Archives for posts with tag: economics

Kurt Vonnegut’s vision of the Chronosynchlastic Infidibulum has come true, except instead of our bodies being dispersed across interstellar space,  it is our everyday products that are dispersed over space and time across the globe. Networks of suppliers are mirrored by social networks with information flowing (relatively) freely to anyone with a wifi connection… and informed consumers are now scrutinizing their purchases to a greater degree than ever before. The rise of the Corporate Social Responsibility (CSR) movement fueled an expectation of transparency amongst the multi-nationals that operate from a nominal home base but only truly coalesce as a product in your living room, or in this case a consulting report for building a dam.

sirens

Rumfoord’s dog Kazak materializing on Titan

Poyry, with over 5000 employees, is one of the largest international consulting design firms in the world and a major economic player in its home base of Helsinki, Finland. Yet Poyry’s work reaches far from Finalnd, and its role in the Xayaburi dam project represents a case of how the evolving legal concepts around CSR are starting to provide a mechanism through which stakeholders can influence company policies. As The Diplomat reports:

The Xayaburi dam project has been the subject of an international consultation process under the auspices of the Mekong River Commission (MRC), which comprises four member states: Cambodia, Laos, Thailand and Vietnam

But the MRC has split between Laos and Thailand, which support the dam (Thailand is providing all the funding and will purchase 95% of the power generated), and Cambodia and Vietnam, which view dams on the Mekong as a cumulative threat to agriculture, fisheries and livelihoods.

Scientists warn that a cascade of dams threaten food security along the Mekong for around 65 million people. The prime minsters of both Cambodia and Vietnam have demanded further scientific studies on downriver impacts to be carried out prior to any construction, but supported by Pöyry’s recommendations, Laos has ignored its Indochina neighbors.

It was the deadlock inside the MRC that prompted the government of Laos to hire Zurich-based Pöyry Energy, allegedly with a view to circumventing the consultation procedures laid down by the 1995 Mekong Treaty

In response, fourteen Finnish NGOs filed a landmark case against Pöyry, alleging that it had violated OECD rules. Finland was obliged to set up a Corporate Social Responsibility Committee in 2012, to hear the complaint against parent firm Pöyry PLC, the parent company in Helsinki.

As the largest donor to the MRC, Finland has a special interest in the Xayaburi controversy. All development partners of the MRC have expressed deep concerns about the environmental impacts of Xayaburi,   the first dam to be built on the Lower Mekong.

The Finnish NGOs have accused the international consultant Pöyry of promoting a reckless and irresponsible mode of development, and undermining international cooperation among the riparian countries through the Mekong River Commission.

Pöyry has since announced that it has won a new eight-year contract to supervise construction of the Xayaburi dam.

Poyry’s work on the Xayaburi was not the first time the company was involved with the Mekong. In the 1990’s, Vietnam hired Swiss consultant Electrowatt (now part of Poyry) to build a controversial set of dams on a tributary to the Mekong in Vietnam, despite the protests of Cambodia. Like the situation in Xayaburi, Electrowatt’s analysis did not include any downstream impacts from the dam construction. The case of the Yali Dam set a precedent for ignoring regional neighbors, and it appears Laos took note of a compliant consultant to hire.

OECD guidelines stipulate that “Enterprises should contribute to economic, environmental and social progress with a view to achieving sustainable development”.  Poyry’s role in shepherding along approval of the dam in Laos and its subsequent multi-million dollar contract to oversee construction, present an affront to the OECD guidelines, not to mention a conflict of interest.

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Protesters downstream of the proposed dam referring to Poyry’s role in the process

This was clear to the group of over a dozen Finnish NGO’s who sued Poyry, claiming the company was in violation of international law and undermining the Mekong River Commission as detailed on the Business and Human Rights Resource Center. The case ultimately went to the Finnish Ministry of Employment and Economy for a ruling from its committee on Corporate Social Responsibility. Through a series of secretly submitted documents, Poyry was ultimately able to escape any sanctions for its behavior in the case, as OECD Watch reports:

The final statement confirms that consulting and business service companies such as Pöyry are covered by the Guidelines and have a responsibility to conduct due diligence to avoid being linked to adverse social and environmental impacts caused by their clients. However, the NCP determined that Pöyry had not acted in breach of the Guidelines in this case. Finnwatch, an NGO advising the NCP, issued a statement disputing this finding.

The case, which was the first ever handled by the Finnish NCP, raises serious concerns about the NCPs equitability. The NCP gave in to Pöyrys demands for an excessive degree of confidentiality and did not allow the complainants to see or rebut to the companys response to the allegations. The NCP based part of its final statement on Pöyrys confidential response, which was never shared with the complainants a practice that has been deemed unacceptable by other NCPs. Recall that a similar lack of equitability led the UK NCPs Steering Board to overturn its own flawed final statement in the BP BTC case in 2011.

Regardless of the ultimate result, the case presents an example of the maturing of the CSR field from a series of well-(or not)-intentioned yet unverified reports of corporate progress to a verifiable and accountable set of policies and actions taken by corporations with true legal and economic consequences. Though it was the first case heard by the Finnish government regarding OECD CSR guidelines, it will certainly not be the last, and that type of precedent is one other stakeholders can utilize to address social and environmental concerns.

