Research and Reports


GSSD Reports

Global Accords for Sustainable Development:
Enabling Technologies and Links to Finance and Legal Institutions

Session 7: Investing in Sustainable Development

Chair: Christiana Figueres
Executive Director, Center for Sustainable Development in the Americas

It is a great pleasure to introduce this session and to address the challenges of investing in sustainable development. The first speaker presents the view from the private sector. He has had experience in the management of environmental legislation, having worked on both sides of the ledger -- in government and in the private sector.

David P. Hackett 
Partner, Baker & McKenzie, Chicago
New Trends in Multilateral Lending

The major challenge is to find appropriate ways for the ultimate political decision-makers to ensure that they have before them really the information that they need.

No Win-Win
Contrary to what some other people have suggested, I do not think sustainable development is a win-win proposition. As with Reaganomics, I think there are winners and losers. When you design incentives to encourage private financing, there are going to be groups of people, industries, companies, countries arguably. There are going to be advantaged and disadvantaged.

I think that that fact and that reality makes it difficult for many people to talk about what really the specific programs ought to be because of the fact that there really are likely to be substantial consequences.

Similar Paradigm
I think a very similar paradigm applies to the development, use and transfer of innovative technology. While there has been growth in innovative technology, I do not think it has been anywhere near what people would desire or expect. I think many of the same market disincentives that apply to financing sustainable development also extend to innovative technology.

Lagging Investment
I would like to just briefly elaborate on a couple of those points. I do not really think there is that much disagreement. Certainly people have talked about the, what seems to me, inarguable need for greater utilization of private financing. But I would like to talk a little bit about why there are not more pro-sustainable development investments.

The answer to that, it seems to me, is the one that has been a problem in the environmental area for the last 30 years, and that is finding ways to adequately account for environmental externalities.

Whether it is true or not, there certainly is a perception among companies and surely among lenders that (a) advancing sustainable development initiatives ultimately means spending money to achieve enhanced environmental performance, which ends up costing more to do something with no financial benefit, (b) it does not aid competitiveness, (c) it impairs, particularly from the lender's perspective, the ability to repay loans; and (d) as a simple matter the financial equation for such investments at present because of inefficiencies that we have in our system does not encourage such behavior.

Effective Action
Having said that, it seems to me that that is a problem that has been long recognized and addressed satisfactorily and successfully by a number of individual countries in some treaties and regional agreements. Just to name a few of the approaches in the environmental context which would seem like they would hold much promise for sustainable development:

1. Tax incentives and tax penalties; 

2. Eco-labeling or other soft approaches which are really designed to enhance the perception or image of a company which is perceived to have some competitive advantage;

3. Government procurement requirements. Surely if more countries required companies to satisfy ISO requirements, recycling obligations or a list of any other kinds of environmental objectives that one might come up with, it would have an enormous impact on the market;

4. Government identification of specific performance standards in approved technology;

5. Outright bans on materials, products, and conduct.

Tax Incentives
Of those, it seems to me that if one really wanted to increase in a very short period of time private financing for sustainable development, one would seriously look at asking a country such as the United States to adopt tax incentives, particularly domestic and foreign tax credits related to sustainable development initiatives.
In particular, I think if there were a tax credit for foreign investment, you would see an immediate increase in sustainable development-type undertakings by a number of companies.

Basic Requisites for Action
Having said that, if one steps back and thinks about "Well, OK, let us do that," what would the law say? What would the requirements be?

It seems to me it brings to light what remains a fundamental problem with sustainable development, and that is specifically, what type of behavior, technology, performance and results does one wish to encourage and reward or discourage and punish? Even here over the course of the past two days, it is apparent that there is not really much of a consensus on those issues.

Are the goals pollution reduction, diminished natural resource consumption, equity, justice, economic redistribution, redirection of consumption patterns? Each one of those objectives would lead to very different kinds of laws and requirements to try and generate more financing.

Even if one takes the narrowest approach, that is, I think, economic development with the diminishment of pollution and natural resource consumption, it is still apparent that there are substantial difficulties in crafting appropriate laws. At present, we do not have an adequate environmental accounting or any other kind of mechanism to meaningfully compare and prioritize choices. Not all (at least I think not all) environmental problems are of equal value, nor are the solutions. We do not have infinite resources, and we need to prioritize those problems which merit more attention.

Need for Priorities
We need some ability, which people seem to wish to avoid, of ranking air, water, waste, deforestation, climate change, chemicals, soil aridity, and so forth. At issue really is a choice about whether or not reducing one pound of a pollutant is more important in the air, in water, or in the soil. I would suggest that the answer is not the same for them.

How do you evaluate, economically quantify and compare the health risks of different pollutants in various media? We have been engaged in and continue to debate unendingly here in the United States that issue. I am not sure that there is all that much clarity. There may be within the scientific community but there surely is not among the policy making community.

How do you economically quantify environmental risks and compare their value and importance versus human health risks? How do you calculate the value of natural resource depletion? If one approach or manufacturing activity diminishes pollution but increases resource use, is that better or worse than another activity with more pollution but less resource consumption?

