ISSUE 5 GLOBAL SOLUTIONS JOURNAL

RECOUPLING THE GLOBAL SOLUTIONS SUMMIT 2020 EDITION

ABDALA ∙ ABRIGNANI ∙ ALEXANDROFF ∙ ALMUBARAK ∙ ANBUMOZHI BAUER ∙ BEIER ∙ BENGU ∙ BERGER ∙ BILOLO ∙ BOLLRICH ∙ BRADFORD BUCHOUD ∙ CHICOMA ∙ COSTIN ∙ DE MELLO ∙ DITTRICH ∙ ENGELS FELBERMAYR ∙ FLEURBAEY ∙ GOLD ∙ GÖRLICH ∙ HELLER ∙ IACOBUTA KHARAS ∙ KIRSCH ∙ KIRTON ∙ KULIK ∙ LIMA DE MIRANDA ∙ POMARES RAMOS ∙ RAPSON ∙ SABUNCUOGLU ∙ SCHRADE ∙ SCHULZE ∙ SNOWER STEINHILBER ∙ STEIN-ZALAI ∙ STRAUBE ∙ TIBERGHIEN ∙ TIMMERMANS URVASHI ∙ WANG ∙ WARREN ∙ WEST ∙ YILAZ ∙ YOSHINO ∙ ZOTHAN ISSUE 5 ∙ APRIL 2020 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 FOREWORD Paradigm change for a sustainable world order

Dennis J. Snower Dear Reader, President, Global Solutions Initiative In the fifth edition of this journal, re- Global Solutions Summit 2019 Opening Plenary: (from left) Naoyuki Yoshino, T20 ; searchers from the Global Solutions net- Ronnie Chan, Hang Lung Group; Ngaire Woods, Oxford University; Evan Davis, BBC; work offer their visions and recommen- Gabriela Ramos, OECD; Dennis J. Snower, Global Solutions Initiative; Colm Kelly, PwC. dations for engaging with this year’s priorities. The recent spread of Covid-19, Markus Engels the coronavirus, is challenging globaliza- achieved. In their contribution, John Kir- This requires concepts for measuring how Secretary General, tion in its old form and shows the need for ton and Jessica Rapson present concrete people are faring around the world. The Global Solutions a new orientation, one based on interna- instruments to ensure countries comply article Recoupling Economic and Social Initiative tional cooperative measures that empow- with their commitments. Prosperity proposes a “recoupling dash- er and protect societies. Global problems board”, a new instrument that considers a can only be defeated if the international In politics, business and civil society, peo- broader variety of factors than mere eco- community works more closely together ple are now taking action to safeguard nomic growth for assessing human well- Dennis Görlich than ever. the planet. With its Green Deal, the EU being. Head, Global Challenges has developed an ambitious strategy for Center, Kiel Institute for This understanding is reflected in the fighting climate change. Executive Vice This journal features many other insight- the World Economy key aims of this year’s Saudi Presidency President of the European Commission ful contributions. The ideas expressed by Research Director, and groups like the Think 20 (T20): Em- Frans Timmermans explains the thinking the authors help prepare the ground for Global Solutions Initiative powering people, safeguarding the planet behind this strategy. the T20 Summit and the G20 Leaders’ and shaping new frontiers. The Saudi G20 Summit. As always, we invite you to con- Sherpa Fahad Almubarak describes these A common thread that joins all three aims tribute articles to the next journal, with priorities in his article on raising collec- of the Saudi Presidency is the conviction your proposals for global solutions to G20 tive ambitions and strengthening commit- that multilateral and international coop- issues. ments. eration partners should put human needs and purposes at the heart of their en- Yours, in hope and confidence, Faced with global challenges like climate deavors. The G20 can accomplish this by change, the G20 is now focused on imple- seeking to recouple economic, social and

menting the agreements it has already Koch Tobias Copyrights: environmental progress.

4 5 CONTENTS CONTENTS Global Solutions Journal Issue 5

RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE SOCIAL PROSPERITY AND PROTECT THE PLANET’S RESOURCES 14 Recoupling economic and social prosperity 106 Realizing the low-carbon future: What role for central banks Dennis J. Snower, Katharina Lima de Miranda and monetary authorities? 24 New approaches to global solutions Venkatachalam Anbumozhi Gabriela Ramos 115 With or without you: How the G20 could advance global action 31 Why corporate purpose matters toward climate-friendly sustainable development Marc Fleurbaey Steffen Bauer, Axel Berger, Gabriela Iacobuta 38 Five theses against self-indulgence: How new cross-sector partnerships 123 The diet of the future can balance financial, environmental and societal value creation José Luiz Chicoma Dennis West, Céline Bilolo, Christian Heller 129 Putting climate and environmental protection at the heart of European policy Svenja Schulze THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE 132 Solidarity and the Green Deal: Delivering a social Green Deal IN A CHANGING WORLD to all of Europe’s citizens 54 Toward “effective multilateralism” in turbulent times Frans Timmermans Alan Alexandroff, Colin Bradford, Yves Tiberghien 135 G20 governance of climate change through nature-based solutions 61 Realizing opportunities of the 21st century for all Brittaney Warren Fahad Almubarak 67 The WTO needs a Plan B INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING Gabriel Felbermayr 148 Making the case for G20 action on urbanization 72 The economic causes of populism Nicolas J.A. Buchoud, Raja Almarzoqi, Hazem Galal, Aawatif Hayar, Robert Gold, Thiemo Fetzer Nella Sri Hendryietty, Jean-Bernard Kovarik, Katharina Lima de Miranda, Fiki Satari, Naoyuki Yoshino 78 The future of multilateralism: Toward a responsible globalization that empowers citizens and leaves no one behind 156 Green finance in emerging markets Homi Kharas, Dennis J. Snower, Sebastian Strauss Michael Dittrich 84 The future of AI governance: The G20’s role and the challenge 168 Vas-Y: Unlocking private investment for fragile states of moving beyond principles Urs Schrade, Tobias Straube, Franziska Frische Julia Pomares, María Belén Abdala 95 and its Long March: End in sight? Not yet Wen Wang

6 7 CONTENTS CONTENTS

SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION DEMOGRAPHIC CHANGE: IMPLICATIONS FOR MACROECONOMIC POLICY AND LABOR MARKET POLICY 242 Structural reforms to make the most of demographic change 178 Rethinking higher education for the emerging needs of society Luiz de Mello, Yvan Guillemette Elif Bengu, Emeric Abrignani, Ihsan Sabuncuoglu, Cengiz Yilmaz 249 How does population aging affect the effectiveness of monetary 188 Strengthening labor protections for 21st century workers and fiscal policy? Urvashi Aneja, Zothan Mawii Naoyuki Yoshino, Hiroaki Miyamoto 196 Education and social progress Claudia Costin 256 The Global Solutions Initiative for the G20

ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS 258 Imprint 206 Smart implementation of complex change processes: Cooperation management facilitates the recoupling of progress toward sustainable development Christoph Beier, Renate Kirsch 212 Implementing the SDGs: On the relationship between sustainable development and the global commons Elisabeth Bollrich, Jochen Steinhilber 218 Gender equality for a sustainable future: G20 governance of the gender equality – climate change link Julia Kulik 224 Raising compliance with G20 commitments: Two evidence-based instruments Jessica Rapson, 234 Making gender equality a reality: We need concrete policy action, substantial funding and multilateral cooperation Juliane Stein-Zalai

8 9 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY

Page 14 Recoupling economic Recoupling: and social prosperity Dennis J. Snower Ending the Global Solutions Initiative Katharina Lima de Miranda Kiel Institute for the World Divergence of Economy

Economic and Page 24 New approaches to global solutions Social Prosperity Gabriela Ramos OECD

Page 31 Why corporate purpose matters Marc Fleurbaey Princeton University

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Page 38 Five theses against self-indulgence Dennis West Céline Bilolo Christian Heller value balancing alliance

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Many of the prominent challenges of the may leave large segments of voters person- Recoupling economic 21st century – including the rise of pop- ally disempowered and socially alienated. ulism, growing nationalism, a backlash The same holds with regard to the massive against globalization and multilateralism – protests in Chile that began with a subway and social prosperity arise from a decoupling of economic pros- fare hike and those in Lebanon, which were perity and social prosperity. While GDP triggered by a WhatsApp tax. per capita – our conventional measure of The “Recoupling Dashboard” – economic prosperity – has grown reason- ably steadily over the past four decades, »Tackling A new measurement for well-being beyond GDP this growth does not appear to have been matched by a steadily rising sense of so- the major cial prosperity, in terms of rising well-be- ing within thriving societies. Nor has this challenges The authors: The institutions: economic growth been environmentally sustainable, with further adverse reper- Dennis J. Snower of our time cussions for social prosperity. The per- President, Global sistence of national, ethnic and religious will involve Solutions Initiative conflicts around the world, combined with The Global Solutions Initiative is a global rising dissatisfaction among large popula- confronting collaborative enterprise that proposes policy tion groups that feel “left behind” in both responses to major global problems, ad- the developed and developing countries, the paradox dressed by the G20, the G7 and other global attests to such decoupling of economic Katharina governance fora. The policy recommenda- prosperity from social prosperity for sig- of growing Lima de Miranda tions and strategic visions are generated nificant segments of modern societies. Researcher, Kiel Institute through a disciplined research program by Tackling the major challenges of our times economic for the World Economy leading research organizations, elaborated in will involve confronting the paradox of policy dialogues between researchers, policy- activity in an makers, business leaders and civil society growing economic activity in an integrated representatives. global economy, accompanied by ongoing tensions arising from fragmented socie- integrated ties and polities. global A major problem in tackling the decou- pling of economic and social prosperity is economy.« that politicians are far more sensitive to The Kiel Institute for the World Economy is economic prosperity than its social coun- an international center for research in global terpart. For example, when French Presi- The sense of disempowerment and so- economic affairs, economic policy consulting, dent taxed fuel to en- cial alienation is experienced among many and economic education. The Institute courage the country’s transition to green significant population groups in advanced engages especially in creating solutions to energy at the end of 2018, he did not expect and emerging economies, from inhabit- urgent problems in global economic affairs. thousands of citizens to march through the ants of America’s “rust belt” and Britain’s It advises decision makers in policy, business, and society and informs the broader public streets in yellow vests. He apparently had small towns to Africa’s unemployed youth. about important developments in international neglected the possibility that achieving eco- In short, in many countries around the economic policy. nomic prosperity through “green growth” world, economic prosperity, environmental

14 15 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY performance and social prosperity are no components: “Labor market insecurity,” per capita) and the circles denoting "social For an economy whose growth is becoming longer aligned. “Vulnerable employment,” “Life expectan- prosperity" (measured by our agency and increasingly unsustainable, the economic- We propose the “Recoupling Dash- cy,” “Years in education” and “Confidence solidarity indexes) are linked to the circle prosperity circle is growing while the envi- board”, providing a new theoretical and in empowering institutions”. Our solidar- denoting "environmental performance." ronmental-performance circle is shrinking. empirical basis for assessing well-being ity index covers the needs of humans as (measured by our agency and solidarity in- We argue that agency and solidar- beyond GDP. It sheds light on the decou- social creatures, living in societies that dexes). In well-functioning socio-economic ity – alongside economic prosperity and pling process and provides an empirical generate a sense of social belonging. With systems, the economic-prosperity circle environmental sustainability – cover fun- basis for mobilizing action by government, respect to social belonging, "solidarity" largely overlaps with the social-prosperity damental human needs and purposes business and civil society to promote a re- may be considered synonymous with "so- circle, i.e., the incentives, motives and at- present in all cultures. When people's coupling of economic and social progress. cial cohesion" and "social inclusion". Our titudes (including trust, social support, important material needs have been met, Given that the purpose of government and Solidarity Index is measured across three economic security and so on) that people when they feel securely and meaningfully business is to promote the public interest, components “Giving behavior,” “Trust in need to conduct economic transactions are embedded in society, when they have the the Recoupling Dashboard is a step toward other people” and “Social support”1. the ones that promote social prosperity in power to influence their circumstances in suggesting that government and business their societies. For an economy that grows accordance with self-determined goals, decisions be based on assessments, not (in terms of GDP per capita) while its citi- and when they live respectfully of plane- only of their impacts on GDP and environ- »The Recoupling zens are mired in dissatisfaction and con- tary boundaries, then they achieve a wider mental performance, but also on solidarity flict, the economic-prosperity circle is de- sense of human well-being than when they and empowerment and agency. Dashboard is coupled from the social-prosperity circle. simply maximize GDP growth. Failure to The central conceptual insights of our analysis rest on the following claims: (i) a step toward Human well-being is about more than sat- isfying preferences for the consumption suggesting that Figure 1: The relation among the four indexes of goods and services. It also includes the pursuit and achievement of value-driven government purposes. (ii) Since the success of homo sapiens is built largely on cooperation and and business niche construction, humans have evolved motives to socialize (particularly in groups decisions be of limited size) and to use their capacities to shape their environment. (iii) Conse- based on not quently, personal agency and social soli- darity have become fundamental sources only their of human well-being. On this basis, we introduce two new, in- impacts on novative indexes, agency and solidarity, to be examined alongside economic prosper- GDP.« ity as well as environmental sustainabil- ity to gain a more balanced and profound The relation among the four indexes understanding of well-being. Our agency above is illustrated in Figure 1. The econo- index involves agency; it involves people's my and society are embedded in the natu- need to influence their fate through their ral environment. Thus the circle denoting own efforts and is measured across five "economic prosperity" (measured by GDP

16 17 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY achieve any of these ends is associated translated into temporally invariant mon- Figure 2: Comparison of indexes of the four dimensions of human well-being with suffering. The inability to meet basic ey terms, whereby economic prosperity is in 2007 and 2017 and over time for selected high-income countries material needs signifies extreme poverty; measured. In order to thrive, people need lack of agency signifies a lack of freedom, to satisfy all four purposes – their basic Development over time Comparison to average self-expression and self-determination; material needs and wants, their desire failure to achieve social solidarity is asso- to influence their destiny through their ciated with loneliness and alienation; and own efforts, their aim for social embed- living unsustainably means robbing future dedness, and their need to remain within generations (as well as others in the cur- planetary boundaries. Agency is value- rent generation) of the opportunity to lead less when one is starving; consumption flourishing lives. has limited value when one is in solitary The four goals – agency, solidarity, confinement; and so on. Furthermore, the economic prosperity and environmental gains from agency, solidarity, economic sustainability – are not consistently sub- prosperity and environmental sustainabil- stitutable for one another. The gains from ity are different in kind and thus not read- agency and solidarity generally cannot be ily commeasurable.

Germany: From 2007 to 2017, the agency index rose substantially, whereas the solidarity index only slightly increased as did GDP per capita. There Figure 2: Comparison of indexes of the four dimensions of human well-being was also a decrease in environmental sustainability. Over time, one can in 2007 and 2017 and over time for selected high-income countries observe that agency continues to rise along with GDP per capita, while the development of social solidarity has stagnated. Interestingly, has experienced a rise in agency and solidarity since 2011. Development over time Comparison to average

United States: From 2007 to 2017, there is an increase in GDP per capita, accompanied by a stagnation in agency and a decrease in solidarity, as well : From 2007 to 2017, the Recoupling Dashboard shows a as a slight increase in environmental sustainability. Similar to the United rise in agency and GDP, while solidarity has fallen, indicating the country has Kingdom, the has experienced a progressive decoupling of become more “neoliberal.” Over time, the United Kingdom has experienced a GDP from empowerment and solidarity in recent years, particularly after the progressive decoupling of GDP from agency and solidarity, particularly after financial crisis in 2008. the financial crisis in 2008.

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That is the reason why our indexes of capita and environmental sustainability. Figure 3: Correlation between the indexes and GDP per capita across countries agency, solidarity economic prosperity and Countries with a high GDP are not nec- environmental sustainability are to be un- essarily ones that show high solidarity or (a) Solidarity index derstood as a dashboard. Just as the dash- agency. In fact, many countries growing in board of an airplane measures magnitudes terms of GDP per capita show a substantial (altitude, speed, direction, fuel supply, etc.) decrease in the solidarity index over time. that are not substitutable for one another Such a disconnect is an indication of a de- (e.g. correct altitude is not substitutable coupling of economic and social prosperity. for deficient fuel), so our four indexes are In the Development over Time section in meant to represent separate goals. Only Figure 2, the Recoupling Dashboard shows when a country makes progress with re- that solidarity and agency follow time spect to all four goals can there be some paths that are distinct from GDP per capita. grounds for confidence that a broad array In the Comparison to Average section of basic human needs and purposes is be- in Figure 2, the baseline square (in blue) ing progressively met. represents the average values of the four indexes across the countries in the base year (2007). Comparing the green and red »The Recoupling line shows in one glance how a country de- veloped over the past decade in each of the Dashboard four dimensions. Comparison with the blue square and across the different graphs al- offers a new lows for cross-country comparisons. As we can see, the time series and (b) Agency index approach to the cross section evidence indicate that soli- darity and agency are phenomena that are evaluation of distinct from economic prosperity and en- vironmental sustainability. human The degree to which solidarity is cor- related with GDP per capita and the degree well-being.« to which agency is correlated with GDP per capita varies across countries. (Figure 3) We furthermore found suggestive evidence The Recoupling Dashboard includes that inequality does not capture the phe- data from more than 30 countries2 from nomena of solidarity and disempowerment between 2007 and 2017. Summarized on either. (Figure 4) an X-Y plane, the Recoupling Dashboard The Recoupling Dashboard offers a gives a visualization of how the relation- new approach to the evaluation of human ship between the four dimensions varies well-being. With further elaboration, the through time and across countries. Our Recoupling Dashboard can become a pow- data shows that solidarity and agency erful tool to assess how decisions by gov- develop differently over time and across ernments and businesses affect human countries compared to indexes of GDP per well-being. Currently, policy measures

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Figure 4: Correlation between the indexes and GDP per capita across countries are evaluated primarily in terms of their The Recoupling Dashboard is a first step impact on GDP. Similarly, business deci- towards reshaping governance systems in (a) Solidarity index sions related to production, employment both government and business, with the and future investments are made primarily aim of recoupling economic and social in terms of maximizing shareholder value. prosperity.

(b) Agency index Agency index

1 The data used is exclusively provided by external sources, such as the OECD or the World Bank. 2 , Austria, Belgium, , , Chile, Czech Republic, Denmark, Estonia, Finland, , Germany, Greece, Hungary, Iceland, Ireland, Israel, , Japan, Latvia, Lithuania, Luxembourg, , Netherlands, New Zealand, Norway, Poland, Portugal, Russian Federation, Slovenia, , , Sweden, , , United Kingdom, United States.

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lation earns nine and a half times the in- sea levels or desertification, the likelihood New approaches come of the poorest 10%, up from a ratio of and intensity of extreme weather events 7:1 in the 1980s; at 8:1 in the 1990s and 9:1 will increase, and changing precipitation in the 2000s. When combined with slower patterns and temperatures will affect to global solutions rates of growth in average incomes, the crops and livestock. Climate change might skewed distribution of the gains has meant also lead to so-called “tipping-points”, that many people in our economies have i.e. dramatic changes in the system that Building a new growth narrative around seen little if any increase in their material could have catastrophic and irreversible standard of living over long periods, some- outcomes for natural systems and society. complexity to deliver for people’s well-being times even decades. This is also reflected Examples of potential non-linear irrevers- in surveys showing record-low numbers of ible changes include increases in ocean people expecting their children to be bet- acidity, which would affect marine biodi- ter off than they are. A related problem is versity and fish stocks, accelerated meth- The author: WE ARE CONFRONTED WITH A RANGE the decline in social mobility seen in many ane emissions from permafrost melting, OF BAD OUTCOMES… OECD economies: The recent OECD report and rapid climate-driven transitions from Gabriela Ramos At least since the onset of the global finan- A Broken Social Elevator? estimates that one ecosystem to another. Moreover, the OECD Chief of Staff cial crisis in 2008, it has become increas- on average it would now take five genera- world has already experienced damag- and Sherpa to the G20, ingly clear that the economic performance tions for a child born into a low-income ing conflicts and mass migrations arising supporting the Secretary General’s leadership of many OECD countries is deficient in a family to reach the median income, while from droughts and water stress, and the number of important ways. those at the top will remain there. We call likelihood that continued climate change The institution: To begin with, economic growth has this “sticky floors” and “sticky ceilings”. would trigger further such episodes is slowed. The rate of increase of per capita Moreover, this is not a problem of people high. GDP in OECD countries declined from over at the bottom of the income distribution. 2% per year on average in the twelve years On the contrary, increased inequalities preceding the global crisis to only 1% in strongly affect middle classes, who have »The fruits The Organisation for Economic Co-operation the twelve years since. Part of that decline seen their income stagnate, while the cost and Development (OECD) is an international is attributable to the depth of the crisis of housing, health and education have of economic organization that works to build better policies itself, the sharpest global downturn in 80 grown several times more. for better lives. Our goal is to shape policies years, but even excluding the crisis years Last but not least, the quickening that foster prosperity, equality, opportunity and growth are not of 2008-09, OECD-wide per capita GDP drumbeat of bad news relating to the en- well-being for all. We draw on almost 60 years of experience and insights to better prepare has grown by an annual average of 1.7% vironment in recent years – be it unprec- being shared the world of tomorrow. over the past 10 years, half a percentage edented wildfires in Australia, rampant Together with governments, policy makers and point below the 2.2% recorded in the 10 plastic pollution in the oceans, deforesta- equally.« citizens, we work on establishing international years to 2007. tion in the Amazon or the accelerating norms and finding evidence-based solutions Moreover, the fruits of economic loss of biodiversity worldwide – has made to a range of social, economic and environ- growth are not being shared equally. The it indisputably clear that human economic It is against this backdrop that in 2011 mental challenges. From improving economic gap between rich and poor has widened activity is contributing to a series of plan- we launched the New Approaches to Eco- performance and creating jobs to fostering since the 1980s in the large majority of etary emergencies. Above all, the costs of nomic Challenges (NAEC) initiative at the strong education and fighting international tax OECD countries. The OECD average Gini ongoing climate change are coming ever OECD to explain better how our economy evasion, we provide a unique forum and know- ledge hub for data and analysis, exchange of coefficient of income inequality stood at more starkly into view. works, with a view to providing better pol- experiences, best-practice sharing, and advice 0.32 in 2017, up from 0.29 three decades On current trends, regions of the world icy advice and fostering better outcomes. on public policies and global standard-setting. ago. Today, the richest 10% of the popu- will become uninhabitable due to rising NAEC has done this by combining the

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OECD’s strengths in evidence-based pol- great help in understanding how we came the well-known Kuznets curve hypothesis Chief Statistician, Martine Durand, used icy advice with the insights and expertise to have slow growth, damaging financial predicted that income inequality would to remind us, however, “we need to meas- of a network of partners and institutions crises, high levels of inequality and envi- continue to decline in rich countries as per ure what we treasure instead of treasur- outside our organization. Such partners ronmental degradation, and in designing capita income rose, and a similar relation- ing what we measure”. GDP says nothing include research institutes (e.g. IIASA, policies to achieve better outcomes. Un- ship was argued for environmental deg- about distribution, captures only flows and INET), public institutions (e.g. the Bank of derstanding that markets are the result of radation, implying that raising per capita not stocks, excludes unpaid work, puts no England and the European Joint Centre for policies and regulations would help to bet- GDP would tend to solve the problem of value on leisure, subtracts nothing for en- Research), foundations (e.g. Partners for a ter frameworks and outcomes. pollution. This encouraged the tendency vironmental degradation, and so on. It is New Economy), and businesses (e.g. asset to focus narrowly on GDP growth as the at best a very incomplete measure of eco- managers Baillie Gifford). objective of economic policy. A similar as- nomic performance. A great deal of work »Narratives sumption of separability afflicted the role is underway, both inside and outside the …WHICH IN PART REFLECT of finance in the economy: The financial OECD, to move beyond GDP and develop SHORTCOMINGS IN ECONOMIC shape what sector was typically lacking from standard a range of indicators that give a fuller and ANALYSIS AND POLICY MAKING models used to analyse and forecast mac- better picture of sustainable well-being. In parallel to the growing dissatisfaction is going to roeconomic developments. In fact, the leading role that the OECD has with a number of aspects of economic out- The poor outcomes in terms of in- played in showing increased inequalities comes in OECD countries, there has also happen and equality, environmental quality and eco- of income and opportunity was possible been a decades-old questioning of many of nomic growth itself strongly suggest that when the analysis moved from averages to the tenets underpinning mainstream ap- how we react the reductionist tradition has to be reject- different income groups, and their dispos- proaches to economic growth and its driv- ed and a more systemic approach adopt- able household income. ers. Researchers have called into question to it.« ed. Trickle down economics do not work, a number of standard assumptions: that and the environmental emergency calls THE NEED TO MOVE BEYOND GROWTH economic agents are maximizers (utility for a better understanding of the links be- Nobel laureate Robert Shiller, in one of our for households, profits for firms), that they Another problematic issue has been tween different policy issues and decisive NAEC debates, argued convincingly that act atomistically (ignoring other agents), the tradition of reductionism – where we action. We have come a long way toward narratives are not just a way of explain- that they are “rational” and homogeneous, separate complex realities into special- understanding that the economy, society ing things to ourselves, of understanding that no economic agents have power, that ized disciplines, fields of research, agen- and the environment are not only complex what has happened. They also shape what markets have unique stable equilibria etc. cies and ministries, each focused on a systems in themselves, but that they form is going to happen and how we react to it. It has been shown that all these assump- part of the overall truth. Thus, even when a “system of systems” that is best con- In that spirit, the Secretary-General of the tions are unreal, and that it matters. When it was recognized that the ultimate objec- sidered as a whole in trying to promote OECD commissioned an Advisory Group1 agents are heterogeneous, strategic, tive is sustainable well-being, which is change that puts people at the centre. on a New Growth Narrative to examine concerned with relativities, use rules of multi-dimensional (income, health, secu- This should be the core of our economic how economic, social and environmental thumb, have adaptive expectations and are rity, status, fairness etc.), it has tended to thinking today. considerations could be integrated into influenced by history, culture and “fram- be assumed that the dimensions can be Along with better theories and better a coherent approach. The group’s report, ing”, and when they participate in markets considered separately. Thus, the problem specifications of policy objectives, we have Beyond Growth: Towards a New Econom- where economic power is important and of maximizing income (GDP) could be con- also realized that there is a need for bet- ic Approach, drafted by Michael Jacobs, where multiple and unstable equilibria are sidered in isolation from questions of dis- ter data. One aspect of the excessive fo- outlines such a new narrative, which has possible and path dependence common, tribution or the environment. When inter- cus on GDP that there is no other broad three main elements. outcomes can be quite different to the actions were considered, there was often a aggregate economic indicator which is as The first is a new conception of eco- predictions of the old standard models. tendency to assume that other aspects of timely and internationally comparable and nomic performance, going beyond GDP to Adopting more accurate characterizations well-being could be relied upon to be cor- which has such a long time series. These focus on multiple dimensions of human of people’s economic behavior can be of related with per capita GDP. For example, are formidable advantages. As our former well-being, including economic security,

26 27 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY environmental quality, subjective well-be- rather than only seeking to correct mar- better understanding of dynamics, feed- people and places. New approaches to ing and the provision of public goods. This ket failures. The state can redistribute not back loops, tipping points, and system col- finding global solutions means being clear does not mean a rejection of growth; rath- only money but also incentives and skills lapse. That requires a stronger connection about the direction of change we want to er, it means accepting that growth is just in such a way as to achieve the broader between the “science” and “engineering” follow and identifying the actions that will one aim among others, and that focus- policy goals. of economics, that is, between economic push us in that direction. sing on it exclusively is counterproductive. analysis and economic policy, and the We should not expect a single syn- Our work on the Well-Being Framework TOWARDS A BETTER APPROACH TO development of new analytical tools and thetic “theory of everything” in economics has built the same narrative, by propos- FINDING GLOBAL SOLUTIONS techniques such as network models and to emerge any time soon, enabling poli- ing 11 dimensions that can inform better The task remains of fleshing out the three agent-based modelling. The benefit of the cymakers to maximize policy objectives what matters for people – including sub- elements comprising the new narrative in systems approach is to understand better by applying a universal model. Rather, jective well-being. Our Inclusive Growth Beyond Growth. At all stages – formulating the links and interrelationships between a proper appreciation of the complexity Initiative is also proposing a dashboard of broader policy objectives, understanding the social, economic and environmen- of the interacting systems of which the 24 indicators to inform better the policies how policies act on those objectives and tal systems, and consider possible unin- economy is a part is likely to mean exer- to counter inequalities, and advancing a how different dimensions interact, and tended consequences of acting with a silo cising judgement, applying a range of ap- better understanding of the distributional designing the policies that will achieve perspective. proaches, drawing on insights from many outcomes of the policies we propose. better outcomes – we think that a systems disciplines, and keeping in mind multiple The second element is composed of approach is needed. We must move away goals. It is encouraging that the world’s the new frameworks of economic theory from linearity, equilibrium, assumptions »A systems- endorsement of the Sustainable Develop- and analysis to explain better how econo- about the rationality and representational ment Goals is in this spirit, as indeed is mies work, together with new tools and characteristics of agents and instead view based approach the Paris Agreement on climate change. techniques to help policymakers develop the economy as a complex adaptive sys- At the OECD, we have made a good start effective policies. This includes gathering tem, where heterogeneous agents inter- exposes the on several fronts, not only with NAEC new and better data. act, systemic properties emerge and the but also via the Inclusive Growth Initia- Finally, the new narrative also calls for system continually evolves and reorgan- intricacies and tive and the Well-Being Framework. This a wider set of policy and institutional re- izes itself in response to multidimensional year’s Ministerial Council Meeting in May, forms, based on the new frameworks and stimuli at micro to macro levels. complications of chaired by Spain, will take stock of the analysis, to achieve the new social and In making that transition, it will help to progress made and chart a course toward economic goals. Government action mat- enrich the insights from economics with the challenges a more integrated framework. ters to counter inequalities, environmen- those from political science, engineering, This is not an academic exercise. The tal depletion and social fragmentation. physics, psychology, biology and history. we face.« capacity of current approaches to give Speaking at an NAEC Conference, For example, at one NAEC presentation, answers to the people in the streets that Noam Chomsky welcomed the rethinking Douglas Erwin, paleobiologist from the are worried by the “end of the month”; of economic orthodoxy proposed in Be- Smithsonian Museum of Natural History, A systems-based approach exposes and those that care about the “end of the yond Growth, highlighting how the report explained how the history of life on earth the intricacies and complications of the world”, is limited. We need to understand cast new light on the proper role of gov- showed repeated long periods of apparent challenges we face. But it also shows that better so we can deliver the OECD’s motto ernment. It draws on the ideas of Dennis stability ending in rapid collapse, followed the very characteristics of systems that of better policies for better lives. There is Snower, a member of the Advisory Group by slow recovery in which new things hap- make the problems so difficult can, by no time to lose, as the urgency of the cur- and a longstanding supporter of NAEC pen. the same token, work in our favor. Posi- rent situation is clear. The OECD is keenly who has coined the term “empowering NAEC is seeking to draw from a wide tive change can be transmitted quickly aware of the need for global solutions and state”, and Mariana Mazzucato, another range of disciplines in order to help pro- too, and small positive actions can have is determined to remain at the forefront of Advisory Group member who has argued vide a stronger scientific basis for policy, big consequences when they are amplified the effort to find the new approaches that for the need for the state to shape markets based on a systems approach, and yield a by the numerous interconnections among will illuminate them.

28 29 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY Why corporate purpose matters

A plea for responsible profit-making

The author: INTRODUCTION After several decades in which sharehold- Marc Fleurbaey er value has been promoted as the most Robert E. Kuenne Professor, rational goal a corporation should pursue, Princeton University questions are being raised, doubts are Member of United Nations arising, and criticism is becoming louder Committee for Development and louder. Among the alternatives to Policy shareholder value that are emerging, the Global Solutions Fellow idea that managers should be attentive to the interests of all stakeholders is gaining ground. The institution: In this paper, three questions are ex- amined: • How could shareholder value be so successful? There must be economic mechanisms that make it a prominent op- Princeton University is a vibrant community tion for the organization of the business of scholarship and learning that stands in the sector. nation's service and the service of humanity. Chartered in 1746, Princeton is the fourth- • What is the contribution of a produc- oldest college in the United States. Princeton tive firm to society and how can it be maxi- is an independent, coeducational, nondenomi- mized? A firm does benefit many stake- national institution that provides undergradu- holders, and it is possible to rigorously ate and graduate instruction in the arts and define the total benefit it brings to them. humanities, social sciences, natural sciences, • How can the stakeholder approach and engineering. be promoted and implemented concretely It has a longstanding commitment to service, in a market economy that puts pressure on reflected in Princeton’s informal motto – most firms to maximize profit rather than Princeton in the nation’s service and the service of humanity – and exemplified by the focusing on the total surplus generated? 1 The group included Andy Haldane, Michael Jacobs, Nora Lustig, Mariana Mazzucato, Robert Skidelsky, Dennis extraordinary contributions that Princetonians Snower and Roberto Unger. make to society.

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THE FIRM AS A COOPERATIVE VENTURE operation to society involves adding up all The second mechanism involves differ- SYSTEMIC FAILURES OF UNFETTERED What is a firm? At the most fundamental the surpluses of the parties. However, for ential resilience to shocks. Shocks to input CAPITALISM level it is a cooperative venture that con- this to be a viable operation, the firm must prices or to demand that reduce profits Market failures have been analyzed thor- nects the wants and desires of its custom- be able to pay its bills from the cash flow for all firms threaten their viability, and oughly by economic theory, and they include ers and the abilities and resources of its it receives from its sales. While financi- those that start out with lower profitability phenomena related to externalities, public producers and suppliers. Can we measure ers provide seed funding in the beginning, are the first to be eliminated, unless they goods, commons, market power, adverse the benefits that the firm brings to society the firm cannot continue for long if it los- have special mechanisms to shoulder the selection and moral hazard. But the fact through its operations linking customers, es money in its daily operations. In other shocks temporarily. that competition pushes firms to maximize producers and suppliers? A simple option words, a non-negative profit is a key viabil- The third mechanism that pushes profit is seldom depicted as a systemic fail- is to simply sum up all the surpluses of the ity condition for any firm. profit is competition by takeovers. If a firm ure. On the contrary, it is usually viewed as parties to the firm’s operations, and add pursues other objectives and fails to maxi- promoting efficiency. Unfortunately, in the the net (i.e., positive minus negative) value mize its profit, a corporate raider can raise most common circumstances, this is actu- of externalities. After some basic account- »The firm capital, buy the firm and make a benefit by ally a source of serious problems. ing calculus, one finds that the sum of reorienting it toward greater profit, sell- Here are the main undesirable con- surpluses is simply equal to the difference produces social ing it afterward at a greater value. This sequences of the profit motive. First, the between the willingness of customers to mechanism supposes that it is possible firms are induced to make use of their pay (i.e., the maximum amount they would welfare by to “buy the firm” and change its manage- market power whenever they have the accept to pay) for the product they get, and ment, which requires a specific capitalist occasion. In simple textbook examples of the willingness of producers and suppliers realizing the legal setting. linear consumer demand and labor supply to accept a certain payment (i.e., the mini- This list of mechanisms is not exhaus- with constant returns to scale, a firm that mum compensation they would require) for benefits of tive. For instance, the creation of firms maximizes profit by using its market power the effort and resources they provide. This is a moment when pressure for grant- reduces its production by half compared to provides a very clear conceptual notion of cooperation.« ing control and guarantees to financiers what it would do if it maximized the total value contributed by the firm to society: is highest, leading most firms to adopt a surplus, and this reduces the total surplus Sum of surpluses + net externalities conventional structure and a conventional by 25%. = willingness to pay for product – willing- Profit is primarily a viability variable, but shareholder value approach. Another consequence of the profit ness to accept for inputs + net externalities one can identify three channels by which In addition to imposing profit as the cor- motive is that, combined with the use of The point of this paper is that the such a viability variable is ultimately likely porate purpose for most of the competitive market power, firms enter industries in purpose and governance of the produc- to become the paramount objective of most firms, these three mechanisms have some excessive numbers, because they do not tive firm, especially whether it maximizes actors in the game. These mechanisms beneficial functions. First, they serve to take account of the fact that they reduce profit or the total surplus, is absolutely probably explain why profit has become weed out the firms that are badly managed the potential surplus of the incumbent central for understanding essential fea- such a prominent value in business culture. or rely on outdated technology and meth- firms when their presence splits the avail- tures of current varieties of capitalism, and The first mechanism is competition by ods. They therefore serve the beneficial able demand. This additional effect, in the for imagining possible reforms in order to entry. When various firms in an industry function of allocating productive resources long-run equilibrium in which profit is ap- design more equitable and sustainable in- pursue a diversity of goals, those that do to their most effective uses. But while the proximately null, produces a further sub- stitutions. not maximize profit leave opportunities efficiency and innovation-enhancing ef- stantial reduction of the total surplus in for profit on the table. Profit-seeking ac- fects of competition are widely celebrated, the industry. PROFIT FROM NECESSITY TO PURPOSE tors can then enter and reap some of these the negative effects are often ignored, and The tendency to have excessive entry is The firm produces social welfare by real- opportunities. As a consequence, constant this may prevent us from understanding paralleled by a tendency to have excessive izing the benefits of cooperation between pressure by the entry of profit-maximizing the roots of our current failures. profit-enhancing innovation. In particular, customers, producers and suppliers. We competitors can contribute to disciplining the orientation of innovation is influenced have shown that the total value of this co- firms. by the profit motive and is unlikely to cor-

32 33 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY respond to welfare-maximizing innovation. The problem of business externalities is in place), when responsible firms are the completely mimicked, in all its decisions, Another consequence of the profit mo- due to entry gives very interesting results only game in town and profit-maximizing by a firm that maximizes profit adjusted tive is that, if workers are not involved in in the presence of responsible firms. In ab- firms are not allowed to compete. How can for a Pigouvian tax on externalities, un- the daily management of the work pro- sence of externalities, one can show that this be achieved if the market system is der the constraint of not making use of its gram, the non-contractible aspects of under free entry conditions, responsible left in place, with all its inherent incentives market power, and of setting up inclusive work are determined by the firm in a way firms spontaneously select the optimal pushing for profit maximization? management to eliminate inefficiencies that inefficiently handles the costs im- number of firms in the industry and col- due to non-contractible work parameters. posed on workers. lectively achieve the maximum potential Recall that this adjusted profit is also the Finally, even if externalities are well surplus for the whole industry. In the pres- »The profit correct viability constraint for responsible covered by economic theory, what is less ence of externalities, the optimal number firms, therefore the identity between vi- often acknowledged is that the profit mo- of firms still emerges in the long-run equi- motive is a ability condition and goal can remain true tive by itself tends to push firms to exter- librium with free entry if and only if the via- for responsible firms. But just as respon- nalize as much of their costs as possible. bility condition now involves profit adjusted source of sible firms must be prevented from using It may sound surprising that the profit for a Pigouvian tax, i.e., an amount equal other pricing systems than the standard motive is such a source of multiple ineffi- to the externality valued at a shadow price multiple price mechanism, they must be prevented ciencies, in contradiction to basic econom- corresponding to the marginal social (dis) from using their market power. ic teaching. The explanation is that eco- value of the externality in money terms. inefficiencies.« It is easy to check that firms use the nomic theory is heavily influenced by the If this Pigouvian tax (or subsidy if the net price mechanism rather than alternatives, special case of perfect competition with externalities of the firm are positive) is en- but can it be checked that they do not use complete contracts and no externalities. In forced by the government, the profit net of HOW TO REPURPOSE THE their market power? Maximizing profit this special context, maximizing the profit the Pigouvian tax operates as a very natu- CORPORATION while taking prices as given parameters is is equivalent to maximizing the total sur- ral viability condition. Two distinct challenges need to be ad- done by simple management rules, which plus, but this does not hold at all in more Responsible firms do spontaneously dressed. The first challenge is that the are well known thanks to the focus of eco- realistic circumstances. solve the externality due to entry, without objective of responsible firms is hard to nomics on perfect competition. The central any specific adjustment, but other exter- measure. Profit relies on very objective one is that the marginal sales generated RESPONSIBLE FIRMS AND SOCIAL nalities may be harder to address. Since accounting data, even if expected profit, by an input (at the current product prices) WELFARE every firm tries to maximize its own sur- which involves subjective expectations, is a must equal this input’s price. Internal cost Given that competition drives the profit plus, it is likely to over-invest in differen- much more elusive notion. For the surplus, and productivity measurements in the motive, one may be tempted to think that tiation and advertising in order to enlarge there is nothing like accounting data in the firm typically do produce this type of in- one should tinker with the market system its customer group, at the expense of other subjective valuations that customers put formation and it can therefore be used in and the price mechanism in order to ad- firms. on the product and that workers and sup- the appropriate way to ascertain that the dress the systemic failures of the capital- Non-contractible parameters of work pliers put on their services and resources. firm maximizes profit, and does it with- ist economy. But this would be too hasty a can be addressed by any firm via a bargain- The second challenge is the incentive is- out using its market power. Of course, for conclusion. Changing the corporate goal of ing process, but responsible firms may be sue due to the pressure of competition, this scheme to work, suitable monitoring the firm may go a long way toward alleviat- more likely to actually do it if their govern- which forces profitability, a mere viability mechanisms must be put in place. Inclu- ing capitalist failures. ance rules involve a greater participation condition, to become an existential goal for sive governance may be the simplest way A responsible firm, by definition, does by workers qua stakeholders. most firms. to do this, because it would enable the not squeeze customers, workers and sup- In conclusion of this section, the key The first challenge may have a rather stakeholders to blow the whistle when the pliers to increase its profit by exploiting its lesson is that there is no need to tinker unexpected solution in profit maximiza- firm exploits its market power at their ex- market power, and instead it maximizes with the price mechanism, with competi- tion. Indeed, a firm that maximizes the pense. Similar management rules exist for the total surplus, with adjustment for ex- tion, with free entry, or with profit as a vi- total surplus adjusted for the impact of the determination of non-contractible pa- ternalities. ability condition (provided a Pigouvian tax externalities on social welfare would be rameters of work.

