Unit 5, GRE401

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Sustainable Development and
Competitive Advantage

Unit 5:

Sustainable Development
Indicators

© Jeremy B Williams 2012

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Outline
1) An introduction to indicators
2) The Bellagio Principles
3) Macro measures of sustainability
4) Corporate measures
5) The credibility of sustainability
reporting
6) Summary and conclusions


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1) AN INTRODUCTION TO
INDICATORS
• Indicators help us to quantify and simplify
phenomena in order to better understand
the complexity of reality

• They give historical perspective of the
current state of affairs and clues as to the
likely direction of change in these affairs
into the future.

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Are all indicators useful?
• There are occasions where indicators are used
frequently but inappropriately

• The use of the rate of GDP growth as a measure of
the change in value of national output of goods
and services from year to year is perfectly valid

• It is less appropriate to use such an index to make
judgements about the level of societal welfare.


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GDP and its detractors…
‘If a truckload of toxic chemicals spills somewhere, the
money spent cleaning it up is added to the GDP. If nearby
residents can no longer use their wells for water, their
expenditures on bottled water is added to GDP. If they
become sick from exposure to the substance, their medical
costs are also added to the official measure of well-being’.

Mike Nickerson, The Sustainability
Project, Ontario, 1997
Source:http://www.foe.co.uk/campaigns/sustainable_development/progress/annex1.html


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‘Unfortunately GDP figures are generally
used without the caveat that they
represent an income that cannot be
sustained. Current calculations ignore the
degradation of the natural resource base
and view the sale of non-renewable Barber B Conable Jr,
resources entirely as income. A better way Former Republican
must be found to measure the prosperity Congressman and Former
President, World Bank,
and progress of mankind.’ 1989



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Simon
Kuznets, (creator of
GDP concept) 1962

„The welfare of a nation can scarcely be
inferred from a measurement of national
income as defined by the GDP... goals for
„more‟ growth should specify of what and
for what.‟



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Criticisms of GDP as an indicator of
economic well-being
Traditional criticisms: Contemporary criticisms:
• Measurement problems: • The counting of „defensive‟
The underground economy expenditures as positive
Domestic production contributions to GDP
Quality and composition of • Failure to account for changes
output in the value of „natural
• Leisure time capital‟.
• Income distribution


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So what makes a good
sustainability indicator?
• A key element in the design of a sustainability indicator is to have
an appreciation of the values, goals and aspirations of the target
audience

• This indicator will provide useful feedback on issues the
community knows about, but it will also provide information
about issues that are central to sustainable development, yet
poorly understood; e.g. ecosystem health and how this might
impact on human health

• Different communities will have much in common, but sometimes
this commonality might manifest itself in different ways.


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Balance between general and
specific criteria
• Indicators will be selected based on general selection
criteria (e.g. simplicity, validity, time-series data,
affordability of data, ability to aggregate information,
sensitivity and reliability), but also on the basis of
context-specific conditions

• Sustainability practitioners must avoid falling into the
same trap as the national income accountants – a
careful selection process is required to determine the
indicator that is most relevant to a given context (i.e.
region, economic sector, institution)


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Relevant indicators
• e.g. salination is important to farmers in central
Queensland, but less significant to fishing
communities in NSW.


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The evolution of sustainability
of indicators
• Early efforts at
sustainability
reporting followed the
Brundtland Report in
the shape of national
State of the
Environment (SoE)
reports using the
DPSIR model


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DPSIR
• Driving Forces
– the underlying human activities underpinning environmental
change
• Pressure
– exerted on the environment and natural resources; e.g. soil
degradation
• State
– current state of play, trends
• Impact
– the consequences of pressure on the environment
• Response
– government policies and management strategies


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2) THE BELLAGIO PRINCIPLES
• Developed in Bellagio, Italy,
in 1996 by an international
group of practitioners and
researchers, the Bellagio
Principles may be looked
upon as an overarching
guide, serving to link theory
and practice.


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Overview of the 10 Principles
• The principles focus on the assessment of progress toward
sustainability in 4 areas:
• Principle 1: a vision of sustainable development and clear
goals that provide a practical definition of that vision
• Principles 2 – 5: deal with the content of any assessment and
the need to merge a sense of the overall system with a
practical focus on current priority issues
• Principles 6 – 8: deal with key issues of the process of
assessment
• Principles 9 & 10: deal with the necessity of establishing a
continuing capacity for assessment.