Enhanced Green Accounting
In one's analysis of comparative desirability of products and operations, what do you include in that kind of life cycle analysis? Pollution generation? Resource consumption? Disposal of final product? The waste and resource consumption of other products that go into that -- where do you draw the line?

For that reason I think we need to have enhanced really green accounting, a greater means to meaningfully evaluate, weigh, and compare disparate considerations of health risk, environmental protection, and natural resource depletion.

Profiles vs. Capacity
In effect, to pass meaningful laws to incentivize greater private financing, one needs to wrestle with such choices which unmistakably advantage some groups and disadvantage others.

To me the most important community in answering those questions has probably had the least involvement and the lowest profile in the debate, and that is the disciplines of the economists, the scientists, the technical people.

Having spent a lot of time in the last few years dealing with a number of doctors, toxicologists, and other scientists evaluating different environmental risks and issues, it seems to me that the capacity to understand a lot of those issues is much greater than is reflected in the public debate about those.

Define Information Needs So in closing, I would underscore (a) the need to rethink and find better ways to identify what information is needed, (b) what information exists, and to (c) insure that the people who really know that kind of information are part of the process to undertake priority definition.

On this basis, it seems to me unavoidable that a prioritization of various competing interests within the sustainable development umbrella be undertaken.

Christiana Figueres:

Thank you, David for that very provocative address.

I would now like to introduce Khalid Saeed. When Dr. Saeed is at home in Thailand, the presentation card that he uses is Professor of Infrastructure Planning and Management at the Asian Institute of Technology.

When he is here in the United States, the presentation card that he uses is having a Ph.D. from MIT. Dr. Saeed, I can hardly welcome you to your own territory, but I am pleased to give you the word.

Khalid Saeed
Professor of Infrastructure Planning and Management, Asian Institute of Technology, Bangkok, Thailand
Managing Emergent Development/Environment Contentions

I have been carefully following what has been said. Basically I wish to suggest that in addressing the issue of managing sustainability discussion, we need to move away from the adversarial negotiation process and come to a shared world view, and the important question is how this is done.

Adversarial Process
Let me try and illustrate in a very crude way how the adversarial process might work. The adversarial process would lead to some sort of a contract here which defines roles of various parties which are signing the contract.

This contract creates certain mental models of how those roles are played, and there are expected systems state that must emerge out of those mental models.

On the other hand, when the contract is actually implemented -- and I call it the negotiated contract -- there are some conscious decisions that have to be made, and they create a systems state which depends on the real system, not on the mental model; and we do monitor information from that system and the impacts of conscious decisions, so that this process occurs again and again.

In due course, a system state might and invariably does develop which is different from an expected system state. That outcome would create conflict and disputes, which make this process problematic.

Anticipatory Process
On the other hand, if the negotiation process is also assisted by an experimental analysis of what the real system might be -- and I am a system modeler so I would say from creating a model of the system -- then there is a possibility that these clauses which we arrive at are more realistic. As a result there is less discrepancy between the expected state here and the systems state, and thus fewer disputes.

Diverse Market
Now in this morning's session, I was a little bit surprised at how the global market is being viewed as a uniform market, and the expectation is that the market is working. For the past 15 or more than 15 years, I have been trying to model how the developing country market actually behaves.

There has been extensive testing of that market, and what I wish to do is I wish to go briefly over the system which exists in developing countries and compare it to the global system that is emerging -- and I see a lot of similarities in the two systems -- and demonstrate what kind of implications would exist for the type of trade relations that we are now advocating. This is free trade, free movement of production factors, and free movement of commodities.

True Global Structure
So to be able to make a statement about how the trade relations will work in a global economy, we should consider these points that there is a special structure of the global economy and it is not the market structure as given in the textbook; and we need to discern what that structure is.

The global economy is now becoming more open so the countries can transfer production factors and commodities, and also it is open to the transfer of resources and environmental costs.

There are certain types of production specializations occurring which are seen to be a positive thing in the market system because this would create greater efficiency.

We need to examine in the light of these specializations what kind of trade flows would occur.

Data "Bits" 
I would like to share with you some data very quickly. This is a little bit dated, but if you do not look at the numbers, if you look at the patterns, in fact the datedness is not an obstacle in discerning those patterns.

First of all, if you look at the production and look at, say, 15 years of data here, the developing country production went up as shown in the beige graphs here, and the developed country production as shown in the pink graphs.

Of course we should look at the absolute phase of growth; then these trends are opposite.

In fact I have seen many times people from the North and the South are going on the basis of one or the other. People from the South usually have one model in mind, and those from the North have another model in mind.

When we try to fix responsibility, we look at these different models.

Composition of Production
Now within this production, there are some other things which have occurred, and here is an illustration of the composition of that production.

As you can see, the advanced industrial countries have a composition in which the raw materials groups are a small part and the services and industry are a large part.

