Sustainablog

This blog will cover some news items related to Sustainability: Corporate Social Responsibility, Stewardship, Environmental management, etc.

19.11.05

Renewables market seen leaping by 70% by 2008


Renewables market seen leaping by 70% by 2008

Environmental Finance, 17 November 2005 - The global market for renewable energy technology is expected to soar by 70% over the next three years, according to a new report by McIlvaine. The US-based specialist industry analysis company estimates the market is currently worth $27 billion and expects this to reach $46 billion in 2008.

Low or non-existent fuel costs, pressure to reduce greenhouse gas emissions and concerns over energy security are all driving the market, the authors note. In addition, they say that there have been significant improvements in efficiency for the main renewable technologies at the same time as oil and gas prices have been rising sharply.

Wind energy is the leading technology, followed by solar and biomass, they say. Germany has the largest installed wind capacity, followed by the US, Spain and Denmark.

Germany and Japan are the biggest markets for grid-connected solar systems and, overall, solar energy use has been growing at a rate of 30%/year, the report says.

In addition to established biomass combustion systems using steam turbines, several new methods for generating power from biomass are being developed. High-efficiency integrated gasification combined cycle units are at an early stage of commercialisation, it says, and co-firing of coal plants with biomass is another promising technology.

The report is available for purchase at www.mcilvainecompany.com

18.11.05

Sun Microsystems Rolls out New Eco-Responsibility Initiative


Sun Microsystems Rolls out New Eco-Responsibility Initiative

GreenBiz.com, 17 November 2005 - Sun Microsystems has introduced the first computer processor designed for eco-responsibility, claiming innovations in power, cooling, and performance. The new product was unveiled at the company's Summit on 21st Century Eco-Responsibility held Nov. 14.

For the summit, Sun gathered together thought-leaders across business, academia, and the environmental groups to discuss today's pressing issues. Participating in the summit was Greg Papadopoulos, Sun’s chief technology officer, and a number of environmental thought leaders including Christine Ervin, former president and CEO of the U.S. Green Building Council, Noah Horowitz, of the Natural Resources Defense Council, Jonathan Koomey, consulting professor, Stanford University and Dr. Amory Lovins, CEO of Rocky Mountain Institute.

At the event, panelists discussed how the emerging energy crisis coupled with the growth of the global technology network has resulted in massive increases in energy costs and product consumption; and what actions industry can take in order to adopt practices and design technologies that consume less and deliver more.

"Energy efficiency is a competitive advantage in the automotive industry and in the markets for everything from airplanes to refrigerators. It’s high time we bring the same focus and competitive zeal -- the same level of responsibility to the environment -- to our industry," said Sun CTO Greg Papadopoulos.

Sun also announced it is launching a series of high-level conferences to engage industry and government leaders in support of eco-responsibility. The first of these sessions will be held on Jan. 31, 2006 in partnership with the EPA and will focus on innovative ways to reduce energy use in the enterprise servers that power the world’s computers.

Join the Habitat JAM


----- Forwarded by Jean-Francois Barsoum/Markham/IBM on 17/11/2005 16:27 -----

Hi,

Yalmaz Siddiqui invites you to join the Habitat JAM - a free on-line event that:

  • Will reach the unreachable - allow them to share their ideas towards making this planet sustainable;
  • Is a true democratic gesture of the Government of Canada, UN-HABITAT and IBM to make the process of collective thinking inclusive;
  • Offers a unique platform to share your thoughts with experts, world leaders and thousands like you who care about our cities.


This is what Habitat JAM is all about - a 72 hour Internet based collaboration being held on Dec 1 – 3, 2005 that will provide “ideas to action” for the World Urban Forum 3 and help make our cities more sustainable.

Your contribution is vital. Join the Habitat JAM and be a catalyst of change. Let us, together, make this planet a better place to live.

Register now at:
www.habitatjam.com.

The Habitat JAM team.

17.11.05

Sustainable business: the need for new business models in a changing world


Sustainable business: the need for new business models in a changing world

Address by Travis Engen, President and Chief Executive Officer, Alcan Inc., at the Birkbeck Lecture Series (London, 27 October 2005)

Thank you, Robert.

And thank you, Lord Marshall, for inviting me to be part of the Birkbeck Lecture Series.

Alcan Inc. is a company that relies on a wide spectrum of skills in our workforce. We believe in lifelong learning and we make the training tools available to our employees to move ahead with and within our organization … whether that be shop floor skills training, trades apprenticeships, or post-graduate pursuits. You might be surprised to know that in 1946 Alcan founded an International management college for Alcan executives that in the early 1990s was merged with a similar Nestle management college to found what is today IMD in Lausanne.

So, it is a privilege to be asked to speak by as unique an institution of higher learning as Birkbeck because you embody the kind of opportunity that my company tries to make available to all our people, according to and respectful of their interests and aspirations.

And you do it in the heart of London, one of the world’s truly great cities. As CEO of a leading international aluminum, engineered products, and packaging company, I can’t overstate the influence London has on my industry. Home to the London Metal Exchange that sets prices for our commodity products and headquarters of the International Aluminum Institute, your city is the international seat of the aluminum industry.

London is also widely considered one of the world’s most important global centres of thinking when it comes to sustainability and Corporate Social Responsibility … a reputation that I have come to understand more fully through my company’s association with the Prince of Wales International Business Leaders Forum – or IBLF.

On that note, I would like to acknowledge Robert Davies and the fine work carried out by the organization he represents.

Alcan came to know the IBLF through the Alcan Prize for Sustainability. I’ll have more to say on the Alcan Prize later but, for now, suffice it to say that the IBLF manages this program for Alcan … and does so with dedication, objectivity, and clarity of vision.

I was honoured earlier this year to be named Chairman of the IBLF … honoured both because I have developed considerable respect for the organization through our Alcan Prize partnership and because I believe deeply in the work they do. International business needs forums like the IBLF that allow us to benefit from each other’s experience as we grapple with the challenge of defining the role of business in preserving our planet for future generations, and ensuring a more equitable distribution of the world’s wealth and use of its natural resources.

