Preface

This brief has been prepared for the Royal Norwegian Ministry of Foreign Affairs as an initial input into their "Global Markets & Governance" project. The main purpose of this brief is to provide a holistic overview of how governments and businesses can work together to make the market system work for all - thus preventing marginalization of the poor and promoting sustainable development.

The content of this brief builds on the work of a recent World Business Council for Sustainable Development report ‘ Sustainability through the Market: Seven Keys to Success.’ The report, launched this past April at the United Nations in New York, lays out a strategic action plan for companies that want to succeed while contributing to an inclusive and effective global market system. The primary findings of the sustainability through the market report, the fruit of an intensive international research effort by the WBCSD, are presented in section one of this brief.

Section two of this brief describes the overall global markets and governance context, the big picture, that currently conditions the ability of companies to deliver sustainability through the market. The section emphasizes the perspective that businesses, for all that they can do, cannot enable sustainability on their own - nor should they be so obliged. Governments, in consultation with societal stakeholders, have the responsibility to establish market framework conditions that promote sustainability. Market participation and rulemaking are two different functions.

That said, in our emerging age of globalization, if business practitioners sit back and contribute little knowledge to the ongoing debates surrounding the establishment of market incentives and disincentives, they will be selling short their ability to enable sustainability through the market. Smart business leaders recognize the importance of participating actively in public policy development. Managing globalization is of concern to all and can only realistically be pursued through cooperation. Accordingly, the bulk of this brief, section three, profiles an array of ways public-private cooperation can contribute to making the market system work for all.

Through attempting to reconcile the vision for a sustainable business model presented in section one and the governance concerns presented in section two, section three identifies leverage points for aligning the profit motive that guides market participants with the sustainability considerations that ought to guide the setting of market rules. And this is really the essence of what managing globalization entails, ensuring that the profit motive that drives global interdependence is allowed to bring about planetary sustainable development.

By taking an integrated look at the whole market system, section three endeavors to raise awareness of important linkages among elements of the sustainable development agenda and, thereby, facilitate understanding of innovative policy options with high potential for promoting change. Such an approach, holistic in nature, is premised upon the conviction that integrative studies, necessarily crude, that try to encompass the important features of a comprehensive situation, along with their interactions, are requisite if we are to positively affect the globalization process and systemically make the market work for both the poor and the planet.

Three separate categories define the contents of section three. Each category is unique unto itself, a particular policy lens if you will, but each raises considerations that complement those of the other categories. The three groupings are: (1) primary features of a market system that enables sustainable development; (2) conditions that provide for sustainability through the market; and, (3) policy tools that can contribute to sustainability through the market. These groupings can alternatively be worded as: what we aim to achieve; how we expect to succeed; and, how we can begin to proceed.

The issues profiled in section three, taken in sum, span a range of business sectors and provide a general context for section four - which brings this brief to a close by reviewing how sustainable development’s responsibilities and opportunities can be equitably, and most effectively, shared within our global society. This last section, as with each that preceded it, is meant to introduce you, the interested reader, to a breadth of thinking pertinent to the realization of a sustainable future. In due course, this initial brief will be substantiated and elaborated upon by way of a forthcoming report to be prepared for the "Global Markets & Governance" project. The forthcoming report, will be available in advance of next year’s World Summit on Sustainable Development in South Africa.

Koben Christianson, Oxford, 20 October 2001

I. A business case for sustainable development

"We need to take a global and integrated approach to achieving sustainability. A whole system understanding of the market can lead to the establishment of a transparent economic system that works for all."

- Chad Holliday, Chairman and CEO, DuPont

Sustainable development is about ensuring a better quality of life for everyone, now and for generations to come. Thus it combines ecological, social, and economic concerns, and offers business opportunities for companies that can improve the lives of the world’s people. The potential of business to contribute toward overall societal success is enormous.

Four years ago, the World Business Council for Sustainable Development (WBCSD) launched a project designed to reach a better understanding of the concept of sustainable consumption. At that time, a common view was that we were in a zero-sum game and that those in the developed economies needed to give up some of their quality of life to help the population in the rest of the world.

For the WBCSD, this was an unnecessarily discouraging viewpoint that was contrary to the very premise for business’s existence - namely creating goods and services that improve people’s quality of life.

The members of the ‘Sustainability through the market’ working group therefore challenged themselves to create a more inspirational vision - a business strategy for sustainable development. "After a great deal of dialogue around the world, we believe we have that vision," as stated by the project’s co-chairs, Chad Holliday, chairman and CEO of DuPont, and John Pepper, chairman of Procter & Gamble.

This vision, presented in the recently released report ‘Sustainability through the Market: Seven Keys to Success,’ captures the essence of how the market system can, and partially already does, advance sustainable development.

To begin with, achieving sustainability through the market requires looking at the market system as a whole, including both production and consumption.

Focusing on either production or consumption in isolation ignores their interdependent relationship. By taking a holistic approach to the marketplace so that supply and demand are viewed as part of a system instead of being treated separately, the market can enhance sustainability. In particular, seven inter-related ‘keys’ for sustainability through the market can be distinguished. All seven keys, applied together over time, are necessary if businesses are to achieve sustainable production and consumption - none is sufficient alone.

§ Key 1 Innovate

Technological and social innovation can do much to improve people’s quality of life and tackle the depletion of resources and the build-up of pollution. Yet innovators today must innovate openly, and identify and publicize the values that underpin their approaches to innovation. Any innovation process must be open and sensitive to the interests of the public.

§ Key 2 Practice eco-efficiency

Eco-efficiency means creating more value with less impact. It can open up significant business opportunities and its predominant goal is to help economies grow qualitatively, not quantitatively.

§ Key 3 Move from stakeholder dialogues to partnerships for progress

The dialogue among business, civil society, and governments has matured notably since the 1992 Rio Earth Summit.

It is now time to move beyond talking to one another to acting together for the purpose of sustainable development. Partnerships for progress are built on common goals, empathy, open feedback, flexibility, ability to compromise, and sharing rewards. Alliances can offer new solutions to common concerns facing us all.

§ Key 4 Provide and inform consumer choice

Individuals will change their consumption practices when they realize that they can gain financial benefits, better quality of life and security, from sustainable behavior. Consumer choice helps achieve sustainability via a triple-win: by improving quality of life, reducing adverse environmental and social impacts, and increasing the market share of sustainability-minded companies. The media can be used to promote sustainability messages.

§ Key 5 Improve market framework conditions

Sustainability is hindered by monopolies, corruption, perverse subsidies, and prices that do not reflect real economic, social and environmental costs. Legislation and regulations should promote competition, effective intellectual and physical property rights, reliable contractual terms, fair and transparent accounting standards, accountability for government intervention, freedom and democracy, and full-cost pricing of goods and services.

§ Key 6 Establish the worth of the Earth

The market system needs accurate and timely price signals so that resources are not wasted and future opportunities squandered. Markets need to reflect the true environmental and social costs of goods and services. Proper valuation will help maintain the diversity of species, habitats and ecosystems, conserve natural resources, preserve the integrity of natural cycles, and prevent the build-up of toxic substances in the environment.

§ Key 7 Make the market work for everyone

Poverty is one of the single largest barriers to achieving sustainability through the market. The market does create enterprises and jobs but there will be rewards for companies that deliberately create more opportunities for the poorest. Making the market work for everyone involves two basic measures: enabling access to effective markets and spreading consumer purchasing power.

The report says that making this seven-point vision a reality may require business to act on opportunities and responsibilities that may have traditionally been considered outside the realm of the market. Indeed, true participatory management involving all stakeholders in the global agenda is essential to shaping a peaceful and prosperous future. In the words of the report, "we must fully engage the entrepreneurial spirit of commerce in order to profit from solutions that transcend borders - be they geographic, cultural, or economic."

