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Chapter 5

International

Introduction

The United States of America is blessed with significant endowments of capital -- human, social and financial. These riches enable the United States to be a world leader. In turn, this leadership gives the nation a substantial amount of economic, political, and cultural influence around the world. The United States must recognize this leadership role, and use it to help put itself, and the world on a path toward sustainable development.

As a society, Americans need to appreciate that U.S. leadership is wide-ranging, and can be informal in nature. For instance, American movies and television programs are popular throughout the world. Through them many people are shown a higher standard of living than their national circumstances currently allow them to attain. These media images can lead to many results: dreams for a better future, immigration as people seek the "American Dream," as well as dissatisfaction with their current situation leading to changes in local customs and cultures.

Advise the President on the promotion of sustainable development in international fora, and gather and disseminate information about US and international sustainable development policies. Promote the creation and continuation of national sustainable development councils around the world. Additionally, given the increasing flow of financial capital from developed to developing countries, the Council shall recommend policies that encourage foreign investment by the U.S. Government, businesses, investors, and , as appropriate, multilateral institutions that are consistent with the principles of sustainable development. -- PCSD Charter, April 1997

Given the enormous challenge of charting a path toward sustainability for our country, our government and our communities, the Council focused primarily on domestic issues during its first four years. The International Task Force was formed in 1997 to ensure that an international perspective is maintained in the Council's efforts to develop a plan for America's path to sustainable development.

The Task Force recognized the value of sharing knowledge across national borders. Lessons learned by Americans pursuing a sustainable future, and new technologies and processes developed in the United States could be of interest and use to other nations. Correspondingly the United States can learn from the many interesting examples of sustainable development found all over the world.

The Task Force focused on how international private capital flows affect sustainable development, particularly in investments made in developing countries. To help develop an understanding of this complex set of issues, the Task Force undertook several activities. It convened stakeholders to discuss key issues in the prospective Multilateral Agreement on Investment and on a structure for facilitating capital flows to developing countries to help them embark on a clean development path. It also provided input to the United Nations effort to take a fresh look at how to finance development, ¹ emphasizing that financing should be for sustainable development and take into account social and environmental concerns in parallel with economic growth.

Key Findings and Recommendations

The United States must use its leadership role to help chart a path toward sustainable development both at home and abroad. In doing so the United States should be open to learning from other nations' experiences.
The Council can benefit from information exchange with the international community. Efforts should be made to disseminate the Council's work internationally as well as to learn from other countries' experiments and experiences toward achieving sustainable development.
New coalitions of interests are needed, both domestically and internationally, to build support for the changes necessary for sustainable development to be achieved. Without "champions" from all sectors, change will not occur.
Multilateral agreements should integrate economic, environmental and equity considerations. Sustainable development is inherently an integrative effort. Economic agreements must consider environmental and social effects and environmental agreements must take economic and equity effects into account.
The Council or a similar body should continue as a forum for thoughtful consideration of issues of sustainable development by high-level leaders in all sectors. In having such a body, the United States sends a strong signal to the world that multistakeholder dialogue and consensus-building are important means of policy advice and development, and that all sectors are committed to a more sustainable future.
Foreign investment, assistance, and all government activities should be progressively and consistently conducted in ways that promote recipient countries' efforts to achieve sustainable development. The global need for "green" development strategies creates new investment opportunities. Domestic policies should enhance America's ability to take advantage of these trends and support the creation and expansion of businesses which help improve the environment and well-being of citizens around the world.