My topic for this evening is a mouthful: “Sustainable business: the need for new business models in a changing world.” I certainly don’t have all the answers, but I’m pleased to have the opportunity to share some of what I have been learning over 40 years of global business experience… and some of what Alcan is learning as we adopt sustainable business models and strive to play a constructive role in tackling the economic, environmental, and social issues facing today’s world.

I believe it is important to emphasize that this is a path of learning. I don’t believe it will ever be possible to say, “That’s it, we’ve arrived.” The needs of the world will continue to evolve as will our own awareness of them and of the possibilities for action. But the more of us who are engaged, the better the chance that our world will evolve in ways that will continue to offer opportunities to future generations.

Our common challenge is to meet the needs of a world that is expected to have a population of nine billion and a global economy of $135 trillion by 2050. A world that, at today’s pace of change, will need not one – but three – planets to support it. Indeed, if the entire world were consuming at the rate we do in Western economies, it would take five planets to support us.

Finding ways for the one planet available to us to accommodate this growth within the window of the next few decades is a daunting task. One that requires an international, cross-sector, all-out effort.

So how are businesses and business models addressing this? To start with, the corporate world can be placed on a continuum that ranges between Milton Friedman’s view that “the business of business is business” and Ebenezer Scrooge’s revelation that “mankind was my business.”

More and more of us are lining up with the redeemed Scrooge. The time he spent in the spirit world didn’t make Ebenezer less of a business man. It helped him to understand how his business interests, and every decision he made with respect to them, had an impact on the lives of his fellow human beings.

At Alcan, we get it. And getting it is creating so much opportunity that I can’t do justice to it all in the brief time I have with you tonight.

First and foremost, the debate within Alcan is not about whether or not the business case exists for social responsibility. We have no doubt that it does. Every day, we see the return on investment that comes with having an engaged discussion on an opportunity or project that includes all elements of sustainability … economic, environmental and social, not just the economic. To many outside of Alcan, this is seen as recognizing and fulfilling our responsibilities as an international business … one that directly employs tens of thousands of people and has an impact on the lives of many more thousands in our operating communities. But, to us, this is executing our sustainable business model.

We know that our social license to operate and our ability to shape our own destiny depend on relationships of mutual benefit with society at large, and with the governments and non-governmental organizations that represent society’s interests.

We also know that, while we’re looking after our own house, there is a collective contribution that the global business community can – and, in my view, must – make to address issues that threaten our sustainability as a business community.

I’m talking about issues like the heavy consumption of resources by the world’s wealthiest countries. Realities like the developed world’s tendency to lecture emerging economies on conservation when they know full well that our own growth has been based on consuming more than pro rata amounts based on our population. I’m talking about the need to strengthen governance models in emerging economies, eliminating corruption as a way of doing business and transitioning to better investment frameworks for better economic performance.

The IBLF and many other organizations, such as the World Business Council on Sustainable Development or WBCSD, are helping business leaders to think deeply about the role of business in society. I believe these collective initiatives on the part of global business are crucial at this juncture – on a planet that is increasingly stressed. I also believe they carry the promise of significant benefit for civil society.

I have the privilege of co-chairing the WBCSD’s “Role of Business in Society” initiative. This initiative brings together CEOs from some of the world’s most successful companies to define our role and identify how the global business community can help itself by helping sustain the planet. Discussions like this are critical and urgent because it is clear that the answers won’t be found by going about our business as usual.

“Business-as-usual” thinking will not conserve our diminishing fresh water sources, which support all life on this planet. Nor will it address the inequities between the developed and developing worlds, or between rich and poor within the same borders. We have seen far too much evidence of how disaffection through a sense of inequality manifests itself … in the kind of terrorism the world was horrified to witness here in London last July; in wars within and between nations.

The participation of business in tackling these issues is by no means philanthropic. Consider the words of the co-chairs of the WBCSD’s “Sustainable Livelihoods Project.”

In a report entitled “Business for Development,” released last month, they point out that the products and services provided by the Council’s 175 member companies touch the lives of an estimated 2.5 billion people each and every day. Yet most of the world’s population remains trapped in poverty, left out of the world’s markets.

The WBCSD estimates that, by 2050, 85 per cent of the world’s population of some nine billion people will be in developing countries. Its report states that if these people are not, by then, engaged in the marketplace, our companies cannot prosper and the benefits of a global market will no longer exist.

While one could be frightened by these projections, I believe that a better course is to see the opportunities. It is the challenge and the opportunity of the markets that are growing fastest, that are not yet integrated with the more developed regions that should drive us. The sustainability of our businesses, their ability to continue to innovate and raise living standards through productivity gains, their ability to build bridges and relationships, and their ability to continue generating wealth that enables reinvestment and growth depend on the creativity and resolve we bring to working with governments, academia, and NGOs toward equitable participation for all societies in the world’s marketplace.

To quote the UN Secretary General: “It is the absence of broad-based business activity, not its presence, that condemns much of humanity to suffering. Indeed, what is Utopian is the notion that poverty can be overcome without the active engagement of business.”

The WBCSD’s “Business for Development” report, which I encourage you to seek out, presents 14 case studies on companies that are helping to overcome human suffering through innovative business models in some of the most impoverished regions of the world.

Companies like SC Johnson in Kenya, GrupoNueva in Guatemala, and Rabobank in Indonesia are helping local farmers boost their competitiveness, thereby improving their individual livelihoods and the quality of life in their communities.

ConocoPhillips is helping Venezuelan women to develop entrepreneurial skills. EdF is providing affordable solar energy to villagers in Morocco. Procter & Gamble has developed a low-cost product to purify drinking water.

BP, Eskom, and Rio Tinto are cited in the report for the work they’re doing to support small to medium-sized enterprises in bolstering local economies. Philips is expanding the provision of specialized health care to India’s poor. Vodafone is making it easier for African entrepreneurs to receive financing. Holcim is doing something similar with regard to financing low-cost housing in Sri Lanka. Unilever is finding new ways to deliver fortified food and hygiene products in Africa and India.