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Pigouvian taxation adjustment mentioned » There is no earlier cannot be dispensed with. This raises a serious difficulty. Governments need to tinker cannot be trusted to properly measure and apply the Pigouvian taxes and sub- with the price sidies, and firms cannot be trusted to do it on their own. There is no miracle solu- mechanism tion to this difficulty, and one may want to involve third parties, such as civil society when organizations. These organizations could be given some power to lobby for particu- responsible lar levels of the Pigouvian taxes and for enforcing them, either by government in- firms are the tervention, or by responsible accounting by only game in the firms themselves. Acknowledgments: This paper and its longer town.« companion benefitted from feedback by Den- nis Snower, helpful comments by Colm Kelly Inclusive governance cannot suffice and Gustaf Arrhenius, as well as conversa- to include all the interests affected by tions with Fabrice Murtin, and joint work with the firm’s decisions, such as future gen- Grégory Ponthière on another paper cited erations and other species. Therefore, the here. 1 Kelly (2019) argues that a reform of the corporation is urgently needed to address current social, political and environmental challenges. See also Mayer (2018), Bower and Paine (2017). 2 This paper is an abridged version of Fleurbaey (2020). 3 The idea that market competition selects the profit-maximizing firms has long been suggested, including by Friedman (1953). Blume and Easley (2010) review the literature on this selection mechanism. 4 See Fleurbaey and Ponthière (2020) for details. 5 Tirole (2006), in particular, argues that stakeholders’ interests are hard to measure and aggregate. Jensen (2001) argues that stakeholder theory commits managers to serve several objectives (e.g., as with the so-called balanced scorecard), which cannot work to guide their decisions and monitor their performance.

Blume L., Easley D. 2010, “Heterogeneity, Selection, and Wealth Dynamics,” Annual Review of Economics 2: 425–450. Bower J.L., L.S. Paine 2017, “The error at the heart of corporate leadership,” Harvard Business Review, May-June, https://hbr.org/2017/05/managing-for-the-long-term#the-error-at-the-heart-of-corporate- leadership (Accessed Jan. 17, 2020). Fleurbaey M. 2020, “Corporate purpose and the future of capitalism,” mimeo. Fleurbaey M., G. Ponthière 2020, “The stakeholder corporation and social welfare,” mimeo. Friedman M. 1953, Essays in Positive Economics, Chicago: University of Chicago Press. Jensen M.C. 2001, “Value maximisation, stakeholder theory, and the corporate objective function,” European Financial Management 7: 297–317. Kelly C. 2019, “Repurposing our economies – and our businesses,” Global Solutions Journal Issue 4. Mayer C. 2018, Prosperity, Oxford University Press. Tirole J. 2006, The Theory of Corporate Finance, Princeton: Princeton University Press.

36 37 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY

ABSTRACT sector partnership that works towards a Five theses against Our article builds a bridge between the global measurement and valuation stand- global community of policymakers and ard for disclosing positive and negative various actors who are currently involved impacts of organizational activity and ul- self-indulgence in crafting new concepts and standards timately provides guidance on how these to assess the social and environmental impacts can be integrated into business impact of companies. We map the frag- steering. Finally, we conclude with rec- How new cross-sector partnerships can balance mented landscape and show how a cross- ommendations on how policymakers can sector partnership to balance financial, contribute to this important and urgent financial, environmental and societal value creation social, and environmental value can be global solution. built. We propose five theses against self-indulgence and for decision-making: INTRODUCTION standardizing measurements, under- Remarkable parallels can be drawn be- The authors: The institution: standing purpose and causes, designing tween the path towards a global low-car- disclosure systems, developing manage- bon economy and the time before the Ref- Dennis West ment systems, and scaling impact valu- ormation in Europe: the growing demand Researcher in ation. We describe one case of a cross- for company disclosures of various soci- Organisations and Governance and PhD Candidate, University of Oxford The value balancing alliance was founded in Figure 1: The five theses June 2019 and represents large international Céline Bilolo companies, including BASF, Deutsche Bank, Manager, Climate Change LafargeHolcim, Novartis International, & Sustainability Services, Robert Bosch, SAP, SK Holdings, Mitsubishi EY Chemical Holdings and Porsche. The alliance is supported by Deloitte, EY, KPMG, PwC, the OECD as a policy advisor and leading academic institutions, such as the University of Oxford. Christian Heller CEO, value balancing alliance e.V. and Vice President, BASF SE

Source: value ballance alliance e.V.

38 39 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY etal and environmental impacts resembles nomic and social structures in medieval counting policy is a symptom of this wider professionals. Cross-sector partnerships the commercialization of indulgences in Europe.1 Today, with social unrest around crisis of modernity. Global policy-making may be one way to overcome this chal- the late Middle Ages. Some churches fa- the world due to climate change and grow- is highly fragmented and is lacking a moral lenge, but they are hard to develop and mously traded indulgences by way of high ing inequalities, we would like to set out discourse to coordinate business strate- maintain.7 Those types of inter-organiza- fee payment for partial or full remission of five theses on how the global policy com- gies, public policies, and civic activities.3 tional collaborations connect a variety of their sins, comparable to debt payments. munity can put an end to “sustainable self- Recoupling the environment, society, and actors beyond the traditional boundaries Subsequently, devote citizens paid exorbi- indulgences” and move to decision-mak- economy depends on how we understand of professions, industries, public-private tant sums in exchange for certificates re- ing that balances financial, environmental, value creation. Most analysts have framed or hierarchies. They enable collaborations sulting in the growth of an extreme form and social value. problems as “externalities” to explain the that draw on diverse sources of expertise of commercialization that quickly became negative impacts of corporate activity on and build on different types of legitimacy. open to abuse. As a reaction, a professor OUR CURRENT LANDSCAPE society and the environment. Today, we ob- of theology and a priest, Martin Luther, AND THE FIVE THESES serve a shift towards the measurement of formulated 95 theses against indulgences. Transitions are always confusing: we left impacts.4 »Recoupling the His pamphlet criticized profiteering from the old world order, but we have not yet The fundamental question is not only these transactions and he allegedly pinned found a new consensus. While we departed one of technical measurability, but also environment, these papers on the portal of a church in a from a traditional world of local risks, we one of legitimacy. This is a challenge com- town south of Berlin. This event is believed have not yet built the institutions, practic- mon to all aspects of transnational govern- society, and to mark the beginning of the Reformation es, and norms to tackle global challenges ance.5 Which organization should set glob- and, in turn, a fundamental change in eco- systematically.2 The confusion in global ac- al social-environmental measurement, economy accounting and reporting standards in the absence of a generally recognized holder depends on how of legitimacy? Figure 2 depicts six actors Figure 2: Cross-sectoral partnerships enable the global standardization in the global field of impact valuation and we understand of impact valuation and corporate reporting corporate reporting. These organizations and groups of people are not yet sufficient- value creation.« ly connected, but they have enormous po- tential to complement each other. Teams and networks across formal organizational Thesis 1: Standardizing measurement boundaries are more difficult to create and In the last twenty years, social-environ- maintain, but we believe it is necessary to mental reporting practices have increased create legitimacy for social-environmental globally. The early years saw moderate reporting standards. Legitimacy can be adoption reaching 1,000 reporting compa- ensured by different means, which include nies in 2007, followed by a sharp increase legitimacy by procedure, representation, between 2007 and 2009 in the aftermath and expertise.6 of the global financial crisis. Overall, the The current landscape lacks connec- number of companies disclosing social- tivity between those actors whose primary environmental reports significantly in- legitimacy is based on representation – na- creased over the last two decades from tional governments, global policy forums – less than a fifty to over 7,000 in the year and those whose primary legitimacy ema- 2017. We suggest that this trend will con- Source: value ballance alliance e.V. nates from expertise – standard-setters, tinue due to the relaunch of their standards research institutions, business teams, and by the pioneering Global Reporting Initia-

40 41 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY tive (GRI) and the rise of standards by the performance for long-term thinking and Thesis 2: Understanding purpose Social-environmental reporting, in our newer Sustainability Accounting Standards decision-making. Until now, companies and causes view, fails when it is separated from strat- Board (SASB). The Carbon Disclosure Pro- are both valued and managed based on We maintain that it is vital to begin with egy and decision-making. Firms are not ject (CDP) and the United Nations Global accounting principles codified before the an understanding of the specific purpose producing comparable information, be- Compact (UNGC) are thematic disclosures 1970s. The Sustainable Stock Exchanges of a corporate entity and the positive and cause materiality is essentially a judgment that are integrated into the more compre- Initiative with Johannesburg as a leader, negative impact of its organizational ac- about which audience and perspective is hensive conceptual frameworks of stand- the European Directive on Non-Financial tivity. Increasing evidence shows a link prioritized.11 Understanding and articulat- ard-setters. Reporting (2014/95/EU)8, the European between high sustainability performance ing the purpose of the corporation focuses However, there are signs of confu- Green Deal, the EU Taxonomy, the Interna- and financial performance. This relation minds on business steering.12 Identifying sion and uncertainty. The ambiguity of tional Integrated Reporting Council (IIRC), is more prevalent when companies focus the root causes of positive and negative im- the standards means that there is still and the Impact Management Project (IMP) on social and environmental factors that pact are essential to building a framework no “shared language” around metrics are important actors who strengthen this are most relevant to their business model, that is comparable within and across sec- that bridge social impact and financial necessary movement for standardization.9 thereby outperforming markets signifi- tors. An example of understanding cause- cantly.10 effect relations is the integrated report

Figure 3: Information producers: number of companies adopting social-environmental Figure 4: Information users: number of business signatories to selected reporting practices from the year 1999 to 2019 corporate social responsibility initiatives from the year 1999 to 2019

Source: GRI, UNGC, CDP. Includes submitted reports to the organizations’ Source: GRI, UNGC, CDP. Includes list of signatories on the organizations’ public databases. public databases.

42 43 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY produced by SAP. The global enterprise formation can make sense of the data, and asset manager Blackrock, has spoken out pacts in financial terms for business deci- software company statistically determined readjust it to their needs. Impact valuation more strongly in favor of comparable dis- sion-making and steering. how metrics such as carbon emissions and would quantify the impacts on society, cus- closure, especially regarding climate risk.17 employee engagement impact the operat- tomers, employees, and the environment. Traditional reporting is concerned Thesis 5: Scaling impact valuation and ing profit of the company.13 While this ap- This type of “prefinancial” information is with the resources that companies use corporate reporting standards proach allows social-environmental value translated into monetary units which, in (e.g. raw materials) and the activities (e.g. Impact measurement becomes scalable if to link with strategy, the obvious limitation turn, can be integrated into financial state- emissions from their production facilities). it is “actionable and cost-effective”.18 One is that each company takes a different ap- ments. While those are necessary data, they are example of disclosures that scaled very proach in determining coefficients. not sufficient to make informed business quickly are the Recommendations of the decisions about investment or procure- Taskforce on Climate-related Financial Thesis 3: Designing disclosure systems »The challenging ment. The next step is to account for the Disclosures (TCFD). While they are not di- When designing a disclosure system, it is impacts of those organizational activities. rectly aimed at impact valuation, they show important to balance specificity and open- part is not only The challenging part is not only to meas- that business steering and corporate re- ness simultaneously. The increase in sig- ure negative and positive impacts, but also porting are very much intertwined. Within natories to the CDP, the Principles for Re- to measure to express them in decision-useful ways. four years, the adoption of TCFD has been sponsible Investment (PRI), and the UNGC The methodology to do this – impact valu- almost doubling every year and is expected indicate a growing demand for information negative ation – shifts the dial from mere reporting to significantly grow over 2020. by investors – asset owners and manag- on inputs and outputs to evaluating im- This scalability is due to three main ers – and corporate leaders. The most com- and positive pacts. This requires a monetizable model reasons. First, TCFD are responding to the mon approach is to distinguish three di- that links social-environmental metrics to specific, pressing need to address climate mensions – economic, environmental, and impacts, but to co-efficients and, in turn, expressing im- change as a systemic risk for financial social – and, then to define key themes that categorize the different metrics. It is impor- express them in tant to learn the lessons in the early days of environmental, social and governance decision-useful Figure 5: Impact measurement and valuation can inform business steering more (ESG) data; we need to deal with a variety effectively because it moves beyond data on inputs and outputs of metrics, inconsistency of data, and differ- ways.« ent user perspectives. Paradoxically, com- panies that disclose more information than others suffer extreme variations in external Thesis 4: Developing management ratings produced by different providers.14 systems Specificity is achieved by focusing on If a company is serious about its purpose, information user cases, e.g. investment or social-environmental information needs to procurement decisions. One indicator of be deeply embedded in corporate govern- the increasing demand among executives, ance.15 Surprisingly, it is unclear who reads asset managers, and asset owners are the sustainability reports which are created in initiatives they sign up for. The openness corporate social responsibility, finance de- of disclosure systems is achieved when the partments, or a charitable foundation of the information is accessible to scrutiny by the company. The data generated can be used in users. This means that the assumptions many ways: quarterly earnings calls, finan- behind a certain reported number should cial statements, and investor briefings.16 Source: Impact Valuation Roundtable (WBCSD, 2017). be disclosed so that the users of this in- Even Larry Fink, CEO of the world’s largest

44 45 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 RECOUPLING: ENDING THE DIVERGENCE OF ECONOMIC AND SOCIAL PROSPERITY markets. Secondly, the disclosures focus prime example for a cross-sector partner- CONCLUSION: TOWARDS CROSS- sector partnerships. The value balancing on business decision-making in terms of ship is the value balancing alliance (VBA). SECTOR PARTNERSHIPS WITH THE G20 alliance is a prime example for a cross- processes, risks, and scenarios. Third, the The VBA was founded in 2019 and repre- FOR A GLOBAL STANDARD sector partnership that will play a key role TCFD is based on a concerted effort be- sents several large international compa- In this article, we recalled the risk of self- in creating a green accounting standard tween national financial regulators, inter- nies, including BASF SE, Deutsche Bank indulgence in a fragmented landscape in Europe. We can achieve the SDGs if we national organizations, standard-setters, AG, LafargeHolcim Ltd, Novartis Interna- where social-environmental reporting create together a global standard for im- and private initiatives, embedded within the tional AG, Robert Bosch GmbH, SAP SE, SK is disconnected from decision-making. pact measurement and valuation that will major social-environmental reporting and Holdings, Mitsubishi Chemical Holdings We formulated five theses against self- allow decision-makers to steer their busi- other initiatives (GRI, SASB, IIRC, CDP, PRI). and Porsche AG. The alliance is supported indulgence and for decision-making, and nesses towards a just transition: environ- However, there is a fundamental limitation: by the four largest professional services pinned them firmly on the global policy mental protection, low-carbon economy, without impact valuation and consensus networks – Deloitte, EY, KPMG, PwC – as agenda. Finally, we make two recommen- sustainable economic growth, and social about the measurements, decision-makers well as by the OECD and the World Bank dations to the global policy community: cohesion. There could not be a more ap- are left without clear and comparable ways as advisors, and academics from leading first, setting a global standard must be propriate time and place for the renais- of evaluating decision options. academic institutions such as the Univer- based on the core principles of value bal- sance of purposeful business than in the The development of impact-weighted sity of Oxford and Harvard University. The ancing: simplicity, transferability, compre- birthplace of modern accounting – Italy in financial accounts is a viable approach alliance will play a key role in developing hensiveness and scalability. Second, the 2021. When it comes to sustainable busi- but it requires legitimacy by expertise and a green accounting standard for the Euro- global standard-setting process requires ness steering it is high time to turn the representation to scale up and deep. One pean Union. legitimacy by representation and exper- current reporting confusion into a global tise which is achieved through cross- solution.

Figure 6: Climate disclosures: number of companies adopting disclosures on risks, scenarios and processes from the year 2015 to 2019

Source: TCFD and Science-based Targets Initiative. Based on the organizations’ public databases.

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1 Weber, M. (1905:2001). The Protestant ethic and the spirit of capitalism, translater by Parsons T., Routledge Classics, London. 2 Beck, U., & Cronin, C. (2009). World at risk. Cambridge: Polity Press. 3 Snower, D. (2019). Toward global paradigm change, Global Solutions Journal, issue 4, Verlag Der Tagesspiegel, Berlin, https://www.global-solutions-initiative.org/wp-content/uploads/2019/09/gsj_4_e-mag_1198.pdf, access: 31.1.2020. 4 Kelly, C. (2019). Repurposing our economies and our businesses, Global Solutions Journal, Verlag Der Tagesspiegel, Berlin, https://www.global-solutions-initiative.org/wp-content/uploads/2019/09/gsj_4_e- mag_1198.pdf, access: 31.1.2020. 5 Djelic, M. L. and Sahlin, K., 2009, Governance and its Transnational Dynamics: Towards a Reordering of our World?, in: Chapman C, Cooper D, Miller P, 2009, Accounting, Organizations, and Institutions, OUP. 6 Botzem, S. (2012). The politics of accounting regulation ; organizing transnational standard setting in financial reporting. Cheltenham: Edward Elgar; Botzem, S. (2014). Transnational standard setting in accounting: Organizing expertise-based self-regulation in times of crises. Accounting, Auditing & Accountability Journal, 27(6), 933-955; Transnational multi-stakeholder standardization, 2010, Organizing fragile non-state authority; Cheltenham: Edward Elgar Publishing. 7 Klitsie, E. J., Ansari, S., & Volberda, H. W. (2018). Maintenance of cross-sector partnerships: The role of frames in sustained collaboration. Journal of Business Ethics, 150(2), 401-423. 8 Directive 2014/95/EU, Directive of the and of the Council of 22 October 2014, https://eur- lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0095, accessed: 31.1.2020. 9 European Commission (2019). The European Green Deal, Communication from the Commission to the European Parliament, COM(2019) 640, https://ec.europa.eu/info/sites/info/files/european-green-deal- communication_en.pdf, accessed: 31.1.202; European Commission (2020). https://ec.europa.eu/info/sites/info/ files/european-green-deal-communication_en.pdf, access: 31.1.2020; Technical Expert Group (2019). EU Taxonomy, Financial Stability, Financial Services and Capital Markets Union https://ec.europa.eu/info/sites/ info/files/business_economy_euro/banking_and_finance/documents/190618-sustainable-finance-teg-report- taxonomy_en.pdf, access: 31.1.2020. 10 Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on materiality. The accounting review, 91(6), 1697-1724. 11 Porter M.E., Serafeim G., Kramer M. (2019). When ESG fails, https://www.institutionalinvestor.com/article/ b1hm5ghqtxj9s7/Where-ESG-Fails, accessed: 29.1.2020. 12 Hsieh, N. H., Meyer, M., Rodin, D., & van't Klooster, J. (2018). The social purpose of corporations. Journal of the British Academy, 49-73. 13 SAP (2019). Integrated report, https://www.sap.com/docs/download/investors/2018/sap-2018-integrated- report.pdf, accessed: 29.1.2020. 14 Christensen D., Serafeim G., and Sikochi A. (2019). “Why is corporate virtue in the eye of the beholder? The case of ESG ratings,” Harvard Business School Working Paper. 15 The British Academy (2019). Principles for Purposeful Business, https://www.thebritishacademy.ac.uk/ publications/future-of-the-corporation-principles-for-purposeful-business, access: 31.1.2020. 16 Kramer, M. (2020). Larry Fink Isn’t Going to Read Your Sustainability Report, Harvard Business Review, https:// hbr.org/2020/01/larry-fink-isnt-going-to-read-your-sustainability-report, access: 29.1.2020. 17 Fink, L. (2020). A Fundamental Reshaping of Finance, https://www.blackrock.com/uk/individual/larry-fink-ceo- letter, access: 29.1.2020. 18 Serafeim, G., Zochowski R., Downing, J. (2019). Impact-weighted financial accounts, Harvard Business School, https://www.hbs.edu/impact-weighted-accounts/Documents/Impact-Weighted-Accounts-Report-2019_preview. pdf, access: 29.1.2020. 19 Moore, M., Riddell, D. & Vocisano, D. (2015). Scaling Out, Scaling Up, Scaling Deep Strategies of Non-profits in Advancing Systemic Social Innovation *. Journal of Corporate Citizenship. 2015. 67-84.

48 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD

Page 54 Toward “effective The Future of multilateralism” in turbulent times Multilateralism: Alan Alexandroff Munk School of Global Affairs and Public Policy at Global the Colin Bradford Governance in The Brookings Institution Yves Tiberghien University of British a Changing World Columbia

Page 61 Realizing opportunities of the 21st century for all Fahad Almubarak G20 Sherpa of

51 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD

Page 67 The WTO needs Page 84 The future of a Plan B AI governance Gabriel Felbermayr Julia Pomares Kiel Institute for the María Belén Abdala World Economy CIPPEC

Page 72 The economic causes Page 95 China and its Long of populism March: End in sight? Robert Gold Not yet Kiel Institute of the Wen Wang World Economy Renmin University of China Thiemo Fetzer University of Warwick

Page 78 The future of multilateralism Homi Kharas The Brookings Institution Dennis J. Snower Global Solutions Initiative Sebastian Strauss The Brookings Institution

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Growing social cleavages with dramatic players. The growing apparent consensus in Toward “effective inequality and growing nationalist reaction Washington on the need to abandon ‘the era after several decades of globalization are of engagement’ and accept ‘strategic com- threatening the post-World War II global petition’ between these two great powers, multilateralism” in order. Multilateralism and international and to acknowledge the failure of several cooperation have faded as vehicles for decades of US engagement, has become global action in the public interest. As we ever more vivid1. The author and CNN host turbulent times argued in ‘New Narratives’ (2018): … “glob- Fareed Zakaria pointedly described this ap- al inter-connectedness is also proving too parent Washington consensus in 2019 in an much for many citizens and countries to article in Foreign Affairs: accept as legitimate. In many countries, “A new consensus, encompassing angry citizens feel a sense of loss. They both parties, the military establishment, The authors: The institutions: see both globalization and global rules as and key elements of the media, holds that threats to democracy and social well-be- China is now a vital threat to the United Alan Alexandroff ing.” The specter of intensifying rivalry be- States both economically and strategically, Director of the Global Summitry tween the United States and China is now that U.S. policy toward China has failed, Project, Munk School of Global clearly capable of eroding the very founda- and that Washington needs a new, much Affairs and Public Policy at the The Munk School of Global Affairs & Public University of Toronto Policy at the University of Toronto is a leading tions of the global economic order. tougher strategy to contain it. This consen- hub for interdisciplinary research, teaching sus has shifted the public’s stance toward Colin Bradford and public engagement. We are home to an almost instinctive hostility: according to world-class researchers and more than Nonresident Senior Fellow – polling, 60 percent of Americans now have 50 academic centres, labs and programs. »China is now Global Economy and Development, an unfavorable view of the People’s Repub- The Brookings Institution a vital threat lic, a record high since the Pew Research Yves Tiberghien Center began asking the question in 2005. But Washington elites have made their Professor of Political Science, to the United case ‘clearer than truth.’” Faculty Associate in the School of Public Policy and Global Affairs, The Brookings Institution is a nonprofit public States both There is an urgent need now for an al- Director Emeritus of the Institute policy organization based in Washington, DC. ternative framework to the ‘end of engage- of Asian Research, University of Our mission is to conduct in-depth research economically ment’ view. We have initiated a China-West British Columbia that leads to new ideas for solving problems Dialogue (CWD) as a means of developing facing society at the local, national and global innovative ideas for a fresh public dis- level. and course for global governance based on an strategically.« alternative framework for China-West re- lations. The China-West Dialogue is based on three principles: (i) participation of The University of British Columbia (UBC) is a Highly notable in the present political Chinese colleagues and incorporation of global centre for teaching, learning and re- circumstances is the turn in attitude and ac- China perspectives in our work so that it is search. Since 1915, our motto, Tuum Est (It is tion especially by Washington toward China. a joint dialogue and not a Western dialogue Yours), has been a declaration of our commit- There appears to be a rising tenor of threat, about China; (ii) inclusion of European and ment to attracting and supporting those who have the drive to shape a better world. UBC a growing competition and rivalry, and a Canadian colleagues and perspectives to encourages bold thinking, curiosity and initia- sense even of a ‘new Cold War’ between pluralize the dialogue beyond an exclusive tive, so you can realize your greatest potential. these two great economic and geopolitical focus on US-China relations; and (iii) an

54 55 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD explicit effort to include perspectives and the BU-CWD Workshop concluded that the China-West relations. These forces chal- 70 years and seemed curiously attracted to participation from non-Western countries framing the US-China relationship within lenge both the legitimacy of governments authoritarian leaders while praising their and developing economies whose citizens a broader framework of China-West rela- and the foundations of the global order. nationalistic politics and attacking multi- have a vital stake in the evolution of West- tions would be more likely to render rebal- Without a shift in discourses, the world lateralism. There need to be alternatives China relations. ancing based on more diverse views in the could be on the way to a bipolar ideological to the simplistic demand by the Trump Ad- mix with strong participation especially of competition between opposing models and ministration to decouple the US and Chi- Europe and Canada than an exclusive fo- narratives between East and West. nese economies »The post-war cus on the toxic China-US relationship. These political and economic forces Thomas Friedman, opinion column- See www.bu.edu/gdp for more details. raise the institutional question of whether ist for the New York Times, reflecting in a liberal Our project is determined to highlight domestic political processes can be re- 2019 article on the growing divide between engagement and the collective efforts that formed or created so they can mediate be- the US and China, quoted former Treas- international can be addressed at the G20 and other tween opposing perspectives and embrace urer Secretary Hank Paulson who argued multilateral settings around a broad set contradictions that could lead to combined in in 2018: order is being of global challenges and issues – among elements that actually move societies for- “The net result, argued Paulson, is that others, trade, global financial governance, ward by a blending of opposites. Resist- ‘after 40 years of integration, a surprising superseded data flows and privacy, social inclusion, ing simplistic choices between markets number of political and thought leaders on and the threat of climate change – based alone, or state-directed decisions alone is both sides advocate policies that could for- by a fractured, on a new narrative for global governance. now essential. The question for domestic cibly de-integrate the two countries.’ And Thus, we are determined to engage governance is whether sufficient political if that trend continues, ‘we need to con- fragmented experts in an effort to push back on those support can be generated to forge mixed sider the possibility that the integration of actions likely to undermine interconnect- approaches with varying combinations global innovation ecosystems will collapse and conflictive edness and economic prosperity. Social of market forces and policy interventions as a result of mutual efforts by the United upheaval in countries across the globe, that can generate greater social inclusion, States and China to exclude one another.’” global and the rise of nationalist populism have which in turn could ameliorate threats to Somehow, ‘global governance’ is a pos- demonstrated that the strict neo-liberal the legitimacy of democratic governments. itive detriment to cooperation in Trump’s disorder.« market economy has failed to deliver so- We look for a new paradigm for 21st cen- worldview. While Trump has attended cial outcomes that are politically sustain- tury people-centered, mixed economies to leaders’ global summits, both the G7 and able. This economic failure in democratic replace the 20th century predominance of the G20, he has not been a positive force. The China-West Dialogue was formed countries has generated a political crisis the neoliberal, profit-maximizing, market- Trump challenges global governance and at a meeting in April 2019 of eleven found- of legitimacy. economy model2, creating more “policy the multilateral cooperation that such ing members from China, Europe, North The social fallout from an over-reliance space”3 for innovative policy mixes, there- global governance requires. Many suggest America and Chile, organized by the prin- on market forces to achieve social progress by defusing polarizing ideological debates that without US global governance leader- cipals of VISION20 (V20). The China-West is evident around the globe. The fear in the and marshalling public support for more ship, the G20 or other multilateral settings Dialogue (CWD) was founded a year ago West has been that a strong role for the effective policies. would not be possible. And yet we have based on deep concerns about the growing state in the economy would be both eco- The post-war liberal international or- seen various leaders step up to maintain adversarial relationship between the US nomically inefficient and politically dan- der now is being superseded by a frac- or forge multilateral policy, and in various and China and the need to think beyond the gerous. This bald choice between market tured, fragmented and conflictive global instances without the US. current moment to what alternative frame- economies and state-led economies has disorder. Part of the alteration is a con- As emphasized in the Vision20’s most works for that relationship might look like polarized debate and paralyzed policymak- sequence of the ‘America First’ policies recent Blue Report (2019) on “Effective over the course of the 2020s. The group of ing. It is also now mirrored in the geopo- of . For his entire first term Multilateralism”: experts from Europe, Canada, China, Chile litical tensions between democracies and as president, Trump has attacked allies, “But we are not blind to the current and the United States who participated in authoritarian regimes, most specifically in questioned the alliances constructed over trend of disruptive politics, including in

56 57 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD the U.S. with the current administration’s G19 remained firm in their commitment This summit was a notable event called by with US foreign policy and national security bilateral and unilateral ‘America First’ to achieving the needed carbon emission California’s Governor Jerry Brown and for- experts to discuss the competition-coop- politics. Such policies and behavior by this reductions. As the 19, the G20 Declaration mer New York Mayor Michael Bloomberg. eration balance in its political dimensions. American administration makes collective confirmed: “We reaffirm our strong com- Attendees included many sub-state actors We are strongly of the view that one means G20 leadership difficult, if not impossible. mitment to the Paris Agreement, moving from provinces and states, municipalities of pushing back on the strategic competi- Should we then ‘throw up our hands’ swiftly towards its full implementation in and regions (some 6,000) and many non- tion thesis is to ensure that this not just a and dismiss the prospects for multilateral accordance with the principle of common state actors including foundations, activ- US-China framing, but that it also includes leadership? We do not believe that is re- but differentiated responsibilities and re- ists and private corporations (some 2,000). Europe as a major actor, and in the near quired. In describing the way forward, we spective capabilities …” These actors were intent on promoting future Japan, Canada and other strategic have in various ways urged G20 leaders efforts and commitments to reduce car- actors such as Korea and the individual to exercise ‘effective multilateralism,’ de- bon emissions at something other than European countries. fined as selective, targeted, and purpose- »Encouraging the national government level, especially By 2015, as veteran G20 watchers ful actions with varied coalitions. We be- in the face of the Trump administration’s and participants in annual G20 engage- lieve encouraging effective multilateralism effective determination to withdraw from the Paris ment group meetings, Alan Alexandroff, is a vital tool in meeting the challenges the Agreement. Colin Bradford and Yves Tiberghien had G20 and the international system face.” multilateralism But continuing effort is required. We converged on a critique of leaders of G20 While effective multilateralism needs can see that even with the growing threat countries for being too technical, for having to operate at the state level, there is a far is a vital tool of rising carbon emissions, states were short-term outlooks rather than a longer- wider set of actors, including foundations unable to reach agreement at COP25 in term vision, and for talking over the heads and other private and public corporations, in meeting the Madrid in December 2019 on rules for car- of G20 publics rather than to them. As a re- who can participate in meeting the chal- bon emission tax regimes. sult, they formed a new G20 engagement lenges of global governance. These actors challenges the From the Vision20 perspective, the group, Vision20 (V20), which advocated can engage sub-state actors such as cit- G20 Leaders’ Summit is a key platform for greater political leadership, long-term vi- ies, regions, and provinces. Collectively, G20 and the meeting the challenges of global govern- sioning of the future and stronger connec- this variety of communities increases the ance and for advancing views on how the tion with the concerns of ordinary people. number of actors and enables these actors international G20 can act in ways that will propel collab- Since 2015, as Vision20 (V20) prin- to press for more collective and effective oration and repair globalization. For that, cipals, they have organized a major V20 action. system face.« the re-framing of China-West relations conference during the China G20 Year in At the G20 level, Japan has succeeded is absolutely crucial. Our hope is that the Hangzhou in 2016 and three V20-Brook- in stepping in with others to successfully China-West Dialogue can provide innova- ings seminars, one on labor issues for the conclude the Comprehensive and Progres- We are watching effective multilateral- tive foundations for a new global order for German G20 Year in Washington in 2017, sive Agreement for Trans-Pacific Partner- ism in action today through the efforts of addressing global issues that more fully another on social cohesion in 2018 and a ship (CPTPP), even though the new US G7 foreign ministers to conclude “a cyber includes China, based on a fresh approach subsequent V20-Brookings seminar on administration had pulled out of the trade space strategy to protect their political from the West. “after neo-liberalism” in 2019, as well as relationship. This is an example of effec- systems from internet attacks and manip- For that to happen, the China-West holding a V20 session in Buenos Aires on tive multilateralism in action. We also ulation of social media by foreign powers Dialogue initiative seeks to provide oppor- “visioning the future” at the Think20 (T20) saw effective multilateralism in action in such as and China, and to provide a tunities for European and North American Argentine Summit in September of 2019. the efforts of the G19 – the G20 without framework for sanctions and public expo- China experts to interact and exchange the United States. In Hamburg at the G20 sure of offenders.” perspectives, and to put China experts Reports from these events can be found at: in 2017, and even as the new US admin- And we saw effective multilateralism in from China and the North Atlantic in touch https://www.thevision20.org/. istration took steps to withdraw from the San Francisco at the Global Climate Action Paris Agreement on climate change, the Summit (GCAS) on September 12-14, 2018.

