here is on aspects relevant to the following phases of the banana value chain: (1) Production and processing: • Improving social conditions in banana production • Improving environmental conditions in banana production • Improving the involvement of workers, trade unions and local NGOs in certification processes and other sustainability activities

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(2) Export and Import: • Traceability along the supply chain (3) Trade: • Costs of sustainable production • Strengthening the economic participation of producers (small farmers, workers) (4) Consumption: • Value estimation by the consumer The projects in the ABNB are carried out in a way that strengthens the ownership of the stakeholders involved. In principle, different stakeholders from the fields of business, civil society and politics are usually involved in a project. The work in the ABNB should be enhanced to address systemic issues and challenges and test appropriate approaches, including small pilot projects that can be scaled if proven successful. Overall, the ABNB is pursuing a process-oriented approach that provides for a continuous improvement of the banana value chains for the German market. The projects aim to make a contribution towards all bananas marketed in the German market being more sustainable over their entire value chain, and thus respect human and labour rights, promote environmental protection and biodiversity, and create a long-term perspective for all stakeholders (ABNB 2016). The activities of the actors are initially concentrated on a selection of the topics covered in the following overview (Box 25.2). The topics are linked to the Sustainable Development Goals (SDGs) of the United Nations and/or to the working groups of the WBF to underscore the linkages to and collaboration at an international level. Furthermore, there is a strong connection to the German National Action Plan on Business and Human Rights (Nationaler Aktionsplan 2017). Box 25.2 Topic Overview from the ABNB’s Framework for Action (Source: ABNB 2016) Environmental issues • Creating favourable conditions for conversion to organic farming (contribution to the SDGs 2.4, 3.9, 12.2, 12.4 and/or SDG 12.a and contribution to the WBF Working Group (WG01.c)). • Preservation of ecosystems, biodiversity and soil fertility (prevention of soil erosion) (contribution to the SDGs 2.4, 12.a, 12.4, 15.5 and/or SDG 17.1b and contribution to the WBF Working Group (WG01.d)). • Water management (Contribution to the SDGs 6.6 and/or SDG 6.b). • Reduction/optimisation of the use of agrochemicals (contribution to the SDGs 3.9, 6.3, 6.6, 6.b as well as the SDGs 12.3–12.5). (continued)

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Box 25.2 (continued) • Promoting diversity of varieties along the value chain (contribution to the SDGs 15.5, 15.6 as well as 15.9 and contribution to the WBF Working Group (WG01.a)). • Waste management (contribution to the SDGs 12.4 and 12.5). • Climate protection and adaptation to climate change (contribution to the SDGs 13, in particular 13.3, as well as SDG 2.4 and contribution to the WBF Working Group (WG01.b)). • Consumer communication (Contribution to the SDG 12). Social issues • Gender equality (contribution to the SDGs 8.5; 8.8, 10.4, 5.c; 5.1; 5.5 and contribution to the WBF Working Group (WG03.b and d)). • Improving freedom of association and unions and collective bargaining (contribution to the SDGs 10.1, 10.4 as well as 1.2 and contribution to the WBF Working Group (WG03.c)). • Protection against discrimination (contribution to the SDGs 10.3; 5.1; 8.5 and contribution to the WBF Working Group (WG03.d)). • Conditions for migrant workers and temporary workers (contribution to the SDGs 8.8 and 10.7). • Quality of accommodation, drinking water, etc. (contribution to the SDG 11.1). • Minimum wages, long-term in line with the ‘living wages’ (contribution to the SDG 10.4 and/or SDG 1.2). • Work safety (contribution to the SDG 8.8 and to the WBF Working Group (WG03.a)). • Prevention of forced and debt-bondage and the prevention of human tracking (contribution to the SDGs 5.2, 8.7 and 16.2). • Prevention of the worst forms of child labour (contribution to the SDG 8.7) and employment under the minimum age (contribution to the SDG 16.2). • Formalisation of employment contracts and remuneration (written contracts, transparent remuneration). Economic issues • Research and training to improve the profitability of small farms as well as large plantations (contribution to the SDGs 2.3, 2.4, 8.2 as well as 8.3 and contribution to the WBF Working Group (WG02.a and b)). • Contribution to and use of analyses and definitions of the costs of sustainability production along the value chain (contribution to WG02). Overall themes • Consumer communication, e.g. with the goal of increasing the appreciation of bananas in general and of sustainable bananas in particular. (continued)

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Box 25.2 (continued) • Promoting projects including multiple participants beyond farm borders. • Sustainability Reporting/Joint contribution to the SDGs (best practices comparison and, if applicable, platform for discussion of the sustainability reports). • Strengthening smallholder structures. • Strengthening the participation of employees in certification processes and sustainability activities. • Increase of consumer perception of bananas and the need for sustainability.

25.4.2 Success Factors, Challenges and Effectiveness of the ABNB It is likely that a major challenge throughout the process of the ABNB, as well as in all multi-stakeholder initiatives (MSIs), will be to create trust and a minimum level of transparency between stakeholders. On the one hand, result-oriented partnerships between the private sector and civil society organisations are critical in making a difference on a larger scale, because such partnerships allow considerable leveraging of each partner’s unique strengths and resources. On the other hand, it is challenging for associations and foundations with predefined standards to compromise in regard to procedures and goals. Similarly, private sector companies are cautious in designing corporate social responsibility efforts, as they are under considerable scrutiny by civil society actors with ambitious goals on topics like labour or environmental standards. The CSCP, as project secretariat, is striving to mediate these potentially conflicting natures of stakeholders. After two and a half years of development within the ABNB it is obvious that these processes, especially building trust, take time. The official constitution of the ABNB in October 2016 by signing the Memorandum of Understanding by seven organisations, marks an important milestone not only for the formal development of the ABNB but also for the trustful relationships that have been developed and the constructive dialogues that have been pursued. The Action Alliance on Sustainable Bananas will only be successful if all partners stay committed and create a constructive environment of dialogue, co-operation and mutual respect and understanding. Partnership relationships depend on the characteristics of the individual actors and the specific initiatives being coordinated for collaboration. It is necessary, however, that the positive and negative outcomes are equitably and appropriately evaluated. Benefits for each party need to be clearly communicated and many of these might arise from committed dialogue. To scale up the impact of activities within the ABNB it is essential that more actors from the private sector, especially retail, join the ABNB. Only if a certain market share is represented in the action alliance and if the interests of stakeholders are balanced, can the multi-stakeholder initiative fully realise its potential.

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Finally, a successful action alliance has the highest potential if the actors involved strive for an attitude putting the ‘we’ to the front, instead of an ‘us and them’. For the purpose of comparison of the banana sector with other sectors, we considered the situation within the cocoa sector, which was analysed by Hellar et al. (2017, p. 57). Their analysis revealed that this sector can be characterised by: • A strong common interest and a willingness to cooperate of different actors; • A high degree of commitment by the industry and, accordingly, a large number of company-driven projects in the producer countries; • A growing risk of sinking production caused by farmers opting out of cacao production, due to the only very low living standards achievable within this sector; as well as • A high concentration of power among individual production countries and actors in the value chain. With regard to the previous contents presented in this chapter, it can be concluded that these characteristics also hold true for the banana sector. Basically, the multistakeholder approach is given a high relevance in areas that are devoted to social and ecological issues. Particularly in recent years, various forums, dialogues and action alliances have been launched, such as the Forum for Sustainable Palm Oil (FONAP), the German Initiative on Sustainable Cocoa or the Partnership for Sustainable Textiles. Because of the complex interrelationships between individual measures and that it is almost impossible to derive clear cause-and-effect principles, the more important it seems that the measures are coordinated in terms of content, time and in particular locality. After all, in terms of the effectiveness of (business) initiatives, it is frequently criticised that the numerous projects run side by side rather than interlocking and relating to one another (Hellar et al. 2017, p. 62). In addition to the coordination of various stakeholders’ efforts, the matter of activities is relevant. Molenaar et al. (2015, p. 4) describe in their model for sector transformation that during Phase 2, where first movers are getting active, most efforts are based on standards and certifications. Whereas in Phase 3, when a critical mass is reached to reshape the sector, non-competitive investments are a necessary and intervention and collaboration between actors is stronger than their competition. There is also a need for regulation in order to make sustainable practices the norm.4 Transparency about project evaluations and impact analyses carried out so far is a key element to analyse effectiveness of MSIs. For reasons of competition, the data sharing required by all sides in the cocoa sector has not, or only to a limited extent, been achieved in the banana sector. Due to this, it is difficult to assess the extent to which the numerous initiatives have been able to develop their effectiveness, or how the concrete situation of the individual farmers, their families and the workers has changed as a result of the interventions (Hellar et al. 2017, p. 63).

4

Please refer to Chap. 21 in this volume for a detailed discussion about four phases in a sector’s development towards sustainability.

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The measurement and the assurance of the effectiveness of activities within the ABNB is a core concern. Therefore, impact orientation is integrated in the whole process of project development and implementation. Furthermore, the overall effectiveness of the ABNB will be assessed by its members after certain periods.

25.5

Conclusions and Recommendations

In Germany, various initiatives taking the form of standardisation schemes have resulted in a banana market where most—and in the near future likely all—bananas will come from certified farms and plantations. At the same time, the core of many of the problems related to banana production has not been solved, which reveals the need to conduct further research on the issue and to take alternative additional approaches. Certification schemes can only contribute to sustainable value chains to a certain extent that should be neither under—nor overestimated. Systemic questions need to be asked in broader settings, where various stakeholders are willing to align their efforts and contribute to joint actions, especially in the pre-competitive field. The German banana market is in the transition from a phase where first movers are improving certification schemes, to a phase where several actors are collaborating and investing jointly in common activities. The unique character of the ABNB aims to contribute to this transition, as it is an action-oriented, multi-stakeholder initiative with the objective to implement projects on the ground. These prototype projects, designed by multiple stakeholders along the supply chain and backed up by institutional support, have the potential to be scaled up in collaboration with a larger number of stakeholders or on the global level e.g. in the WBF. This way it is possible to transfer important lessons learned and to prepare the upscaling and promotion of successful measures. The Action Alliance for Sustainable Bananas has to be measured against its selfdeclared objectives to the same extent as all activities and initiatives that are aiming for more sustainability, including private and multi-stakeholder initiatives. Building on the latest promising developments in the Alliance, effectiveness and impact generation through specific projects has to be a key element for the future course of this MSI.

References ABNB – Action Alliance for Sustainable Bananas (2016) Framework for Action for the Action Alliance for Sustainable Bananas. http://www.bananenbuendnis.org/wp-content/uploads/ ABNB_Framework_for_Action_v1_print.pdf. Accessed 31 Jan 2019 Anania G (2015) The role of trade policies, multinationals, shipping modes and product differentiation in global value chains for bananas: the case of Cameroon. Afr J Agric Resour Econ 10 (3):174–191

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Arias P, Dankers C, Liu P, Pilkauskas P (2003) The World Banana Economy: 1985–2002. FAO, Rome. http://www.fao.org/docrep/007/y5102e/y5102e00.htm. Accessed 31 Jan 2019 BASIC – Bureau d’Analyse Sociétale pour une Information (2015) Banana value chains in Europe and the consequences of Unfair Trading Practices. Report, October 2015. http://www. makefruitfair.org/wp-content/uploads/2015/11/banana_value_chain_research_FINAL_WEB. pdf. Accessed 31 Jan 2019 BASIC – Bureau d’Analyse Sociétale pour une Information Citoyenne (2014) Analysis of German banana value chains and impacts on small farmers & workers. Final Report, June 2014. https:// lebasic.com/wp-content/uploads/2015/11/BASIC_German-Banana-Value-Chain-Study_Final. pdf. Accessed 31 Jan 2019 Baur D (2016) Bestandsaufnahme zur Nachhaltigkeit von Bananen auf dem deutschen Markt. http://www.bananenbuendnis.org/ueberabnb/bestandsaufnahme-zur-nachhaltigkeit-vonbananen-auf-dem-deutschen-markt/. Accessed 31 Jan 2019 BMEL – Bundesministerium für Ernährung und Landwirtschaft (2015) Einfuhr von Bananen gesamt nach Deutschland in den Jahren 2011 bis 2015. https://berichte.bmel-statistik.de/AHT0033438-0000.pdf. Accessed 31 Jan 2019 Bundeskartellamt (2014) Sektoruntersuchung Lebensmitteleinzelhandel: Darstellung und Analyse der Strukturen und des Beschaffungsverhaltens auf den Märkten des Lebensmitteleinzelhandels in Deutschland. Bericht gemäß § 32 e GWB, September 2014. https://www.bundeskartellamt. de/Sektoruntersuchung_LEH.html. Accessed 31 Jan 2019 Fairtrade Deutschland (2018) 100 Prozent Faire Bananen bei Lidl. Pressemitteilung 26. September 2018. https://www.fairtrade-deutschland.de/service/newsroom/news/details/100-prozent-fairebananen-bei-lidl-2885.html. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2014a) Banana market review and banana statistics 2012–2013. Intergovernmental group on bananas and tropical fruits. FAO, Rome. http://www.fao.org/docrep/019/i3627e/i3627e.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2014b) The changing role of multinational companies in the global banana trade. FAO, Rome. http://www.fao.org/docrep/ 019/i3746e/i3746e.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2015) Banana market review 2013–2014. Information Note, October 2015. http://www.fao.org/fileadmin/templates/est/ COMM_MARKETS_MONITORING/Bananas/Documents/Banana_Information_Note_2014_rev.pdf. Accessed 31 Jan 2019 FAO – Food and Agriculture Organization of the United Nations (2017) Voluntary Sustainability Standards for Bananas. http://www.fao.org/3/a-i6931e.pdf. Accessed 31 Jan 2019 FLO International – Fairtrade Labelling Organizations International (2004) Annual report 2003–2004: Shopping for a better world. FLO International e.V., Bonn. https://www.fairtrade. net/fileadmin/user_upload/content/AR_03-04_screen_final-1.pdf. Accessed 31 Jan 2019 Hellar C, Kreft J, van Dillen C (2017) Kakao: Eine ethische Risikoanalyse. ERA Paper. Hamburger Stiftung für Wirtschaftsethik, Hamburg. https://www.stiftung-wirtschaftsethik.de/projekte/ wirtschaft-verantwortung/era-kakao.html. Accessed 31 Jan 2019 Humbert F (2014) Billige Bananen: Wer zahlt den Preis? Oxfam Deutschland e.V., Berlin. https:// www.oxfam.de/system/files/141008_oxfam_bananenpreise_02.pdf. Accessed 31 Jan 2019 Humbert F, Braßel F (2016) Sweet Fruit, Bitter Truth: German Supermarkets’ Responsibility for the Inhuman Conditions which Prevail in the Banana and Pineapple Industries in Costa Rica and Ecuador. Oxfam Deutschland e.V., Berlin. https://www.oxfam.de/system/files/20160531oxfam-sweet-fruit-bitter-truth-en.pdf. Accessed 31 Jan 2019 Hütz-Adams F, Ertener L (2012) Von der Staude bis zum Konsumenten: Die Wertschöpfungskette von Bananen. Südwind Institut für Ökonomie und Ökumene, Siegburg. https://www.fairtrade. de/cms/media//pdf/von_der_staude_bis_zum_konsumenten.pdf. Accessed 31 Jan 2019 IBC – International Banana Conference (2005) Stoppt den ‘Wettlauf nach unten’. http://www.oekofair.de/media/file/18.80.pdf. Accessed 31 Jan 2019

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Interministeriellen Ausschusses Wirtschaft und Menschenrechte (2017) Nationaler Aktionsplan. Umsetzung der VN-Leitprinzipien für Wirtschaft und Menschenrechte. Auswärtiges Amt, Berlin Lebensmittel Zeitung (2018) Ranking: Top 30 Lebensmittelhandel Deutschland 2018. https://www. lebensmittelzeitung.net/handel/Ranking-Top-30-Lebensmittelhandel-Deutschland-2018134606. Accessed 31 Jan 2019 Molenaar JW, Gorter J, Heilbron L, Simons L, Vorley B, Blackmore E, Dallinger J (2015) Sustainable Sector Transformation: How to drive sustainability performance in smallholderdominated agricultural sectors? White paper 1, commissioned by IFC, published by Aidenvironment, NewForesight and IIED. http://pubs.iied.org/pdfs/16584IIED.pdf. Accessed 31 Jan 2019 Morazán P (2012) Das krumme Ding mit der Banane: Soziale Auswirkungen des weltweiten Bananenhandels. Die Macht von Supermarktketten in Deutschland. Südwind Institut für Ökonomie und Ökumene, Siegburg. https://www.fairtrade.de/cms/media/pdf/2012-17_das_ krumme_ding_mit_der_banane._soziale_auswirkungen_des_weltweiten_bananenhandels.pdf. Accessed 31 Jan 2019 Rainforest Alliance (2018) What does Rainforest Alliance Certified mean? https://www.rainforestalliance.org/faqs/what-does-rainforest-alliance-certified-mean. Accessed 31 Dec 2019 USDA Foreign Agricultural Service (2014) Germany: Retail Foods. http://gain.fas.usda.gov/Recent %20GAIN%20Publications/Retail%20Foods_Berlin_Germany_8-25-2014.pdf. Accessed 31 Jan 2019 von Schlippenbach V, Pavel F (2011) Konzentration im Lebensmitteleinzelhandel: Hersteller sitzen am kürzeren Hebel. Wochenbericht des DIW Berlin 78(13):2–9 Workman D (2019) Bananas Imports by Country. World’s Top Exports. http://www. worldstopexports.com/bananas-imports-by-country/. Accessed 31 Jan 2019

Alexandra Kessler is project manager and researcher at the Collaborating Centre on Sustainable Consumption and Production (CSCP) in Wuppertal, Germany. Her work focusses on the one hand on sustainable value chains and multi-stakeholder dialogues, as in the Action Alliance for Sustainable Bananas—a multi-stakeholder process for sustainable banana value chains—that she is coordinating. Further, she has been working on EU funded projects on sustainable supply chains and conducted analyses of sustainability standards in the textiles sector. On the other hand, she focusses on sustainable urban living, implemented e.g. in the project Low Carbon Future Cities and currently in the project Urban Up that analyse upscaling strategies for an urban sharing society. Prior to joining the CSCP, Alexandra worked in the international development cooperation, fostering economic development in Central Asia, and in the field of foreign cultural and educational policy in Poland. Alexandra holds a master’s degree in international relations and development policies and conducted research in Bosnia-Hercegovina and China. Collaborating Centre on Sustainable Consumption and Production (CSCP) gGmbH, Hagenauer Str. 30, 42107 Wuppertal, Germany; Tel.: +49 202 45958 10; Email: alexandra.kessler@scp-centre. org; Internet: www.scp-centre.org. Christoph Hermann works as Innovation Manager for Sustainability at the Bonn-Rhein-Sieg University of Applied Sciences (H-BRS) since 2018. Before joining the H-BRS, he worked at the Collaborating Centre on Sustainable Consumption and Production gGmbH (CSCP) with focus on sustainable value chains and product life cycles. At the CSCP he supported the project secretariat of the Action Alliance for Sustainable Bananas (ABNB). Hochschule Bonn-Rhein-Sieg (H-BRS), Grantham-Allee 20, 53757 Sankt Augustin, Germany; Tel: +49 2241 865 9826; Email: [email protected]; Internet: www.h-brs.de.

Chapter 26

Forest Stewardship Council: Transforming the Global Forestry Sector Amparo Arellano Gil, Thomas Colonna, John Hontelez, Marion Karmann, and Anakarina Pérez Oropeza

26.1

Introduction

This chapter aims to discuss the role, means and success of the Forest Stewardship Council (FSC) system in transforming the global forestry sector. Section 26.2 explains where FSC stands today and what its labels stand for. It points out how scholars describe FSC’s legitimacy and how this is interlinked with other key elements of the FSC assurance system, so that the current success could be achieved. Section 26.3 gives concrete examples of how FSC has influenced the forest industry sector in Portugal through its stakeholder engagement processes for consultation and dispute resolution. The case studies presented are country- and contextspecific, but represent patterns observed in various countries—how FSC certification requirements trigger, through constructive dialogues, solutions for better forest management, from which the wider sector learns. Section 26.4 ends the chapter with an overview of recent developments affecting the forestry sector, including an outlook on how FSC can respond to these developments.

26.2

Introduction to FSC Certification

26.2.1 FSC: Part of Daily Life for Many Travelling through Europe, North America and elsewhere, one finds the FSC label frequently on coffee cups, wrappers, receipts, train tickets, paper bags and copy A. Arellano Gil · T. Colonna · J. Hontelez · M. Karmann (*) · A. Pérez Oropeza FSC International, Bonn, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_26

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paper. One even finds it on the little coffee-milk container in the airplane. On a terrace, you may sit on FSC-certified furniture, and a modern building with environmental credentials may have FSC-certified construction timber, wooden floorings, doors or window frames. These are all signs of how forest product processing industries, retailers and procurers have been driving the demand for FSC certification of forest management. However, this demand is not the only reason for the growth of forest certification. Forest owners themselves also pursue certification (FSC, PEFC or both), partly because of expected and real demand, but also as a management decision: certification frames management plans and implementation processes, gives a structure to the consultation with relevant stakeholders, and provides regular third-party verification of the actions taken. Currently, almost 200 million hectares of forests are FSC-certified worldwide. These forests produce around 16–17% of all industrial wood in the world.

26.2.2 Three Objectives of the FSC Labels FSC has three labels, of which only the ‘FSC 100%’ label guarantees that 100% of the forest materials come directly from FSC-certified forests. The ‘FSC Recycled’ label guarantees that all the material used comes from recycled origins. Recycling paper and other wood products contribute to reducing the pressure on the world’s forests, which will be increasingly more important given the expected increased demand for forest materials in the coming decades. The third label, ‘FSC Mix’, indicates that besides materials from FSC-certified forests and/or of recycled origin (which account for at least 70% of the material), up to 30% of ‘controlled wood’ is used. Controlled wood is verified as coming from forests with a low risk of illegality, which do not use genetically modified organisms (GMOs), do not violate indigenous and/or local people’s rights, and have low risk of forest conversion or degradation of high conservation values.1 In other words, controlled wood has no guarantee of originating from sustainably managed forests, but some key negative impacts are excluded. A ‘High Conservation Value’ (HCV) can be defined as a “biological, ecological, social or cultural value of outstanding significance or critical importance” (Brown et al. 2013). FSC developed the High Conservation Value of Forests (HCVF) concept in 1999 to ensure maintenance of significant environmental and social values in the context of responsible forest management. Since then, FSC broadened the concept from forests (HCVF) to include also non-forest areas (HCV). Today the concept covers six categories, including: (1) Species diversity; (2) Landscape-level ecosystems, ecosystem mosaics and Intact Forest Landscapes (IFL); (3) Ecosystems and habitats; (4) Ecosystem services; (5) Community needs; and (6) Cultural values. And it has been adopted by other natural resource sustainability standards and organisations which aim to maintain and/or enhance critical social and environmental values as part of responsible land management. For further information about HCV please refer to the FSC Principles and Criteria (FSC 2015a) as well as the HCV Resource Network website at: https://www.hcvnetwork.org/, last accessed 31 January 2019. 1

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Thus, the FSC label combines promotion of sustainable forest management, efficient (re-)use of scarce resources and a fivefold bottom line2 for any wood use.