While this may sound like a list of anecdotes I remind you that it is said that the plural of anecdote is data. What’s really relevant is that all these solutions are business solutions. These companies are developing and selling affordable products or services aimed at solving economic, social, and environmental challenges in impoverished regions. By doing so, they are opening up new markets for themselves and improving the standard of living for the customers they serve.

These are all fine examples of the new business models that hold so much promise for improving the lot of our troubled world. There are many more. Just among WBCSD members alone, there are 66 companies actively creating business-based economic development initiatives in various parts of the world.

The WBCSD is only one of many global forums promoting the notion that business must be an equal partner with governments and non-governmental organizations if we are ever to achieve a greater balance across the economic, social, and environmental dimensions of sustainability.

Many other forums – the WEF, the IBLF, the Global Compact, IISD, ISO, GRI, the G-8, the OECD … the acronyms go on and on – have reached the same conclusion: that no one sector can solve the world’s problems but, together, we have the means.

Governments can create the policy infrastructure that stimulates sustainable growth. NGOs are skilled at early identification of issues and priorities, and facilitating communication among often disparate parties. Business has the resources and expertise to activate solutions that are self-sustaining through the application of business models. By working together and taking each other’s interests into account, we become a formidable force for the betterment of the planet.

I’d like to share a few examples from our own experience at Alcan.

First, I should not assume that all of you are intimate with Alcan Inc. Let me give you the 30-second tour. The past five years have been a time of tremendous growth for us. We were a $7-billion company in 2000. By 2004, we had grown to become a $25-billion enterprise. Our growth has been fueled mainly by acquisitions, most notably algroup of Switzerland in 2002 and Pechiney of France in 2004.

At the end of last year, we spun off our rolled aluminum products division into a new $6-billion company, called Novelis.

Today, Alcan is a world leader in aluminum production, packaging, and engineered products with 70,000 employees in 55 countries. Our global headquarters is in Montreal, Canada where our company was founded 104 years ago. That makes us a youngster by London standards but, by Canadian and aluminum industry standards, we’ve been around a long time.

Our preoccupation with sustainability stems partly from our product. We are very fortunate to produce aluminum, one of the world’s most recyclable products. This puts a special pressure on us to ensure that our products are designed and manufactured in ways that maximize their recyclability.

The fact that we produce a sustainable product has helped our employees understand the logic and accept the responsibility of adopting a sustainability agenda throughout our operations. This is perhaps one of the reasons we have been able to drive a sustainability mindset quite quickly and consistently throughout such a large and geographically diverse organization.

Let me give you a few examples of how our sustainability mindset and determination to build relationships with governments, NGOs, and other stakeholders are helping us to identify business opportunities of mutual benefit in our far-flung operations.

Our facilities in British Columbia, Canada occupy land that is claimed as traditional territory by several First Nations. In the past, Alcan protected its rights in the face of unresolved land claims almost exclusively by legal means. In recent years, we have been consulting with First Nations, creating relationship-protocol agreements with them based on mutual respect, and entering into mutually beneficial business relationships with them.

Recently, three First Nations in the Nechako Watershed area – where the reservoir that feeds our hydroelectric station is located – signed the Three Nation Forest Stewardship Agreement with Alcan. Under this agreement, the three Nations will work together to harvest still-salvageable timber on Alcan-owned property around the reservoir. Forests in much of the B.C. interior have been ravaged by a pine beetle infestation and, while the trees still have commercial value if harvested in time, they have to be removed to halt the infestation. Through this program with Alcan, the three Nations will receive the economic benefit of the harvest and build their capacity for silviculture and forest management. Alcan will solve the problem of the pine beetle infestation on its lands. And local communities will benefit from an economic development fund which the three Nations will create with a portion of their earnings.

Another logging initiative of the Cheslatta First Nation, one of the Three Nations involved in the land-based project I just described, is underwater logging in the Nechako Reservoir. At the time Alcan built its huge hydroelectric and aluminum smelting facilities in B.C. back in the early 1950s, the timber on land flooded to create the Nechako Reservoir – with a surface area roughly the size of Belgium, by the way – was not considered valuable enough to harvest. So it was left standing when the water filled the reservoir.

For a number of years, Alcan engaged in the time-consuming process of clearing submerged timber for safety and navigational purposes … just along the edges of the reservoir and in boat-traffic areas. The wood was burned on shore to dispose of it. However, about 10 years ago, the Cheslatta demonstrated that this timber had been perfectly preserved under water – that it was, in fact, often higher quality than trees on land because it had not been exposed to the air. Alcan worked with the B.C. Ministry of Forests to arrange to tender rights to harvest the submerged timber. With underwater logging equipment provided to them by Alcan, the Cheslatta Resource Corporation won the bid and have since been licensed to harvest six million cubic metres of this highly desirable wood.

Early reservoir logging methods were slow, awkward, and posed some risks to the underwater habitat. Today, however, the Cheslatta have partnered with a B.C. company that has developed a remote-controlled underwater saw … faster, environmentally sound technology that has elevated trees from the Nechako Reservoir timber to the status of eco-friendly wood products. The Cheslatta are profiting economically and socially from the harvest. Alcan is able to ensure safer, more navigable conditions on the reservoir we control. And there are benefits for B.C. as a whole in terms of enhanced tourism values in a breathtaking part of the province.

An example from Cameroon … this one speaks to the need to examine management decisions across all three dimensions of sustainability in our dealings with stakeholders. Our Cameroon site came to us in a recent acquisition. Alcan’s EHS FIRST program to ensure World Class health, safety, and environmental standards is a requirement at all Alcan sites. Unfortunately, the Cameroon operation was nowhere near up to its standards.

There was an area outside the plant gates where slag from the production of aluminum was placed. Local villagers were accustomed to scavenging this for the recovery value of aluminum in the slag, at a fairly high risk of injury. By applying EHS FIRST principles, Alcan would have cleaned up the site for compelling environmental and social reasons, failing to take into account the economic impact … scavenging for discarded industrial materials was the only source of income for some of these villagers.

Our managers there understood the economics of the region and our community stakeholders and they integrated the environmental, economic, and social dimensions into their decision-making. Today, villagers continue to scavenge the slag but in clean, safe circumstances and wearing personal protective equipment provided by Alcan.