Within the industry, which is this red area, this is opposite in the developing countries, within the industry and these categories are taken from the Asian Development Bank. If you again look at the industrial production itself, you see that the advanced industrial countries are producing mostly high-value added goods. These values, by the way, are measured in dollars. This is not volume. This is not tons of cotton or rice. This is how much it costs. So in fact, it also has embedded in it an element of the evaluation process, how the market determines the value of those goods and services which have been produced.

Productivity per Worker
If you look at the productivity per worker again in dollar terms, the picture that we see again shows some differences that in the advanced industrial societies the productivity per worker is very high in dollar terms, not in terms of volumes, not in terms of how much work is done. So again, there is evaluation process involved here.

In the developing countries it is generally low. If you look at what kind of trade is occurring in this system, and this is all real data, we see that the trade volume first of all doubled, almost more than doubled in fact from 1980 to 1989, and these patterns can be projected further.

Composition of Trade
Not only that, but the composition of what is being traded has changed also.

In the developed country context, in fact the high value-added segment expanded most, and of course this is the environmentally unfriendly segment, which has expanded considerably. I do not have complete data for it, but this does include the trading of the waste materials, which is occurring now quite extensively.

On the other hand, the developing countries occupy these low value-added niches like production of clothes and commodities which have a large complement of resources and a small complement of value-added.

As far as the pricing of the commodities is concerned, I have a graph which is originally due to Michael Todaro, taken from his book. The terms of trade for the developing countries have demonstrated a real downhill trend there.

The trade volume between the two blocks is rising quite rapidly and the composition of productionists indeed changing toward specializations, which might appear to be a healthy trend. However, as far as the nature of these specializations is concerned, the advanced industrial production is more knowledge-intensive, high value-added, and the developing country production is more resource intensive, low value-added.

The composition of trade is similar to the composition of production in some ways. Traditionally the volume of environmentally unfriendly goods is also increasing.

Now what I wish to suggest is that if this continues to happen, there are some implications which are not very pleasant. Such implications occur because the global economy in some ways is similar to a dual economy, which has existed quite pervasively in the developing countries.

In this dual economy there are usually two sectors. One sector is a profit-maximizing, capitalist sector which engages in formal production. In the rural sector in the developing countries, this translates into agricultural economies, landlords who can engage in production themselves or rent out their land. In the urban context, this is the formal form, large-scale form, which acts as a profit maximizing form.

On the other hand, there is the very large peasant sector, and the characteristic of the peasant sector is that it internalizes labor cost and it does not maximize profit. It maximizes consumption, not profit.

Other characteristics of this system are that the wage rate, which is the compensation for the factor that is supplied by the present sector, depends on the least cost of accepting wage work and of course by the market, and return profits are determined by the market. Again, the market is a dual market; it is not a uniform market.

Financial Market
The financial market is also segmented by sectors. The formal sector has its own financial institutions and financial mechanisms, and the informal sector has its own; and there is very little crossover between them. As far as the saving rates are concerned, the saving propensity for the capitalistic sector is quite stable usually because while they make a large income and the consumption does not depend on the income, it is a very small part of that income. In the peasant sector, in fact, the saving propensity depends on many things. First of all, if there are not too many people in the peasant sector, they cannot save very much. There is that consumption pressure.

After all, the sector is trying to maximize its consumption. It also depends on the need to save; if there is to be engagement in self-employment rather than formal employment, there is a better need to save. That need to save also forces greater saving.

Technology of Production
As far as the technology of production is concerned, it can be either uniform, undifferentiated, or it can be differentiated. We have moved in the developing countries from an undifferentiated, production technology, say, 50 years ago, to a very differentiated, production technology which has really changed the way the sectors interact with one other.

Details Elsewhere
Now that is a model that I built and I do not want to go into the details of it. It looks something like this. It is quite extensively documented and details are available, extensively tested and reviewed, so there is some confidence that this model is not really that bad. The experimental analysis with this model creates patterns, and I would like to share with you two of these.

Experimental Analysis: Undifferentiated Technology
One is if we have undifferentiated technology, the ownership of the resources gets concentrated in the capitalist sector and all production is carried out in the peasant sector. In some ways, this was the condition in the agricultural sector of the developing countries about 50 years ago. If you have differentiated technology, then the ownership of resources is still concentrated in the capitalist sector. Production is carried out in both sectors and the extent of the production in the capitalist sector depends on how the profits and wages compare, which are determined by the market.

Global Economy
Now if we extend this model to the global economy, in fact the production side gives a very good fit when you look at the current trends in control and employment of production factors; the developing countries are wooing the developed countries to come and invest in their developing countries, and there are many types of ranked production agreements which are being formed that really translates into rather free movement of production sectors.

In fact, as far as the labor is concerned, also the labor is at the call of the capital, and if the industrialized countries need more labor, labor can migrate to industrialized countries. If they do not, the labor stays in the developing countries, and the objective of developing countries is still to maximize consumption -- I am talking firms in the developed countries to maximize profit.

So given these similarities, well, I should also point out the limitations.

In fact, the model as it is does not apply very much to the consumption side because it assumes that consumption is aggregate and free trade is implicit and the prices are undifferentiated.