Businesses have proven that they can contribute to sustainability both through what they do - providing products and services to improve lives - and how they do it - the way they operate. The impressive range of real-world case studies in the ‘Sustainability through the market’ report attest to this. Now, to add to such successes and promote the likelihood that they will be replicated elsewhere for the benefit of others, there is a tangible interest within the business community to step up to the task of working together with governments and civil society to improve the ability of markets to contribute to sustainable development.

Our challenge is to meld the prosperity markets make possible, the security governments provide, and the ethical standards civil society insists upon. Doing so will help the market, and major international companies, accelerate quality-of-life improvements throughout the world.

II. Promoting sustainability through the market -
the essential role of good governance

"The integrated and interdependent nature of the new global challenges and issues contrasts sharply with the nature of institutions that exist today. These institutions tend to be independent, fragmented and working to relatively narrow mandates with closed decision processes."

- Gro Harlem Brundtland

During the 1990s, prompted in no insignificant way by the collapse of the communist false hope, nation after nation undertook unprecedented economic transformations. By the end of the decade, some 90% of the world’s nations had adopted some form of market-based economy and many restrictive barriers to trade and capital mobility had been dismantled. As a result, levels of trade among nations, currency exchange, and foreign direct investment have boomed. The production and consumption of goods and services has become increasingly international. And the number of globally active companies around the world has risen from 7,000 to over 40,000.

In many respects though, it seems that the ascendance of the market system has now reached an impasse. Why? Quite simply: the governance structures that currently frame and condition our global market system are not proving capable of effectively expanding globalization’s benefits. This should come as no surprise. For the market system has expanded so rapidly in recent years that, owing to popular success, it has stripped beyond the capacity of market governance structures to innovate and keep up. The implications of this situation are quite serious; we presently have no way of legitimately balancing public goods and private interests at the international level.

Globalization without coherent and appropriate global governance mechanisms is not sensible. Markets depend on a stable and supportive framework of public policy. Laws, regulations and market incentives put in place by governments on behalf of society help determine proper market behavior. There is a serious risk that a lack of such mechanisms will end up diminishing the benefits of open competitive markets; like freedom of choice, efficiency, and wealth generation.

Political pressure to address the real and alleged weaknesses of globalization is on the rise. As evidenced by the ongoing demonstrations being directed against international organizations - such as the Group of Eight, the World Bank, the World Trade Organization and the International Monetary Fund - a backlash against globalization is in full swing.

Many protestors premise their actions upon the perception that globalization widens wealth and income gaps, both between the developed and developing world and between the rich and poor within individual countries. Other concerns relate to consumption and production impacts on the environment or to the make-up of the current world order itself. For some protestors, such reasons validate attempting to stop globalization altogether, for the more serious protestors, such reasons validate the need to deeply question the course globalization is taking.

With each new international meeting the demonstrations are growing more vast and violent. The property damage caused by the riots surrounding the 1999 WTO meeting in Seattle was $3 million. A broken arm was the worst injury reported. The property damage caused at the recent G-8 meeting in Genoa reached upwards of $45 million, and for the first time, a protestor was killed. We can’t go on with more and more of the same.

Too often these days, protestors and press coverage choose to cast the globalization debate as one of markets against governments. As voiced by some Norwegian student activists, interviewed at the Genoa protests by the New York Times: "We’re revolutionaries; we want to get rid of capitalism." Such characterizations run counter to the logic of the symbiotic relationship shared by markets and governments.

We cannot lose sight of the fact that, if structured properly, markets can be the most potent force for positive social transformation in the world. Through the market system, the more fortunate of us have come to enjoy a quality of life unprecedented in human history. Even among the poorest three billion people on the planet, standards of living have improved notably over the past fifty years - as evidenced by statistics indicating positive changes in life expectancy, infant survival, literacy, and access to safe drinking water.

However, to be sure, many challenges remain. Today’s rough approximation of a global market has some significant limitations and people have a right to be frustrated by those limitations. Many challenges we face result from designing and operating markets based on an unduly narrow set of goals. We need to find new ways of explicitly recognizing broader criteria for market performance and success. Current financial measures alone are not enough to reflect all the things that we value.

In order for the market system to create value in the future, society must be sure that markets are structured to optimize and give expression to common interests. As Nobel Laureate economist Amartya Sen has noted: "the more exacting problems of the contemporary world actually call for value formation through public discussion." Accordingly, as nations and societies, we thus face questions like: what values do we honor? What legislative policies will we enact? What goals do we want our organizations to serve?

Sustainable development has the potential to become the modus operandi of the global market system. And there is good reason that it should, as sustainable development is about ensuring a better quality of life for everyone, now and for generations to come. Those that act for sustainable development contribute to spreading globalization’s benefits among the many, not just the few.

Lack of effective global governance policies is currently the most significant factor limiting business action for sustainable development. Until such supportive policies come about, many companies will be able to push the envelope no further within the current system - unnecessarily restricted from acting progressively as frustrated by-standers throw stones and decry inaction, lack of transparency, and unaccountability.

It is in the enlightened self-interest of business to help ensure the realization of an inclusive and effective global market system. Further business success will be gained by business action that enhances overall societal success. In turn, this societal success will serve to guarantee the perpetuation of business success.

Taking up the task of moving the global governance agenda forward will require combining our understanding of the tried and true with the courageous and new. We will need forums that link state and non-state actors in exchanges that go beyond the level of dialogue now allowed by most existing international bodies. For, at present, our international decision-making forums do not reflect the reality of a truly global society.

Global governance in the 21st century will require more extensive networked cooperation. As hierarchical rules become less and less effective, we will have to better understand how agents in networks can structure their interactions so as to promote certainty amid a context of rapidly changing norms. The way to resolve complex sustainability problems is to partner across national and international boundaries, engaging both the public and the private sectors.

Governments have a facilitating role to play in convening the combined intelligence of government, civil society and business. Through cooperation it will be easier is to find the value in change; to promote solutions to problems that no country and no business can tackle alone; and inspire effective international action so that the market system can be better positioned to work for all.

Many limitations of the current market system, rather than being so-called ‘market failures,’ are actually related to the absence of effective markets. Thus ways are needed to create markets where no markets currently exist, or to make existing markets operate more effectively. The so-called ‘global market’ simply doesn’t exist yet. An integrated global market would mean open flows of goods, people and capital, and convergence in interest rates. That is far from what we have today. As a result, there are 2.8 billion people living on less than two dollars a day that have little or no access to the market to improve their lives.

Given such circumstances, there is pressing reason for business to actively work with government and other parts of society to make the market work for all. This can be done. Through global governance reform, market weaknesses can be overcome and the ability of business to contribute toward overall societal success can be enhanced.

The market system did not come about by accident; it is very much a human construct. Let us unite to create the best one that we can imagine.

III. Making the market work for all

"Increasing public anxiety about different aspects of globalization has fuelled vocal opposition. Unless a system can be found to address public fears and respond to criticisms in a constructive and meaningful way, the growing backlash may threaten the globalization process."

- Oxford Analytica & The World Economic Forum, Davos brief 2001

As you will recognize, this brief is wholly dedicated to profiling ways to promote the ascendance of a market system that is sustainable – economically, socially and environmentally. To be sure though, the only way such a market system will come about, ultimately, is if it proves to be a better route to the creation of wealth. For the primary function of the market, to create wealth, will not change. Accordingly, any attempts to use the market to promote societal innovation must embrace and encourage the creation of wealth – or fail.

Given the fact that our world economic system functions on the well-established premise of self-interest, we cannot expect appeals to the wider good to be effective where appeals to self-interest are not. Whenever there is a conflict between universal principles and self-interest, self-interest is likely to prevail. This is nothing new. The founding fathers of the United States, for instance, used this realization to underpin the success and longevity of their approach to governance.