EHS FIRST has enormous potential to lead by example. Because we apply a high set of standards across the board – regardless of how little local law or regulation may demand – we can influence what others do. Last year, after becoming a 50% partner in a joint smelter venture in China, we successfully introduced EHS FIRST to our two Chinese partners, raising environmental and health and safety standards to World Class standards.

Management and employees at this smelter have embraced the new standards, are very proud of the leadership they have shown in the Chinese industry, and are better positioned to understand what is involved in developing a World Class aluminum smelter.

In Gladstone, Australia where we have a 41.4% interest in Queensland Alumina Limited, we have entered into a long-term partnership with the Gladstone City Council to use the city’s treated effluent for the final wash process in alumina refining. The treated effluent doesn’t affect the quality of our alumina, but its use conserves 14,000 megalitres a year of fresh water in a drought-prone region of the country.

At our Awaso bauxite mine in southwest Ghana, Alcan owns and operates a fully-functional hospital and clinic that provides care to our employees, their families, and the surrounding community. The thinking behind this facility and other health initiatives, like our HIV/AIDS management strategy in Cameroon, is that employee health issues are business issues. By contributing to the overall health of the community, our Awaso hospital is helping our employees and their neighbours build a more sustainable future. Our HIV/AIDS profile has dropped from 24% to under 3% of our employees … a performance that we successfully extended to the community through outreach and education programs.

Ironically, as we learn more and more about the business and strategic opportunities opening up to us through sustainability, we have some social and economic problems of our own industry’s making to contend with.

Commercially-viable aluminum production is not much older than Alcan. Those of us who have been in this game since the beginning have been in the painful process over the past couple of decades of retiring the first generation of aluminum smelters in favour of cleaner, safer, environmentally superior new smelters.

Why painful? Because, while the new technology is preferable from the perspectives of environmental stewardship and industrial health and safety, it has an impact on employment.

Typically, new smelters can produce more than twice the metal with less than half the people. And that’s an economic and social problem for aluminum-producing regions that have traditionally relied on an abundance of 24-hour-a-day, 365-day-a-year jobs.

In the Saguenay—Lac-St-Jean region of Quebec, North America’s most concentrated centre of aluminum production, Alcan has invested heavily in new smelting technology over the past 20 years. The result? A quadrupling of aluminum production capacity, and a close to 50% reduction in employment. How do we deal with that?

We work with our host communities to diversify the economic base of the region. We use the industrial infrastructure to attract new, secondary manufacturing businesses. Thanks to the combined efforts of Alcan and many other stakeholders, close to 800 new jobs have been created in the region over the past few years.

Or, as in the cases of former aluminum-producing regions that are not large enough to support today’s mega-smelters – Kinlochleven and Lochaber in Scotland, for example – we help our communities use their industrial heritages to transition to service economies, based on the great geography that brought Alcan to them in the first place.

Alcan does not abandon these communities. We work with them toward sustainable, if different, economic success.

Let me wrap up with a few words about the Alcan Prize for Sustainability.

Two years ago, we realigned our corporate sponsorships and donations – which we call Community Investment – to our sustainability platform. We view our Community Investment Program as a very visible expression to the outside world of what’s important to us.

Our criteria today for sponsorships and donations are based on the extent to which a proponent integrates the economic, social, and environmental dimensions of sustainability in a project or program.

To launch this new approach to corporate giving, we created the US$1-million Alcan Prize for Sustainability. The Alcan Prize is an annual award to recognize not-for-profit, non-governmental, and civil society organizations that are doing great work … every day, at the grassroots level … to make our world a better place.

It’s our way of emphasizing our belief that the goals of sustainability are best served when we all work together.

And, if the first year of the program is any indication, it has been a success beyond our initial expectations. The first Call for Entries for the Alcan Prize resulted in close to 500 submissions from 79 countries around the world. The Forest Stewardship Council was the inaugural winner – to my mind, a great first choice … although Alcan, by our own decision, didn’t have a vote. To ensure the credibility and objectivity of the Alcan Prize, we have entrusted its management to the IBLF and a globally-renowned panel of judges, with some 70 NGOs serving as regional assessors.

In establishing the prize, we knew it had to be long term to do real good so we committed to nine years of funding in its first cycle. We hope it will be around for a very long time to come.

I mention it tonight … not just because two U.K.-based NGOs are on the 2006 short list that we announced in Zurich last month … but because it is opening a new world to us. A world of potential partners, teachers, collaborators, and friends … many, if not most, of whom we would have had no exposure to, if not for the Alcan Prize.

We’re learning about sustainability initiatives that are taking place all over the world … some of them international in scope, some of them very local, all of them innovative and inspiring. This learning has tremendous value for us as an organization, in terms of improving our own approaches to sustainability and in the relationships, and new partnerships, we’re building in the NGO sector.

I hope it will make a difference in the world. I know it’s making a world of difference for Alcan. It’s about vision. It’s about leadership. It’s about innovating, letting go of old ideas and embracing new ones.

When we consider the examples we’ve discussed tonight, there can no longer be any serious doubts as to the significant influence business can bring to bear in improving the lot of people around the world … economically, socially, and environmentally.

At Alcan, as we discover more and more ways to do things better in our operations and in our relationships with the outside word, we’re finding substantial economic returns in the form of social license to operate, waste reduction and process efficiencies, shareholder confidence, customer retention, employee recruitment, brand, and reputation.

Alcan has been honoured with many awards and accolades in the past few years for our accomplishments in the practice of sustainability and social responsibility. It’s very gratifying to have our efforts recognized externally, but even more so to know that each accomplishment – each new lesson learned – makes us a better company.

Thank you for listening to the lessons we’ve been learning inside and outside of Alcan. I have only skimmed the surface of how business is redefining its role in society, and am delighted that we have a little more time together to explore any questions you may have.

Thank you.

More information:

Poor rural India? It's a richer place


Poor rural India? It's a richer place

The International Herald Tribune, 19 October 2005 - The chasm between India's flourishing cities and bleak rural hinterland is narrowing.

Spread across 650,000 villages, with an average population of 1,100, rural villagers were long imagined by city dwellers as primitive, impoverished and irrelevant, something to drive past on the way to something else.

