Sustainability & Global Politics A Primer for MBAs

1. Sustainability & Global Politics A Primer for MBAs Presentation at the HHL - Leipzig Graduate School of Management, 17 March 2004 Detlef Sprinz PIK - Potsdam Institute for Climate Impact Research &University of Potsdam http://www.sprinz.org

2. Overview • Relevance of Sustainability for Business • What is Sustainability & Global Politics? • Measuring Sustainability • Politics & Institutions for Sustainability • Research Agenda

3. Relevance of Sustainability for Business • Part of Good Corporate Citizenship • Becomes Part of Regular Reporting for Leading Companies • Vulnerability in Case of Gross Violation • Nike • Brent Spar • DJ Sustainability Index • Nuts & Bolts of Sustainability for an MBA

4. Sustainable Development • World Commission on Environment and Development/Brundtland Commission (1987) • “Sustainable Development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” • Needs, esp. of the poor, to be met • Intra- and intergenerational equity • Sustainable Development as the historic compromise between developing and developed countries at the 1992 Rio UN Conference on Environment and Development

5. Sustainability • Environmental Economics (Turner 1993) • Very weak sustainability • Km, Kh, Kn: completely substitutable • Kc: non-existent • Sustainability achieved if K ≥ 0 • Weak sustainability • Km, Kh, Kn: partially substitutable • Kc: exists and should be preserved unless opportunity costs are too high • Sustainability achieved if K ≥ 0 and Kc≥ 0 unless opportunity costs are too high

6. Sustainability • Strong sustainability • Km, Kh, Kn: partially substitutable • Kc: exists and should be preserved • Sustainability achieved if K ≥ 0 and Kc≥ 0 • Very strong sustainability • Km, Kh, Kn: perfectly complementary • Sustainability = stationary-state economy, moral/ethical capital ≥ 0

7. Sustainability – Broadly Defined • AGENDA 21 (UN): • Environmental • Economic • Social

8. AGENDA 21 Topics

9. Sustainability – Broadly Defined • Long-Term Societal Issues • Management of Public Debts • Management of Public Entitlements Across Generations • Prior commitments of the social welfare state • $ 44 trillion (quoted in Heller, IMF, 2003) • = ca. four times 2004 forecasted GDP for USA (Economist) • Health insurance • Publicly mandated retirement plans • Catastrophic health care • Stability of the Global Trading and Financial Systems

10. Global Politics • Authority Patterns That Transcend the Individual Nation-State • No need for governments: Bluetooth, Linux OS, etc. • Governments Often Involved: • Creation of the market for GSM communication • Public-private partnerships • Germany has a long tradition:welfare organizations since 19th century, TÜV, etc.

11. Global Politics • Lack of Central Authority at the Global Level • International treaties (mostly) cannot be enforced • Few powerful sanctioning systems • Exception: WTO (yet decentralized execution) • Even in a unipolar global system • Rule-creation and implementation is decentralized

12. Global Politics • Challenge of Global Politics • Create and maintain authority patterns where markets produce clearly sub-optimal outcomes • Observe subsidiarity in multi-level governance • Nation-states are often better legitimized • Resources are largely controlled by nation-states

13. Measuring Sustainability & Global Governance • Measuring Sustainability • UN Commission on Sustainable Development (CSD) • -> Institutions

14. Measuring Sustainability & Global Governance • World Economic Forum & CIESIN: Environmental Sustainability Index (2002)

15. Measuring Sustainability & Global Governance • World Economic Forum & CIESIN: Environmental Sustainability Index (2002)

16. Measuring Sustainability & Global Governance • Measuring Global Regime Effectiveness

17. Politics & Institutions for Sustainability • National: German Council for Sustainable Development • Founded in 2001 • Mission: • Consult government • Facilitate societal dialogue • First National Strategy (2002): “Perspectives for Germany” • Current emphasis of national strategy on • Climate & energy; mobility; environment, food & health • Future • Inter alias, increased incorporation of older generations • Impact • Too recent to judge

18. Politics & Institutions for Sustainability • Global: UN Commission for Sustainable Development (CSD) • World-wide forum created after 1992 UN Conference on Environment & Development • Meeting-intensive • Indicator development, but national reports have divergent scope • Impact: unclear

19. Politics & Institutions for Sustainability • Need for Long-Term Strategies, Resources, Implementation and Evaluation • World Environment Organization • Biermann, WBGU, and others • Enhanced UN governance system

21. Politics & Institutions for Sustainability • Challenge • Inadequate attention to where most long-term decisions are made and where legitimacy predominantly “resides” • Family, local, national, some supranational: EU • How to organize a decentralized system of governance that improves on the status quo?

22. Research Agenda • Assessing the Effect of Global Governance • Further develop the “Oslo-Potsdam solution” of effectiveness tool • Separating and aggregating effects across international treaty regimes • Assessing regime effectiveness over time • Investigate non-regime cases, and • Explain the variation in regime effectiveness-> assist in regime design.

23. Research Agenda • Feasibility of Long-Term Policy • Current institutions created for short-term governance • Constitutional provisions not specific enough (and are often ignored, e.g. public debt) • Examples for Research • Long-term climate policy (“prevent dangerous interference”) • Intergenerational obligations (social security system) • Sectoral policies (e.g., Airbus)

24. Conclusions • Sustainability Is a Business Issue • Potentially Wide-Ranging Concept • Assessment of Progress Towards Sustainability is Possible (Effectiveness) • The Challenge of Credible Long-Term Policy Remains

25. Additional Sources • Presentation • http://www.sprinz.org • Links and Additional Information:PolitikON(line) Course “International Environmental Policy” • Contact: • dsprinz@pik-potsdam.de or • dsprinz@rz.uni-potsdam.de