The trick then, is to align the pursuit of self-interest with universal principles. More specifically, at this juncture in history, we are faced with the task of aligning the pursuit of profit with the pursuit of sustainable development. Wealth creation should be synonymous with sustainable market behaviour. At present though, it is not. To remedy this will require redefining what the market should optimize. It is as simple as that. Once the rules of the game are adapted to encourage sustainable development, the market will handle the rest.

Naturally, before society is able to fully uphold and extend sustainable development, there must be a value migration away from marketplace behaviour that feeds social exclusion and environmental degradation. In-line with the pioneering work of the Brundtland Commission, this involves encouraging a shift towards both intergenerational and intragenerational equity.

How can wealth creation, and the profit motive that drives it, be better aligned with sustainable development? One response, indeed the sample policy response for this section, is to exercise reformed use of the future discount rate. The future discount rate, in its current compounding form, is the market framework mechanism most inimical to sustainable development. Mitigating its corrosive effects could substantially help reduce inequities amongst present and future generations.

The future discount rate is set-up to weigh future market pay-offs disproportionately less heavily the further in the future they come. Future income streams are discounted according to a discount function that is exponential in form. Since no resource continues growing at exponential rates indefinitely into the future, neither should our discounting of such resources. The structure of the discount formula applied, as well as the rate at which we discount resources, should match the pattern of growth in those resources themselves.

Five years ago the World Business Council for Sustainable Development released a study called ‘Financing Change.’ This largely descriptive study, rather than prescriptive, touched on the concept of the future discount rate and concluded that markets must be given a ‘sustainability reflex.’ Since then, a better understanding has developed of how to use future financial pricing options to maximize, and support, sustainable resource yield.

For example, the Marine Stewardship Council, a not-for-profit agency that campaigns for sustainable international fishing, has recently devised a novel application of the Black-Scholes options theory formula. They have used the formula to put a price on, and legitimately certify, sustainable fishing in Alaska. As a result, the cost of hedging salmon futures has been reduced and financial rewards can more readily flow to fishing communities that practice sustainable fishing.

As Nobel Laureate economist Amartya Sen has stated: "there is no necessary reason why today’s discount of tomorrow should be used, and not tomorrow’s discount of today." Public and private sector actors cannot efficiently enable sustainable development in a world of excessive future discounting. Through better aligning future resource valuation with present resource valuation, a more sustainable form of economic development can, and will, emerge.

Competition is an essential feature of a sustainable market system. Competition plays an important role in driving business towards innovation, efficiency and greater consumer choice - each of which can help to increase the market share of sustainability-minded companies. Open markets, which enable competition, are vital for business and society to better understand and test how to best meet peoples’ needs with more sustainable solutions.

To promote competition, effective legislation and regulations are necessary. Such market framework conditions must be informed and operational, if not the ability of the market to improve quality of life will stagnate. The recent indictment of the former Chairmen of Sotheby’s and Christie’s auction houses, and the circumstances surrounding their indictment, provide one example of how anti-competitive behavior can affect societal well-being.

Companies that engage in extensive and elaborate anti-competitive practices deserve have their license to operate put in peril – if not revoked. Their actions run contrary to the very premise for business’ existence - to improve people’s lives through what they do and how they do it. Collusive companies, whether dealing in antiques or toothpicks, can unjustly tar the business community as a whole. Consequently, business as a whole depends on governments to dispel the threat of lax anti-trust policies.

Market framers can use a spectrum of policy tools to encourage competition and discourage collusion, from market mechanisms through to regulations. However, in-line with a main theme of this brief, market mechanisms are by far the most cost effective and flexible way to achieve desirable social outcomes. As such, companies that engage in egregious collusion should pay for it; not just via simple fines, but through a coordinated loss of competitive advantage to more socially responsible companies.

A critical component of a company’s competitive advantage depends on its ability to attract support from investors. As discussed with a representative of the Oslo Bourse, it could be possible to more selectively qualify access to capital markets and thereby contribute to discouraging the most egregious forms of anti-competitive, or otherwise socially irresponsible, behaviour by companies. With public companies, this could involve integrating sustainability criteria into the screening procedures companies must go through to maintain or achieve a listing on a stock market.

Providing consumer choice via the market economy can improve everyone’s well-being. Market choices give people the freedom to decide how to best use their resources to enhance their quality of life. For choice to most effectively enable sustainability at the international level, business must work creatively with governments and civil society to develop solutions to break the cycle of poverty in developing countries.

True global sustainable development will require spreading economic citizenship, the freedom of choice, to the billions of people now excluded from the market economy. Expanding the bounds of the market economy to bring market opportunities to the poorest is first and foremost a design challenge. It requires designing and implementing ways for the market to bridge the "affordability gap." Meeting needs in areas where normal business models do not work often involves partnerships between the public and private sector.

The Photovoltaic Market Transformation Initiative, initiated by the International Finance Corporation, provides one such example. The program, using a venture capital type approach, uses multilateral development funds to ‘seed’ small photovoltaic power companies in low-income countries. In turn, the success of these pioneering companies, benchmarked by the standard of commercial viability, can serve to encourage private sector investment in similar projects.

Such forms of market expansion, that provide poor consumers access to products and services, while building up local enterprises and jobs, are fundamental to making the market work for all. One way for governments to accelerate this process is to earmark multilateral and bilateral aid for direct support of developing country ‘small and medium enterprises’ (SMEs) . In so doing, the creative dynamism of free enterprise can be harnessed to incubate and spread access to markets in developing countries.

Indeed, better coordinating the investment and development activities of public and private sector actors is a strategic lever for enabling freedom of choice and sustainability through the market. Moreover, the possibilities for improving quality of life in developing countries, of course, are not just limited to photovoltaic power sector. Many other unmet basic needs in poverty-stricken regions can be addressed, with enough forethought, through innovative public-private partnerships that can provide new consumers access to affordable market solutions.

The innovation process requires care. For innovation can have both positive and negative impacts on the environment and society. To reduce the negative aspects, innovators must identify and publicize the values that underpin their approach to innovation. Any innovation process must be sensitive to the needs and interests of a range of stakeholders.

To innovate successfully in this day and age, companies are increasingly pressed to align their innovation strategies with not only the interests of their shareholders and customers, but also (in ascending array of difficulty) those of employees, suppliers, local communities, NGOs, countries, international society and future generations. Moreover, it is seemingly no longer enough for innovative companies to deliver quality, reliable products that give value to their customers. Now, more often than not, companies are also being pushed to demonstrate ethical quality and basis for consumer trust.

With the bewildering array of demands being placed on companies, many of them contradictory, it is no minor achievement that they also manage to also do what they do best, get productive work done and bring new products and services to market. But realistically, there needs to be authoritative limits put on what is being demanded of companies. For this to occur, we will need forums that link state and non-state actors in exchanges that go beyond the level of dialogue now allowed by most existing international bodies.

In particularly sensitive areas of innovation, such as biotechnology, our international decision-making forums do not presently provide broad enough political franchise for companies interested in getting endorsement, and support, for their innovation strategies. Without forums capable of reflecting the reality of our global society, beyond the nation centric Biosafety Protocol process in this instance, companies will be unduly constrained from taking the initiative, for fear of becoming a target, whenever parts of society start to feel frustrated or overwhelmed by the sheer complexity and pace of change.

The Novo Group, a Danish biotechnology company, is one of many companies to realize that long-term business success is influenced by the flow of reliable information it has, not just with its shareholders, but with all its stakeholders. On its own accord, the company has gone out of its way to inform its community of stakeholders about its innovation process. Yet this has not been enough to insulate the company from backlash prompted by closed innovation processes elsewhere.