That is no longer the case.

A new prosperity is sprouting in rural India, with tens of millions entering the pressure-cooker-and-television-owning class and tens of thousands becoming sippers of Scotch, owners of premium tractors and drivers of multiple sedans.

The opening of this new frontier of consumer demand from 700 million people could tip India's role in the global economy from seller to buyer, from a vendor of outsourced skills to a source of consumers for the world's wares. Multinational corporations, from Coca-Cola to Nokia, appear increasingly keen to understand Indian villagers.

At the extreme of the trend are the "crorepatis," Hindi for those making the equivalent of $220,000 or more a year. Here in the northern state of Haryana, rural dwellers are now nearly twice as likely to be crorepatis as city dwellers in Bangalore, the high-technology hub, according to the National Council for Applied Economic Research, the leading collector of data on rural India.

It may be a trickle, but India's urban prosperity is flowing to the countryside. And well-to-do villages like Hasangarh are early testing grounds of whether the benefits of India's economic makeover and opening to the world will flow to its villagers, many of them living in its very poorest rural nooks.

The transformation of such villages will also add fuel to the debate over democracy's influence on economic development. India has been faulted for growing more lethargically than China, in part because of its democracy.

But the new rural prosperity suggests that the high cost of democracy also has a hidden benefit. By compelling each politician to deliver results to his own narrow constituency, democracy spreads economic change more thinly. But that in turn broadens the consensus in favor of change, perhaps making liberalization more sustainable in India than in China, said Yasheng Huang, a Chinese-born scholar at the Massachusetts Institute of Technology and an expert on the two countries.

"In China in the 1990s, you have a combination of a leadership who had an urban bias and of an authoritarian system that suppressed the voices of the poor, and the end result was the rising rural-urban disparity and the high level of social tensions," Huang said in an e-mail interview.

"If you have an urban bias, then it is better to have a democracy because then the voters can rise up to correct that bias, especially, as in India, where poor people actively vote."

In China, a widening income gap between town and country is worrying officials. But in India, the gap is narrowing. In 1990, for every $100 earned by an Indian villager, an urbanite made $82 more. Today, the difference has dropped to $56.

Yet the new rural riches are far from ending poverty. In India, 390 million people still live on $1 a day or less.

What is changing is the nature of the rich-poor divide. That divide was once synonymous with the urban-rural split. The only way to get rich was to live in town, and to reside in the country was to be bound to interminable poverty.

But increasingly, the rural economy is a microcosm of the national economy, with its own rich and poor. The rural rich are 1,000 times as likely as the rural poor to own a motorcycle, 100 times as likely to own a color television and 25 times as likely to own a pressure cooker, according to a survey of 96,000 rural households by the research council.

That distribution of wealth may or may not be equitable. But in creating the possibility of making it in rural India itself, the new rural prosperity is transforming rural India's image from economic nonentity to emerging market within the emerging market.

India's 700 million villagers now account for the majority of consumer spending in the country, more than $100 billion a year. Millions step into consumerism each year, graduating from the economics of necessity to the economics of gratification, buying themselves motorcycles, televisions, transistor radios and pressure cookers.

Diverse forces are fueling the trend. The government has invested billions of dollars in development, including road building and rural electrification, and has forced banks to lend to farmers. Hearty monsoons have fattened farmers' profits. Widening educational access has helped farmers' children to get city jobs and send money home.

With the private sector booming, industry and services have overtaken farming to account for 54 percent of rural income.

"Basically, what we are observing is the impact of liberalization, which started in 1992," said Rajesh Shukla, an economist and senior fellow at the research council. "The impact on the smaller towns and rural areas is happening now."

Hasangarh belongs to a new India: neither rural nor urban but something in between. The village, a two-hour drive from New Delhi, is one such island in a rural sea, surrounded on all sides by swaying grass, wooden buffalo carts and scrawny farmers.

But upon arriving, there is a feeling of being in a village without villagers. The roads are made of mud, and the residents still sit on their doorsteps, biding their time. But here is a village where $20,000 dowries are paid not in cattle but in televisions and sedans. Here is a village where residents one generation removed from illiteracy now belong to that worldwide class of people who watch global news events as they unfold.

Here, too, is a village where the rural riches are creating winners and losers.

Many here have been hurt by the privatization of bloated state-owned enterprises and the opening of the agricultural industry to global competition. Part-time and freelance work is ever more common, replacing respectable salaried jobs. Here, and across India, most of the workers are farmers or landless laborers. For India's riches to extend to them, economists say, will require a revolution in farm productivity; drastic improvements in infrastructure like roads, irrigation and electricity; and the proliferation of labor-intensive factories to absorb surplus labor from the farms. None seems an immediate likelihood.

But also in this village, as is increasingly true nationwide, being rural is no longer a life sentence of poverty. For rich and middling farmers alike, education is within closer reach.

Ten years ago, the area had three schools; it now has five. And ever more students travel to small towns or even Delhi to pursue higher education after high school.

That widening access to education assists what is perhaps the pivotal shift in the economics of rural households: diversification.

Farmers verging on retirement, sensing the decline of their own profession, are treating their children like stocks in a portfolio, sending them out into different vocations so as to minimize the risk of any one collapsing.

Across India, the shift is palpable. Around one-fifth of village households now generate their primary income from a salaried job or a small business like a village store, not from farming. And it is these new jobs that are driving rural demand, with that one-fifth segment accounting for 60 percent of rural purchases of refrigerators, for example.

Puran Mal Verma, 58, and his cousin Jaiprakash, 52, illustrate the crossroads at which village India stands. They both grew up here, in a small compound of modest homes, where buffaloes roam and children mix farm work and play.

Verma educated himself and now commutes to his job as a librarian at the research council. Jaiprakash, who had limited schooling, spends his time funneling long blades of grass through a cutting machine, which grinds them into tiny fragments for feeding to buffalo. He, too, would have liked to find city work, but he suffered a triple deficit.

"Shortage of knowledge, shortage of money and shortage of education," he said, smiling serenely.

The cousins' divergent paths seem likely to widen in the future.