58 59 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD Realizing opportunities of the 21st century for all

The Saudi Presidency’s vision and priorities for the G20 in 2020

The author: The Kingdom of Saudi Arabia is assuming the Presidency of the G20 at a challeng- Fahad Almubarak ing moment for the world. We are aware 1 See, Campbell and Sullivan (2019). Minister of State and G20 of the responsibility placed on our country, 2 Different forms of mixed economies are elucidated most recently in Branko Milanovic (2019), Capitalism Alone, Sherpa of Saudi Arabia and in the January/February issues of Foreign Affairs on “The Future of Capitalism". and we believe we can make a positive con- 3 See, writing by Dani Rodrik (2011, 2018). tribution through the G20 to the common good of people and the planet. Campbell, Kurt M. and Jake Sullivan. 2019. “Competition without catastrophe: How America can both challenge On the economic front, global growth is and Coexist with China” Foreign Affairs. August 1, 2019. https://www.foreignaffairs.com/articles/china/ competition-with-china-without-catastrophe?utm_medium=promo_email&utm_source=paywall_free_ projected to stabilize in 2020 and even ac- share&utm_cam%E2%80%A6 celerate modestly in 2021. It remains at one The institution: Friedman, Thomas. 2019. “The World-Shaking news that you’re missing: The U.S.-China divide isnʼt just about of its lowest levels since the global finan- trade.” The New York Times. November 26, 2019. https://www.nytimes.com/2019/11/26/opinion/united-states- china.html?smid=nytcore-ios-share cial crisis. Trade tensions, financial vulner- Milanovic, Branko. 2019. Capitalism, alone: The future of the system that rules the world. Cambridge, MA: abilities, market volatility, environmental The Belknap Press of Harvard University Press. and geopolitical strains cast a shadow of Rodrik, Dani. 2011. The globalization paradox: Democracy and the future of the world economy. New York: W.W. Norton. economic uncertainty on this modest im- Rodrik, Dani. 2018. Straight talk on trade: Ideas for a sane economy. Princeton: Princeton University Press. provement. In particular, growth remains Rodrik, Dani. 2018. “Populism and the economics of globalization. International Business Policy. The Group of Twenty, or the G20, is the premier disappointingly low in many countries, sti- Trump, Donald J. 2018. Full transcript: Donald Trump at the United Nations General Assembly. The Atlantic. forum for international economic coopera- fling the prospects of millions of people. September 25, 2018. https://www.theatlantic.com/international/archive/2018/09/trump-unga- transcript-2018/571264/ tion. The G20 brings together the leaders of There has never been a period in his- both developed and developing countries from Vision20-Brookings Blue Paper. 2018. “New Narratives”. November 2018. https://14c9fea5-3892-4633-ad46- tory without strains, tensions, and conflict. 2c6aa4f930ea.filesusr.com/ugd/1bfab0_47d9a2a6ab4a4bfabeb0c00c2be912cf.pdf every continent. Collectively, G20 members However, what makes this moment more Vision20-Brookings. 2019. “Effective Multilateralism: 2019 VISION20-Brookings – Blue Report”. April 2019. represent around 80% of the world’s eco- complex is the risk that, just as global https://14c9fea5-3892-4633-ad46-2c6aa4f930ea.filesusr.com/ugd/1bfab0_1141546a09a74a5085b7b2ae2cf9c nomic output, two-thirds of global population challenges are becoming more pressing, de0.pdf and three-quarters of international trade. Zakaria, Fareed. 2019. “The new China scare: Why America shouldn’t panic about Its latest challenger”. Throughout the year, representatives from requiring full trust and cooperation to ad- Foreign Affairs. (December 6, 2019). https://www.foreignaffairs.com/articles/china/2019-12-06/new-china- dress them,the willingness and ability of scare?utm_campaign=special-preview-120519-china-zakaria-actives&utm_content=20191206&utm_ G20 countries gather to discuss financial and medium=promo_email&utm_source=special_send&utm_term=all-actives socioeconomic issues. the international community to undertake

60 61 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD necessary collective action requires more resources undermines economic progress fostering reforms to lift economic growth, THE SAUDI PRESIDENCY’S AGENDA collective global cooperation. and affects poor communities the most. promoting financial inclusion, preserving We envision achieving the Saudi Presiden- Fortunately, this year we are not start- In particular, climate change will impact the environment, and tackling emerging is- cy’s overarching theme of Realizing Oppor- ing from scratch. Through international disproportionately the most vulnerable, sues, such as debt in low-income countries. tunities of the 21st Century for All through cooperation, we have made significant whose livelihoods depend directly on the There is a growing awareness that three aims: achievements, on which we should con- ecosystems they live in. to achieve the overarching G20 goal of The first aim is “Empowering People” tinue to build. All these challenges risk creating a “strong, sustainable, balanced and inclu- by unleashing opportunities for all. We in • The last three decades have wit- backlash against multilateralism and sive growth” requires raising our collec- the G20 have a collective responsibility to nessed the fastest decrease in extreme weakening international fora, at a time tive ambitions and strengthening actions. our people to ensure that everyone bene- poverty ever seen. The UN Millennium when the world needs collaborative solu- Not only do we need to maintain the mo- fits from economic growth and innovation. Development Goal of halving the number tions the most. mentum of international cooperation, but The G20 will focus on policies that promote of people in extreme poverty was met well also to add a fresh and powerful impetus more equality of opportunity for all, and ahead of the target date. to it. The G20 has a unique occasion to ful- especially for women and youth. • The benefits of scientific and tech- »The willingness fill this: it sets global agendas and global This includes efforts to create high nological progress are spread ever more norms; it brings together political leaders, quality jobs and adapt to the changing pat- widely, resulting in improvements across and ability experts, and civil society representatives. terns of work resulting from technological almost all human development indica- It has economic and political clout at the progress while ensuring social protection tors, allowing human beings to be health- of the global and national level. The vision of the remains adaptable to these changes. The ier, more productive, better informed, and Kingdom of Saudi Arabia as it takes over Saudi Presidency will focus on the employ- more connected. international the Presidency of the G20 in 2020 is to pro- ment challenges facing youth, especially • Collective awareness of the chal- vide a new impetus to global cooperation youth at risk of not being in employment, lenges to our environment and to the sus- community around the unifying theme of “Realizing education, or training (NEET), as well as tainability of the planet is rising, paving Opportunities of the 21st Century for All”. those facing women of all ages. For the the way for governments, industry leaders, to undertake While G20 countries have different latter, the Saudi Presidency is strongly and individuals to mobilize and take action. national priorities, social conditions, and committed to keeping up the momentum At the same time, mankind is collec- necessary economic circumstances; all countries built under previous G20 presidencies. tively facing major challenges. share a strategic interest in seizing the op- We are planning on making further pro- • Economic growth continues to be collective portunities and tackling the challenges of gress toward empowering women and suboptimal and its benefits are not spread the 21st century to protect the global com- girls through a cross-lens approach to the equally among countries and people. Big action requires mons and improve prospects for all, espe- G20 workstreams; and promoting gen- gaps persist between rich and poor, the cially women and youth. der equality through launching the Em- educated and the less educated, and urban more global This theme has a special resonance in powerment and Progression of Women’s and rural areas. Women remain disadvan- the Kingdom of Saudi Arabia as it stands Economic Representation (EMPOWER) taged in the labor market. cooperation.« at the crossroads of three continents. The initiative, along with our partners Canada, • Digital technology is transforming the Kingdom has one of the youngest popula- Japan and Italy. world but its benefits to productivity and OUR VISION FOR THE G20 IN 2020 tions among G20 countries and is under- Empowering People also requires scal- living standards are not felt by all. Moreo- The Group of 20’s initial focus was on ad- taking a major social and economic trans- ing up efforts for sustainable development. ver, digitalization raises deeper questions dressing the global financial crisis and formation under the Saudi Vision 2030, Following up on the G20 commitment to the about the functioning of our economic and placing the world on the path to recovery. which is aligned with the G20 objectives. timely implementation of the 2030 Agenda political institutions. With time, the G20 developed a broader This means that the G20 agenda has a for Sustainable Development reaffirmed at • Environmental degradation caused by agenda, addressing socio-economic is- strong echo in the daily lives of the people the Osaka Summit, the Saudi Presidency the overexploitation of the planet’s natural sues such as monitoring the global risks, in the Kingdom. will focus on accelerating the implementa-

62 63 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD tion of this agenda and facilitating employ- Water stress is one of the greatest urban population while providing mobil- In pursuing the three aims of the 2020 ment growth. The G20 will address ensur- challenges of the 21st century, aggravated ity solutions accessible to all. The Saudi G20 agenda, by leading the G20 interna- ing finance for sustainable development, by population growth, urbanization, and an Presidency will lead the exploration of tional dialogue, we will continue to strive expediting the flow of goods and services, aging water infrastructure. Saudi Arabia is practical solutions, notably for smart ur- for the broadest consensus. In this respect, reducing inequalities between the very in one of the regions of the world where ban mobility, based on better infrastruc- Saudi Arabia will host over 120 meetings poor and the very rich and improving com- water stress is particularly acute. A pri- ture, good practices and the sharing of and conferences, including meetings be- munication between people. ority for the Saudi Presidency is to foster experiences. tween officials and relevant partners from Last but not least, trade and invest- global cooperation on water management civil society, businesses, and think tanks. ment are key drivers of growth, innovation, and try to tackle policy, financing, and in- To further ensure an inclusive process, and job creation. During 2020, G20 mem- novation challenges to ensure water secu- »All countries the Saudi G20 Presidency has invited some bers will be encouraged to strengthen rity for all. non-G20 countries and regional organiza- their efforts to promote cross-border trade The third aim of the Saudi Presidency is share a strategic tions, with strong representation from the and investment flows and engage in con- “Shaping New Frontiers” by adopting long- developing world. With the participation structive dialogue on current international term, bold strategies to utilize and share interest in of the invited countries, the G20 this year trade developments. In this regard, the the benefits of innovation. will represent over 90 percent of the world necessary reforms to improve the WTO’s Advances in digital technology are seizing the GDP and more than two-thirds of the world functions should also take into account the transforming the global economy and population. The major international and developmental dimension. impacting people, markets, and govern- opportunities regional organizations were also invited to The second aim is “Safeguarding the ments. Despite the benefits of these ad- bring their knowledge and expertise to the Planet” by fostering collective efforts to vances, they challenge labor markets, and tackling discussion. protect our commons. Climate change business models, and economic, social Finally, we are paying special atten- is one of the most pressing challenges and political institutions. Business mod- the challenges tion to civil society, which is more vibrant of the 21st century. The Saudi Presidency els in the financial industry are challenged st and influential than ever. This year, eight will seek to advance efforts for managing by rapid innovation in financial services of the 21 engagement groups will participate in the emissions and for improving synergies be- and informatics, including the entry of big G20 process: Business 20, Youth 20, La- tween adaptation and mitigation actions, technology firms. The G20 will continue century.« bour 20, Think 20, Civil 20, Women 20, Sci- including nature-based solutions, such as to address these challenges in 2020, ex- ence 20, and Urban 20. They all have their combating land degradation and habitat ploring their implications for future labor own meetings and will also participate in loss, and protecting marine resources. skills and income inequalities; striving OUR APPROACH many G20 meetings to provide input to the Access to cleaner, more sustainable for a global consensus to address the tax The Saudi Presidency’s approach, both in discussions and deliberations from their and affordable energy is fundamental not challenges arising from digitalization. We developing our Presidency Agenda and in perspectives. only for mitigating climate change but will be working toward a regulatory frame- pursuing its implementation during 2020, Multilateralism is not an end in itself also for reducing poverty and promoting work – in finance and elsewhere – that is consistent with the Kingdom’s aspiration but a means to an end. It is the best way to growth. Under the Saudi Presidency, the can facilitate a level-playing field between to provide a fresh and powerful impetus to leverage the opportunities created by our G20 will discuss the concept of a circular incumbents and new entrants. The group global cooperation. achievements so far and ensure that their carbon economy, in which emissions are will also address concerns about data pro- The Saudi Presidency Agenda was benefits are spread to all. This is the only to be not only reduced but also reused, re- tection and manage potential cyber risks deliberately developed in the most inclu- way to address the global challenges we cycled, or removed altogether. The group to financial and economic stability. sive and comprehensive way possible. We are facing. G20 leaders were convened in will also discuss options to use a variety of With rapid urbanization, cities are adopted an open approach, had multiple the aftermath of the global financial crisis energy solutions and technologies to pro- caught between growing populations and outreach events to consult with domestic, to mitigate its impact and remedy its caus- mote cleaner and more sustainable energy aging infrastructure. New technologies regional, and international partners, and es, because these tasks required broad systems and affordable energy access. can help accommodate the expanding built on previous G20 work. cooperation and strong political drive. It is

64 65 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD the same today: the global challenges and commitment. The G20 is the best platform opportunities facing us require the broad- for realizing opportunities of the 21st cen- The WTO needs est possible cooperation, consensus and tury for all. a Plan B

If the WTO members do not reinvent the WTO, the world will return to less prosperous times.

The author: The World Trade Organization (WTO) has brought enormous benefits to the inter- Gabriel Felbermayr national community. In small, open econo- President, mies, such as the Netherlands, around a Kiel Institute for the quarter of the wealth per capita depends World Economy on the WTO trading system; in Germany, the figure is around five percent or USD 66 billion. The economic gains for China or the US are even bigger in absolute terms.1 But the multilateral trading order is in a deep, existential crisis – to which there is no easy solution. The WTO must reinvent itself if it wants to prevent the world from returning to less prosperous times. On April 15, 1994, when the GATT mem- The institution: bers agreed on the Marrakesh Declaration that led to the creation of the WTO, there was a shared vision of the future geopoliti- cal landscape. Following the demise of So- viet-style communism, it was generally as- The Kiel Institute for the World Economy is sumed that all countries would gradually an international center for research in global transition to a democratic, market-based economic affairs, economic policy consul- system. The only remaining superpower, ting, and economic education. The Institute the United States, would create a liberal engages especially in creating solutions to world order in its own image. urgent problems in global economic affairs. It The post-war systemic rivalry between advises decision makers in policy, business, and society and informs the broader public East and West would become a thing of the about important developments in international past. The international economic order economic policy. would no longer be disrupted by geopo-

66 67 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD litical fault lines as the economic and hu- the now defunct Appellate Body. Given the ibilities between Chinese state capitalism income as the main or only political objec- manitarian systems of the various politi- enormous diversity of its members and and the Western economic model increas- tive in multilateral negotiations. The lower cal actors converged. Unfortunately, that systemic competition between major na- ingly obvious. The situation has been fur- the level of trust, the more the actors will hope has failed to materialize – as is now tions, such as the US and China, it is very ther exacerbated in recent years as China try to erode the relative economic power of abundantly clear from the current rivalry difficult for the WTO to agree on a common seeks to export its own model through the their opponents – even if that means weak- between “Western” democratic market set of rules. There are widely differing Belt and Road Initiative. It is thus hardly ening their own economy somewhat in the capitalism and the autocratic state capital- views on key economic matters, for exam- surprising that the United States has been process. ism of some emerging economies, notably ple, including the legitimacy of state subsi- gradually abandoning the role it assumed When policymakers no longer focus China. dies and the issue of monopoly power. back in the 1990s as the driving force be- exclusively on per capita income, but also This political divergence within the hind a more liberal world trade system. and possibly even primarily on the size of WTO has been accompanied by a conver- Political differences and increasing their own economy relative to their system- » The WTO must gence of economic power. The GDP of the economic parity are not an issue in them- ic competitors, the world switches from a G7 countries as a percentage of global selves. However, they do become a barrier positive-sum game to a zero-sum game. reinvent itself GDP has declined from almost 65 percent when trust breaks down between key ac- Actors are more concerned with the dis- in the early 1990s to less than 40 percent tors and each suspects the other of oppor- tribution of existing economic and political if it wants today. The economic rise of the non-G7 tunistic behavior. Trust doesn’t appear to power than with creating and sharing new countries has been driven in part by the have been an issue when China was origi- wealth. In such a world, the WTO’s textbook to prevent the integration of former low-wage countries nally admitted to the WTO in November model is doomed. The principles of reci- into the global value chain. However, this 2001. Since then, it has declined signifi- procity and non-discrimination that have world from economic convergence has not led to the cantly, though. been so successful are no longer powerful hoped-for political convergence. The World Trade Organization was de- enough to secure the benefits of coopera- returning to The motivation for liberalizing world veloped for a world with no major geostra- tion. In the battle for economic power, the trade has always been to promote eco- tegic rivalries. The basic premise of the weapons deployed include tariffs, exchange less prosperous nomic convergence. That objective has WTO (and of its predecessor, the GATT) was rates, and international investment. been achieved. Some of the greatest ben- that the sole objective of economic policy Many of the current tensions and de- times.« eficiaries of the WTO’s multilateral system should be to increase per capita income. velopments in economic policy are due to have been countries that formerly have This universal focus leads to a simple log- the reemergence of systemic competition. been relatively poor. The fact that China ic: whenever liberalization of international Trading partners frequently adopt a mer- This is the fundamental problem fac- has been particularly successful without trade results in higher per capita income, cantilist position, choosing policies that ing the WTO. Currently, the organization having copied the Western democratic, it should be welcomed. Under this model, reflect their trade balance with a given ri- has 164 member states, ranging from the free-market model is a cause of wide- all countries benefit from an increasing val. John Maynard Keynes, the intellectual extremely poor to the extremely rich, from spread concern. division of labor, although some trading godfather of the failed post-WWII Interna- some of the world’s most appalling autoc- The United States, and probably also partners benefit more than others. There tional Trade Organization, was aware of racies to model democracies, and from many European countries, would never has to be considerable trust for this posi- this problem and advocated mechanisms illiberal, closed economies, such as Ven- have agreed to China’s accession had they tive-sum logic to work. Every trading part- to ensure balanced bilateral trade. The ezuela, to very liberal ones, like Singapore. known that, just a quarter of a century later, ner must be sure that their dependence on WTO (quite rightly) has no such rules for And even if countries have very similar China would overtake them economically – foreign import and export markets will not bilateral trade balances, as they do noth- institutional structures, they may pursue using a radically different and opposing be exploited by others. The larger the trad- ing to promote the shared prosperity gen- quite different interests within the WTO. social model. China stopped aligning its ing partner relative to one’s own economy, erated by international trade relations in a The WTO is an entirely member-driven economy with the Western model following the greater the threat. positive-sum model. body, with each member having an equal the global economic and financial crisis of A high level of trust between actors Faced with systemic competition, it is right of veto, except in the proceedings of 2009, if not before, making the incompat- makes it easier for them to view per capita also natural for policymakers to focus on

68 69 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD the manufacturing industry. Under the country on earth. Abandoning it now would to replace the WTO in a worst-case sce- freedom with regard to their trade policy, original cooperative logic behind the WTO, make the world poorer and raise pressing nario. Former WTO Director General and and transfer sovereignty to joint dispute it should not matter which sectors a coun- questions about the distribution of exist- EU Trade Commissioner Pascal Lamy has settlement bodies. Trade with countries try specializes in. If a decline in industrial ing wealth. The challenge is therefore to suggested such a move, which would put whose economic systems are not compati- output is more than offset by growth in the adapt the WTO’s rules to reflect the cur- pressure on the US to be more construc- ble with this type of arrangement would be service sector, this should be understood rent, more complex political and economic tive in seeking solutions and accepting subject to a special set of rules similar to and accepted as a net increase in the pros- realities. reforms rather than paralyzing the entire the pre-1995 GATT provisions, rather than perity of that country. However, if countries In seeking to break this impasse, it is system. That said, it will probably not be those of an updated WTO. don’t trust their trading partners to be- important to understand that the WTO was enough to regain US support, as there is In some respects, the WTO is already have in a cooperative manner, it suddenly conceived during a brief but exceptional still too much concern about the rise of doing this, with members forming like- becomes important to be self-sufficient in period in history when nationalism ap- China. The WTO should accordingly also minded, plurilateral groups, which exclude key sectors. peared to have been transcended. Today, address the systemic differences between systemic competitors. This two-pronged Another consequence of the WTO cri- we can only assume that the struggle be- member states. approach has its shortcomings, of course. sis is the increase in bilateral preferential tween competing political systems for eco- It is only the second-best solution in a agreements. It is probably no coincidence nomic supremacy will continue. world of mutual distrust between trad- that this increase was particularly marked Given that the economic systems of »The challenge ing partners. However, the primary threat at the turn of the millennium, when it be- key players, such as China and the United is one of complete system failure – which came clear that the assumptions under- States, are unlikely to converge in the fore- is to adapt the would have much graver cost implications. pinning the WTO’s multilateral system seeable future, and that it will be difficult The should take the lead were no longer tenable. In the zero-sum to restore lost confidence, the WTO should WTO’s rules here. model, where the only imperative is to take the steps set out below in order to Finally, the WTO should promote bilat- strengthen one’s own economy, bilateral stay relevant. to reflect the eral trade agreements between members. agreements are even more attractive—es- One immediate threat to the credibility Although a poor substitute for a multilat- pecially for economies with large domestic of the WTO is the ongoing US veto on the current complex eral system, bilateral agreements at least markets, such as the United States, the appointment of new judges to the WTO’s offer some certainty at a time when the EU, and China. Appellate Body. As a matter of the highest political and global trading order is being renegotiated. The current crisis of the multilateral priority, the WTO must reform its arbitra- These bilateral arrangements need to be system is therefore not only a product of tion process so it can continue to function economic compatible with the multilateral solution the new economic nationalism espoused and should simply dispense with an appeal that becomes possible when a new global by leaders, such as Donald Trump, Xi Jin- body. This is not unusual in other dispute realities.« order has been established. ping, , and . resolution systems and has been the case The WTO marked its 25th anniversary In fact, it was the dysfunctional nature of for many years in investor-state dispute on January 1, 2020. If the international the WTO that enabled the new right-wing settlement. Countries that want an ap- This could be achieved by means of a community wants to celebrate the 30th nationalist movements. It is also clear, peals mechanism would have to find an al- “club system.” A core of democratic market anniversary of the WTO, it must face these however, that this aggressive economic ternative outside the WTO. The EU already economies with mutually compatible value realities and act now. What is at stake is nationalism is undermining confidence in has an interim appeal arbitration arrange- systems could then deepen their economic the prosperity of the world – and perhaps multilateral agreements and further para- ment with Canada, and other country pairs integration, surrender a certain amount of even more than that. lyzing the WTO. This in turn deprives the could do the same or adopt the systems international community of a forum for used by other nations. discussion and for settling disputes. In addition, the WTO should mitigate 1 The multilateral system has brought against the risk of its own collapse by See Felbermayr et al., 2019, The World Trade Organization at 25: Assessing the Economic Value of the Rules Based Global Trading System, Bertelsmann Stiftung (https://www.bertelsmann-stiftung.de/en/publications/ huge economic benefits to virtually every preparing a “Plan B,” i.e., a legal system publication/did/the-world-trade-organization-at-25/).

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aftermath of the financial crisis, which ex- economies have established welfare state The economic causes acerbated the perception of distributional institutions to support individuals or re- conflicts, e.g. stemming from immigration. gions negatively affected by these develop- ments. The idea behind this is to support an of populism overall positive development by compen- »Economic sating its losers with transfer payments. However, the compensation mechanism growth and does not seem to work this way anymore. On the one hand, this may be due to the The author: Populism is on the rise in many industri- structural fact that the welfare state has withdrawn alized countries. The reasons are mani- in many places. On the other hand, mon- Robert Gold fold, but recent research reveals common change have etary transfers alone do not seem to be Research economist at the trends – which turn out to be fundamen- sufficient to counter economic uncertain- Kiel Institute of the World tally economic. Global economic develop- ties. In any case, research shows that in- Economy & Member of the distributional CESifo Research Network ments fostered inequalities. In turn, this equalities resulting from macroeconomic spurred support of populist parties and consequences.« developments have substantially contrib- candidates from those on the losing side uted to the success of populist parties in of economic change. To counter this devel- developed economies. The co-author: opment, it is not enough to just increase Thiemo Fetzer, Associate Professor welfare state transfers. MACROECONOMIC TRENDS AND IN FOCUS: GLOBALIZATION at the University of Warwick Populist parties have been active VOTING BEHAVIOR The economic causes of populism are throughout Western countries for many The rise of populism is taking place comparatively well researched for the case years. But only over the last decade, have against the background of broader mac- of international trade. With the integration we seen a general trend of increasing roeconomic developments. Over the past of poorer countries into the global econo- support of populist parties, mainly from decades, the labor share in national in- my, labor-intensive production is relocated the right fringe of the political spectrum. come has continuously declined in devel- to low-income countries. Conversely, de- This is happening against the backdrop oped economies. Thus, income inequali- veloped countries concentrate on the pro- The institution: of longer-running economic trends: the ties between factor owners of labor and duction of knowledge-intensive goods and labor share in income has gradually de- capital have increased. Increasing income services. As a result, consumer prices fall, creased, and the demand for lower-skilled inequalities were driven by the interna- which has a positive impact on the gen- labor has declined. The result has been a tionalization of trade, which shifted the eral standard of living. Specialization on rise in inequality between skill and income production of labor-intensive goods to knowledge-intensive production may lead groups, with a distinct regional profile. low-wage countries, and technological to turbulences on the job markets though, The Kiel Institute for the World Economy is Those on the losing side of this develop- change, which mainly increased capital but regional and sectoral mobility should an international center for research in global ment turn to supporting populist parties productivity. Simultaneously, inequalities help the individuals affected to adjust to economic affairs, economic policy consulting, with protectionist and nationalist agendas, increased within the labor income group. the new market environment. and economic education. The Institute economic research shows (see Fetzer and Demand for high-skilled labor increased, Against this background, a study by engages especially in creating solutions to Gold (2019) for a comprehensive overview). while less-skilled workers suffered from Autor, Dorn and Hanson (2013) has had urgent problems in global economic affairs. It Driving forces behind this are the globali- job and wage losses. a major impact, by revealing unexpect- advises decision makers in policy, business, and society and informs the broader public zation of trade, which has led to an out- It is well known that economic growth edly high regional inequalities in the labor about important developments in international sourcing of low-skilled jobs to low-wage and structural change have distributional market responses to international trade. economic policy. countries, and austerity policies in the consequences. Accordingly, developed The study assesses how increasing trade

72 73 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD with China affects local labor markets in Several studies on different European flow increases support for right-wing pop- ulist campaigning. With a mix of ideologi- the US – and finds that imports from low- countries confirm that import competition ulist parties. At first glance, it seems this cal arguments, selective interpretation of wage countries have led to significant job from low wage countries causes populism cannot be explained with economic rea- facts, and untruths, the protagonists of the losses in the manufacturing sector, with- (e.g. Malgouyres (2017); Colantone and sons, given the very modest economic im- Leave campaign were able to win support out offsetting job losses through gains in Stanig (2018) for an overview). However, pacts of refugee immigration. Specifically, for a project that would clearly decrease other industries. Low-skilled workers are trade effects alone are not sufficient to there are hardly any labor market effects welfare. Leave votes were very unequally particularly negatively affected. Moreover, explain the success of populist parties. In of immigration in general – and of refu- distributed across regions. In cities and some regions are disproportionately hit general, it is unlikely that the rise of pop- gees in particular – that could explain why regions specialized in service industries, by the adverse labor market effects of in- ulism can be explained by one single cause immigration fosters populism. Xenophobia most voters supported staying in the EU, ternational trade, while other regions may only. Still, it is evident that the regional and fear of "cultural alienation" seem to be while Leave received the most support in even benefit. In a follow-up study, Autor et and individual differences in exposure to more important for the populist response agricultural regions and the old industrial al. (2017) show that these inequalities have globalization prepare the ground for the to the refugee crisis. The interrelations centers. The latter are regions that have led to political polarization in congression- success of populist campaigning, as it ad- between economic and socio-cultural fac- been particularly hard-hit by import com- al elections and helped Donald Trump win dresses exactly such inequalities. tors in explaining populism are not yet well petition and the resulting labor market the US presidential race in 2016. understood, though. frictions. Differences in the industry struc- In comparison, Germany is a benefi- Indeed, there are also economic ra- tures of the Leave and Remain regions are ciary of trade integration, as Dauth, Find- » It is unlikely tionales linking immigration to populism. also reflected in the differences in skill eisen and Südekum (2014) show. They Among other things, the incumbent popu- structures of the local populations. In fact, find that increasing trade with Eastern that the rise of lation competes with immigrants for the there is a clear, statistically significant Europe and China has created additional provision of public goods. Economic mod- correlation between the regional share of jobs in Germany. However, they also point populism can els (e.g. Alesina, Baqir and Easterly (1999)) low-skilled workers and voting for Brexit. to regional differences. Dippel, Gold and show that the greater the cultural distance Against this background, Fetzer (2019) Heblich (2015) study the political conse- be explained between two societal groups, the less will- shows that the UK government's auster- quences of these differences in exposure ing they are to share. And indeed, it turns ity policies increased the voting share for to globalization, and find that the support by one single out that support for redistribution meas- leaving the European Union by around 10 of right-wing extremist and populist par- ures decreases with the inflow of migrants percentage points, on average. Welfare ties rises in regions exposed to increased cause only.« – and that there is a connection between cuts disproportionately hit those individu- import competition from low-wage coun- refugee inflow, the supply of public goods als and regions that had experienced rapid tries, while it decreases in regions benefit- and the support for right-wing populist structural transformation. Accordingly, ting from new export opportunities. MIGRATION AS A DOMINANT ISSUE parties. Against this background, it is not supporting Leave clearly reflected a vote These political consequences of inter- Inequality is a structural phenomenon that surprising that populist parties managed from the “left-behind”. national trade can be fully explained by has evolved over decades. Populist par- to mobilize support on an anti-immigration Again, the economic context may ex- trade’s labor market effects, as a follow- ties have also been active in Europe for a platform throughout Europe. In the after- plain this political backlash. Since the up study by Dippel et al. (2018) shows. The long time. But only recently has populism math of the global financial crisis, many 1960s, the labor share in the UK’s national populist response to international trade become a European trend. A unifying ele- countries reduced the provision of public income has continuously declined. Along is driven by low-skilled voters working in ment of populist parties – particularly from goods. Distributional conflicts between that line, the inequality in income distribu- manufacturing industries. Obviously, the the right wing of the political spectrum – natives and immigrants were thus intensi- tion between high- and low-skilled indi- "losers" from globalization support par- is their critical attitude toward migration. fied. viduals has steadily increased. Rising in- ties promoting a nationalist alternative to This became obvious in the context of the come inequality has been accompanied by increasing internationalization, while the “refugee crisis”. A number of studies (e.g. BREXIT AS A CASE IN POINT regional inequality, as high-skilled work- "winners" reject such policies at the bal- Dustmann et al. (2019), Dinas et al. (2018), The campaign for the Brexit referendum is ers and earners of capital income – i.e. lot box. Halla et al. (2017)) confirm that refugee in- a textbook example of the success of pop- the main beneficiaries of globalization and

74 75 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD technological change – tend to cluster in have further increased distributional con- increasingly polarized political debate is A German version of this article appeared urban regions. Thus, the reduction in pub- flicts. However, this does not necessar- the challenge for policy makers oriented on October 31st as an analysis on the online lic spending not only affected individual re- ily explain the rise of populism. Economic toward increasing general welfare. portal Makronom.1 cipients of transfer payments, but the de- factors can well explain why voters turn velopment prospects of entire regions. The away from incumbent parties. But why do Leave campaign successfully addressed the "losers" of globalization select into the the distributional conflicts resulting from populist camp? these inequalities, e.g. by polemicizing In fact, populist parties are very suc- against Eastern European immigrants – cessful in their campaigning strategies. although the labor market perspectives They mix facts with fiction to provide a – of UK workers are hardly affected by East- superficially – coherent picture of socio- ern European immigration, as Becker and economic developments that disadvantage Fetzer (2018) show. their electorate, linking economic griev- ances to social and cultural developments. In this way, populists provide a justifica- »Monetary tion for otherwise unspecified fears and anxieties, which makes them an attrac- assistance must tive political alternative for the “losers” of globalization. Thus populist voting has 1 The original version of the article can be found under the following link: https://makronom.de/die- be accompanied economic causes, but is further boosted by oekonomischen-ursachen-des-populismus-33900 socio-cultural developments. Alesina, A., Baqir, R., and W. Easterly (1999). Public Goods and Ethnic Divisions. The Quarterly Journal of by active From an economic point of view, the Economics, 114(4), 1243–1284. rise of populism is critical because the Autor, D. H., Dorn, D., and G. H. Hanson (2013). The China Syndrome: Local Labor Market Impacts of Import labor market policies propagated by populists have pro- Competition in the United States, American Economic Review, 103(6), 2121–2168. tectionist tendencies – thus having all the Autor, D., Dorn, D. , Hanson, G., and K. Majlesi (2017). Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure, NBER Working Paper 22637. policies and potential to decrease aggregate welfare, if Becker, S. O. and T. Fetzer (2018). Has Eastern European Migration Impacted British Workers? enacted. To counter this development, pol- CAGE Working Paper. qualification icy has to tackle the economic causes of Colantone, I. and P. Stanig (2018). The Trade Origins of Economic Nationalism: Import Competition and Voting Behavior in Western Europe. American Journal of Political Science 62(4), 936–953. populism. Merely increasing transfer pay- Dauth, W., Findeisen, S., and S. Südekum (2014). The Rise of the East and the Far East. Labor Markets and measures.« ments will not be enough, however. Mon- Trade Integration, Journal of the European Economic Association, 12(6), 1643-1675. etary assistance must be accompanied by Dinas, E., Matakos, K., Xefteris, D., and D. Hangartner (2018). Does Exposure to the Refugee Crisis Make Natives active labor market policies and qualifica- More Hostile?, American Political Science Review, forthcoming. Dippel, C., Gold, R., and S. Heblich (2015). Globalization and Its (Dis-)Content: Trade Shocks and Voting Behavior, DOES IT HAVE TO BE LIKE THIS? tion measures. Regional policy must gen- NBER Working Paper 21812. The success of populist parties in Western erate development perspectives for de- Dippel, C., Gold, R., Heblich, S. , and R. Pinto (2018). Instrumental Variables and Causal Mechanisms: economies is caused by several economic prived regions. Above all, populist rhetoric Unpacking The Effect of Trade on Workers and Voters, NBER Working Paper 23209. factors. Global economic developments must be countered by facts and figures in Dustmann, C., Vasiljeva, K., and A. Damm (2019). Refugee Migration and Electoral Outcomes, Review of Economic Studies, 86, 2035-2091. have increased inequalities between in- order to provide voters with reliable infor- Fetzer, T. (2019). Did Austerity Cause Brexit?, American Economic Review, 109(11), 3849-1886. come and skill groups. The "losers" of this mation about advantages and disadvan- Fetzer, T., and R. Gold (2019). What Drives Populist Votes? Recent Insights and Open Questions, Paper prepared development have been particularly hit by tages of economic change. Well-informed for the Forum for a New Economy, https://newforum.org/en/globalization/what-really-drives-populist-votes. a series of adverse economic shocks. In- voters will be less inclined to support Halla, M., Wagner, A., and J. Zweimuller (2017). Immigration and Voting for the Extreme Right, Journal of the European Economic Association, 15(6), 1341-1385. stead of countering this development with policies that harm themselves in the long Malgouyres, C. (2017). Trade Shocks and Far-Right Voting: Evidence from French Presidential Elections, welfare state measures, austerity policies run. Bringing that message across in an EUI Working Paper RSCAS 2017/21.

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Today’s globalized world has generated a of completely replacing multilateralism, The future of variety of globalized problems – from cli- however, since a globalized world facing mate change to financial crises to cyber- globalized challenges requires an open, security – that can be effectively addressed rules-based international order to ensure multilat eralism only through multilateral agreements. that the system works in the service of all Multilateralism is fundamental to the liber- nations and people. What is needed is to al world order created at the end of World find the right balance between true mul- Toward a responsible globalization that War II. It has been crucial in maintain- tilateralism, defined as universal rules of ing peace and prosperity. It has also been the game, and the large number of pluri- empowers citizens and leaves no one behind central to the past successes of the G20 in lateral agreements that permit greater addressing the global financial crisis and flexibility to move an agenda forward when promoting international financial stability. universal consensus cannot, or need not, Nevertheless, this system is now under be achieved. The authors: The institutions: threat, with its core goals and values chal- lenged from a variety of quarters. The po- Homi Kharas litical dissatisfaction with multilateralism »Political Interim Vice President and in major advanced industrialized countries Director, Global Economy such as the United States is associated and Development rigidities in Program, The Brookings with the failure of global governance in The Brookings Institution is a nonprofit public Institution the post-Bretton Woods system to stem policy organization based in Washington, DC. multilateral the tide of slow growth, rising inequality, Our mission is to conduct in-depth research falling labor force participation, rising mi- Dennis J. Snower that leads to new ideas for solving problems organizations facing society at the local, national and global gration, social fragmentation and job in- President, Global level. Brookings brings together more than security associated with globalization and Solutions Initiative charged with 300 leading experts in government and aca- automation. demia from all over the world who provide the For the past two to three decades, it has overseeing highest quality research, policy recommenda- been widely recognized that the current tions, and analysis on a full range of public multilateral system needs to be reformed policy issues. economic The co-author: due to rapid changes in the economic, de- Sebastian Strauss, Senior Research mographic and political weight of advanced globalization Analyst & Coordinator for Strategic and emerging economies. Political rigidi- have prevented Engagements, The Brookings Institution ties in multilateral organizations charged with overseeing economic globalization – The Global Solutions Initiative is a global col- such as the IMF, World Bank, UN, WTO and adequate laborative enterprise that proposes policy re- others – have prevented adequate reform. sponses to major global problems, addressed The resulting disillusionment with formal reform.« by the G20, the G7 and other global govern- multilateralism has led to the considera- ance fora. The policy recommendations and tion of various alternatives, such as the THE CHALLENGE: FINDING strategic visions are generated through a dis- parallel pursuit of bilateral deals or coop- GENERAL PRINCIPLES TO MAKE ciplined research program by leading research organizations, elaborated in policy dialogues eration that is limited to likeminded or ge- MULTILATERALISM SUSTAINABLE between researchers, policymakers, business ographically proximate countries. None of The challenge is to design a set of legiti- leaders and civil society representatives. these alternatives has plausible chances mate, widely agreed-on general rules,

78 79 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD administered impartially by representa- diversity, while ensuring the provision ly of digital companies, and to shore up these actors are able to sidestep politi- tive and accountable arbiter institutions, of global public goods and managing the the privacy treatment of consumer data cal contestation and advance new global such that all nations: (1) refrain from do- global commons. across borders, are pointed examples of norms via market and social mechanisms ing harm to others by instituting beggar- Multilateralism needs to address its areas in which supranational coordination more effectively than any national govern- thy-neighbor policies, (2) internalize their discontents and evolve to be fit for purpose is required. The new multilateralism must ment. The climate change agenda is an cross-border spillovers, (3) cooperate on in an era of renewed great power competi- be conceived as a vehicle for enhancing example of this kind of multilateralism; managing the global commons, (4) cooper- tion, political economy tensions, issue po- citizen and national empowerment and formal intergovernmental agreements ate in the provision of global public goods, liticization, and a decoupling of economic leadership. supplemented by a range of actions and (5) promote global economic growth and prosperity from social prosperity. Following Joshua Cohen and Charles advocacy by subnational government of- development, and (6) tackle inherently We must recognize that globaliza- Sabel, legitimation and accountability in ficials, corporations, financial institutions, global problems – all the while retaining tion and multilateralism are means to an the context of global governance require and individual campaigners. enough flexibility to accommodate a wide end (i.e., social and economic prosperity) a process of transnational deliberation range of possibly divergent domestic poli- rather than ends in themselves. To that that can generate explanations for ac- STATEMENT OF PRINCIPLES cies, economic models, and paths of devel- end, multilateralism can be, and ought tions taken (or not taken), which others The aim of the Working Group on the Fu- opment. to be, used as an instrument to promote can acknowledge as legitimate, even when ture of Multilateralism is to define a set strong, sustainable, balanced, and inclu- values and interests diverge and disagree- of G20 Principles for Sustainable Multi- sive growth within all nation-states and ment prevails. Countries should be “free lateralism that account for some or all of »The new thereby strengthen the world economy. to experiment and implement different the above-mentioned realities, challenges We also must recognize that despite all solutions as long as they can explain to and opportunities: a set of general “traf- multilateralism the convergence achieved in the last half their peers – policymakers in the other fic rules that help vehicles of different size century, there remain substantial differ- countries – why they have arrived at those and shape and traveling at varying speeds must recognize ences in views across the world on desir- solutions. They must justify their choices navigate around each other, rather than able institutional frameworks to promote publicly and place them in the context of impose an identical car or a uniform speed that there is sustainable development. Yet existing comparable choices made by others.” A limit on all” (Rodrik). multilateral institutions largely champion similar model is that of “experimentalist The following are suggested areas no one way to one “correct” approach to governance that governance” in the EU, whereby suprana- that a set of principles should inform. The is universally valid. The new multilateral- tional institutions decide on the goals to be guidelines and principles, when formu- satisfy human ism must recognize that there is no one accomplished while national agencies are lated, must ensure that the system as a way to satisfy human needs and aspira- given freedom to advance these goals in whole is to everyone’s net benefit, as this needs and tions, and that diverse policy approaches the ways they see fit, as long as they re- gives incentives to all countries to partici- are desirable to address diverse cultural port their actions and results in forums/ pate, a property of the system that is es- aspirations.« challenges. There are, however, univer- networked agencies. sential to its enforcement. sal values, such as those contained in the The role of subnational and non-state Universal Declaration of , to actors in this renewed multilateralism is Focus on public well-being PROPOSAL which all nations have subscribed. key. Global governance must transcend The goals of multilateral agreements must To lay the groundwork for an inclusive The new realities of the digital econo- exclusive clubs of regulators and tech- be formulated clearly in terms of the public dialogue in the G20, we recommend the my and rapid technological development nocrats by moving beyond state-centered interest. The agreements must enhance the establishment of a Working Group on the necessitate resolute and concerted ac- multilateralism toward a bottom-up, mul- well-being of people living under diverse Future of Multilateralism to develop a set tion to address crucial challenges. Coor- ti-channel multilateralism “that actively national circumstances and must recog- of principles that can help lay the foun- dinated efforts to address Base Erosion embraces the potential contributions to nize states’ demands for policy autonomy. dations of a new pact on multilateralism and Profit Shifting (BEPS) to improve the global social organization by civil soci- The objective must not be harmonization with an eye toward accepting institutional fairness of corporate taxation, especial- ety and corporate actors.” (Ruggie) Often for its own sake, but rather the promotion

80 81 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD of empowered citizens, living meaningful countries without adversely affecting the overall approach to policymaking. This make our task easier, in so far as it can be and prosperous lives in sustainable, inclu- rest of the world. approach needs to be achieved through accomplished without excessive economic sive and thriving communities. an evolving dialogue among nations at cost.” His key point was to encourage ex- Systemic coherence multiple levels, involving a wide range of perimentation, even at the cost of a certain Complementarity between the national The new multilateralism must be designed stakeholders from the domains of poli- degree of global economic inefficiency. and the multilateral with a view to ensuring the systemic co- tics, business, academia and civil society. The underlying aim is to make multilater- herence of the world order. In view of the An illustration of such an approach, which alism complementary to the capacities of diverse cultures, conditions, capabilities, may provide a useful point of departure for »Multilateral nation-states, not a substitute for it. Just norms and values represented in the com- the evolving dialogue, is Elinor Ostrom’s as national politics must induce citizens of munity of nations, diversity of policy ap- Core Design Principles, as applied to the coordination nations to constrain their pursuit of self- proaches is desirable. Nevertheless, this relationships among nations: (1) encour- interest in order to achieve common na- diversity of approaches must be brought age national solidarity; (2) match rules generates tional goals, so multilateral politics must into consistency with the multilateral addressing global problems to national induce nations to constrain their pursuit of agreements aimed at addressing global needs and conditions; (3) ensure that all win-win national interest in order to achieve com- challenges. When multilateral policies states affected by the rules can be involved mon transnational goals. come into conflict with national policies, in changing the rules; (4) ensure that the opportunities Accompanying the integration of the the result is ambiguous. Where negative rule-making rights of states are respect- global economy, we have witnessed a pro- spill-overs are proscribed, multilateralism ed at the multilateral level; (5) develop a for all nations.« liferation of global challenges, including can avoid beggar-thy-neighbor “cheating” system, carried out by the member states, financial crises, cyber threats, climate through which one country can game the for monitoring states’ behaviors; (6) agree change, and much more. These challenges system for their own benefit. But in other on graduated sanctions for rule violators; In service of systemic coherence, the affect all nations of the world and it is in cases, where multilateral policies are not (7) agree on accessible, low-cost dispute G20 must itself seek greater coordina- the interests of each nation that they be seen as delivering on national goals, the resolution mechanisms; and (8) build re- tion with the UN system, Bretton Woods addressed successfully. Multilateral coor- “sovereignty cost” may undercut support sponsibility for addressing global prob- institutions, and related bodies. To give dination generates win-win opportunities for the whole system. Multilateral agree- lems through nested tiers of governance, an example of a concrete proposal, a re- for all nations. In order to exploit these ments and national policies need to be for- in which diverse national policies and mul- cent follow-on report to the 2015 Albright- opportunities, the gains from multilateral mulated accordingly. tilateral agreements constitute a consist- Gambari Commission Report recommends coordination must be spread appropri- ent system of policymaking. that the G20 be upgraded to a “G20+” by: ately, enabling all participating nations to In order to ensure the continuity of pol- These ideas are not new. In his 1933 (1) assembling G20 heads of state at UN benefit. icymaking and the resilience of the world article on “National self-sufficiency,” John Headquarters during the UN General As- order, the new multilateralism should Maynard Keynes recognized that “there is sembly every two years; (2) establish- Subsidiarity build on the existing patchwork of pluri- no prospect for the next generation of a ing formal links with intergovernmental The principle of subsidiarity can help bol- lateral, multi-level, multi-channel coali- uniformity of economic system throughout organizations for policy implementation ster the legitimacy of multilateralism. tions and alliances designed to address the world, such as existed, broadly speak- and follow-through, and (3) establishing a Thus full-fledged multilateralism should specific overlapping interests, governed by ing, during the nineteenth century; that small secretariat to enhance systemic co- serve a subsidiary function, dealing only general principles, and guided by multilat- we all need to be as free as possible of ordination and enable the accumulation of with policies, such as child labor or cur- eral consensus. This system could provide interference from economic changes else- a collective institutional memory and con- rency and tariff wars, that must be im- room for variation in institutional practices where, in order to make our own favorite sensus. Reforms of this kind, supported by plemented universally, without national across nation-states within a framework of experiments towards the ideal social re- a set of principles of multilateral engage- or more local, divergences. Other types global cooperation and coordination. public of the future; and that a deliberate ment, would make the G20 not only a more of plurilateral agreements might achieve Achieving systemic coherence in movement towards greater national self- effective institution but also a more inclu- limited advantages for a smaller group of policymaking requires agreement on an sufficiency and economic isolation will sive and, therefore, sustainable one.