26.2.3 From Curiosity to Mainstream: But Not Everywhere When FSC was set up, more than 20 years ago in the wake of ongoing forest degradation and deforestation, a key objective of its founders was to develop standards for, and to promote, responsible forest management. Some founders were keen to make a difference particularly in the tropical forests, and this has happened in many tropical countries, with the largest areas being in Brazil, Indonesia, the Democratic Republic of Congo and Gabon. However, while FSC is the most used certification scheme in the tropics and subtropics (covering 81% of all certified tropical forest area), these areas represent only about 11% of the total FSC-certified forest area in the world. The obstacles to the development of FSC certification are greater in the tropics: widespread illegal logging is undermining the economic chances for sustainable forestry and the demand for tropical timber from sustainability-minded societies is stagnating, a trend which weakens the ‘business case’ for FSC certification. At the same time, demand for tropical timber is growing in countries where traders and authorities do not require or control timber legality, let alone promote sustainability assurance. Nevertheless, considerable positive changes have taken place in the tropical areas that are compliant with FSC certification standards. These changes are even more significant than those in the average European forest. For example, in the certified areas, deforestation and forest degradation is halted, and local people see considerable improvements: their rights are protected, their opinions are taken into account, they have access to safer and better-paid jobs (Cerutti et al. 2016; Peña-Claros et al. 2009; Newsom and Hewitt 2005). FSC is determined to increase its relevance considerably in these forests in the coming years, in cooperation with indigenous peoples, community forest owners and companies. Meanwhile, certification has spread widely in boreal and temperate forests (North America, Europe, Russia, Chile, Australia, New Zealand), particularly for forests that are regularly exploited for timber and pulp. This has improved the overall quality of forest management and improved the people’s trust in forest managers. Calculations by FSC show that, in 2015, about 16.6% of total industrial wood harvested came from FSC-certified forests (FSC 2015). Though not all of this wood ends up in products with an FSC label, a full one-sixth of productive forests in the world today are certified to comply with the FSC forest management requirements (FSC- and PEFC-certified forests together produced some 29.8% of all industrial wood in 2015, see UNECE and FAO 2015).

The five pillars of the fivefold bottom line approach include: economic growth; transformation; social development; environment and biodiversity; and climate change (Dos Santos et al. 2014).

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26.2.4 Legitimacy from Unique Governance The emergence of the FSC system has played a vital role in the transformation of the forestry sector since the mid-1990s. In this regard, FSC is considered to be both the first completely developed global certification scheme (Bernstein and Cashore 2007) and the most credible and effective one within the sector (Mena and Palazzo 2012). Scholars describe FSC’s roots as a response to the failure of intergovernmental processes in producing a forest convention, which triggered companies, environmental and social organisations to create an alternative solution (Auld and Gulbrandsen 2013). This alternative solution would be based on a participatory system, including a diversity of interests and stakeholders (Scherer et al. 2006), together with a market mechanism along the forest products value chain. FSC emerged as a certification scheme for both foresters and processing industries, legitimised with a credible logo. Among other scholars, Bartley (2007) elaborates that FSC gained legitimacy in bringing together key actors within and around the forestry sector. Section 26.3 provides examples of how such effects were achieved in Portugal. Within the private governance field, FSC is considered one of the most innovative institutions to emerge since the middle of the twentieth century (Cashore et al. 2004). At the international level, FSC has a tripartite structure of three chambers—social, environmental and economic—whose members set rules applicable at all levels. This is complemented with national organisations with a parallel structure, who are in charge of ‘translating’ the international forest management requirements into national standards that represent and promote FSC (see Auld et al. 2015). Today, FSC has around 950 members who represent the global North and South, including both organisations and individual members. The FSC model has inspired similar initiatives in other sectors and for other commodities (Auld et al. 2008). In that sense, the FSC governance model has been an incubator for multi-stakeholder partnerships (Dodds 2015) and other well-known certifications systems such as the Marine Stewardship Council (Dingwerth and Pattberg 2009). Apart from being a pioneer organisation both within the forestry sector and among wider multi-stakeholder initiatives, FSC has played a key role in helping to harmonise standards through the creation of the International Social and Environmental Accreditation and Labelling Alliance (ISEAL) in 1999 (Auld et al. 2008). Together with other member organisations, FSC has championed the adoption of robust rules (see Sect. 26.2.5) for certification (Panwar et al. 2016)—work that has significantly contributed to differentiate the work of ISEAL members from weaker systems (Abbott and Snidal 2008).

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26.2.5 FSC Safeguards FSC is respected for its robust assurance system3 and compliance with the relevant ISEAL Codes (see Sect. 26.2.4). The scheme is composed of four main elements: 1. A set of Principles and Criteria (P&C) for responsible forest management worldwide, with locally appropriate indicators (national forest management standards), as well as supporting standards for standard setting, certification processes, stakeholder mapping, consultations, reporting on certification decisions and more—developed and agreed upon in multi-stakeholder processes (see previous sections and point 4 below). 2. An international accreditation and certification system (including the supply chain), operated through independent certification bodies. These bodies are accredited by one international organisation: Accreditation Services International (ASI). Like standard setting, the accreditation processes comply with the ISEAL standards and codes. 3. A widely-recognised trademark, with three specific labels for use on end-products and in communications (described in Sect. 26.2.2). 4. Balanced multi-stakeholder decision-making for setting standards and procedures at the international and national levels (as point 1 above), accompanied by transparency and adequate complaints procedures (see Sect. 26.3.1). This safeguard system is described in more detail elsewhere (e.g. Karmann et al. 2016). Through this scheme, FSC generates incentives for forest owners and managers to conform to environmentally and socially responsible forest practices, facilitates the audit of those forestry operations for compliance with the FSC P&C, and grants those who use the resources from such forests the right to promote their products using the FSC certificate and labels. As noted earlier, stakeholder engagement is at the heart of the FSC system. Stakeholders determine the ways in which FSC strengthens and develops standards, processes, assessments and other activities. One core group of FSC stakeholders are the FSC members. The FSC membership operates at two levels: internationally through FSC Asociación Civil (FSC AC; currently about 950 members), and nationally in about 50 countries. Membership is open to both individuals and organisations/companies. FSC individual and organisational members belong to one of three chambers (economic, environmental and social) representing different, often conflicting, interests in forests and forestry.

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An assessment by WWF (2015) of three forest certification schemes showed a clear difference between FSC on the one hand and PEFC (Programme for the Endorsement of Forest Certification) and MTCS (Malaysian Timber Certification Scheme) on the other. FSC had a 90% score on the 40 indicators concerning ‘certification and transparency’, ‘accreditation’ and ‘chain of custody’, where PEFC had a 45% score and MTCS only 40%.

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26.2.6 Introduction to the FSC Dispute Resolution System Conflicts exist in natural resource management. In responsible forestry, it is critical to manage conflicts effectively. FSC provides opportunities for any stakeholder to express concerns about the operation of the FSC system through its Dispute Resolution System (FSC 2012). Furthermore, FSC assures its stakeholders that such concerns will be addressed appropriately by the relevant entity within the system. The FSC Dispute Resolution System aims to find the best way of resolving conflicts, if possible before they are formalised. Through its auditing system, FSC also provides the opportunity for stakeholders to offer suggestions for improvements, as well as raise any concerns they may have concerning FSC-certified operations. This information is provided through stakeholder consultations, and ensures continuous improvement of the FSC system, for example through revision of FSC standards. Conflicts are often resolved and prevented through stakeholder consultations. Furthermore, FSC is also characterised by being a platform for dialogue and communication (see Sect. 26.2.4), as it provides an arena for various forest-sector stakeholders (at both national and international levels) to discuss forestry-related topics. These platforms for dialogue (in the form of working groups, events, forums, etc.) have improved the interaction among stakeholders in the forestry sector and play a role in conflict prevention and resolution. Thus, FSC certification acts as leverage and creates a context that facilitates conflict management.

26.3

Case Studies from Portugal as Examples of Sector Transformation

26.3.1 Case Studies in Portugal: Methodology In 2015, the FSC Dispute Resolution System Program conducted a series of focused interviews with stakeholders who work in the forest sector in Portugal. The aim of the interviews was to understand whether and how FSC certification was generating improvements in Portugal, and whether it was creating an overall positive impact in the country. Specifically, FSC wanted to know whether its Dispute Resolution System was playing a role in transforming the forestry sector in Portugal, by providing effective tools to prevent and resolve conflicts within the certification processes. In addition, FSC aimed to identify additional actions that could be undertaken to further improve forestry in Portugal. Written questionnaires were sent to multiple stakeholders from a wide range of backgrounds prior to the actual interviews, whereby social, environmental and economic perspectives were taken into consideration. The 11 expert stakeholders interviewed worked in local and international non-governmental organisations

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(NGOs) and in the forest industry in Portugal (including auditors and company representatives, among others). The FSC Dispute Resolution System analysed the qualitative data gathered through the surveys and interviews. The findings resulting from this analysis are presented as case studies (see Sect. 26.3.4).

26.3.2 Portugal: The Forestry Sector Prior to and Post FSC Certification A major impact of FSC certification is the empowerment of stakeholders. FSC provides a platform for dialogue between companies and people affected by forestry operations. This dialogue often starts when national standards are developed. Interviews with Ms. Vera Santos, FSC representative in Portugal, reveal that when FSC was launched in Portugal in 2006, huge efforts were made to be as inclusive as possible. Processes for developing the FSC Portugal forest management standards are voluntary, open and transparent, allowing for active participation of all stakeholders. This inclusive approach has resulted in a high level of engagement in FSC from civil society, companies and individual stakeholders around the country. At the same time, this approach has minimised conflicts and tensions when implementing FSC certification on the ground. Activities (such as working groups and workshops) related to the development of FSC Standards allowed big plantation companies, forest producer-associations, environmental NGOs and individuals affected by forestry operations to sit together and discuss concerns in a constructive manner. These activities created a platform which has improved, and often provided channels for communication among stakeholders that did not exist prior to the establishment of FSC in Portugal. The space created for communication has also benefitted companies themselves, which now use the opportunity to gather information (e.g. investigate river ecosystem impacts and how to reduce negative effects of forest management interventions). This drives cooperation with NGOs and research on forest-related topics, which otherwise would not take place. In some cases, companies fund research projects themselves or they reach out to academia, pointing out specific research needs. In other cases, NGOs are invited to co-manage conservation areas. The FSC system has made forestry companies spend resources to develop projects which are not their core business, such as investing in fauna and flora conservation projects. Portuguese pulp and paper companies collaborate with environmental specialists. Some companies contract bird-watchers who identify bird nesting areas, and continually monitor the presence of birds in their plantations and surroundings. In some cases, wolf and other key species are also monitored by specialists. In addition to the monitoring of fauna, it is now normal practice for FSC-certified forest companies in Portugal to have a network of specialists who are consulted

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when assessing and evaluating other environmental aspects. This was not the case before FSC certification was established. To further reduce negative effects of forest management—such as mineral soil exposure, erosion and damage to remaining trees—advanced technologies (e.g. bush and shrub cutters) are identified and applied. Conservation objectives are specified and met by certified forestry companies in Portugal.

26.3.3 Summary of Cases Case 1: Improving Forest Management Practices Through Erosion Prevention and Mitigation Portugal has very large eucalyptus (Eucalyptus globulus) plantations, which dominate the forestry sector in the country. The Portuguese company Altri Florestal (Altri) manages a vast area of FSC-certified forests, which is predominantly composed of eucalyptus. Altri has demonstrated its commitment to the FSC’s environmental and social values over many years. However, in 2011 a series of issues were identified during the reforestation of one of its FSC-certified eucalyptus plots. As part of its forest management interventions, the company had developed terraces, a forest management technique. However, the terraces were not developed correctly, which after a period of heavy rains led to severe soil erosion. A Portuguese environmental NGO, well known for its nature conservation work in the country, applied the FSC mechanisms (public consultation and dispute resolution) to raise concerns about the erosion. Given that Altri’s practice did not correspond with FSC standard requirements, Altri’s FSC certificate was suspended. As a result of the suspension, the company improved its overall forest management practices in relation to erosion prevention and mitigation, which resulted in the suspension being lifted. The FSC National Office in Portugal played a critical role in the resolution of the issue by acting as a mediator in the conflict between Portuguese NGOs and forestry companies.

Positive Outcomes of Case 1 In order to regain its FSC certification, Altri introduced a series of improvements in its operations. Some of the positive impacts identified resulting from this case are listed below. Stakeholder Engagement Altri understood the importance of stakeholder engagement and consultation. As a consequence, the company placed more emphasis on its

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communication with stakeholders and started to conduct more thorough stakeholder consultations. Relationship with Stakeholders in the Forestry Sector in Portugal As a result of the improved communication, the relationship between Altri and the affected stakeholders also improved. The company has shown a change in its overall attitude towards civil society, becoming more inclined to work with NGOs and to listen to the concerns voiced by individuals and organisations affected by their practices. Increased Transparency of the Company’s Operations This improvement of the company’s communication with stakeholders has also brought more transparency to its processes. The company learnt that transparency is key for building trust with stakeholders, and became more open to communication regarding any environmental impacts caused by its activities. Improved Forest Management Operations The company improved its monitoring of replanting projects and carried out more effective risk assessment to prevent erosion. Research and Development of New Techniques for Erosion Prevention and Mitigation Altri started to collaborate with the University of Évora, the Superior Institute of Agronomy, the Technical University of Lisboa and NGOs, to develop improved forestry techniques compliant with FSC requirements regarding erosion prevention. The research results were then applied to improve its forest management operations. The ‘natural biomass barrier’ (also known as ‘natural corridors’) technique was developed, based on the use of natural flora on terraces to prevent erosion. Capacity Building of Company Workers Since 2011, the company has trained workers and all contractors working on re-planting projects to build their capacity and knowledge of the problem of erosion. Knowledge-Sharing with Other Forestry Companies in the Region Altri has also organised multiple workshops, inviting all relevant stakeholders in the forestry sector in Portugal, including its competitors, to share its new knowledge about improved forestry practices to prevent and control erosion. To facilitate wider knowledge-sharing, Altri also developed a blog, through which it shares the lessons learnt and improved techniques publicly online.4 Engagement in Environmental Educational Projects Altri is now engaging in educational projects for schools in collaboration with other organisations. The two main educational projects are:

4 Blog entries can be read online (in Portuguese) at: http://altriflorestal.blogspot.com/, last accessed 31 January 2019.

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• ‘Natur Sapo Project’ (‘Nature Frog Project’), which supports the restoration of small water reserves with the aim of increasing the habitat area for amphibians (see Florestal 2012); • ‘Charcos com Vida’ (‘Ponds with Life’), which creates ponds and small lakes to enhance the development of biodiversity around these water ecosystems (see Florestal 2013). Altri is also involved in other relevant environmental projects in Portugal, through the collaboration with the NGO MONTIS (Nature Conservation Association), whose main objective is to manage territories for the conservation of natural values. Altri offered MONTIS the role of actively managing a part of its FSC-certified forest areas with high conservation values. MONTIS accepted and has now been working in collaboration with the company for the protection of this natural area for more than 10 years.

Case 2: Strengthening Systems to Ensure Biodiversity Conservation and Avoid Illegal Hunting of Protected Species The Association of Forestry Producers of Coruche (APFC) is a forest owners’ association with 423 members (November 2016). The Association manages around 38,000 hectares of FSC-certified forests for the production of cork, a product of high economic relevance for the country. During the cork harvesting season, APFC receives visitors from all around the globe, interested in the specifics of cork production. In 2010, APFC applied for a field visit to be included in the programme ‘Know the birds in your farm’, organised by Society for the Study of Birds (SPEA), a non-profit scientific association that promotes the study and conservation of birds in Portugal. As part of the programme, the SPEA group visited APFC’s certified forest, and during this visit a European honey buzzard (Pernis apivorus) was found dead. This rare, legally protected bird of prey had been illegally hunted with a manual trap. SPEA was very concerned about such an event happening in an FSC-certified operation, and used the FSC Dispute Resolution System to raise its concerns. They requested measures be put in place to prevent illegal hunting of protected species. The case was followed by a continued dialogue between APFC and the NGO, and was resolved after the FSC certificate holder included enhanced social and environmental monitoring practices into its management systems.

Positive Outcome of Case 2 Procedures to Check the Legality of Hunting Activities As a result of the event, the FSC certificate holder, APFC, decided to develop procedures to regulate the actions being taken in their forest operations, to ensure the legality of the hunting activities in their neighbouring areas. In 2010, APFC distributed this procedure among all

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group members. The procedure requires all landowners to check the legality of the hunting activities taking place on their land. This type of check, previously very uncommon in the Portuguese forestry sector, has now become regular practice.

Case 3: Conflict Prevention and Protection of Fauna and Flora As mentioned earlier in this chapter, one of the main strengths of FSC certification is the thorough stakeholder consultation process through which stakeholders can raise any concerns they may have about forestry operations. This allows certified companies to improve their operations by addressing the issues identified by stakeholders. SPEA actively participates in stakeholder consultations that take place as part of the FSC auditing processes. The following two examples describe the prevention of conflicts through SPEA’s engagement in stakeholder consultations as part of the FSC auditing processes.

Case 3, Example 1: Protection of Bird Nesting Areas In 2015, an FSC-certified forestry company was planning to establish a forest management area in Portugal. SPEA, concerned about the threat to the biodiversity in this area, contacted the company and provided information about the location of bird nesting sites.

Positive Outcomes of Case 3/1 Protection of Bird Species The bird nesting areas were identified and included in the forest management planning with an enhanced level of protection. Improvement of the Company’s Management Plans and Practices The management plans were more accurate and complete once they included information about the nesting areas and specific measures for their protection. This constructive cooperation is not an isolated case, as it is now common practice for NGOs to actively participate in stakeholder consultations, sharing their environmental expertise with FSC auditors and certificate holders. NGOs commonly advise companies about where areas with high natural values are located, so that the companies can pay special attention when developing and revising their management plans.

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Case 3, Example 2: Conservation of Areas with Protected Flora In 2015, another FSC-certified company was planning to establish a forest plantation in an area where a protected oak tree species (Quercus ilex) was found. The same NGO found out about the company’s plan and used FSC stakeholder consultation processes to inform them about where these specific habitats were located and request the company to undertake actions necessary to ensure their protection. The company followed the advice given by the NGO. In this way, the FSC system offered a platform to proactively address and resolve what could have become an escalating conflict between the NGO and the company.

Positive Outcome of Case 3/2 Protection of Flora (Quercus ilex) and Improvement of the Company’s Management Plans and Practices The company then took the NGO-provided information into account when developing its forest management plans, including measures to protect the area where these oak trees were located.

Case 4: Improvement of Workers’ Conditions The Portuguese National Association of Forestry Companies, Agriculture and Environment (ANEFA) has been involved with FSC for more than 6 years and actively participates in stakeholder consultations. A member of ANEFA noticed that the salaries being paid by a Portuguese FSC-certified pulp and paper company to subcontracted loggers were too low in relation to the standard wage in the country for such service. The salary offered by the company was not respecting the social values of FSC certification, and therefore ANEFA decided to raise its concerns about this situation using the FSC Dispute Resolution System.

Positive Outcome of Case 4 Increase in Workers’ Salaries ANEFA requested the company to raise the salaries paid to the subcontractors’ workers. The company followed the request and the workers’ salaries were raised as a result.

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26.3.4 Conclusions from the Case Studies The four conflict resolution cases in Portugal presented above show that FSC certification, through its dispute resolution tools and mechanisms, can effectively support the resolution of conflicts related to forest management, and drive positive change in the world’s forests. FSC has generated positive environmental and social impacts in Portugal (e.g. the establishment of conservation areas and the improvement of workers’ conditions, among many others) since its establishment in the country, and has driven a significant improvement in the forest sector in the country by acting as a dialogue platform bringing forest-sector stakeholders together. The positive outcomes of each of the four cases presented in this section demonstrates this.

26.4

Outlook

26.4.1 The Importance of Certification Has Just Begun FSC has emerged in a context of growing challenges for the world’s population. That population continues to grow quickly, and its consumption of natural resources and production of waste and problematic emissions are growing even faster. In 2015, the world’s governments set out two roadmaps to address these frightening trends: the 2030 Sustainable Development Agenda and the Paris Agreement. The 2030 Development Agenda, which has at its core the Sustainable Development Goals (SDGs), was adopted in September 2015 by the United Nations. Goal 15 ‘Life on Land’ focuses on sustainable use of the globe’s terrestrial natural resources, among which forests play a central role. Regarding sustainable forest management, the indicators that will be used include the level of forest certification in countries, which is a clear sign to the business sector, public authorities, finance institutions and the general public that supporting forest certification helps in achieving the SDGs, and thereby contributes to sustainable development. In a special publication, FSC reveals that its certification and labelling scheme in fact contributes to 11 of the 17 goals and specifically 35 of its targets (FSC 2016b). The Paris Agreement of December 2015, between the members of the United Nations Framework Convention on Climate Change, gave a new start to global efforts to keep climate change within manageable limits. All countries present committed to undertake action to reduce their contributions to global warming, and Article 5 of the Declaration calls upon these countries to include specific actions to halt deforestation and forest degradation, and specifically mentions sustainable forest management (see also FSC 2016a). Two additional trends underline the need for sustainable forest management even further: One is the increased demand for bio-energy, as part of the climate agenda; the other one is the emergence of the so called ‘bio-based economy’. The latter

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concept points to the need to replace crude oil as the key resource for chemicals and plastics. This comes on top of an increased need for wood as construction material (which has a lower environmental footprint than concrete). All of this will increase pressure upon the forestry sector to deliver more materials. Plantations can help to cover this increased demand, but only partially. While such increased demand helps to motivate societies to maintain forests, their sustainable management becomes even more crucial. And in parallel with this, recycling, as well as cascaded use (using wood for products first, and for bio-energy only once it is waste), become increasingly important. Besides certification, other initiatives focusing on zero-deforestation supply chains have come up in the last few years. For the most part, these initiatives focus on agricultural products (palm oil, soy, beef) as conversion into agricultural land is the number one reason for deforestation; paper production is however also in the scope. In these new initiatives, certification does not get the attention it should. Even though certification is seen by some as demanding and expensive, FSC has demonstrated that certification can become a powerful tool to promote environmentally sustainable and socially responsible practices in the forest sector and beyond, benefitting both forests and those who depend on them. However, FSC acknowledges that, in an ever-increasingly complex world, for certain global issues, certification may not always be the most effective solution. For this reason, FSC is further developing initiatives and tools that will allow it to overcome these challenges and continue to be a leading organisation, ensuring the sustainable and responsible use of the world’s forests.