"My wife wants my children to go to private schools and all that," Verma said in English, which his cousin does not understand.

"I can afford it," Verma said. "But it is difficult for him."

Some analysts, however, while welcoming the growing rural prosperity, say that the government still needs to do more to address the disparity between town and country.

"There is much more hope for the future than ever before" in rural India, said Pradeep Kashyap, a marketing expert in Delhi who heads MART, the country's leading rural marketing consultancy.

But he said much of the new rural wealth was the result of a trickle-down effect from the cities, rather than a bottom-up agricultural revolution, which he said was the only sustainable way to put most Indians to productive work.

"Seventy-five percent of your population in rural India has not been addressed," Kashyap said. "Unless you do that, the huge tail will be left behind. The government has to create a continuum between urban and rural."

Copyright: The International Herald Tribune

16.11.05

Paul Wolfowitz: the role of business and CSR in fostering development


[ I hope I've been wrong about him. Perhaps there is a glimmer of hope ]

Paul Wolfowitz: the role of business and CSR in fostering development

Address by Paul Wolfowitz, President, The World Bank Group, at the occasion of the Annual Conference of Business for Social Responsibility (BSR) - Washington D.C, 4 November 2005)

Thank you, Aron. Thank you all.  I'm very pleased to be able to join you here for BSR's annual conference, and thank you for this invitation.

Some of my friends--and I do have friends in the NGO community--would say corporate social responsibility is oxymoron.  I don't think it is.  I think, in fact, what you're engaged in is a very important kind of--perhaps one could call it cross-cultural dialogue.

One of my favorite examples of cross-cultural dialogue is the story about an American business consultant who was invited to Japan to give a speech at a big corporate event.  And he decided he'd better get a consultant to advise him on his speech beforehand.  So he went to someone who was an expert on Japanese culture.  And this man said to him, "Look, the Japanese really like people who come across as modest.  You may think it's excessively modest, but there's almost nothing that"--"no way you could begin your speech that would be too humble."

So he takes this advice in hand.  He goes to Tokyo.  He's meeting a large audience like this of Japanese men in business suits.  And he begins by saying, "You know, I appreciate your inviting me, but I'm not really the expert.  I'm sure there are 15 people in this audience who are more expert than I.  And I'm sure I'm going to make some mistakes in the course of this speech, and I just want to apologize in advance and beg your forgiveness for any mistakes I might make."

At which point a thousand people burst into uproarious laughter.  The poor guy is flustered, turns red in the face, manages to stagger through his speech, finally gets off the podium, and the manager of the company comes rushing up to him.  He said, "Mr. Smith, we are so sorry, but you need to understand that before you came, we briefed all our staff, and we said, `Americans always like to start their speeches with a joke, so whatever he says, be sure to laugh.'"
[Laughter.]

MR. WOLFOWITZ:  I do like to start with a joke, so thank you for laughing.

But on a very serious note, corporate social responsibility is a topic of vital importance to the World Bank Group in our efforts to fight poverty.  It's a mission we must undertake responsibly, ensuring that we respect culture, protect the environment, and strengthen communities in the course of our work.

I understand that you covered a lot of ground today on pressing and timely issues--issues like how to respond to disasters and how to deal with emerging multinationals from big, successful developing countries like India and China.  I'm also pleased to hear that you saw screenings on the innovative work in Bangladesh conducted by BRAC and the Grameen Bank.

I had the privilege, visiting Bangladesh this past August, of meeting a group of women and some small children whose lives had been transformed through small provided by BRAC and through community schools being run by BRAC.  It is truly impressive to see how even modest interventions can improve the lives of thousands of families.  It offers inspiration and valuable knowledge to our work to combat global poverty.

It seems that it wasn't that long ago when fighting poverty and fostering business were seen as, at best, unrelated and, at worst, at odds with one another.  But, fortunately, I think our understanding has improved a lot in the last ten years or more, and today I think we know that economic growth, shared economic growth, is the only sustainable way to improve living standards, to give people the opportunity to escape poverty, and that the growth of the private sector is critical to creating the jobs that are essential to that growth.

We also know, including from poor people themselves, that jobs offer the most promising path out of poverty, and the private sector accounts for some 90 percent of jobs in the developing world.

So partly as a result of this new understanding, we've seen a bold change in the attitude of many governments to private investment, including foreign investment, but I want to keep emphasizing the importance, even greater importance of indigenous investment, and I will come back to that.

Most governments have moved from tight controls to actively courting investors.  Private capital flows to developing countries are now running more than $300 billion per year.  That means that for every dollar of official development assistance, there's more than $4 in private sector flows.

We're also witnessing changes in the pattern of foreign investment flows.  In recent years, foreign direct investment by private firms from one developing country to another developing country, what you might call South-South investment, has grown four to five times faster than investments from developed countries to developing ones.

A host of new actors are also emerging on the development landscape.  By conservative estimates, there are some 18,000 NGOs and nonprofits engaged in international development work, and that does not include the hundreds of thousands of smaller civil society organizations operating in developing countries.

Taken together, these trends represent one of the most dynamic eras in development that the world has ever seen.  With the recent progress on debt relief along with the progress we hope to see in the Doha trade negotiations, there is a lot to be hopeful about.  But there is still much hard work that lies ahead.

While more developing countries are seeking to boost the role of the private sector, progress remains slow.  Let me highlight just a few of the specific challenges where I believe CSR initiatives could make an important contribution.
Regulation is a traditional tool that governments use to balance the interests of firms with broader social interests.  But in many countries--and I would say particularly in some of the poorest ones--regulatory frameworks are often outdated, inefficient, frequently they seem to be unchanged since colonial times.  They burden firms--and I would say especially the smallest firms--with little, if any, benefit to the broader community.

One of the projects the Bank has been undertaking now for about three years, which is one of the more impressive things I think we do, is the Doing Business report, and that project shows that developing countries tend to have more cumbersome regulations than industrialized countries.  For example, registering a small business can take more than six months in some countries, while enforcing even a simple contract can take years.

Tedious regulations encourage high levels of informality and more corruption.  More than 90 percent of firms surveyed by the Bank report gaps between formal regulations and what happens in practice.  In many developing countries, more than half the economy operates in the so-called informal sector.