To support the practices of companies that innovate responsibly, there is good reason to convene novel, neutral, forums for knowledge networking and planning concerted action. The task of such, issue specific, forums could be to provide strategic guidance for international policies and actions in support of innovation that contributes to sustainable development. An excellent organizational model, albeit with a different issue focus, is the Lysoen framework for consultation and concerted action - jointly initiated by the Governments of Norway and Canada.

The framework, recently formalized by the Lysoen Declaration, offers a fresh approach to ‘developing and enhancing partnerships between governments, international organizations, non-governmental organizations and other elements of civil society.’ We could do well to emulate such an approach when trying to ensure that societal expectations are linked to the innovation process.

Transparency in the conduct of affairs that affect the general public is a vital component of good governance. In a well-functioning democracy, various aspects of politics - popular activity, media attention, pluralist interest-group lobbying, and formal legislation - work together to promote transparency. Due to their very nature, democracies depend on high levels of transparency.

Markets, like democracies, only function properly if there are governance mechanisms in place to ensure high levels of transparency. For transparency, combined with timely information, enforces market discipline and contributes to accountability and integrity within the market system. Transparency helps the market work for all, not just the few.

Recognizing the importance of transparency, many corporations are voluntarily making it a central element in the running of their operations. This involves communicating, explicitly, the values and principles on which they base their operations – and, centrally, how they live up to those values and principles.

The significant amount of private sector participation in the Global Reporting Initiative, which is developing a global standard for corporate sustainability reporting, exemplifies the level of commitment now being given to transparency by leading corporations.

Yet despite such advances, many market critics still believe they have free reign to try to pin labels of unaccountability on companies. Critics allege that globalization is leading to too much corporate power and that the integrity of the principle of equal representation, in democratic societies, is being compromised.

If only as a means of risk reduction, it is worth considering why there is so much popular concern about globalization actually leading to the erosion of market and political transparency. For such a knock-on effect, if proven, would obviously be of significant consequence and need to be countered. Otherwise, the maladies of low transparency -such as corruption, inequitable resource allocation, and free-rider problems - could proliferate.

Most likely, rather than globalization having an inherent bias against transparency, public perception is skewed by worst case situations wherein the acts of the few come to unfairly characterize the behavior of others. A case in point is the long-running corporate battle that was recently waged over the $3 billion Yanacocha mine in Peru.

In today’s increasingly information-driven world, where perception is often incorrectly confused with reality, what can be done to allay public fears that the rules of the market are being rewritten to favor special interests at the expense of society and the environment? How can reputable socially responsible companies, working together with governments, insulate themselves from undue interest-group attacks on their reputation and bogus charges of abuse of power?

One such way, in-line with the OECD work in this area, could be to normalize third party audits of the alignment of corporate lobbying activities vis-à-vis their sustainable development commitments. Such records, once open to the public, will enhance and reinforce the legitimacy of leading SD-minded companies, counter worries about the so-called ‘democratic deficit,’ and help get civil society watchdogs, when they are misguided, off the backs of companies that are actually working to promote sustainability through the market.

The Earth’s ability to provide more and more for the people of the planet is in question. Given this uncertainty, it seems reasonable to structure our market system so that the primary resources people depend upon are not used up faster than they can regenerate or be replaced. The case for making efficiency gains in resource use is well established, and the basis of support for such measures will only increase as we welcome billions more people to the planet.

Already, for example, Asia’s urban population is expected to triple in 20 years. Given such rapid demographic transformation, we cannot expect people living in those cities to achieve western standards of living, and build new high-technology economies, via the standard export-at-any-cost growth model - the consumption and production impacts would be untenable.

How much time do we have to bring a new business model on-line and transform the globalization process into a force that consistently improves the lives of the many? In the case of Asia, even though we may not like to learn of this, less time than we could want. To cite just one recent warning in the Financial Times, deriving from research by the Asian Development Bank: "Rapid population growth coupled with government inaction and weak institutions in Asia are pushing the region to the brink of an environmental catastrophe." Should we just ignore this for peace of mind? Or should we try to look at it as a business opportunity?

If we get things right, the best aspects of the human propensity to buy, sell and produce work as a driver for environmental performance, quality of life improvements and business success. To make it happen simply requires the development, diffusion, adoption and successful implementation of new sustainable production and consumption concepts.

The latest World Economic Forum Competitiveness Report, prepared by Harvard Professors M. Porter and J. Sachs, establishes a clear correlation between national economic performance and a framework of ambitious environmental goals. With this correlation in mind, what can governments actually do to help ensure that their economic development policies are in-line with, and derive added value from, the process of enabling environmentally sustainability? They can, to give but one example; tap sustainable development expert groups.

The task of such expert groups could be to provide strategic guidance for future policies and actions in support of sustainable development. To date, there are many instances where such groups are already making a contribution – the China Council for International Cooperation on Environment and Development, the European Union Expert Group on Competitive and Sustainable Production, as well as, the National Councils for Sustainable Development, are three such examples. However, there is much more scope for tapping the knowledge potential of such groups.

Countries can rely on expert groups to provide anticipatory word of innovative, pro-sustainability, concepts and technologies. Countries could use such information to, inter alia, improve environmental conditions and foster economic development both at home and abroad. What sort of things could the expert groups advise on? Take, as one example, the field of supercritical chemical production.

Supercritical fluids, already in industrial use on a small scale, offer the possibility of chemical production without dangerous byproducts. If further cost efficiencies can be achieved, supercriticality could relegate many toxic solvents to history and bring dramatic, environment friendly, changes to the chemical industry. One of the world’s first large scale multi-purpose supercritical factories, located in the United Kingdom, will soon be begin production.

If we are to become more sustainable in the way we live our lives, we need to find new ways to satisfy our needs and aspirations. Sustainable consumption involves consuming differently, consuming efficiently and applying purchasing power to most effectively improve overall quality of life.

Quality of life in societies around the world can be enhanced through demand side management of how consumers choose, use, and dispose of goods and services. Demand side management, as practiced daily by the global marketing industry, albeit with varying intentions, is integral to the process of making the market work for all. Consumer information can create awareness among people who want to be sure that their purchases create enhanced quality of life.

Yet currently, there is a paucity of standardized information capable of giving consumers insight into the relative sustainability of their purchasing decisions. This, in turn, makes it all the more difficult for consumers, who so desire, to bid up the value of companies committed to sustainable development. Lacking such information, consumers are deprived of the possible satisfaction that would come from knowing their purchasing behavior was really helping to make a difference.

To partially address this market imperfection, a small group of companies in the United States have kicked off an initiative called ‘The Climate Neutral Network.’ The companies aim to build market share and consumer brand loyalty through offering only products and services that achieve a net zero, cradle to grave, impact on the Earth’s climate. This is an admirable initiative but, when considering the great challenge of remediating climate change, it is only a tiny step.

For such forward thinking companies to really make a difference, and gain significant business advantage, they will need to be competing on a level playing field; i.e. companies not currently disclosing the carbon intensity of their products and services will need to do so too. Hence, to eliminate an undue market distortion, there is good reason for governments to sanction product labeling for carbon intensity. In turn, this would better enable informed and responsible consumer choice to drive eco-efficiency improvements throughout a range of products and services.

Credible metrics that designate carbon intensity per unit of product or service can readily be established, and used in label form, as benchmarks for concerned consumers. Such metrics, while serving as a proxy for eco-efficiency performance, will help make sure people realize that we have moved beyond the myth that carbon emissions and economic progress go hand in hand. Indeed, the new goal is to use market based policies to de-link corporate success from resource consumption, and thus create more wealth while consuming considerably less resources.

Democracy is integral to ensuring that the market reflects, and promotes, the values of the societies it is intended to serve. Good markets require good governance. Lack of democracy is a serious impediment to economic development and an absolute impediment to sustainable development.