26.4.2 The Need for Continuous Improvement FSC has been a pioneer in establishing a robust scheme for developing and implementing solutions for responsible forest management (as outlined in Section 1). FSC is a system that is continuously developing and learning, and actively helping others to learn and find global solutions (as shown through the examples in Sect. 26.3). FSC is also involved in joint research alliances that are working towards a more science-based approach to measure its impacts. With the FSC Global Strategic Plan 2015–2020 (FSC 2015b), the FSC membership requested FSC to transform and to strengthen its positive effects—even going beyond the forestry sector. The FSC global strategy clarifies FSC’s identity and role in the global forest system to ensure that its direction fits the challenges that the world’s forests and forest stakeholders face. FSC is currently in the process of developing new models to address the challenges described above (Sect. 26.4.1).

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References Abbott KW, Snidal D (2008) The governance triangle: regulatory standards institutions and the shadow of the state. In: Mattli W, Woods N (eds) The politics of global regulation. Princeton University Press, Princeton, pp 44–88 Auld G, Gulbrandsen LH (2013) Private regulation in Global Environmental Governance. In: Falkner R (ed) The handbook of global climate and environment policy. Wiley-Blackwell, Chichester, pp 394–411 Auld G, Gulbrandsen LH, McDermott CL (2008) Certification schemes and the impacts on forests and forestry. Ann Rev Environ Resour 33:187–211 Auld G, Renckens S, Cashore B (2015) Transnational private governance between the logics of empowerment and control. Regul Gov 9(2):108–124 Bartley T (2007) Institutional emergence in an era of globalization: the rise of transnational private regulation of labor and environmental conditions. Am J Sociol 113(2):297–351 Bernstein S, Cashore B (2007) Can non-state global governance be legitimate? An analytical framework. Regul Gov 1(4):347–371 Brown E, Dudley N, Lindhe A, Muhtaman DR, Stewart C, Synnott T (eds) (2013) Common guidance for the identification of High Conservation Values. HCV Resource Network, Oxford. https://hcvnetwork.org/wp-content/uploads/2018/03/HCVCommonGuide_English.pdf. Accessed 31 Jan 2019 Cashore B, Auld G, Newsom D (2004) Governing through markets: forest certification and the emergence of non-state authority. Yale University Press, New Haven Cerutti PO, Lescuyer G, Tacconi L, Eba’a Atyi R, Essiane E, Nasi R, Tabi Eckebil PP, Tsanga R (2016) Social impacts of the Forest Stewardship Council certification in the Congo basin. Int For Rev 19(S2):50–63 Dingwerth K, Pattberg P (2009) World politics and organizational fields: the case of transnational sustainability governance. Eur J Int Relat 15(4):707–743 Dodds F (2015) Multi-stakeholder partnerships: making them work for the post-2015 development agenda. Independent study commissioned by United Nations Department of Economic and Social Affairs (UN DESA). http://www.un.org/en/ecosoc/newfunct/pdf15/2015partnerships_ background_note.pdf. Accessed 31 Jan 2019 Dos Santos MAO, Svensson G, Padin C (2014) A “fivefold bottom line” approach of implementing and reporting corporate efforts in sustainable business practices. Manag Environ Qual Int J 25 (4):421–430 Florestal A (2012) A princesa dos anfíbios. Altri Florestal blogue. http://altriflorestal.blogspot.co. uk/2012/06/princesa-dos-anfibios.html. Accessed 31 Jan 2019 Florestal A (2013) Atividade Pé na Terra - Charcos com Vida. Altri Florestal blogue. http:// altriflorestal.blogspot.co.uk/2013/05/atividade-pe-na-terra-charcos-com-vida.html. Accessed 31 Jan 2019 FSC – Forest Stewardship Council (2012) FSC Dispute Resolution System. https://ic.fsc.org/en/ what-is-fsc/what-we-do/dispute-resolution. Accessed 31 Jan 2019 FSC – Forest Stewardship Council (2015) Newsroom: the global volume and market share of FSC-certified timber. https://ic.fsc.org/en/news/id/1234. Accessed 31 Jul 2018 FSC – Forest Stewardship Council (2015a) FSC principles and criteria for Forest Stewardship. FSC-STD-01-001 V5-2 EN, 22 July 2015. FSC International Secretariat, Bonn. https://ic.fsc. org/file-download.fsc-principles-and-criteria-for-forest-stewardship.a-409.pdf. Accessed 31 Jan 2019 FSC – Forest Stewardship Council (2015b) Forest Stewardship Council Global Strategic Plan 2015–2020. FSC International, Bonn. https://ic.fsc.org/file-download.global-strategic-plan2015-2020-english.a-621.pdf. Accessed 31 Jan 2019 FSC – Forest Stewardship Council (2016a) Forest, climate change, and the Forest Stewardship Council. FSC AC, Oaxaca. https://ic.fsc.org/file-download.forests-climate-chage-and-the-for est-stewardship-council.a-1125.pdf. Accessed 31 Jan 2019

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FSC – Forest Stewardship Council (2016b) FSC: a tool to achieve the Sustainable Development Goals. https://ic.fsc.org/en/news/id/1650. Accessed 31 Jan 2019 Karmann M, Miettinen P, Hontelez J (2016) Forest Stewardship Council indicators: development by multi-stakeholder process assures consistency and diversity. In: Castka P, Leaman D (eds) Certification and biodiversity – how voluntary certification standards impact biodiversity and human livelihoods. Policy Matters, Issue 21. IUCN Commission on Environmental, Economic and Social Policy (CEESP) and International Union for Conservation of Nature and Natural Resources (IUCN), Gland, pp 125–138 Mena S, Palazzo G (2012) Input and output legitimacy of multi-stakeholder initiatives. Bus Ethics Q 22(3):527–556 Newsom D, Hewitt D (2005) The global impacts of smartwood certification: final report. TREES Program, Rainforest Alliance. https://www.illegal-logging.info/content/global-impactssmartwood-certification. Accessed 31 Jan 2019 Panwar R, Kozak R, Hansen E (2016) Forests, business and sustainability. The Earthscan Forest Library. Routledge, London Peña-Claros M, Blommerde S, Bongers F (2009) Assessing the progress made: an evaluation of forest management certification in the tropics. Tropical resource management papers 95. Wageningen University and Research Centre, Wageningen. http://edepot.wur.nl/137012. Accessed 31 Jan 2019 Scherer AG, Palazzo G, Baumann D (2006) Global rules and private actors: toward a new role of the Transnational Corporation in Global Governance. Bus Ethics Q 16(4):505–532 UNECE – United Nations Economic Commission for Europe, FAO – Food and Agriculture Organization of the United Nations (2015) Forest products annual market review 2014–2015. http://www.unece.org/forests/fpamr2015.html. Accessed 31 Jan 2019 WWF (2015) WWF Forest Certification Assessment Tool (CAT). http://wwf.panda.org/wwf_ news/?246871/WWF-Forest-Certification-Assessment-Tool-CAT. Accessed 31 Jan 2019

Amparo Arellano Gil is Dispute Resolution Manager at Forest Stewardship Council International. She is an Environmental Scientist graduated from the University of Alcala (Spain) and the University of Applied Sciences of Hamburg (Germany). Amparo Arellano Gil has worked in several countries, including Peru, Iceland, UK and Germany, on implementation of environmental projects, scientific research and international cooperation for development. In 2014, she joined FSC International, where she supports the development of research related to conflict resolution and FSC certification. FSC Global Development GmbH, Adenauerallee 134, 53113 Bonn, Germany; Tel: +49 228 36766 935; Fax: + 49 228 3676665; Email: [email protected]; Internet: www.FSC.org. Thomas Colonna is an accredited mediator and has masters’ degrees in international public policy and the humanities from the University of Freiburg and University College London. He joined FSC in 2009 and managed the FSC Dispute Resolution Programme until February 2017. Thomas is currently working as Senior FLEGT Policy Advisor for China and Regional Asia at the European Forest Institute in Malaysia. A1-29-1, Soho Suites Wisma Perak No. 20, Jalan Perak, 50450 Kuala Lumpur, Malaysia; Skype: TColonna. John Hontelez was until September 2019 Chief Advocacy Officer at Forest Stewardship Council International. He was responsible for FSC’s relations with a range of international public institutions and coordinates FSC’s responses to, and involvement in, timber legality-focused initiatives, such as the European Union (EU) Forest Legality Enforcement, Governance and Trade (FLEGT) Programme, and to public procurement and sustainable production and consumption processes. Before he started with FSC in 2011, he was Secretary General of the European Environmental Bureau from 1996, and before that Chairman of Friends of the Earth International from 1986. Some

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key issues he worked on in those years included environmental democracy (the Aarhus Convention), support for the emerging free environmental movement in former communist countries, and strategic EU environmental policies. Before that, he was active in the Dutch environmental and antinuclear movement and he worked as assistant to a Member of the European Parliament. John Hontelez finalised his Master of Science in Non-Western Sociology at the Free University in Amsterdam in 1979. Forest Stewardship Council, Adenauerallee 134, 53113 Bonn, Germany; Tel: +32 486 512127; Email: [email protected]; internet: www.FSC.org. Marion Karmann is Senior Research Relations Manager at Forest Stewardship Council International. She studied European and tropical forest management (University of Göttingen), monitoring and evaluation (University of Bonn) as well as obtained a Ph.D. in natural sciences (University of Freiburg, Germany). Since the late 1980s, she has been engaged in the development of criteria and indicators for forest management for different organizations. Since 2002, she has worked for FSC International in various positions. FSC Global Development GmbH, Adenauerallee 134, 53113 Bonn, Germany; Tel: +49 228 3676677; Fax: + 49 228 3676665; Email: [email protected]; Internet: www.FSC.org. Anakarina Pérez Oropeza is currently the Strategic Development Advisor at Forest Stewardship Council International. Her role is to provide core support to defining and achieving FSC’s strategic goals by engaging FSC’s membership and stakeholders in developing and implementing FSC’s Global Strategic Plan and by ensuring a strong presence at important political events. Anakarina Pérez Oropeza joined FSC in 2010 and has several years of experience in international and multistakeholder processes related to forestry, sustainability and climate change. She received her bachelor’s degree in International Studies with honours from the Central University of Venezuela and holds a Master of Studies in Sustainability Leadership with distinction and the Postgraduate Certificate in Sustainable Value Chains at the University of Cambridge Institute for Sustainability Leadership. FSC International Center GmbH, Adenauerallee 134, 53113 Bonn, Germany; Tel: +49 228 36766 63; Fax: + 49 228 3676665; Email: [email protected]; Internet: www.FSC.org.

Chapter 27

Recent Experiences from the Natural Rubber Industry and Its Movement Towards Sustainability Edward Millard

27.1

Introduction

Natural rubber is grown on 12 million hectares of tropical land; about the same as coffee. Yet whereas coffee was a pioneer commodity in the sustainability movement and it has become embedded in the sector, rubber has hardly progressed beyond the inception stage. The need for improved economic, social and environmental practices is as strong as in any commodity. Major companies holding concessions have been exposed for unacceptable practices towards local communities and clearing of natural forest. A large majority of producers are smallholders, whose yields are below the potential volume and quality that could be obtained with improved harvesting and processing. Because sustainability is a recent subject of concern to the natural rubber industry, there has been little written on the dynamics that will determine the speed and scale of its uptake in the coming years. This chapter analyses the initiatives in the supply chain by first mover companies and the constraints to sector transformation. It draws on experience from sustainability initiatives in other tropical commodity supply chains, as well as the author’s own experience promoting sustainability to the natural rubber industry over the last 2 years. Referencing the theory of sector transformation presented in the book, it suggests steps forward to translate industry interest into tangible activities at source, with the hope that these serve companies and practitioners charting a way forward. Section 27.2 explains the structure of the natural rubber production and supply chain and the main market drivers. The next Sect. 27.3 contains an analysis of the major social and environmental sustainability problems. Section 27.4 describes recent initiatives for positive change and explains them through an analysis of the

E. Millard (*) Rainforest Alliance, London, UK e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_27

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driving forces. It considers the different tools available to the industry, including voluntary certification, supply chain mapping and identification of biologically high value land that needs to be kept out of production. The chapter concludes in Sect. 27.5 that further forward movement through the phases of sector development is highly likely in natural rubber and that sector transformation will require the engagement of the whole supply chain and local policy makers in key production regions to develop and implement a concerted plan that delivers tangible benefits to all supply chain participants.

27.2

The Natural Rubber Industry

27.2.1 Overview Momentum has built strongly in recent years around sustainable production and sourcing of tropical commodities. However, little of it reached one of the major tropical commodity industries, natural rubber, until 2016. The companies that have made pledges to remove deforestation from their supply chains and the international cooperation programmes that have co-invested to support their efforts have concentrated for the most part on four products deemed to be of most impact: beef, soy, palm oil, and wood products, including pulp and paper (Union of Concerned Scientists 2016). Those commodities are mostly produced on large plantations, where working conditions are often very poor, and forested land is cleared and degraded (WWF and RSPB 2017). Some major producers and trading companies have operations in more than one of those target crops and are today very much in the spotlight to meet their commitments to improving their social and environmental impact, whereas rubber companies have been less exposed. Civil society activism, facilitated by the ability to spread information globally, has stimulated companies involved in tropical commodities to take action to manage a series of risks: to their reputations; to long-term supply, threatened by climate change and shortages of labour and land; to the threat of regulation, with increasing government legislation in producing and importing countries regarding tropical land use; and competition risk, as other companies take initiatives championing sustainability. Companies are using different mechanisms to direct their actions, including introducing sustainable sourcing policies, participating in industry-wide and interindustry initiatives and subscribing to voluntary certification schemes. With the exception of timber and some products directed at the personal care industry, voluntary certification has mostly penetrated the food and beverage sectors. No recognised sector-specific scheme exists for rubber, as it does for palm oil, beef and soy, for example. To date, the risks that are driving change in other sectors have not impacted strongly on the behaviour of companies buying natural rubber. Sustainability for the tyre manufacturers, which use over 70% of the approximately 12 million tonnes of natural rubber produced annually, is still mostly focused on tyre safety, longevity and manufacturing technology to reduce rubber use. Most of the social and

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environmental responsibility presented by leading companies in their annual reports and on their web sites relates to social initiatives in local communities and reduction of emissions and water consumption in their operations. Impact upstream in the supply chain was first featured publicly by Michelin, the largest buyer of natural rubber, which in June 2016 became the first tyre manufacturer to commit to a deforestation-free sourcing policy (Michelin 2016). In terms of the sector transformation model presented in Chap. 21 of this volume, natural rubber is just beginning a transition from the inception to the first mover phase. However, it can be expected that the industry will adopt sustainability more quickly now. There is important evidence, some of which is not yet in the public domain, of progress in the year since Michelin’s commitment. Moreover, 2015 was a watershed year for sustainability across all industries, with the publication of the UN’s Sustainable Development Goals (UN 2015). These have been widely embraced by the private sector and feature in many corporate sustainability reports as a benchmark for progress. It is likely that enough important companies that drive demand for natural rubber will increase their commitments to sustainable sourcing and create the critical mass necessary to move towards sector transformation.

27.2.2 Production, Market and Supply Chain Natural rubber production is concentrated in Southeast Asia. Thailand (34% of world production; 38% of exports), Indonesia (26% of production; 29% of exports) and Vietnam (8% of production; 11% of exports) are the three largest producers (IRSG 2016a). China and India each produce about 7% of world production and consume most of it in their tyre manufacturing industries. The fourth and fifth largest exporters are Malaysia (7%) and Côte d’Ivoire (4%). Stimulated by strong demand and supported by government investment, global production grew 5.5% annually from 2009 to 2013 (see Fig. 27.1), with 90% of this growth in the three leading producer countries (Aidenvironment 2016). Continuing growth in vehicle manufacturing will drive increased rubber production. The number of passenger cars on roads rose from 818 million in 2010 to 983 million in 2015 and is projected to reach 1304 million in 2024; commercial vehicles grew from 230 million in 2010 to 272 million in 2015 and the number is projected to reach 345 million in 2024 (ETRMA 2017). Despite the positive long-term trend, rubber has significant price volatility and has suffered in the last 10 years from a cycle of booms and busts. A price surge in 2005–2007 prompted an increase in plantation area. Prices dropped sharply in 2008 because of global recession, climbed to a new peak in 2011 as demand recovered, but then the newly planted trees began to reach maturity and oversupply sent prices into a downward trend, reaching a 6-year low in 2015 (Aidenvironment 2016). The present gloom in the industry over prices makes for a difficult environment in which to motivate the industry to invest in social and environmental responsibility upstream at the origin.

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Fig. 27.1 Global Production of Natural Rubber 2001–2016 in thousands of tonnes (Source of data: LMC International Ltd. 2017, www.lmc.co.uk)

Tyres are made from a mix of natural (40%) and synthetic (60%) rubber, as well as other materials, which are differentiated by functionality (Michelin 2018b). Synthetic rubber has some distinctive characteristics that make it important to certain industries. For example, inner tubes of tyres require the resistance to air leakage of synthetic rubber, and natural rubber is not resistant to oils. Because of this different functionality, and the complication for manufacturers to re-tool their production units when raw material specification changes, substitution between natural and synthetic rubber is limited and markets for both are growing. The 2011 peak in natural rubber prices coincided with a high price of crude oil, which is the base material for synthetic rubber (Kose et al. 2014). The natural rubber supply chain comprises of millions of upstream independent smallholders, who produce about 80% of the world’s rubber (IRSG 2016a). The production process consists of making an incision in the bark and collecting the latex material in cups hung under the incision. Smallholders often employ tappers to undertake this. The rubber is generally sold to local traders, who sell it on to processors. As usual in commodity supply chains, local traders provide smallholders an accessible market and other services, such as advanced payments, but do not control quality and have more power to determine prices than producers. Smallholder quality and yield are generally lower than on plantations because of lack of access to improved quality planting materials and lack of knowledge of good

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Fig. 27.2 Natural rubber production process and main grades (modified from: Kose et al. 2014)

tapping, harvesting and post-harvesting practices (Peramune and Budiman 2007). In Indonesia, where the production method is very traditional, with limited management, smallholders have on average 33% lower yields than estates and in Malaysia 9% lower (Warren-Thomas et al. 2015). Rubber plantations usually have processing facilities on site, due to the critically short time span between the extraction of the latex from the tree to the processing step; liquid latex solidifies in about 8 h. Farmers often mix other substances to the latex to keep it in liquid state before a local trader collects it. Three tonnes of liquid latex yields about one tonne of block rubber. Most rubber is processed through a quality-controlled natural coagulation process, which produces solidified rubber in different grades of either Ribbed Smoked Sheet (RSS) or Technically Specified Rubber (TSR), according to the technical specifications of the end user markets: mainly tyres, other automotive products, construction materials and pharmaceuticals (Kose et al. 2014; see Fig. 27.2).

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Rubber is also processed quickly, before it solidifies, to produce latex concentrate, which is a soft rubber used for baby products, condoms, mattresses, gloves, and balloons. If rubber is not processed quickly, it coagulates naturally into so-called lump or cup rubber, which generates lower prices for producers because of additional cleaning and processing required. Some producers process their rubber into RSS, which enables them to earn more by selling a better quality and semi-processed product (Kose et al. 2014). Solid rubber is about 85% of the rubber market; the other dry rubber products are classified as General Rubber Goods (GRG) and include: rubber tubes, pipes and hoses; floor coverings and mats; transmission and conveyor belts; gaskets, washers and other seals; rubber plates, sheets and strips. Liquid latex represents 15% of natural rubber production (IRSG 2016a). The smaller size and diverse nature of the latex and GRG markets means that it is the tyre manufacturers that have the most leverage over industry initiatives and will drive the inevitable but still nascent movement towards sustainable production. As with other tropical commodity industries, rubber is consolidated at the manufacturing end, with the top ten tyre companies accounting for 63% of global sales. The five leading manufacturers are: Bridgestone, Michelin, Goodyear, Continental and Pirelli (Davis 2014). Over the past 10 years, the major manufacturers have steadily moved production to China, which is the world’s largest consumer of natural rubber. In 2005, 15% of tyres were manufactured in Europe and 25% in China; in 2015, Europe produced 9% of global tyre production and China 38%. In the same period, production in USA declined from 13% to 8% and in Japan from 9% to 6% (ETRMA 2017). China’s share of global rubber consumption, fuelled also by growing domestic vehicle use, rose from 30% in 2008 to 40% in 2014 (IRSG 2016a). In 2016, China consumed 4,896,000 tonnes, of which 3,910,000 tonnes (84%) were imported and 764,000 tonnes (16%) produced domestically. Seventy-eight percent of the rubber was used for manufacturing tyres (Research in China 2017).