When it comes to intractable trans-boundary natural resource problems, which the Mekong is a prime example of, the more stakeholders with a voice at the table the better the outcomes can be. Consultants and coprorations operating in the developing world would do well to consider the full sustainability impacts of their operations lest they find themselves in greater legal risk from newly emerging models of regulation in regards to CSR.

What do you think? Are new legal mechanisms for CSR compliance (e.g. OECD Guidelines) an effective means to enforce good corporate governance? Or do they need more teeth to make an impact? Feel free to share thought and any similar examples.

With the recent change in guidelines from the AHA and ACC, as many as 70 million Americans may end up taking Statins to reduce their chance of heart attack and stroke. Already, Lipitor (atorvastatin) was the greatest selling medication of modern times with over 40 million Americans taking the drug at its peak. At an average of 20 mg per pill, this resulted in over 292 metric tons of lipitor produced per year*.

At 250 Tons, Hong Kong’s Tian Tan Buddha weighs less than the lipitor consumed every year in the US

Despite this large scale, few outside of the Green Chemistry field are aware of the myriad of environmental impacts from the supply chains used to produce Lipitor.  Creating Lipitor requires a complex series of chemical reactions. Along the way, various different solvents, raw materials and catalysts are needed to finally create the active pharmacological ingredient that can reduce cholesterol in humans.

atorvastatin

Synthesis of Atorvastatin(Lipitor), courtesy of newdrugapprovals.wordpress.com

Acetonitrile is one solvent used in the synthesis of Lipitor. Acetontirile is produced from the catalytic ammoxidation of propylene. Propylene (aka propene) is itself derived from fossil fuels, namely natural gas and coal.  The industrially produced ammonia used in the process comes from Natural Gas. Aside from the odd fact that your cholesterol is lowered at least in part thanks to fossil fuels, there is also the case of the Beijing Olympics.

Beijing’s Air – The Olympics were a temporary respite

Beijing’s notorious air pollution was under the microscope prior to the 2008 Olympic Games. The Chinese authorities instituted a number of measures, such as shutting down factories near the city and reducing car use, to clean up the air. Some of these factories were producers of Acetonitrile. Those closures, combined with the shutdown of Texan facilities impacted by Hurricane Ike, resulted in a global shortage of Acetonitrile.  The shortage of Acetonitrile resulted in a price spike, directly impacting the bottom line of all those that use the solvent, including pharmaceutical companies.

This small lesson highlights how understanding the supply chain of your products could have potentially resulted in avoiding a commodity price spike…and the embarrassing, or potentially liable, connection to worsening health outcomes in heavily polluted developing countries…

On the flip side of these petrochemical derived substances is a potential opening for renewable supplies and green chemistry. Ammonia, which accounts for over 1% of total global energy use, is possible to derive from renewable electricity when using Hydrogen derived by hydrolysis (see Iceland). Propylene is also a target of green chemistry with some companies using microbes to synthesize the needed compound rather than relying on natural gas or coal.

therewillbebugs

J. Craig Venter is collaborating with Exxon to create biofuels from algae

But back to Big Pharma. Supply chain accountability starts at the bench: each solvent, catlalyst and substrate has its own set of sources and associated impacts. Following the principles of Green Chemistry keeps the focus in the right direction, but a broader view is needed in the industry to ensure that price spikes such as the Acetonitrile incident don’t happen again. If Acentonitrile came from sustainable sources, or if a green alternative was found, Pharma companies could have used their engagement with the manufacturers to not only show their commitment to the environment but also ensure a reliable source of solvent  with less potential liability from the downstream health effects of their suppliers. And that’s a strategy that works for the triple bottom line.

*Unofficial back of the envelope calculations figuring 20mg avg statin pill API * 1 dose per day * 40,000,000 patients * 365 days/yr = 292,000,000,0000 mg or 292 metric tonnes.

Recently while I was shopping on Amazon for a sustainable source of coffee to satisfy my morning buzz, I came across a coffee shop that was selling unique coffee grown in the Cerrado region of South America. After all I learned of the Cerrado through my XMNR courses, the largest and most ancient grassland savanna that mankind has a privilege to experience, it was upsetting to see someone describing it as “native” because I knew the region needed tremendous industrial transformation of its acidic soil in order to be suitable for growing any products at all. When I asked the seller if it was sustainable, he answered “I would think so, coffee is native to Brazil!!”

Across the web and the grocery aisle, terms like sustainable, natural, and organic have been reduced to marketing phrases. The promulgation of a myriad of labels and standards, together with a lack of transparency on what actually makes a product sustainable, has made it nearly impossible to shop for ethically sourced consumer goods without a masters in sustainability! This is not something we should expect from the average consumer.

Can we seriously know the veracity, sourcing, standards and impacts of every one of these labels?

