Sudip Roy: What is sustainable development?

Sustainable development is the key phrase in the developing world, and it’s an idea that is getting plenty of media coverage. But what exactly is sustainable development? Can it succeed? And what role do big business, governments and NGOs have to play? Sudip Roy reports

Over the next few years an oil pipeline will be built that will extend from a field in Azerbaijan through Georgia to a terminal at Ceyhan on the Mediterranean coast of Turkey.

The pipeline (known as the Baku-Tbilisi-Ceyhan pipeline) will transport up to 1 million barrels a day and, at 1,760 kilometres, will be one of the longest of its kind in the world. It will complement oil transport from two existing pipelines whose transportation capacity is limited.

For the pipeline’s supporters the project is essential to the growth of a desperately poor region. According to the International Finance Corporation, the private sector arm of the World Bank and one of the project’s backers, the pipeline’s construction will create some 10,000 jobs and will earn Azerbaijan, Georgia and Turkey billions of dollars once it is fully built.

Another backer, the European Bank for Reconstruction and Development, wrote in a recent report that “carefully managed and monitored, the revenues from these projects [such as the pipeline and a soon-to-be-built oilfield near the Caspian Sea] can build the social and economic infrastructure that will support Azerbaijan’s and Georgia’s transition from command to market economies and foster the democratic process”.

Critics, though, take a less sanguine view. Non-government organizations such as CEE Bankwatch Network argue that the pipeline will trample on environmentally sensitive areas such as the Borjomi district in Georgia.

And far from encouraging democracy, the critics say, the pipeline could consolidate the authority of already powerful business groups whose interests are inimical to those of the local populace.

An October Bankwatch report, for example, said that issues such as land appropriation and compensation, and oil revenue transparency had yet to be resolved.

At the heart of the dispute lies the issue of sustainable development. Although sustainable development is nothing new, it has started to receive heightened focus over the past five years.

Spurred by controversies in the 1990s, such as the Brent Spar oil rig incident and the Ken Saro-Wiwa tragedy in Nigeria, and by vigorous campaigning by NGOs, both big business and government are adopting the principles of sustainable development. But what exactly is it? What role can businesses play in sustainable development? And what is the overall goal?

Good for us, good for our children

At its simplest, sustainable development means long-term growth and regeneration. It encompasses everything from consistently strong economic growth to an improvement of human rights, from preserving a region’s biodiversity to the empowerment of local communities.

Many businesses follow the definition provided in the 1987 Brundtland report, named after Norway’s first female prime minister, which states that sustainable development is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

Egil Myklebust, chairman of Norsk Hydro and former chairman of the World Business Council for Sustainable Development, says the definition best describes “the interaction between economic growth, social development and environmental development”. But as Sir Philip Watts, chairman of the committee of managing directors at Royal Dutch/ Shell says, it is almost impossible to pin down a specific definition of the term. “Sustainability is a journey, and I defy anybody to get an agreed definition of what sustainability is,” he says.

To Watts sustainable development is more than just about giving money to local projects. “The most common misunderstanding is that it is somehow philanthropy. Philanthropy can sometimes be part of it, but broadly speaking it has to be how each of us does our job every day wherever we are in the company.”

The concept of “social responsibility and sustainability gets very real not when it’s about governance codes and ticking boxes, but when you ask ‘what does it mean to my particular job?’”.

At Shell, that means getting the world the extra energy that it needs to develop, improving the firm’s environmental and social performance, and trying to live up to its core values of “honesty, integrity and respect for people in everything we do,” says Watts.

Few would disagree with these values. What critics query is whether, in practice, big business is paying anything more than lip service to sustainable development.

“Business may present a cuddly face, but international corporations avoid paying corporation tax, the world’s poor still die for lack of drugs and clean water, and the earth is still sucked dry of resources,” says Dave Timms of the World Development Movement. “Business isn’t wholly responsible for every global crisis, but it is almost always at the scene of the crime.”

According to a survey by the Institute of Public Policy Research only four out of 10 UK company boards discuss social and environmental issues.

Sumi Dhanarajan, policy adviser at Oxfam, says that it can be difficult to gauge precisely how sincere a company actually is. There are no formal and uniform mechanisms in place, she says, to measure performance. She argues that governments need to become more active.

“There has to be an understanding of where corporate responsibility comes from. The markets reward irresponsible behaviour. Governments can help change the framework,” she says. Dhanarajan recognizes that regulation already exists, but argues that what is missing is effective enforcement as many businesses have found ways to circumnavigate it. “They are breaking the law; it’s the norm to do that,” she says. Dhanarajan urges governments to become stricter.

But as Dhanarajan points out, regulation alone is not the answer. “Businesses need to be more self-critical and need to analyze the impact of their decisions more,” she says.