27.2.3 International Policy and Advocacy The top five and seven other tyre manufacturers belong to the European Tyre and Rubber Manufacturers Association (ETRMA), based in Brussels, which represents the regulatory and related interests of its members at European and international levels. ETRMA also has the role of enhancing the industry’s image by informing authorities and raising public awareness of its policies and actions in areas including the economy, health and safety, environmental protection and transport. ETRMA has played a leading role in building a sustainability dialogue over the last few years within the International Rubber Study Group (IRSG). Similar associations representing major companies exist in other consuming countries, including the Japanese Automobile Tyre Manufacturers Association, the China Rubber Industry Association and the Rubber Manufacturers Association in the United States (RMA). In 2010, the Association for Rubber Products

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Manufacturers split off from RMA to form another US association representing manufacturers. The various associations of both producing and consuming countries belong to the International Rubber Association, which was formed in 1971 to ensure healthy trading practices and set standards for contracts, and which now has 31 members. The IRSG was established in 1944 to bring together government members of both producing and consuming countries. Located in Singapore, it provides trade information, statistics and other services to its members, comprising presently of: Cameroon, Côte d’Ivoire, The European Union (representing its 28 Member States), India, Japan, Nigeria, Russian Federation, Singapore and Sri Lanka. In 1990, IRSG created a Panel of Associates, as a vehicle for industry members to join. This enables broader discussion between governments and the private sector for addressing key issues of common concern. Membership of the Panel of Associates includes over 100 companies, including major natural rubber producers and synthetic rubber producers, traders and the world’s largest tyre and other rubber products manufacturers, as well as leading rubber industry consultants. The value of this dialogue is undermined by the fact that the major producing countries are not members of it. Member countries represent only about 10% of global production. Thailand was a member until 2011, but then left; of the top five producers, India is the only member (IRSG 2016a). Instead, the major producing countries have two organisations of their own. The three largest in 2001, Thailand, Indonesia and Malaysia, formed the International Rubber Consortium, to manage jointly the supply of natural rubber and hence shore up the commodity price. For example, in 2008, when the price was at record lows, the three governments agreed to reduce the amount they were exporting. With Malaysia’s expansion in palm oil, Vietnam became the third largest rubber producer, but has not joined the Consortium, as it is unwilling to cede control of its output (Arunmas 2015). The Association of Natural Rubber Producing Countries (ANRPC) is an older inter-governmental organisation. Established in 1970, its 11 members account for over 90% of global production: Cambodia, China, India, Indonesia, Malaysia, Papua New Guinea, Philippines, Singapore, Sri Lanka, Thailand and Vietnam. ANRPC serves to analyse policies and formulate appropriate strategies for protecting the interests of natural rubber producing countries. Since 2008, it has organised an Annual Rubber Conference with the active involvement and support of stakeholders in the private sector as well. Companies have access to most of ANRPC’s information resources, including updated data and rubber industry news. ANRPC provides periodic updates and trend analysis on future supply and demand of natural rubber to guide members in setting appropriate strategies to support their industries (ANRPC 2014). Although ANRPC refers to a sustainable natural rubber industry in its vision statement, it does not consider that initiatives to improve the livelihoods of smallholder producers and conserve biodiversity and ecosystem functions in rubber production landscapes are included. In August 2015, the ANRPC countries announced that they would not support the IRSG’s sustainability initiative, citing

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the difficult market conditions and claiming that natural rubber is, by definition, sustainable.1 In summary, with a slow-moving industry, limited civil society activity to build awareness and create pressure for change, resistance from the producing governments, and few inroads yet by market mechanisms that are successful in promoting sustainability in other sectors, such as voluntary certification, natural rubber has yet to put into place the key building blocks for a sustainable future. However, Michelin’s commitment in 2016 is the first step in what seems to be larger industry movement now towards positive change.

27.3

Social and Environmental Issues

27.3.1 Smallholder Challenges The negative environmental and social impacts from rubber production as well as the risks they present to companies’ future reputation, security of supply and freedom to operate are not dissimilar to those found in other tropical agricultural sectors. Income levels on the dominant smallholder farms are low, and young people will find it unattractive to continue growing rubber if it is unable to offer them a reasonable livelihood. Labour for tapping trees, often undertaken by migrants, is already a difficulty in some production areas and will become increasingly hard to recruit if remuneration is below minimum wage levels (Aidenvironment 2016). Growing rubber also requires more labour than palm oil (IRSG 2016a). Increased productivity, the surest way to improve farm-level income, will only occur if smallholders have access to training, financial services and new planting material to replace ageing trees. Rubber trees take up to 7 years to produce latex and have a productive life span of 25–30 years; they need to be replaced for the farm to sustain its earnings. The lag time from the first investment in the purchase of seedlings until the tapping of the tree constitutes a large amount of risk, considering the high volatility of global rubber prices. For example, many farmers in Côte d’Ivoire stopped growing cocoa and coffee to plant rubber as local prices rose from 200 CFA/kg in 2002 to 1200 CFA/kg in 2007. They were motivated also by the ability to grow rubber on soils that had become depleted of nutrients under coffee and cocoa (Ruf 2015). However, prices fell to 550 CFA/kg by 2013. A further risk for smallholders associated with rubber farming is food security. As well as other cash crops like cocoa, rubber planting also displaced the staple crop of cassava in Côte d’Ivoire, spurred by the high prices and regular income from harvests 10 months a year (Guardian Development Network 2013). As well as their limited access to services, smallholders lack of knowledge of and access to downstream markets. This situation impacts negatively on their earnings,

1

Personal communication, SNR-I Chair of Working Group.

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even when prices are high, and capacity to save or invest in their farms. Poverty is leading farmers to harvest immature trees, affecting yield and quality adversely (IRSG 2016a). They risk product quality and sometimes their health by using substitutes to formic acid, which is recommended for coagulating rubber. Stronger acids make the natural latex pH drop too fast and inhomogeneously, leading to uneven coagulation. Weaker acids, such as acetic acid, require much higher acid consumption (BASF 2018).

27.3.2 Social Impact from Plantations Further impoverishment and insecurity for smallholder communities result from their uncertain land title in many cases. In Laos, Cambodia and Myanmar, farmers have lost access to their land, becoming labourers on rubber plantations, where they have been subject to coercion and disputes over terms and wages (Global Witness 2013). In 2015, the Forest Stewardship Council disassociated from the Vietnam Rubber Group after finding that it had illegally seized land from local villagers in Cambodia, who grew rice there for their subsistence, and decimated at least 50,000 hectares of forest, including wildlife sanctuaries and protected areas, for its plantations (FSC 2015). In a village in Cambodia in which another large Vietnamese company, Hoang Anh Gia Lai Group, established a plantation, elders, village chiefs and residents in four villages explained that the company had cleared the Dipterocarp trees from which they extracted resin for their livelihoods (Global Witness 2013). Such corporate behaviour, carried out either illegally or in a way to get round weak laws, clearly has collusion from government officials. Similar complicity occurred in Myanmar, where rubber plantations have been established on land confiscated from ethnic minorities of northern Myanmar, including the Shan, Palaung and Kachin people (Global Witness 2015). In Indonesia and Malaysia, research carried out in 2012 found labour practices that included: payment of less than legal minimum wage; discrimination against migrant labour; toxic herbicides being applied without protection; child labour used in tapping; violations of the International Labour Organization’s conventions on freedom of association and the right to have permanent contracts for permanent jobs; and inadequate safety standards (DanWatch 2013).

27.3.3 Deforestation and Land Degradation Global production of natural rubber grew from seven million tonnes in 2000 to 10 million tonnes in 2010 and 12 million tonnes in 2014. The growth has been achieved primarily through land expansion. The production area grew from 3.9 million ha in 1961 to 9.82 million ha in 2011. This expansion has occurred in

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large part at the expense of forests. Between 2005 and 2010, almost 2500 km2 of natural tree cover and 610 km2 of protected areas were converted to plantations (Ahrends et al. 2015). In Vietnam, 79% of rubber plantations established in the Central Highlands by 2012 were on former natural forest. In China, Laos and Cambodia, protected areas have been de-gazetted. For example, more than 70% of the 75,000 ha Snoul Wildlife Sanctuary, Cambodia, mostly comprising lowland evergreen forest, was cleared for rubber between 2009 and 2013 (Warren-Thomas et al. 2015). Not only large foreign companies cause deforestation. The millions of smallholders producing natural rubber also contribute, by both expanding their farms and intensifying their production system. A study across Southeast Asia found that 61% of the rubber plantation expansions were in protected areas and 70% were in key biodiversity areas and that most of the expansion was led by smallholders (Ahrends et al. 2015). Traditional shifting agriculture techniques in the region that allow cultivated land to revert to secondary forest during a fallow period are being discontinued in favour of monocultures. These reduce genetic diversity of the farm and increase its vulnerability to diseases, meaning that more weeding and pesticides are necessary as precautions and more labour is required to conserve yields. Monoculture rubber plantations also contribute to other environmental problems. A study in Xishuangbanna, southern Yunnan province, the main production area of China, where monoculture rubber plantations have replaced forests, recorded: topsoil erosion; rising stresses on watersheds and hydrological cycles; and reduced rates of carbon sequestration. The plantations also carve up the habitat of native animals like Asian elephants and white-cheeked gibbons and reduce the forest’s ability to provide non-timber forest products and other economic resources on which local people depend (Ives 2013). By contrast, rubber agroforests, in which rubber trees are grown in parallel with fruit trees and timber crops, provide more security to farmers through reducing dependence on a single cash crop (Warren-Thomas et al. 2015). The introduction of rubber plantations in environments where there is no yearround rainfall can reduce the flow of streams and lead to drier conditions throughout a catchment area. Soil erosion and loss of soil quality are observed where terraces, as largely practiced across mountainous regions of Southeast Asia, replace secondary forests on sloping land. Building terraces, by hand or using bulldozers, entails exposure of subsurface soils and soil compaction, which reduce its water absorption capacity. The use of agrochemicals to remove the understory vegetation and the destructive soil preparation and management while converting to terraces leads to an impoverishment of soil organic matter (Warren-Thomas et al. 2015). There are also indications of substantial impacts on freshwater taxa from the runoff of rubber plantations. In Laos, local people reported dramatic declines in fish, crabs, shrimps, shellfish, turtles and stream bank vegetation, attributed to pesticide, herbicide and sediment issued from plantations, with fishermen reporting skin reactions from standing in streams. In Xishuangbanna, fertilizer run-off from rubber plantations has caused waterway eutrophication, declines in filtering services by aquatic vegetation, and contamination of water in wells (Warren-Thomas et al. 2015).

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Deforestation leads to climate change and biodiversity loss. The rubber production landscape in Southeast Asia coincides with four biodiversity hotspots: Sundaland, Indo-Burma, Wallacea and the Philippines (Warren-Thomas et al. 2015). These regions support large numbers of endemic and highly threatened species. Conversion of primary or secondary forest to rubber monoculture decreases species richness and changes species composition. A study in southern Thailand, the major rubber production region, found that 60% of the 128 forest bird species recorded were not found outside lowland forest (BirdLife International 2008). Rubber has been planted in environmentally marginal zones susceptible to insufficient water availability, soil erosion, frost, or wind damage, all of which threaten long-term rubber production. In 2013, typhoons destroyed plantations worth US$ 250 million in Vietnam, and future climate change is likely to lead to further expansion into marginal areas. The perspective of clearing high-biodiversity value land for plantations that are poorly adapted to local conditions, alter landscape functions (e.g. hydrology, erosion) and ultimately compromise livelihoods, particularly when rubber prices fall (Ahrends et al. 2015). This is not a vision of sustainability for the natural rubber industry.

27.3.4 Future Perspectives It is debated when and indeed whether long term rising trends in demand for natural rubber will put further pressure on land conversion. Scientists point to an expected increase in demand from the present 12 million to 19 million tonnes in the next 10 years and conclude that, based on existing productivity, this would require up to eight million hectares of tropical land to come into production (Warren-Thomas et al. 2015). Conversely, the industry claims that projected supply is sufficient to meet the demands of the industry until 2025, given the rubber that has already been planted (IRSG 2016b). Certainly, part of the answer lies in increasing productivity on smallholder farms, a key requirement to meet their income requirements as well as the industry’s supply requirements. Productivity is lower in Indonesia than other countries, due to the very traditional production methods. Bringing productivity up there to average levels would reduce pressure for further land conversion. For this increase to occur, farms must be well maintained, extension services available for improving farm management and harvesting techniques and new clones made accessible to smallholders to replace ageing trees. However, the present low prices tend to reduce farmers’ motivation to maintain their farms, harvest regularly and control quality, and further threaten productivity as farmers may be motivated to convert their farms to other crops or even sell them altogether (Aidenvironment 2016). The industry frequently cites low prices as a reason that it cannot invest in sustainability, although the threats to production and hence to long-term supply of rubber are greater when prices are low.

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The volatility in prices suggests that crop diversification will be an appropriate additional strategy for smallholders. Agroforestry systems can provide different crops for sale and subsistence while also contributing much better than monocrop rubber to protecting biodiversity, sequestering carbon, conserving soil and water in combination with supporting more forest specialist bird and plant species (WarrenThomas et al. 2015). From a landscape perspective, monocrop production systems need to be accompanied by conservation measures in the surrounding landscape. The well-being of the millions of smallholder rubber producers and protection of the country’s natural resources is in the interests of the governments of producing countries. However, no one has introduced the needed extension services or facilitated farm diversification. With no push or significant pull towards sustainability operating in the supply chain, producers will continue with what they know. Experience from other industries suggests that to make progress towards improved social and environmental production, large international companies will need to commit to sustainable rubber sourcing and put pressure on the supply chain. The five major tyre producers are based in North America, Japan and Europe, regions where sustainable sourcing is a well-known and growing concept, even if the rubber is sourced and manufactured in China. For the moment, declining rubber prices and accumulating stocks have resulted in a decrease of land area being used to grow rubber in the most important producing countries (Aidenvironment 2016). Governments that had invested in the commodity less than a decade earlier, when prices were high, have begun moving their investments. Thailand converted certain areas under rubber cultivation to palm oil; the Vietnamese Rubber Association committed to short-term supply cuts; the International Rubber Consortium asked its three member countries in 2011 to rationalise their supply to support prices (Kose et al. 2014). This situation potentially opens space for serious analysis by the industry of how to develop natural rubber production to meet its future growth plans. If companies follow Michelin’s lead and recognise that, like many in palm oil, soy, cattle, and pulp and paper, they should make a commitment to deforestation free rubber, this may trigger investments to support increased productivity that also deliver smallholder livelihood improvements. In March 2017, the cocoa industry, which, like rubber, is dominated by smallholder production, took such a step, when twelve leading cocoa and chocolate companies stated their collective intent to work together with governments and other stakeholders to end deforestation and forest degradation in the global cocoa supply chain (World Cocoa Foundation 2017). The momentum for industry-wide commitments to sustainability is growing.

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Movement Towards Sector Transformation

27.4.1 Building from Other Sectors Over the past several years, several initiatives have been led by international organisations to define good social and environmental practices and processes to undertake them. One advantage that the rubber industry has arriving later to the sustainability table than other major tropical commodities is that the sustainability toolbox is more complete than it was for early adopters. Voluntary standards are one tool; although standards as such do not go beyond defining practices, most of the standard setting organisations operate technical assistance programmes to support producers in understanding and implementing them. The heightened awareness and information about deforestation and conflict over land rights has given rise to research and analysis of good practice in protecting forests and respecting the rights of people living in areas that are developed for commodity production. The resulting mechanisms have been largely endorsed by the standards and certification systems, because they strengthen capacity for compliance. In the social area, a key concept is Free, Prior and Informed Consent (FPIC). It has its roots in the International Labour Organizations’s Convention No. 169 (1989)2 and more recently incorporated into the UN Declaration on the Rights of Indigenous Peoples (2007)3 and the International Finance Corporation’s Performance Standards (2012). The FPIC process aims to ensure that companies developing plantations respect traditional rights over land and consult communities on their plans. The recent growing commitments to deforestation free sourcing has strengthened two initiatives that help companies developing tropical land for production identify and conserve forests of high environmental value. The High Carbon Stock Approach (HCSA), which is managed by a steering committee comprising companies and civil society organisations, distinguishes forest areas for protection from degraded lands with low carbon and biodiversity values that may be developed. The HCSA methodology was developed with the aim to ensure a practical, transparent, robust, and scientifically credible approach to implement commitments to halt deforestation in the tropics, while ensuring the rights and livelihoods of local peoples are respected. It stratifies the vegetation in an area of land into six different classes, using analyses of satellite data and ground survey measurements, so that dense and regenerating forests can be protected and development pursued in scrub and cleared land (HCSA 2018). The High Conservation Value (HCV) concept was originally developed by the Forest Stewardship Council (FSC) in 1999 for use in forest management

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ILO Convention No. 169 of 27 June 1989 concerning Indigenous and Tribal Peoples in Independent Countries, in force 5 September 1991, 72 ILO Official Bull. 59 (1989); reprinted in 1650 UNTS 383; reprinted in 28 I.L.M. 1382 (1989). 3 General Assembly Resolution 61/295, U.N. Doc. A/RES/61/295.

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certification.4 It has become a widely-used tool for landscape mapping, conservation and natural resource planning and advocacy. In 2006 the HCV Resource Network was established to bring together companies and civil society organisations that support use of the HCV approach to promote best HCV practices and sustainable use of resources, and the spatial scope was widened from ‘HCV Forest’ to ‘HCV Area’ (HCV Resource Network 2018). The HCV approach consists of six Values: (1) Species diversity; (2) Landscape-level ecosystems and mosaics; (3) Ecosystems and Habitats; (4) Ecosystem services; (5) Community needs; and (6) Cultural values. These three widely used concepts of FPIC, HCS and HCV are already beginning to feature in the future production and sourcing policies of natural rubber companies.

27.4.2 Transformation Mechanisms As illustrated in other chapters of this book, the transformation of sectors towards sustainability is taking different paths. These are not mutually exclusive; many companies are following more than one of the four principal approaches and some even all four:

Individual Company Policies and Commitments to Sustainable Sourcing The move by Michelin is an example. It published its Sustainable Natural Rubber Policy in June 2016, with five thematic areas: (1) Respecting people; (2) Protecting the environment; (3) Improving farming practices; (4) Carefully using natural resources; and (5) Practicing good governance (Michelin 2016). These five areas of commitment had already been published in Michelin’s Natural Rubber Procurement Policy in March 2015. Michelin states in its 2016 document that it will require compliance with the policy from its suppliers involved in producing, processing and marketing natural rubber. It has introduced an assessment of suppliers’ social and environmental responsibility. The 2016 Policy is also more detailed and specific about its approach in each area. For example, under protecting the environment, it states four conditions: (1) National forest protection laws are observed; (2) Primary forests are completely protected and preserved; (3) Areas of High Conservation Value as defined and audited by the HCV Resource Network are protected and preserved; and (4) Areas of High Carbon Stock as defined and audited by the HCS Approach Steering Group are protected and preserved. Michelin has a partnership with WWF, and the parties collaborate in Michelin’s joint venture with Barito Pacific Group, formed in 2015, to reforest 88,000 hectares of severely degraded land on three concessions in Indonesia (Michelin 2015).

4

See also Sect. 26.2.2 of the previous chapter for the definition of ‘High Conservation Value’.

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In May 2017, one of Michelin’s customers, General Motors, published guidelines to direct suppliers of its tyres to responsible rubber cultivation. It is the first automobile manufacturer to announce tyre procurement guidelines that aim to ensure zero deforestation and uphold human and labour rights. The move brought quick recognition by Michelin in its Highlights: 2017 Annual Results (Michelin 2018a, p. 21): We praise this decision, which reflects our own commitments: implementation of a responsible and natural rubber policy, assessment of our suppliers’ CSR performance, mapping operators in the sector’s value chain, reforestation project in partnership with the WWF (. . .) Our approaches converge to lead all the industry towards virtuous practices.

Indeed, it is General Motors’ intention to engage tyre suppliers, governments, rubber industry associations and environmental NGOs to drive alignment. Developing traceability throughout the natural rubber supply chain is a key aim, to ensure that the rubber cultivation does not lead to deforestation, and that it contributes to the economic and social development of the areas where it is harvested (General Motors 2017). One of the large natural rubber trading companies and also a producer, Olam International, which has a concession, held jointly with the government, in Gabon, also has clear public commitments to natural rubber sustainability. It has published a Plantations, Concessions and Farms Code to guide practice in the tropical agricultural plantations it owns or manages. Olam also has a supplier code, which commits its suppliers to uphold social and environmental principles, including human rights and ensuring that forest and other surrounding biodiversity is respected. It is developing the Olam Farmer Information System to map the individual farms where products are sourced, as a key tool to avoiding deforestation (Olam International 2018).

Sector-Wide Initiatives Both Michelin and General Motors refer to encouraging other industry members to commit to sustainable natural rubber. As sustainability in tropical commodities takes root, pre-competitive collaboration among companies that are competitors in the market has grown substantially. The logic is clear: acting together, companies have much greater influence to drive behaviour change by their suppliers, many of which are common to all the major companies; and they can pool investments to tackle priority issues affecting the move towards sustainability. Industry-wide initiatives have come up across tropical commodities, often involving civil society and sometimes producer governments. The Cocoa and Forests Initiative is an example (World Cocoa Foundation 2017). A collaborative sustainability initiative already exists in natural rubber. Following a period of stakeholder consultation, IRSG launched the Sustainable Natural Rubber Initiative (SNR-I) in 2014, comprising a set of Voluntary Guidelines with five criteria: (1) Increased productivity; (2) Improved quality; (3) Forest sustainability;

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(4) Water management; and (5) Respect for Human and Labour Rights. Each criterion has performance indicators, and companies are asked to make selfassessments of their progress against them. There is no verification procedure in place behind the self-declaration, so it is not a certification system. There is no detailed guidance on how to interpret and assess the criteria, and no technical support. The SNR-I working group, led by the Secretary General of ETRMA, organised a sustainability conference in May 2016 in Singapore as part of its effort to build interest and align member companies around a common vision and set of actions. By the end of 2016, it appeared that IRSG was unlikely to become the coordinator of industry sustainability and that companies would move forward individually.5 It seems quite possible that companies may continue looking for collaboration through other initiatives, given the advantages of leverage and economy of joint approaches.

Multi-Sector Initiatives Sustainability initiatives have also grown up across sectors. The Consumer Goods Forum was established in 2010 to bring brand and retail companies together for joint action on sustainable supply chains. One of its initiatives is the Global Social Compliance Programme, to develop best corporate practice in supply chain management. It considers issues that are not industry-specific, such as child and forced labour. In 2016, Olam International facilitated a similar initiative for supply chain companies, the Global Agri-business Alliance.

Voluntary Certification Voluntary certification systems offer tropical commodity producers and their clients a credible mechanism for verifying independently that economic, social and environmental practices in their production units and supply chains are meeting defined sustainability criteria. When accompanied by a verified chain of custody that maintains integrity of the certified raw material through processing and distribution, certification systems enable companies to label their products and communicate the value to customers and consumers. The International Social and Environmental Accreditation and Labelling (ISEAL) Alliance, an organisation which guides and oversees best practices in setting standards and the systems that confer credibility to voluntary certification, including selecting and training auditors and monitoring results, offers membership to certification systems that meet those best practices. Two voluntary certification system members of the ISEAL Alliance are present in the rubber sector. The Forest Stewardship Council (FSC) offers forest management and chain of custody certification for timber, products derived from wood, such as

5

Personal communication, SNR-I Chair of Working Group.