International Connections of PCSD Activities

Transportation, economic development, urban blight, and the inability to deal effectively with rising populations in metropolitan areas are issues that communities face around the world. Sister-city, county and state affiliations between the United States and other nations began shortly after World War II. They developed into a national initiative when President Dwight D. Eisenhower proposed the people-to-people program at a White House Conference in 1956. His intention was to involve people and organized groups at all levels of society in personal citizen diplomacy. These existing relationships can provide a venue for increased information sharing and learning as cities exchange strategies for meeting the many challenges they have in common. The Council's Metropolitan and Rural Strategies Task Force has developed a toolkit to assist communities to develop more sustainably; to find ways to invest in people, places, and markets; and to assess and track progress at the community level. This "toolkit" may be helpful for communities around the world. In the same way, American communities seeking ways to develop "brownfields" have learned from European communities' successful brownfield redevelopment and eco-industrial park projects.

The term "globalization" refers to the trend toward decreased importance of national borders in the face of increased contacts among people, companies, and institutions, due largely to advances in technology. International transactions by American businesses continue to grow. These transactions measured by American exports and imports have steadily increased throughout the latter part of this century.

Source: Survey of Current Business, August 1998 US Department of Commerce

Exports alone have contributed to 30 percent of US economic growth, supporting about 12 million high-paying American jobs.² American and international business is interconnected through plants, jobs, and capital. Worldwide, forty-five percent of cross-border investments take the form of foreign direct investment (FDI) such as joint ventures or building facilities in another countries. These investments have a longer time horizon and a greater degree of involvement in the host country than other forms of investment such as commercial lending or portfolio investment. One way to use these investments to help facilitate countries' sustainable development efforts is to influence companies' international operations. The Environmental Management Task Force developed a framework for a new environmental management system that would help move the system toward sustainable development. While their recommendations are tailored to the American system of environmental management, much can be gained by sharing internationally this vision of new relationships between business, governmental regulatory structures, and people. The United States can also learn from international efforts, such as the ISO 14000 and the European Union Eco Management and Audit Scheme.

American leadership and international engagement is particularly important in addressing the array of global issues that can only be solved through cooperation. Solutions to global environmental problems such as the destruction of the ozone layer, the loss of biological diversity, and human interference with the climate depend on the participation and leadership of the United States. The Climate Change Task Force focused on the importance of early action to protect the climate. Since the United States is the world's largest emitter of greenhouse gases, American leadership on climate change is vital. The Council's work on this issue has stressed the importance of improved technologies and their dissemination domestically and globally, as well as the broader benefits that can be realized by communities taking action which satisfy many of their other objectives. Technologies and other technical assistance from industrialized countries can help developing countries grow their economies while improving environmental protection and opportunities for all. The Clean Development Mechanism (CDM) in the Kyoto Protocol is a means of institutionalizing cooperative approaches for the achievement of sustainable development while reducing greenhouse gas emissions. Under the CDM, private investments can be made in cleaner sources of energy or cleaner industrial processes in developing countries in exchange for credit against greenhouse gas reduction obligations.

The President's Council on Sustainable Development and the Global Environment and Technology Foundation are convening a National Town Meeting for a Sustainable America, to showcase examples of sustainable development at all levels across the country. It is an opportunity for others around the world to learn about what we are doing, as well as for Americans to learn from other countries' successes. The theme of "crossing boundaries" demonstrates that it is necessary to learn from each other, not just person to person but also community to community, and nation to nation. We are enriched through discovering others' successful approaches to implementing sustainable development.

In sum, the challenges of moving toward a more sustainable society, while diverse in different contexts, are better served through learning from others in how they are facing similar issues. We have much to gain by sharing our experiences in advancing sustainable development in America and equally, benefitting from the experience of other nations in their efforts to achieve sustainable development.

The Importance of Collaborative Approaches

Although at times challenging, the Council has learned that multi-stakeholder dialogue provides important input for efforts to achieve sustainable development. New coalitions of interests are needed to build support for change as we move from traditional models of economic development and environmental protection to integrated, sustainable systems. Many controversial issues suffer from a lack of understanding by the adversaries of areas for potential common ground. Thoughtful dialogue among representatives from traditionally adversarial stakeholder groups can help promote mutual understanding, allowing a better appreciation of each other's priorities and deepest concerns, and building a foundation for moving toward satisfactory, viable strategies to address concerns and solve problems.