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with respect for ethical and democratic requires governments to redefine strat- The future of values, which is transparent, safe and ac- egies based on the use of new technolo- countable. Nevertheless, few governments gies and to develop adequate governance worldwide have launched comprehensive structures. This paper seeks to contribute AI governance plans to promote the use and development to the discussion by outlining the state of of AI, setting national guidelines for its fu- AI as a subject of regulation, presenting ture. Those that have set an outline for AI new questions for the debate about how The G20’s role and the challenge of moving tend to focus their roadmap on principles to move beyond principles, and exploring rather than on concrete goals (Dutton, the role the G20 could have in facing this beyond principles 2018; Akerkar, 2019). No two governance challenge. strategies for digital technologies are the same, and differences between G20 coun- REGULATORY PATHS: AI AS A SUBJECT tries are already surfacing. They vary in OF PUBLIC POLICY The authors: THE CHALLENGE terms of the approach taken, the degree As more automated decision systems are The transition to a digital age has already of institutional development and the link being used by public agencies, experts and Julia Pomares begun and is moving fast. Artificial intelli- with the corporate sector. But there are policymakers worldwide are beginning to Executive Director, gence (AI) is bringing about new challenges cross-cutting issues to be addressed, such debate when and where automated deci- CIPPEC and putting pressure on public institutions as the interoperability of systems, privacy sion systems are appropriate (Reisman, to change. Algorithms are increasingly be- and inclusion, which require common un- Schultz, Crawford, and Whittaker; 2018). ing used by governments and businesses. derstandings, mechanisms and norms The challenges for an equitable and in- They are transforming employment by (WEF, 2019). clusive AI implementation are many. It is María Belén Abdala means of automated evaluation tools, as- not clear yet how to assess AI’s effects or Senior Coordinator, sisting in the provision of public services, whether algorithms can fully cope with CIPPEC streamlining government procedures, »Algorithms are complex social and historical settings. changing the way in which criminal jus- Algorithms are human creations and as tice works through predictive policing, and increasingly such, subject to the same biases people re-shaping educational systems by incor- have. Its deployment depends, to a large porating automated evaluation tools. But being used extent, on the absorption of large stocks many of these developments have low lev- of data that can also be potentially biased The institution: els of transparency, public knowledge, and by governments (Lodge & Mennicken, 2017). Since much lack supervision mechanisms. The risks of of the processing, storage and use of in- this transition are also substantial, pos- and formation is performed by the algorithm ing severe governance challenges (Dafoe, itself and within a virtually inscrutable 2018). businesses.« black-box, experts are raising concerns In their 2019 Communique, G20 leaders as well about whether we can understand CIPPEC (Center for the Implementation of took a stand on this and stated the need to how this information is dealt with in order Public Policies for Equity and Growth) is an help societies adapt to the digital transfor- Principles are the starting point of a to scrutinize the decisions made and as- organization that strives to create an efficent, mation of our economies. They have also much more complex process and little sign both ethical and legal responsibility democratic, and just state to improve the qual- endorsed the OECD’s Artificial Intelligence progress has been made yet on the policy for the results reached (European Parlia- ity of life for all Argentine citizens. It focuses its efforts on analyzing and promoting public Principles, setting-up the ethics or base aspect of AI and the regulations that are ment Research Service, 2016). Information policies that encourage equity and growth in values for AI deployment, voicing their de- needed to reach those objectives. An ex- is power and the usage and recollection . sire to develop an AI centered on people, tensive and successful incorporation of AI of information without people’s express

84 85 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD consent and knowledge infringes on their the need to develop shared standards and governance structures. While suprana- ministers approved these principles for AI rights (Kerry, 2019; Schrock, 2018). ensure interoperability, for example, of tional norms set common standards for as an annex to their declaration, which was As a result, several experts, sector privacy systems. Some of the proposals all countries that are part of these agree- later on ratified at the Osaka Summit. leaders and policymakers have agreed on include the creation of a guardian organ ments, and therefore ensure a baseline of Likewise, the European Union and the the need to act, and have launched a series of AI responsible for monitoring how al- rights and guarantees for their citizens, Nordic-Baltic region have also generated of guidelines for the set-up of AI systems. gorithms make decisions (Sample, 2017); such norms can overlook stark regional strategic plans for the development of But the debate about the best path for AI is a Council of National Robotics, without and local differences that may emerge not AI. From the EU perspective, it is not only not settled, the possible models are var- police power but with technical capacity only in terms of the countries’ technical about leading technological development ied, they cover a myriad of activities occur- to make recommendations (Calo, 2014); a capacities but also regarding their cul- but also leading on regulatory matters. ring across multiple jurisdictions, and few Federal Algorithm Directorate, modeled tural and political context. Simultaneously, The European Commission seeks to en- have been tested. The following lines pre- after the US’s FDA, with regulatory pow- while national and local norms can allow hance cooperation on AI across the EU to sent a conceptual approach for the existing ers to evaluate the systems before they for this diversity more easily, a fractional- boost its competitiveness and foster trust AI regulations, assessing the landscape of are launched on the market (Tutt, 2016); ized world in terms of people’s access to based on EU values and ethics. The logic technology governance across four differ- or a Machine Learning Commission that rights, for example, to privacy, can not only is human-centered and includes several ent dimensions regarding: (i) the regula- can create algorithms but without power reinforce present inequalities but can also requisites for AI systems to be considered tory lens through which technologies are to certify or approve these developments lead to more tension as a result of uneven reliable, regarding agency and human implicated, that is, the existence of verti- (Mulgan, 2016). technological developments. supervision; technical robustness, safety cal, sector-specific standards or transver- Many proposals have emerged from and the need for resilient systems to pre- sal regulations; (ii) their governance geo- international organizations in the past few vent or minimize unintentional damages; graphical scope: whether they are pushed » The EU seeks years, as geopolitical entities such as the privacy and data governance; transparen- forward by supranational organizations, UN, the EU and the OECD have begun to cy; diversity, non-discrimination and fair- countries or subnational governments; (iii) to enhance encourage the discussion on AI regula- ness; social and environmental well-be- the regulatory approach: whether more or tion. The goal behind many of these rec- ing; and accountability2. The Commission less coercive; and finally (iv) the public- cooperation ommendations is to generate a human- has presented these ethical guides to EU private divide in its making. In doing so, centered approach for the development of member states and different sector-spe- the brief’s goal is not to put forward all the on AI across AI, reducing differences among countries cific actors, setting-up a pilot phase with a regulations that exist but to discuss the and ensuring a minimum of guarantees High-Level Expert Group on AI, comprised possible alternatives currently under de- Europe to for all citizens. The OECD for instance, of 52 independent experts representing bate and challenges they bring about. has launched a Council on Artificial Intel- academia, industry and civil society, to The first dimension to assess regu- boost its ligence that published a series of general gather feedback. latory schemes has to do with the divide recommendations signed by 42 countries Moreover, the expert group also pre- between those who favor the sanction of competitiveness (36 belonging to the OECD, including the sented 33 recommendations to maximize vertical standards (eg. AI Sector Deal in US, Argentina, Brazil, Colombia, Costa AI’s impact on citizens, businesses, ad- the United Kingdom), and those who call and foster Rica, Perú and Romania)1. This document, ministrations and academia, ensuring for cross-cutting regulations (eg. Sam- geographically comprehensive, points to sustainability, growth and competitive- ple, 2017; Mulgan, 2016). The former ar- trust.« both responsibility and transparency in ness, while empowering, benefiting and gue that specific policy domains such as the creation of technology and its use, as protecting individuals3. Among the many health or education have their own trajec- well as a public, governmental drive for topics covered, a key recommendation is tories, regulatory frameworks and risks. A second dimension refers to the geo- research, development and international the proposal to adopt a risk-based gov- Therefore, a national body of AI would have graphical scope of the regulatory initia- cooperation in subjects related to AI. At ernance approach to AI and to develop difficulties complying with these special- tives and whether they are generated by the G20 Ministerial Meeting on Trade and an appropriate governance structure and ized requirements. The latter consider supranational, national or subnational Digital Economy, held in 2019 at Japan, the regulatory framework by mapping relevant

86 87 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD laws, assessing whether these are fit for the ethical frameworks laid out by Western Barriers Act of 2019 (Crawford et al, 2019). and promoted the creation of bodies to purpose in an AI-driven world, and adopt- governments, which could signal a certain Discussions about AI regulation con- study and monitor its needs. In line with ing new measures where needed to pro- willingness to rethink its use of technology cern a large part of the world, but as the this, the House of Lords studied the im- tect individuals from harm. The next step or, once again, that the principles them- previous cases show, few governance pact of AI and determined not to support would be a revised version of the EU joint selves are not the main issue at hand5. structures (regardless of their scope) the sanction of a broad regulation of AI, plan on AI. But the challenge this approach As the interest in artificial intelligence have sanctioned specific norms or bind- considering that specialists in each sector possesses is the interoperability of norms rose, several subnational governments ing standards for research, production or are better prepared to analyze their spe- in countries with different cultural and po- also decided to take the lead. The United use of AI. This leads to the third dimen- cific implications (House of Lords Selected litical backgrounds. That is, the application States presents an interesting case in this sion: variations in the regulatory inten- Committee for AI, 2018). In addition, they of guidelines and shared values, rather matter. Despite having developed a nation- sity. According to the Regulatory Institute urged the executive branch to create new than the principles themselves. al AI strategy and debating several bills (2018), Japan is the only country that has government institutions: a government On the other hand, several countries within its territory, especially in matters of promoted a specific binding regulation on ‘Office of Artificial Intelligence’ and two ad- have developed their own national strate- privacy (driven by legislators of the main AI. In addition to developing a comprehen- visory bodies – an AI Council and a Center gic AI projects. Some with an explicit focus parties and jointly designed with private sive national robotics program, in 2015 an for Data Ethics and Innovation. These insti- on stating their will to foster technological companies or groups), the US does not yet information protection bill was approved to tutions are tasked with connecting policy- development, others focused on establish- have a comprehensive national regulation regulate the use of personal data. Its ap- makers, industry leaders, civil society rep- ing ethical values and principles for AI re- (Kerry, 2019)6. Still, the federal configura- proach facilitates innovation through links resentatives, and the public, and analyzing search and development (see Annex I for a tion of the country has enabled the sanc- between the public and private sectors and the development of AI and the appropriate detailed case-by-case description). Esto- tion of some regulations at the state level. protects personal data rights (Regulatory governance regimes for data-driven tech- nia and China are clear examples of this. An example of this is the case of Nevada, Institute, 2018). This law also sets forward nologies. They are responsible for making While Estonia brought together a group of where the first bill to regulate autonomous the creation of a commission to monitor technical and ethical proposals on its use experts from the public and private sec- vehicles was sanctioned in 2011, although compliance. Despite this, no other sensi- and regulation, but do not have the capac- tors to work on the preparation of a law it did suffer some challenges that required tive areas have been addressed, such as ity to impose legally applicable regulations that encompasses AI in a comprehensive subsequent modifications as autonomous the regulation of autonomous vehicles, (Blaikie & Donovan, 2018). manner, China presented the objectives of vehicles were initially defined as any re- aviation devices, or security. Singapore, on the other hand, recog- its plan, but postponed any regulations to placement of human operators by artifi- nized the need for a regulatory frame- the future. As for the question of the val- cial intelligence, which encompass more work for AI, but initially adopted a lighter ues of AI, China has launched the “Beijing instruments or tools than autonomous »Several approach meant to promote its further principles of AI”, a code of conduct for the vehicles (Calo, 2014). Regulatory efficiency development. In 2017, the Singapore gov- research, development, use, governance also brings about a certain learning curve. countries have ernment presented a guide for sharing and long-term planning of AI, elaborated Moreover, in 2018, the state of California data in accordance with the current law by the Beijing Academy of Artificial Intelli- enacted one of the country's strictest laws developed their on the protection of personal data, in or- gence (BAAI), supported by the Ministry of on personal data protection, emulating the der to harmonize its use with the existing Science and Technology, in collaboration European law (Lecher, 2018). In 2019, activ- own national law. However, later on, the government with AI centers and universities4. The initi- ists and organizers across the US success- established an AI ethics advisory coun- ative was made public in mid-2019, as Chi- fully advocated to pass laws banning facial strategic AI cil to give guidance both to government na-US tensions rose, and states the goal of recognition in several cities and members and businesses on the development and supporting the construction of beneficial of the United States Congress proposed projects.« use of AI. Singapore also launched an AI AI for both humankind and nature. While several bills to move this forward, such as programme (called AI Singapore) to coor- China’s government is widely criticized for a Commercial Facial Recognition Privacy dinate the development of national capa- using AI to monitor citizens, the mentioned Act of 2019, the Facial Recognition Tech- Others, such as the United Kingdom, bilities and build a transparent ecosystem, guidelines do not differ substantially from nology Warrant Act, and the No Biometric carried out an analysis on the state of AI and a National AI Strategy in which they

88 89 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 THE FUTURE OF MULTILATERALISM: GLOBAL GOVERNANCE IN A CHANGING WORLD identified five key projects to ensure a suc- Finally, AI regulations differ across a DISCUSSION use of our personal data that is managed cessful adoption of AI. The national strat- fourth dimension: that of the role of public Despite the growth of ethical frameworks, to power AI can be publicly or privately led. egy also calls for support from the private vis-a-vis private institutions. Public-sector AI systems continue to be implemented It can be given voluntarily, as a type of cur- and public sectors, and sets up a govern- governance of emerging technologies of- rapidly across spheres of considerable rency or taken without consent or knowl- ance framework for AI, with guidelines for ten involves, but is not limited to, the devel- significance both by the public and private edge. Overall, the road to the digital future private-sector organizations to deal with opment of legal or regulatory instruments sectors – in healthcare, education, crimi- is full of conflicts over who has access to key ethical and governance issues7. to guide the research and implementation nal justice, and many others (Abdala, et al, our data, who has the authority to decide of these technologies. But governance 2019) without appropriate safeguards or over it and who has the power to enforce mechanisms can also be privately created accountability mechanisms in place. The that authority. »Differences and enforced. Emerging technologies blur future of politics is still uncertain. Many This does not mean, however, that all traditional boundaries. An interesting ex- challenges remain, and no single initiative, technology governance must be global. It in the way new ample is that of organizations such as the country, or company can tackle these chal- is important for regions, states and cit- International Organization for Standardi- lenges alone. ies to be able to respond to the specific technologies zation (ISO), the world’s largest developer Emerging technologies are increas- social, economic and cultural demands of voluntary international standards, or the ingly cross-border and significant oppor- of their citizens. In this sense, as most of are Institute of Electrical and Electronics Engi- tunities could be lost without some level the research has focused on developed neers (IEEE) and the International Electro- of alignment in the regulations and norms countries, there is also a need for more implemented technical Commission (IEC). that guide technological development and knowledge on the locally specific impact The case of AI has highlighted a grow- implementation across jurisdictions (WTO, of AI systems on countries in the Global can make it ing influence of private companies in pub- 2019). In a fragmented world, new tensions South and the ways new technologies may lic domains and the need to rethink ways could emerge both within and between na- reinforce historical inequities in these re- more difficult to achieve private accountability in an era tions. In terms of economic prosperity, it gions. of algorithms (Katyal, 2019). Therefore, could become more expensive for some But global processes are valuable, to ensure many governments are also pursuing the technological systems to be developed, even when they do not result in integrated expansion of public–private partnerships delaying innovation. This can also foster systems, because inequality tends to get citizens have to accelerate advances in AI and enhance inequity and new types of divides between the upper hand in the absence of common government capabilities. It is not just the more technologically advanced coun- standards. Defining comparable global access to equal about regulating private-sector action tries or regions and the lagging ones. levels for ethical, humanitarian, legal and but also about collaborating in the devel- Moreover, regarding human rights, politically normative frameworks will prove rights.« opment of secure, transparent and ac- stark differences in the way new technolo- decisive in managing the digital transition countable systems. This comes especially gies (and AI specifically) are managed and and searching for social inclusion. Even Broadly speaking, the few regulations in the form of three-way collaborations implemented can make it more difficult to more, there will be a growing need to move that do exist were sanctioned in developed between the government, private industry ensure that citizens have access to equal beyond ethical principles and focus on the regions and countries (where the use of AI and research institutions. For instance, in rights and opportunities across territories. standards needed for algorithms, taking is more expanded) and try to deal mostly 2019, the US Office of Science and Tech- New technologies can be used as fresh into consideration the geopolitical and cul- with the handling of information and the nology Policy launched an updated version digital tools for surveillance, allowing tural differences that arise. The role of the use of personal data, but they have not of their National AI Research and Develop- governments to automate the monitoring G20 in aligning interests and leading such included – so far – a more comprehensive ment Strategic Plan, a document that aims and tracking of citizens; or they can help processes will prove to be key in the years regulation toward an adequate governance to guide agencies in their AI R&D priorities policymakers allocate public goods and re- to come. The G20 brings together the main structure, monitoring and accountability and endeavors, directing federal agencies sources more efficiently; or even be pow- political and economic forces of the world. regimes, or a clear consensus on the best to collaborate with the private sector and erful mechanisms for private companies It is geographically representative and it way forward to achieve it. universities to accomplish their goals8. to predict our behavior. The storage and includes the world's largest economies.

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As a key forum for debate and dialogue, for AI, but several options. We need to work both executive and parliamentary, it is the together in defining which road will benefit perfect platform to discuss the future of the many. By engaging in this debate and DIGITAL/Redaktion/EN/Meldungen/2018/2018-11-16-federal-government-adopts-artificial-intelligence- digital governance and respond to one of leading the conversation, the G20 has the strategy.html (last accessed January 2020). the biggest existing threats and challenges potential of becoming the spinal column of announced a national policy on AI in a working paper “National Strategy for Artificial Intelligence #AIforAll”. st Available at: http://niti.gov.in/writereaddata/files/document_publication/NationalStrategy-for-AI-Discussion- our world is facing today. There is not yet a new architecture for the 21 century and Paper.pdf (last accessed January 2020). one right answer about the best roadmap ensure a better future for all. Ireland hosted AI workshops and launched a national AI masterʼs program. Available at: http://www.idaireland. com/IDAIreland/media/Infographics/IDA_AI_Ireland.pdf?ext=.pdf (last accessed December 2019). Italy has an interdisciplinary AI Task Force – the Agency for Digital Italy. Available at: https://www.agid.gov.it/it/ agenzia/stampa-e-comunicazione/notizie/2017/09/07/al-task-force-sullintelligenza-artificiale-al-servizio-del- cittadino (last accessed December 2019). Japan launched an “Artificial Intelligence Technology Strategy” and included AI in its “integrated innovation 1 https://www.oecd.org/science/forty-two-countries-adopt-new-oecd-principles-on-artificial-intelligence.htm strategy.” Available at: https://www.nedo.go.jp/content/100865202.pdf (last accessed December 2019). 2 https://ec.europa.eu/digital-single-market/en/news/ethics-guidelines-trustworthy-ai Kenya has a Blockchain & Artificial Intelligence task force. Available at: https://ai4d.ai/blog-africa-roadmap/ 3 https://ec.europa.eu/digital-single-market/en/news/policy-and-investment-recommendations-trustworthy- (last accessed December 2019). artificial-intelligence Lithuania released The Lithuanian Artificial Intelligence Strategy (April 2019). Available at: http://kurklt.lt/wp- 4 https://www.baai.ac.cn/blog/beijing-ai-principles content/uploads/2018/09/StrategyIndesignpdf.pdf (last accessed December 2019). 5 https://www.technologyreview.com/s/613610/why-does-china-suddenly-care-about-ai-ethics-and-privacy/ The Mexican federal government published a white paper “Towards an AI Strategy in Mexico: Harnessing the AI Revolution.” Available at: https://www.gob.mx/mexicodigital/articulos/estrategia-de-inteligencia-artificial- 6 Regarding ethics, the Trump administration launched an executive order in 2019 to set up the concept of an AI mx-2018 (last accessed November 2019). that follows ‘American values’, by which AI systems must reflect ideals such as human rights, freedom, and respect for privacy and the rule of law. The main focus lies in the idea of trustworthy, secure and The Netherlands launched the Strategic Action Plan for Artificial Intelligence in October 2019. Available understandable AI. at: https://www.rijksoverheid.nl/ministeries/ministerie-van-economische-zaken-en-klimaat/documenten/ beleidsnotas/2019/10/08/strategisch-actieplan-voor-artificiele-intelligentie (last accessed January 2020). 7 https://www.imda.gov.sg/-/media/Imda/Files/Programme/AI-Data-Innovation/Model-AI-Governance- Framework---First-Edition.pdf New Zealand launched an AI Forum to advance the country’s AI ecosystem. Available at: https://aiforum.org.nz/ (last accessed January 2020). 8 https://www.whitehouse.gov/wp-content/uploads/2019/06/National-AI-Research-and-Development-Strategic- Plan-2019-Update-June-2019.pdf Russia released a national AI strategy in October 2019. Available in English at: https://cset.georgetown.edu/wp- content/uploads/t0060_Russia_AI_strategy_EN-1.pdf Saudi Arabia established a National Center for Artificial Intelligence and an organization called the National Annex I: Examples of countries that have made it public that they are developing AI National Strategies Data Management Office, which will be linked to the Saudi Data and Artificial Intelligence Authority, in line (as of December 2019). with the objectives of the Kingdom’s Vision 2030 program to enhance the drive toward innovation and digital The federal government of Argentina announced the creation of a national AI plan (July 2018) but the plan has transformation (September 2019). not been published yet. Available at: https://www.argentina.gob.ar/ciencia/desconferencia-plan-nacional-de- Singapore launched a National AI Strategy with ethical guidelines and a national AI program called AI Singapore inteligencia-artificial (last accessed December 2019). (November 2019). Available at: https://www.aisingapore.org/ (last accessed January 2020). The federal government of Australia has dedicated $29.9 million in the 2019 country’s annual budget to promote created an Artificial Intelligence Information Industry Development Strategy. Available at: and guide the development of AI. Available at: https://www.industry.gov.au/strategies-for-the-future/boosting- https://english.msit.go.kr/english/msipContents/contents.do?mId=NDYx (last accessed December 2019). innovation-and-science (last accessed November 2019). Spain published an AI RDI strategy (March 2019). Available at: http://www.ciencia.gob.es/portal/site/MICINN/me The Austrian government set up an advisory Robot Council and is developing a national AI strategy. Available at: nuitem.26172fcf4eb029fa6ec7da6901432ea0/?vgnextoid=70fcdb77ec929610VgnVCM1000001d04140aRCRD&la https://futureoflife.org/ai-policy-austria/ (last accessed December 2019). ng_choosen=en (last accessed January 2020). The federal government of Canada has a national Pan-Canadian Artificial Intelligence Strategy. Available at: Sweden released a “National Approach for Artificial Intelligence”. Available at: https://ppforum.ca/articles/keeping-up-with-the-speed-of-disruption-presentations/pan-canadian-ai-strategy- https://www.vinnova.se/contentassets/29cd313d690e4be3a8d861ad05a4ee48/vr_18_09.pdf for-ppf-02march18/ (last accessed December 2019). (last accessed January 2020). The Chinese government created a national AI strategy under the “New Generation Artificial Intelligence Tunisia created an AI Task Force and Steering Committee to develop a national AI strategy. Available at: Development Plan”. Available at: https://flia.org/notice-state-council-issuing-new-generation-artificial- http://www.anpr.tn/national-ai-strategy-unlocking-tunisias-capabilities-potential/ intelligence-development-plan/ (last accessed December 2019). (last accessed December 2019). Denmark’s digital strategy includes a focus on AI along with other technologies. Available at: launched a national strategy for AI. Available at: http://www.uaeai.ae/en/ https://eng.em.dk/media/10554/digital-strategy-fact-sheet.pdf (last accessed December 2019). The United States of America launched the American AI Initiative. Available at: https://www.whitehouse.gov/ai/ Estonia is developing a legal framework for the use of AI, which includes a bill on AI liability. Available at: (last accessed January 2020). https://e-estonia.com/estonia-accelerates-artificial-intelligence/ (last accessed November 2019). The United Kingdom released a Sector Deal for AI, taking into account the advice of the Parliament’s Select Finland set up an Artificial Intelligence Program within the Ministry of Economic Affairs and Employment. Committee on AI. Available at: https://www.gov.uk/government/publications/artificial-intelligence-sector-deal/ Available at: https://tem.fi/en/artificial-intelligence-programme (last accessed January 2020). ai-sector-deal (last accessed January 2020). The French government defined a “AI for Humanity” strategy. Available at: https://www.aiforhumanity.fr/en/ Uruguay launched a public consultation of Artificial Intelligence for the Digital Government in April 2019 (last accessed January 2020). and is developing a strategy. Available at: https://www.gub.uy/participacionciudadana/consultapublica Germany launched an Artificial Intelligence Strategy (November 2018). Available at: https://www.de.digital/ (last accessed January 2020).

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Three reasons China started Abdala, M. B.; Lacroix Eussler, S. y Soubie, S. (octubre de 2019). La política de la Inteligencia Artificial: sus usos en el sector público y sus implicancias regulatorias. Documento de Trabajo N°185, Buenos Aires: CIPPEC. the “New Long March” AI Sector Deal in the United Kingdom (2019). Available at: https://www.gov.uk/government/publications/ artificial-intelligence-sector-deal/ai-sector-deal Akerkar, A. (February 1 2019). How AI is advancing across the world map. London Business School. Available at: https://www.london.edu/think/how-ai-is-advancing-across-the-world-map Blaikie & Donovan (July 27 2018). Will the UK regulate AI? Slaughter and May. Available at: The author: The institution: https://www.slaughterandmay.com/media/2537013/will-the-uk-regulate-ai.pdf Calo, R. (2014). The Case for a Federal Robotics Commission. Brookings. Available at: https://www.brookings. Wang Wen edu/research/the-case-for-a-federal-robotics-commission/ Professor & Executive Crawford, Kate, Roel Dobbe, Theodora Dryer, Genevieve Fried, Ben Green, Elizabeth Kaziunas, Amba Kak, Varoon Dean of Chongyang Mathur, Erin McElroy, Andrea Nill Sánchez, Deborah Raji, Joy Lisi Rankin, Rashida Richardson, Jason Schultz, Sarah Myers West, and Meredith Whittaker. AI Now 2019 Report. New York: AI Now Institute, 2019, Institute for Financial https://ainowinstitute.org/AI_Now_2019_Report.html Studies and Deputy Dean Dafoe (2018). AI Governance: A Research Agenda. Governance of AI Program Future of Humanity Institute of Silk Road School, University of Oxford. Available at: https://www.fhi.ox.ac.uk/wp-content/uploads/GovAIAgenda.pdf Renmin University of Chongyang Institute for Financial Studies Dutton, T. (June 28 2018). An Overview of National AI Strategies. Medium. Available at: https://medium.com/ China at Renmin University of China (RDCY) was politics-ai/an-overview-of-national-ai-strategies-2a70ec6edfd established on January 19th, 2013. It is the House of Lords Select Committee. (2018). AI in the UK: ready, willing and able? House of Lords, 36. main program supported by an education fund Katyal, S. (2019). “Private Accountability in the Age of the Algorithm,” UCLA Law Review 66. Available at: https://www.uclalawreview.org/private-accountability-age-algorithm/ with the 200 million RMB donation from Mr Kerry, C. (March 8 2019). Breaking down proposals for privacy legislation: How do they regulate? Brookings. Qiu Guogen, an alumni of Renmin University of China, and now Chairman of Shanghai Chong- Lodge, M., & Mennicken, A. (2017). The importance of regulation of and by algorithm. Algorithmic Regulation, 2. yang Investment Group Co., Ltd. Mulgan, G. (2016). A machine intelligence commission for the UK: how to grow informed public trust and maximize the positive impact of smart machines. Nesta. RDCY is a new style think tank with Chinese Sample, I. (January 27 2017). AI watchdog needed to regulate automated decision-making, say experts. characteristics. We have invited more than 90 The Guardian. Available at: https://www.theguardian.com/technology/2017/jan/27/ai-artificial-intelligence- former politicians, bankers, and preeminent watchdog-needed-to-prevent-discriminatory-automated-decisions scholars from over 10 countries as senior fel- Schrock, E. (September 4 2018). Regulations Won't Kill AI -- Bad Data Will. Forbes. Available at: https://www.forbes.com/sites/forbestechcouncil/2018/09/04/regulations-wont-kill-ai-bad-data- lows. We also maintain cooperation with think will/#620f96f63405 tanks from over 30 countries. The Regulatory Institute. (14/05/18). Report on Artificial Intelligence: Part I – the existing Regulatory landscape. How to regulate. Available at: http://www.howtoregulate.org/artificial_intelligence/#more-322 Reisman, Schultz, Crawford, and Whittaker. (2018). Algorithmic Impact Assessments: A Practical Framework for Public Agency Accountability. Available at: https://ainowinstitute.org/aiareport2018.pdf Tutt, A. (2016). An FDA for algorithms. Available at: http://www.datascienceassn.org/sites/default/files/An%20 FDA%20for%20Algorithms.pdf WEF. (2019). Global Technology Governance A Multistakeholder Approach. Available at: http://www3.weforum. org/docs/WEF_Global_Technology_Governance.pdf

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China has entered a new era of develop- March one of the most important strategic even greater contribution to humankind. has strengthened international exchanges ment. China now has an impact on the transitions of China’s Communist Party. China will work with other countries to and cooperation in energy, food and net- world that is ever more comprehensive, The Long March spirit is a strong impe- build a community with a shared future work security, and in the polar regions, profound, and long-lasting, and the world tus for the people of all of China’s eth- for humankind, forge partnerships across outer space and the oceans. is paying ever greater attention to China. nic groups to keep pressing ahead. Since the world, enhance friendships and coop- Fourth, China has actively provided What path did China take? Where is China 2014, President of China under- eration, and explore a new path of growing aid to countries in need. As a developing going? What are China’s goals in shaping lined the significance of the Long March state-to-state relations based on mutual country itself, China identifies with other the world? How will China interact with the spirit in the new era, calling many times respect, fairness, justice, and win-win co- developing countries in terms of the pov- rest of the world? The theses in this article on Chinese people to begin a “New Long operation. One of China’s goals is to make erty and suffering they are experiencing are based on Wang (2019). March.” The “New Long March” is a meta- the world a place of peace and stability and and provides them with assistance within phor for China’s important strategic trans- a life happier and more fulfilling for all. its capacity. formation for the future. There are reasons In the future, China will provide more In the future, China will provide finan- » China now has to explain why China has started the "New and better public goods to the world in cial, technical, personnel and intellectual Long March." four aspects. First, China will build a high- assistance to developing countries, to help an impact on quality Belt and Road together with our recipient countries strengthen their ca- CHINA NEEDS TO MAKE MORE partners. According to a World Bank re- pacity for independent development, and the world that CONTRIBUTIONS TO THE WORLD search report, the initiative will help 7.6 to make a greater contribution to promot- Today, after more than 30 years of rapid million people out of extreme poverty and ing their economic and social development is ever more growth in China, China and the world have 32 million out of moderate poverty. It will and people’s well-being, and to achieving undergone tremendous changes. The increase trade in participating countries the United Nations 2030 Agenda for Sus- comprehensive, world is undergoing profound changes un- by 2.8-9.7%, global trade by 1.7-6.2%, and tainable Development. seen in a century: the surging trend toward global income by 0.7-2.9%. The initiative profound and multi-polarity, economic globalization, IT is a veritable road to resource sharing, application and cultural diversity have ac- shared prosperity and common develop- »China needs long-lasting.« celerated the transformation of the global ment. governance system and international or- Second, China is building platforms to convince der, the rapid rise of emerging markets for multilateral dialogue and cooperation, The Long March, a grueling 9,000 kilo- and developing countries, and a greater such as the “17+1” dialogue among China more countries meters, is the one-year journey undertak- balance in the global power configuration. and Central and East European Countries, en by Communist Party forces in October The well-being of people in all countries and the BRI Forum. China firmly supports that its 1934. The Red Army, the forerunner of the has never been so closely intertwined as multilateralism and advocates that inter- People's Liberation Army (PLA), carried it is today. national affairs should be discussed and development is out a daring military maneuver that laid On the other hand, China also faces handled by all countries. China has set up the foundation for the eventual victory of challenges unseen before. Hegemony and platforms for multilateral dialogue and co- an opportunity the Communist Party of China (CPC). power politics persist; protectionism and operation in political, economic, security, The Red Army marched through raging unilateralism are mounting; war, conflicts, cultural and other fields. for the world.« rivers, snowy mountains, and arid grass- terrorism, famine, and epidemics con- Third, China actively participates in in- lands to break the Kuomintang regime's tinue to plague us; security challenges, ternational and regional affairs. As a per- grip on the country and to continue their both traditional and non-traditional, re- manent member of the UN Security Coun- CHINA IS STILL DEALING WITH A RAFT fight against Japanese invaders. From main as complex and interwoven as ever. cil, China strives to contribute wisdom and OF SEVERE CHALLENGES there, they regrouped and eventually took To respond to the call of the times, China strength to the settlement of major inter- Over the past 70 years, under the lead- control of China in 1949, making the Long sees it as its mission to make a new and national and regional flashpoints. China ership of the Communist Party of China

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(CPC), the PRC has witnessed profound The causes of this theory include cognitive ing as a consequence of capital’s excessive It is not easy for a country to find a de- changes and achieved a miracle of devel- misunderstanding, deep-rooted prejudice, pursuit of profit. Trade protectionism is velopment path suited to its own national opment unprecedented in human history. a psychological imbalance brought about on the rise. Global public and private debt conditions. In the recent past, many devel- In just a few decades, China has completed by the prospect of falling power, and delib- is rising steeply. Some emerging econo- oping countries have worked hard in the a course that took developed countries sev- erate distortions by vested interests. China mies have encountered major financial hope of making themselves prosperous eral hundred years. China has now become is committed to further expanding im- turbulence. The world economy is facing and strong, but few have really found the the world’s second-largest economy, taken ports, relaxing market access, improving mounting downward pressure. China is the right path and achieved good development. care of the material needs of its nearly 1.4 the business environment, and strength- world's largest emerging economy, and Copying or imitating other countries offers billion people, and achieved moderate all- ening the protection of intellectual proper- China's development will directly affect no way forward. Some countries blindly round prosperity. Its people enjoy dignity ty rights. Other countries should also open the global economy. copied or were forced to adopt the Western and rights previously unknown to them. wider to the world and take corresponding model, but they did not achieve economic China’s development has brought tremen- measures to improve their business en- CHINA NEEDS TO INSIST ON ITS development or political stability. Instead, dous change to China. It also represents vironment. Only by moving towards each INDEPENDENT DEVELOPMENT PATH they fell into social unrest, economic cri- remarkable progress for human society, other can we create a development envi- WHEN EVERYTHING CHANGES ALL sis, governance paralysis, and even end- and above all, a significant contribution to ronment that is open, inclusive, balanced THE TIME less civil war. China’s part to world peace and develop- and beneficial to all, make the “cake” of I am the deputy dean of the Silk Road The choice of path is critical to the suc- ment. China remains the world’s largest development bigger, and form a mutually School of the Renmin University of China. cessful development of a country. As a vast developing country, with a large population beneficial community of shared interests. We have students from more than 40 de- country with a nearly 1.4 billion population, and foundations that need to be further Third, China needs to shoulder more veloping countries. We admit some Indi- China has no experience of modernization strengthened. Some of the fundamentals responsibility for global economic de- an students every year and they are very to borrow from in history but has to blaze in China remain unchanged, and therefore velopment. International politics and the excellent. These students often ask the its own path. The greatest inspiration from China is still facing a raft of severe chal- economic system have been dominated question: Why does China insist on taking China’s development is: What kind of path lenges. Chinese people still have work to by Western powers since the First Indus- its own development path? a country takes should be based on the do. trial Revolution. In more recent decades, In my opinion, a country has many simi- experience of other countries, but more First, the Chinese people need to re- emerging market and developing coun- larities with natural ecosystems. I want to importantly on its own reality, and should move institutional obstacles hindering de- tries have realized rapid growth by seiz- share a story to explain why China insists on be decided by its own people in accordance velopment through reform and innovation. ing the historic opportunities presented by its own developing road. In the early 1930s, with its own history, cultural traditions, The purpose is to unleash and develop economic globalization. According to the Australia had problems with cane beetles, and level of economic and social develop- productivity and social vitality, to improve latest data released by the IMF, the share which rendered the production and har- ment. and develop Chinese socialism, and to of emerging market and developing econ- vesting of sugar cane crops less profitable. Just as I mentioned in Wang (2019), modernize China’s system and capacity for omies in global output, measured by pur- In response, on June 1935, the Austral- China cannot develop in isolation from the governance. chasing power parity, first surpassed that ian local government introduced a preda- rest of the world, nor can the world as a Second, China needs to convince more of advanced economies in 2008 and rose tor, the cane toad, previously only native whole maintain peace, development, pros- countries that China’s development is an to 59% in 2018. But change also brings to South and Central America. After being perity, and stability without China. China opportunity for the world. With the rapid risks and challenges. Factors of instabil- bred in captivity, a number of young toads will do well only when the world does increase of China’s comprehensive na- ity and uncertainty are increasing. Deficits were released in North Queensland in July well, and vice versa. In today’s world, we tional strength and international influence, in governance, trust, peace, and develop- and August 1935. With poisonous skin and face an array of opportunities and hopes, some people worry that China will fulfill ment are growing. The world is facing the no native predators, the cane toads spread of variables and challenges. The future of the outdated expectation that a country danger of a relapse into fragmentation and widely; there are an estimated 200 million all countries has never been more closely will invariably seek hegemony when it even confrontation. The world economy is in existence today. This history tells us: in- connected. From these perspectives, we grows strong, so they have created what slowing down for a lack of impetus, and the troducing changes to a dynamic ecosystem are all on the new Long March of making they call the “China threat” perspectives. gap between the rich and poor is widen- can yield unpredictable results. a better world.

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Wang, Wen (2019). Great Power’s Long March Road: The views of China's rejuvenation and the future of the world after hundred countries’ visit, Beijing: China CPC School’s Press.

