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Sustainable Development: the Business-class Train Has Left the Station and the Canary is in the Coal Mine

Cara Santos Pianesi's picture

Last week, MIGA hosted a panel discussion on the role of the private sector in sustainable growth as part of the World Bank Group’s Sustainable Development Network Forum 2012. Taking the initiative as an agency of the World Bank Group that encourages investment by the private sector, MIGA brought this angle to the more general sustainable growth discussion.

Keynote speaker Jeffrey Leonard from the Global Environment Fund opened citing the World Bank President’s remarks on sustainable development that were right on the money – outlining an urgent need for attention to the matter, noting that resources must be made available  – yes, good, onward! The catch? They were attributed to a president who left office 25 years ago (Tom Clausen).

Before we made too much of this, Leonard had us consider: under Clausen there was one person responsible in the entire bank for environmental and social issues surrounding the organization’s programs. Now, to the bank’s credit, there is an entire network of environmental and social specialists that spans the institution; our work is governed by safeguard policies (for the World Bank) and performance standards (for MIGA and IFC); and civil society around the world stands ready to keep us  on track on these and other issues. Indeed, this work is integrated in the bank’s business.

In fact, Leonard argued that environmental, social, and corporate governance concerns are seen as a canary in the coal mine for other issues that the bank must contend with—and this is an important and new role.

But, for the private sector, what are the incentives to behave as true partners in sustainable development? David Vidal from the Conference Board’s Center for Sustainability believes that the train has left the station with respect to corporate focus on sustainability. He argued that societal change has already had a lasting effect on how companies do business—or attempt to do business—sustainably. Likening the private sector to a group of teenagers, he said companies have succumbed to peer pressure and are fearful of being left out of the trend: the un-cool suits, if you will. What hasn’t moved, according to Vidal? Several market incentives, including pricing and executive pay. He says once they do, sustainability will be the new normal.

Mahlette Betre of Conservation International echoed his optimism. She uses Exxon Mobil’s subscription to the Equator Principles and Wal-Marts’s supply chain evaluation as examples of successful pressure on corporations that have made significant changes to the way they do business.

More sanguine, Benoit Bosquet from the World Bank’s Carbon Finance Unit noted a not-insignificant challenge: carbon emission reduction incentives for the private sector are on standby as long there is no successor to the Kyoto Protocol. He said that public-private partnerships have an important role to play in allowing sustainable development to be less consumptive of private capital. He also underlined that banks and insurers have a significant role to play to pushing the envelope further.

On this note, Mary Boomgard from the Overseas Private Investment Corporation (OPIC) pointed out that many companies choose to work with organizations like OPIC, MIGA, and the International Finance Corporation (IFC) even when they have to subscribe to more stringent environmental and social standards. She noted that there are compelling business arguments as to why: insurance and financing scarcity in the marketplace; longer tenors offered by these organizations for investors who are willing to stay, build capacity, and increase development impact; and access to strong partners that can help identify risks and constraints, as well as help negotiate any disputes.

Julie Martin from Marsh USA agreed: given the main driver for the private sector is profitability, those insurers who are concerned about sustainability need to match their incentives to this driver, precisely through increased access to political risk insurance and longer tenors.

Vigorous nods from MIGA’s moderator, Deniz Baharoglu, illustrated similar sentiment from MIGA, as we structure our investment guarantees to these ends. A brief explanation of how is here.

 

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