The World in 2050: implications for sustainability
Last month, Price Waterhouse Coopers (PwC) published a new edition of its The World in 2050 report. Confirming the findings of previous studies, the report describes a shift in economic power from the global north to the south.
PwC projects that the US’ and EU’s share of world GDP will face a steady decline from around 33 percent in 2014 to about 25 percent by 2050. At the same time, emerging markets like China, India, Brazil, Russia, Indonesia, Mexico, and Turkey (the so-called E7 countries) are gaining in importance as both producers and consumers in the global economy. Much has been written and said about this power shift, but its implications for environmental governance are less well understood, including its impact on voluntary sustainability standards (VSS).
Over the last two decades, VSS have emerged as an important mechanism of global value chain governance. Prominent examples include the Forest Stewardship Council, the Marine Stewardship Council, and the Roundtable on Sustainable Palm Oil (RSPO). Today, the Eco-label index lists some 450 VSS operating in 25 industry sectors. Mobilizing market forces through certification, VSS aim to shift global value chains towards more sustainable practices. But ultimately, the governance model deployed by VSS rests on the market power of northern consumers and companies.
New oil palm development in forest bordering Gunung Leuser National Park. Photo by Rhett Butler.
In Europe and North America, environmental movements that have their origins in the 1960 and 1970s propelled sustainability issues to the forefront of political and public debates. Books like Rachel Carlson’s Silent Spring and Paul Ehrlich’s The Population Bomb created popular awareness for the environment and helped to mobilize support and activism. In combination with other factors, these developments have also given rise to political and economic pressures, creating an enabling environment for VSS.
VSS and emerging markets
The situation is different in the emerging markets of the global south, however. Here, environmental movements are still in their infancy and public (and corporate) awareness of sustainability issues are lower. However, demand from emerging markets for agricultural products and other raw materials is booming, in many cases driving environmental destruction. The E7 countries collectively now account for 17 percent of global agricultural imports. They also dominate trade in some of the world’s most environmentally-problematic crops such as palm oil—driving deforestation and biodiversity loss in producer countries.
The problem from an environmental governance perspective is that VSS have little uptake in in these markets. For example, the RSPO, the leading standard in the palm oil industry, claims to have certified 18 percent of global palm oil production. But a recent study by the Centre for Responsible Business finds that the initiative has almost no uptake among firms supplying the Indian market, now the largest importer of palm oil from deforestation-ridden Indonesia. In the study, the low importance of brands in India’s palm oil sector and companies’ low profits margins are identified as the main obstacles for sustainability certification.
Replanting an oil palm plantation on the edge of Gunung Leuser National Park. Photo by Rhett Butler.
So, is the VSS approach unfit for emerging markets? Not necessarily. The middle classes and markets for branded goods in China, India, and other developing countries are growing. This is an environment in which VSS could thrive and make a difference. Here, companies are more concerned about their reputations, consumer awareness for the environment tends to be higher, and market participants can better absorb the extra cost that comes with more eco-friendly production.
There are first signs of progress in this area. In India, the market for branded palm oil and the organized retail sector are still small but expanding. Over the last year or two, there has been some movement in this segment, says Aditya Mishra from WWF-India. A handful of firms have acquired RSPO certification and others have signalled their interest. Still, emerging markets will remain a difficult environment for VSS for some time to come.
PwC’s predicts that the income gap between developed and developing markets will remain significant until 2050. This means high price sensitivity of emerging market consumers and less demand for certified (and more expensive) products.
Large-scale soy fields, southern Amazon in Mato Grosso, Brazil. Photo by Rhett Butler.
What can be done?
Moving emerging markets towards sustainable consumption will be crucial. VSS can play a role in this, but they need to significantly increase their activities in developing countries and diversify their strategies. Currently, there is not enough local ownership in places like India and China. It is northern NGOs and their corporate partners that push the VSS agenda in these countries. This has to change.
Earlier this year, the ISEAL Alliance, a London-based VSS membership association, entered into a partnership with the Global Environmental Institute, a leading Chinese environmental organization. ISEAL has also launched a three-year project funded by the Swiss Secretariat for Economic Affairs (SECO) to scale-up the use of VSS in key developing countries.
These are steps in the right direction, but more needs to be done. Concerted efforts are needed to raise awareness, build capacity, and create local ownership in emerging markets—because without these markets VSS will fail in their mission to make global production more sustainable.
Freshly cleared forest for palm oil, Indonesia. Photo by Rhett Butler.