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Table 27.1 FSC-certified rubber

Country Sri Lanka India Guatemala Peru Brazil China Thailand Vietnam Total

April 2017 Area in Ha (Hevea Brasiliensis, latex) 17,521 7775 1990 97,206 248,664 2818 21,731 0 397,705

No of forest management units 9 2 6 3 7 59 1921 0 2007

No of FSC certificates 3 2 2 1 3 1 8 0 20

January 2015 Area in Ha (Hevea Brasiliensis, latex) 120,450 1364 3624 97,700 260,333 538 4223 11,784 500,016

Number of FSC certificates 11 3 1 2 3 1 2 1 24

Source of data: FSC Database

paper, and non-timber forest products. Rubber growing within a forest ecosystem can be certified under the FSC standard. According to the FSC, 2007 rubber production units were certified in April 2017, with a total area of 397,705 ha (many individual production units are grouped in certification systems; hence the number of certificates is much smaller; see Table 27.1). This represents a fall since January 2015, mostly because Sri Lankan producers have dropped out of FSC certification. In any event, the numbers show that certification has not yet taken off significantly in natural rubber. This is further evidence that the industry is in the inception phase of sustainability. The Rainforest Alliance Sustainable Agriculture Standard6 certifies agricultural plantations (large and small). Natural rubber grown in an agricultural setting is eligible for certification under this standard. 2017 figures show that 50,739 ha are certified on 46 different farm operations (figures not available for 2015; see Table 27.2). Taking FSC and Rainforest Alliance together, 2053 producers of natural rubber have certified their operations. While there is some certified supply to meet increasing demand for natural rubber, neither FSC nor SAN/RA has made significant progress in the major producing countries of South East Asia. Indeed, the rubber certified by SAN/RA is mostly destined for the latex industry, for use in mattresses, a market segment that is showing strong interest in sustainable natural rubber.7

6 The Rainforest Alliance’s longstanding partner, the Sustainable Agriculture Network (SAN), which owns the 2017 SAN Standard, has granted the Rainforest Alliance (RA) an exclusive and perpetual license to the 2017 SAN Standard. Also, in August 2017, the RA and the SAN signed an agreement for the transfer of ownership of the shared SAN/RA certification system entirely to the Rainforest Alliance. The RA became the sole owner and operator of the certification scheme on 1 January 2018. 7 Personal communication, market specialist, Rainforest Alliance.

516 Table 27.2 SAN/RAcertified rubber

E. Millard Country Guatemala Sri Lanka Cameroon Brazil Indonesia Total

Ha certified 476 17,548 31,769 191 755 50,739

Volume (kg) 1,000,000 942,072 16,454,000 1100 79,100 18,476,272

No of operations 1 26 1 17 1 46

Source of data: SAN

Two other voluntary systems that are not members of the ISEAL Alliance also certify natural rubber. A Global Organic Latex standard has been developed specifically for the latex industry and is applied in the mattress market. Organic standards promote primarily health benefits for producers and consumers by prohibiting agrochemical use in production and processing systems. The Fair Rubber Association certification is primarily aimed at smallholders but additionally has a standard for hired labour that enables plantations to be certified. It requires its certified members to hold FSC certification. Its certification is present in a small way in footwear, sports balls, condoms and mattresses. The largest fair trade certification body, Fairtrade International, does not have a standard for natural rubber. A number of tropical commodities are additionally served by multi-stakeholder standards that typically are governed by stakeholders from the industry and civil society (and government, if such initiatives are national, such as the Roundtable for Sustainable Beef in Brazil). These standards mostly began as an entry-level approach to sustainability, with less demanding criteria than the ISEAL member standards. Some now demand substantial application of best social and environmental practices, have achieved leadership in their sector and become members of ISEAL. The Round Table for Sustainable Palm Oil is an example. Such an initiative did not occur in the rubber sector, which is surprising, given that the social and environmental issues are areas of major concern to the civil society organisations that have tended to promote these multi-stakeholder standards and certification systems. With the growth of interest in sustainable natural rubber, there are voices speaking up for developing a rubber standard and it is possible that will occur if companies express an interest to support it. Conversely, across tropical commodities, there has been growing momentum for more tailored initiatives outside of certification standards that are directed at the highest risk areas in the particular sector. Companies are not turning away from certification but are investing additionally in targeted programmes that engage more intensively with producers on key issues than a training course for the broader certification standards is able to. Companies buying material from dispersed smallholders are also mapping their supply chains, as they cannot support a claim for deforestation-free without knowing where the material originates. Several civil society organisations have developed services to respond to these new market requirements, and the same organisations that are prominent in palm oil are likely to extend their activities to natural rubber. Whether through aligning to certification

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standards or developing their customised approaches, companies will find an experienced group of organisations with proven tools to work with them on their sustainability journeys in natural rubber.

27.5

Conclusion

Natural rubber is an interesting case because, unlike other commodities examined in this book, it has advanced very little as of mid-2017 in sustainability. While two major downstream companies—the tyre manufacturer, Michelin and the automobile manufacturer, General Motors have made important public commitments, their progress in delivering them will depend in large part on their suppliers and the speed and scale at which they can stimulate activities upstream to change unsustainable practices in natural rubber production. As early adopters, Michelin and General Motors have laid down the challenge and they need a critical mass of the industry to work with them to meet it. In an industry largely dominated by smallholder producers, transformative change cannot be achieved quickly and any initiative that is taking place now is important to foster because the industry has little learning to date on the nature of the challenges to sustainability. In this context, standards and certification can play a role and may be attractive to companies seeking to make a credible market claim about their sector leadership. However, as the overarching theme of this book iterates, the natural rubber industry needs an approach that addresses the larger shapes and forces at play in the sector. Important areas to address include: the loss of traceability in distribution of rubber through the local intermediaries; the lack of access of smallholders to training and technical assistance in good harvesting and processing practices; and the absence of effective monitoring of land use in major production areas. The role of the civil society organisations in exposing unacceptable practices has been valuable to get companies to the table; but it does not begin to define the work plan for transforming the sector. A likely way forward is to focus on developing some pilot sustainable sourcing regions in one or two major producing countries with a small group of important suppliers that are willing to develop traceable distribution and facilitate access for services to smallholders. Engagement of the local government in the selected regions would be important. A coordinated action plan should include: baseline assessment of farm practices and yields; participatory definition of the main sustainability problems to resolve; tailored programmes to address them; public and private investment from international companies and donor agencies; and commitments to differentiate purchasing terms for rubber that meets defined target improvements. The strategy for sector transformation will be initiated downstream but it must be sustained by the whole supply chain and the enabling environment in which it operates. Producers should see tangible improvements in their livelihoods that meet their expectations for family well-being. Local traders should enjoy improved relationships in the market. Improved harvesting practices and traceable distribution

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should both impact positively on quality and create extra value from which to sustain local investments in producing and distributing natural rubber. As benefits begin to be perceived, they can be documented to demonstrate the successful approach and replicate it in other important sourcing regions.

References Ahrends A, Hollingsworth PM, Ziegler AD, Fox JM, Chen H, Su Y, Xu J (2015) Current trends of rubber plantation expansion may threaten biodiversity and livelihoods. Global Environ Change 34:48–58 Aidenvironment (2016) How prices drive natural rubber producers into poverty: an overview of sustainability issues and solutions in the rubber sector. http://www.aidenvironment.org/news/ low-prices-drive-natural-rubber-producers-into-poverty/. Accessed 31 Jan 2019 ANRPC – Association of Natural Rubber Producing Countries (2014) About ANRPC. http://www. anrpc.org/html/default.aspx?ID¼4&PID¼5. Accessed 31 Jan 2019 Arunmas P (2015) Vietnam urged to join rubber consortium. Bangkok Post. https://www. bangkokpost.com/archive/vietnam-urged-to-join-rubber-consortium/623984. Accessed 31 Jan 2019 BASF (2018) Latex coagulation with formic acid from BASF. http://www.intermediates.basf.com/ chemicals/formic-acid/latex-coagulation. Accessed 31 Jan 2019 BirdLife International (2008) State of the world’s birds: Indicators for our changing world. http:// datazone.birdlife.org/userfiles/docs/SOWB2008_en.pdf. Accessed 31 Jan 2019 DanWatch (2013) Behind the rubber label: social and working conditions in Asia’s rubber plantations. https://old.danwatch.dk/wp-content/uploads/2015/03/Behind-the-rubber-label.pdf. Accessed 31 Jan 2019 Davis B (2014) Bridgestone ranks as world’s top tire producer again. Rubber and Plastics News. http://www.rubbernews.com/article/20140908/NEWS/309089973. Accessed 31 Jan 2019 ETRMA – European Tyre and Rubber Manufacturers’ Association (2017) European tyre and rubber industry statistics: Edition 2016. http://www.etrma.org/uploads/Modules/ Documentsmanager/20161208%2D%2D-statistics-booklet-2016-final5.pdf. Accessed 31 Jan 2019 FSC – Forest Stewardship Council (2015) Global Witness v Vietnam Rubber Group. https://ic.fsc. org/en/what-is-fsc/what-we-do/dispute-resolution/archived-cases/vietnam-rubber-group-vrg. Accessed 31 Jan 2019 General Motors (2017) GM works to set sustainable natural rubber tires into motion. https://media. gm.com/media/us/en/gm/home.detail.html/content/Pages/news/us/en/2017/may/0515-tires. html. Accessed 31 Jan 2019 Global Witness (2013) Rubber Barons. https://www.globalwitness.org/campaigns/land-deals/ rubberbarons/. Accessed 31 Jan 2019 Global Witness (2015) Guns, cronies and crops. https://www.globalwitness.org/en/campaigns/ land-deals/guns-cronies-and-crops/. Accessed 31 Jan 2019 Guardian Development Network (2013) Ivory Coast farmers abandon cassava for more lucrative rubber. http://www.theguardian.com/global-development/2013/feb/28/ivory-coast-farmers-cas sava-rubber. Accessed 31 Jan 2019 HCSA – High Carbon Stock Approach (2018) The High Carbon Stock Approach. http:// highcarbonstock.org/the-high-carbon-stock-approach/. Accessed 31 Jan 2019 HCV Resource Network – High Conservation Value Resource Network (2018) How it works: we protect what matters the most. https://hcvnetwork.org/how-it-works/. Accessed 31 Jan 2019

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International Finance Corporation (2012) Performance Standards: 2012 Edition. http://www.ifc. org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/Sustainability-AtIFC/Policies-Standards/Performance-Standards. Accessed 31 Jan 2019 IRSG – International Rubber Study Group (2016a) Opening presentation to Focus Forum on Sustainability, held in Singapore, 10th May 2016 IRSG – International Rubber Study Group (2016b) World Rubber Industry Outlook. http://www. rubberstudy.com/news-article.aspx?id¼5106&b¼default.aspx. Accessed 31 Jan 2019 Ives M (2013) The rise of rubber takes toll on forests of Southwest China. https://e360.yale.edu/ features/the_rise_of_rubber_takes_toll_on_forests_of_southwest_china/. Accessed 31 Jan 2019 Kose O, Veillard X, Harneja A (2014) Extracting value from natural rubber trading markets: optimizing marketing, procurement and hedging for producers and customers. Accenture. https://www.accenture.com/t20150523T032721__w__/sg-en/_acnmedia/Accenture/Conver sion-Assets/DotCom/Documents/Global/PDF/Dualpub_6/Accenture-ATIOS-Publication-Natu ral-Rubber-Trading-Markets.pdf. Accessed 31 Jan 2019 Michelin (2015) Joint-venture to produce natural, eco-friendly rubber. https://www.michelin.com/ en/press-releases/joint-venture-to-produce-natural-eco-friendly-rubber/. Accessed 31 Jan 2019 Michelin (2016) Sustainable natural rubber policy: reference document, 2016 Edition. http:// michelinmedia.com/site/user/files/1/SUSTAINABLE-NATURAL-RUBBER-POLICY_VD. pdf. Accessed 31 Jan 2019 Michelin (2018a) Highlights: 2017 annual results. https://www.michelin.com/en/finance/regulatedinformation/annual-results/. Accessed 31 Jan 2019 Michelin (2018b) The tire digest: materials. http://thetiredigest.michelin.com/an-unknown-objectthe-tire-materials. Accessed 31 Jan 2019 Olam International (2018) Rubber: sustainability. http://olamgroup.com/products-services/indus trial-raw-materials/rubber/sustainability/. Accessed 31 Jan 2019 Peramune MR, Budiman AFS (2007) A value chain assessment of the rubber industry in Indonesia. United States Agency for International Development (USAID), Jakarta. http://pdf.usaid.gov/ pdf_docs/Pnadl492.pdf. Accessed 31 Jan 2019 Research in China (2017) Global and China Natural Rubber Industry Report, 2017–2021. Report ID: 4126832. https://www.researchandmarkets.com/reports/4376309/global-and-china-naturalrubber-industry-report. Accessed 31 Jan 2019 Ruf F (2015) Diversification of Cocoa Farms in Côte d’Ivoire: complementarity of and competition from rubber rent. In: Ruf F, Schroth G (eds) Economics and ecology of diversification: the case of Tropical Tree Crops. Springer, Dordrecht, pp 41–86 UN – United Nations (2015) Transforming our World: the 2030 agenda for sustainable development. Resolution adopted by the General Assembly on 25 September 2015, A/RES/70/1 Union of Concerned Scientists (2016) What’s driving deforestation? https://www.ucsusa.org/ global-warming/stop-deforestation/whats-driving-deforestation. Accessed 31 Jan 2019 Warren-Thomas E, Dolman PM, Edwards DP (2015) Increasing demand for natural rubber necessitates a robust sustainability initiative to mitigate impacts on tropical biodiversity. Conserv Lett 8(4):230–241 World Cocoa Foundation (2017) Cocoa & Forests initiative. http://www.worldcocoafoundation. org/cocoa-forests-initiative/. Accessed 31 Jan 2019 WWF and RSPB (2017) Risky business: understanding the UK’s overseas footprint for deforestation-risk commodities. https://www.wwf.org.uk/riskybusiness. Accessed 31 Jan 2019

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Edward Millard is Director for Africa and South Asia at Rainforest Alliance, based in its London office. In this position, he oversees a technical team working building the capacity of commodity producers and forest managers in responsible environmental stewardship and social practices, based on credible multi-stakeholder standards and practical solutions to their concerns. He develops external relationship opportunities with donors, companies and other stakeholders to further Rainforest Alliance’s vision of sustainable land management and secure livelihoods in high biodiversity countries. Edward was a business development manager for Oxfam Fair Trade for 14 years and Conservation International for 11 years, spending extensive time in Africa, Asia and Latin America supporting small-scale producers in the forest product, craft, agricultural and tourism sectors to improve their competitiveness and open new markets. He is a graduate in business administration. He has published three books and several articles on small-scale business development, is a board member of Goodweave International, an international body to eradicate child labour in the rug weaving industry, and an independent assessor for a UK charity. Director, Africa and South Asia, Rainforest Alliance, Warnford House, 29 Throgmorton Street, London EC2N 2AT, United Kingdom; Email: [email protected]; Internet: www.rainforest-alliance. org.

Chapter 28

Responsible Mining: Challenges, Perspectives and Approaches Dmitry Palekhov and Ludmila Palekhova

28.1

Introduction

There is no doubt that in the foreseeable future the world economy will continue to grow at the expense of an increased consumption of metals, fossil fuels and mineral resources extracted from the earth’s crust. At the same time, numerous studies conducted by international non-governmental organisations (NGOs) confirm an apparent contradiction between the basic values of society and mining practices at all management and decision-making levels (World Economic Forum 2016b). The problems related to extractive industries have become a significant obstacle to the systemic implementation of sustainable development principles in the world economy and international trade. To begin with, the largest and the most influential mining companies are still primarily oriented towards business performance, while paying insufficient attention to their social responsibility in the field of industrial and occupational safety as well as environmental protection (Goodland 2012; Maier et al. 2014; Bice 2016). Mining operations continue even if they create threats for human health and the environment. According to the International Labour Organization (ILO), mining accounts for ca. 1% of the world’s workforce, but at the same time it is responsible for about 8% of fatal accidents at work (ILO 2018). Furthermore, mining companies show a lack of transparency and accountability in their activities, which often leads to the infringement of the rights of local communities, especially with regards to their

D. Palekhov (*) Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg (BTU), Cottbus, Germany e-mail: [email protected]; [email protected] L. Palekhova Institute of Economics, National Technical University “Dnipro Polytechnic”, Dnipro, Ukraine © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_28

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participation in decision-making on the use, management and protection of natural resources (Palekhova 2016; Darling 2017; Arthur et al. 2017). Given the complexity of the challenges, a series of regional and international round tables and conferences have been conducted to discuss and elaborate effective measures for fairer governance in the mining sector. Based upon the modern understanding of sustainable development, examples of best practice and consultations with a wide range of stakeholders, NGOs have developed a number of global guidelines for increasing the responsibilities of the mining industries. In particular, in 2010, the Global Reporting Initiative (GRI) Secretariat under the direction of the Technical Advisory Committee prepared the GRI Mining and Metals Sector Supplement based on the GRI G3 Guidelines (2006). Following the launch of the G4 in 2013, the content is now presented in the Mining and Metals Sector Disclosures document (GRI 2013). Also, much is expected from the Extractive Industries Transparency Initiative (EITI), which is a global standard to promote the open and accountable management of oil, gas and mineral resources (EITI 2016). As of February 2018, 51 countries have joined the EITI, and 50 of them have already published beneficial ownership roadmaps (EITI 2018a). These roadmaps lay out the legal and other reforms needed to meet the EITI’s transparency requirements. Moreover, some countries have already started the domestic implementation of the standard, the process of which is also supported by reforms at the international level, such as the European Union decision that all member states should now develop public beneficial ownership registers (e.g. Art. 30 of the Directive (EU) 2015/849). In June 2018, the Initiative for Responsible Mining Assurance (IRMA) launched its Standard for Responsible Mining (version 1.0)—a global certification programme for industrial-scale mine sites (IRMA 2018). The standard outlines a set of verifiable requirements that must be met in order for a mine site to achieve certification. These requirements are based on best practices that have been agreed to by diverse stakeholders during the standard development and consultation processes. However, despite rising concern and increasing attention regarding responsible mining, there is still a huge gap between aspirations for sustainable transformation of the sector and existing mining practices, especially in countries with transitional economies (Palekhova 2016; Pivnyak et al. 2016). Some important assessment categories and criteria related to responsible mining remain insufficiently addressed by scholars and are not always interpreted correctly by the business sector. For example, a particular attention should be paid to the concept of a gradual increase of the responsibility of extractive companies. Implementation of this concept would aid in the sustainable transformation of not only the extractive industries, but also of other industries that substantially depend on primary mineral commodities. In this context, this chapter aims to provide an in-depth overview of the concept and objectives of responsible mining. The chapter offers a system of responsibility criteria for the strategic management of extractive companies and the formulation of crosscutting management policies which would consider the multifaceted interests of major stakeholders. Following the discussion in this chapter, the authors drew a number of conclusions regarding the outlook of responsible mining in countries with transitional economies. Following this introduction, Sect. 28.2 specifies the concept of ‘responsible mining’ to clearly distinguish it from other concepts with very similar meanings,

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such as ‘green mining’ or ‘sustainable mining’. This section also introduces a ‘Wheel of Mining Responsibility’ in the context of sustainable development. Section 28.3 provides an overview of EITI—a key initiative for ensuring transparency and accountability in mining—and discusses ways to overcome various obstacles on the way to its implementation in countries with transitional economies while considering experience of Ukraine as an example. Section 28.4 attempts to give an outlook for the implementation of the IRMA Standard for Responsible Mining by identifying its advantages and potential barriers during its launch phase in 2018–2019 in countries with economies in transition. Section 28.5 ends the chapter by outlining the main conclusions and recommendations.

28.2

Understanding the Concept of Responsible Mining

Analysis of various literature sources revealed that the concept of responsible mining1 is currently open to many different interpretations. There is also no consensus about a wording or formulation that would represent the management policy for mining operations supporting Sustainable Development Goals (Pivnyak et al. 2016; Palekhova 2016). Nevertheless, a combination of appropriate efforts in this field is most often referred to as ‘green’, ‘responsible’ or ‘sustainable’ mining (for example, see Sairinen et al. 2012; IGF 2013; WGC 2013; Garrun 2014; World Economic Forum 2016b; Nurmi 2017; etc.). All these categories imply significant measures to ensure that principles of sustainable development are considered by mining industries in a broad spatial and temporal perspective. And yet, each of these approaches is characterised by specific development objectives, level of responsibility, and expected outcomes in terms of supporting sustainability principles. It is clear that any mining activity could lead to adverse environmental effects due to its very nature (e.g. Spitz and Trudinger 2009; Jain et al. 2016; Carvalho 2017). Therefore, the issue of mining companies’ responsibility had always been the subject of public debate and scientific discussions. In the 1990s, the concept of ‘responsibility’ in mining was mainly considered to be a subject of legal compliance, i.e. with national mining laws, environmental laws and regulations, mining concession agreements, labour laws, etc. (World Economic Forum 2016b). However, at the beginning of the new millennium the mining sector has globally experienced a period of rapid growth.2 This shift has exacerbated existing environmental issues on a global scale. Impacts, such as loss of biodiversity, soil degradation, physical 1 For the purpose of this chapter, we follow the definition of mining suggested by the United Nations, which characterised it as “the economic activity dedicated to the production of minerals and metals, including exploration, extraction and processing of the extracted minerals” (UN 2010b, p. 3). 2 The increase in demand for primary commodities has stimulated the unprecedented growth of both commodity prices and global extraction volumes. Accordingly, during the decade 2003–2012, extraction of thermal coal grew by 48%, and iron ore extraction by 168% (PwC 2013).