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Page 106 Realizing the Beyond low-carbon future Venkatachalam Greenwashing: Anbumozhi ERIA

Instruments Page 115 With or without you Steffen Bauer to Fight Climate Axel Berger Gabriela Iacobuta Change and German Development Institute

Protect Page 123 The diet of the future José Luiz Chicoma the Planet’s Ethos Public Policy Lab Resources GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5

Page 129 Putting climate and environmental protection at the heart of European policy Svenja Schulze Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

Page 132 Solidarity and the Green Deal Frans Timmermans European Commission

Page 135 G20 governance of climate change through nature-based solutions Brittaney Warren G20 Research Group GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES

cording to 2017 data, the US still produces that a low-carbon transition could require Realizing the twice as much as carbon dioxide per capita $3.5 trillion in energy sector investments as China and nearly nine times as much every year for decades – twice the current as India, highlighting the increased envi- rate. Under the agency’s scenario, in order low-carbon future ronmental impact of higher standards of for carbon emissions to stabilize by 2050, living. All of this means the Paris Climate nearly 95% of the electricity supply must Agreement’s goal of limiting the global be low carbon, 70% of new cars must be What role for central banks and monetary temperature increase to 1.5 degrees Cel- electric, and the carbon-dioxide intensity sius could be a pipe dream if energy in- of the building sector must fall by 80%. authorities? vestments worldwide do not change. For markets to anticipate and smooth The economy-wide changes needed to the transition to a low-carbon world, they attain a low-carbon future are enormous: need information, proper risk manage- a massive reallocation of capital is need- ment and coherent, credible public-policy The author: ABSTRACT ed, which presents unprecedent risks and frameworks. That could be strengthened Placing both advanced and developing opportunities to the financial system. The by central banks and monetary authori- Venkatachalam countries on a low-carbon path requires International Energy Agency estimates ties. Anbumozhi an unprecedented shift in private invest- Senior Energy Economist, ments and new financing models. The ERIA financial sector will have to play a cen- tral role in this low-carbon transforma- tion, while avoiding destabilizing effects Figure 1: Annual CO emissions per country (tons of CO , 2017) 2 2 on economic systems. Central banks and other financial institutions are ready to use their extensive knowledge in lending, investment, and smart advisory services to achieve the low-carbon targets expressed in the Paris Agreement. With support from central banks, commercial and national The institution: development banks can offer diverse fi- nancing products with maximum impact and appropriate risk management. Despite increased calls to reduce global carbon emissions in light of climate change, energy-related carbon dioxide The Economic Research Institute for ASEAN emissions worldwide rose 1.7% last year, and East Asia is an international organization hitting a record high (IEA, 2018). It is the providing research and policy support to the fastest rate of growth since 2013. While East Asia region and the ASEAN and EAS emissions declined in Europe, they were summit process. It was established in Jakarta, up in big G20 economies like the US, China at the third East Asia Summit in 2007, serving 16 member countries of the and India (Fig 1). Coal, especially in Asia, region, providing policy recommendation for played a significant role in the increase. At further economic integration in the East Asia the same time, it is worth noting that ac-

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CLIMATE CHANGE, A LOW-CARBON the financial sector are closely linked to which will be written off the balance sheets system, while avoiding excessive economic FUTURE AND LIABILITY AND adjustments in real sectors and can be of the companies that own them. Other losses and financial instability. REGULATORY RISKS triggered by: physical assets that could become strand- The investment community faces several • mandatory or voluntary changes in ed include part of the fossil fuel-driven ROLE OF CENTRAL BANKS IN kinds of risks as a result of such market- emission-control policies that companies electricity-generation capacity stock, resi- CATALYSING PRIVATE FINANCE FOR A based and regulatory actions. Regulatory need to comply with, possibly entailing ad- dential housing, real estate, transportation LOW-CARBON TRANSITION risk is most relevant to the financial sec- ditional costs; infrastructure and other forms of carbon- Dikau and Volz (2018) distinguished between tor, followed by liability or litigation risk, • declining profitability and cash flows intensive industrial technology (Anbumozhi central banks’ responses to environmen- and finally, reputational risk. These risks of projects underwritten by financial insti- et al, 2018). Such asset stranding will not tal externalities affecting their traditional are interlinked and interdependent and tutions, resulting from higher capital and only lead to economic losses and unem- core responsibility of safeguarding mac- may encompass physical risks from the operating expenditures required to miti- ployment, but will also affect the market roeconomic and financial stability, and an adverse impacts of climate change such gate and adapt to climate change; valuation of the companies that own the activist role for central banks in supporting as natural disasters. Anbumozhi (2017) • low-carbon technologies and innova- assets, thus negatively impacting their in- the development of a low-carbon economy. identified three risk categories for G20 tions that render previous technologies or vestors, and potentially triggering cascade They also took climate risk into account in economies: (i) Physical risks include the products financed by financial institutions effects throughout the deeply intercon- the design of monetary policy and financial impact on insurance liabilities and finan- obsolete; and nected financial system (Table 1). regulation in the pursuit of the traditional cial assets that result from climate- and • a shift by consumers away from high Hence, the changing role of central goals of price and financial stability. This weather-related events such as floods and carbon-emitting products. banks and monetary authorities is to find can be described as the passive aspect of storms which damage property or disrupt a gradually shrinking window of opportu- green central banking because, in pursuing trade. The consequences are the greatest nity that would allow societies to achieve a their established goals, central banks may for the insurance sector, but also extend »The economy- rapid transition to a low-carbon economic need to incorporate environmental factors more broadly. (ii) Liability risks occur when parties that have suffered loss or damage wide changes from the effects of climate change seek compensation from parties they hold re- need to attain Table 1: The trade-offs in transition to a low-carbon future sponsible. Such claims could come dec- ades in the future, creating liabilities for a low-carbon fossil-fuel extractors and emitters and No low-carbon Rapid or orderly Abrupt transition their insurers. (iii) Transition risks are the future are transition transition financial risks that could result from the Stranded physical process of adjustment towards a lower- enormous.« assets (e.g., fossil- carbon economy. Changes in policy, tech- fuel reserves) and Minimal stranding Short term No stranded assets stranded financial nology, and physical risks could prompt a of assets assets (e.g., loss in reassessment of the value of a large range Whether driven by unanticipated poli- market valuation of assets as costs and opportunities be- cies, technological developments or mar- and cascade effects) come apparent. Particularly rapid repric- ket preferences, the shift to a low-carbon ing could threaten financial stability. future will cause a system-wide societal Climate-induced Minimal climate- No significant damages to When financial institutions are unpre- adjustment, during which certain sectors induced damages climate-induced Long term productive assets, to physical and damages to physical pared to assess or respond to the low- are likely to lose out. For example, respect- climate-related financial assets and financial assets carbon risks described above, they may ing the 2O C threshold in temperatures will financial losses face additional legal risks from inaction require a large portion of existing reserves (OECD, 2016). Further, transition risks in of coal, oil and gas to remain in the ground,

108 109 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES into existing frameworks, e.g. into macro- environmental and social (E&S) risk man- the health of individual financial institu- Differentiated capital requirements prudential frameworks, without pursuing agement standards requires financial insti- tions, and the financial system as a whole. Through capital requirements, financial a low-carbon agenda. On the other hand, tutions to incorporate E&S risk factors into Apart from enabling the evaluation of the regulators require financial institutions central banks may be mandated to actively their governance frameworks. To enforce resilience of the financial system to ad- to hold a certain percentage of capital for use the tools at their disposal to promote climate-related risk management beyond verse shocks, climate-related stress tests risk-weighted assets, which is usually ex- green investment or discourage brown in- disclosure, green E&S risk management would also be necessary to calibrate green pressed in the capital-to-risk (weighted) vestment and play a developmental role. standards may also establish E&S rules macro-prudential policy instruments and assets ratio. Capital requirements could Central banks in developing and for banks’ lending practices by requiring to allow for the incorporation of the iden- theoretically differentiate asset classes emerging economies in Asia have been at the assessment of these risks, as well as tified vulnerabilities into capital buffers, based on sustainability criteria and assign the forefront of using a broad range of in- considering the potentially harmful envi- risk weights, and caps (Amerasingh et al, higher risk weights to carbon-intensive struments to address environmental risk ronmental effects of new financial services 2017). assets in anticipation of future negative and encourage low-carbon investment. and products. Furthermore, mandatory and sudden price developments (World Since 2015, central banks in advanced green risk-management standards could Bank, 2018). economies have started to address the oblige banks to include an assessment of »When financial implications of low-carbon investment E&S risks in the loan origination process MONETARY POLICY OPERATIONS AND for monetary and financial stability. The as a criterion based on which loans are institutions are THE FINANCING OF A LOW-CARBON Bank of England has played a central role extended. This would likely also have al- FUTURE BY CENTRAL BANKS in raising awareness of the implications of locative consequences by reducing the flow unprepared There are several ways in which central low-carbon transition risks amongst cen- of finance to polluting and energy-inten- banks and monetary policy authorities can tral banks. The pioneering central banks sive firms and enhancing the financing of to assess or engage their supervisory bank with the apply the following policy instruments. greener projects (Huxham et al, 2017). low-carbon transition (table 2). First, they respond to the can favor assessment of climate-related Disclosure requirements Reserve requirements risks, both for single institutions and at Effective disclosure requirements for Reserve requirements determine the low carbon the systemic level. This is the strategy cur- banks and other financial institutions of minimum amount of reserves that com- rently implemented by some central banks low-carbon project-related risks can play a mercial banks must hold. They could be risks, they may in high-income countries. Second, they central role in ensuring that financial insti- calibrated to create incentives leading to can employ policy tools at their disposal tutions correctly price in the impact of low- the promotion of green assets or make face legal risks to mitigate climate-related risks and sup- carbon policies. TCFD disclosure require- brown lending less attractive. Differential port the development of low-carbon activi- ments are a central element of forming a reserve requirements that are linked to the from inaction.« ties. While several examples of proactive response to climate and environmental composition of banks’ portfolios, allowing behavior by central banks are available in risk, since a lack of information on the risk lower (higher) required reserve rates for emerging G20 economies, this approach exposure of financial institutions has con- portfolios skewed towards greener, less has not yet been implemented systemati- sequences for financial stability because carbon-intensive assets (brown, carbon- Countercyclical capital buffers cally. the misallocation or mispricing of assets intensive assets) could influence the allo- Countercyclical capital buffers are used may cause abrupt price corrections in fi- cation of credit and promote green invest- to mitigate the financial cycle and can be POLICY AND VOLUNTARY ACTIONS nancial markets later (FSB TCFD, 2017). ments (Ng, 2018). calibrated with regard to environmental DRIVING LOW-CARBON DISCLOSURE risks to ease the potential effect of pricing For banks, owners and managers of as- Environmental and social risk manage- Climate-related stress testing in a ‘carbon bubble’ – the expected sudden sets, the quality and availability of relevant ment standards Climate-related stress tests can fulfil the repricing of carbon-intensive assets due to information is one of the key barriers to Similar to disclosure requirements, finan- task of assessing the potential impact that stricter emission targets and environmen- incorporating climate issues into their in- cial regulation that endorses mandatory natural hazards may have on the economy, tal policy (UN Environment, 2017). vestment processes. In part to address this

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Table 2: Interventions by central banks and financial regulators in support of private deficiency, the Financial Stability Board closing organizations will also benefit financing of the low-carbon transition Task Force on Financial Disclosure (FSB from the process, gaining a better under- TCFD) issued its final report in June 2017, standing of the real financial implications providing recommendations on low-car- of climate-related risks and their potential bon project-related financial disclosures impacts on business models, strategy, and Approach Concept Current application that are applicable to organizations across cash flows. sectors and jurisdictions. If adopted widely, The TCFD highlights scenario analysis Assessment of Apply methodologies to De Nederlandsche the recommendations will normalize and as its preferred tool for producing for- climate-related identify and measure Bank improve the standards of corporate low- ward-looking information with respect to risks climate-related risks Bank of England carbon risk disclosures, allowing investors assessing climate risks and opportunities Task Force to better assess their own climate-related in a way that enhances the robustness and Disclosure of Develop standard methods on Climate- portfolio risk and provide this information flexibility of strategic plans. It also believes climate-related of climate-related risk related Financial to their clients and beneficiaries. The FSB such information is important for investors risks reporting Disclosures TCFD report knitted existing frameworks and other stakeholders in understanding into a single framework for disclosure on how vulnerable individual organizations Use prudential regulatory the assessment and management of cli- are to climate-related risks, and how such People’s Bank of Low carbon- tools, e.g., reserve and mate-related risks and opportunities and vulnerabilities might be addressed. China aligned prudential capital requirements to encouraged board-level engagement with Banco Central do regulation policy banks lending to low-carbon the issue. It strongly recommended using Brasil projects scenario analysis techniques as part of the »Disclosing process. The framework contains the fol- Provide additional/subsidized lowing key elements (FSB TCFD 2017): organizations Green central bank Bank of Japan liquidity to banks lending to • adoptable by all organizations; financing Bangladesh Bank low-carbon activities • included in financial filings; will gain • designed to solicit decision-useful, Impose a minimum Reserve Bank of forward-looking information on financial a better Lending quotas proportion of bank lending to India impacts; and flow to low-carbon sectors Bank of Indonesia • strong focus on risks and opportuni- understanding ties related to the transition to a lower- Include low-carbon criteria carbon economy. of the financial Inclusion of low- in the evaluation of overall State Bank of The recommendations focus on four carbon criteria in risk of an asset purchased or key themes that are aligned with how or- implications of monetary policy accepted as collateral ganizations operate: governance, strategy, risk management, and metrics and tar- climate-related Purchase green assets as gets. The themes are fleshed out with rec- Green quantitative European risks.« part of quantitative easing ommended disclosures that organizations easing Investment Bank programs should include in their financial filings in each of the four areas, to provide investors and other stakeholders with information CONCLUSION that helps them understand the reporting G20 policymakers now face the challeng- organization’s assessment of its climate- ing task of ensuring a structural shift to a related risks and opportunities. The dis- low-carbon economy while concurrently

112 113 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES safeguarding economic prosperity and the tors should further deepen their activities stability of the financial system. Achieving in assessing climate-related financial risk With or without you this goal will require financial markets and exposures of their regulated firms, includ- institutions to start considering climate- ing what data and methods they are using related risks in their financing decisions. in assessing these risks, and take appro- How the G20 could advance global action toward G20 central bank governors and monetary priate actions if prudential risks are found authorities can contribute to this process to be material. Finally, central banks might climate-friendly sustainable development in several ways. First, they can support wish to consider whether they should ac- measures to improve financial markets’ count for climate-related factors in deter- ability to consider climate-related risks, mining the eligibility of assets for their as- e.g. better disclosure of such risks. Sec- set purchase programs or as collateral in The authors: With a collective responsibility for 80% of ond, central banks and financial regula- their market operations. Steffen Bauer global greenhouse gas emissions, while representing 80% of global wealth, the Senior Researcher for Environmental Governance and Head of Klimalog, countries of the G20 must throw their German Development Institute weight behind the implementation of both the Paris Agreement on climate change Axel Berger and the 2030 Agenda for Sustainable De- Senior Researcher for Transformation velopment. In the past, the G20 has dem- of Economic and Social Systems, onstrated it can do that. The G20 Summit German Development Institute in November 2015 in Antalya, Turkey, pro- Gabriela Iacobuta vided strong support for the climate agree- ment signed a month later at the UN Cli- Researcher for Environmental Governance, German Development mate Change Conference (COP21) in Paris. Institute In 2016 in Hangzhou, China, the G20 adopt- ed an Action Plan on the 2030 Agenda and

Anbumozhi, V., K. Kalirajan, and F. Kimura, eds. (2018), Financing for Low-Carbon Energy Transition: committed to “further align its work” with Unlocking the Potential of Private Capital. Singapore: Springer. The institution: the 2030 Agenda. Even though both agen- Anbumozhi, V., K. Kalirajan, F. Kimura, and X. Yao, eds. (2016), Investing in Low -Carbon Energy Systems: das have emerged in the multilateral con- Implications for Regional Cooperation. Singapore: Springer. text of the United Nations system, the G20 Amerasinghe, N., J. Thwaites, G. Larsen, and A. Ballesteros (2017), The Future of the Funds: Exploring the Architecture of Multilateral Climate Finance. Washington, DC: World Resources Institute. is expected to exert strong political leader- Dikau, S. and U. Volz (2018), ‘Central Banking, Climate Change and Green Finance’, ADBI Working Paper Series, ship to address global climate change and No. 867. Tokyo: Asian Development Bank Institute. to achieve sustainable development. FSB TCFD (2017), Implementing the Recommendations of the Task Force on Climate-Related Financial Disclosures. Basel: FSB Task Force on Climate-Related Financial Disclosures. Yet, since 2017 the G20 has struggled Huxham, M., U. Varadarajan, B. O’Connell, and D. Nelson (2017), Mobilising Low-Cost Institutional Investment in The German Development Institute / Deut- to provide such leadership, as support Renewable Energy: Major Barriers and Solutions to Overcome Them. San Francisco, CA: Climate Policy Initiative. sches Institut für Entwicklungspolitik (DIE) is for multilateral commitments, especially IEA (2018) World Energy Outlook, International Energy Agency, Rome. one of the leading research institutions and those involving ambitious climate actions, Ng, A.W. (2018), ‘From Sustainability Accounting to a Green Financing System: Institutional Legitimacy and think tanks for global development and inter- Market Heterogeneity in a Global Finance Centre, Journal of Cleaner Production, 195, pp.585–92. appears to be fading. Crucially, opposition national cooperation worldwide. DIE’s work to strong multilateral climate policy in the OECD (2016), Green Investment Banks: Scaling Up Private Investment in Low-Carbon, Climate-Resilient is based on the interplay between Research, Infrastructure. Paris: OECD Publishing. US and Brazil resorts to outright climate Policy Advice and Training. DIE is building UN Environment Inquiry (2017), A Review of International Financial Standards as They Relate to Sustainable denialism at the highest levels of govern- Development. Nairobi: United Nations Environment Programme. bridges between theory and practice. Research ment. These developments are challeng- World Bank (2018), Climate Change, Overview. http://www.worldbank.org/en/topic/climatechange/overview at DIE is theory-based, empirically driven and (accessed 25 December 2019). application-oriented. ing the G20, and BRICS and the G7 for that

114 115 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES matter, to sustain support for multilateral the capability of the multilateral system to ties do play their part in multilateral nego- club’s economic and consumptive power. commitments on climate and sustainable generate vision and consensus about joint tiations, but their interventions wield less While the G20 comprises only a small club development. The rise of populist and uni- goals among a broad range of stakehold- influence compared with the diplomatic of countries, these jointly produce roughly laterally minded parties in European club ers in view of global challenges. bargaining between G20 players such as 80% of global greenhouse gas emissions member countries may further the risk of the US and China, the EU and Turkey, or and similar shares of global GDP and of in- sidelining climate- and sustainability-re- Japan, Russia, and Saudi Arabia. ternational trade. lated issues in the G20 process. This does » The tide has Accordingly, G20 minilateralism as not bode well at a time when G20 support such is no panacea to overcoming the G20’S TRACK RECORD ON CLIMATE could be a vital ingredient for the suc- been turning structural barriers that stand in the way of AND SUSTAINABILITY cess of multilateral climate negotiations. more ambitious climate policy or a more Over the years, the G20 has broadened its These are under immense time pressure against comprehensive implementation of SDGs. agenda beyond issues of financial regula- to achieve the target of limiting the global Indeed, the G20 should not be considered a tion, structural policies and international temperature rise to 1.5°C, which is gener- multilateral global steering committee. Rather, it rep- trade. The Korean G20 Presidency in 2010, ally considered necessary to limit danger- resents one distinct component of a com- for example, put a strong focus on develop- ous climate change. cooperation in plex, non-hierarchical global governance ment issues and established the Develop- In this article we analyse the ways in architecture. Ultimately, it offers a distinct ment Working Group. During the Chinese which the G20 has supported climate and recent years.« space to enhance political dialogue in a G20 Presidency in 2016, the G20 adopted sustainable development action to date geopolitically charged context. This pro- the “Action Plan on the 2030 Agenda for and how current political and technical vides valuable opportunities to build trust Sustainable Development” and pledged to challenges could be overcome in order to All the same, the tide has been turn- not only between leaders, but also between “further align our work with the universal strengthen such support. Following our ing against multilateral cooperation in re- government officials who participate in the implementation of the 2030 Agenda”. The analysis,1 we identify four ways forward cent years, showing a surge in nationalist G20’s workstreams and ministerial meet- G20 also made recurring commitments that should be conducive to harnessing the populism that thrives, among other things, ings. Procedurally overcharged multilat- to support multilateral climate negotia- G20’s economic weight and political clout on outright climate denialism. While this eral negotiations often fall short of such tions and phase out fossil-fuel subsidies. to push more ambitious global action to- does not automatically trigger the oft- opportunities. That additional space for fo- Climate-related issues moved up the list of wards climate-friendly sustainable devel- touted “death of multilateralism”, politi- cused dialogue provides the basis on which G20 priorities after the Mexican G20 Presi- opment, in spite of apparent discrepancies cal changes in major countries such as G20 governments can create club benefits dency in 2012 highlighted the economic between domestic agendas and global un- the US and Brazil cannot be ignored. Fur- between them and thereby provide a con- impacts of climate change and founded a derstandings. thermore, populist parties and nationalist ducive environment for bargaining among study group on climate finance. During the movements have been on the rise in many influential powers (Falkner, 2016). That, in Turkish Presidency in 2015, the G20 pro- MULTILATERALISM IN CRISIS? European countries, too. turn, can help consensus-building that can vided support for the subsequent climate The successful conclusion of two ma- It is against this backdrop that club ap- spill over into multilateral arenas and fa- negotiations in Paris, and Finance Minis- jor multilateral processes at the end of proaches to global governance, as epito- cilitate the implementation of agreed policy ters and Central Bank Governors empha- 2015 – the adoption of the 2030 Agenda mized by the G20, but also BRICS and the objectives internationally and domestically. sized climate risks for the financial sector. with its comprehensive package of Sus- G7, tend to look more attractive again.2 The G20 process thus creates com- Within the G20, climate and sustaina- tainable Development Goals (SDGs) by the However, empirical observation suggests plementary opportunities to move things ble development issues are discussed both UN General Assembly in September, and that the major obstacles to consensus and ahead by setting agendas, defining stra- in the Sherpa and Finance tracks (see Fig- the adoption of the Paris Agreement under greater ambition within the exclusive G20 tegic priorities and reiterating commit- ure 1). During the Japanese Presidency, for the UN Framework Convention on Climate group reflect those prevalent in the uni- ments. Belonging to the club, G20 leaders example, climate-related issues were not Change in December – provided reassur- versal setting of UN conference halls and can be compelled to assume a greater re- only discussed in the Climate Sustainable ance to proponents of multilateral gov- involve the same protagonists. Least-de- sponsibility, not only for their countries but Working Group but also in the Infrastruc- ernance around the world. It underscored veloped countries and other non-G20 par- also for the global common good, given the ture Working Group, which puts a strong

116 117 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES emphasis on climate-friendly “quality” in- with regard to the implementation of the ing more countries to deviate from a G20 against the current trends of the national frastructure. Green finance issues, in turn, 2030 Agenda by agreeing, among other majority. and international political environment. are typically discussed in the finance track. things, a “Hamburg Update” of previous While climate and sustainability-relat- Given the breadth of the 2030 Agenda, al- commitments, it was less successful with ed issues did not figure very high on the most all working groups can contribute regard to its climate agenda (Scholz & agenda of the Argentinian G20 Presidency »Implementation to its implementation. The Action Plan on Brandi 2018). Building on the outcomes of in 2018, the Japanese Presidency showed the 2030 Agenda, therefore, tasked the the 2015 G7 summit in Elmau, the German more ambition. On climate, it intended to of these Development Working Group “to act as G20 Presidency sought also to put a strong support stronger climate action at the Osa- a coordinating body and policy resource emphasis on climate policy. Yet, this effort ka G20 summit, by working with non-state commitments for sustainable development across the was undermined by the new US president, actors and by enhancing climate financing, G20”, thereby seeking to enhance policy as he backtracked from previous climate among other measures. The outcomes of at home and coherence across the different G20 work commitments. the Japanese G20 Presidency on climate, streams. The engagement groups of the Ultimately, the German G20 Presidency however, have been unambiguous. The lev- outside G20 G20, such as think tanks (T20), business decided to sideline the US and adopt the el of ambition seems to be higher during (B20), labour (L20), women (W20) and civil ambitious “G20 Hamburg Climate and En- the Saudi Arabian G20 Presidency, which meetings is society organizations (C20), also provide ergy Action Plan for Growth” as “G19+1”. started in December 2019, as it includes strong backing for G20 action on climate Observers at the time hailed this outcome the goal of “safeguarding the planet” as essential.« and sustainable development. as an important political signal, given the one of three priority areas. Nevertheless, the G20’s support for fear that other countries might follow the Nevertheless, beyond commitment on multilateral commitments to climate ac- US. However, in light of waning support for paper, implementation of these commit- First, it would be beneficial to focus tion and sustainable development appears climate policy and international coopera- ments at home and outside G20 meetings on the multitude of interactions between to be fading. While the German G20 Presi- tion, the “G20 minus X” option might well is essential. While the 2030 Agenda tends climate and sustainable development that dency succeeded in keeping momentum prove a slippery slope, accidentally invit- to be less controversial than the processes are essentially synergistic. Bottlenecks around the Paris Agreement, three G20 caused by different views and priorities members have not yet submitted a Volun- among G20 members could be overcome tary National Review (VNR) (the US has not by focusing on actions with multiple co- Figure 1: G20 working structure during the Japanese Presidency in 2019 volunteered a date for reporting; Russia benefits. In that sense, we propose that volunteered for 2020; China volunteered in the G20 emphasizes specific issue-centred 2016, but the full review is not available; policies that are compatible with the ob- the EU is not required to report, but vol- jectives of the Paris Agreement and 2030 unteered to present its progress on the Agenda, but are not considered primarily SDGs in 2019). Moreover, Russia and Tur- as “climate policy” or “sustainability pol- key have yet to submit their first Nationally icy”. Indeed, many climate actions prom- Determined Contributions (NDC) under the ise real benefits in terms of job creation, Paris Agreement, Turkey has not yet rati- economic savings, competitiveness, and fied the agreement and the US filed a with- improved well-being more generally (New drawal notification at the end of 2019. Climate Economy, 2018). This would relate, for instance, to investments in sustainable MOVING FORWARD AGAINST THE ODDS infrastructure in the context of urbaniza- Source: Authors. Please note that focus and composition of working groups and task It is against this background that we sug- tion in a way that is climate resilient and forces (shown in red) can be subject to changes from one G20 presidency to the next. gest four pathways for action to foster compatible with sustainable development. climate-friendly sustainable development Pertinent actions that could be of par-

118 119 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES ticular interest to G20 members include, mate and sustainable development action sis. Indeed, the proliferation of ever more above, to create aggregate messages that inter alia, expanding renewable energy by non-state and sub-national actors has policy briefs, all of which compete for the speak to a number of G20 working groups generation to strengthen energy secu- been growing rapidly around the world, attention of Sherpas, Finance Deputies rather than only the obvious silo-counter- rity, promoting energy efficiency to boost becoming more and more effective and and working group delegates, may obscu- part, and thereby to gain traction within economic competitiveness, collaboration filling some of the gaps left by states. In re the proverbial wood from the trees. It the G20 process. In that regard, to have on innovations in low-carbon technolo- an increasingly complex world, the sup- should be worthwhile not only to call upon a stronger impact, the T20, as a transna- gies to ensure future advantages in these port of both state and non-state actors is ministries to bridge policy silos but also tional network, could detach its working areas, or cutting fossil-fuel subsidies to essential (Chan, Brandi, & Bauer, 2016). to work across research silos. This may approach from the G20 calendar, set the free budget resources for social policies. It could help G20 member states to find prove more labor-intensive than writing tone for cross-group collaboration, and At a time of increasing nationalism, often more efficient solutions to domestic and the next policy brief that appears topical start to shape thematic priorities well coupled with climate change-denialism, global challenges and ensure that efforts to any given task force. However, putting ahead of the official G20 process. advancing such practical initiatives by the in specific development areas do not hin- heads together across task forces should full G20 may ultimately prove more effec- der progress in others. Promising exam- help to identify the key areas suitable for This article is a revised and updated version tive than G20 minus X approaches, which ples such as the regular meetings of the the issue-centered approach called for of Bauer, Berger & Iacobuta (2019). could undermine the G20’s cohesion and Development Working Group with the En- legitimacy. gagement Groups could also be adopted by other working groups of the Sherpa and Finance tracks. »Many climate Third, we recommend that G20 working groups and thematic workstreams draw actions promote leaders’ attention to their respective prior- ities by co-producing issue-specific deliv- real benefits.« erables jointly across working groups. This would help to overcome policy silos and in- crease ownership and uptake of compart- Second, we encourage the G20 on do- mentalized issues beyond the “usual sus- mestic levels and in the G20 workstreams pects” of the policy field in question. One to embrace non-state and subnational promising example is the co-production actors as strategic partners in building of deliverables on quality infrastructure capacity, strengthening implementation during the Japanese Presidency by the in- locally and globally, and boosting trans- frastructure, anti-corruption and develop- national cooperation. Indeed, engaging ment working groups. non-state and subnational actors could Finally, we call upon experts and col- help to secure support and continuity on leagues within the Think 20 (T20) Task key issues even in G20 minus X situations. Forces and beyond to concentrate their For instance, when the United States an- efforts on joint themes, rather than nounced its intention to drop out of the further expanding on increasingly spe- Paris Agreement, subnational and non- cialized topics and policy recommenda- 1 This briefing paper builds on the T20 conference “Fit for purpose? Revitalizing climate and sustainability issues state US actors united under “We Are Still tions. While there is undoubtedly a need in the G20” that convened in Berlin under the “Chatham House Rule” on 20 March 2019. It was co-hosted by the In”, thereby helping to maintain continuity for more research and specialized policy German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) with the Institute for Global Environmental Strategies (IGES), Japan, the Mercator Research Institute on Global Commons and Climate of climate action and engagement domes- advice, the inefficacy of the G20 hardly re- Change (MCC), and the global Sustainable Development Solutions Network (SDSN). tically and internationally. Empirically, cli- sults from a lack of knowledge and analy- 2 For an assessment of the potential and challenges of the G20 see Berger, Cooper & Grimm (2019).

120 121 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES The diet of the future

The challenge of creating a healthy and sustainable diet

The author: There is no viable future for the planet if humanity does not successfully shift to- José Luiz Chicoma ward a diet that is both healthy and sus- Executive Director, tainable. We’ve been focused on the first Ethos Public Policy Lab objective for decades, so we’re probably pretty close to achieving this goal, right? Wrong. The “triple burden” of malnutrition is global, and it’s getting worse: More than 820 million people experience hunger.1 More than a quarter of the global popula- tion lacks the necessary nutrients in their diet.2 Across all continents, food insecu- rity is more prevalent among women than among men. One out of every five school- age children and almost two out of every five adults are overweight or obese, and obesity currently causes more than 4 mil- lion deaths worldwide. The institution: Now what if we add the additional chal- lenge of making our diets not only healthy, but sustainable? The complexity of the po- Bauer, S., Berger, A, & Iacobuta, G. (2019). With or without you: How the G20 could advance global action towards climate-friendly sustainable development. Briefing Paper xx/2019. Bonn: German Development Institute / tential solutions increases exponentially. Deutsches Institut für Entwicklungspolitik (DIE). Policymakers, politicians, legislators and Berger, A., Cooper, A., & Grimm, S. (2019). A decade of G20 summitry: Assessing the benefits, limitations and experts around the world are struggling future of global club governance in turbulent times. South African Journal of International Affairs 26(4) Special Issue. Ethos Public Policy Lab transforms research to address these issues. If humanity has Chan, S., Brandi, C., & Bauer, S. (2016). Aligning transnational climate action with international climate and experiences into clear and concrete public been unable to improve the indicators as- governance: The road from Paris. RECIEL 25(2), 238–247. policy recommendations that address the sociated with global hunger and nutrition, Falkner, R. (2016). A minilateral solution for global climate change? On bargaining efficiency, club benefits most pressing problems and challenges facing how are we going to reduce the almost and international legitimacy. Perspectives on Politics 14(1), 87–101. development and progress in Mexico and Latin st 37% of greenhouse gases that are pro- New Climate Economy. (2018). Unlocking the inclusive growth story of the 21 century: Accelerating climate America. From innovative economies to susta- action in urgent times. Washington, DC: The Global Commission on the Economy and Climate. Retrieved from duced by the food systems that support https://newclimateeconomy.report/2018/ inable food systems and transparent institu- our diets?3 How can we shift away from the Scholz, I., & Brandi, C. (2018). Implementing the 2030 Agenda for Sustainable Development: Achievements tions, we encourage positive change to further and limitations of the G20 presidency in 2017. Global Summitry 10. DOI: 10.1093/global/guy003 economic, social, and political development. current focus on monocultures, one of the

122 123 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES primary causes of reduced biodiversity and complies with the many nutritional and If we’re lucky, a new generation of aca- take the form of dedicated food system the increased extinction of species?4 How environmental variables and that is also demics, scientists and policymakers that ministries; in the worst case, inter-minis- can we ensure that our agricultural prac- affordable, safe for consumers, fair for have a systemic vision of food systems will try commissions that are empowered with tices do not have devastating impacts on workers and socially and culturally accept- take on these challenges, although this decision-making and execution capacities. soil and water,5 as current practices have able is something entirely new for policy- will be dependent on the allocation of ad- The urgent need for systemic action is caused decreased productivity across al- makers. ditional public funds to universities and re- clear, reflected in the increasingly alarm- most a quarter of all land area, use 70% of Although the slow response is par- search centers. ing reports regarding the future of the freshwater resources, and are major con- tially due to the complexity of the issue, planet and the destruction of ecosystems10, tributors to water pollution?6 it is also rooted in a structural flaw in ex- agriculture and biodiversity11 and food and Although we’re decades behind where isting academic approaches and profes- »Nutrition, nutrition.12 Although wealthy countries are we should be, the last few years have seen sional development: the lack of a systemic unlikely to significantly adjust their diets, the emergence of concrete proposals to understanding of food systems. Nutrition, agriculture to the detriment of both people and planet, support the shift towards the sustainable agriculture and the environment have tra- immediate steps must also be taken to in- and healthy diets that humanity so des- ditionally been separated and treated as and the fluence food transitions around the world perately needs. The “planetary health diet” isolated disciplines, with specialists that in order to ensure that low- and middle- proposed by the EAT-Lancet Commission7 focus on a deep understanding of their environment income countries do not adopt the harmful last year grabbed headlines around the particular vertical, rather than the vari- diets of wealthy countries, which are high world.8 Much of this media attention was ous horizontal, interconnections that exist have in calories, fats, sugars and animal prod- due to the commission’s recommenda- among them. This is also reflected in the ucts. tions regarding the consumption of no organization of national, state and local traditionally Urgent action must also be taken in more than 98 grams of red meat per week, governments, where siloed ministries and an effort to make the most of a window of a significant reduction for North American agencies focus on public health, agricul- been treated opportunity that has emerged: the United consumers, whose current dietary pat- tural development and the environment, Nation’s Sustainable Development Goals terns include almost 300% more red meat respectively, without any coordination or as isolated (SDGs). The SDGs present a systemic vi- than the recommended intake. However, cooperation across these three focuses. sion through the indicators associated the response to and coverage of the pub- Today’s reality is also the result of the disciplines.« with hunger, nutrition, agricultural de- lication helped position the importance of extreme simplification of the issue of food velopment, biodiversity, the environment diet within public opinion. and nutrition that occurred following World and resource sustainability. The agenda Last year the FAO also proposed nutri- War II, which led to a global focus on a sin- However, the health and well-being also incorporates significant global coop- tional guidelines in its publication Sustain- gle indicator: the number of people that of the planet (and of humanity) can’t wait eration mechanisms and clear goals and able and Healthy Diets: Guiding Principles. are hungry, measured using caloric in- that long. In the short term, it is urgently has an unprecedented level of convening In addition to being healthy and sustain- take.9 This produced an extreme increase necessary to adapt our governments to power among governments, civil society, able, the diets proposed in this document in intensive agriculture focused purely reflect a systemic, overarching vision of academia, individual experts and the pri- are socially and culturally acceptable and on yield. Although this system success- food systems. This includes national, state vate sector. economically accessible. A handful of fully increased yields, it also contributed and local food councils that include repre- And perhaps that last point, that con- countries, including France, Germany, the to global warming, destroyed soil and con- sentatives from all government agencies vening power, is also the primary weak- Netherlands, Norway and Denmark, have taminated water sources with agrochemi- involved in issues of food and nutrition, as ness of the SDGs: Who, exactly, has a joined the cause, publishing their own nu- cals, drastically depleted biodiversity and, well as representatives from civil society, seat at the table? Ideally, everyone’s voice trition and sustainability guidelines. ultimately, provided empty calories to feed academia, individual experts and more. It would be heard. It is impossible to create These efforts all represent important an ever-increasing population, but did not is also necessary to implement concrete scalable solutions without including the progress, but are they too little too late? provide the key nutrients necessary for a reforms to the policy decision-making pro- enormous companies responsible for cre- Identifying and supporting a diet that balanced diet. cess. In the best case scenario, this would ating the food products that are available

124 125 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES to the general public. But how can these sition from industry around the world. An support of these diets, including sustain- all the Sustainable Development Goals, actors be involved in the process without example can be seen in the recent efforts able and healthy dietary guides that incor- including through the implementation of creating conflicts of interest? to implement measures that require clear porate clear metrics regarding nutrition regulations and new and adjusted incen- Most of the solutions that support a warning labels on ultra-processed foods in and environmental impact. tives. Although these changes might have shift towards healthy and sustainable diets Chile,13 Peru, Uruguay and Mexico as part This public attention must also be a negative impact on many industries, they stand in direct opposition to the financial of efforts to respond to the public health channeled to support other policies with represent a net positive for humanity and interests of multinational companies that crisis of obesity and other food-related ill- both short- and long-term results, includ- for the planet. In order to reach this ob- offer ultra-processed food, fertilizers, food nesses. In Mexico, supporters of taxes on ing awareness campaigns, the urban food jective, it is absolutely crucial for govern- processing services, etc. Supporting the sugary drinks and junk food even had to agenda and food access, the drastic reduc- ments to be free from conflict of interest. diet of the future must include the imple- deal with government surveillance.14 tion of food waste and more. Although all stakeholders should have a mentation of public policies and regula- The need for multiple solutions across The diet of the future is both healthy voice, governments must prioritize the tions that drastically change food incen- various fronts is clear. Novel and innova- and sustainable. But it must also support well-being of their citizens over any and all tives, as well as what food is available, how tive food solutions, such as the use of in- successfully achieving the objectives of commercial interests. it is produced and how it is made. sects, algae and lab-grown meat, have the potential to offer nutritional and environ- mentally sustainable alternatives.15 It is » The diet of the important to rapidly deepen research and compare these new alternatives to exist- future is both ing vegetable and animal products, par- ticularly in terms of quantifying nutrients, healthy and impact on ecosystems and the environ- ment and ways to successfully achieve the sustainable.« acceptance of these alternatives based on the preferences, traditions and customs of each culture. These measures include national Many people have already heard of the guides for healthy and sustainable diets, Mediterranean diet,16 whose foundation is taxes on ultra-processed foods that are built on fruits, vegetables, herbs, nuts and then used to subsidize healthy products, whole grains, which are complemented by clear and obvious health warnings on generous quantities of olive oil and fish, ultra-processed foods, regulations to en- moderate amounts of dairy, chicken and courage exclusive breastfeeding for the eggs and limited amounts of red meat. first six months of a child’s life and mixed There’s also the new Nordic diet17 and the breastfeeding up to and beyond two years Mexican milpa diet.18 Based on local sus- of age, regulation of agrochemical resi- tainable production, cultural preferences due limits on foodstuffs, restrictions that and traditional knowledge accumulated ensure that only healthy and sustainable over the course of hundreds of years, each foods are available at schools and hospi- of these diets offers adequate alternatives tals, significant disincentives to decrease within certain geographies. These regional red meat consumption and many more. diets have also attracted significant media Efforts to implement these types of attention, and this momentum should be measures have already faced fierce oppo- used to implement clear public policies in

126 127 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES Putting climate and environmental protection at the heart of European policy

The author: The 20s are a crucial juncture for global climate protection. In this decade, we Svenja Schulze FAO, IFAD, UNICEF, WFP and WHO, The State of Food Security and Nutrition in the World 2019: Safeguarding must set the course for climate neutral- Against Economic Slowdowns and Downturns, 2019, Rome, p.6. Federal Minister for the ity. Germany and the European Union have Ibid, p.19. Environment, Nature decided to become climate neutral by the IPCC, “Climate Change and Land: An IPCC Special Report on climate change, desertification, land degradation, Conservation and Nuclear sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems,” Summary Safety, Germany year 2050. The German government has for Policymakers, 2019, p. 7. taken important steps in this direction with IPBES, “Report of the Plenary of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem its Climate Protection Programme 2030 Services on the work of its seventh session,” Summary for Policymakers, 2019, p.4. Ibid, pp. 4-15 and its plan to phase out coal. The inter- FAO, IWMI, “Water pollution from agriculture: A global review,” Rome, p.3. national community will make a pledge at Eat-Lancet Commission, “Healthy Diets From Sustainable Food Systems: Food, Planet, Health.” 2019. the next UN Climate Change Conference The institution: The New York Times, “A Guide to Sustainable Eating”; The Guardian, “New plant-focused diet would ‘transform’ in Glasgow in November: in compliance planet’s future, say scientists”; Le Monde, “Un steak par semaine, des fruits et des protéines végétales: la recette du «régime de santé planétaire»”. with the Paris Agreement, all states must Derek Byerlee, Jessica Fanzo, “The SDG of zero hunger 75 years on: Turning full circle on agriculture and by then present improved national climate nutrition,” Global Food Security, June 2019, Vol. 21, pp. 52-59. protection targets. More than 100 states IPCC, op. cit. have already announced concrete plans to IPBES. op. cit. do so. FAO, op. cit. The EU, too, will play its part. With the Andrew Jacobs, “In Sweeping War on Obesity, Chile Slays Tony the Tiger,” The New York Times, February 7, 2018. The Federal Ministry for the Environment, Na- "European Green Deal", the new Commis- Azam Ahmed, Nicole Perlroth, “Using Texts as Lures, Government Spyware Targets Mexican Journalists and ture Conservation and Nuclear Safety (BMU) is Their Families,” The New York Times, June 19, 2017. responsible for a range of government policies sion President has Parodi, A., Leip, A., De Boer, I.J.M. et al. “The potential of future foods for sustainable and healthy diets,” Nature that are reflected in the name of the ministry presented a proposal to once again make Sustainability, 2018, vol. 1, 782–789. itself. The ministry has been working over 30 Europe a role model for global climate Lăcătușu, C., Grigorescu, E., Floria, M., Onofriescu, A., et. al. “The Mediterranean Diet: From an Environment- years now to protect the public from environ- protection. Driven Food Culture to an Emerging Medical Prescription.” International Journal of Environmental Research and mental toxins and radiation and to establish an Public Health, March 15, 2019, vol. 16, no 6, p. 942. The European Green Deal is a smart, intelligent and efficient use of raw materials, Saxe, H., “The New Nordic Diet is an effective tool in environmental protection: it reduces the associated socio- resolute, comprehensive concept. The economic cost of diets.” The American Journal of Clinical Nutrition, Mayo de 2014, vol. 99, no. 5, pp. 1117–25. to advance climate action and to promote a Commission has outlined a roadmap to Zizumbo-Villarreal, D., et al. “The Archaic Diet in Mesoamerica: Incentive for Milpa Development and Species use of natural resources that conserves biodi- Domestication.” Economic Botany, vol. 66, no. 4, 2012, pp. 328–343. versity and secures habitats. guide all areas socially and ecologically:

128 129 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES from industry and transport to agriculture ity focal points of the German EU Council The European Green Deal offers the protects its citizens – and thus sets global and forests. Climate and environmen- Presidency. opportunity for a social and ecological, standards. We must seize this opportunity tal protection will thus take their proper economically powerful and democratic Eu- now. place: at the heart of European policy. rope that promotes digital innovation and This comprehensive concept points » It is clear in a clear direction: climate neutrality by 2050. It offers planning security for both in climate economy and society and opens up new opportunities for industries of the future. protection It is important to me that this ecological growth program is also socially just. I will that national work to achieve this. The Commission also proposes rais- answers ing the European climate target for 2030 to 50-55 percent. We should make the most do not suffice of this opportunity. Such a step would not only accelerate the process of modernizing for global European industry, it would also encour- age other major economies to do more to issues.« protect the climate. The message is clear: Europe takes climate protection very seri- ously. We are prepared to take a leading Europe must define what sustainabil- role in this area. ity means in the digital world. We urgently The European Commission propos- need a European approach that offers an als must now be translated into concrete alternative to unregulated monopolies, as laws, directives and regulations. Much of in the US, and to total state control of data, what the Commission has announced in as in China. Just as with climate protec- its Green Deal will be negotiated during tion, the standards set by the EU, the larg- Germany’s EU Council Presidency in the est economic area on earth, can become second half of 2020. I see an opportunity to a model for the rest of the world. One make climate and environmental protec- example of this is the Ecodesign Direc- tion a future-oriented project that will unite tive, which has advanced environmental Europe and offer a new sense of purpose. protection worldwide. However, this direc- It is inherently clear in climate pro- tive – to somewhat overstate the point – is tection that national answers do not suf- still preoccupied with refrigerators and fice for global issues. That also applies to is not yet fit for the digital age. What was another global megatrend – digitalization. once the television set is now the smart- Digitalization offers enormous opportuni- phone. That is why I will be working to ties for climate and environmental protec- develop new standards for durable, repa- tion – but it also harbors risks. For this rable and updatable digital devices – so reason, the Federal Environment Ministry national solutions become global solu- will make digitalization and sustainabil- tions.