 

A similar situation existed with medicines in the 1800s. Charlatans of all types sold medicines with wild claims and even those destined for doctors offices could not be assured that what was in them was the actual pharmaceutical. On top of that, a variety of regulations from different states within the US created a dizzying set of standards that essentially made companies selling in multiple states have to create a different type of product for each market, even if it was the same thing they were selling! The situation was dangerous to the public, bad for business, and stymied the progress of medical science. It was not until a coalition of a crusading chemist, women’s activists clubs, and multi-state businesses came together to push the federal government into creating the FDA that the safe foods and effective medications we come to rely upon today were standardized. It was an early example of a cross-sectorial collaboration between the public, business, academia and government – Collective Impact if you will.

A cartoon showing an elephant with a label, Hamlin's Wizard Oil,

Best Pain Remedy on Earth – Yup, sure.

Fast forward to 2013, and we have the multiple sets of organic, rainforest friendly, energy efficient and green labels that confronts and confuse us when we try to make ethically based purchases. It would seem obvious that what we need is an “eFDA”, or at least a set of agreed upon standards that can simply guide us when making purchasing decisions. We need a Nutrition Facts label for sustainability. And just as the Nutrition Facts uses agreed upon scientific standards to show us what is in our food, we need similar standards to show us where our products come from, as well as the environmental, social and economic impacts created in the process of production. Think of how much water to produce a can of beans, or how much energy to manufacture a laptop, or how many trees to create the toilet paper.

Mark Bittman recently wrote in the NYT about his dream food label which would encompass nutrition, “foodness” and welfare in a simplified, standardized label:

EcoLabel

simple and to the point

The most difficult part, and the one with the most opportunity for sustainability professionals is that of “welfare”, which he writes would encompass the following:

“The third is the broadest (and trickiest); we’re calling it “Welfare.” This would include the treatment of workers, animals and the earth. Are workers treated like animals? Are animals produced like widgets? Is environmental damage significant? If the answer to those three questions is “yes” — as it might be, for example, with industrially produced chickens — then the score would be zero, or close to it. If the labor force is treated fairly and animals well, and waste is insignificant or recycled, the score would be higher.”

As Bittman notes, his proposal is not an end but a beginning of the conversation about how to create sustainability food labels. And for sustainability professionals, the subject of unified, simple and effective labeling is one that will require a Collective Impact approach. There is too much competition for grants and market position among for and non-profits alike in the green label field, for the sake of the planet we need to begin to come together around a label we can all agree upon, and read!

Cargill Expands “Responsible Soy” Project To Protect Rainforest

When The Nature Conservancy (TNC) approached Cargill to reduce the impact of Soy farming on deforestation in Brazil, their intent was pure: we need to stop this habitat destruction. Bolstered by Greenpeace’s successful campaign to convince McDonald’s to pressure their beef suppliers, namely Cargill, to reduce the impacts of their cattle feed on deforestion, TNC approached an economically pressured Cargill about how to manage the supply chain of their Brazilian soy production in a way that could reduce the negative impacts to biodiversity in the region.

This well intended partnership, which gave birth to the Responsible Soy program , appeared to be a win-win: Cargill uses its weight in the region to reduce deforestation by buying soy from land that was previously cleared, such as cattle ranches, rather than farms on newly deforested land. And TNC can build on the partnership to expand and partner with other companies, all the while having a positive impact on the Cerrado and Amazon.

But the economics of Soy, driven in large part by a Chinese market demand that values price stability over sustainability, resulted in unintended consquences, as detailed by researchers from McGill:

Soybean cultivation carries the political weight necessary to induce infrastructure improvements, which in turn stimulates crop expansion. Further, Nepstad et al (2006) suggest that growth of the Brazilian soy industry may have indirectly led to the expansion of the cattle herd. According to Nepstad et al (2006), soy has driven up land prices in the Amazon (5–10 fold in many areas of Mato Grosso), allowing many cattle ranchers to sell valuable holdings at enormous capital gains and purchase new land further north and expand their herd further. This hypothesis is consistent with our spatial analysis showing northward displacement of pasture, with declining pasture in parts of Mato Grosso, and increasing pasture further north (figures 1and 4), and also supported by findings from other recent studies (Dros 2004Cattaneo 2008). Our statistical analysis of the relationship between soy/cattle price and deforestation lends further credence to this hypothesis (figure 6). It shows that while the relationship between cattle price and deforestation has been more or less stable, soy has become increasingly related to deforestation over time. In summary, even if the proximate cause of deforestation was mainly ranching, it is likely that soy cultivation is a major underlying cause (http://iopscience.iop.org/1748-9326/5/2/024002/fulltext/)

The lesson is not to get together for a partnership between large corporations and non-profits, if anything the relationship between Cargill and TNC has likely increased environmental awareness within Cargill, a key cultural shift essential to moving us towards a more sustainable planet. The problem lies in creating these partnerships without a consideration of how a change in a major economic player will impact the other parts of the local economy. The economy works much like an ecosystem, you can’t impact one section without changing many others.

Future projects would be wise to consider the downstream envrio-economic impacts that could result from a change in policy among a corporate behemoth in developing economies, and the lessons learned in the Cerrado could then be used to model future plans elsewhere.