24 February 2009

sustainability and the 'bottom line'

The Brundtland report defines sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. 20th century economics has seen an emphasis on economic growth i.e., increases in GDP and consumption levels, which has brought us to the present situation. The concept of sustainability ushers the 21st century in a more development-orientated model i.e., keeping consumption constant over an infinite amount of time through improving the quality and efficiency of the production process across the world.

All industry ultimately depends on natural resources for their operational needs. The growth model may have improved living standards for few but at rates exceeding those of natural resource regeneration. Climate change is an effect of this model and could cost the world 1-2% of its economic output per annum; it may not seem to be a significant portion of GDP except that, most industrial economies grow at a rate of 2.5% per annum. Hence, given that this estimate is even approximately correct, climate change comes close to stopping economic activity.

The ‘bottom line’ for any company is to maintain market share, responsibility to its stakeholders and to make a profit. In terms of climate change, companies have a responsibility to be aware of public opinions in order to maintain or improve upon their market share. To ignore environmental issues or not pick up on public sympathies, companies can lose customer trust and this affects the bottom line. They may have to run a costly advertising campaign to restore consumer confidence and avoid losing market share which may have knock-on effects on share prices. A good example of this would be the Brent-Spar oil rig fiasco which cost Shell between Β£60M and Β£100M, when loss of sales were considered.

Environmental issues can work for the company to regain market-share, re-launch itself in a new sector like carbon-reducing goods and opportunities for expansion into sustainable development. An example of this would be Scottish Power which was a traditional company generating energy from coal and hydro-power. However in 2006 they were granted permission to build Europe's largest on-shore wind farm. The 322 MW/140 turbine site will cost an estimated B£300m. This is already showing an increase in their share prices and the company is slowing regaining its flagging market-share.

As with any newly developing economic sector, careful investment, studying market trends, etc., is needed. Energy is one of the biggest commodities in the world today and sustainable forms of energy have huge economic pay-offs. Suzlon is the world's largest, fully-integrated wind power company. In terms of market share, the company is the largest wind turbine manufacturer in Asia. As a relatively new company, it has proved that careful prediction of future trends and investments can reap rich rewards within the sustainable energy sector.

The main challenges associated with sustainable development are the fundamental reforms needed to make this a wide-spread method of production. From factory equipment upgrades to a radical change of global production standards, the 21st century faces heavy costs and adaptation time lags to forge sustainable economies. Globalization, indeed, in itself proposes the birth of eco-trade. It is perhaps one of the earlier manifestations of this change.

Another challenge is the persistent uncertainty surrounding global ecosystems. These are complex and interactive to a degree that we are only just starting to understand. Environmental economics, at its present embryonic stage, has only glimpsed at the causal chains that brings environmental effect about. Investing in research and development for betterment of the technologies available should be of prime importance for big companies and developed governments world wide. Careful investment in existing technologies and promotion of existing sustainable technologies should be encouraged as well.

Finally, conceptual changes in biological and economic evaluation standards for environmental effects have to be incurred. Unless we find new methods of measuring pollution, we cannot impose equivalent controlling measures. Since aspects of pollution show huge variability in its types and forms, in varying densities between different places even within the same country, an overall expansion of current data-gathering models is needed. This can be achieved by honing environmental sciences to produce a larger and more holistic view of the global ecosystem, while integrating the economic science in the appraisal of such complex dynamics.

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