The Task Force adopted this approach of assembling different viewpoints in two activities it conducted to help inform its consideration of how international private capital flows relate to sustainable development. Although the two fora were designed for different purposes, they each included participants with a variety of perspectives on the topics discussed.

National governments should continue to have a focal point for sustainable development providing opportunities for thoughtful discussion. The President's Council on Sustainable Development serves as a symbol of the importance and utility of a multistakeholder advisory body in building and maintaining a democratic tradition of governance. Over the past year, several countries have expressed interest in forming a multi-stakeholder advisory body on sustainable development similar to this Council and have contacted the President's Council for information on its work and for advice. Sharing information with other National Councils on Sustainable Development and attempting to learn from the experience of others should continue to be a staple activity of the Council.

The International Task Force intends to invite representatives from other National Councils in all corners of the globe to come to the National Town Meeting and bring with them their best examples and experiences in promoting sustainable development, as the United States shares its experience with them. There will also be an opportunity to compare experiences about what has been effective, and what has been most challenging in creating and continuing National Councils as well as in developing and implementing sustainable development in various countries.

Sustainability in international private capital flows:
A look at the proposed Multilateral Agreement on Investment

Private investment now dwarfs official development assistance in terms of funding flowing into most developing countries. As such, private investment, including foreign direct investment, has become the major engine of economic growth in most countries.

Private Capital Flows and the Environment, B. Gentry, ed., Edward Elgar Publishing (1998)

Growth, if not occurring within a framework of sustainability, can become a negative force. Conversely, growth that is aimed at social, environmental and economic sustainability will have a positive long-term influence on the lives of people in these societies. For example, as negotiations on a Multilateral Agreement on Investment (MAI) proceed, it is critical that any such rules guide private investment flows toward sustainable development. However, inclusion of environmental and social criteria in investment decisions remains unfamiliar territory to many financial professionals. It will be a continuing challenge to bring their consideration in these negotiations.

It was with this challenge in mind that the PCSD International Task Force undertook a Forum on the MAI and Sustainable Development in February 1998. On its face, the MAI seeks to protect international investors by ensuring that their investments abroad will be treated no differently than investments made by nationals of the recipient country. Doing so is designed to increase international investment by reducing risks and costs. However, some groups are concerned that national sovereignty would be threatened by such an agreement, and that broader effects on the environment, labor, and social justice could result.

The goals of the Forum were to highlight some of the key issues posed by the MAI. The Task Force decided not to take a position on the MAI itself, but to help increase the understanding of the various concerns and benefits of such an agreement among the various interested parties.

One of the key issues that surfaced during the discussion was whether it was possible, and desirable, to link economic goals with environmental and social concerns. Many environmental groups are convinced they must be linked. Many in the business community maintain that they should remain separate. This wide disparity in views stems partly from a failure to understand each other's perspectives and concerns: the business community often lacks knowledge of the ecological effects or socio-cultural ramifications of a given economic activity, and environmental groups often lack an understanding of financial issues, pressures, and cost calculations that affect business decisions.

The Forum raised interesting issues for the Task Force to consider. The discussion revealed that the need to address economic, environmental, and social considerations together is not universally accepted. Yet sustainable development is inherently an integrative effort. In order for nations to achieve sustainable development, multilateral agreements or processes that affect the economy, the environment, or social equity should be undertaken from the perspective of sustainability, and reflect all three areas of concern. International fora should support sustainable development goals whether they are in the area of finance, trade, or environmental protection. Sustainable development is a process that needs to involve everyone, at all levels of governance. Multilateral agreements should allow for actions taken toward sustainable development at the community or regional levels.