This is the 2006 Doing Business report.  It's kind of a fun read.  It's not really a guide to foreign investors.  I think of it more as a guide to governments to know where their problems lie.

As one illustration--and I think it's probably better to not name names in order to protect the guilty--one poor African country, with a generally good record, by the way, but where it costs one and a half times, 150 percent of annual per capita income to register a business, where it costs five times per capita income to have the minimum capital for a business--I'm not quite sure what minimum capital means, but it's not working capital.  It means something you've got to put away, I guess, against potential creditors.  And the regulations go on in that vein, and the net result is in a country of roughly 12 million people, only 50,000 work in the so-called formal sector.

What does that mean?  Well, it means first of all that most of the people who are working in the private sector are working outside the law; particularly women are working in businesses that don't have to observe even the minimal labor practices that are required in that country.  Most businesses aren't paying taxes, so these are pretty counterproductive regulations.

But the worst thing of all are the businesses that simply don't exist because those barriers are too high to get over. I was meeting with the Prime Minister of another country today, talking about the Doing Business report.  This man is a committed reformer.  I'm very happy about that.  And he was more than willing to listen to the fact that his country comes out way near the bottom of this group.  If I start saying at which number, then I might as well tell you the name.  And as we talked about it, I said, Look, you need to understand that, for example, if it costs, in his case, two and a half times per capita income to register a business, you know, in some countries two and a half times per capita income is $500.  For most of the firms represented here, that's an expensive lunch.  For a poor person in a West African country, it's two and a half times his annual income.  The business never starts.

And I think something to recognize is that the obstacles to small businesses are very frequently different from the obstacles confronted by big businesses or big multinationals.  It doesn't mean that improving the investment climate for the big businesses isn't important.  I happen to believe it is, and I spent quite a bit of time when I was American Ambassador in Indonesia some 15 or 20 years ago representing concerns of American businesses with Indonesian regulators.  I never took a case where I thought it was favoring an American company at the expense of the overall business climate in Indonesia.  I felt generally in the cases that I was carrying it was helping the competitive climate for everybody, including for Indonesian businesses.

But until I went through some of the regulations in this report, it hadn't really hit me that none of the things that bothered American companies were the sort of things that would stop a small Indonesian businessman from setting up a shop.  You just don't have to worry about fees in the range of $5,000.  Delays of 120 days, get your stuff through customs, I did hear about that.  That's annoying.  But it isn't crippling the way it is for a small business.

And I'm encouraged, actually, at the kind of response that we're getting when we raise these sort of issues.  The Finance Minister of Malawi--I think I can identify him--when I gave him some of these facts, he said, "Shame on us."  And I said, "No, not shame on you.  This is to inform you of what's going on.  Now that you know what's going on, if you come back here a year from now and you haven't done anything about it, then shame on you."  Because a lot of this I think is low-hanging fruit, as they say.  But I was really encouraged.

And then another Minister--I better protect him; this is to protect the innocent.  His country ranks at sort of the top of the bottom third.  It's pretty low.  And I actually thought he was going to come in to complain to me about our methodology.  Instead, he came in and thanked me.  Why did he thank me?  He said, "I'm using the Doing Business report to work on the people in my country who are resisting change."

These rankings are not--as I say, they're not guides to foreign investors, and it's not competing one country to another.  But if you see that your country is number 87 out of 124, it kind of gets your attention.  And a little bit of competition I think is a good thing.

But I bring all that up because I really believe that the strongest engine of job creation are the companies that don't exist yet and the small companies that are struggling to get finance and capital to grow into medium-size and large ones.  And sometimes--I'm sure no one in this room is in that category.  Sometimes the big businesses are part of the problem, not part of the solution.  Sometimes they love these regulations because it prevents competition.  Sometimes they love trade protection because it prevents competition.  I think if we want to talk about corporate responsibility, corporate responsibility ought to start with accepting the fact that competition, fair competition, is in everyone's interest, and it's your job to do well competitively not to shut out your competitors.

I think there's nothing more irresponsible for corporations than to be opposing trade liberalization, for example.  Please get out on the stump and advocate for a successful Hong Kong round to the Doha trade negotiations.  As I said many times, the people who have most at stake, I think, in the Hong Kong trade negotiation round now are the 1.2 billion people in the world who live on less than a dollar a day.  There is no one in Hong Kong at those negotiations who lives on anything close to a dollar a day.  But they are representing the poor people of the world, and I think all of us have an obligation to remember that.

To strengthen the investment climate in general, we need to support regulations that encourage entrepreneurs to start businesses and help countries enforce those regulations.  But it's not just the regulatory environment.  Poor infrastructure and public services also pose major obstacles to the investment climate in many countries.  That hurts the poor by stifling job creation.

I visited Rwanda in June, and I met a very impressive woman.  She's Rwandan.  She had a successful business here in the United States, very successful one.  She went back to Rwanda to start a flower farm, growing beautiful roses to export competitively to the European market.  In fact, one of my favorite quotes that I found in the last five months is from her.  I asked her, "Why did you go back to Rwanda?"  And she said, "I came here to grow beautiful flowers on the ashes of genocide."  It's a moving story.  There are some 200 or 300 rural people, mostly women, who have terrific jobs on this flower farm.

Her biggest obstacles though are not regulations.  Her biggest obstacles are electricity that's unreliable, that costs here about 5 percent of her crop.  Her second biggest obstacle is how to get her flowers to Nairobi so that they can be transhipped to Europe.  The challenges of being in a landlocked country with poor electricity and poor communications to the outside.  So there are investments that are needed as well.

While governments have an important role in providing these services, experience with public-private partnerships in the 1990s, offer promising and innovative models for expanding service provision, we cannot underestimate the impact of corruption.  It's a disease and no country, no country is immune from this disease.  Whether it exists in government, in private sector or aid projects, corruption drains resources, and at its worst it scares away investors.  It benefits the privileged and it deprives the poor.  It threatens the prospects for a better life, especially in developing countries.