In fact, in reality the prices are not undifferentiated. The developing countries are competing in small niches like cotton, rice, and garments in which they all produce and draw down the price, and then since their expenditure is linked in some ways to what they trade, they are compelled to produce even more, whereas a large part of the production in the industrialized countries is in specialized high value added niches, and there is relatively speaking a smaller element of competition in those niches.

So the model is a little bit more optimistic than reality.

In reality the commodity prices are also determined by the system in which the developing countries are the price-takers and the developed countries are the price-givers. Whereas the model does not say that, it says that the commodity prices are determined fairly. Also one assumption of the model is that resource bases are durable, which are not, and again the resource base of one country extends to another country, and there is a possibility of transferring costs also to the other countries.

So in this area also, the model is optimistic.

Critical Result
The implication is that in this model, in which I changed only the names of variables, the behavior would be similar to the behavior that appeared in the context when I applied the model to a developing country case. This means that if we continue to push the free trade paradigm, what would happen is that the ownership of resources and capital will get concentrated in the formal sector; and if technology is uniform, most of the production would be carried out by the informal sector, which is currently the developing countries.

If technology is differentiated then of course there will be production carried out in both the segments of the global economy, but the control of the resources will not change.

Reservation About Trade Relations
Now given this implication, I express some reservations about how we are going about the global market that determines the trade relations in this world that we live.

Although this is an exploratory piece, I wish to suggest that we need to look at how the real economy works on the ground, then how it should work, and move it from those conventional models of a perfect market to realistic models, and then talk about what should be the trade relations.

For example, in this context here, well here are some of the solutions that have been discussed and found very difficult, the global solutions.

If we are to clear some equity in the control of resources at the global level, in fact there is a need to produce the mechanism, which is a renting mechanism or some sort of renting arrangement, through which the ownership and employment of resources can lie with different parties.

Local Solutions
There are some solutions to achieving that objective that have been suggested. We have not looked at the possible local solutions which can be implemented by the developing countries to accomplish this same objective.

One is the taxation of foreign investment, which should in the long run limit the total burden on LDCs. Another is diversification of production to move away from competitive export niches and re-allocate production capacity to achieve greater self reliance.

A third is limiting of high value added imports and facilitation of indigenous technological to create innovation and economic development, and awarding, borrowing as much as possible. This is something which the developing countries can think about so that the entry point may not only be at the global level, but it might also be at the level of the individual developing countries. Of course, there is more work needed, as was pointed out by the Chair, and this is just an exploratory exercise.

Common Vision
So with this word, I would like to stop, and the message is: we need more informed analysis to create a common shared vision of what is on the ground before we arrive at any negotiations and conclusions in the context of the global economy that is emerging. Thank you. 

Christiana Figueres:

Thank you, Dr. Saeed, for that insight of the systems that underlie the topics that we have been discussing. For the rest of you, I just wanted to let you know that we will be having a quiz on the complex model that Dr. Saeed has. Only those who get all the variables right will have lunch.

Our next speaker is Norine Kennedy. Ms. Kennedy is the Director of Environmental Affairs of the United States Council for International Business, which devotes itself to promoting sound environmental policies that are both scientifically based and economically justified. Today Norine is going to share with us some steps that can be very concretely taken to involve the business community in the implementation of global accords.

Norine Kennedy
Director, Environmental Affairs, United States Council for International Business
Enabling Business Conditions for Implementing the Conventions

Thank you very much and thank you also to Nazli and to MIT for hosting this meeting and inviting my organization to collaborate in the proceedings.

I have been struck over the last couple of days by some of the birds-eye views we have had of multilateral legal frameworks and deliberations connected to Rio. I am going to give a little bit more of a worm's-eye view. I do not know if a worm is taller than an ant, but in any case very much drawn from my work and the constituency that I work with.

USCIB Environment Committee
My environment committee is made up of environmental health and safety managers, a company's people whose responsibility it is to follow the negotiations of a treaty, to try to figure out what it means for their companies and how their companies might have to change to comply. I think this is very important, given that in the next few years, the pace of negotiations for these legal frameworks and these discussions is probably not going to slow down, and if anything, it is going to pick up.

So I am going to focus in this presentation on the role of business from two perspectives as regards environmental agreements and other sorts of sustainable development discussions, one being implementation and one being consultation, and by consultation I mean the process of playing a role in the negotiations themselves.

I am doing that because I believe the two are linked especially as far as business goes, good input and buy-in from business in the formative stages of a treaty will eventually add up to better implementation when the treaty has to be put into practice. Some speakers have talked about the Montreal Protocol as a case in point, and that is one example -- and a very good one I think.

Multilateral Environmental Agreements
I believe that multilateral environmental agreements and other multilateral frameworks do have to be engineered with business in mind to be successful and sustainable. I think that is especially important for 1997 and for the review of Rio. Industry brings to the table a whole long list of very positive attributes, good policies and practices, innovation, technology, employment,and so on.

We all know this, and how important this is in the face of the trends that other speakers have referred to of globalization and diminished ODA funds available and the need for technologies and capacity-building.

So I think it is in everybody's interest to have business at the table and involved in both the preliminary and formative stages of treaties and the carrying out of those measures that have been agreed.