Commensurate with the high stakes involved, a lot of international attention is currently being given to devising global governance mechanisms that can enhance support for both democracy and sustainable development. One noteworthy result so far is the Aarhus Convention 1Officially known as the Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters. The Convention, which just entered into force, will set up a diverse set of national and international institutions to help promote greater public access to information and participation in decision-making. The Convention can be looked upon as an institutional model, albeit on a regional level, for legitimizing globalization.

The emergence of an inclusive, accountable and representative international system, in which poor people and countries have an effective voice, is requisite if we are to keep globalization from crumpling amid attacks by those contrary. Globalization, to be sure, is a means and not an end. There is no intrinsic merit in capitalism without frontiers and it cannot be defended as such. The purpose of globalization is to raise everyone's living standards. For this to happen we must ensure that globalization not only strengthens us as consumers, but as citizens too.

One way to bolster popular participation in governance activities, and reduce the democratic deficit, is to foster social inclusion via new technologies and breach the digital divide. Through providing people with the skills and tools to engage digitally with the wider world, greater possibilities for citizen self-determination and communication can be opened up. A viable democracy requires an interactive civil society.

One noteworthy initiative in this area is LINCOS, the ‘Little Intelligent Communities’ project, which installs and runs digital community centers housed in re-done shipping containers amongst disadvantaged developing country communities. It is an excellent example of how civil society, governments, business and academia can work together to empower the poor, promote sustainable development and build community based decision-making power.

Recognizing that we cannot continue to prosper if gaps between rich and poor continue to grow, the challenge thus becomes one of making capitalism less exclusive and more inclusive. By helping the poor help themselves, we can ensure sustained prosperity and enrich everyone’s quality of life.

The market will work better for the poor if they have the genuine wherewithal to participate actively within it as capitalists. A major barrier that keeps the poor of the world from participating in the market is their inability to produce capital. Capital, which can be used to raise the productivity of labor and create the wealth of nations, is born when a market in assets is established.

Most of the poor already possess the assets necessary to successfully engage in capitalism. Generally, as shown by Peruvian economist Hernando de Soto’s leading edge work, the real constraint on the market participation of the poor is the lack of property rights that could legally fix the economic potential of their assets. Once the poor have their property rights secured, they can better use their assets to produce, secure or guarantee greater value in the market economy.

What is needed then, is a push to better enable the poor to secure legal title to their assets. Governments, as the official arbiters of legal title systems, will have to play a prime role if we are to better help the poorest establish their property rights. The importance of spreading ownership cannot be underestimated. As Stephan Schmidheiny, founder of the World Business Council for Sustainable Development, has written, it "may save capitalism."

Where to begin? One place to start could be the TRIPS Agreement (a.k.a. the Agreement on Trade-Related Aspects of Intellectual Property Rights). Right now the agreement does not cover traditional knowledge or access to indigenous genetic resources, and there are some concerns that developing countries are losing potential benefits as a result. The development of internationally recognized standards for the protection of traditional knowledge and access to genetic resources could help ensure fair and equitable benefit sharing from their use.

The promotion and maintenance of basic human rights are essential to ensuring sustainable development. To illustrate this basic premise, let us take the prime example of health, which is fast becoming central to the global debate on how to enable sustainable development.

In-line with Article 25 of the United Nations Declaration on Human Rights, everyone has the right to a standard of living adequate for health and well-being. Yet currently, easily preventable forms of sickness and disease continue to unduly frustrate human development efforts. To redress this human rights violation, the billions of people now mired in poverty simply need to be able to consume more; they need access to the many products and services that could improve, or in some instances even save, their lives.

The market system has the ability to deliver the necessities of life to the poor. For this to happen though, market framework conditions must be structured so that companies, among others, can more readily be part of the solution. The challenge for public, private and non-profit decision-makers is to agree on ways to segment the global market so that essential products and services can be sold at low-cost in developing countries without destroying markets - and industry incentives - in developed countries.

Faced with such a challenge, business is seeking to cooperate as never before with government and civil society to refine and introduce differential pricing schemes. We need establish better international market arrangements for the provision of public goods that contribute to the health and well-being of the poorest. If this can be done, there will be more incentive for multinational companies to adjust their investment strategies vis-à-vis developing countries.

Getting differential pricing schemes right will require a lot of creativity and political work. The recent ‘Høsbjør Workshop on Differential Pricing and Financing of Essential Drugs,’ organized by the Norwegian Ministry of Foreign Affairs, the World Health Organization and the World Trade Organization, was a timely step in the right direction.

Tax reform is widely recognized as a necessary element in the transition to sustainable development. Tax codes are a prime means of creating incentives or disincentives for a particular course of action. A brief examination of the financial market / sustainability interface will lead us to a case in point.

In recent years, there has been a trend towards a more comprehensive approach in evaluating a company’s position in the financial market. Some investors are even beginning to set up triple bottom line criteria for investments. That is, criteria that measure a company not against a single, financial bottom line, but rather against the triple bottom line of economic prosperity, environmental quality and social equity.

Financial markets are increasingly recognizing that it is the leading sustainability-driven companies that are best positioned to increase long-term shareholder value. The recent launch of the Dow Jones STOXX Sustainability Indexes attests to this. Over time, the promotion of shifts in capital stocks to sustainability-driven companies, and away from sustainability negligent companies, could contribute enormously to enabling sustainable development on a global scale. This becomes particularly apparent when one considers the increasing influence that equity portfolio flows have on patterns of growth in developing countries.

Yet, to be sure, there still has not been a significant progression from the quarterly financial profit paradigm that exists currently for companies to a long-term value triple bottom line paradigm. And a significant progression is unlikely to occur unless the market framework conditions are changed. After all, there is no market without governments to define the rules and context. States create and maintain the parameters within which the market operates. For serious change to happen, governments will have to shift the incentives for institutional investors.

The United Kingdom provides us with a glimpse of what could happen if market framework changes start to encourage mainstream institutional investors to explicitly consider sustainable development when making investment decisions. Recent amendments to UK Pension regulations have resulted in 21 of the top 25 UK pension managers deciding to apply some environmental/social investment strategy. As together these funds hold assets worth around one-third of all investment in the UK stock-market, this will have a marked impact on the availability of capital to environmentally and socially aware companies, besides giving other companies an incentive to change their behavior.

Norway could top what the UK has accomplished by way of tax reform and the Norwegian Supervisory Board of Finance. Specifically, the feat would involve slightly reducing taxes on income from private pension funds that account for sustainability criteria in their investment portfolios, while at the same time, slightly increasing (at a reciprocal rate) taxes on income from private pension funds that do not account for sustainability criteria in their investment portfolios – and the revision, of course, would have to structured so as to avoid retroactive penalization. 2This type of tax reform could be considered to be an extension of the GoN’s 2000 budget measure to reduce social disparity caused by dividend income

Subsidies are traditionally understood to represent a legitimate instrument for governments to influence producer or consumer choice. But unless effectively designed with sunset clauses, some can end up perpetuating the status quo at the expense of sustainable development. Subsidy shifts are often necessary to finance an orderly change of infrastructure, skills and investments within a given society.

In some cases outright elimination of a subsidy is warranted. Such action is particularly appropriate when it comes to the so-called perverse subsidies. A recent study commissioned by the International Institute for Sustainable Development estimates that global society wastes almost 1.5 trillion USD on perverse subsidies, which can be identified by the harm they do to both the economy and environment. Eliminating even a portion of this amount could create markedly different cost and price structures - while freeing up taxpayer money for more scrupulous purposes.

Cracking down on perverse subsidies is one way to make the market operate more effectively. With the removal of such distortions, the market will be much more capable of creating lasting benefits for businesses, employees, shareholders, communities, and society. Moreover, companies hampered by such subsidies will be able to become more efficient and innovative.