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er. Look at the people suffering because of that it reflects the values we want to stand Solidarity and this erratic weather across Europe. Look for. at what's happening to our biodiversity as And we need to do this because Mother we speak. We do not have the luxury to ig- Earth is fed up with this behavior. And you the Green Deal nore this anymore. know, she was able to exist for millennia without human beings, she will be able to exist for other millennia without human Delivering a social Green Deal »Impact beings. We better make sure we create an existence in balance with her, so that we to all of Europe’s citizens assessment can continue to exist as human beings for millennia. And this is the responsibility we will be an have before our kids. But let me make a point because it was The author: Honourable Members, I've listened very essential said often: this is costly. Yes, but don't for- carefully to this debate and I'm really ex- get what the cost is of not acting. We see Frans Timmermans cited by the fact that this Parliament has element of it every day. It was also said we have to be Executive Vice- President expressed such broad support for the Eu- sure we take the right decisions. Yes, that of the European ropean Green Deal. This is a great start is why every proposal the Commission is Commission our analysis.« of what is going to be quite a bumpy road, going to put on the table will be assessed where we will need both institutions to for impact. Impact assessment will be an concentrate on all the elements that we And look at another thing that's hap- essential element of our analysis, but we need to make the Green Deal work. pening. We are in the middle of the Fourth will do this in a very, very speedy and com- Let me say here today: I want to con- Industrial Revolution. That is going to prehensive way. gratulate Greta Thunberg for having been change our economy, our industry wheth- For instance, to determine exactly what nominated Person of the Year by Time er we like it or not, whether we act or not. the reduction by 2030 should be, we want Magazine. I think this is a great sign that So the question we have to face today as to have an impact assessment on that, but this generation – our kids – are leading the Europeans is this: are we going to try and we want to be ready with that impact as- way. And as a parent, there's nothing more be masters of this momentous change, of sessment early in the summer next year, The institution: beautiful than when you see that your kids this paradigm shift, or are we just going so that the European Union is extremely are leading the way. to let it happen? And then others will be well prepared, with a Climate Law for But that's not the only reason why I the masters of it and we can just be the COP26 in Glasgow, so that we can lead the believe we need to act now. The reason I subjects of what others will decide. This way. believe we need to act now is because the is the fundamental question we have to I bring back a message from Madrid, facts are staring us in the face. And I think answer. the COP, where I'm going to go back and if you are a responsible Member of Parlia- And the Green Deal is not a blueprint. present the Green Deal tomorrow. The The European Commission is the EU's politi- ment, if you're in a responsible position It's a roadmap. It's an extended open hand message is this: we need European lead- cally independent executive arm. The Commis- in the Commission, if you're a citizen, if to you and to all the stakeholders, whether ership. The message is also this: some of sion helps to shape the EU's overall strategy, you're a parent, you do not have the luxury it's businesses, whether it's NGOs, wheth- us are insecure what we should do, but if proposes new EU laws and policies, monitors to ignore the facts. Look at what's happen- er it's trade unions, whether it's citizens, Europe leads we might go in the same di- their implementation and manages the EU budget. The Commission's work is steered ing in Greenland. Look at what's happen- whether it's cities, whether it's regions to rection. I had meetings with Ministers of by a College of Commissioners, and led by its ing globally with our climate. Look at the be part of a discussion of how we are going many countries saying: climate neutrality President. desertification. Look at the erratic weath- to reorganise our society in a just way, so by 2050 is a good idea, we might do it the

132 133 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES same way. With the Chinese we're in de- are most vulnerable in climate change, bate. Are we going to have collective global see themselves also as most vulnerable in G20 governance leadership on this, yes or no? We need to the answer to climate change, so that they work on that because if we do it together, start resisting the Green Deal, because the impact will be much bigger. they feel that they are vulnerable. And at of climate change the end of the day, if they resist the Green Deal and they stop it, they will be the first » If this is not a victims of the consequences of not doing through nature-based the right thing. social Green So that's why – and this is a fundamen- tal point – if this is not a social Green Deal, solutions Deal, the Green the Green Deal will not happen. If this is not a Green Deal where the most vulnerable Deal will not regions in Europe – coal-mining regions and others – do not see solidarity from happen.« other parts of Europe, it will not happen. The author: INTRODUCTION So we need a level of solidarity with vulner- Nature-based solutions (NBS) is a rela- Brittaney Warren able individuals and vulnerable regions, to tively new concept in global governance. But at the end of the day, it is very im- make sure the Green Deal can be delivered Director of compliance The International Union for the Conser- and lead researcher on portant that this Parliament takes this into for all our citizens. And at the end, because vation of Nature (IUCN) (n.d) defines NBS environment and climate hand, and makes sure that Parliament “Man on the Moon” was quoted, so I obvi- change for the G7, G20 as “actions to protect, sustainably man- has a leading role, together with the Com- ously thought of the famous moon speech and BRICS Research age and restore natural or modified eco- mission, to convince our Member States by John F. Kennedy, and let me just amend Groups. systems that address societal challenges in Council to do the right thing. And if we it slightly and end with that: “We choose to effectively, simultaneously providing hu- begin, by enshrining in law, that by 2050 go for climate neutrality in 2050, and do the man well-being and biodiversity benefits.”1 Europe will be climate-neutral, then we other things. Not because they are easy, but Much of the work on NBS is on urban en- can take steps back until today and just because they are hard. Because that goal vironments, as the majority of the global chart the map that we need to get there. will serve to organise and measure the best population will be living in cities in the And then we will discuss the measures of our energies and skills. Because that coming decades.2 There are eight NBS we will need to take – whether it's on ETS, challenge is one that we are willing to ac- principles, developed by the IUCN. They The institution: whether it's on emissions, whether it's on cept. One we are unwilling to postpone. And bring together existing ecological con- taxation, whether it's on all sorts of other one which we intend to win.” Thank you. cepts while offering novelty in their focus measures to make our industries circular, on integration, on landscape scale and on to make sure that there are jobs in this new This text is from Executive Vice-President coordinated actions that address complex- economy. Timmermans' closing speech delivered at The G20 Research Group is a global network ity, including interactions between ecologi- But finally, I want to add one thing the European Parliament Plenary Session of scholars, students and professionals in the cal, social, legal, institutional and political which is very, very important. You know, the on the European Green Deal, in Brussels on academic, research, business, non-govern- systems.3 NBS is therefore relevant to the biggest risk here I see, is that those who December 11, 2019. mental and other communities who follow the UN 2030 Agenda’s Sustainable Develop- work of the G20 leaders, finance ministers and ment Goals (SDGs), with SDG 13 on climate central bank governors, and other G20 institu- tions. It is directed from Trinity College and change at the center. NBS is estimated to the Munk School of Global Affairs and Public provide 37% of climate mitigation until Policy at the University of Toronto. 2030.4 It is also important for adaptation

134 135 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES and resilience, including in regard to food that there is an emerging trend at the G20 growing influence of nonstate actors on able development, migration or govern- security, public health and biodiversity. and an opportunity to advance NBS under the G20’s agenda, members from non-eco- ance were reflected in the Buenos Aires The land use change, agriculture and the 2020 Saudi Arabian Presidency. It ar- nomic engagement groups have expressed leaders’ communiqué. Notably, these forestry sector is particularly salient, as it gues that it should do so in the context of skepticism over their influence.13 This recommendations went beyond the G20’s accounts for 24% of global greenhouse gas rising inequality and with the aim of meet- supports the observation that the rise of core framing of key issues, including on (GHG) emissions, which rises to 37% if the ing the G20’s second foundational mission nonstate actors in global governance and the food-climate link. Indeed, on food sys- global food system is included.5 Moreover, “to make globalization work for all.” their growing influence should not be in- tems and agricultural production the T20 the agriculture sector’s use of monocrops terpreted to mean that nonstate actors are called for the G20 to coordinate with sub- has led to the development of technical in- THE G20’S PERFORMANCE replacing the state, but rather that there is national actors, especially cities, for the puts to replace natural processes, which DOMESTIC POLITICAL MANAGEMENT a “reconfiguration” of authority.14, 15 promotion of multistakeholder participa- has led to an overuse of health-harming tion and for more research on the promo- chemicals and fertilizers.6 It has also led Civil society involvement tion of synergies. This included their two to the use of assembly line-style factory The G20’s first official nonstate actor en- »The G20’s NBS-related recommendations to 1. Pro- farming and genetic modification of ani- gagement group, Business 20, was cre- mote within the Intergovernmental Panel mals bred for human consumption, with ated at its 2009 London Summit.10 Others message of on Climate Change [IPCC] the need to im- its well-documented ecological, social followed, including Civil 20, Think 20, Youth prove guidelines and methods on estimat- and animal abuses. This homogenous and 20, Labour 20, Women 20, G(irls) 20 and inclusiveness is ing carbon sequestration by grasslands technocratic design is a leading cause of the Urban 20. and other agriculture-related biomes with biodiversity loss, from soil microorgan- Of these, the B20 is the most powerful imbalanced.« regionally relevant parameters for those isms, to plants and trees, to wildlife on and influential. The G20 leaders’ have cho- estimations; and 2. Have the UN Food and land and in the oceans (SDG 14 and 15). sen to attend the B20’s meetings over the Agriculture Organization’s (UN FAO) Con- Agriculture accounts for three-quarters other engagement groups.11 The B20 and Indeed, for comparison, the T20, a sultative Group for International Agricul- of global deforestation.7 Advancing NBS the private sector are given significantly global network of think tanks, has had tural Research serve as a secretariat to in this sector is therefore critical for plan- more attention in the G20’s public commu- some influence but it has been limited. At coordinate these activities. etary health. niqués than any other engagement group, the 2018 Buenos Aires Summit, the T20 Continuing with the subject of agricul- receiving 57 mentions between 2008 and presented 135 recommendations across ture and climate change, although a sys- THE ARGUMENT 2018. This is compared to 29 for the C20/ several subjects to the G20 leaders. An tematic analysis has not been conducted The G20 accounts for 80% of global green- civil society, 12 for the T20/academia/think analysis conducted by the G20 Research for the B20, a general observation is that house gas (GHG) emissions, 80% of global tanks, 11 for the L20, six for the Y20 and five Group found that 33 of these recommen- the B20’s recommendations to the G20 fall trade in agricultural goods and 60% of the for the W20. This suggests that the G20’s dations were reflected at least partially within the existing agricultural model, and world’s agricultural land.8 It includes the message of inclusiveness is imbalanced or completely in the 128 commitments are largely reflected in their public com- industrialized and emerging economies and continues to privilege already power- the G20 leaders made at Buenos Aires.16 muniqués and commitments. This includes with the highest historic and projected ful actors over others. An example of this Of these T20 recommendations, those an emphasis on using technologies, such emissions contribution – all of which are off was on display at the 2012 Los Cabos Sum- reflected in the G20 communiqué were as biotechnology and digital technologies track to meet the 1.5° C Paris Agreement mit, which was noted for its greater inclu- already aligned with the G20’s existing to increase yields while “maximiz[ing] re- target. Through an analysis of six dimen- sion of civil society organizations (CSOs) agenda and approach to global govern- source efficiency [and] minimiz[ing] en- sions of performance, developed at the G20 than previous summits. Yet CSOs were ance. They were primarily economic, in- vironmental impact.”17 It also includes Research Group,9 this article shows that marginalized at the event, including at the cluding on macroeconomic growth, global developing public-private partnerships, the G20 has performed minimally on cli- media center, and their participation was trade, job creation, the digital economy investing in infrastructure and educating mate change governance through nature- limited in the summit process compared to and global food security. consumers to build responsible consump- based solutions. This article does not seek groups like the B20, and even the T20, L20, Conversely, none of the T20’s recom- tion habits. The former two offer benefits to overstate the G20’s potential, but shows Y20 and G(irls)20.12 Moreover, despite the mendations on climate change, sustain- to private actors, while the latter puts the

136 137 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES onus on individual behavioral change rath- Similar patterns are observed on so- (including renewable energy, non-renew- of National Food Security (starting at the er than systemic change. cial media. There are different framings able energy and fossil fuel subsidies). On 2012 Los Cabos Summit). Thus, while the G20 can be character- of climate change according to geogra- the environment, the G20 has dedicated ized as an innovative state-led informal phy among G20 member states, with the 35 paragraphs to oceans and eight para- summit club of world leaders with its net- largest references of climate change as graphs to biodiversity. Also relevant is ag- »There is work of nonstate actors, there is evidence a “hoax” in the US. This is consistent with riculture, with 155 paragraphs, and eco- that these powerful leaders are reinforc- the US withdrawal from the Paris Agree- nomic inequality with 111 paragraphs. To evidence that ing oligarchic tendencies by entrenching ment.20, 21 Much of the language of incivility put this in perspective, all of these com- the status quo, including in the agricul- and attacks on Twitter are used by climate bined – 592 paragraphs – is much lower powerful tural and global food system.18 Given the change deniers.22 This misinformation is a than the number of paragraphs dedicated proven climate, ecological, social and even source of public confusion. However, young to macroeconomic policy alone at 894 par- leaders are economic harms (i.e. food price volatility, people and Indigenous Peoples are also agraphs. insecure land tenure of smallholders), the using social media to counter this narra- Within the G20’s climate change de- reinforcing global food system is causing, the uphold- tive and to launch worldwide social move- liberations, there is one reference to na- ing of the status quo by the world’s rich and ments in support of the scientific consen- ture-based solutions to climate change, oligarchic famous is likely undermining progress on sus on climate change. as well as one reference to ecosystem and the SDGs and the Paris Agreement. For the Overall, there is uneven and fragment- community-based approaches, and to tra- tendencies wealthy G20 elite to maintain legitimacy in ed coverage of climate change events and ditional and Indigenous knowledge (which the face of rising inequality and growing science globally.23 This includes inconsist- are elements of the eight NBS principles). by entrenching social unrest due to climate inaction, in- ent reporting of extreme weather events24 Each of these was made at the G20’s 2019 cluding their continued support for the in- and a high degree of conflictual storytell- Osaka Summit. At Osaka, also relevant to the status dustries polluting the planet, it should pro- ing.25 NBS were increased references to climate mote a greater level of engagement with adaptation, including disaster risk reduc- quo.« nonstate actors beyond the private sector. Public opinion polls tion for vulnerable communities and resil- This is consistent with public opinion polls, ient infrastructure. Media attention to climate change which show that Americans viewed climate However, the first time the G20 refer- The current G20 host, Saudi Arabia, Many studies have been done on climate change as less of a threat than other G20 enced biodiversity and ecosystems was has laid out nine ecological priorities for change communication in the media. Ac- countries in 2019, with 59% of the popu- two years prior at its 2017 Hamburg Sum- its 2020 presidency.27, 28 These are: 1. Man- cording to one study, in four major emit- lation viewing climate change as a major mit. There were five paragraphs on biodi- aging emissions for sustainable develop- ting G20 countries, representing developed threat.26 Tied with the US was South Africa. versity on three subjects: the illegal trade ment; 2. Combatting land degradation and and emerging economies, the most fre- This was followed by Indonesia at 56% and in wildlife, sustainable agricultural pro- habitat loss; 3. Preserving the oceans; 4. quent framing of climate change included Russia last at 43%. At the top were South duction and food systems, and oceans. Fostering sustainable and resilient water responsibility, economic consequences, Korea, with 86%, France with 83%, Mexico Other NBS-related references included systems globally; 5. Promoting food secu- conflict and national positions. The least with 80%, Japan with 75%, Argentina with addressing forests in global climate nego- rity; 6. Cleaner energy systems for a new used was the human interest frame.19 In 73%, Brazil with 72%, Germany and Italy tiations (2010 Seoul Summit); agroforestry, era; 7. Scaling up efforts for sustainable the United States, major newspapers used with 71%, Canada and the UK with 66%, a farming practice that combines forests development; 8. Tourism as a force for hu- anti-climate change regulations, scien- and Australia with 60%. with pastureland (2012 Los Cabos Sum- man-centred economic growth (includes tific uncertainty and benefits from climate mit); wastewater management for healthy eco-tourism); 9. Promoting space cooper- change to promote climate denialism. Cli- DELIBERATION oceans (2017 Hamburg Summit); and four ation (includes climate and ocean obser- mate “believers” used framings such as In its public communiqués, between 2008 references to the Voluntary Guidelines on vation). Under the first priority, there is an scientific certainty and human develop- and 2019 the G20 dedicated 225 para- the Responsible Governance of Tenure of explicit reference to “nature-based solu- ment. graphs to climate change and 66 to energy Land, Fisheries and Forests in the Context tions such as reforestation and protecting

138 139 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES and restoring marine resources.”29 It is not role in responding to climate change, thus The remaining two references to in- Issue linkages and causation clear, however, how they define or under- deferring to an international development equality came at the 2014 Brisbane Sum- On nature, the G20 has made a link and stand “nature-based solutions.” This mat- institution beyond the G20 to take climate mit, “to deliver better living standards” causal connection between wildlife traf- ters, as NBS goes beyond simply planting action. Three other references to climate and at the 2016 Hangzhou Summit, “to ficking and marine litter to biodiversity or preserving trees. It also requires a high change came at Pittsburgh, at the end of contribut[e] to shared prosperity.” loss. It also acknowledged the importance degree of transparency and participation, the long preamble. One was in relation to There has therefore been no link be- of risk management in the agriculture sec- including around who owns and controls phasing out “inefficient” fossil fuel subsi- tween climate change and wealth inequal- tor to protect biodiversity, but this link was the design and implementation of NBS, dies, one was on green growth, and one was ity, as measured by preambular priority not as strong as the recognition of the im- while also ensuring implementation is eq- a second deferral (or, conversely, support placement. There has also been no prior- pact of wildlife trafficking and marine litter uitable and includes local, traditional and for) the UN Framework Convention on Cli- ity placement for nature. This, combined on biodiversity loss. Indigenous knowledge. mate Change (UNFCCC) negotiations and with the minimal priority placement of Additionally, under priority two, the the then upcoming Copenhagen Summit. climate change alone and the G20’s de- Facts affirmed Saudi hosts acknowledged the GHG contri- ferral of responsibility for climate change On climate change and nature, the G20 bution of the land use and land use change action to a multilateral development bank recognized the science of the IPCC and sector of 24% (excluding pre- and post- » There has been indicates weak performance on climate the Intergovernmental Science-Policy food production systems, which raises change. Platform on Biodiversity and Ecosystem the contribution to up to 37%).30 This is a no priority Services (IPBES) at the 2019 Osaka Sum- positive recognition with implications for Separate statement mit. This matters, as the first key mes- the other priorities on oceans, and the placement for On climate change, energy, the environ- sage of the 2019 IPBES report states that water-food-energy (WEF) nexus. However, ment and sustainability, the following sep- “nature-based solutions with safeguards it only states that the G20 will promote nature.« arate statements have been released since are estimated to provide 37 per cent of cli- “responsible agricultural investments,” the G20’s start: the 2014 Brisbane Energy mate change mitigation until 2030 needed with no explanation of what this means or Efficiency Action Plan; the 2015 Antalya to meet the goal of keeping climate warm- how such investments will contribute to The second was at the 2010 Seoul Action Plan on Food Security and Sustain- ing below 2°C, with likely co-benefits for mitigating emissions, building resilience Summit, in paragraph three, with recog- able Food Systems; the 2017 Hamburg biodiversity.”31 It further states that NBS or avoiding entrenching inequality. nition that a vulnerable global economy Update on Taking Forward the G20 Action can be a cost-effective way to meet the has a negative impact on people and the Plan on the 2030 Agenda, the 2017 Ham- SDGs. DIRECTION-SETTING environment. This was the first reference burg Climate and Energy Action Plan for Preambular priority placement to economic inequality in relation to envi- Growth, and the 2017 Hamburg Marine Lit- Distinctive mission affirmed Over the 14 G20 summits, just four showed ronmental goals. ter Action Plan; and the 2018 Buenos Aires The G20 did not make any link to biodiver- priority placement of climate change or The third was at the 2013 St. Peters- Update on Moving Forward the G20 Action sity or nature with its first distinctive mis- the environment in its communiqués’ pre- burg Summit, in paragraph six, with a Plan on the 2030 Agenda for Sustainable sion, to ensure global financial stability, or ambles. There were five summits that gave commitment to work together to address Development. Thus the first stand-alone to its second mission, to ensure globaliza- priority placement to economic inequality, climate change and protect the environ- statement related to climate change did tion works for all. or the G20’s second foundational mission ment. The second reference to inequality not come until several years after the The closest connection the G20 has to ensure globalization works for all. Yet no appeared here. G20 leaders began meeting. Since then, made regarding inequality and climate link was made between them. The fourth and final was at the 2017 apart from two summits, there has been change is its commitments on climate fi- On climate change, the first reference Hamburg Summit, with a resolve, ex- a stand-alone document related either to nancing and phasing out inefficient fossil was at the 2009 Pittsburgh Summit. Howev- pressed in the first paragraph of the com- sustainability, the energy transition and fuel subsidies “while providing targeted er, it did not appear until the 21st paragraph muniqué, to “tackle” climate change, climate change, or the environment, but support to the poorest.” in a 31-paragraph preamble. Moreover, it along with a reference to raise global liv- none yet on nature. References in the communiqué at the called on the World Bank to take a leading ing standards. 2019 Osaka Summit to “look into” nature-

140 141 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 BEYOND GREENWASHING: INSTRUMENTS TO FIGHT CLIMATE CHANGE AND PROTECT THE PLANET’S RESOURCES based solutions, community-based ap- as development, macroeconomic policy, than the G20’s overall compliance average PROPOSALS proaches and traditional and Indigenous health and trade, among others, refer- across all issues of 71%. Based on this analysis of the G20’s perfor- knowledge as alternative approaches to enced some aspect of environmental sus- mance on climate change and nature, the respond to the climate crisis holds some tainability. Combined, the G20 has made DEVELOPMENT OF GLOBAL 2020 Saudi Arabia Summit should: promise for a more multilevel approach 347 commitments on climate change, en- GOVERNANCE • Endorse the IUCN’s eight NBS prin- to climate change governance. However, ergy and the environment. In the G20’s commitments on climate ciples; without stronger language and more spe- Just one of these commitments ref- change the G20 mostly refers to the UN- • Improve its transparency and involve- cific and ambitious commitments caution erences “nature-based solutions.” It was FCCC. In its clean/renewable energy com- ment with the non-economic G20 engage- is needed. made at the 2019 Osaka Summit. The lan- mitments no international institution was ment groups, including the T20 and the guage of the commitment is weak, stat- referenced. In its non-renewable energy U20; ing that the G20 “will look into…nature- commitments it has referred to the Organ- • Directly challenge and commit to »A potential based solutions” rather than committing ization for Petroleum Exporting Countries, dismantle climate misinformation cam- to implement NBS. Similarly, it made one the International Organization of Securi- paigns; trend within commitment to “look into…ecosystem and ties Commissions, the International Ener- • Increase its deliberations and deci- community based approaches,” which fall gy Agency, the Organisation for Economic sions on NBS. This should include increas- the G20 reflects under the NBS umbrella. Although this Co-operation and Development, the World ing specificity and ambition, making strong language is weak, combined with the Saudi Bank and the International Economic Fo- issue linkages, recognizing co-benefits for the broader priority on forests as a nature-based solu- rum. The B20 was also referenced here. SDG implementation, and centering in- tion, this shows a potential emerging trend On oceans, the regional institutions of the equality global rise in within the G20 club reflecting the broader Asia-Pacific Economic Forum and the As- • Evoke surrounding summit support global rise in attention to nature’s role in sociation of Southeast Asian Nations were from international institutions; attention to the climate crisis. each referenced once, as forums for infor- • Strengthen internal support by es- mation sharing. There was one reference tablishing and institutionalizing a G20 cli- nature’s role DELIVERY to the World Trade Organization, on trade mate change ministers’ meeting;32, 33 The G20 leaders’ compliance with com- of environmental goods. And there was • Acknowledge new models of hybrid in the climate mitments from the 2019 Osaka Summit one reference to the International Labour governance, including multilevel/polycen- have not yet been assessed by the G20 Organization, in the context of the environ- tric governance approaches that can bet- crisis.« Research Group. On the 2017 commitment ment and global supply chains. ter account for the complexity of the in- that referenced marine biodiversity and teractions between human and climate ecosystems, the G20 scored -0.20 or just systems.34, 35 DECISION-MAKING 40% compliance. On the one that refer- On nature and biodiversity, the G20 has enced agroforestry, compliance was 68%. made only five collective, future-orient- On the one that referenced forests, com- ed, politically binding commitments. On pliance was 65%. The average of these climate change it has made 90 commit- three nature-related commitments was ments. This is followed by 82 on clean/ 58%. This is lower than the G20’s average renewable energy (including phasing out compliance with the 31 climate change fossil fuel subsidies), 70 on other energy commitments assessed for compliance, at commitments (i.e. fossil fuels), and 69 on 69%; the nine food and agriculture com- the environment (most on the marine en- mitments assessed, at 73%; and the 21 vironment). Another 25 commitments, cat- energy commitments (both renewable and egorized under other core subjects, such non-renewable), also at 73%. It is lower

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1 IUCN (n.d.). “Nature-Based Solutions,” International Union for the Conservation of Nature. Accessed: December 5, 2019. https://www.iucn.org/commissions/commission-ecosystem-management/our-work/nature- based-solutions 2 Kabisch, Nadja, Niki Frantzeskaki, Stephan Pauleit et al. (2016). “Nature-Based Solutions to Climate Change Mitigation and Adaptation in Urban Areas: Perspectives on Indicators, Knowledge Gaps, Barriers, and Opportunities for Action,” Ecology and Society 21(2): 39. 3 Cohen-Shacham, Emmanuelle, Angela Andrade, James Dalton et al. (2019). “Core Principles for Successfully Implementing and Upscaling Nature-Based Solutions,” Environmental Science and Policy 98(2019): 20-29. 4 IPBES (2019). “The Global Assessment Report on Biodiversity and Ecosystem Services: Summary for Policymakers,” Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. Available at: https://ipbes.net/system/tdf/ipbes_global_assessment_report_summary_for_policymakers. pdf?file=1&type=node&id=35329 5 IPCC (2019). “Climate Change and Land: Summary for Policymakers,” Intergovernmental Panel on Climate Change, August 7. Available at: https://www.ipcc.ch/srccl/chapter/summary-for-policymakers/ 6 Fitter, Alastair (2013). “Are Ecosystem Services Replaceable by Technology?” Environmental Resource Economics, 55: 513-524. 7 Agrawal, Arun, E. Wollenberg and L. Persha (2014). “Governing Agriculture-Forest Landscapes to Achieve Climate Change Mitigation,” Global Environmental Change, 28(2014): 270-280. 8 EU (n.d). “Nature-Based Solutions,” European Commission. Accessed: December 5, 2019. https://ec.europa.eu/ research/environment/index.cfm?pg=nbs 9 Kirton, John (2013). G20 Governance for a Globalized World. (Ashgate: Routledge). 10 Koch, Madeline (2016). “Connecting G20 Summitry with Citizenry,” G20 Research Group. Paper prepared for the Shanghai International Forum, May 30. Available at: http://www.g20.utoronto.ca/biblio/koch-engagement. html 11 Koch 2016. 12 Naylor, Tristen (2012). “Civil Society Inclusion at Los Cabos 2012,” G20 Research Group, June 26. Accessed: December 12, 2019. http://www.g20.utoronto.ca/analysis/120626-naylor.html 13 Luckhurst, Jonathan (2019). “Governance Networks Shaping the G20 Agenda,” paper presented at a panel on The G20’s Role as a Global Governance Innovation at the International Studies Association Annual Convention, March 29. 14 Boran (2019). Political Theory and Global Climate Action: Recasting the Public Sphere. (London: Routledge). 15 Hickmann, T. (2017). The Reconfiguration of Authority in Global Climate Governance. International Studies Review. https://doi.org/10.1093/isr/vix037 26 Tamir, Christine and Christine Huang (2019). “How People in G20 Nations See Key Issues Ahead of This Year’s 16 Warren, Brittaney and John Kirton (2019). “Recommendations Realized: From T20 to G20 2018,” G20 Research Summit,” Pew Research Center, June 26. Accessed: December 12, 2019. https://www.pewresearch.org/fact- Group, March 12. Available at: http://www.g20.utoronto.ca/analysis/t20-2018-recommendations-realized.html tank/2019/06/26/how-people-in-g20-nations-see-key-issues-ahead-of-this-years-summit/ 17 B20 (2018). “Sustainable Food System,” B20 Argentina. Accessed: January 17, 2019. https://www.b20argentina. 27 Kirton, John (2019). “Promising Prospects for Planetary Preservation at Saudi Arabia’s G20 in 2020,” info/TaskForce/TaskForceDetail?taskForceId=12b4ebf2-bd03-40fb-9ed9-ae4d8260a975 G20 Research Group, December 6. Accessed: December 12, 2019. http://www.g20.utoronto.ca/analysis/191206- 18 Cooper, Andrew and Vincent Pouliot (2015). “How Much is Global Governance Changing? The G20 as kirton.html International Practice,” Cooperation and Conflict. 50(3): 334-350. 28 Kirton 2019. 19 Chandra Pandey and Priya Kurian (2017). “The Media and the Major Emitters: Media Coverage and 29 G20 Saudi Arabia 2020 (2019). “Overview of Saudi Arabia’s 2020 G20 Presidency: Realizing Opportunities International Climate Change Policy,” Global Environmental Politics,” 17(4): 67. of the 21st Century for All,” G20 Saudi Arabia 2020, December 1. Available at: http://www.g20.utoronto.ca/ 20 Jang, S. Mo and P. Sol Hart (2015). “Polarized Frames on ‘Climate Change’ and ‘Global Warming’ Across 2020/2020-Presidency_Agenda-V5.pdf. pp.9 Countries and States: Evidence from Twitter Big Data,” Global Environmental Change, 32(2015): 11-17. 30 IPCC 2019. 21 Fownes, Jennifer, Chao Yu and Drew Margolin (2018). “Twitter and Climate Change,” Sociology Compass, 12(6). 31 IPBES 2019, pp. 18. 22 Anderson, Ashley and Heidi Huntington (2017). “Social Media, Science, and Attack Discourse: How Twitter 32 Kirton, John and Marina Larionova (2018). Accountability for Effectiveness. (London: Routledge). Discussions of Climate Change Use Sarcasm and Incivility,” Science Communication, 39(5): 598-620. 33 Young, Oran (2019). “Conceptualization: Goal Setting as a Strategy for Earth System Governance,” in Governing 23 Orlove, Ben, Heather Lazrus, Grete Hovelsrud et al. (2014). “Recognitions and Responsibilities: On the Origins Through Goals: Sustainable Development Goals as Governance Innovation, eds. Norichika Kanie and Frank and Consequences of the Uneven Attention to Climate Change around the World,” Current Anthropology 55(3): Biermann. (Cambridge: MIT Press). 249-275. 34 Abbott, K. W. (2012). “The Transnational Regime Complex for Climate Change,” Environment and Planning C: 24 Sisco, Matthew, Valentina Bosetti, Elke Weber (2017). “When do Extreme Weather Events Generate Attention Government and Policy, 30(4): 571–590. https://doi.org/10.1068/c11127 to Climate Change?” Climate Change 143: 1-2. 35 Bäckstrand, K., Kuyper, J. W., Linnér, B.-O., & Lövbrand, E. (2017). “Non-state Actors in Global Climate 25 Panday, Chandra Lal and Priya Kurian (2017). “The Media and the Major Emitters: Media Coverage of Governance: From Copenhagen to Paris and Beyond,” Environmental Politics, 26(4): 561–579. International Climate Change Policy,” Global Environmental Politics, 17(4): November 2017. https://doi.org/10.1080/09644016.2017.1327485

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Page 148 Making the case Infrastructure: for G20 action on urbanization Toward Nicolas Buchoud Grand Paris Alliance

Sustainable Page 156 Green finance in emerging markets Investment and Michael Dittrich Deutsche Bundesstiftung Financing Umwelt

Page 168 Vas-Y: Unlocking private investment for fragile states Urs Schrade GIZ Tobias Straube Scio Franziska Frische GIZ GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING

role of interconnected and interdependent SUSTAINABLE AND SMART Making the case cities and urban regions across the world URBANIZATION CAN MITIGATE is central, especially for infrastructure in- RISING SYSTEMIC RISKS vestments.5 Since the first meeting of the G20 heads for G20 action on Reflecting on long-term values asso- of government in 2008, the Group of 20 ciated with cities as places for exchange, has expanded its reach beyond debt and the role of cities and metros in meeting financial and fiscal stability to “establish urbanization climate targets, directing fiscal invest- economic fundamentals for realizing sus- ments, generating jobs and maximizing in- tainable and inclusive growth of the global frastructure investments, spillover effects, economy.”7 mitigating social imbalances and manag- In the short and long term, sustainable ing migration will continue to gain impor- and smart urbanization will be key to sup- The author: WHY CITIES MATTER FOR THE G20 tance by 2030 and beyond. porting the global economy, remembering The G20 was shaped out of the 2008 global The governance choices made in the that the 2008 subprime crisis did not only Nicolas J.A. Buchoud financial crisis, which took place only a coming months and years will have a direct originate in the United States (US), but in President of the Grand couple of years after the world officially impact on long-term global growth and US cities. It was an issue of bad loans, but Paris Alliance turned more “urban” than “rural”.1 The lat- sustainability. Urbanization can become a also a problem of oversupply of housing Global Solutions Fellow est compliance of the G20 Working Group driving force for a sustainable future and disconnected from job markets and any shows that while there is no designated G20 the achievement of the SDGs, for stability urban logic, embedded in an ailing global urban priority yet, the topic arises from all and peace. We argue here that sustainable banking system. In other words, a problem The co-authors: major commitments of G20 member coun- (and smart) urbanization should be on the of urbanization going the wrong way was Raja Almarzoqi, Hazem Galal, Aawatif Hayar, tries, calling for a G20 focus on the issue.2 list of G20 cross-cutting priorities to en- one factor behind a global financial crisis. Nella Sri Hendryietty, Jean-Bernard Kovarik, Urbanization, together with digitaliza- sure that urbanization is not decoupled As the world counts more than 30 Katharina Lima de Miranda, Fiki Satari tion, are underlying transformative forces from global and local poverty alleviation megacities and more than 4,000 cities of and Naoyuki Yoshino. of the global economy, trade and com- and eco-systemic preservation.6 100,000 inhabitants or more8, systemic merce, lifestyles and consumption, and Urbanization will be a critical factor in risks are greater than ever before. There the environment. While cities have been the growth story of the coming decades is plenty of capital available on global fi- The institution: acknowledged as drivers of growth and in- and there is momentum for the G20 Saudi nancial markets at low interest rates, as novation since the turn of the millennium, Arabia to build on the immediate outcomes a direct consequence of governments’ re- they face and echo rising concerns such of the G20 troika of Germany, Argentina sponse to the 2008 financial crisis. How- as natural resource limitations, inequali- and Japan and help lay the ground for an- ever, investment gaps are widening in the ties and vulnerabilities, a new localism op- other three-year cycle. With urbanization absence of global norms, standards and posing globalization and citizens' anxiety added to an accelerating G20 agenda on global governance addressing urban is- The Grand Paris Alliance for Metropoli- witnessing global warming.3 Meanwhile, infrastructure, climate, and development, sues. tan Development (Cercle Grand Paris de as cities have been calling for more insti- the legacy of the Saudi Presidency ahead • The world is facing a USD 15 trillion l’Investissement Durable) is an awarded and tutional recognition on the global stage for of the G20 in Italy in 2021 and India in 2022 infrastructure gap by 2040 with India, In- independent think tank established in 2011. years, they still play a secondary role in should build on two pillars: donesia, Mexico, Brazil and South Africa It focuses on infrastructure finance, innova- shaping geopolitics.4 • Captialize: Creating the conditions for confronted with the largest gaps between tion and inclusion, and the territorialization The G20 represents 90% of the world the issue of smart and sustainable urbani- spending and estimated infrastructure of the SDGs through cooperation with public 9 and private, scientific, civic and multilateral economy, which is questioned by rising zation to strengthen the case for G20 impact needs; organizations across the globe. contact@ tariffs and uncertainties. As cities account • Capitalize: Taking concrete steps to • The global investments required cerclegrandparis.org for more than 80% of the world GDP, the drive the process. in the energy sector alone to meet the