Source: http://www.iisd.org/measure/principles/bp.asp


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3) MACRO MEASURES OF
SUSTAINABILITY
• Leading examples include:
– UN Human Development Index (HDI)
– Genuine Progress Indicator (GPI)
– Index of Sustainable Economic Welfare
(ISEW)
– Ecological Footprint


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• 1 Norway
The HDI •
•
2 Australia
3 Netherlands
• 4 USA
• 5 New Zealand
• 6 Canada
• 7 Ireland
• 8 Liechtenstein
• 9 Germany
• 10 Sweden
• 11 Switzerland
Source: http://hdr.undp.org/en/statistics/ • 12 Japan
• The 2011 Human Development • 18 Belgium
Index places Norway no. 1 • 20 France
• 26 Singapore
• Focuses e.g. on adult • 28 UK
literacy, life expectancy, level • 73 Brazil
of education • 101 China
• 134 India
• 187 Congo

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The GPI for Australia

Source: http://www.gpionline.net/index.htm


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The ISEW for the UK

Source: http://www.gpionline.net/othergpi.htm


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The GPI for the United States
Further reading:
Clifford Cobb, Ted
Halstead, and
Jonathan Rowe
(1995), „If the GDP is
Up, Why is America
Down?‟, Atlantic
Monthly
Source:
http://www.rprogress.org/newmedia/articles/9510_atlantic.pdf

Source:http://www.foe.co.uk/campaigns/sustainable_development/progress/international.html


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What the GPI counts that GDP
doesn’t …
• Personal consumption • Costs of noise pollution
• Income distribution • Costs of irrigation water use
• Public consumption expenditure • Costs of urban water pollution
• Value of household and community • Costs of air pollution
work • Costs of land degradation
• Costs of unemployment • Costs of loss of native forests
• Costs of underemployment • Costs of depletion of non-renewable
• Costs of overwork energy resources
• Private defensive expenditure on • Costs of climate change
health and education • Costs of ozone depletion
• Services of public capital • Costs of problem gambling
• Costs of commuting • Value of advertising
• Costs of transport accidents • Net capital growth
• Costs of industrial accidents • Net foreign lending
• Costs of crime
Source: http://www.gpionline.net/whatis.htm


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The ecological footprint
• How many planets would
we need if everyone lived
like you?

http://www.myfootprint.org


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4) CORPORATE MEASURES
• One of the leaders in the quest to develop internationally
accepted standards for triple bottom line reporting is the
Global Reporting Initiative (GRI)
http://www.globalreporting.org/
• 1st draft of reporting guidelines (G1) was piloted by 21
companies during 1999-2000
• 2nd version of the guidelines (G2) was released in 2002
• Version 3 (G3) came out in 2006
• Since this time, more than 1500 companies worldwide
have used the guidelines, making it the de facto global
standard for reporting


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5) THE CREDIBILITY OF
SUSTAINABILITY REPORTING
• FTSE4Good index has come under attack
because > 3/4 of the FTSE 100 are in it –
questions are being asked about the stringency
of standards

• Similar criticisms have been levelled at the
Dow Jones Sustainability Indexes (DJSI).


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‘Greenwash’
• „Greenwash‟ is defined as disinformation disseminated
by a business so as to present an environmentally
responsible public image
• BP, the world‟s second largest oil company and one of
the world‟s largest corporations, advertised its new
identity as a leader in moving the world „Beyond
Petroleum‟
• It made much its $45 million purchase of the largest
solar energy corporation, Solarex. But BP continues to
spend billions on oil exploration in Alaska alone.


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‘Greenwash’ (cont’d)
• Shell, the world‟s third largest oil company,
continues with its ad series „Profits or
Principles‟ which touts Shell‟s commitment to
renewable energy sources and features photos
of lush green forests, yet Shell spends < 1% of
its annual investments on renewables.


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6) SUMMARY AND
CONCLUSIONS
• Sustainability indicators are important because, in the words
of Peter Drucker, “what isn‟t measured, isn‟t managed”

• The SoE reporting that emerged after the Brundtland Report
provided a useful impetus for sustainability reporting

• Approaches have become more sophisticated as efforts like
the Bellagio Principles project and the GRI have served to
provide guidance to businesses and other organisations.


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Summary and conclusions
(cont’d)
• Much remains to be done, and it would be
fatuous to assume that sustainability reporting is
an „advanced science‟

• Greenwash is likely to prevail so long as the
ecological consciousness of the majority of
businesses remains underdeveloped of non-
existent.


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Case Study:
Growing Pains in China

Sustainable Development and Competitive
Advantage


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Think


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Calculating the ecological footprint

• Official statistics on
consumption are used to
calculate the amount of
biologically productive land
and water area required to
produce the resources
consumed and to absorb the
wastes generated using
prevailing technology
Image source: http://www.ew.govt.nz


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Worldwide, there
exists about 1.8
biologically
productive global
hectares per person

Image source: www.adbusters.org © Jeremy B Williams 2012

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China


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Environmental Cost of China's Growth (NYT, Aug 2007)

The Cost of
Economic
Growth in
China: A case
study

video.nytimes.com © Jeremy B Williams 2012

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Discuss


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Consider, for example …
• What if all Chinese people lived like
North Americans?
• What needs to be measured (to be
managed)?
• Can ecological degradation be
reversed? If so, how?
• If not, what are the possible
geopolitical consequences?


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Deliver


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• The Chinese
Environment
Minister is very
worried about the
ecological
consequences of
rapid economic
Pan Yue, Minister of China's State growth …
Environmental Protection
Administration

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• Fortunately for Mr Yue, a group of erudite, and
highly respected ecological economists are
confident they have the solutions
• A number of teams from are scheduled to give a
10-minute presentation to Mr Yue.


Unit 5, GRE401

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