To be more specific, trade subsidies are an example of a type of subsidy long overdue for reform. Reform of trade subsidies, which are often come from Export Credit Agencies (ECAs) in developed countries, stands to yield substantial dividends for sustainable development. Moreover, if the reforms are structured properly, the poor in developing countries could come out better off and with more sustainable livelihoods.

Export credit support, for companies conducting business abroad, is by far the most significant form of international trade subsidy. The aggregate budget of all ECAs, roughly 100 billion USD per year, is more than the combined budgets of the World Bank, the International Monetary Fund and all regional development banks. Yet, despite this level of influence, most major ECAs still lack environment and development investment standards, or even the need to publicly account for their use of public money.

As concern rises over ECA investments that prove be environmentally destructive, socially oppressive and financially unviable, there is good reason to work to ensure that export credit policies are consistent with sustainable development. In the words of the final communiqué of the 1997 Denver G7 Summit: "Private sector financial flows from industrial nations have a significant impact on sustainable development worldwide. Governments should help promote sustainable practices by taking environmental factors into account when providing financing support..."

Even though the communiqué neglected to mention the social element of the triple bottom line, and reforms still have yet to really move forward, there is encouraging work being done on this by the OECD and, as of this fall, the United Nations. Such work is of critical import to sustainable development and deserves to be heartily supported.

Regulatory accountability is one of the conditions that have to be in place if sustainable development is to be realized. Whether in the developing world or the developed world, governments need to be accountable for the types of regulations they use to frame the functioning of the market. On the whole, regulations should, ideally, be a force for environmental, social and economic sustainability. If not, those empowered to govern their societies should be required to explain why not.

Of primary importance to the framing of the market is establishing a viable pricing structure. The market system cannot work without proper price signals. When the prices of goods and services do not correlate with their true worth society misses signals of changes in their supply and condition. Consequently, resources can be wasted and future opportunities squandered - neither of which contribute to making the market work for all.

One particularly glaring flaw in the current international market pricing structure is the unrealistically discounted cost of the fuel burned by international civil aviation. Not factoring the established risk of global warming and climate change into the pricing of international civil aviation fuel, besides posing a growing threat to present and future generations, inhibits the innovative capacity of the private sector to prepare for a carbon constrained future.

A declared view of the Norwegian Government and Parliament is that Norway should play an instigator role in the international environmental policy arena. In-line with this, Norway has taken great strides to cost carbon emissions, be they from plane or otherwise. The next challenge, it seems, is to scale up what Norway has already achieved on a national level. An especially consequential move would be to help establish the global equivalent of Norway’s realistic, fiscally neutral, air-fuel pricing method - or a variation thereof.

Granted, Norway has been rebuffed before in this area, witness your earlier concession to remove the CO2 and sulfur air fuel emission tax on international air traffic using Norway as a port. All the same, as the Earth continues to heat up, such forethought will be inevitably be vindicated and called upon.

Environmental drivers aside, one must also give due consideration to the impact of September 11 ^th> on the airline industry. In full solemnity now may be just the time reconsider why aviation fuel is the cheapest fuel in the world. As tens of billions of dollars flow to the airline industry in price supports, maybe there is a one of a kind window for making progress on a long-term issue facing our whole global community.

Chris Patten, Member of the European Commission, has written: "Governments and multinational enterprises are smart enough to know that the pooling of national sovereignty is required in some areas where national boundaries have been over-run by economics, environmental change and technology." Is he correct?

The creation of new markets can liberate human ingenuity by encouraging experimentation and rewarding those ideas that meet societal needs most efficiently. New market creation can thus be regarded as an effective method for bringing about socially desirable outcomes and a major means of enabling sustainable development.

In particular, we should more fully consider how the creation of new markets can generate viable income-generating activities for the poor while protecting the environment. One high potential way to do this would be to create international markets for ecosystem services. If designed properly, such markets could offer sustained, significant and well-distributed financial benefits to people living in developing countries.

At present, most people tend to take ecosystem services for granted. And this is understandable; our economic calculus and accounting principles were developed before we really started to understand how the Earth system functions. Consequently, we currently neither pay for ecosystem services nor book the depreciation that we cause.

A founder of the International Society for Ecological Economics, with a team of fellow academics, recently estimated the economic value of 17 ecosystem services based on published studies and a few original calculations. They estimated the value of the world's ecosystem services and natural capital in the range of $16-54 trillion per year, with an average of $33 trillion per year. Most of this value, even though it is at par with cumulated world GDP, is now outside the market.

How can we build such uncosted values into the market? A good start would be to assure the establishment of a market for carbon ‘sinks’ under the aegis of the UN Framework Convention on Climate Change. In addition to reducing atmospheric concentrations of carbon dioxide, making carbon sequestration economic would create a legitimate, quid pro quo, North-South wealth distribution mechanism. Carbon payments could, for example, make sustainable forest management a profitable endeavor for local communities living in and around the forests of the developing world. Furthermore, a market for carbon sequestration as an ecosystem service would also reduce the threats of unsustainable land clearing and biodiversity loss. 3Fears of a Kyoto Protocol loophole could be alleviated by putting a cap of 20% on the level of emissions reduction commitment that can be satisfied by way of sinks

Attention to shareholder value has been the best market discipline that anyone has yet thought of. Consequently, the mission of the corporation is to maximize shareholder value. Commensurate with this mission, managers of today’s publicly held companies are legally required to maximize, or at least try to maximize, the financial value of their shareholders’ investments. Moreover, the managers are supposed to consider other goals only insofar as they ultimately affect shareholder value.

In this situation, companies can only do what they do best – play within the current rules of the game – and carry on with the outstanding innovation and progress they have achieved so far. At the same time, leaders within business are explicit about the limitations they face consequent to operating organizations based on a narrow set of goals. In the words of Chad Holliday, current Chairman of the World Business Council for Sustainable Development Executive Committee, "one of the biggest challenges we face is how to use shareholder value as a driver for sustainability."

To address this challenge, the task becomes one of making it obvious to shareholders, and potential investors, that a sustainability-oriented business strategy can return above-average value. And more and more, this message is being made clear. Consider the comments of Dr. Rolf-E Breuer, Spokesman for the Deutsche Bank Board of Managing Directors, "Deutsche Bank regards its commitment to sustainable development as a key element in the long-term increase of the Bank's value."

Yet before companies can make the case that sustainable development is good for business, they must they must be able to measure performance. Hence, most of world’s leading companies are beginning to evaluate themselves by, and report on, a broader set of criteria than simply narrow economic criteria. This is a vital step if sustainable development performance - which joins environmental and social performance to economic performance - is to become synonymous with shareholder value.

Through considering broader criteria for organizational success, some companies are even starting to think that sustainability performance should be a factor in compensation, profit share and capital share within internal divisions and branches. But to be sure, so far, these are only the leaders. While awareness and action is progressing, far too many companies are still locked in the old model where environmental and social improvements are seen as burden to the bottom line rather than an opportunity to innovate and gain competitive advantage.

What is to be done about the companies that have yet to adopt sustainability performance targets? Should they be allowed to ride free on the exemplary work of leading companies? Yes. Pursuing sustainability performance targets should only be voluntary. Prescribing them through legislation would inhibit the creative dynamism, and natural adaptive ability, of free enterprise. There are other ways to encourage sustainability performance targets. In due course, the laggards will follow the leaders in their work to align shareholder value with sustainable development performance.

Ways need to be found to improve relationships between governments, business, and genuine and legitimate representatives of civil society. One such way is for governments and inter-governmental bodies, such as the United Nations, to start insisting that non-governmental organizations (NGOs) that receive public funding or seek a formal role in the process of determining public policy should meet certain qualifying criteria.