But let's remember, because some of this discussion about corruption, if you listen for it too long, you think, well, the problem with development is that all these developing countries have corrupt governments.  Let's remember that there are two parties for every corrupt transaction.  For every bribe taker there is a bribe giver, and very often the bribe givers in developing countries come from rich developed countries.  So the developed countries share responsibility for dealing with this problem.

I think we in the World Bank have responsibility as well.  In fact, I think every development institution does.  All of us who are working to help the people in developing countries have a responsibility to safeguard every dollar, to ensure that it's spent as wisely as possible, and to set a standard that we can be proud of.

There are some promising signs that governments in a number of developing countries, particularly in Africa, are doing much more to fight corruption.  When I visited South Africa, just two days before the President had dismissed his Deputy President, not because the Deputy President himself had taken a bribe, but because his adviser had taken a bribe.  It wasn't a matter of legal responsibility, but political responsibility.

Elsewhere in Africa, in Nigeria, some senior officials have been sent to jail for corruption.  So there is, I think, a much greater seriousness in the developing world about taking this on.  And I think we in the multilateral institutions that help finance development and poverty reduction projects, need to strengthen our own vigilance.  We must do everything possible to guard against and punish those kinds of activities that we are encouraging others to combat.
As I said before, for our part, I am committed to holding the Bank to the most rigorous standards.  Our staff must maintain professionalism in their conduct and abide by rules and procedures.  We will continue to guard against corruption and strengthen our efforts to root it out wherever we find it.

I think it's also important to note that there's been progress in the area of recovering stolen assets.  A very notable event took place in September when the government of Switzerland returned $489 million to the government of Nigeria that had been stolen by the late dictator, Abacha.  More of that kind of return of assets, I believe, can discourage wrongdoing in the first place, and embolden those in countries like Nigeria that are trying to fight corruption.

But punishing corrupters isn't the only solution.  In fact, it probably isn't the best solution.  I think the best solution is in fact improved transparency, improved accountability, so that corrupters know ahead of time that they can't hide.  Prevention is much better than the cure.  And businesses and civil society organizations, I think, can play an important monitoring and advocacy role here.  So can a press.  And anyone who says that the issue of press freedom is a purely political issue that has nothing to do with development, I don't think understands just how important accountability is to preventing corruption, or just how serious a threat corruption is to the development process.
There are two parts of the challenge of reform where I think CSR can play an especially valuable role.  I have sort of alluded to one already.  Reforms are often resisted by beneficiaries of the status quo, whether they are officials, privileged firms or other groups.  The potential beneficiaries of reforms, including those small businesses that don't even exist yet, cannot simply stand by and watch.  They need to speak up and be part of the solution.

I sometimes say the Doing Business Report is a way of giving voice to the voiceless, but I think you who represent medium and large corporations can also help recognize that you can give voice to the needs of others.

Secondly, I think reforms are more successful in an environment where there's less public suspicion about business.  I think one of the reasons some of these excessive regulations exist is a general prejudice that business is bad.  We know from opinion polls that that kind of suspicion exists in almost every country.  Changing public perceptions is not just a matter, therefore, of building up brand loyalty for firms.  It is also about fostering an environment in which governments can implement reforms that bring benefits to the whole community.

At the World Bank Group we've been supporting such efforts through programs and initiatives at three levels:  government, firms and the global level.  Let me discuss each of those.

First, helping governments to improve their investment climates.  Improving the investment climate is one of the pillars of the World Bank Group's overall development strategy.  We work mostly with governments through lending to support public investment and infrastructure, education and related services.  We also help governments with policy and institutional reforms through analytical work, through training, and by sharing the lessons of international experience.  That includes the Doing Business Project, which I mentioned, which benchmarks the regulatory environment in 155 countries.  It includes other investment climate surveys of firms in developing countries to understand the main constraints that they face.  This work has proven to be a strong catalyst for reform in many countries.

As part of our advisory work, we're working with governments on linking CSR with other reform initiatives.  In Cambodia we provided support to the garment sector to help them meet international business standards, and now we are working with BSR in El Salvador on developing a similar scheme.  We are also preparing, in anticipation of a successful Hong Kong trade round, to come forward with a substantial aid for trade package that will help countries develop the facilities that are necessary to take advantage of increased trade opportunities.

Second, we're working with firms to support socially responsible investments.  The International Finance Corporation, or the IFC, the private sector lending arm of the Bank Group, works directly with firms in supporting sustainable private investment.  It's a natural partner for BSR members.  The IFC proves it is possible to combine socially responsible investment with profitability in the developing world.  This past fiscal year the IFC posted its third consecutive year of record profits.  That sends a powerful message to investors that viable opportunities do exist across the developing world.  And we are proud to report that IFC's investments in Africa are not only profitable, but are expected to be one of the most rapidly growing areas of our portfolio.

We're also supporting the creation of socially responsible stock market indices, pioneering partnerships on corporate governance, biodiversity and renewable energy, and helping to transform small NGOs into sustainable commercial enterprises.

Finally, we're supporting the development of global standards.  The Bank Group works closely with other UN agencies in supporting the development of global standards across sectors.  In the CSR field, I am proud to report, that we have been among the innovators.  Some 30 major financial institutions have voluntarily adopted IFC's environmental and social standards known as the Equator Principles.  This represents a major step forward for environmental finance.  It testifies to the role that development institutions can play in safeguarding the interests of the poor in their environment in partnership with the private sector.  More than 80 percent of the project finance market now falls under the Equator Principles.

The Bank Group's work on investment climate and CSR has benefited enormously from close partnerships with a wide range of partners, including many of the organizations represented at this conference.  We look forward to strengthening and expanding those partnerships.  There is an urgent need for locally developed, locally owned solutions that link entrepreneurship and competitiveness with respect for social and environmental norms.  I particularly encourage businesses, governments and civil society to work together to nurture this culture of social responsibility.

It's a collaboration that is in the self-interest of business and in the best interest of the poor living in developing countries.  It is my hope that through our collective efforts we can build a thriving global business environment that creates opportunities and unleashes the entrepreneurial spirit of the poor.  It is not only a moral responsibility, but a social, economic and political imperative.

Thank you very much.
[Applause.]