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Board Europe - March/April 2008

Take Your Pick: Economy Society Environment

Sustainable development rests on three equally important pillars of performance: economic, social and environmental. To be sustainable, economic growth cannot come at the expense of society or the environment. But the equation also cuts other ways.

Between the environmental consequences of climate change, and the economic and social needs of the advanced and the emerging markets, the world is facing some hard choices. Should the rapidly developing economies be able to consume the increasing amounts of energy they require to generate wealth and improve quality of life — and thereby risk environment disaster? Or must we protect the environment first and foremost, and thereby deny billions of people access to a better life? How can we simultaneously safeguard all three pillars of sustainable development?

These were among the questions posed at the Paris Business Briefing held on 20 February 2008 by The Conference Board and the Chamber of Commerce and Industry of Paris.

"The question is whether the growth trajectory can be continued in an environment in which we are committed to carbon-emission reduction," said Gail D. Fosler, President and Chief Economist of The Conference Board. Unless an answer is found, industry-intensive emerging markets such as China, "will not be able to continue their trajectory with greenhouse gas restrictions." Nor, she warned, will the advanced economies.

The answer must come from technology and innovation to increase energy efficiency and stimulate productivity growth, said Bart van Ark, Executive Director of Economic Research at The Conference Board. "Why look at productivity growth? Because it is that part of growth in an economy that is sustainable. The other elements of growth — labor and capital — are ultimately not sustainable (over the long term) because they are subject to diminishing returns. When talking about sustainability, it is productivity growth that will provide the answer."

Productivity growth is often perceived as a euphemism for cutting jobs, Ms. Fosler noted. In fact, efficiencies from technology and innovation help create wealth and therefore generate employment. But here a different problem emerges: the issue of intellectual property rights. In order to ensure that new technology and innovation yield benefits on a truly global scale — so that the rapidly emerging economies can continue to grow without causing catastrophic environmental damage — they must be accessible to all.

"Technology and innovation require international cooperation," van Ark said. "We need to rethink intellectual property. Rather than talk about reductions (in energy use), we need to look at questions of technology transfer."

"We need to develop a coalition of interests," agreed Christian Balmes, president of Société des Pétroles Shell. "There are two types of scenarios. The first is like the Paris-Dakar race, in which you have winners and losers. This is competition in its purest form. The second is a collective effort, where the majority of participants cross the finish line. We must remember that without energy, there is no growth."

Technology and innovation mean investment. But as long as environmental benefits remain intangible, return on investment is difficult to assess. "This is why we need a real and stable C02 cost," said Erik Pointillart of Groupe Caisse d’Epargne, adding that the application of carbon costs to products and services would provide a tangible incentive for behavioral change both among consumers and businesses.

Some of that innovation and imagination should also be applied to create new markets, Ms. Fosler concluded. "We have to think about markets in a really new way. Because we are not going to get where we need to go on the path that we are now on."

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