Doing so would certainly be in the best interests of the poorest. How so? Consider the following…

Protest Fears Force Cancellation of World Bank Talks on Reducing Poverty

PARIS, May 19, 2001. The World Bank announced today the cancellation of its 2001 Annual Bank Conference on Development Economics originally slated for Barcelona on June 25-27… Explaining the decision, World Bank spokeswoman Caroline Anstey said , "A conference on poverty reduction should take place in a peaceful atmosphere free from heckling, violence and intimidation. Despite our efforts to reach out to some of the groups planning demonstrations, and to include them in the conference, the intention of many of the groups who plan to converge on Barcelona is not to join the debate or to contribute constructively to the discussion, but to disrupt it." Particularly, she said, " It is time to take a stand against this kind of threat to free discussion."

Currently there is a credibility gap when it comes to the roles of NGOs on the world stage. Many NGOs demand standards of behavior, accountability and transparency among business and governments that they themselves are unwilling to accept in their own organizations. Moreover, the more extremist groups have no qualms about breaking the law and damaging or destroying private property in order to promote their cause. Yet, at the end of the day, such groups still claim to represent the public interest.

On the contrary though, the public interest is not served by hypocrisy, violence and disingenuous behavior. And, to make matters worse, the acts of the few extremists also tend to tar the NGOs that are genuinely representative, have demonstrated expertise and knowledge, and are accountable for their actions. As a consequence, the tyranny of the few reduces the likelihood that the legitimate voices, capacities and ideas of civil society will be considered in the official policy-making process. For the sake of making the market work for all, the time has come to separate the wheat from the chaff and codify responsible civil society stakeholder conduct.

A global covenant, perhaps akin to the Global Compact between the UN and business, could enable upstanding NGOs to build their support bases and give them greater credibility and authority in their activities. Specific design guidance could perhaps be drawn from the compact between the UK Government and the UK NGOs that was set up after Prime Minister Tony Blair took office. Another possible reference could be the professional standards that the International Red Cross wrote up in 1994 to guide their work and reflect their core values.

Using the market to generate and sustain income-generating activities for the poor is the best hope for improving their quality of life. The ongoing demonstrations being directed against international organizations, resulting in the shortening or cessation of trade and development meetings, do not improve the well-being of the world’s poor. For certain, those within civil society who have something constructive to add to the process of making the market work for all should be listened to, even heeded in some instances. Yet the same attention should not be paid to an unrepresentative and reactionary minority who want to hijack the international political process. Accordingly, if we are to serve the best interests of the poorest, we need to better distinguish between the two camps - hence; a covenant.

Standardization is an integral means of enabling sustainability through the market. Industry-wide standards, internationally recognized, facilitate trade among countries and can help developing countries improve their productivity, market competitiveness, and export capability. Standards, developed via cooperation and consensus, help improve peoples’ quality of life.

Standards have a prime role to play in corporate efforts to promote sustainable development. An excellent example of this is provided by the standardization policies of the Ford Motor Company. In 1998, Ford became the first automaker to have all of its plants - 140 manufacturing facilities in 26 countries - certified under ISO 14000, an international standard for environmental management systems. The following year, Ford announced that it will require all of its manufacturing suppliers, some 5,000 worldwide, to become certified. By the end of 2001 each and every supplier, if they want to retain Ford’s business, will have to have at least one of their manufacturing sites ISO 14000 certified. By July 2003, Ford will require all such suppliers to have certified all their sites.

Working together with its suppliers, Ford can accomplish more to improve the environment than it can on its own. In the words of Carlos Mazzorin, group vice president of purchasing for Ford, "we have extended (our) environmental commitment to thousands of other companies, exponentially increasing the benefits of rigorous environmental certification." And the effects of Ford’s leadership don’t stop there. Soon after Ford’s decision, General Motors followed suit and announced a similar policy - which will affect over 5,000 of their suppliers worldwide. Beyond that, other automakers too, are also now thinking of instituting a similar policy.

Such supply chain management initiatives provide a good example of one way the market can be used to create a more sustainable world. And, for certain, it is not only companies that continue to recognize the importance of procurement policies that support sustainable development. Governments too, are getting much better at actively promoting sustainable development through their purchasing policies. Consequently, this behavior can be expected to expedite the market uptake of leading edge sustainability practices and products.

The global markets and governance challenge not only involves working out more sustainable rules and norms to govern markets more effectively across borders. It also involves promoting ways companies can govern themselves better internally. For improvements to the globalization process can often be driven by changes in standard business practice that, in turn, can result from shifts in internal corporate governance.

Good corporate governance increasingly involves more than defining the distribution of rights, roles and responsibilities within a corporation. At a time when most governments are slimming their social responsibilities, many companies are finding that societal expectations of their responsibilities are expanding. To contend with this, many companies are voluntarily broadening their corporate governance agendas to account for changing social priorities and reduce stakeholder pressure.

Many companies are starting to realize that taking stakeholder perspectives into account when defining company objectives, and the means of attaining those objectives, is a smart move that can result in greater public support within the marketplace. This logic is reflected by a poll commissioned last year by PriceWaterhouseCoopers. The poll, which interviewed over 25,000 average citizens across 23 countries on 6 continents, revealed that in forming impressions of companies, people around the world focus on corporate citizenship (i.e. stakeholder relations) ahead of either brand reputation or financial factors.

In a world in which markets are becoming increasingly global, corporate governance and the leadership of responsible companies appears likely to assume more rather than less importance in the future. For example, when Adidas or Lego set the protocol that governs their subcontractors in less developed countries, they may be establishing quality standards that would not even have passed through the legislatures of those developing countries.

Given the potential benefits, there is reason to encourage corporate governance policies that actively contribute to sustainable development. To be sure though, the relationship between corporate governance and business action for sustainable development is still very much in a nascent stage. More work will have to be done in this area. In the meantime, the OECD Principles of Corporate Governance – which focus on transparency, equitable treatment, responsibility, and accountability – represent the state of the art.

The expanding assortment of international environmental agreements and international environmental institutions needs to be better coordinated. Companies currently face a baffling array of environmental demands, some even at cross-purposes, from myriad sources. As global markets integrate, so must the environmental governance mechanisms to ensure efficiency, consistency and truly sustainable development for all

No international governance mechanism yet exists to balance priorities between economic interests and international agreements on environment and human development. As a result, for example, the World Trade Organization is increasingly being asked to go beyond its narrow remit and address environmental and social issues. Although, there is reason to address some trade and sustainable development issues within the WTO, only so much should be expected of the organization.

Establishing a Global Environmental Organization (GEO), as many have called for, could do much to ease the burdens of the WTO and promote coherent supranational environmental jurisdiction. If a GEO were created, two main improvements on current market framework conditions could be 1) increased harmonization of environmental demands on market actors and 2) greater predictability of regulatory intervention. Moreover, a GEO could also help to streamline and lower the costs of the present day international environmental bureaucracy, which tends to be far-flung and uncoordinated.

To be sure, stronger international cooperation through intergovernmental organizations, in support of common objectives of the global community, has the potential to be a prime lever for enabling sustainable development – particularly in developing countries, regions of weak government and areas of low environmental and social standards.

Currently, the most widespread and influential metric for economic success, Gross Domestic Product (GDP), is incapable of indicating whether or not our economic activities are actually sustainable. The GDP was never intended to become what it has today; a glorified all-purpose index of economic performance. Yet we persist in using it as an instrument to validate our market framework conditions.

The inflated false myth of the GDP as an indicator for societal progress should be punctured. The reason for questioning GDP is quite clear: the economic policy agenda cannot be seen as separate from the social and environmental policy agendas. Broader criteria for societal success need to be explicitly considered. Simon Kuznets, the Nobel Prize winning economist who designed what became the GDP during World War II, emphasized repeatedly after creating it that better measures for assessing economies needed to replace it. As a person most familiar with the logic of the GDP, he was right - we have to rethink how we measure economic growth and replace our basic metric of societal progress.