Now whether to talk about consultation or implementation first is a little bit of the chicken-and-egg question, but I will start with implementation because I think that really our focus is multilateral environmental agreements that can be implemented, that will be implemented effectively.

It is very hard to generalize about multilateral environmental agreements. Each one is different, but I will reiterate the point that Ambassador Katz made yesterday that business does favor multilateral approaches to global problems and certainly is far preferable to unilateral measures and coordinated measures.

Business Is Diverse
Again, although it is difficult to generalize, I would say that there are some attributes that multilateral environmental agreements should have to facilitate implementation by business. I think one of the most important ones is that treaties do need to recognize that the business community is very diverse. The obvious of course is that it is made up of different sectors, different size companies, different geographical interests, and of course this is all going to depend on whatever the treaty in question is about. Some treaties are fairly specialized. Others are very far-reaching and involve all sectors, such as the climate change treaty.

Competitiveness in Treaties
But it is very important to realize that business is not monolithic and that there are competitiveness issues in treaties, but I would take it one step further and say that this diversity in the business community is actually a very important resource for treaties. The fact that there are all the different sectors and points of view, corporate cultures, and so on is actually a resource that can be tapped and should be tapped.

I am not sure that current treaties and deliberations do that adequately, and I think that has to be kept in mind for the Review in 1997 and beyond. I would say treaties need to be very flexible to local circumstances and that in particular, because of national implementation, treaties are not implemented by international bodies.

They are implemented by national governments that are party to them, and if they are not flexible, if they are not workable, you are not going to see implementation.

Common but Differentiated Responsibilities
I would also just make a comment about common but differentiated responsibilities. We have had some talk about that here. I think that is kind of a backward-looking idea.

It is an important idea obviously and one that is a precedent now in treaty negotiation, but given the presentation we heard from the Representative of the Union Bank of Switzerland -- and he was showing the trends of where production was going to becoming in the next generation -- it was clear that production was becoming two-thirds of it eventually from developing countries rather than developed countries, yet many treaties now are negotiated without that recognition in mind. I think it has to be kept in mind.

It is also important obviously because companies are either operating internationally or are affected by international economic conditions. If the treaty does not reflect that in different international circumstances, you are into a sort of difficult situation in terms of implementation.

Flexibility Needed
I would say that treaties need to be more flexible about how technologies and other instruments are used to meet the goals. The presentation earlier this morning about tradable permits was just one case in point. I think from the perspective of having business implementing treaties, the more latitude that is left as to how that is done, the more promising the prospects for an effective implementation.

When I talk about technology, it is not just the hardware but also the management know-how that goes with it and the capacity-building that has to come along.

I would say that multilateral treaties need to recognize more of the carrot. Obviously the stick is necessary but very few treaties offer opportunities or recognize eco-efficiency and some of the other good environmental policies that companies have now internalized and I think more of that has to occur. When you have only a punishment, it is human nature to try to avoid punishment.

Coverage and Coherence
Two other points on implementation, and then I will go to consultation. Much more economic assessment has to be made in environmental treaties. We are always struck when we go to treaty negotiations by how many representatives of environmental ministries are there and how few, if any, we see from trade ministries and commerce ministries and all the rest. If sustainable development is to work as a linked and mutually reinforcing objective, then you need to have all those ministries involved and represented. I think that will lead to a more effective implementation from business.

Finally, I would argue that multilateral environmental agreements need to have more transparency and input for business, and I mean across the board. I do not mean just limited to technology issues.

This will take me to the next point, the other part of my presentation, on this issue of access. One thing I will say is that the current degree of access on multilateral environmental treaties has improved a lot.

Most of them now will permit observers from the NGO community, which includes business, so you can sit in a gallery and listen to what is going on. You have some access to the documents, and occasionally you are given the opportunity to speak. Maybe one representative of the entire business community is given five to ten minutes to make a presentation just before lunch (is this sounding familiar?); and as we have seen even in this conference, it is very difficult to say what you need to say in five to ten minutes. When you are talking about complicated issues such as technology, it is almost impossible. Obviously, there is a lot of room for improvement there.

Consultative Arrangements
There are other deliberations and consultative arrangements that exist that either have been in place before Rio or that Rio has put in place, and I just run through those quickly simply because they all have some selling points going for them.

First of all, I just mention that in the United Nations you have the Economic and Social Council which has consultative categories for non-governmental organizations which they determine according to the size of the NGO and the issues it represents and its geographical representation, and different categories of NGO are given different degrees of access into the proceedings. So that is one model, and that is in place and it works.

The second model we have is from the Rio process and which persists into the Commission on Sustainable Development, which is that any NGO can be accredited once it has done the requisite paperwork, and there is no distinction made between non-governmental organizations. A 20-member small group has the same standing as an organization like the International Chamber of Commerce, which represents 7500 companies around the world. That is another model. It is wonderful from the perspective of access.

Everyone can get into the room. Sometimes the difficulty is that everybody starts talking at once, and no one is heard, but it does have the benefit of spreading the message out to a lot of players.