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1.5°-Celsius limit of the Paris Agreement ing in a system-wide approach across UN the Global Solutions Initiative as a cross- over a decade ago. And yet, we are at the account for more than USD 830 billion a bodies and agencies in 2019.13 Yet, as the sectoral, global, problem-solving plat- dawn of a global infrastructure tsunami, year10; United Nations faces chronic funding gap form. In 2018, the G20 Argentina placed which needs to be financed.17 • Multilateral development banks issues, its action must be supplemented at sustainable development at the forefront With a total return on investments (MDBs) currently provide around USD 50 the level of the G20. The G20 is the largest of the G20, and it endorsed the High Level from infrastructure and other built assets billion per year in financing for sustainable plurilateral global policymaking initiative Principles on Sustainable Habitat through of more than USD 30 trillion annually for infrastructure or just 1.5 percent of the and it has the leverage to foster effective Regional Planning. The T20 Argentina also G20 countries18, infrastructure is key to fi- prospective needs of emerging markets triangular cooperation by connecting min- made the case for combining climate ac- nancing and supporting long-term devel- and developing countries (EMDCs). Private isterial and government working groups tion with infrastructure for development. opment. Our future depends on how infra- capital flows from G20 countries into sus- such as the G20 Development Working As an outcome of the G20 Japan, the structure, coupled with urbanization (and tainable infrastructure is also very small, Group, and engagement groups such as Osaka Update on the 2030 Agenda for Sus- not infrastructure alone), will be managed. just 0.5 percent of the total global need.11 the think tanks (T20) and the emerging tainable Development, and especially the This includes The urban population will continue to group related to urbanization (U20). table of Collective and Concrete Actions • Urban decarbonization grow by 2050 and even beyond by 2100, Contributing to the Implementation of • A better management of spillover especially in developing countries in Asia the 2030 Agenda, highlight concrete ways revenues and Africa, while urban areas already ac- »Urbanization, to move toward more effective solutions • Resilient and nature-oriented urban count for two-thirds of the world’s energy globally and locally.15 infrastructure consumption.12 Local issues have become together with In the future, the creation of a G20 • Building on the Fourth Industrial global issues. Investments in and with cit- commission for regional and local level Revolution (4IR) technologies can contrib- ies are a critical factor to meet global in- digitalization, authorities should be explored, as a means ute to maximizing the impact of infrastruc- vestments needs and to reach the targets to reinforce triangular cooperation for ture on development of the 2030 Agenda effectively: are underlying achieving the 2030 Agenda as defined by Infrastructure investment is complex, • Cities are critical to broaden and cas- the G20 Development Working Group (WG) connecting long-term and large upfront cade the consensus reached among global transformative and as a mechanism to support the out- investments, spillover effects and social, institutions; reach of the G20 Action Plan on the 2030 economic and territorial externalities, • Cities are the meeting place between forces.« Agenda for Sustainable Development. A decision-making processes and policy- local needs and global politics; joint G20 agenda connecting urbanization induced risks. A common G20 priority is • Cities are critical nodes in the global with infrastructure issues could be the to foster infrastructure development that system and can foster innovation with pub- MANAGING THE CUMULATIVE first step. enhances change and sustainability. While lic support quickly; IMPACTS OF INFRASTRUCTURE AND G20 leaders began to emphasize in- remarkable breakthroughs occurred in re- • Cities exemplify the interlinkage be- URBANIZATION frastructure as a key pillar of economic newables, digitalization, materials, mobil- tween the major challenges of our times At the G20 Hangzhou Summit in 2016, growth about a decade ago.16 The G20 Fi- ity, etc. in the last decade, implementing and can play a key role in addressing sys- the leaders expressed their determination nance Ministers acknowledged at their the paradigm shift toward sustainability temic environmental issues such as biodi- to foster an “innovative, invigorated, inter- June 2019 meeting the impacts of the ag- requires a broader systemic vision and ad- versity. connected and inclusive world economy” ing of the world population on public fi- ditional leadership to align policies: Solutions will come from both the and the Chinese Presidency placed the nance, as over 2 billion people will be over • The 1.5° Celsius 2018 IPCC report Global South and emerging countries, not 2030 Agenda high on the G20 agenda in 60 by 2050. has only opened the door to urbanization just from the developed countries. The order to realize “strong, sustainable, bal- The rise of public expenditures for pen- combined with infrastructure development United Nations has redoubled its response anced and inclusive growth”.14 sions, health and social care systems will as key factors.19 to urbanization, through the “New Urban In 2017, the G20 German Presidency constrain spending on infrastructure de- • The 2019 UN IPBES biodiversity and Agenda” launched during the Habitat III elaborated on “Shaping an interconnect- velopment and management by 2030 and ecosystem report on the way – the 15th- 2016 summit and by engaging by engag- ed world” and it endorsed the creation of beyond, as the OECD already pointed out meeting of the UN Conference of the Par-

150 151 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING ties to the Convention on Biological Diver- for Sustainable Development. These new focus of the upcoming 15th meeting of the preparation of the 30th anniversary of the sity (COP15) to be hosted by the People’s High Level Principles would interconnect Conference of the Parties to the Conven- 1992 Rio Earth Summit. Three decades af- Republic of China in 2020 devoted a minor infrastructure investments and global en- tion on Biological Diversity (COP15) in the ter the collapse of the Berlin Wall, it might segment to cities, urbanization and infra- vironmental agendas, realign smart cities fall of 2020, the United Nations Interna- be the right time to review the global en- structure development. and the global real estate industry along tional Year of Creative Economy for Sus- vironmental governance of an urbanized • As G20 leaders began to emphasize a sustainable development narrative and tainable Development in 2021, and the planet. infrastructure as a key pillar of economic open the way for a combined knowledge- growth in 2009-2010, expertise on infra- based and creative economy to support eco- structure is now dispersed among many nomic and societal transformation; different G20 declarations, high-level prin- • Fostering an MDBs Urbanization Ac- ciples, working groups, initiatives, hubs, tion Initiative20, which would help reinforce high-level panels, engagement groups etc. the role of inclusive finance tools and re- It is time for change. sponsible investment funds in supporting local urban communities and in increasing the significance of urban and human ecol- »Sustainable ogy. It could extend its reach to other bank- ing institutions, such as the development and smart banks gathered in IDFC – International De- velopment Finance Club; urbanization • Setting up a G20 High Level Panel on Sustainable and Smart Urbanization. This will be key to panel would be the supporting tool for tri- angular cooperation within and beyond G20 supporting membership, in order to make it easier for emerging economies and less-developed the global countries to benefit from the proposed High Level Principles and the MDBs Ur- economy.« banization Action Initiative. it would act as a bridge between global talks (the COPs, the UN summits etc.), cities arenas (the FOUR PROPOSALS TO CONNECT THE Urban Forum and other cities advocacy RE-COUPLING OF URBANIZATION WITH groups), MDBs and industry ; GLOBAL POLICYMAKING IN THE G20 • Mobilizing the expertise of T20 en- We propose to connect the dots through a gagement groups and building on the fourfold action plan, making the case for Global Solutions Initiative and connected smart and sustainable urbanization as a undertakings, such as the Infrastructure matter of interest for the G20: Solutions Lab, to nurture a three-year joint • Establishing G20 High Level Principles infrastructure and urbanization agenda, on Sustainable and Smart Urbanization, which could be complemented by inputs building on a review of the High Level Prin- from the U20. ciples on Habitat and Regional Planning and Making the case for G20 action on ur- of the G20 Action Plan on the 2030 Agenda banization is designed to enrich the cities

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Al Mogrin, Haifa. Presentation of the Kingdom of Saudi Arabia priority for G20 2020. HLPF, New York, July 2019. Berensmann, K., Volz, U., Alloisio, I., Bak, C., Bhattacharya, A., Leipold, G., Schindler, H., MacDonald, L., Huifang, T., Yang, Q., (2017). Fostering sustainable global growth through green finance – what role for the G20? T20 Policy Brief. Available from https://www.g20-insights.org/policy_briefs/fostering-sustainable-global- growth-green-finance-role-g20/ Bhattacharya, A., Gallagher, K.P., Muñoz Cabré, M., Jeong, M., & Ma, X. (2019) Aligning G20 Infrastructure Investment with Climate Goals and the 2030 Agenda, Foundations 20 Platform, a report to the G20. Bhattacharya, A., Nofal, B., Krueger, L., Jeong, M. & Gallagher, K. (2019). Policy and Institutional Framework for Delivering on Sustainable Infrastructure. T20 Policy Brief. Available from https://t20japan.org/policy-brief- policy-institutional-framework-delivering-sustainable-infrastructure/ Buchoud, N.J.A., Douglas, R., Gastineau, P., Koning, M., Mangin, D., Poinsot, P., Silvain, J.F. & Soubelet, H. (2019). The Infrastructure Nexus: From the Future of Infrastructures to the Infrastructures of the Future. T20 Policy Brief. Available from https://t20japan.org/policy-brief-the-infrastructure-nexus-from-the- future-of-infrastructures-to-the-infrastructures-of-the-future/ Cicci, Alessandra and Han, Ji Yoon (dir). The 2018 G20 Buenos Aires Summit Final Compliance Report. 1 BUCHOUD, Nicolas J.A. (ed). La ville stratégique, changer l’urbanisme pour répondre aux défis urbains The G20 Research Group, University of Toronto, Trinity College, the Munk School of Global Affairs and Public mondiaux. Strategic City. CERTU, Lyon, 260 p 2008. PEIRCE, Neal R; JOHNSON, Curtis W et al. Century Policy, Ed., June 2019, 685 pp. of the City. No Time to Lose. The Rockefeller Foundation, 447 p. 2008. Galal, H. (dir). Making Affordable Housing a Reality in Cities. World Economic Forum (WEF) insight report 2 http://www.g20.utoronto.ca/compliance/2018buenosaires-final/index.html in collaboration with PwC. June 2019. 3 KATZ, Bruce and NOWAK, Jeremy. The New Localism: How Cities Can Thrive in the Age of Populism? G20 High Level Principles on Sustainable Habitat through Regional Planning, Buenos Aires, Nov. 2018, 6 pp. Brookings Institution Press, 2017, 304 p. TREYER, Sébastien ; GUILLAUMONT, Patrick. Inégalités et G20 Working Group on Development. Side Event of the G20 Development Working Group on Effective Triangular vulnérabilités : vers une convergence des politiques de développement conduites par les membres du G7 ? Cooperation for Achieving the 2030 Agenda, Tokyo, January 2019. Note réalisée dans le cadre du T7. IFRI, Août 2019. Galarza-Sanchez, N., Liu, Y., Angel, S., Blei, A., Kallergis, A., Lamson-Hall, P., ... & Parent, J. (2018). 4 Urban 20 Tokyo Mayors Summit Communiqué on Climate Change, Social Inclusion and Sustainable The 2010 Universe of Cities: A New Perspective on Global Urbanization. Working Paper. Cambridge, MA: Economic Growth. May 2019. Lincoln Institute of Land Policy. 5 Peirce et al. (2008), OECD (2015). Guillaumont, P., & Treyer, S. (2018). Tackling inequalities and vulnerabilities: why and how G7 development 6 SANDERSON, Eric W, WALSTON, Joseph and ROBINSON, John G. From Bottleneck to Breakthrough: policies could do better. T7 Paper. Urbanization and the Future of Biodiversity Conservation. Hallosserie, A., Soubelet, H., Leriche, H., Savin, P., & Silvain, J. F. (2019). Biodiversity Issues Should Be Better 7 https://g20.org/en/summit/theme/ Taken into Account in the Energy Transition. In Handbook of Climate Change and Biodiversity (pp. 45-59). Springer, Cham. 8 UNDESA (2018). The 2018 Revision of the World Urbanization Prospects. Available from https://population. un.org/wup/Publications/ Katz, B., & Nowak, J. (2018). The new localism: how cities can thrive in the age of populism. Brookings Institution Press. 9 World Economic Forum (2019, April 11). The world is facing a $15 trillion infrastructure gap by 2040. Here's how to bridge it [Blog post]. Retrieved from https://www.weforum.org/agenda/2019/04/infrastructure- Lanfranchi, G., Kooka, K., Richard, O., & Shield, M. (2019). Delivering National Climate Action Through gap-heres-how-to-solve-it/ Decarbonized Cities. T20 Policy Brief. Available from https://t20japan.org/policy-brief-national-climate- action-decarbonized-cities/ 10 Banque de France, 2019. Rapport d’investissement responsable de la Banque de France 2018. OECD. The Metropolitan Century. Understanding urbanization and its consequences. OECD Policy Highlights. 11 Bhattacharya, A. et al. (2019). Ahrendt, R., dir, 2015. https://www.oecd.org/regional/regional-policy/The-Metropolitan-Century-Policy- 12 SANDERSON, Eric W, WALSTON, Joseph and ROBINSON, John G. From Bottleneck to Breakthrough: Highlights%20.pdf Urbanization and the Future of Biodiversity Conservation. BioScience, Volume 68, Issue 6, June 2018, Osaka Update on the G20 Action Plan on the 2030 Agenda for Sustainable Development. G20 proceedings, Pages 412–426, https://doi.org/10.1093/biosci/biy039 June 2018, 31pp. 13 1st Universal Assembly of UN Habitat, Nairobi, May 2019. Resolutions. Parnell, S., Acuto, M., & Seto, K. (2018) Science and the future of cities. Nature Sustainability. 14 https://www.g20.org/pdf/documents/en/annex_11.pdf Peirce, N. R., Johnson, C. W., & Peters, F. (2007). Century of the city: no time to lose. New York, NY: Rockefeller 15 https://www.g20.org/pdf/documents/en/annex_11.pdf Foundation.Runde, D.F. (2019). Pursuing Quality of Infrastructure for Sustainable Growth. T20 Policy Brief. 16 Since then, infrastructure has been the topic of working groups, panels, and many initiatives Available from https://t20japan.org/policy-brief-pursuing-quality-of-infrastructure-for-sustainable-growth/ at G20 Heads of states and ministerial level, G20 engagement groups etc. Thébert, M., & Lesteven, G. (2018). The autonomous vehicle as a socially-constructed object (VACOM). 17 25 million km of new paved roads should be built globally by 2050, with 2,5 billion more urban dwellers Available from https://halshs.archives-ouvertes.fr/halshs-01989305/ by then – the equivalent of the total world population in 1950. United-Nations Department of Economic and Social Affairs (UNDESA, 2018). The World’s Cities in 2018 — 18 Arcadis (2016). 2016 Global Infrastructure Investment Index. Available from https://www.arcadis.com/en/ Data Booklet. global/market-sectors/cities/ UN-Habitat (2016). World Cities Report 2016; Urbanization and Development, Nairobi, Kenya: UN-Habitat. 19 IPCC Special report. Global warming of 1.5 ºC. October 2018. https://www.ipcc.ch/sr15/ Yoshino, N., Helble, M. and Abidhadjaev, U. Financing Infrastructure in Asia and the Pacific: 20 The High level panel on infrastructure and MDBs infrastructure action plan were originally introduced Capturing Impacts and New Sources, Asian Development Bank Institute, Tokyo, 2018. within G20 in 2011 (see section Previous G20 outcomes connected to the priority). They could serve as a model, Yoshino, N., Abidhadjaev, U., and Nakahigashi, M. Closing The Asia Infrastructure Gap, Horizons, or even host this discussion. Journal of International Relations and Sustainable Development, Winter 2018/ Issue 10.

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necessarily a matter of course, because the vast majority of globally tolerable CO2 Green finance in even objectively necessary reforms can emissions in order to generate prosperity lose acceptance among the population in for their nations. Industrialized countries a democracy. therefore have a particular obligation to emerging markets And yet, even if Germany picks up the help find climate-friendly power genera- pace of the energy transition, despite all tion solutions on the international level. In the societal discussions surrounding grid addition to an increase in energy efficiency Capitalizing private investments in sustainable expansion and the minimum distance re- thanks to innovative technologies, which quirements for wind turbines, and even if will also be a key component of solutions electricity production in developing countries the country manages to meet the targets in the future, decarbonization is necessary it has set in terms of decarbonization, the in order to generate power that meets the fact remains that Germany is only respon- growing needs around the globe in a more

sible for around 2% of global CO2 emis- climate-friendly manner. The author: Renewables currently make up around sions. 46% of electricity generation in Germany Michael Dittrich (2019). In 2009, this figure was only 18%.1 FASTER GLOBAL DECARBONIZATION »Global Vice Secretary General & Around the globe, renewables accounted NEEDED Head of Department for approximately 26% of all electricity The growth rates in terms of energy con- Finance and Administration, consequences 2 Deutsche Bundesstiftung sources in 2018. Germany has pledged sumption in emerging countries such as Umwelt, DBU to phase out not only nuclear power but China, India, the booming Tiger Economies of climate also coal-fired power plants. The country’s of Southeast Asia as well as developing energy transition is making strides that countries in Central and South America far change will were considered to be nearly impossible exceed Germany and other Western Euro- a few years earlier. However, critics find pean countries’ capacity to cut CO emis- only remain 2 fault with the fact that Germany is failing sions. to meet its climate targets and has not yet For this reason, global consequences manageable managed to comply fully with the require- of climate change will only remain man- ments of the Paris Agreement on climate ageable if we are able to accelerate de- if we are able The institution: change. At the same time, energy costs in carbonization on a global scale. Develop- Germany are among the highest in Europe; ing countries will continue to grow rapidly, to accelerate private households in Germany pay over thus increasing the wealth of their popu- 30% more than those in comparable indus- lations, which in turn will result in an in- decarbonization trialized countries such as France, Italy or crease in energy consumption. And why Great Britain.3 shouldn’t they? After all, the per capita en- on a global The Deutsche Bundesstiftung Umwelt (DBU) In this regard, the energy transition is ergy consumption in these countries today funds innovative, exemplary and solution- an often underestimated political achieve- remains far lower than that of industrial- scale.« oriented projects for the protection of the ment because, despite the high energy ized nations. environment, with special consideration of costs for both business and consumers, Moreover, when it comes to the aspect After all, even if improved energy effi- small and medium-sized enterprises. The a clear majority of the German population of fairness on a global scale, developing ciency thanks to continually evolving tech- funding activities focus on environmental technology and research, nature conservation, remains in favour of the realignment of the countries justifiably point out the fact that nical innovations means that energy con- environmental communication and protection country’s energy policies that is required in in the 20th century, industrialized Western sumption does not necessarily increase of cultural assets. order to fight climate change. This is not countries were responsible for producing in parallel with global growth, forecasts

156 157 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING show that worldwide energy consumption coal power plants, the capacity of the coal in renewable energies must increase, and in renewable energies of USD 11 billion in will rise considerably in the coming years. power plants is expected to remain at 238 not only in emerging market countries. Ac- 2017, India did not even reach 10% of the The International Energy Agency (IEA) GW in 2027, which is just 11 GW below the cording to the Allianz Climate and Energy required total of USD 160 billion.11 predicts an increase in global energy con- 2016 level.7 In 2017, India was responsible Report 2018, USD 886 billion must be in- Despite growing global investment in sumption of more than 25% between 2019 for 11.4% of global coal consumption, and vested annually in the energy industry of renewables for power generation, we are and 2040.4 The IEA anticipates the rise in up to 82% of the electricity in the coun- G20 countries by 2050. still in danger of losing the race against energy consumption to be particularly try was generated using fossil fuels; in the growing demand for energy around the high in Southeast Asia (+67%) and India 2019 it was still 79%. However, the Indian world. (+109%), whereas during the same time government has pledged to quickly ex- »The expansion period, a decline of 12% is predicted for pand power generation through renew- MOBILIZATION OF PRIVATE CAPITAL IS Europe. For the US, the organization an- able sources because the use of coal to of renewable ESSENTIAL ticipates a slight increase of 3%. The basis generate electricity currently accounts Without mobilization of private capital, the for these estimates, however, is a continu- for around 35% of the country’s entire CO necessary investment amounts will not 2 energies ous improvement in energy efficiency. If emissions. The aim is to generate 175 GW be reached, and certainly not in emerging this is not taken into account, the rates of through renewable sources by 2022, with in many markets and developing countries. increase will nearly double.5 the vast majority coming from solar en- At first glance, it is truly astonish- ergy, followed by wind energy, bio energy developing ing that countries which, given their geo- STRONG DEMAND FOR INVESTMENT IN and small hydropower plants. In the Na- graphic location, have excellent opportu- THE ELECTRICITY SECTOR tional Electricity Plan 2018, the planned countries is nities for the use of renewable energies, The energy industry will continue to gain production capacity of 175 GW was in- do not take greater advantage of this fact. importance in terms of electricity pro- creased by 100 GW to 275 GW by 2027.8 progressing Solar and wind energy would not only be duction for reasons of climate protection. With an absolute capacity of 78 GW, India more effective in Africa, the Middle East While electricity consumption is only ris- is currently the fourth-largest producer of comparatively and the Gulf States than in Germany, but ing slightly in developed, industrialized renewable energy after China, the US and also in many Asian countries, in India, and nations, it will double in developing coun- Germany.9 slowly.« in South America. In India, the sun shines tries. And in both developing and devel- Procurement of capital for investments more than 300 days a year on average. As oped countries, affordable clean energy in power generation is a challenge in India, a result, the irradiation levels there are that is available to everyone is at the heart because the interest rates charged by do- According to these figures, the capital twice that of Germany.12 Despite this fact, of strategies both for economic develop- mestic banks are in the two-digit range, as required in the energy sector in the US, for the expansion of renewable energies in ment and reducing emissions. Electrical well as because of issues of technical grid example, totals USD 158 billion, which is many developing countries is progressing motors in China alone are responsible for management, slow-moving government nearly three times as high as the actual comparatively slowly. one-fifth of the increase in global energy agencies and corruption. investments of USD 57 billion that have The reasons for this are manifold. Many demand. Increasing demand for cooling Around the world, nearly one in every been made in renewable energy. In 2017, of these countries have a centralized en- systems in developing countries is result- three dollars invested into energy supplies China invested around USD 133 billion into ergy infrastructure that is based on fossil ing in a similar growth push.6 (all areas taken as a whole) goes to power renewable energies, and yet it would need fuels and they are not necessarily intrin- In India, a great deal more than half generation and distribution in developing to invest USD 314 billion annually in order sically motivated to invest large sums of of the primary energy consumption is countries. However, the necessary invest- to be on track to achieve the goals of the capital into reforming their current energy currently covered by around 350 GW of ments could fail to materialize, especially Paris Agreement in terms of its energy supply. The existing energy infrastructure installed capacity that is powered by in places where end-consumer prices are sector. In India, the number of solar power provides jobs for the population, which, as coal. Taking into consideration newly too low to cover costs.10 installations doubled in 2017, and wind en- in industrialized countries, leads to inertia. constructed, low-emission facilities and In order to comply with the goals set ergy has also seen a significant uptick in For a long time, renewable energies were the closure of particularly high-pollution out in the Paris Agreement, investment installations. However, with investments not competitive in these countries in terms

158 159 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING of cost. A lot of countries are also lacking vesting in renewable energies as a matter POLITICAL RISKS AS A BARRIER TO a contested presidential election in 2008, financing options because often the local of course than in the past. ENTRY as well as massive corruption in Hondu- energy providers are not stable enough on Therefore, if making investments in Political risks associated with investments ras, all of which have had negative effects their own. Moreover, local banks in devel- renewable energies is attractive to inves- in real value assets in developing countries on the anticipated returns. When we look oping countries tend to issue loans with tors in these countries, it must be at least are a major problem. For example, as soon at the totals across all investments, there shorter terms than is compatible with in- as attractive if not more so in developing as there are indications of a crisis in these were some returns that were lower than vesting in energy grids. countries where the geographic conditions countries, stocks or publicly listed bonds the initial estimates on the part of the ini- for the use of wind and solar energy are can be sold off relatively quickly on the tiators; however, there were no total loss- much better. stock exchange – although this may be at es or depreciation of the invested capital. »Political risks In fact, there are currently a number a discount – which helps to reduce losses. However, the fact that the actual returns of investment opportunities in these kinds Illiquid investments in material assets were somewhat less than anticipated by associated with of emerging market funds, which are of- such as real estate, infrastructure pro- the initiators of the funds is not unusual, ten marketed under the umbrella of im- jects, or even investment in the generation even in traditional asset classes such as investments pact investing. One example in Germany of renewable energies comes with a sig- real estate funds. is the Emerging Markets Renewables fund nificantly higher risk because the investor Naturally, the latest political devel- in real value offered by Evangelische Bank, which is would be forced to watch, largely helpless, opments in Central and South America based on investments from the German should the political conditions in the coun- in 2019 are anything but encouraging for assets in Investment Corporation (Deutsche Inves- try take a negative turn. investors in illiquid real assets. Whereas titions- und Entwicklungsgesellschaft Civil war, corruption, massive shifts initially it was only Venezuela that was developing (DEG)), which is a subsidiary of KfW Group. in taxation, regulations to the movement spiralling further into a serious political The fund includes projects for wind power, of capital, and expropriation can result in crisis, over the course of the year, massive countries hydropower, solar energy and geothermal everything from high depreciation costs all unrest took hold in Columbia, Ecuador, Bo- energy in Central and South America and the way to complete losses because the livia, and even in countries that had been are a major in Africa. Investors can rely on DEG’s many sale of the assets would become practi- considered relatively stable, such as Chile. years of experience, while DEG can more cally impossible in the event of a crisis. The reasons for the political unrest and problem.« broadly diversify its portfolio through addi- Taking into consideration that the standard protests are all different, and it is essential tional private investment capital. The fund investment periods for these kinds of in- to consider the situations in each country remains a relatively niche product that at- vestments are between 10 and 30 years, it on an individual basis. However, as a result of the technical tracts little interest among the vast major- is clear that these risks become consider- For example, in Ecuador, the protests advances made in terms of renewable en- ity of institutional investors. able over the entire timeline. were sparked by increases in petrol prices; ergies, thanks in great part to the pioneer- For this reason, it makes sense to look Deutsche Bundesstiftung Umwelt, DBU in Bolivia, it was a president who refused to ing work of countries such as Germany, at the barriers to entry because, despite the (German Federal Environmental Founda- relinquish power and eventually ended up production costs for renewables have fact that the zero-interest and negative-in- tion) has had illiquid capital investments in exile in Mexico; in Chile it was fare hikes sunk so low over the past few years that terest phase has continued for a number of in emerging countries in its portfolio since for the buses and the metro, coupled with they are not only increasingly competitive years now, there is a great deal of available 2006. This has demonstrated that not only increases in the cost of living, that caused even without public subsidies, but are also private capital around the world that is still are these risks theoretical in nature, but the pre-existing discontentment with the an attractive investment opportunity for looking for investment opportunities which also that they may be overestimated by government among the general population private investors. Today, in countries such do not necessarily promise extravagant investors. In terms of the DBU’s invest- to boil over into mass protests. One com- as Germany, France and Italy as well as returns. This capital could be invested in ments in microfinance funds, there have mon denominator all of these events share in Scandinavia, many more institutional a climate-friendly global power supply as been, for example, problems with corrup- is growing mistrust of politicians among investors, such as foundations, life insur- soon as the conditions for all parties are tion in Nicaragua, issues in Kenya with the population and the inability on the part ance companies or pension funds, are in- sufficiently attractive. political unrest and violent conflicts after of politicians, both on the right and the left,

160 161 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING to strike a balance between competing in- tor, which in turn causes them to tend to weight to a risk perception that may be in- the first, high-risk tranche, therefore ab- terests and find workable compromises. reject these kinds of capital investment. flated, for example in the form of “first loss sorbing the first losses. The inability to compromise in the political Even for professional ratings agencies, tranches”. The European Energy Efficiency Fund sphere brings with it the latent danger of this is listed as a reason why many devel- (EEEF) works according to this model. In political unrest and a radical political shift oping countries are quickly grouped in the a recently launched fund that supports in the opposite direction, with all the cor- non-investment-grade segment in terms »Investment- projects in Europe with a target volume responding risks for investors in illiquid of their rating. of EUR 500 million, the European Union real assets. Another pragmatic aspect to be con- ready projects is currently invested in the most high-risk However, focusing on investments in sidered is that, for institutional investors, tranche with EUR 100 million. This results power generation through renewable en- write-offs result in investment commit- cannot simply in a risk buffer of at least 20%. Private in- ergies rather reduces potential risks, be- tees raising questions as to whether these vestors are currently being sought for the cause people will always need power, and kinds of capital investments make sense adopt the second and third tranches. therefore turnover is always guaranteed, economically more often than, say, write- The social start-up Africa GreenTec even in the event of a radical political re- offs after a stock market crash in estab- standard has launched a significantly smaller pub- orientation. Whether the energy is paid for lished markets that everyone is aware of lic offering. With a EUR 10 million loan, as agreed is another question. Interven- and in which everyone understands the business the company has financed the delivery and tions into the legal positions of the inves- after-effects. installation of 50 solar containers in Mali, tors poses another risk. However, drastic models of thus providing up to 250,000 people with measures such as expropriation are rarely RISK MANAGEMENT THROUGH GOV- access to clean, inexpensive, reliable en- taken, even in emerging countries, be- ERNMENT INSTITUTIONS OR DEVELOP- European ergy. The brightly colored containers are cause governments understand that this MENT BANKS equipped with photovoltaic modules as will result in all foreign investments into One way to facilitate these kinds of in- funds.« well as a battery and can provide hundreds their domestic economies quickly grinding vestments is to use third parties to buffer of households with power day and night. to a halt, and that the resulting damage to against risks, in particular the public sec- The investment is secured by a guarantee their economies would greatly outweigh tor or international development banks. These tranches allow potential inves- provided by the Federal Republic of Ger- any potential advantages. Projects that fund power generation tors to choose from different tranches. The many for direct investments abroad. Inves- Naturally, even developing countries through renewables in emerging countries first tranche offers the highest returns, but tors, including the DBU, bear a deductible have their own national jurisdictions. are particularly well-suited to this kind of is also forced to absorb first losses. In the of 5%; in the event of damage caused by However, the investor must therefore de- risk coverage. For the public sector, these second tranche, investors only absorb loss- war, the deductible is 30%. The returns of termine whether or not the benefit–cost kinds of public-private partnerships (ppps) es in the event of a reduced return when the 6.5% p.a. are at risk. However, for many ratio of legal proceedings makes sense could be a very attractive model because first tranche has absorbed its losses in full. institutional investors, the total of EUR 10 not only from a legal point of view but also the involvement of private investments In the third tranche, risk is very low, be- million is too small-scale, and an individ- from an economic one, taking into account serves to leverage the funds that they in- cause it will only be forced to absorb losses ual project in Mali is too far off the beaten the structure and impartiality of the jus- vest, which in turn multiplies the positive when the first two tranches have experi- path of traditional investments. As a re- tice system of the country in question as impact on the climate. enced full losses. Accordingly, return in the sult, the bond has not yet been fully placed. well as the possibility of legal recourse in The objective is not to protect the in- third tranche is significantly lower. How- the event of government intervention or vestor, who is naturally also interested in ever, in general, the return is still higher LACK OF MARKET COMPATIBILITY against local business partners. returns, from any and all risks, but rather than it would be in comparable liquid bonds Project funds in Europe such as the EEEF A lack of understanding of the specific to reduce the specific political risks asso- such as a green bond. These platforms al- are generally designed for much larger situation in the individual countries can ciated in particular with investing in illiq- low investors to choose between expected sums than those used in the example in result in a disproportionate increase in uid climate protection assets in emerging return and risk profiles. Public institutions Africa. The economic power in develop- risk perception on the part of the inves- countries, in order to establish a counter- or development banks would then invest in ing countries is much lower, which means

162 163 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING that projects are generally much smaller country makes a project unnecessarily dif- many institutional capital investors, this is for safe tranches with correspondingly in scale than in industrialized nations. This ficult or causes delays because they are a serious regulatory problem in terms of limited returns. makes them uninteresting to many fund skeptical about foreign investors. existing investment guidelines. initiators who are looking for projects in the One investment project that has al- Many of these funds for capital in- GREEN BONDS ARE A GOOD POINT tens of millions for a EUR fund with hun- ready paved the way in Germany is the vestors take the form of a SICAF (société OF ENTRY dreds of millions to invest. For this reason, Universal Green Energy Access Program d’investissement à capital fixe) in Luxem- Special green bonds for financing invest- investment-ready projects cannot simply (UGEAP) for countries south of the Sa- bourg – a collective investment scheme for ments for the generation of renewable adopt the standard business models of Eu- hara. The project was initiated by the UN capital investing with a fixed base capital energy in emerging countries, initiated, ropean funds, because the project scales do Green Climate Fund (GCF) together with that generally does not allow investors for example, by development banks in in- not match and, moreover, the transfer often the German asset manager DWS as the in- to leave the fund before maturity. As op- dustrialized nations, could also help solve needs to be regulated in a local currency vestment manager. This project offers in- posed to a German investment company, issues of financing. To investigate the ef- that is much more volatile and significantly stitutional investors access to growth mar- a SICAF is not a separate fund but rather fectiveness of green bonds, the DBU com- weaker. A look at how microfinance funds kets in Africa, while capital from the GCF an independent legal unit with its own missioned a study by the Südwind Institut are structured could be helpful: in these serves to protect investors against losses. management and management board. The in Bonn and published the results in 2019.13 funds, local microfinance institutes (MFIs) In terms of investments in green energy agreement paperwork is accordingly com- KfW Group has paved the way in Germany play an important role in terms of distribut- projects, DWS uses the local expertise of prehensive. when it comes to green bonds. Since April ing investment resources on location. its partners in the target countries, and in As a result, up to now, the EEEF of the 2015, KfW Group has built up a global green When applied to the energy sector, fund particular local banks and renewable en- European Union has had limited success bond portfolio with support from the Ger- management could be the responsibility of ergy companies there. In the first phase of in attaining private investors even though man Federal Ministry for the Environment, reliable local banks that in turn allocate UGEAP, the project is investing in projects this fund allows for temporary involvement Nature Conservation, and Nuclear Safety. the resources to the smaller projects. The in Benin, Kenya, Namibia, Nigeria and Tan- with an option to choose between various The portfolio finances projects for climate local banks could in turn guarantee longer zania. The governments of these countries periods of involvement in the form of a protection and environmental conservation. maturities than are standard in emerging support the UGEAP fund. SICAV (société d’investissement à capital KfW Group’s objective is to invest a total of market countries. This would also serve to variable) in which the base capital is vari- up to EUR 2 billion in these bonds. Around alleviate a financial bottleneck in a devel- able and there is a range of possible multi- the world, green bonds totalling USD 150 oping country. »The structures year maturities. billion are currently issued every year. Furthermore, a basic level of accept- However, many institutional capital in- However, not every green bond is nec- ance for these projects must be achieved of capital vestors are not permitted to get involved essarily as “green” as one might hope. In in the target countries. To this end, ne- with these types of funds, or involvement the study, which was entitled “Great Ex- gotiations are not only necessary on the investments are is associated with major administrative pectations – Credibility and Additionality of governmental level, but the local interests hurdles. But even if internal and external Green Bonds”, it became clear that out of in these areas must also be considered. often extremely regulatory frameworks allow an investor more than 400 issuers of financial instru- For this reason, the involvement of local to get involved with these kinds of invest- ments, less than half disclosed the actual banks for the distribution of investment re- complex.« ments, there is often an understandable projects that would be financed with the sources in local currency makes sense be- amount of reluctance regarding complex green bonds. One positive finding, how- cause they know their regions better than structures and agreements of this nature. ever, was that Südwind only determined anyone. Similar to an MFI when it comes COMPLEX AGREEMENT STRUCTURES Moreover, the admissibility of investments 2% of the roughly 3,000 projects evaluated to microfinancing products, involving lo- Another obstacle that should not be under- in these types of structured products often to be problematic because there was no cal banks establishes an important local estimated is a technical one: the structures involves strict limits in terms of a mixture clear ecological benefit. Furthermore, the connection that can be key in terms of a of these types of capital investments are within the framework of diversification of study determined that green bonds also project’s success – for example, if a local often extremely complex and the agree- a portfolio. Investors prefer to use these resulted in an additional boost for pro- government administration in the target ment paperwork is often extensive. For limits for higher-yield investments than jects in emerging markets and developing

164 165 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING countries because they actually serve to for direct investments in real assets. Still, redirect more private capital to sustain- green bonds could be a good point of entry able projects in these countries that would into climate protection investments in de- otherwise have no financing options avail- veloping countries for risk-averse capital able to them. investors with low return expectations.

SUMMARY »Green bonds Overall, it should be noted that there are a number of hurdles keeping institutional could be a good investors from investing more in environ- mentally friendly power generation in de- point of entry veloping countries. As a result, demand remains modest for the few investment into climate projects that currently exist. However, as a number of existing projects have dem- protection onstrated, these problems can be solved. Nevertheless, it is clear that it is not suf- investments ficient to simply solve one of the problems, such as buffering for political risks, a lack in developing of liquidity, or complex agreement struc- tures. There are not enough offers that countries.« properly address all investment obstacles and make it easier for investors to decide to invest. Another advantage of green bonds Given the challenge of significantly in- is that they have a much higher liquid- creasing the amount of power generated ity because they are often traded on stock by renewable energies, both in industrial- 1 exchanges. This significantly lowers the ized nations and in developing countries, Fraunhofer ISE, Public Net Electricity Generation in Germany 2019, January 2020. 2 REN Report 2019, page 29, 41. barrier to entry for investors without any and given the investment capital currently 3 Eurostat 2019. specific experience or expertise in the available around the globe that is urgently 4 IEA World Energy Outlook 2019, Overview. area. For this reason, green bonds are be- searching for investment opportunities, it 5 BMWi, “Energiewende direkt” newsletter, 11/2018, World Energy Outlook 2018. coming increasingly popular. According to is worthwhile to consider possible solu- 6 World Energy Outlook 2018, German Summary, page 3. an analysis carried out by the ratings agen- tions that could result in a win-win situ- 7 Indo-German Chamber of Commerce, Energy Efficiency and Self-supply with Renewable Energy in Industry in cy Scope, green bonds with a total volume ation for investors, developing countries, India, target market analysis 2019, page 14 f. 8 Indo-German Chamber of Commerce, Energy Efficiency and Self-supply with Renewable Energy in Industry in of USD 118 billion were issued in the first and for environmental protection. This will India, target market analysis 2019, page 16. half of 2019. This corresponds to a growth require close cooperation between insti- 9 REN Report 2019, page 42. of 48% compared to the previous half- tutional investors, their regulatory bodies, 10 IEA, World Energy Outlook 2018. year.14 However, as with bond markets, the providers from the financial sector, and 11 Allianz Climate and Energy Monitor 2018, pages 21 and 22. returns on the whole are much lower than partners in developing countries. 12 Indo-German Chamber of Commerce, Energy Efficiency and Self-supply with Renewable Energy in Industry in India, target market analysis 2019, page 1. 13 Great Expectations – Credibility and Additionality of Green Bonds (German: Große Erwartungen – Glaubwürdigkeit und Zusätzlichkeit von Greenbonds), Südwind Institut, Bonn, 2018. 14 Scope Analysis, Green Bonds Fund, December 2019.