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modification of rivers, depletion of fresh water bodies and other crucial ecological resources, are well documented in scientific literature and official reports. There is no doubt that these impacts have significantly slowed down the progress towards sustainable development and human well-being—measures for mitigating the impacts (i.e. reducing and compensating them) cannot catch up with the rate of ongoing environmental degradation.3 Key stakeholders in the mining sector have recognised that the approach based solely on legislative compliance was not enough. In response, in recent years there has been an increased amount of national and international initiatives on ‘green mining’. The main idea underpinning the concept of green mining is that the policy on reducing the environmental impact of mining operations should not be limited to individual preventive measures, but it rather requires new forms of governance and innovation throughout the whole value chain of mining operations. This includes geological exploration and resource assessment, mining and extraction of minerals, processing and beneficiation, transportation, waste disposal, as well as restoration and rehabilitation of the disturbed environment after the cessation of mining activities (Bian et al. 2010; Minalliance 2012; Pivnyak et al. 2016). The Green Mining Initiative led by the Canadian ministry Natural Resources Canada—in close partnership with provincial/territorial governments, industry, academia, NGOs and other interested stakeholders such as the Canada Mining Innovation Council—is a particularly interesting example of a programme aiming to improve the mining sector’s environmental performance and create green technology opportunities (NRCan 2016). This programme takes a holistic look at the entire mining life cycle through four research and innovation pillars: footprint reduction; innovation in mine waste management; mine closure and rehabilitation; and ecosystem risk management. Another example of a national programme supporting green innovation in mining is Finland’s Green Mining Programme carried out by the Finnish Funding Agency for Technology and Innovation (Innovaatiorahoituskeskus Tekes) between 2011 and 2016. During this period Tekes co-funded over 100 projects with a total budget of 116 million EUR focusing on such issues as reduction of the environmental footprint, including sustainable land use following mine closure, and minimisation of social impacts (Tost et al. 2017). Ghana’s AKOBEN programme launched in 2010 by the Environmental Protection Agency (EPA) became the first environmental performance rating and public disclosure programme in Africa. The programme’s rating concept features the use of five colour codes as indicators of performance levels. This colour scheme was 3

For example, intensive exploitation of iron ore deposits in the Karachay-Cherkessia (Russian Federation) has led to physical modification of large rivers, such as Kuban and Urup, and to complete destruction of small rivers with unique, clean waters (Bogusch et al. 2016). A boom of illegal gold mining in Ghana, known as galamsey, has changed the biosphere of impoverished rural areas, and has resulted in a loss of productive farmland, in particular cocoa farms. One of the rivers most affected has been the Offin River, which is contaminated by the chemicals and heavy metals that are used in the mining process (Stanger 2015; Taylor 2018).

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designed to convey the message about environmental performance of mining companies, from excellent to poor, to the general public in simple terms (Ghana EPA 2018; Darko-Mensah and Okereke 2013; see also Chap. 29 in this volume for a detailed discussion about the AKOBEN programme). At the same time, it is commonly accepted that environmental issues represent only one of the three pillars of sustainable development. Mining companies provide employment and livelihood opportunities, and are responsible for the safety and welfare of their workers. There are many examples of cases where even some of the largest international mining companies neglect this responsibility.4 Also, the rights of indigenous peoples and communities are still disrespected, violated and infringed upon during the decision-making processes on extractive activities that may affect them.5 Therefore, the concept of ‘green mining’ has to be seen in a broader context. Besides environmental protection considerations, the concept should incorporate the issue of increasing social responsibility of mining companies towards their employees and other stakeholders (Dashwood 2012). In this regard, more recent initiatives increasingly apply the term ‘responsible mining’ (e.g. Bice 2016; McPhail 2017), however its meaning may vary widely depending on the formulated strategic priorities (see Table 28.1). A closer examination of the definitions presented in Table 28.1 reveals that all of them imply necessary efforts to receive and maintain what Grutzner and Salim (2003) referred to as a ‘social licence to operate’ in form of free, prior and informed consent of indigenous peoples, local communities, and society as a whole. In doing so, some initiatives are focused on individual problems of certain target groups, such as increasing the responsibility of artisanal and small-scale mining (ARM 2014). Furthermore, all criteria of responsible mining can be broadly divided into six categories or areas presented in Fig. 28.1. All indicated areas of responsibility are closely related and are mutually reinforcing. And criteria of responsibility in each of these categories are aligned with the principles of sustainable development. This system of criteria is not a static form, but rather it is constantly evolving, reflecting the complexity of relationships between various groups of stakeholder united by one common interest—transformation of the mining sector towards sustainability. The more rigorously a mining company integrates criteria included in the ‘Wheel of Mining Responsibility’ into its core business, the better its potential to become leading partner in achieving the Sustainable Development Goals (SDGs) is fulfilled.

4 In May 2015, the BHP Billiton, a leading global resources company, reported a two-week-long strike at Cerro Matoso Nickel Mine (Colombia). The workers were protesting against a change to longer work shifts, leading to an increase in uninterrupted exposure to toxic substances (Jamasmie 2015). 5 For instance, in April 2013 inhabitants of 15 nearby villages protested against the decision to expand the ilmenite (titanium-iron oxide mineral) production by the Irshansk State Ore Mining (Ukraine), which was made without consultations with the local communities (Konev 2013).

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Table 28.1 Definitions and the criteria of ‘responsible mining’ Authors Association for Responsible Mininga (ARM 2005)

Definitions “(. . .) mining must demonstrate that it can promote a more equitable economic development that ensures environmental sustainability, social wellbeing, and sustainable resource use, in the framework of the Millennium Development Goals.”

Multi-Stakeholder Forum on Responsible Mining (Asia Foundation 2008)

“Responsible mining is a complete set of activities in the minerals sector, respecting the rights of all stakeholders including local communities; environmentally friendly; having no negative effects on human health; open; based on international best experiences; respecting the rule of law; and which contributes sustainably to the benefit of the nation.”

European Bank for Reconstruction and Development (EBRD 2012)

“(. . .) responsible mining will be understood as mining operations applying the best international standards in terms of environmental and social management, health and safety improvements, energy efficiency, revenue transparency and stakeholder engagement.”

Goodland (2012)

“Responsible mining’s default position (. . .) is that mining should not damage life-support systems. (. . .) mining operations should be designed to secure optimal net benefit for the citizens of the host country over the long term with the lowest social and environmental impact.”

Criteria • Regulated and profitable activities • Efficient technologies • Socially and environmentally responsible • Legality and fair trade • Certification and accreditation • Improvement in the quality of life of local communities • Stakeholder engagement, including local communities • Environmentally friendly technologies • Minimisation of human health impacts • Transparency and openness • Application of international best practices • Respecting the rule of law • Promoting sustainability • International standards on environmental and social management • Energy efficiency • Concerns about the safety and human health • Revenue transparency • Stakeholder engagement • Social and environmental assessment • Transparency vs. secrecy • Acceptance by stakeholders • Priority for domestic agriculture over mining in water allocation • Compliance with international standards • Certification of potential mining permit seekers (continued)

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Table 28.1 (continued) Authors

World Gold Council (WGC 2013)

a

Definitions

Criteria

“Responsibly undertaken, gold mining and related activities can play an important role in achieving sustainable socio-economic development (. . .) Gold, produced in conformance with high safety, environmental and social standards, provides opportunities in the form of jobs, skills, improved infrastructure and tax revenues.”

• Insurance and performance bonds • Royalties, taxes and fees • Conformity with international environmental and social standards • Concern about safety and employment • Respect for human rights • Collaboration and transparency • Tax revenues

Now the ‘Alliance for Responsible Mining’

Fig. 28.1 ‘Wheel of Mining Responsibility’ in the context of sustainable development

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However, it should be noted that mining can only become sustainable if the scope and extent of mining companies’ responsibilities are sufficient to stop the depletion of the most critical natural resources such as water—and especially fresh water—and irreversible impacts on ecosystems and local communities. As emphasised by McNeilly (2000), mining companies are increasingly “rated on ‘sustainability’—a global dimension determined by the understanding of a company’s environmental, social and political performance that measures community trust and will ultimately translate into a license to operate.” In the report “Responsible Mining: A toolkit for the prevention and mediation of conflicts in the development of the mining sector” prepared by the University of Eastern Finland, Gaia Group and Zoï Environment Network, it is rightly stated that “sustainable mining is a theoretical, but highly unlikely, possibility (. . .) As a practical matter, achieving sustainability in mining is a remote prospect (. . .)” (Sairinen et al. 2012, p. 10). Therefore, today the term ‘sustainable mining’ refers more to the realm of policy dialogue on mining sector transformation, which defines the basic foundations for sustainable growth based on underlying principles and values, e.g. set forth by SDGs. In this context, the work of numerous mining companies and industrial associations towards more responsible environmental, economic and social practices, in particular through active implementation of international standards for responsible mining, can be seen as an important step for the transition of the sector to sustainable development.

28.3

Overview of the Extractive Industries Transparency Initiative (EITI)

Transparency and accountability in the mining sector can be considered as a driving force for its sustainable transformation, which mobilises forces of all stakeholder groups, whether in the area of direct management responsibilities (e.g. processes and methods of extraction) or involving interests of local communities and other stakeholders (e.g. employment, social safeguards, environmental rights, etc.). This is especially important in light of recent trends, where the mining sector is going through a quite difficult period in its history. On the one hand, a fall in world commodity prices6 has put pressure on producers to reduce the output, and to cancel or decrease investments in new projects. And, on the other hand, adoption of the 2030 Agenda for Sustainable Development and the SDGs—the global plan of action 6

In October 2015, the UNCTAD minerals, ores and metals price index averaged 206 points, half of the peak level of February 2011 (418 points). In particular, iron ore prices at the Chinese port of Tianjin averaged US$53/t, less than a third of its peak of US$187/t in February 2011. The falling prices of minerals, ores and metals can be attributed to a number of factors, including among others growth deceleration in China and emerging economies; high production capacity resulting from large investments made during the last decade-long commodity boom; low-cost mining, partly supported by low energy prices; etc. (UNCTAD 2016).

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for socially inclusive and environmentally sustainable economic development—will increase the pressure on the mining sector. Indeed, as reported by the World Economic Forum (2016a), the mining industry has the opportunity and potential to positively contribute to all 17 SDGs—or also cause a negative impact across all of them. In this regard, a special priority will be given to the achievement of ambitious targets for the reduction of anthropogenic interference with the global climate system in accordance with the Paris Agreement (2015)7 and corresponding emission reduction commitments by its parties, i.e. nationally determined contributions (NDCs). It is already clear that, in order to successfully address these challenges, the mining industry needs to pay a particular attention to transparency and accountability of mining companies. Many countries have already strengthened their policies, laws and institutions for ensuring the evidence base relating to legitimacy of mining operations, absence of corruption, and social justice in the mining industry.8 However, considering the urgency and importance of combating a wide-spread corruption and increasing sustainability of global value chains in the sector, particularly high hopes placed on the Extractive Industries Transparency Initiative (EITI). EITI is the global standard to promote the open and accountable management of oil, gas and mineral resources (EITI 2018a). It is designed to provide financial transparency of mining companies, on the one hand, and accountability of the budget revenues obtained from exploitation of mineral resources, on the other. Implementation of the EITI Standard takes place at the level of national states, whereby the EITI Secretariat and the Board support and encourage each EITI member country in the process. The EITI Standard requires countries to publish information on key aspects of the management of their natural resources on a regular basis, including

7 Adopted by the Conference of the Parties to the UNFCCC on 12 December 2015 by decision 1/CP.21, in force 4 November 2016, U.N. Doc. FCCC/CP/2015/10/Add.1; reprinted in 55 ILM 743 (2016). 8 For example, in November 2004, Sierra Leone started a ‘proof of concept’ pilot project for an electronic mining cadastre system in the Kono District, which by late 2005 had a functional licensing system for artisanal mining operations. Building upon experience of the pilot project, the Ministry of Mining and Mineral Resources launched a new project to implement a nation-wide mineral rights administration system in May 2009. Already in 2010, the Mining Cadastre and Administration System (MCAS) was running in regional offices that administer artisanal mining. In late 2010, the MCAS was expanded to include exporter’s and dealer’s licenses. Introduction of the MCAS has made mineral rights processing and management, including revenue recording and reporting, transparent and predictable, allowing for a global access to data stored in the electronic mining cadastre MCAS almost in real time (Kråkenes 2015). The Canadian Extractive Sector Transparency Measures Act was enacted in 2014 (S.C. 2014, c. 39, s. 376, in force 1 June 2015) for the purpose of implementing Canada’s international commitments to contribute to global efforts to increase transparency and deter corruption in the extractive sector. The Act requires extractive entities active in Canada to publicly disclose, on an annual basis, specific payments made to all governments in Canada and abroad (NRCan 2018). Furthermore, it requires entities engaged in the exploration or production of oil, gas or other minerals to report all payments made to Aboriginal governments and/or Aboriginal government officials in an attempt to enhance transparency and prevent corruption in these transactions (Goldman et al. 2017).

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Fig. 28.2 Organisational structure of the EITI mechanisms (based on EITI 2018a)

data on allocation of licences, tax and social contributions paid by companies as well as where this money ends up in the government at the national and regional level (EITI 2018a). National multi-stakeholder groups are the key feature of this initiative. They consist of government, civil society, and company representatives, who manage the functioning of EITI mechanisms in a particular country (see Fig. 28.2). EITI allows companies, governments, and citizens to know about entities operating in the extractive sector, including the terms of operation, generated revenue, and who benefits from it. Wide dissemination of this knowledge facilitates the public debate about the management and utilisation of natural resources, which is followed by recommendations on improvement of the sector governance. The EITI has also received a wide recognition from the sector—over 90 of the world’s largest companies involved in oil, gas, mining and commodity trading, and financial institutions managing total assets of more than US $19 trillion, support the EITI at the international level (EITI 2017a). Unlike some of the voluntary sustainability standards systems that allow for the national or regional adaptation of the global requirements and criteria (such as, for example, development of the National Forest Stewardship Standards or in-depth adaptation of the of the DGNB certification system9 to local circumstances), all EITI member countries are held to the same global standard. After joining the EITI as a member, every country goes through the ‘Validation’ process, during which the country is assessed against the EITI Standard (see Box 28.1). As of February 2018,

9

Certification system developed and run by the German Sustainable Building Council (Deutsche Gesellschaft für Nachhaltiges Bauen or DGNB) for the certification of sustainable buildings and urban districts. Refer to Lemaitre (2014) for an in-depth overview of the DGNB System.

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51 countries have become EITI members (EITI 2018a), and half of them have already undergone the Validation process.10 It is worth noting that the European Union has adopted similar provisions on accountability and transparency for certain type of companies in its Directives 2013/34/EU11 and 2014/56/EU.12 In the United States, the Dodd-Frank Act adopted on 21 July 201013 established new disclosure regulations relating to the use of so-called ‘conflict minerals’. Section 1502(e)(4) of the Act defines conflict minerals as: coltan (the metal ore which is refined to produce tantalum); cassiterite (the main ore of tin); gold; wolframite (the chief ore of tungsten); or their derivatives; or any other mineral or its derivatives determined by the US Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country. The Act requires publicly traded companies registered with the US Securities and Exchange Commission (SEC) to ensure that minerals contained in their products are not tied to the sites of conflict by conducting due diligence of their supply chains and to report this to SEC. Box 28.1 EITI Validation and Degrees of Compliance (Source: EITI 2017b) Validation is an essential element of the EITI process. Its purpose is to evaluate the progress of implementing countries in achieving the requirements of the EITI Standard set out in its Sect. 28.3. The Validation safeguards the integrity of the EITI by holding all implementing countries to the same global standard. Furthermore, the Validation report addresses the following aspects: the impact brought by the implementation of the EITI in the country being validated; the implementation of activities encouraged by the EITI Standard; lessons learnt in EITI implementation; any concerns expressed by the stakeholders. Results of Validation form the basis for recommendations on strengthening the EITI implementation process as well as better governance of the extractive sector. (continued)

10 The list of EITI member countries and the results of Validation are available at: https://eiti.org/ countries, last accessed 31 January 2019. As of January 2019, out of all validated countries, the following five countries have met all the EITI requirements at ‘Satisfactory’ level or beyond: Colombia, Mongolia, Philippines, Senegal, and Timor-Leste. 11 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC, OJ L 182, pp. 19–76. 12 Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts, OJ L 158, pp. 196–226. 13 Dodd-Frank Wall Street Reform and Consumer Protection Act. Pub. L. No. 111-203, 124 Stat. 1376, July 21, 2010.

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Box 28.1 (continued) The Validation process is overseen by EITI Board through the EITI Secretariat. After a country is accepted by the EITI Board as an implementing country, it receives deadlines from the Board for publishing the first EITI Report and undertaking Validation. The first EITI Report must be published within 18 months from the date that the country was accepted as an EITI country and Validation is required to commence within two and a half years of becoming an EITI country. Considering the multi-stakeholder nature of the EITI and the importance of dialogue, the Validation procedure puts an emphasis on stakeholder consultation. Validation is carried out in the following stages: 1. Preparation for Validation: The multi-stakeholder group (MSG) is encouraged to conduct a self-assessment of adherence to the EITI Standard. The national secretariat collates the documentation and other sources that demonstrate compliance. Stakeholders are invited to prepare any other documentation they consider relevant. 2. Initial data collection and stakeholder consultation undertaken by the EITI International Secretariat: The International Secretariat reviews the relevant documentation, visits the country being validated and consults stakeholders, including MSG. Based on the consultations, the International Secretariat prepares a report making an initial assessment of progress in implementing the EITI Standard, which is submitted to the Validator. The initial assessment does not include an overall assessment of compliance. 3. Independent Validation: The Board appoints an Independent Validator through a competitive tendering process. The Validator reports to the EITI Board via the Validation Committee. The Validator comments on the Secretariat’s initial assessment and prepares a Draft Validation Report. The MSG comments on the Draft Validation Report. Considering these comments, the Validator compiles a Final Validation Report, which includes the Validator’s assessment of compliance with each provision, but not an overall assessment of compliance. The Validator presents the findings to the Validation Committee. 4. Board Review: The Validation Committee reviews the Final Validation Report and makes a recommendation to the EITI Board on the country’s compliance with the EITI Standard and, where applicable, any corrective actions required. The EITI Board makes the final decision if the EITI requirements are met and determines the country’s overall compliance with The EITI Standard, which is expressed as a degree of progress and compliance. (continued)

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Box 28.1 (continued) The overall level of progress and compliance of a validated country with the EITI requirements is indicated by one of the following classifications: 1. Satisfactory progress: All aspects of each EITI requirement have been implemented and the broader objectives of the requirements have been fulfilled. 2. Meaningful progress: Significant aspects of each EITI requirement have being implemented and the broader objectives of the requirements are being fulfilled. 3. Inadequate progress: Significant aspects of each EITI requirement have not been implemented and that the broader objectives of the requirements are far from being fulfilled. Inadequate progress leads to suspension of the country. 4. No progress: All or nearly all aspects of each EITI requirement remain outstanding and the broader objectives of the requirements are not fulfilled. No progress leads to delisting of the country. The provisions of the EU directives and the Dodd-Frank Act are in line with the EITI philosophy, however this initiative can be characterised by a more global outreach: (1) EITI requires not only the disclosure of payments by companies, but also of revenues received by governments with an independent verification of all the data; (2) the EU and US legislation applies only to companies that are registered in these territories, while EITI applies to all companies operating in the jurisdiction of EITI member countries, regardless of their ownership14; (3) EITI coordinates relations and activities at an international level; (4) EITI does not restrict access to reports and other relevant information about the initiative and participating countries. It is also highly significant that both developed and developing countries support and join the EITI, including post-Soviet countries with transitional economies, such as Armenia, Kazakhstan, Kyrgyz Republic, Tajikistan, and Ukraine. In particular, Ukraine began preparations for joining the EITI in 2009 and became a member in 2013. The first mandatory national report was published in November 2015 showing the state of Ukrainian oil and gas industry in 2013 and disclosing the activities of oil and gas companies and payments they made to the government in form of taxes and other transactions (EY 2015). The second national report published in February 2017 revealed information about companies’ payments and government revenues in the extractive sector in 2014 and 2015 (EY 2017). In addition to the oil and gas industry,

14 For example, by 2020, every EITI country must ensure that all companies operating in their jurisdiction (i.e. also including companies that are not registered there) publicly disclose the identity of their beneficial owners when applying for, or when holding a participating interest in, a domestic oil, gas or mining license or contract (EITI 2018a, p. 10).