Some multinationals are already doing this. Since the end of the 1990s, companies such as Shell, BASF, Unilever and Norsk Hydro have all published performance reports.

“Reporting on social and environmental issues is one of the factors which separates those companies that are taking their sustainable development responsibilities seriously and those that are not,” says Myklebust.

These reports are as important to a multinational as its financial reports. BASF, for example, publishes a report on its environmental performance. It uses a performance measurement tool that measures both the environmental impact and the cost efficiency of a process or a product.

“We are currently working to expand that analysis by including social criteria. We will then have the ideal tool to optimize our product portfolio according to sustainability criteria,” says Jurgen Hambrecht, chairman of the chemicals company. “At BASF, we deem sustainable development as a requirement and not as a barrier for business success,” he adds.

Unilever has also started to report on its social performance. In 2002, it conducted a pilot study in 11 countries, representing more than a third of Unilever’s worldwide sales, to help it assess what performance measures are useful to measure globally.

Last year, the firm published a report on its environmental performance. The report contains information on how successful Unilever has been in hitting its internal targets on eco-efficiency in manufacturing, innovation and sustainable resource use.

Some of the targets the company failed to meet included reductions in hazardous waste (it actually increased) and energy usage. On other issues though, such as efficient water use, the company is on track. “Good progress is being made in our three sustainable development initiatives,” says a Unilever report.

Even so, civil society groups want multinationals to do more. BP, for example, is involved in developing a new gas field in a remote, poor area of West Papua province in Indonesia. Yet the company has come under fire for its involvement in the Tangguh liquefied natural gas project for its reliance on the Indonesian military for security.

“Distrust and fear of the military are present in Papua. NGOs are worried that a big project like this will be accompanied by a big military presence,” says the Reverend Herman Saud, a local villager.

BP recognizes the criticism. “As we develop the pipeline, we are continuing to work closely with all stakeholders to investigate the best local solutions to issues raised,” says its report.

Encouraging dialogue

While NGOs might be disappointed that BP has failed to deliver something more concrete, at least the tone of the comment is encouraging.

The emphasis on dialogue with its stakeholders is a marked change from 10 to 15 years ago when multinationals only listened to their shareholders.

Engagement with stakeholders – including NGOs – is a tactic that many businesses are now using. Although some companies still refuse to acknowledge the existence of NGOs, most realize it makes sense to cooperate with them especially if firms can gain a competitive advantage as a result.

Watts says that the only way companies can deliver consistent shareholder value is if they engage with their stakeholders first. “You can’t deliver sustained value creation to your shareholders unless you have a licence to operate, and you can’t have a licence to operate without proper consultation with all of your stakeholders,” he says.

For business leaders, then, there is no contradiction between delivering shareholder value and stakeholder value. “Sustainable development has to do with new business opportunities that create value for us, and both our shareholders and our stakeholders,” says Hambrecht. “Sustainable development is also about sustainable business and what could be more important to shareholders than this?”

NGOs, too, are less suspicious of big business than they used to be and understand that business can make a difference. “Many NGOs are taking a holistic approach to the challenges of sustainable development. They realize that economic growth is required to master the world’s social and environmental problems,” says Myklebust.

Partnerships between civil society organizations and business are commonplace. In November, Shell formed a partnership with USAID to launch a $20 million Nigerian Development Project. Shell will contribute about $15 million over the next five years, with USAID providing the rest. The partnership’s programmes will aim to help build capacity and opportunity for Nigerians in agriculture, health and small- and medium-sized enterprises.

Specifically the two partners plan to focus their work on food security through a cassava cultivation support programme, the prevention of malaria and support of the shrimp export industry. Watts says the project is part of Shell’s well established social programme in the Niger Delta and represents a subtle change from the company’s early investments in the region.

“We went through a transition in the Niger Delta where for many years we’d done community assistance. There were good things but we often found there wasn’t any community ownership, so we had to go through a learning process and move from community assistance to community development,” he says.

“We made that transition but found that it’s helpful to get other parties to work with you to bring expertise and provide funds. We have 30 to 40 organizations we work with in the Niger Delta now,” he adds.

The key question is, of course, whether business is making a difference. Can it bring people out of poverty, regenerate communities and sustain resources? The answer is: it’s too early to say.

There are more than 1 billion people in the world who barely exist on less than $1 a day. About 1.6 billion people have no access to electricity and 2.4 billion rely on energy that is produced by burning inefficient fuels such as wood and cow dung, which can lead to respiratory health problems. It will take a long time to improve these appalling statistics.

As Watts says: “Sustainable development is everyone’s responsibility. Governments, civil society, companies – everyone has a part to play.”