It may be useful to re-frame the debate on whether it is desirable to put environmental agreements on an equal footing with economic agreements. It is more productive to ask how we can more fully incorporate environmental and social considerations into everyday economic decisions, and incorporate economic concerns into social and environmental issues. More needs to be done both in research and in practice to decrease the gulf between social, environmental and economic values and understanding.

A growing number of individual businesses see the benefit and opportunities in incorporating social and environmental considerations in their core operations.³ Greater attention to these issues can help companies manage risks and costs in a manner that confers competitive advantages. One of the first corporate-wide efforts to avoid waste was 3M's Pollution Prevention Pays program, begun in 1975. 3M has eliminated over 1.5 billion pounds of air, land, and water pollution for $790 million in total savings. Several years ago The Dow Chemical Company instituted a program called WRAP -- "Waste Reduction Always Pays" and announced extensive environmental, health, and safety goals for 2005. The goals involve an environmental code of ethical practices, incident reductions, and resource productivity with an emphasis on pollution prevention. A Responsible Care* Award recognizes Dow employees' efforts worldwide in continuously improving Dow's EH&S performance toward the 2005 goals. In 1997 nine finalists were recognized from Canada to the Netherlands and from Japan to Brazil. Each team received $5000 to give to a non-profit organization in their community -- organizations that share the company's concern for protecting people and the environment.

Interface, Inc. is a resource intensive textile, flooring, and carpet company with sales in 110 countries and manufacturing facilities at 26 sites on four countries. "Our company makes a significant impact on the planet's commerce and energy... our goal is to be a zero waste company. We define waste as any cost that does not produce value to our customers... Since 1994, cumulatively we've taken $40 million out of our costs on our way to a projected savings of $76 million by the end of 1998." -- Interface Sustainability Report 1997

NOTE: In December 1998, the Organization of Economic Cooperation and Development (OECD) announced⁴ that negotiations on the MAI are no longer taking place, citing a number of important issues requiring further analysis and deliberation

Forum on the Multilateral Agreement on Investment The following highlights some of the key issues concerning the MAI which were raised during the Forum. These points do not reflect a consensus among the forum participants. They are included to provide a sense of the major concerns and potential benefits posed by the MAI.

International capital flows contribute greatly to the growth of the US as well as the global economy. Investment and sustainable development need not be in conflict.
Appropriate provisions must be made in the agreement to protect all nations' ability to enact and enforce their own environmental protection measures.
Environmental and economic global institutions should be on an equal footing.
From the NGO perspective, MAI has the potential to link environmental and economic goals, however, this linkage must be strengthened in the existing text of the agreement.
From the international business perspective, the MAI does not prevent sustainable development; given the appropriate conditions of national treatment, efficient operation, legal assurances, and dispute settlement, the agreement could enhance prospects for sustainable development.
The MAI should set forth a framework for investors that includes standards for environmental protection, access to information, and access to justice.
International investments will continue, regardless of MAI structure or codification. The agreement reflects the increased globalization of the world's economy and communication capabilities, as well as the desire to attain equitable treatment of international investors. Patience and broad participation are crucial in negotiations of such issues in order to come to a resolution that meets global needs.

Key questions from the discussion period:
1. Can environmental concerns be addressed while meeting economic priorities? 2. Given increased transparency of global activities through media, Internet, etc., do we really need to be concerned about codifying good environmental and social performance of multinational corporations? 3. Do we have enough data on environmental effects of the billions of dollars flowing in various forms (portfolio and direct investment) from various entities (companies, funds, development banks, export credit agencies) to understand them and act accordingly?

International Capital Flows, Climate Change, and the Clean Development Mechanism

Climate change is a critical issue of sustainable development. The effects of predicted sea level rise, changes in weather patterns, and increases in extreme weather events will all directly impact a large proportion of the world's population, including many of the most vulnerable developing nations. Those populations presently least able to increase their standard of living will often be the hardest hit. Low-lying coastal areas such as Bangladesh and small island developing states, will experience severe damage if sea level rises by a meter or more due to the concentration of communities and economic activities in coastal areas.