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the second report included overview of coal, iron ore, titanium ore, and manganese ore mining industries, as well as oil and gas transportation through the territory of Ukraine. The third report covering Ukraine’s extractive sector in 2016 extended the scope even further by adding information on three new extractive industries— mining of fire and high-melting clays, and quartz sand (EY 2018). Validation of Ukraine commenced on 1 July 2017 and was completed almost exactly 12 months later—on 29 June 2018 the EITI Board issued a decision that Ukraine has made meaningful progress in implementing the 2016 EITI Standard (EITI 2018b). The experience of Ukraine in the preparation of its national reports highlighted a number of challenges and pitfalls related to fulfilling the EITI requirements. For example, the first report covering 2013 revealed the reluctance of many oil and gas companies to disclose information about their businesses. Only 38 out of 120 companies operating in Ukraine’s oil and gas industry, including oil and gas transportation, provided complete information for the report, and three companies provided partial information (EY 2015). The highest level of responsibility was demonstrated by the state-owned companies belonging to groups Naftogaz of Ukraine and Nadra Ukraiiny, as well as by the largest private companies. In 2013, these companies together ensured 87.9% of the oil produced within the territory of Ukraine and 85.6% percent of the produced natural gas (EY 2015). EITI reports have also revealed serious gaps between tax and other payments disclosed by companies and revenues reported by the State Fiscal Service of Ukraine. For example, the discrepancy between the companies’ and State Fiscal Service’s data on revenues from unified social contribution from extractive companies in 2015 was 942 million UAH or 12% (EY 2017). In some cases, data provided by individual companies showed even higher rates of discrepancy from official data.15 The State Fiscal Service was unable to provide explanation for such discrepancies. After joining the EITI as a member country and starting the implementation of the EITI Standard, Ukraine, for the first time, has a system in place allowing to systematically obtain information about the financial and operational activities of mining companies as well as related government revenues. Considering the initial difficulties discussed above, the Ukrainian government has demonstrated its commitment to fully implement the EITI process—in September 2018 the Verkhovna Rada (Parliament) of Ukraine adopted the Law “On ensuring transparency in extractive industries”.16 The Law aims to provide the public with access to complete and objective information on extractive companies’ payments, to promote an

15

For example, the tax payments to the State Mineral Resource Reserves Commission of Ukraine in 2014 disclosed by Ukrgazvydobutok, a subsidiary of Naftogaz, amounted to 1,761,544 UAH, while the authority reported the receipt of 797,501, i.e. the discrepancy in data of 55%; the tax payments to the State Mineral Resource Reserves Commission of Ukraine in 2015 by the Northern Ore Mining and Concentrating Company (Severniy GOK) amounted to 739,074 UAH, while the reported amount was 413,882 UAH—a discrepancy of 44% (EY 2017). 16 Law of Ukraine “On ensuring transparency in extractive industries” No. 2545-VIII of 18.09.2018, entered into force on 16.11.2018; for an infographics about the Law, please visit: http://eiti.org.ua/

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increased transparency and prevent corruption, which in its turn would contribute to a change in the negative attitude towards extractive industries and increase interest of investors (DiXi Group 2018). It also requires that a report on payments to the government shall contain information on ‘ultimate beneficial owners’ (Art. 6) and provides for liability of extractive companies (Art. 14) as well as government officials (Art. 15) for not disclosing the complete information within specified time frames or violating the procedure for its disclosure. Ultimately, it is expected that these provisions will bring transparency to a previously opaque part of the sector. While many mining industry experts agree in general that EITI is going in the right direction, it is clear that this initiative cannot fully address all transparency challenges in the sector. For example, there is a problem of profit shifting to the so-called tax havens, i.e. countries that have very low or even zero rates of corporate taxation. This obviously erodes the tax bases for countries where the mining activities are actually carried out. In response to this problem, in 2013 the Organisation for Economic Co-operation and Development (OECD), jointly with G20 countries, launched the project ‘Base Erosion and Profit Shifting’ (BEPS) and two years later, in 2015, released the BEPS package—a comprehensive set of 15 action items designed to equip governments with domestic and international instruments to address tax avoidance, ensuring that profits are taxed where economic activities generating the profits are performed and where value is created (OECD 2016, 2018). As of November 2018, the OECD/G20 Inclusive Framework on BEPS included 124 members17 representing over 95% of global GDP (OECD 2018). Recognising its importance for achieving fiscal transparency and securing revenue bases, Ukraine joined the Inclusive Framework on BEPS in January 2017 (Pogrebna and Sydorenko 2018). By becoming the member of this framework, Ukraine agreed to implement the set of four BEPS minimum standards comprising the following actions: (1) countering harmful tax practices more effectively, taking into account transparency and substance (Action 5); (2) preventing the granting of treaty benefits in inappropriate circumstances (Action 6); (3) transfer pricing documentation and country-by-country (CbC) reporting (Action 13); and (4) making dispute resolution mechanisms more effective (Action 14). It is expected that the ongoing implementation of the BEPS standards will help Ukrainian tax legislation to adopt advanced tax rules in line with the best tax practices of the OECD member states (Pogrebna and Sydorenko 2018). Furthermore, it is clear that proper alignment of Ukraine’s efforts on implementation of the EITI process and BEPS standards may lead to synergies between them—the country will become more transparent in its tax reforms and in combating tax avoidance and corruption while raising revenue from its mining sector.

en/documents/infographic-about-law-on-ensuring-transparency-in-extractive-industires/, last accessed 31 January 2019. 17 An up-to-date list of members can be found online at: www.oecd.org/tax/beps/inclusive-frame work-on-beps-composition.pdf, last accessed 31 January 2019.

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Prospects for the Implementation of the IRMA Standard in Countries with Economies in Transition

An unprecedented initiative for responsibility in the mining sector—the Initiative for Responsible Mining Assurance (IRMA)—was founded in 2006 by a coalition of NGOs, businesses purchasing minerals and metals for the products they make and sell, affected communities, mining companies, and labour unions (IRMA 2018). The initiative was launched as a response to growing criticisms of mining practices, particularly in developing countries, and its purpose was to develop a voluntary system for the independent third-party verification of compliance with environmental, human rights and social standards for mining operations (UN 2010a). After 12 years of an intensive collaborative process with an input from more than 100 companies, organisations and individuals worldwide, two rounds of public consultation carried out in 2014 and 2016, two field tests (in Zimbabwe and in the United States), and two draft versions, on 28 June 2018 IRMA finally released its Standard for Responsible Mining, a global certification programme for industrialscale mine sites (IRMA 2018). Simultaneously with the Standard, IRMA launched an online Responsible Mining Map18 that will allow responsible producers and purchasers of minerals to demonstrate their commitment to a responsible minerals value chain as well as make contacts for developing business relationships (Markets Insider 2018). The IRMA Standard is not designed to be applicable to artisanal or small-scale mining and it represents the first attempt to ensure responsibility in a non-energy segment19 of the mining sector, the products of which are used later for industrial purposes. It is envisaged that the Standard will help to establish and promote responsibility along industrial value chains that are reliant on mined materials (e.g. minerals and metals). In this regard, IRMA facilitates—in particular with its Responsible Mining Map tool—the global progress in responsible mining based on common values of all involved stakeholders. In summary, the IRMA Standard20 has the following scope of application (see Fig. 28.3):

18 For additional information about the Responsible Mining Map, please visit: https:// responsiblemining.net/what-we-do/responsible-mining-map/; the Map itself is available at: https:// map.responsiblemining.net, last accessed 31 January 2019. 19 The IRMA Standard will not certify energy fuels, e.g. uranium, thermal coal, oil or gas. 20 Following the Version 1.0 release in June 2018, IRMA started the ‘Launch Phase’ that was scheduled to run for one year—until 30 June 2019. The Launch Phase was designed as a deliberate process of testing requirements and engaging stakeholders, through which IRMA aimed to identify gaps and oversights, clarify conflicting or confusing directions, refine requirements and the means of their verification. Taking into consideration the feedback received during the Launch Phase, a multi-sector committee of technical experts engaged by IRMA will create the next version of the Standard. Third-party, independent certification of mine sites against the IRMA Standard v.2.0 will not be available until late 2019. During the Launch Phase, IRMA made available for participating mine sites a number of specific offerings, including: ‘Mine Measure’, an online self-assessment tool allowing to analyse how the practices of a mine site compare with the standard; auditor-verified

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Fig. 28.3 Scope of the IRMA Standard (based on IRMA 2018)

• is applicable for all types of industrial or large-scale mining, including surface, sub-surface and solution mining; • is applicable for all mined materials with the exception of energy fuels; • is intended for certification of individual sites such as mines and quarries, and not for certification of mining companies and corporations as a whole; • in not intended for application to artisanal or small-scale mining, but IRMA is committed to collaboration with other standards and certification systems promoting responsible mining; • does not apply to additional processing of mined materials such as refining and smelting that takes place off the mine site, nor to the disposal or recycling of products made from mined materials. To be certified against the IRMA Standard, a mine site has to comply with a specific set of requirements summarised below, which can be achieved, in particular, through consultations and engagement with communities and stakeholders (IRMA 2018, pp. 8–10): • Business Integrity. Companies undertaking mining operations shall ensure that their business is conducted in a transparent manner in compliance with applicable host country and international laws, with respect to human rights and by building trust and credibility with workers, communities and stakeholders.

scoring of mine site performance; public recognition and supply chain connections through online Responsible Mining Map (IRMA 2018).

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• Planning for Positive Legacies. Mining companies shall ensure throughout the complete mine life cycle that mining operations would result in positive economic, social and environmental legacies for companies, workers and communities. • Social Responsibility. Mining companies shall maintain or enhance the health, safety, cultural values, quality of life and livelihoods of workers and communities. • Environmental Responsibility. Mining companies shall ensure that mining operations are planned and carried out in a manner that maintains or enhances environmental values, and avoids or minimises impacts to the environment and communities. For a number of countries with economies in transition, including Ukraine, the IRMA Standard may be of particular interest. The country is among the global leading producers of a number of minerals. According to the U.S. Geological Survey Minerals Yearbook 2014 (Safirova 2017), Ukraine is one of the world’s top four producers of gallium; the third-ranked producer of rutile (mineral consisting of titanium dioxide; 13.4% of world output, exclusive of U.S. production); the seventh-ranked producer of manganese ore (2.4% of world output); and the ninthranked producer of ilmenite (titanium-iron oxide mineral; 4.5% of world output). As of January 2015, the country had 6.5 billion tonnes of crude iron ore reserves; ranking seventh globally with a 3.4% share of the global total and 80 iron ore deposits, largely in the form of magnetite ores (Timetric 2015). In the context of the social tensions and generally unfavourable environmental situation (Palekhov 2014), implementation of the IRMA Standard could help Ukrainian extractive companies to improve their image and foster positive attitudes towards them in domestic and international markets. It can be anticipated that reforms currently ongoing in Ukraine will create a favourable enabling environment for the implementation. At the same time, there is a broad variety of challenges, which will become even more acute when it comes to certification of the mine sites. In particular, such barriers include: gaps in the legislation relating to the regulation of conflicts of interest between mining operations and protection of the environment as well as natural and cultural heritage; no clear regulation of liabilities for the disposal of mining tailings; no adequate requirements for restoration and rehabilitation of post-mining landscapes, etc.

28.5

Conclusions and Recommendations

The review of current concepts relating to responsibility in the mining sector revealed that the key ideas in this field are based mainly on the notions of ‘green mining’, ‘responsible mining’ and ‘sustainable mining’, which, however, are different in their specific development objectives, level of responsibility, and expected outcomes in terms of supporting sustainability principles. The concept of ‘green

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mining’ promotes material, water, and energy efficiency to reduce the environmental footprint of mineral-based product life cycles (Nurmi 2017). Its principles should be understood as an inviolable foundation of responsibility policy in any mining operations. It is also particularly important that the policy to reduce the environmental impacts of mining should not be limited to individual preventive measures, but it rather should be aimed at the balancing of economic and environmental efficiency along the whole value chain of mining operations. At the same time, mining operations can be characterised by a very high influence on quality of life, economic and social welfare in the territory where these operations are conducted. In this regard, the term ‘responsible mining’ is increasingly applied by a number of recent initiatives. This category should be understood as a shared strategic responsibility of mining companies towards communities, workers, government, civil society organisations and other stakeholders with regards to environmental, economic and social issues for achieving a broad consensus and compromise. A careful examination of the variety of definitions of ‘responsible mining’ and related criteria as presented in Table 28.1 allowed to suggest an integrated approach of the ‘Wheel of Mining Responsibility’ in the context of sustainable development. All criteria included in the Wheel were divided into six closely related and are mutually reinforcing areas of responsibility, including: environmental protection, technologies, economy and finance, market and trade relations, regulation and management, and social sphere (see Fig. 28.1). All indicated areas of responsibility may be also attributed to the sphere of interests of various stakeholder groups. The proposed set of basic responsibility criteria allows to assess the level of responsibility and the degree of satisfaction of stakeholders concerning each area of responsibility. The more rigorously a mining company integrates criteria included in the Wheel into its core business, the better the related value chains contribute to the achievement of SDGs. Nevertheless, achieving sustainability in mining should be perceived as a remote prospect, and the term ‘sustainable mining’ refers more to the realm of policy dialogue on mining sector transformation. Among various initiatives on responsibility in the mining sector, the Extractive Industries Transparency Initiative (EITI) can be considered as the most influential in promoting the open and accountable management of oil, gas and mineral resources, since implementation of the EITI Standard takes place at the level of national states, and not at the level of companies or mine sites. This high level of implementation leads to the establishment of an appropriate enabling environment, where governments back initiatives to support transparency reporting by companies. The EITI Standard requires not only the disclosure of payments made by mining companies, but also the disclosure of information on the received budget revenues by governments with an independent verification of disclosed data. Ukrainian experience has shown that the process of implementing the EITI Standard requirements makes the reforms more systematic, reveals weak points and facilitates necessary reorganisations. Furthermore, it is vitally important that the implementation of the EITI process would be aligned with other transparency initiatives, such OECD/G20

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‘Base Erosion and Profit Shifting’ (BEPS). Such alignment and cohesive integration of efforts will lead to synergies between them. It can be anticipated that reformation of the mining sector to bring more transparency and accountability in mining will also create favourable conditions of the implementation of the Initiative for Responsible Mining Assurance (IRMA) Standard for Responsible Mining. This Standard will allow to ensure environmental and social responsibility of mining companies towards workers, communities and other stakeholders at the level of individual mine sites. Its scope includes all types of industrial or large-scale mining and it is applicable for all mined materials with the exception of energy fuels. The IRMA Standard seems to be of particular interest for countries with economies in transition, such as Ukraine. However, these countries are facing a number of challenges that could complicate the implementation of the IRMA Standard by mining companies. For example, its implementation in Ukraine will raise a wide range of legislative issues, which have been neglected for decades, including the rights to use natural resources and concession or acquisition of land for mining operations.

References ARM – Alliance for Responsible Mining Foundation (2014) Fairmined Standard for Gold from Artisanal and Small-Scale Mining, including Associated Precious Metals (Version 2.0/ARM – 05 April 2014). http://www.responsiblemines.org/en/our-work/standards-and-certification/ fairmined-standard/. Accessed 31 Jan 2019 ARM – Association for Responsible Mining (2005) Press release, June 2005. http://www.ddiglobal. org/login/resources/armeng.pdf. Accessed 31 Jan 2019 Arthur CL, Wu J, Yago M (2017) Performance indictors disclosure in sustainability reports – lessons from Ghanaian Large Mining Companies. Paper presented at the European Accounting Association Annual Conference, 10 May 2017–12 May 2017, Valencia, Spain. http://eprints. leedsbeckett.ac.uk/4160/. Accessed 31 Jan 2019 Asia Foundation (2008) Multi-stakeholder forum on responsible mining: a framework for cooperative decision-making. The Asia Foundation, Ulaanbaatar. https://asiafoundation.org/resources/ pdfs/MGmultistakeholderVI.pdf. Accessed 31 Jan 2019 Bian Z, Inyang HI, Daniels JL, Otto F, Struthers S (2010) Environmental issues from coal mining and their solutions. Mining Sci Technol (China) 20(2):215–223 Bice S (2016) Responsible mining: key principles for industry integrity. Routledge studies of the extractive industries and sustainable development. Routledge, London Bogusch I, Belodedov A, Burtsev A (2016) The problem of responsible development of ore deposits (on an example of the Karachay-Cherkess Republic) [in Russian]. In: Schmidt M, Hansmann B, Palekhov D, Pivnyak G, Shemshuchenko Y, Pavlenko A, Shapar A, Shvetz V, Palekhova L (eds) Management for sustainable development in transitional economies, 2nd edn. Akcent PP, Dnepropetrovsk – Cottbus, pp 254–267 Carvalho FP (2017) Mining industry and sustainable development: time for change. Food Energy Secur 6(2):61–77 Darko-Mensah AB, Okereke C (2013) Can environmental performance rating programmes succeed in Africa? An evaluation of Ghana’s AKOBEN project. Manage Environ Qual: Int J 24 (5):599–618

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Darling MR (2017) I can resist everything except temptation: an international solution to African Resource Corruption. Texas Int Law J 52(3):421–447 Dashwood HS (2012) The rise of global corporate social responsibility: mining and the spread of global norms. Cambridge University Press, Cambridge EBRD – European Bank for Reconstruction and Development (2012) Mining Operations Policy. http://www.ebrd.com/downloads/policies/sector/mining-operations-policy.pdf. Accessed 31 Jan 2019 EITI – The Extractive Industries Transparency Initiative (2016) Progress Report 2016: from reports to results. EITI International Secretariat, Oslo. http://progrep.eiti.org/. Accessed 31 Jan 2019 EITI – The Extractive Industries Transparency Initiative (2017a) Progress Report 2017: ending company anonymity – the key to fighting corruption. EITI International Secretariat, Oslo. https://eiti.org/document/eiti-progress-report-2017. Accessed 31 Jan 2019 EITI – The Extractive Industries Transparency Initiative (2017b) The EITI Standard 2016, revised version, 24 May 2017. EITI International Secretariat, Oslo. https://eiti.org/sites/default/files/ documents/the_eiti_standard_2016_-_english.pdf. Accessed 31 Jan 2019 EITI – The Extractive Industries Transparency Initiative (2018a) Progress Report 2018: a platform for progress. EITI International Secretariat, Oslo. https://eiti.org/document/eiti-progress-report2018. Accessed 31 Jan 2019 EITI – The Extractive Industries Transparency Initiative (2018b) The Board agreed that Ukraine has made meaningful progress in implementing the 2016 Standard, 29 June 2018. Decision reference 2018-37/BM-40/BP-40-6-G. EITI International Secretariat, Oslo. https://eiti.org/sites/ default/files/documents/eiti_-_ukraine_validation-2.pdf. Accessed 31 Jan 2019 EY – Ernst & Young Audit Services LLC (2015) Extractive Industries Transparency Initiative: The 1st National Report of Ukraine 2013. Ukraine EITI, Kyiv. https://eiti.org/sites/default/files/ documents/2013_ukraine_eiti_report.pdf. Accessed 31 Jan 2019 EY – Ernst & Young Audit Services LLC (2017) Extractive Industries Transparency Initiative: National Report of Ukraine 2014–2015. Ukraine EITI, Kyiv. https://eiti.org/sites/default/files/ documents/uaeiti_2014-2015_report_eng_final_0.pdf. Accessed 31 Jan 2019 EY – Ernst & Young Audit Services LLC (2018) Extractive Industries Transparency Initiative: National Report of Ukraine 2016. Ukraine EITI, Kyiv. https://eiti.org/sites/default/files/docu ments/english_2016_ua_eiti_report.pdf. Accessed 31 Jan 2019 Garrun D (2014) Eco friendly mining trends for 2014. Mining Technology. https://www.miningtechnology.com/features/featureenvironment-friendly-mining-trends-for-2014-4168903/. Accessed 31 Jan 2019 Ghana EPA – Environmental Protection Agency of Ghana (2018) AKOBEN Programme. http:// www.epa.gov.gh/epa/projects/akoben/. Accessed 31 Jan 2019 Goldman P, Veylan S, Sirois JR (2017) Anti-corruption regulation in Canada: why it matters for your business. MLT Aikins LLP. https://www.mltaikins.com/compliance-risk-managementregulatory-investigations/anti-corruption-regulation-canada-matters-business/. Accessed 31 Jan 2019 Goodland R (2012) Responsible mining: the key to profitable resource development. Sustainability 4(9):2099–2126 GRI – Global Reporting Initiative (2013) G4 Sector Disclosures. Mining and Metals. https://www. globalreporting.org/Documents/ResourceArchives/GRI-G4-Mining-and-Metals-Sector-Disclo sures.pdf. Accessed 31 Jan 2019 Grutzner J, Salim E (2003) Striking a better balance: volume 1. The World Bank Group and Extractive Industries. The Final Report of the Extractive Industries Review. World Bank, Washington, D.C. https://openknowledge.worldbank.org/handle/10986/17705. Accessed 31 Jan 2019 IGF – Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (2013) IGF Mining Policy Framework: Mining and Sustainable Development. https://www.igfmining. org/wp-content/uploads/2018/08/MPF-EN.pdf. Accessed 31 Jan 2019

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ILO – International Labour Organization (2018) Mining: a hazardous work. http://www.ilo.org/ safework/areasofwork/hazardous-work/WCMS_124598/lang%2D%2Den/index.htm. Accessed 31 Jan 2019 IRMA – Initiative for Responsible Mining Assurance (2018) IRMA Standard for Responsible Mining, IRMA-STD-001, June 2018. https://responsiblemining.net/wp-content/uploads/2018/ 07/IRMA_STANDARD_v.1.0_FINAL_2018.pdf. Accessed 31 Jan 2019 Jain RK, Cui Z, Domen JK (2016) Environmental impact of mining and mineral processing: management, monitoring, and auditing strategies. Butterworth-Heinemann, Oxford Jamasmie C (2015) Workers end two-week long strike at BHP’s nickel mine in Colombia. MINING.com, May 4, 2015. http://www.mining.com/workers-end-two-week-long-strike-atbhps-nickel-mine-in-colombia/. Accessed 31 Jan 2019 Konev V (2013) Shine of ilmenite and poverty of Zhytomyr [in Russian]. Zerkalo Nedeli. Ukraina [Mirror Weekly. Ukraine], 12 April 2013. https://zn.ua/energy_market/blesk-ilmenita-inischeta-zhitomirschiny-_.html. Accessed 31 Jan 2019 Kråkenes AT (2015) Mainstreaming transparency in Sierra Leone. EITI Blog. https://eiti.org/blog/ mainstreaming-transparency-in-sierra-leone. Accessed 31 Jan 2019 Lemaitre C (2014) Measuring sustainability in the construction and real estate sector: a case study of the DGNB certification system. In: Schmitz-Hoffmann C, Schmidt M, Hansmann B, Palekhov D (eds) Voluntary standard systems: a contribution to sustainable development. Natural Resource Management in Transition, vol 1. Springer, Berlin, pp 345–356 Maier RM, Díaz-Barriga F, Field JA, Hopkins J, Klein B, Poulton MM (2014) Socially responsible mining: the relationship between mining and poverty, human health and the environment. Rev Environ Health 29(1–2):83–89 Markets Insider (2018) New standard for responsible mining released: press release. Business Insider. https://markets.businessinsider.com/news/stocks/new-standard-for-responsible-min ing-released-1027326993. Accessed 31 Jan 2019 McNeilly RJ (2000) The Global Mining Initiative: Changing Expectations – Meeting Human Needs and Aspirations’, address to the Minerals Industry Seminar, Minerals Council of Australia, 7 June 2000 McPhail K (2017) Enhancing sustainable development from oil, gas, and mining: from an ‘all of government’ approach to Partnerships for Development. WIDER Working Paper 2017/120. United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki. https://www.wider.unu.edu/sites/default/files/Publications/Work ing-paper/PDF/wp2017-120.pdf. Accessed 31 Jan 2019 Minalliance (2012) 100 Innovations in the Mining Industry. Minalliance, Montreal. https://www. oma.on.ca/en/ontariomining/resources/Minalliance_100_innovations_en.pdf. Accessed 31 Jan 2019 NRCan – Natural Resources Canada (2016) Green Mining Innovation. https://www.nrcan.gc.ca/ mining-materials/green-mining/8178. Accessed 31 Jan 2019 NRCan – Natural Resources Canada (2018) Extractive Sector Transparency Measures Act (ESTMA). https://www.nrcan.gc.ca/mining-materials/estma/18180. Accessed 31 Jan 2019 Nurmi PA (2017) Green mining – a holistic concept for sustainable and acceptable mineral production. Ann Geophys 60, Fast Track 7. https://doi.org/10.4401/ag-7420 OECD – Organisation for Economic Co-operation and Development (2016) BEPS Project Explanatory Statement: 2015 Final Reports, OECD/G20 Base Erosion and Profit Shifting Project. OECD Publishing, Paris. https://doi.org/10.1787/9789264263437-en OECD – Organisation for Economic Co-operation and Development (2018) OECD/G20 Inclusive Framework on BEPS: Progress report July 2017–June 2018. http://www.oecd.org/tax/beps/ inclusive-framework-on-beps-progress-report-june-2017-july-2018.htm. Accessed 31 Jan 2019 Palekhov D (2014) Potential for Strategic Environmental Assessment (SEA) as a Regional Planning Instrument in Ukraine. Umweltrecht in Forschung und Praxis 66. Verlag Dr. Kovač, Hamburg Palekhova L (2016) Achieving the competitiveness through public accountability on sustainable development. Sci Bull Natl Mining Univ 2(152):162–167