There are some "official" consultative arrangements in intergovernmental bodies or in treaties. In the OECD we have the Business and Industry Advisory Committee, which my organization is the U.S. affiliate of, and that is a recognized channel for business to interface with the OECD.

In the NAFTA environmental side agreement, there is the Commission on Environmental Cooperation, and that has a consultative function for some business representatives. Again, the Montreal Protocol and that also is very helpful to have that as an official participant, although when there is that official consultative status, business then is constrained; it has to play by certain rules. It cannot pick and choose its opportunities to comment. When it is requested for comment, it must give comment. So there is an upside and again there is a downside.

Treaties Themselves
Finally, we must consider the treaties themselves. As I said earlier, each treaty is a little different in terms of its ground rules, and each chairperson and bureau member interprets the ground rules a little differently. I think in that case we are still learning by doing.

I think there is a lot of scope there to make changes because of the fact that the concrete has been poured, but it is not dry yet, so there can be some changes.

Consultations in Treaty Context
Now I would like to turn to consultative arrangements in existing treaties and just take as example the Climate Change Treaty, which has gotten a lot of discussion here. Some of you may know that there has been discussion in the Framework Convention on Climate Change around enhancing consultative arrangements, especially for business.

The New Zealand delegation did raise this as a possibility. In March there was a workshop under the Framework Convention for non-governmental organizations to talk about this and render some kind of evaluation for each sector of NGOs as to what would work best.

So the business group went off and had its discussion, as did environmental groups and representatives of local authorities.

I am not going to read all of the points and principles that the business agreed on in that discussion and which have been offered to the Framework Convention, but I will just offer four of those because I think they are important and they have some broader application to other treaties beyond climate change. These are principles that the business community felt were very important in consultative arrangements in the climate change treaty, and, as I said, you could extrapolate this to other treaties.

Full Views
First of all, a consultative arrangement should further enable business to provide its views on the full range of issues addressed, including policy, socioeconomic, sociological, not to limit what it can speak to just one small slice of the issues at hand.

Unfiltered Views
Secondly, a consultative arrangement should be able to convey the full range of business positions on an unfiltered basis. This goes back to the diversity of the business community as well as the need to get all of the messages out rather than through some kind of middleman.

Unimpeded Views
Thirdly, a consultative arrangement should not be a process for negotiating commitments from business or for the selection of technology winners and losers. Again, going back to the point of flexibility and allowing business to choose how to meet the goals that the treaty, whatever treaty, might set.

Addition, not Replacement
Finally, a consultative arrangement should be in addition to, not a replacement for, existing or new business consultation at the national and international levels. That simply means that it is very well to include business in these treaties, but this whole process is a much broader one, and business has to be involved also vis-ˆ-vis their national governments and their local communities and all the rest of it; it just recognizes that this is just one more layer.

This is still being discussed in the climate change treaty and will be picked up again probably when they meet in December, but I think these four points and the others that were agreed by business are very instructive for involving business through more transparency in the treaties.

Diversity of Frameworks
I will close by just mentioning something that others have talked about, but I wanted to underscore it -- that is, not all the important frameworks are legal in nature.

There are some hybrid approaches and voluntary approaches out there. One of the speakers yesterday talked about the ISO 14000 Standards.

That is a very important example. The standards are still being written, but from what we know of them, we know that there is an environmental management system that companies will have to measure themselves against and be certified against and which calls for continual improvement every year. So however well they did one year, they have to do better the next.

ISO 14000
I do not know if there is any treaty that has been able to reach into the workings of an individual company and reorganize it and build in this continual improvement. So something like the ISO 14000 Standards is a very important dynamic. International voluntary programs like Responsible Care and Environmental Labeling are important. There are problems in environmental labeling, but this is just another example of something that is in between the definitions of a legally binding treaty.

So I will just repeat my points and close:

  1. It is very important to have business involved in treaty negotiations both in implementation and consultation at the national and international levels.
  2. Treaties have to be flexible wherever possible.
  3. Treaties have to be non-discriminatory and non-distortive with the economic and trade considerations built in, because if they are not engineered in at the beginning, they come back to haunt the treaty later
  4. Treaties have to capitalize on the move by many companies to eco-efficiency and innovation.
  5. They have to look not just to sticks but also to carrots, not just to penalties and punitive measures but also to incentives.
  6. They have to provide a meaningful access for business as a partner recognizing the role of business, recognizing its different culture, its diversity, and including all sizes of business, including small and medium-sized companies.

Thank you very much for your attention. 

Christiana Figueres

Thank you, Norine. If the climate change negotiations are any indicator of what you have been talking about, the difference in the number of business, private sector representatives between Berlin last year and Geneva this year means that perhaps your message is getting out there.

Finally, I would like to introduce Sethuramiah Rao. Dr. Rao is the Chief of the Technical and Evaluation Division of the United Nations Population Fund, and he has in fact occupied quite a number of distinguished positions within the Population Fund for almost 20 years now. So very appropriately he will be addressing today the "Financial Requirements for Managing Demographic Challenges."