Article 12 of the Kyoto Protocol establishes the Clean Development Mechanism (CDM) to help developing countries achieve sustainable development while simultaneously reducing greenhouse gas emissions. As the details of the CDM have yet to be formalized, and the Protocol has yet to be ratified, the International Task Force decided the CDM provided a timely example through which to examine the relationship between sustainable development and international private capital flows.

The CDM is intended to encourage investments in projects that help put developing nations on a cleaner growth path, and in turn, help investor countries earn credits for subsequent greenhouse gas emission reductions. For example, a company may invest in solar panels to bring electricity to a rural village or install an industrial cogeneration system. The CDM encourages partnerships between "North and South," and between private and public entities to facilitate technology transfer that contributes to greenhouse gas mitigation. Most agree that the CDM offers great potential for "win-win" investments that help both investors and host countries reach their respective goals.

In July 1998 the International Task Force, along with six other organizations,⁵ convened a Forum on the Clean Development Mechanism and Sustainable Development. [A summary of the Forum can be found in Appendix D]. The dialogue was designed to increase understanding and develop interest in the mechanism, as well as to examine the conditions necessary to accomplish the mutually interdependent objectives of sustainable development and greenhouse gas reductions. The Forum was not designed to reach consensus, but to further understand various stakeholder perspectives on the CDM. It was also an opportunity for the Task Force to hear from those who may be involved in future CDM projects, and identify what aspects were important to include so that the mechanism would be successful in attracting investment to help developing countries embark on a cleaner growth path.

Close to 100 people from the Federal government, private industry, and the NGO community participated in the dialogue. They heard presentations on opportunities and key issues in the CDM and then spent two hours in small group discussion sharing their perspectives on specific questions. Participants' suggestions on ways to make the CDM a more effective instrument in promoting sustainable development can be found in Table 1. These suggestions are presented here for informative purposes and do not reflect consensus among the participants, nor endorsement by the Council. Many participants in the Forum expressed their appreciation for the rare opportunity to participate in a dialogue with others holding a wide variety of viewpoints.

Table 1
FORUM RESULTS Suggestions for a more Effective CDM

Encourage flexible mechanisms that allow for realization of the benefits of cost-effective decision making.
Create profiles of "clear winner" model-projects as sectoral prototypes. These examples can help decrease transaction costs and risk for other firms who wish to follow.
Improve competitiveness of CDM projects using traditional investment criteria (i.e., decrease costs and risks, improve return).
Examine both existing and "new" capital flows. Look at mainstream or incremental investments and assess possible incentives for meeting CDM criteria.
Reduce the risk to early participants. Governments and other public institutions should initially serve as "market maker." Over time, transition to a private sector mechanism is desirable.
Address methodological concerns over certification and the establishment of baselines.

Suggestions for a more Sustainable CDM

Encourage projects on poverty eradication and industrial development through the incentives in the CDM.
Address the specific equity concerns of small island states and low lying coastal communities.
Examine the existing incentives in financing domestic infrastructure and energy projects for their effects on the CDM and carbon emissions.
Use discounting or a full cost analysis to differentiate between the net benefits of various energy sources. Such a system would allow for more meaningful comparisons between renewable and non-renewable energy sources.
Allow for weighting the value of credits based on the degree of environmental and sustainable development benefits. This would offer greater incentives for projects with secondary environmental and social benefits.

The CDM has the potential to help achieve global climate objectives by encouraging cooperative action to reduce greenhouse gas emissions as developing nations grow. It is also a vehicle for attracting capital toward sustainable development objectives while protecting the climate. As one speaker noted, the CDM helps promote technology transfer in three principal ways: it improves the value of the overall investment; it may allow for shorter contracts or riskier projects to move forward; and it encourages multinational corporations and others to look at emission reduction opportunities globally rather than only in industrialized nations.⁶