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Pivnyak G, Shvets V, Palekhova L (2016) Responsible mining: initiatives and problems of implementation [in Russian]. In: Schmidt M, Hansmann B, Palekhov D, Pivnyak G, Shemshuchenko Y, Pavlenko A, Shapar A, Shvetz V, Palekhova L (eds) Management for sustainable development in transitional economies, 2nd edn. Akcent PP, Dnepropetrovsk – Cottbus, pp 25–40 Pogrebna A, Sydorenko A (2018) Ukraine progresses with BEPS implementation. Financier Worldwide Magazine. https://www.financierworldwide.com/ukraine-progresses-with-bepsimplementation/. Accessed 31 Jan 2019 PwC – PricewaterhouseCoopers International Limited (2013) Mine: a confidence crisis. PwC Review of global trends in the mining industry—2013. https://www.pwc.com/gx/en/mining/ publications/assets/pwc-mine-a-confidence-crisis.pdf. Accessed 31 Jan 2019 Safirova E (2017) The mineral industry of Ukraine. In: U.S. Geological Survey (ed) Area Reports— International—Europe and Central Eurasia: U.S. Geological Survey Minerals Yearbook 2014, vol III, pp 48.1–48.11. https://doi.org/10.3133/70178412 Sairinen R, Rinne P, Halonen M, Simonett O, Stuhlberger C (2012) Responsible mining: a toolkit for the prevention and mediation of conflicts in the development of the mining sector. University of Eastern Finland, Gaia Group Oy, Zoï Environment Network. http://epublications.uef.fi/pub/ urn_isbn_978-952-61-0926-8/urn_isbn_978-952-61-0926-8.pdf. Accessed 31 Jan 2019 Spitz K, Trudinger J (2009) Mining and the environment: from ore to metal. CRC Press, Leiden Stanger D (2015) Galamsey: Environmental Impact of Illegal Gold Mining in Ghana. Georgetown Environmental Law Review Online, February 13, 2015. https://gelr.org/2015/02/13/galamseyenvironmental-impact-of-illegal-gold-mining-in-ghana/. Accessed 31 Jan 2019 Taylor K (2018) Illegal gold mining boom threatens cocoa farmers (and your chocolate). National Geographic Online, March 6, 2018. https://news.nationalgeographic.com/2018/03/ghana-goldmining-cocoa-environment/. Accessed 31 Jan 2019 Timetric (2015) Iron Ore Mining in Ukraine to 2020. Acute Market Reports. http://www. acutemarketreports.com/report/iron-ore-mining-in-ukraine-to-2020/. Accessed 31 Jan 2019 Tost M, Moser P, Leoben M (2017) Minerals Policy Guidance for Europe: Policy and Legislation Framework for Innovative Exploration and Extraction. https://www.min-guide.eu/sites/default/ files/project_result/D3_1_Innovative_Exploration_and_Extraction.pdf. Accessed 31 Jan 2019 UN – United Nations (2010a) 18th session of the Commission on Sustainable Development: Discussion papers submitted by major groups – Contributions by workers and trade unions. U.N. Doc. E/CN.17/2010/11/Add.6. United Nations Economic and Social Council, Commission on Sustainable Development UN – United Nations (2010b) Review of implementation of Agenda 21 and the Johannesburg Plan of Implementation: Mining. U.N. Doc. E/CN.17/2010/7. United Nations Economic and Social Council, Commission on Sustainable Development UNCTAD – United Nations Conference on Trade and Development (2016) Recent developments and new challenges in commodity markets, and policy options for commodity-based inclusive growth and sustainable development. U.N. Doc. TD/B/C.I/MEM.2/33 WGC – World Gold Council (2013) Responsible gold mining and value distribution: a global assessment of the economic value created and distributed by members of the World Gold Council. https://eiti.org/sites/default/files/documents/Responsible-Gold-Mining-Value-Distribu tion.pdf. Accessed 31 Jan 2019 World Economic Forum (2016a) Mapping mining to the sustainable development goals: an atlas. World Economic Forum, Cologny/Geneva, Switzerland. http://www.undp.org/content/dam/ undp/library/Sustainable%20Development/Extractives/Mapping_Mining_SDGs_An_Atlas. pdf. Accessed 31 Jan 2019 World Economic Forum (2016b) Voluntary responsible mining initiatives: a review. http://www3. weforum.org/docs/Voluntary_Responsible_Mining_Initiatives_2016.pdf. Accessed 31 Jan 2019

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Dmitry Palekhov is research associate at the Department of Environmental Planning, Brandenburg University of Technology Cottbus-Senftenberg (BTU), Germany. Dmitry obtained a Ph.D. in Environmental Sciences from BTU (2014), Ph.D. in Environmental Law from the V.M. Koretsky Institute of State and Law of the National Academy of Sciences of Ukraine (2009) and holds a LL.M. degree from the National Mining University, Dnepropetrovsk, Ukraine (2003). His research interests include environmental assessment (EIA and SEA), environmental law, environmental planning and sustainable development. Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg, P.O. Box 101344, 03013 Cottbus, Germany; Tel: +49 355 69 3054; Fax: + 49 355 69 2765; Email: [email protected], [email protected]. Ludmila Palekhova is associate professor and Deputy Head of the Institute of Economics for the Sustainable Development Education Programmes at the National Technical University “Dnipro Polytechnic” (former National Mining University), Dnipro, Ukraine. At the same time, for the last 20 years she has been a director of the Consulting Centre which prepares and supports the implementation of development programmes for Ukrainian industrial enterprises under conditions of the post-Soviet transition economy. Her research scope includes the issues of higher education for sustainable development, as well as the strategic management based on the principles of sustainable development. Department of Marketing, Institute of Economics, National Technical University “Dnipro Polytechnic”, av. Dmytra Yavornytskoho 19, 49005 Dnipro, Ukraine; Email: palehovall@gmail. com.

Chapter 29

Responsible Gold Mining at the Artisanal and Small-Scale Level: A Case Study of Ghana Kenneth Bedu-Addo, Dmitry Palekhov, David J. Smyth, and Michael Schmidt

29.1

Introduction

This chapter aims to discuss the social, health and environmental impacts of artisanal and small-scale gold mining (ASGM) in Ghana in the context of sustainability vis-à-vis voluntary sustainability standards (VSS). Mining has played a crucial role in the development of human civilisation; in part by providing precious metals such as gold and silver, which are coveted by many cultures. Such was the value placed upon them that they were used as a universal currency for almost three millennia, stimulating global trade growth (Hruschka and Echavarría 2011). Though many admire gold as a refined product, less attention is given to the threats posed by the preceding steps related to gold mining. These threats begin with the exploration of viable deposits and extending through to extraction and processing of ores, with its associated dire consequences for the natural environment, built environment and human health. Gold, as a finite and non-renewable natural resource, if mined irresponsibly, can lead to the destruction of arable lands and forest cover, as well as to an increase in the release of emissions, effluents and solid waste into the environment. The negative impacts attributed to gold mining industries, such as the permanent loss of natural resources, displacement of populations, crime and diversion of individuals and communities from traditional practices to boom-bust employment and mining dependence, have resulted in public uneasiness necessitating a paradigm shift towards sustainability frameworks. ASGM practiced in some 80 countries with primarily less developed market economies has seen a boom due to population growth and poverty (Aryee et al.

K. Bedu-Addo (*) · D. Palekhov · D. J. Smyth · M. Schmidt Department of Environmental Planning, Brandenburg University of Technology CottbusSenftenberg (BTU), Cottbus, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 M. Schmidt et al. (eds.), Sustainable Global Value Chains, Natural Resource Management in Transition 2, https://doi.org/10.1007/978-3-319-14877-9_29

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2003; Hilson and Banchirigah 2009; Hilson and Garforth 2013; Collins and Lawson 2014). ASGM is characterised by low levels of production, poor occupational health and safety conditions, bad environmental practices, a high degree of labour intensity, little capital investment and a lack of long-term planning (Hinton et al. 2003; LahiriDutt 2004; Hinton 2006; Miserendino et al. 2013; Collins and Lawson 2014). ASGM miners extract gold from ground ore or fine river sediments by employing mercury amalgamation and cyanide leaching, which are inexpensive methods that lead to the direct discharge of waste streams into rivers with varying environmental impacts (Tarras-Wahlberg et al. 2000; Hilson 2002; Betancourt et al. 2005; Luís et al. 2011). ASGM, predominantly in developing nations with no mercury recovery methods, is culpable of the most significant impacts on water bodies, air and soil (Bose-O’Reilly et al. 2008; Marrugo-Negrete et al. 2008; Armah et al. 2010; SantosFrancés et al. 2011; Tomiyasu et al. 2013). Mercury pollution has been a topical subject for scientists globally in the last decade due to its high degree of toxicity to living organisms and persistence in the natural environment (Limbong et al. 2005; Pataranawat et al. 2007; Tian et al. 2009; Oppong et al. 2010). Since the international community identified mercury as a pollutant attributable to ASGM in the early 1990s, a number of international initiatives including the Minamata Convention on Mercury (UNEP 2017) and the Global Mercury Project1 have targeted the use of mercury in ASGM. Additionally, the Fairtrade Gold Standard and Fairmined Standard are examples of VSS applicable to ASGM that encourage miners—in particular through capacitybuilding measures and premiums on the price of gold they produce—to employ socially and environmentally responsible practices. In this context, this chapter supplements and continues the studies on VSS and the transformation of the gold mining sector through responsible mining with a particular focus on ASGM in Ghana. Following this introduction, the chapter presents a historical perspective of Ghana’s gold mining industry in Sect. 29.2. This is followed by a brief overview of voluntary standards in the field of responsible gold mining in Sect. 29.3. The AKOBEN programme2—an environmental disclosure initiative for transforming the gold mining sector in Ghana towards responsible mining—is introduced in Sect. 29.4. This is followed by the impact analysis of the Fairtrade Gold Standard programme in Ghana in Sect. 29.5. The chapter ends with conclusions and recommendations in Sect. 29.6, emphasising the variation in income levels, environmental diligence and occupational health and safety between mines participating in the Fairtrade Gold Standard programme and control mines conducting business as usual.

1 For details on the UNIDO’s Mercury Programme and the Global Mercury Project, see UNIDO (2013) and https://www.unido.org/mercury/about-us, last accessed 31 January 2019. 2 AKOBEN is not an acronym, rather a reference to Ghanaian cultural symbolism.

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547

Historical Perspective and Current Challenges of Ghana’s Mining Industry

Labelled the ‘The Gold Coast’ by the European explorers on arrival in 1471, gold mining was already in existence prior to British colonial powers upscaling production as an estimated 14.4 million ounces of gold were extracted between 1471 and 1880 in Ghana. Ghana’s gold mining industry immediately prior to independence in 1957 featured at least with thirty gold mining firms whose operations were geared towards the maximisation of gold proceeds for the colonial administration. By the 1960s, Ghana was producing ca. 900,000 ounces of gold per year, which represented 2.5% of the global annual production. From the late 1960s, gold production started to decline to 280,000 ounces by 1983. This drop in gold production was attributed to a significant reduction of gold mining firms in Ghana from thirty in 1936 to only four by 1983, which was a consequence of investor insecurity in investments made under Ghanaian self-rule and global market conditions (Government of Ghana 2014). The declaration of permanent sovereignty over natural resources3 such as gold by developing countries between the 1960s and 1980s saw mineral deposit rich nations such as Ghana nationalise and expropriate existing mining concessions on the grounds of public utility, security or national interest, and so Ghana’s gold mining sector remained largely under state control between 1957 and 1983. In 1961, the Ghana State Gold Mining Corporation acquired the assets of the Bibiani, Dunkwa, Konogo, Prestea and Tarkwa mining firms from their British owners (Government of Ghana 2014). In 1972, through a decree, Ghana acquired a controlling 55% share in all existing non-state owned mining companies, including the erstwhile Ashanti Goldfields Corporation Ltd (now Anglo Gold Ashanti), in its bid to nationalise the mining industry. This resulted in the general lack of investment which, over time, led to worn-out and run-down infrastructure, obsolete facilities and equipment, increases in inefficient production methods, and environmental degradation (Government of Ghana 2014; Minerals Commission of Ghana 2015). The government reforms and structural adjustments launched in 1986 marked a clear shift to a neoliberal agenda. The reforms were supported by International Monetary Fund and World Bank loans which were granted on the condition that the extractive industry would be privatised. Of several policy initiatives adopted to revive the mining sector, the most significant was the promulgation of the Minerals and Mining Law in 1986,4 which established a Minerals Commission to regulate and liberalise the mining sector, and extended significant new benefits to private investors (Bebbington et al. 2018). Furthermore, with the aim of bringing ASGM into the

General Assembly resolution 1803 (XVII) of 14 December 1962, “Permanent sovereignty over natural resources”, U.N. GAOR, 17th sess., Supp. no. 17, p. 15, U.N. Doc. A/5217 (1962). 4 Minerals and Mining Law, 1986 (PNDC Law 153) provided the general legislative framework for mining in Ghana; it established the royalty and corporate tax rates in the mining industry. The 1994 and 2005 amendments focused on revising the corporate tax and royalty rates and limiting the duration for mining lease (Mensah et al. 2015). 3

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official economy and in an attempt to legalise and regulate the sector, in 1989 Ghana promulgated the Small-Scale Gold Mining Law,5 the Mercury Law6 and the Precious Minerals Marketing Corporation Law.7 These reforms resulted in significant investment in the gold mining sector, which substantially increased gold production in Ghana. Accompanying these strides in growth are emerging issues, which include the participation of foreign nationals in small-scale mining activities that presently remain the preserve of Ghanaian citizens. The activities of these illegal miners have resulted in the upscaling of the environmental and social cost of mining not limited to land degradation, ecosystem destruction and mercury pollution (Aryee et al. 2003; Essumang et al. 2007; Armah et al. 2010). Artisanal gold mining has also contributed significantly to both point source and non-point source pollution in rivers in numerous Ghanaian cities, towns and villages as a result of the release of particulate matter, sediments and heavy metals. In attempting to remedy the situation, Ghana has developed a Minerals and Mining Policy (Government of Ghana 2014) in line with international policies, namely the African Mining Vision and Action Plan, The Economic Community of West African States (ECOWAS) Mineral Development Policy and the ECOWAS Directive, which are aimed at mining in a responsible manner.

29.3

Voluntary Standards for Responsible Gold Mining

Although metal recycling and efficiency can delay depletion of natural resources, the fact that mining can only deplete resources but does not replenish ores buried in the earth’s crust (Goodland 2012) makes sustainable gold mining a contradiction in terms. It is on this basis that we discuss responsible gold mining in this chapter. ‘Responsible mining’ refers to mining done in a comprehensive and transparent manner by respecting the rights of all inhabitants (especially poor and vulnerable locals), minimising the impacts to the environment and human health, embracing international best practises and safeguarding the rule of law whilst generating a sustainable stream of benefits (Browne et al. 2011; Goodland 2012; Broad 2014; see also Sect. 28.2 in the previous chapter for a detailed discussion about the concept of ‘responsible mining’). Responsible gold mining, which is characterised by high 5

Small-Scale Gold Mining Law, 1989 (PNDC Law 218) regulated the registration and licensing of small-scale gold miners as well as the establishment of support centres (District Small-Scale Gold Mining Centres) by the Minerals Commission for the purpose of monitoring, supervising and advising small-scale gold mining operations. 6 Mercury Law, 1989 (PNDC Law 217) legalised the purchase of mercury from authorised sellers for purposes of gold production. 7 Precious Minerals Marketing Corporation Law, 1989 (PNDC Law 219) provided official marketing paths for small-scale gold and diamond miners and promoted trade in precious metals, diamonds, and jewellery in and outside Ghana (Mensah et al. 2015).

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social, environmental and safety standards, can have a transformative effect on the socio-economic development of countries with gold deposits (WGC 2013). In a bid to curb the anticipated negative impacts of gold mining, several voluntary initiatives have been launched by non-governmental organisations and civil society groups (Miranda et al. 2005). From the 1990s to date, sustainable development has played a crucial role in opening avenues for the expansion of the global mining industry (Dashwood 2014) with non-governmental organisations playing a key role in the advocacy for responsible gold mining. The two most influential international standards and certification systems for the gold sector are Fairmined and the Fairtrade Gold Standard, developed by the Alliance for Responsible Mining and Fairtrade respectively. Both organisations cooperated initially from 2010 to 2013, as reflected in their focus on similar sustainability issues relating to the production and marketing of gold from smallscale mines. Due to a subsequent end in their cooperation both initiatives have established separate standards and certification systems: • The ‘Fairmined Standard’ (Fairmined Standard for Gold from Artisanal and Small-Scale Mining, including Associated Precious Metals, Ver. 2.0, dated 05 April 2014; see ARM 2014); and • The ‘Fairtrade Gold Standard’ (Fairtrade Standard for Gold and Associated Precious Metals for Artisanal and Small-Scale Mining, Ver. 1.2, dated 08 November 2013; see Fairtrade International 2013). Both standards are process-based approaches, relying on ownership of the respective ASGM operator and the willingness to participate in a long-term series of incremental improvements over time to achieve sustainability goals. Due to the unstable regional conditions which can occur in developing countries where ASGM is commonly practiced, ASGM operations within particularly high-risk areas require site assessments by the responsible organisation on a case-by-case basis to identify specific onsite restrictions. For example, gold refineries as the organisation responsible must execute a detailed assessment and apply restrictions to sourcing gold from areas with: armed conflicts; where conflicts of interest exist between ASGM land use and agriculture, industrial mining and local indigenous communities; protected areas such as national parks and non-protected areas deemed to have valuable ecological systems (Stähr and Schütte 2016). The Fairmined Standard, as supported by the Alliance for Responsible Mining (ARM), includes essential criteria at the exploitation stage of ASGM relating to production yields, operator records and gold transaction tracking. Mining operations must comply with the national definition of artisanal small scale mining (ASM), or fulfil specific production standards, e.g. a maximum daily gold production limit of 4 g per miner which increases to 8 g for all ASGM operators that participate in the system (higher levels would redefine the operator as ‘medium-scale’ and subsequently exclude them from the Fairmined Standard). Individual miners in the operating company must be registered in a supply chain production system as evidence of due diligence for supply chain partners. All gold transactions are

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recorded by the ASM/ASGM operator in its internal controlling system to ensure traceability. In combination with the required documentation are the responsibilities placed upon the ASM operator/owner, including: their support for responsible mining procedures; continued local community development and ensuring that the Fairmined premium is included in the gold price. To address the individual sustainability needs of the Fairmined Standard within the individual context of the ASM operator, the ‘Fairmined Development Priorities Plan’ is a bespoke plan for each mine to use in planning their approach to sensitive issues within the confines of the mining site and the wider host community, e.g. the relative standing of women and children; both child and forced labour; the responsible use of mercury; biodiversity and the responsible use of local water resources. The Fairtrade Gold Standard describes individual standard criteria and indicators more figuratively than the Fairmined Standard, though they share the same requirements. In their assessment of the implementation of the OECD Guidelines for due diligence by means of standard criteria, Fairmined regards these as being implicit and Fairtrade Gold Standard differs by including a number of explicit criteria for clarity of due diligence processes (Stähr and Schütte 2016).

29.4

The AKOBEN Programme as an Initiative Towards Transforming the Artisanal and Small-Scale Gold Mining Sector in Ghana

The AKOBEN programme, an environmental performance rating and disclosure initiative instituted in 2010 to complement the environmental and social impact assessment (EIA) process in Ghana, serves as a monitoring and verification tool towards environmental compliance and sustainability. The AKOBEN programme uses a five-colour rating scheme to show the environmental performance of gold mining firms with reference to their daily processes after an environmental impact assessment has been undertaken and an environmental permit issued. The inputs for the evaluation of the AKOBEN programme ratings include quantitative data, qualitative data and visual information based on which gold mining firms are rated. The AKOBEN ratings enable the Ghana Environmental Protection Agency (EPA) to evaluate how well gold mining firms meet the commitments stated in their respective environmental impact assessments. The AKOBEN ratings thus complement the EIA process and serve as a monitoring and verification tool for environmental compliance and sustainability. The AKOBEN programme has as its key components the rating criteria, institutional framework, obtaining and authenticating data sets, analysis of both quantitative and qualitative data and finally the disclosure. The AKOBEN programme employs indicators reflective of the Ghanaian concept of environment with components such as natural resources, economic, socio-cultural and institutional settings. The

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four main stages in the AKOBEN programme are: data collection; evaluation; ratings report card and disclosure. The AKOBEN programme largely applies categories of data which are not limited to simply hazardous waste management and public complaints but include data on toxic and non-toxic pollutants for compliance monitoring, surveillance monitoring and control/reference point monitoring. The AKOBEN programme uses rating criteria which consists of seven parameters relating to legal issues, hazardous waste management, toxic and non-toxic releases, monitoring and reporting, environmental best practices, community complaints and corporate social responsibility in its methodology. The rating criteria ensure that the AKOBEN programme is a simple but rigorous evaluation tool and is intended to motivate mining firms to minimise environmental risks by reducing pollution and strengthening on-site monitoring systems, improve and maintain good environmental performance, and minimise risks to the environment and the communities around mining sites. The ratings and their associated criteria are listed as such: • RED rating is assigned if a mining firm: (a) is noncompliant with all requirements of the Environmental Assessment Regulations LI 16528; (b) is noncompliant with all criteria for safe on-site management of toxic and hazardous waste; and/or (c) discharges effluent with any of the toxicity parameters exceeding permissible discharge levels as stipulated by the EPA. To avoid a RED rating, a compliance rate of more than 98% is required for toxicity parameters during a twelve-month period. • ORANGE rating if: (a) the compliance rate of the mining firm is