Sethuramiah N.M. Rao
Chief, Technical and Evaluation Division, United Nations Population Fund
Financial Requirements for Managing Demographic Challenges

Thank you very much, Madam Chair.

I think at the outset I would like to thank Professor Nazli Choucri for inviting UNFPA to be a co-sponsor of the Symposium and also inviting me to be a panelist this morning. As the Chair just mentioned, what I have been asked to do this afternoon is to talk about the financial requirements to address demographic challenges.

Let me say I hate to be the barrier between you and your lunch, but I guess you will bear with me.

Population at this Symposium
Now I think many speakers yesterday and this morning Dean Urban highlighted the importance of population factors and demographic dynamics in sustainable development. Since you already had some discussion of some of those factors, I would not be getting into any greater details as to the role of the population factors, the linkages to sustainable development.

What I would do, though, is to look at the international agreements as adopted in the various international instruments on the financial requirements required to address the goals and targets of the demographic challenges to achieve sustainable development, and then talk about a few issues that need to be discussed in order to help this mobilize both resources and effective utilization.

Basic Situation
But before I do so, I think it might be just useful to quickly, very quickly, look at some of the basic demographic situations.

All of you are quite familiar with these basic scenarios.

The population trends over the long 100-year trend here starting from 1950 down to 2050 for the future. You know all of the basic statistics, the enormous increase in the world population, but much of it in the future concentrated in the developing countries. Therefore the pressure of population in terms of strains of developmental issues and for sustainable development is increasingly becoming a crucial issue in the developing countries.

I think apart from those demographic numbers, the kind of challenges that confront the population field are also quite clear, but let me very quickly go through them.

Of course the question of reducing the rapidity of population growth stands quite high on the agenda right there. Reducing the fatality, infant/child mortality rates are equally important, and they in turn affect the trend of population growth. While it is true that the annual rate of population growth has declined from a high of two percent in the mid-1960s to currently 1.5%, the annual increments to our population, which is extremely crucial as a development variable as all of you know, is however still quite high, around 86, 87, 90 million.

To add to this, of course, urbanization is a big issue. Urban populations are growing much more rapidly, and they affect the environmental issues even more so. I think we also recognize that there are economic, social, environmental problems that are more difficult to be addressed because of the rapidity of population growth.

Unmet Needs
Finally, two other things -- namely the unmet needs for family planning and reproductive health services -- are growing enormously and the need to curb the spread of infectious diseases, particularly HIV, AIDS.

Centrality of Demography
Now in relation to the main topic of this symposium -- which deals with the question of sustainable development, of course there have been some studies, some analyses, and some empirical evidence of some of the relationships that exist between population and sustainable development (most of them are familiar to you) -- is the question of unrestrained population growth resulting in unsustainable patterns of development.

Of course, in relation to issues that came up this morning -- related to atmospheric pollution, deforestation, depletion of resources, climatic change, etc., and in particular, urbanization and its impact on environment -- demographic trends are central.

Let me review briefly (a) the international agreements that have taken place; (b) in relation to the financial requirements that are necessary to address those demographic challenges to help achieve sustainable development.

International Agreements
The Cairo conference, building on Agenda 21, agreed at its inaugural session on the goals, objectives, and target set out in the program of action that financial resources required would be growing from the year 2000 from $17 billion to 2015 to a tune of $21.7 billion.

More importantly, it also recognized the partnership principle between the developing and the developed countries and recognized what could be the share of the domestic resources and the share of the external assistance to help implement the demographic population agenda to achieve sustainable development.

As you can see, the bulk of the resources obviously need to be coming from domestic situation. In other words, national responsibility to address the issue is paramount. But external assistance or international assistance is also equally important.

With respect to breakdown, up to roughly one third of the total is to be provided by external resources, and two-thirds to be generated within the country from domestic and other resources.

So it would be important to see what have been the trends since its adoption, what progress has taken place in meeting these targets, and what are some of the obstacles that need to be surmounted in order to effectively address the demographic issues in sustainable development.

So I will just put for you some other transparencies to just indicate to you where we are. United Nations Population Fund is mandated to monitor both the international resources going to population and the mobilization of domestic resources. We are trying to compile information for about a decade or so on what are the flows in relation to external assistance.

Financial Dimensions
Just after the Conference in 1994, there has been an active interest from external resources to fund population and related programs. It is quite a substantial increase that took place between 1993 and 1994. At present, perhaps $1.3 or $1.4 billion is going in support of population programs around the world. We do not have firm figures, but that is the general trend.

Also from the domestic resources today, roughly about $4.3 to $4.4 billion is being spent by the developing countries themselves in support of the population programs in their country. So we have a situation of roughly $5.6, $5.7 billion being spent on population today, of this amount $4.3 billion coming from domestic resources and perhaps $1.3, $1.4 billion coming from the external resources. 

In this context, then, by the year 2000 this amount has to increase substantially. From domestic resources the growth must be around $11 billion (roughly doubling); and in terms of external assistance from $1.3, $1.4 to $5.7 billion -- which is almost a four-fold increase. So that is where the challenge is. We must double domestic resources and quadruple external assistance.