In the mid-90s, drawing from a pool of previous work, the organization Redefining Progress developed the Genuine Progress Indicator, or GPI, to ‘begin to measure the performance of the economy as it actually affects people’s lives.’ The GPI, through better taking social and environmental considerations into account, is but one example of how broadened economic measurement standards can enable whole new views of economies to emerge.

As Ted Halstead, a co-developer of the GPI and a World Economic Forum Leader for Tomorrow has written:

"the central question is not between growth or no growth. We must differentiate the types and purposes of growth-growth of what, for whose benefit, at whose expense, based on what type and rate of resource use."

Another supporter of such logic is Canadian Finance Minister Paul Martin: "measuring progress is about giving governments, companies - and indeed all Canadians - the information they need to ensure that the economic growth we enjoy is sustainable." Minister Martin, who also serves as Chairman of the Group of Twenty (G20) Forum of Finance Ministers and Central Bank Governors, is allocating millions of dollars to launch a Canadian national sustainable development indicator initiative that is intended to "advance the science of measuring progress towards a more sustainable economy."

An explicit economic value must be associated with managing for the long-term integrity of natural and social resources. Only then, even if it is only a rough estimate, will there be a baseline for structuring price incentives and national accounts in accordance with sustainable development.

If we really want to make the market work for all, then we must consider ways the market can be shaped so that the poorest are not left behind. High levels of wealth inequality, among and within nations, are not compatible with a truly sustainable global society. Yet, for the most part, it seems that globalization is concentrating wealth and opportunity within the upper strata of our societies. If sustainable development is to be realized, we must allow the market to function more effectively as a wealth distribution system.

The market is a human construct. With the wrong framework it is a zero-sum game. With the right framework, it can become a positive force for all the world’s people. Making the market work for all is a design challenge, nothing more, nothing less. The market in and of itself is neither good nor bad; it is simply a means of allocating resources according to the rules it operates under. Protestors that want to ‘destroy the market’ fail to realize that markets can be crafted to give expression to common interests. Indeed, the innate amorality of markets makes it all the more important that social values find expression in the rules that govern markets.

John Locke, the influential 17th century philosopher who had a prime role in establishing our modern understanding of property rights, acknowledged that common resources, e.g. the oceans or sky, deserve to be considered the common heritage of all. Such thinking is also in-line with Res publicae, a category of commons ownership that dates back to Roman law - the foundation of our modern day legal system. The trouble with common property rights though, precisely why they have never really been established, is that there is tendency to ignore them because they are so diffuse - hence, the tragedy of the commons.

An emerging market instrument has the potential to overcome the trouble with common property rights and, through granting dividends on common shares in the Earth’s worth, equitably provide benefits to all. The new market instrument in question is called a ‘common heritage trust.’ In the words of Dale Jorgenson, an economics professor at Harvard University: "The idea is simple, elegant, and far reaching. It could change the future of our economy."

The person who has done the most to develop the idea is Peter Barnes, a successful American entrepreneur and co-founder of Business for Social Responsibility, a coalition of 1400 companies committed to Corporate Social Responsibility. He recently authored a book that proposes the establishment of a common heritage trust for the sky. The book, entitled " Who Owns the Sky? Our Common Assets and the Future of Capitalism" sets forth a basis for distributing atmospheric scarcity rent deriving from the ecosystem services that the sky provides.

Based on the idea that the sky is a common asset owned by all, a Sky Trust would promote climate stability and equitable wealth distribution by, as Barnes describes, "limiting the amount of carbon that can be put into the atmosphere; allowing the free market to set a price on the right to emit carbon; collecting revenue from those who buys those rights; and returning earned revenue to the owners of the sky." The idea has broad political appeal (private property rights expanded, yearly dividends, market pricing, etc) and many are starting to recognize that there is significant potential to use common heritage trusts to preserve the environment and spread wealth to all.

One of the few related precedents for the idea of an international common heritage trust is Norway’s "Petroleum Fund" which invests part of Norway’s Oil revenues for the benefit of all Norwegians and future generations of Norwegians. The precedent becomes even more pronounced when one considers that Norway recently expanded the remit of the Petroleum Fund to allocate resources towards a ‘Solidarity Fund’ that will channel benefits to the world’s poorest countries.

IV. Shared responsibility

"Let us choose to unite the powers of markets with the authority of universal ideals. Let us choose to reconcile the creative forces of private entrepreneurship with the needs of the disadvantaged and the requirements of future generations."

- Kofi Annan, United Nations Secretary-General

At present, the policy-framework that conditions the global market system is not compatible with sustainable development. Consequently, the ability of the market to act as a driver for sustainable development is constrained.

Changing this situation is in everyone’s interest – although it will by no means be easy. The four concepts of globalization, markets, governance and sustainable development are often hard to grasp individually. Understanding the linkages between them is even more difficult.

Grounded in a belief in the tremendous real and potential benefits of the market system, this brief has endeavored to put forth, a bold, forward-looking, and practical plan of action for making the market work for all – and thereby help prevent the marginalization of the poor and promote sustainable development. The twenty-one clear policy recommendations, covered herein, were each chosen as a prime leverage point for enabling positive change within the market system. As a group, they provide a basis for greater consistency among macroeconomic, trade, aid, financial, social and environmental policies.

The policy recommendations are also intended to represent ways governments can improve the competitive advantage of sustainability-oriented companies. For making the market work for all cannot be achieved if sustainability oriented companies are penalized for their dedication and commitment. Adjusting market framework conditions to favor sustainability-oriented companies can be looked upon as an investment. For the long-term societal benefits of promoting sustainable development via private sector practices are potentially enormous.

The member companies of the World Business Council for Sustainable Development have a vision for an inclusive and life-enhancing global market system:

"As the world society approaches a balance among economic, environmental and social sustainability, markets are transparent, stimulate innovation and are effective in their role as a catalyst for change toward a better quality of life for everyone."

It is a great vision. It deserves to be realized. The trouble is though, the companies, try as they might, cannot realize this vision on their own. They need the partnership and cooperation of both governments and civil society. Because all actors need to share responsibility for making sustainability through the market happen – otherwise it will not happen.

This is where the leadership of Norway comes in. Norway has indicated an interest in playing a facilitating role in convening the combined intelligence of government, civil society and business to address the spectrum of ‘anti-globalization’ concerns. Taking on this facilitating role certainly brings with it a heavy load of responsibility. The intention is for this brief to help you, in some small way, as you demonstrate international leadership through steering a comprehensive research and outreach initiative on ‘Global Markets & Governance.’

The stakes are high. Yet the future belongs to those who can recognize potential in a changing world and respond with creativity, innovation and leadership. There is significant scope for putting new forms of market governance into the service of the collective good. Now is the time for Norway to garner the will and focus to guide the multi-disciplinary, and multi-sector process of making the market work for all.

By developing a greater understanding of the linkages among globalization, markets, governance and sustainable development, and spreading this understanding to other stakeholders also in a position to act on it, the Norwegian Government will be playing a prime role in promoting humankind’s ability to manage global interdependence. Whether or not economic development becomes synonymous with Sustainable Development in the 21 ^st> Century will depend, in part, on the breadth and efficacy of your efforts.

Correspondence :

Koben Christianson
University of Oxford
ECI, 5 South Parks Road
Oxford OX1 3UB, United Kingdom
koben.christianson@mansfield.oxford.ac.uk

Royal Norwegian Ministry of Foreign Affairs contact:
Ambassador Torbjørn Frøysnes, torbjorn.froysnes@mfa.no

World Business Council for Sustainable Development contact:
Director Arve Thorvik, thorvik@wbcsd.org