Resource Mobilization
I now turn to four issues related to this whole question of resource mobilization.

1. Modality
The first issue is, undoubtedly, the level and modalities of financing. Today we are around $5.6, $5.7 billion; and we need to reach $17 billion by the year 2000. Therefore, substantially larger resources are required from both the domestic side and the international side.

The time has clearly come for a global partnership on this issue -- global partnership not just between governments but among all actors within the society, meaning that the private sector, local community, etc. and international agencies must all cooperate together in this endeavor. We need a partnership approach. But it is one based upon differentiated responsibility because resources would be required in poorer countries of Africa. For much of Asia and Latin America, a large percentage of resources is absorbed and made available by the developing countries themselves; but this is not so in the case of Africa. In the population field, much more work needs to be done for resource mobilization.

That is, we need to find new ways of generating partnership between public and private financing in the field of population and reproductive health. Hopefully, such efforts will involve the private sector. So the question is how to make the business community become interested and invest in this area.

2. Domestic Sources
The second cluster of issues that I would like to raise is the question of mobilization of domestic resources. We know the numbers. One of the most important political issues, at the country level, is the re-examination of the development priorities at the country level and how the political commitment translates into allocation of greater resources to population and related sectors.

Much work needs to be done to influence policy and provide advice to the governments for re-examination of priorities and greater locations.

Some large countries -- like India, Pakistan, Philippines, Bangladesh, Mexico -- have already started making much larger allocations in favor of population in their national budgets. But as I said earlier, the critical issue is that many African countries are not able to give the needed resources for population from their own budgets and their national outlays.

In relation to the international cooperation external assistance, I think global partnership is essential to achieve the goals of Agenda 21 and the Cairo Program of Action. Fortunately, a consultative process has been put in place, as all of you know. The Commission on Population and Development meets every year to review the implementation of the Program of Action of Cairo and the Agenda 21-related issues as they affect population.

Just prior to their commission, there is a consultative meeting that takes place amongst all the major donors for population, all the multilateral institutions active in population plus key international NGOs, to see what the commitment for the future will be and how best to implement the Cairo targets of $17 billion by the year 2000.

A number of countries, international donor countries, have begun to increase their contributions. For 1995 and early 1996 the progress was very good. Quite a number of donors announced higher pledges and have made resources available -- but through the multilateral system and more importantly through the bilateral programs in favor of population programs.

3. Coordinated Approach
The third issue I want to raise is the need for a coordinated approach. What is perhaps very important in the future is that there is a policy dialogue in such a way that multilaterals and bilaterals are able to provide resources to the countries in a coordinated system of resource allocation. Many times resources flow to different countries using different criteria and using different approaches, and the country that has the greatest need does not get the money that it deserves. Sometimes the resources go to other countries.

Of course, there are always other consideration besides developmental needs, but a coordinated approach would definitely help to address all the complimentary needs as well as complimentary concerns at the country level. So there is some move to have some coordinated approach through the OACD and UNFPS system.

Needless to say, people have talked about the importance of capacity-building, and that reflects in an operational sense to become technical assistance, training, exchange of information, institutional development, etc. That is what "capacity" will eventually become.

4. Monitoring
Finally, I would like to stress that it is important to monitor the question of resource requirement and resource flows in order to fine tune the resource mobilization strategies that are required.

As I mentioned in the beginning, even as it has to be mandated by the General Assembly and by the Cairo Conference that we should monitor the financial flows, there still is a need, particularly the external resources flows.

For the last 10 years we have been publishing the Global Population Assistance Report, which is the main source of information on how the international resources are channeled both in relation to channel of resource assistance plus the countries that receive and for what purpose, and related aspects of that are published annually in the Global Population Assistance Support. What has not been available as of now but is nevertheless extremely important for the future is also to monitor the domestic resources for population health-related programs.

Unfortunately, there is no existing mechanism for that, and the Commission on Population Development mandated us again last year for UNFPA to put in place a system for monitoring the resources by domestic channels. By domestic mobilization we are trying to put both an instrument and a mechanism to obtain the information from all the 180 countries and to report on them to the Commission on Population Development as a complement to the Global Population Assistance. And we are collaborating with other institutions to obtain the data.

Need for Coordination
In sum, the question of resource allocation to the countries is extremely important. What is required now is to have a coordinated approach to the multilaterals, bilaterals, the World Bank, and other financial institutions to mobilize these resources and deploy them effectively.

Thank you Madam Chair. 

Christiana Figueres:

Normally we would go into a question-and-answer period; however the rumblings that I hear downstairs are evidence that we are running rather late for lunch. So here is the good news. We have heard this morning from Dean Urban that one of the success factors of companies is to be responsive to their clients in customer satisfaction. True to the Sloan spirit, Nazli has heard the general desire for more open discussion and she has acted in the following way.

The address over lunch has been canceled in order to give room and time for a much more free-flowing discussion of all of the ideas and especially all of the ideas that have not been presented during the past two days.

So unless there is a burning direct question to one of our panelists, I would thank everybody and invite you to lunch.