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PRIVATE INVESTMENT IS CRUCIAL about 50% for the 15 extremely fragile con- Vas-Y: Public-private- TO ACHIEVE DEVELOPMENT GOALS, texts. Reserved for immediate crisis re- ESPECIALLY IN FRAGILE CONTEXTS sponse, the humanitarian budget does not Traditionally, international development provide the resources for long-term devel- partnership model policies pursue global development ob- opment and SDG achievement. If we look jectives through official development as- at more SDG-oriented spending, we find sistance (ODA). However, the 2030 Agenda in 2016 that only 10% of total ODA was in for unlocking private revealed the shortcomings of ODA in im- fragile contexts. The small amount of ODA plementing the Sustainable Development de facto aimed at SDG efforts in fragile Goals (SDGs). Given an annual ODA budget contexts shows the importance of support investment for fragile of USD 162.779 billion, there is an estimat- mechanisms that attract private capital for ed USD 30 trillion shortfall in funding for development in areas affected by FCV. achieving the SDGs.1 Policymakers stress states the necessity for private investment in developing countries. A number of promi- »Private nent initiatives reflect this argument. This includes the UN’s SDG Impact initiative investors are The authors: The institutions: and the heavyweight Compact with Africa, launched under the German G20 Presiden- Urs Schrade more agile cy in 2017. Today’s role of ODA is therefore Advisor for Economic not limited to fixing global challenges di- Policy and Private Sector and innovative rectly, but it should pave the way for large Development, GIZ As a federal enterprise, GIZ has over 50 years private investments to do so. than the of experience in a wide variety of areas, includ- Private investment is of particular im- ing economic development and employment portance to contexts of fragility, conflict slowly moving promotion, energy and the environment, and violence (FCV).2 Two arguments are Tobias Straube as well as peace and security. GIZ works in striking: (i) FCV contexts have a compa- development demand around the globe – from the German Co-founder of Scio & rably high need for funding, yet only a low Partner at Cambrian government to European Union institutions, the United Nations, the private sector and share of ODA and private investment. (ii) tankers.« governments of other countries. The main The impact of private investment in FCV commissioning party is the German Federal economies can make an enormous con- Ministry for Economic Cooperation and Devel- tribution towards resilience, stability, and A second argument for private sector The co-author: opment. sustainable development. engagement in fragile contexts is that pri- Franziska Frische Let us unpack these arguments: frag- vate investors are valuable implementing ile states appear to be among the top ben- agents for the SDGs, complementary to eficiaries of funding. ODA to FCV countries development agents. Private investors are increased 26% from 2009 to 2016.3 Yet, a more agile and innovative than the slowly closer look at this number unveils a note- moving development tankers, injecting not Scio (www.scio.net) is a consulting network worthy distortion. The high amount is due only capital, but also supporting the devel- for international development, which provides advisory and implementation services for Gov- to an enormous increase of humanitar- opment of companies and hence econo- ernance and Transformation in International ian assistance. The humanitarian share in mies as a whole. Successful development Cooperation. ODA is about 25% for all FCV contexts and agents in FCV contexts (esp. in economic

168 169 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING development) must adapt to local market tion about investment-relevant processes. terprises (SMEs), hence the number of agers have the capability to raise funds for dynamics shaped by more institutions and At present, fragile states receive less companies attractive for investment is lim- injecting capital in the investees, manage powerbrokers than the state alone.4 This than 10% of all FDI. Considering the great ited. The general low level of investments the investments through active engage- requires a certain flexibility that we find need for private investment this raises in FCV contexts is additionally constrained ment, and implement exit strategies. With more with private sector investors than the question of how to improve incentives by the low level of investment in SMEs. TA as their core business, development or- politically loaded development organiza- for private sector investment in fragile This implies a further barrier to sustain- ganizations are able to provide the techni- tions. states. FCV countries hold growth poten- able development, as SMEs are crucial for cal resources needed to build a viable case tial unmatched by saturated developed creating jobs and sparking innovation. for an investment in these high-growth markets. In addition, fragility serves as a markets at an acceptable risk in close co- »Volatile security natural “market protection” for companies VAS-Y! UNLOCKING PRIVATE CAPITAL operation with or through the investor. equipped to deal with the volatility of these FOR DEVELOPMENT IN FRAGILE STATES Targeting SMEs: Investments in SMEs and political markets. Yet, these incentives are usually Vas-Y is a public-private partnership mod- contribute to growth and stimulate rip- overshadowed by the considerable risks of el for development agencies and private ple effects in entire markets, as they are uncertainty FCV. equity investors, which is looking to ad- the backbone of most frontier economies. Naturally, volatile security and political dress the challenge of raising private capi- Yet, while larger firms may find access to are a major uncertainty are a major constraint to in- tal for development. It refers to the French finance, SMEs remain underserved by fi- vestment. Yet there are additional reasons phrase “vas-y”, or “go ahead”, reflecting nancial institutions, which is one of their constraint to that are often not addressed adequately by the need for development cooperation ac- biggest constraints. Frontier markets lack technical assistance: tors, investors and small companies to the institutional context and resources to investment.« First, private investors require more break new grounds for economic prosper- provide access to different forms of financ- than an investment pipeline and knowl- ity. Unlike existing models, Vas-Y’s idea is ing, such as equity financing – in particular, edge of the potential of frontier markets to trigger investment with two main gears: private equity.8 Private equity investments, POTENTIAL AND CHALLENGES TO to build a viable case for investment at an (i) it supports investors to build profitable unlike debt financing, do not require inves- PRIVATE INVESTMENT IN EMERGING acceptable level of risk. Despite improving investment cases in frontier markets at tees to provide guarantees or collateral to AND FRONTIER MARKETS business environments and GDP growth, predictable risks and costs; (ii) it channels investors, but rather shares of the com- Emerging markets are characterized by investors struggle in frontier markets be- investment to SMEs that account for the pany. Through this arrangement, investors low local debt, fast-growing GDP, some- cause of the lack of effective market insti- largest development potential. and investees align their goal: sustainable what developed equity markets and market tutions, e.g. end-to-end logistics compa- The partnership approach: Vas-Y growth of the company. Vas-Y addresses the exchange. Yet, these markets are not sub- nies or market research firms.5 Moreover, builds on the understanding that invest- financing gap and taps into opportunities to ject to elaborate regulatory standards and investors often perceive frontier markets ments always consist of a capital injec- foster economic growth. Providing techni- do not have sufficient market efficiency. In- as unattractive due to their high share of tion and technical assistance in forms of cal assistance resources helps private eq- vestors need to be aware of possibly insuf- low-income consumers.6 Investors mostly skills and knowledge transferred to the uity investors to build a business case for ficient infrastructure, and of political and target large and “high end” medium-sized investee. While the capital injection fuels investments in SMEs. This drives down the monetary uncertainties. In FCV contexts, enterprises, because smaller companies the investee’s economic growth, technical management costs of investment funds, investors face even less mature frontier are usually not considered investable. To assistance ensures its sustainable opera- guarantees the investees will improve busi- markets. Frontier markets face a very low absorb investments, smaller companies tional performance. Separating financial ness performance and provides the plat- level of diversification in the financial sec- require additional – cost-driving – support investment from technical assistance (TA) form to offer complementary support. tor, are comparatively small, less liquid that is disproportional to the investment, allows private equity investors to focus on and rather affected by volatility. Investors e.g. managerial expertise and access to the former and allows development organ- THE GRASSROOTS BUSINESS are confronted with the infrastructural and networks or synergies with other inves- izations to support the investor in provid- PARTNERSHIP political characteristics of a developing tees.7 Most companies in fragile states ing the latter, valuing the complementary Although Vas-Y offers a new institutional- country and with a greater lack of informa- classify as small- and medium-sized en- strengths of each actor. Investment man- ized approach to unlocking private capital

170 171 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING for development in fragile contexts, the their investment portfolios to fragile and environmental impact of the investment design and implement the technical assis- core components of this approach – dis- SDG-relevant markets. The purpose of this portfolio. tance according to their own choice. Fur- tinguishing technical assistance from fi- TAF is fourfold: • It represents a platform for invest- ther, the investment managers often have nancial investments – have been tested: In • It provides financial and logistical ment managers to coordinate and rep- more detailed knowledge of business ad- 2004, the IFC set up the “Grassroots Busi- support for identifying and doing the due resent their interests toward donors or ministration and economics for respond- ness Initiative” to tackle issues of financ- diligence of potential investee companies. governments, helping to further improve ing to the needs of the investee companies. ing and provide support to companies with As such, it matches the development or- investments in fragile countries. The structuring as a non-profit entity a positive economic and social impact. In ganization’s knowledge of local markets allows development organizations, devel- 2008, the initiative became an independ- with the due diligence capabilities of in- It is crucial that the TAF is managed by opment banks and other actors (see red ent non-profit spin-off from the IFC named vestment managers. investment managers participating in the box) to financially support the TAF through “Grassroots Business Partners Inc” (GBP), • Once potential SME investees (light scheme. Fund managers are accountable grants or other financing schemes like operating under the brand name “Grass- grey oval circles) have been identified, the to their own shareholders. Investors there- public-private partnerships – often the roots Business Fund” (GBF). In 2011, GBP TAF provides, manages and coordinates fore must have the managerial freedom to only direct financing instruments available launched the “Grassroots Business In- the technical assistance that accompanies vestors Fund I LP” (GBI-I), a private mez- financial investments by private equity zanine investment fund, working in con- fund managers. This technical assistance junction with GBP, to provide quasi-equity is needed to ensure a sustainable devel- Figure 1: Vaz-Y: Public-private partnership model to leverage private investment capital and targeted business opment of the benefitting companies and equity investment for frontier markets advisory services. The GBF aims to grow hence to de-risk the investments of fund viable, sustainable and inclusive business- managers. es that generate earnings or cost savings for people. It identifies high-impact busi- nesses in developing countries and grows »There is them to amplify their social and economic impact. The cooperation between GBP and ample reason GBI-I is successful. GBP has conducted more than 450 business advisory service to consider assignments, enabling investments by GBI-I of USD 42.7 million in 33 high-im- embedding pact companies since 2011. The number of indirect beneficiaries reached globally Vas-Y in a amounts to 5.3 million people. broader HOW DOES VAS-Y WORK? Vas-Y is built around a non-profit techni- programmatic cal assistance facility (TAF), which serves as platform to manage the partnership approach.« between development organizations and private equity fund managers (orange bub- ble). The TAF is founded and managed by • It develops and applies a standard- one or more investment managers (dark ized SDG-sensitive evaluation and moni- Source: authors green oval circles), interested in extending toring system, to measure the social and

172 173 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 INFRASTRUCTURE: TOWARD SUSTAINABLE INVESTMENT AND FINANCING to these organizations. Through financially national governments on trade policies), in fragile contexts but substantially more leaders that transform entire sectors. In- supporting technical assistance, develop- the model foresees the support in these challenging to implement. The lack of local Frontier does worry that development or- ment organizations drive down the costs of areas as encapsulating the investments in service providers, such as auditors, certi- ganizations often lack an understanding investment managers and set incentives to a suitable environment. Hence, while Vas- fication companies or payment providers, of how private investors operate and the engage in SDG- relevant markets. Y could be designed and implemented as are another major hurdle that often must value they provide to companies. For that a stand-alone solution as part of any pri- be sourced from neighboring countries. reason, von Schubert stresses that an ef- vate-sector development initiative, there is InFrontier measures its impact through fective partnership is required to drive a »An effective ample reason to consider embedding it in a its concept of "Whole Sector Impact", de- company’s growth and a nation’s economic broader programmatic approach. scribing its impact of investing in market prosperity. partnership PROVIDING SUPPORT AND INVESTMENT is required TO SMES IN THE TOUGHEST MARKETS: THE CASE OF INFRONTIER to drive a Afghanistan is considered one of the most challenging environments for investment. company’s InFrontier is the only private equity invest- ment fund in Afghanistan. It has a portfolio growth and of over USD 30 million, including invest- ments in an insurance company, a broad- a nation’s cast technology provider and an agri-pro- cessing company. The London-based fund economic has offices in Afghanistan, Pakistan and Uzbekistan. The local proximity is key to prosperity.« its success. One of the biggest challenges was to convince financial backers that the 1 fund will succeed in a fragile context. Yet, UNDP. (2018). UNDP launches ‘SDG Impact’ to help unlock investment in Global Goals. [online] Available at: https://www.undp.org/content/undp/en/home/news-centre/news/2018/UNDP_launches_SDG_Impact_to_help_ To benefit from the support that devel- according to co-founder Felix von Schu- unlock_investment_in_the_UN_Global_Goals.html [Accessed 5 May. 2019]. opment organizations channel through the bert, the increased risk is expected to pay 2 Our understanding of context of conflict, violence and fragility (FCV) refers to the concept of fragility suggested by the OECD. 2016: 16. States of Fragility 2016: Understanding Violence. OECD Publishing Paris, TAF, private equity investors must commit off through risk-rated returns. Another https://doi.org/10.1787/9789264267213-en to focusing their investments in SMEs in challenge is the search for qualified per- 3 All numbers in this paragraph refer to OECD. 2018. States of Fragility 2018. OECD Publishing. Paris. fragile countries and SDG-relevant markets sonnel for its portfolio companies. Com- https://doi.org/10.1787/9789264302075-en and agree on respective monitoring sys- panies often lack management capacities 4 Minoia, Giulia and Urs Schrade. 2018. “No more standard programming: economic development in fragile settings. Lessons from Afghanistan”. Overseas Development Institute (ODI). SLRC Policy Brief. London. tems. Furthermore, fund managers must or basic financial and operational systems. 5 Khana, Tarun, Palepu, Krishna G. and Jayant Sinha. 2005. “Strategies That Fit Emerging Markets.” demonstrate their ability to raise funds as Schubert stresses the importance of the In: Harvard Business Review, Vol. 83(6), p. 63-74. well as verify a track-record of successful InFrontier teams presence on site and 6 Bhaumik, Sumon Kumar and Stephen Gelb. 2005. “Determinants of Entry Mode Choice of MNCs in Emerging Markets: Evidence from South Africa and Egypt.” In: Emerging Markets Finance and Trade, Vol. 41, Issue 2, investments, in order to prove the ability to the technical assistance it provides to its p.5-24. fulfill their role in the partnership. companies. Through the deployment of 7 A good example in this regard is InFrontier, the only private equity fund based in Afghanistan. InFrontier placed Considering the decades of experience experts and customized capacity develop- an investment in the Insurance Corporation of Afghanistan (ICA), the country’s largest insurance company and a pioneer in developing health care insurance in Afghanistan. To accompany the capital injection and secure a development organizations have in foster- ment, investees are equipped to introduce sustained growth, InFrontier recruited a new management team for ICA, helped to improve accounting and risk ing conducive business environments on new products, establish new partnerships management systems, introduced new standards, developed customer feedback policies, and more. 8 the meso (i.e. helping to form business as- and expand regionally. Such measures are In India, for example private equity investors focus on companies with an annual revenue between 2 and 500 million USD and in Vietnam, private equity investors prefer a company size of 10-20 million USD annual sociations) and macro levels (i.e. advising not a special characteristic of investments revenues.

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Page 178 Rethinking higher Shaping the education for the emerging needs of Digital Economy society Elif Bengu Emeric Abrignani Era: Impulses Ihsan Sabuncuoglu Cengiz Yilma for Education and Abdullah Gül University

Page 188 Strengthening labor Labor Market protections for 21st century workers Policy Urvashi Aneja Zothan Mawii Tandem Research

Page 196 Education and social progress Claudia Costin CEIPE FGV GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY

INTRODUCTION – AN EXPIRING teaching methodologies, where instruc- Rethinking higher EDUCATION MODEL REQUIRING tors should be equipped with instructional A REVOLUTION design, project management, and coach- Universities are currently experiencing a ing competencies. They should be able to education for the general crisis in aligning their research provide safe learning environments for functions and curricula with current job students to realize their full potential to requirements and trends. Higher educa- become self-directed learners. emerging needs of tion institutions (HEIs) are no longer seen as the only source of information. Students demand to develop their competencies for »The new society real-world problems while moving away from theoretical knowledge. Changes in generation of technology, social life and economics call A new university model bridging skill-gaps and for a change of traditional teaching and re- students search methods. meeting community needs Current discussions on the global em- expresses ployment crisis and the future of work have emphasized the urgency of reskilling, life- a different set long learning, and the way higher educa- The authors: The institution: tion (HE) should collaborate with the labor of needs and market. Unfortunately, the lack of insight Elif Bengu into upskilling and reskilling requirements expectations.« Faculty Member, and processes makes it difficult for HEIs Centre for the Enhancement of to prepare students for the 21st-century job Learning and Teaching (CELT) Director, market. Technological developments can also Abdullah Gül University In this new digital world where informa- be seen as an important sustaining power Abdullah Gül University (AGU) is a recently tion is easily accessible, a pedagogical rev- when considering changes in HE. Flipped Emeric Abrignani established Turkish university serving as a olution is taking place. Traditional teach- classrooms, open online courses for a Faculty Member, platform for an on-going R&D project aiming ing methods – transferring theory in the broader audience, mobile applications us- International Office Director, at pioneering “New Generation Universities” form of teacher-centered lectures is losing ing gamification and game-based learning, by blending the three university missions Abdullah Gül University its value. The new generation of students micro-personalization of learning, pow- (education, research and societal impact) via Ihsan Sabuncuoglu innovative approaches and a strong interna- (Gen Z) expresses a different set of needs ered by continuous measurements (learn- and expectations from education systems. ing analytics), big data-based decision- Professor and Rector, tional focus. Abdullah Gül University Changes in technology, environment, social making to support the improvement of life and economy compel students to turn mechanics at system level, are just a few of Cengiz Yilmaz toward new learning experiences where the new opportunities that have emerged Professor and Vice-Rector, they are more active, motivated, innovative as a result of the digital age. Abdullah Gül University and can develop high-impact skills as well All layers of global societies are chang- as transferable knowledge. ing and facing new challenges (sustain- The changes also affect human re- ability, health and food, security, etc.). sources and reveal different needs in Because of all these disruptions, a radi- HE. Current trends define new types of cal change in the HE sector was also in-

178 179 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY evitable. Unfortunately, existing HEIs have the European Union, 20% in Turkey and stronger participation of stakeholders, • Bridge the skill gap that exists on been using old paradigms, with some mi- France, and over 30% in Italy and Spain close cooperation is established to bring international job markets. Meet employ- nor modifications since the 16th century (OECD, 2018). This issue is mainly due to together the leaders of the industry, busi- ers’ expectations by creating a new kind of (classroom setting, assessment systems, a disconnect between HEIs and society’s ness and civil society. Its sole purpose is to graduate, equipped with the most up-to- etc.). This shift between societal expec- stakeholders. The skill-gap is widening, focus on mutual vision and mission state- date skills, as well as international learn- tations and the delivery of HEIs has been as university graduates’ knowledge, expe- ments for the development of the univer- ing and work experience. aggravating the employment crisis affect- rience and skillsets no longer match em- sity and the achievement of its goals. • Build top quality campuses and at- ing our global societies. Young people are ployers’ expectations. The stakeholders involved in this model tract the best talent (staff and students) particularly concerned, as they are three These current trends and needs force aim to launch an innovative HE model that to create an academic environment and times more likely to be unemployed than universities to move to a different educa- creates a multiplying effect between edu- structure to trigger the production of cut- their parents; with about 80 million youth tional paradigm. Many have already put cation, research and societal impact. The ting-edge integrated research in the most worldwide currently looking for work. significant thought and effort into initia- result would be the creation of an NGU relevant fields. tives to change HE approaches, reshape model generating world-class perfor- expiring systems or redesign traditional mance in all three university missions – Creating a unique university vision »A radical methods. In a time of booming techno- education, research, societal impact – Although giving individual emphasis to logical advances and innovations, one of (Figure 1) with a special focus on societal education, research, and societal impact, change these institutions has proposed the So- impact, and the following objectives: contemporary universities are struggling cio-Technical University Education Model • Contribute to the development of considerably with the integration of these in the higher as a response to this shortcoming. Also societies and communities by focusing ef- three functions into their systems. While expressed as New Generation University forts on global challenges and integrating these functions are often considered sepa- education (NGU), the model, currently implemented “societal impact” into institutional core ac- rately, this new model sets out to design at the Abdullah Gül University (AGU) in tivities. the multiplicative rather than additive ef- sector was Turkey, involves a blended learning ap- proach and a competency-based curricu- inevitable.« lum with a societal impact structure. The current form of this new model is the re- Figure 1: HE model creating a multiplying effect between education, sult of numerous search conferences and research and societal impact These phenomena have a significant the participation of over seven hundred global impact. According to the World Eco- stakeholders from various sectors. It was nomic Forum (2017) and research done also significantly shaped by the many dis- by Gartner Inc. (2018), 25% of adults re- cussions held during major HE summits ported a mismatch between their current (i.e., NAFSA, EAIE, APAIE, EURIE, Times skill sets and the qualifications required Higher Education Summits) and visits to to do their job. In 2019, the World Eco- renowned HEIs. nomic Forum reported that 54% of work- ers would require upskilling or reskilling A NEW HE MODEL IN THE DIGITAL AGE over the next five years. Another critical Creating a unique university structure consequence, which has become a global The proposed model is based on a cross- challenge itself discussed at major inter- sectoral collaboration between the state, national events (i.e. ISYEC, 2014, 2016, companies and NGOs, which join forces 2018), is the increase of youth unemploy- for the design of a more relevant HE sys- ment worldwide, which is above 15% in tem. Since this model requires wider and

180 181 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY fect of these three interactive elements. develop citizens who can shape the future and research. For a multidimensional ap- ration of local, national and international It also includes the remodelling (reskill- by converting knowledge into personal proach and multiplied impact, all institu- companies to provide support for cur- ing) of education and research functions and social values. The model has also tional activities are processed through a riculum/course development, meaningful through contribution to society. The design adopted an approach of training students unique structure called “Multiplier Impact research and placement opportunities. In puts forward a university model that fo- in 21st century skills, including adaptability, Platform” (Figure 2). that sense, a competency-based curricu- cuses on contribution to society and inte- creative problem-solving, communication, lum approach can be helpful in meeting grates it with education and research. It is teamwork, entrepreneurship, innovation Implementation of the vision via the expectations of the business world. possible to summarize this approach with and know-how exploitation to seek solu- new innovative units the following three basic principles: tions to global challenges. The implementation of this new model may • Community-oriented university trigger the creation of numerous unique »A competency- • New education and research para- Implementation of the vision via a departments, such as a non-formal edu- digm based on real-life experience “Multiplier Impact Platform” cation resource center for the social and based • Blended university functions (educa- This new model places societal impact in personal development of youth, a center tion, research and community contribution) all core institutional operations and ena- for continuing education, a center for gift- curriculum Through partnerships and learner- bles interaction, through projects, with the ed children and a center for academic de- centered approaches, the model aims to other two university missions: education velopment and support. approach can It also requires the strengthening of key existing units such as the technology be helpful in transfer office, specialist services for stu- Figure 2: Multiplier impact platform dents, the internationalization committee, meeting the and the graduate school. expectations The launch of the “3dC”: a competency-based curriculum of the business In terms of organizing university life, the curriculum is not only a set of courses, but world.« also an element that plays a crucial role in students’ personal and professional de- velopment. At the same time, it regulates The new curriculum model blends the living space where life experiences three missions and adopts a constructivist and learning are accumulated. The aim is approach by considering competencies. It to ensure that individuals will be able to progresses within the framework of active transfer information gained in this space learning, which aims to place students in a to other living spaces and create added transdisciplinary learning experience. value. In light of this, a new innovative “3-Di- The business world often laments the mensional curriculum (3dC)” strategy was fact that graduates don’t possess the re- designed (Figure 3) that includes three quired competencies, which universities paths. These are “Personal Develop- should master and train. A competency- ment,” “Glocal Challenges”1 and “Profes- based curriculum structure has the po- sional Development,” as well as compe- tential to eliminate this problem since it tency-based, personalized program units emphasizes the cooperation and collabo- called “Capsules.” The goals of this new

182 183 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY curriculum are determined in harmony thoughts, feelings and beliefs that are in- are determined in harmony with Kegan’s disciplinary expertise into the classroom with the "Constructive Development The- dependent of standards and expectations. theory. and use active learning methods. ory" developed by Robert Kegan, a former Graduates also acquire an internal sense The second dimension, “Globe-Local The third dimension, “Professional De- Harvard University developmental psy- of direction and the capacity to create (Glocal) Challenges Path,” includes cours- velopment Path,” is implemented in the chologist. According to his theory (Figure their own course. In this stage, it is cru- es addressing “glocal” issues aligned with form of learning units called “Capsules.” 4), most of the students enrolled in the cial to provide necessary counselling for UN Development Goals, for example: En- The capsule system breaks down and re- university are expected to have a “Social students. trepreneurship & Innovation, Health & places traditional course-based curricula Mind” where their sense of self and un- The first dimension, the "Personal Food, Cities & Societies, Immigration, and as it is based on core multidisciplinary pro- derstanding of the world are shaped by Development Path" contributes to that Sustainability. These courses are taught jects requiring learners to receive profes- external sources (family, society, ideology, purpose and enables students to develop using learner-centered and active learning sional training and close the gap between culture, etc.). Beyond meeting their own as creative, passionate and entrepreneur- principles with the objective of improving theory and practice via hands-on approach- needs, they consider collective interests ial individuals. This dimension embraces students’ 21st century skills. Lessons are es. This new method, which is now being and social relationships. “3dC” aims to personalized educational content for skill composed of student-produced content in- tested in the AGU Electrical-Electronics enable these students to graduate as in- and competence development, enabling cluding papers, presentations, ideas, pro- Engineering Department, involves a struc- dividuals with an “Autonomous Mind” and students to mature psychologically, so- jects, posters, videos and games in small ture triggering learning according to the with the ability to develop a new “I” with cially and culturally. The goals of this path groups, in order to provide solutions for needs of real-world problems and also im- complex global problems. These courses, proves students’ motivation/engagement led by multidisciplinary teaching teams, as they produce tangible outcomes. An also enable faculty members to bring their integrated assessment system prioritizing Figure 3: 3-dimensional Curriculum (3dC)

Figure 4: Illustration of the "Constructive Development Theory" developed by Robert Kegan

184 185 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY the process over exams, a requirement for HEIs should evolve into the third gen- paths, where 80% of students take part in tively affects the approach and mindset of extracurricular and peer learning, as well eration by addressing all three univer- volunteering projects, made an observable stakeholders towards HE. While they may as co-teaching and the synchronization of sity missions, using a blended approach positive impact on communities. The new sometimes experience uncertainty due blended materials from different courses for an optimal and multiplied effect. The model has also received great student ap- to the novelty of the project and the lack make capsule-based learning unique. third mission, societal impact, and cross- proval, with a 100% retention rate of pilot of a guarantee for future successes, they sectoral approaches should be prioritized program participants. are all convinced of the project’s merits by HEIs in order for them to remain con- In addition to the previously mentioned and feel part of a meaningful and ground- » A new kind nected with all their stakeholders and be results and achievements, the model posi- breaking initiative. able to produce useful academic content of graduate and services. Contemporary HEIs willing to be relevant and have an active role in equipped with our globalized societies should also open up and embrace internationalization. They 21st-century should design more programs taught in foreign languages, create international

values and institutional environments via internation- 1 Globe-local, glocal means to think globally, act locally and think locally, act globally. ally friendly rules and regulations, adopt skills will be global educational approaches and meth- Abrignani, E. and Sabuncuoglu, I. (2018). Pioneering New Generation Universities in Turkey: The Abdullah Gül ods, produce research relevant to global University Model. UIIN Good Practice Series. Abrignani, E. and Justine, C. (2019). Pioneer of New Generation Universities. Strategic Report. more capable trends and needs, forge fruitful interna- Abdullah Gül University, Kayseri. tional connections and collaborations, Abdullah Gül Üniversitesi. (2019) Yenilikçi Üniversite Tasarımı: AGÜ Modeli. Abdullah Gül Üniversitesi Yayınları. of finding grow multicultural communities, etc. The Basım Yeri: Azim Matbaacılık. ISBN: 978-605-4658-04-6. new needs and trends will require HEIs to Baburoglu O. N. and Emery M. (eds) (2000), Educational Futures: Shifting Paradigm of Universities solutions to and Education, Sabanci University Press, Istanbul. adopt new visions and implement them by Bengu, E. and Sabuncuoglu, I. (2019). Gen Z in the classroom. Manuscript in preparation. establishing innovative units, platforms, Gartner, Inc. (2018, September 6). Gartner Says Only 20 Percent of Employees Have The Skills Needed For global issues.« curricula, programs, courses, methods, Both Their Current Role And Their Future Career (press release). Retrieved from https://www.gartner.com/en/ newsroom/press-releases/2018-09-06-gartner-says-only-20-percent-of-employees-have-the-skills-needed- etc. Interdisciplinary research, education for-both-their-current-role-and-their-future-career and training of faculty members should Hora, M.T., Benbow, R. & Oleson, A. (2016). Beyond the Skills Gap: Educating College Students for Life and Work. CONCLUSION AND RECOMMENDATIONS be emphasized due to the complexity, in- Harvard Education Press: MA. The launch of the NGU project in 2010 terconnection and constant evolution of Kegan, R. (1994). In Over Our Heads. Cambridge: Harvard University Press. Kegan, R. (2017). Constructivist Development Theory Workshop. Retrieved from the workshop notes held triggered several challenges but also global issues. Solutions to these can only on April 2017, Ankara. produced many rapid achievements. This be found using the combination of diverse Montesinos, P., Carot, J.M., Martínez, J.M. & Mora, F. (2008). Third Mission Ranking for World Class Universities: suggests that the innovative HE model expertise sets. beyond teaching and research, Higher Education in Europe, 33(2/3), 259-271. encompasses several pertinent measures It was also observed that the interdisci- Mora, J-G., Detmer, A. & Vieira, M. J. (Eds) (2010). Good Practices in University-Enterprise Partnerships. Available at https://www.uni-kassel.de/einrichtungen/fileadmin/datas/einrichtungen/incher/PDFs/Alle_ with the potential to positively impact our plinary approach helped faculty members Arbeitspapiere/GOODUEP_INTERIOR.pdf global society and solve the growing skill- develop their skills and strengthen institu- UN Sustainable Development Goals. (n.d.). Retrieved from https://www.un.org/sustainabledevelopment/ mismatch problem. A new kind of gradu- tional bonds. Students’ skill development, sustainable-development-goals/ st Vorley, T. & Nelles, J. (2008). (Re) Conceptualising the Academy: Institutional Development of and Beyond ate, equipped with 21 -century values, led by a hands-on training approach and the Third Mission, Higher Education Management and Policy, 20 (3), 119-135. knowledge and skills; will be more capable a learning-by-doing philosophy, has been World Economic Forum (WEF). (2017). Accelerating Workforce Reskilling for the Fourth Industrial Revolution: of finding solutions to global issues and significant and appreciated by the indus- An Agenda for Leaders to Shape the Future of Education, Gender and Work. Retrieved from http://www3. weforum.org/docs/WEF_EGW_White_Paper_Reskilling.pdf contributing to the recoupling process of try. Student-led social development pro- World Economic Forum (WEF). (2019). Towards a Reskilling Revolution Industry-Led Action for the Future of economic and social prosperity. jects of the Glocal/Personal Development Work. Retrieved from http://www3.weforum.org/docs/WEF_Towards_a_Reskilling_Revolution.pdf

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The International Labour Organization’s new forms of precarity and dependence. Strengthening labor latest World Employment and Social Out- Policy prescriptions will need to be tailored look for 2020 paints a bleak picture of the to suit these varied contexts and needs. future of work. Unemployment is projected protections for to rise in the next two years and income inequality is higher than expected. Labor »Online work st markets are inherently unequal, unable to 21 century workers provide decent work for enough people. presented 188 million people want work but can’t find it; 120 million people have given up one of the We need to recouple conversations around the searching or can't find work yet and 165 million don't have enough work. In other few avenues future of workers and the future of work words, nearly half a billion people are un- der-utilized.1 for work to In this context, governments and peo- ple are looking to digital platforms to cre- differently The authors: The institution: ate new employment opportunities. Digital platforms are restructuring the world of abled people.« Urvashi Aneja work, as they connect and aggregate the Founding director, supply and demand of work, within and Tandem Research across geographical contexts. Are plat- DUALITY IN THE GIG ECONOMY – forms the future of work we want? How can THE BENEFITS AND PERILS Tandem Research is an interdisciplinary we enable labor protection in the changing Digital platforms can certainly address research collective that generates policy world of work? What should the priorities underemployment and contribute to the Zothan Mawii insights at the interface of technology, society, and sustainability. We believe that evidence- for G20 countries be? standardization of working conditions Research Fellow, based policy, supported by broad-based public It is important to note at the outset across sectors. By aggregating demand Tandem Research engagement, must steer technology and that labor market conditions differ hugely and supply for work, digital work platforms sustainability trajectories in India. We aim to across the G20 and policy frameworks will can enable workers’ access to opportuni- bridge gaps between social science research, need to be adapted to country contexts. ties for paid work. By enabling more hours public policy, and public engagement. Our While much of the dominant narrative em- of paid work, and thereby offering the pos- work seeks to ensure that no one gets left behind in the technological transitions that will phasizes values of entrepreneurship and sibility of increased earnings, digital work shape India’s future. innovation, the impacts are likely to differ platforms could contribute both toward across labor markets and across social reducing underemployment and creat- groups. In industrialized economies for ing possibilities for economic mobility. A example, digital platforms are disrupt- study on ride hailing drivers in Indone- ing traditional employment relationships. sia, for example, found that most drivers In contrast, in many parts of the Global report higher earnings since joining the South, gig work within the informal sec- platform.2 tors of the economy is already the norm. Digital work platforms can potentially For high-skill labor, digital platforms may bring some form of organization to infor- offer opportunities for flexible work, but mal urban services – standardizing wages, for low-skill labor, platforms can create standardizing services, certifying employ-

188 189 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY ers and workers, and clarifying expecta- contribute to more informed labor market undermine worker agency and solidar- the degree of control exerted by the plat- tions from workers and platforms through policy. ity through new forms of algorithmic and form. The type of control and extent of con- a formal written contract. Digital labor But digital platforms can also produce reputational control. Workers have little trol a platform exerts over workers should platforms can also present new opportuni- precarity as workers lack benefits associ- understanding or access to the systems determine the obligations and responsi- ties for marginalized groups like women, ated with formal employment – paid leave, that determine their conditions of work, bilities expected towards workers. These migrant workers, and differently abled peo- health insurance, or other forms of social nor the capacity or knowledge to negoti- are dynamic rather than fixed categories, ple to find work. During a study of microw- protection. Platforms also shift the cost ate these opaque and automated systems. intended to provide a framework to think ork platforms in India, we found that online of operation to the workers themselves – Platforms are known to use gamification about platform responsibilities in the con- work presented one of few avenues for workers are responsible for maintenance tactics – sowing competition among work- text of changing employment relationships. work to differently abled people or women costs, fuel or transport, data and phone ers for small rewards to keep workers Control could be behavioral – i.e. the whose mobility was restricted because of plans, and even the cost of products nec- working longer. Workers are prompted to extent to which the platform directs and care responsibilities or social norms.3 essary to provide a service.4 Home service work or log on to the app with the promise controls how the worker does the task for workers and beauty care workers are ex- of earning incentives that sometimes do which he or she is hired. This could in- pected to purchase cleaning products or not translate to much higher wages.9 While clude the provision of training and equip- »Platforms in beauty products on their own; oftentimes exploitation is in fact a condition of the in- ment to workers; when and where to work; the platforms mandate that their branded formal economy, the difference with auto- and evaluation systems that judge worker their current products are purchased. Such working mated decision making systems is that the performance. Control could also be finan- arrangements contribute to the individu- exercise of power is both undecipherable cial, in terms of the setting or adjusting of form undermine alization of risk. A number of structural and invisible; the absence of human inter- wages; the method of payment; or the in- features of informality also persist with mediaries reduces space for negotiation vestments required by workers to engage worker agency platform work – power and informational and compassion. The use of reputational on the platform. Control could also be asymmetry between workers and employ- control systems is common on platforms, relational, including the freedom to seek and solidarity.« ers/platforms; unpredictable wages and and this is amplified by social structures other opportunities on other platforms; working hours; little to no bargaining pow- of gender and class, and the differential the ability of platforms to terminate em- er; and constantly changing or unpredict- opportunities for work and mobility this ployment; and other terms and conditions The labor of many workers in the un- able patterns and rhythms of work.5 creates.10 Ratings are usually based on articulated in a formal contract.11 (See at- organized sector of the economy is unrec- However, some regulations have been the affective and emotional labor workers tached Figure) ognized and invisible. Gig work on digital introduced to address labor well-being must put in – friendliness, affability, con- work platforms could enable the registra- on platforms. For example, the European versation – over and above the core ser- Low control tion of these workers and their work. Many Union has approved setting minimum vice they are expected to provide. However, This category includes platforms that pri- times, workers in these sectors need for- rights for gig workers, pushing for more customers and clients can be arbitrary marily aggregate labor demand and sup- mal identity papers, proof of training or transparency, fair wages, and compensa- in their rating of workers thus impacting ply, connecting workers and work, where skills, access to formal banking, a stand- tion for cancelled work.6 California’s newly their ability to earn money. all job-related tasks and terms of engage- ardization of wages and some stability of introduced AB5 seeks to reduce the mis- ment occur outside the platform. At low income. These aspects are rendered vis- classification of workers of ‘independent CHANGING WORKPLACE DYNAMICS levels of control, the platform responsi- ible through these platforms, even if, as contractors’.7 India’s new Code on Social AND RESPONSIBILITIES bilities may be derived solely in terms of is often the case, this highlights the pre- Security will ensure that all workers in- How can worker well-being be enhanced its role as an aggregator. It would thus in- carious conditions of work for many work- cluding platform workers receive social and some of these negative effects cur- clude establishing: ers. Finally, digital work platforms could security benefits, though questions about tailed? For one, certain responsibilities to- • clear and transparent terms of use; enable the collection of data about the enforcement remain.8 ward labor well-being need to be imposed • clearly communicated and compre- informal economy, which has so far been Yet, despite these social protection on platforms based on the type of employ- hensible policies for data collection and hard to measure and understand, and thus measures, platforms in their current form ment relationship that is being crafted and usage; and

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• grievance-redressal mechanisms re- of control, platform responsibilities can be tasks are carried out, though a standardi- disrupting the traditional workforce, and lated to any abuse on the platform or viola- expanded to include: zation of equipment and the provision of investments poured into similar services.14 tion of terms of use.12 • transparent and predictable payment training. At higher degrees of control, plat- Even historically, piecework or gig work is • Platforms should be required to en- terms; form responsibilities would further expand seen as some of the worst type of work, a able identity portability, so workers can • clarity of rating criteria, including op- to include: reality only too well known in the Global transfer their experience, reputation, and tions for seeking clarification or redressal • mandatory, pro-rated contributions South. The rise of the platform economy earning levels across platforms. on ratings; to social protection programs, including a has also coincided with the breakdown of • accessible and responsive complaint retirement fund and health insurance; and traditional working arrangements as non- Medium control and feedback mechanisms; and • provisions for sick leave and mater- standard employment and contractualiza- This category includes platforms in which • platform contributions toward acci- nity leave. tion have grown globally. tasks or jobs are done through the plat- dental or occupational insurance. • These benefits should also be pro- Platforms thus on the one hand seem form and are monitored until their com- vided to workers on a portable basis. to represent a paradigm change, but if seen pletion. Prices and terms of pay are set by High control closely they reflect an ongoing transition in the platforms and transacted through the This category includes platforms in which the world of work, with growing contractual platform. However, there is little to no in- tasks or jobs are completed through the »Historically, work, a declining labor share of national volvement in how the job is done, though platform and wages and terms of engage- income, and growing inequality between customer-rating systems determine work- ment are set by the platform. There is a piecework or capital and labor. Platforms, in their cur- er access to future work. At medium levels high degree of control in terms of how the rent form, should thus neither be seen gig work is as the desirable nor progressive future of work they are often portrayed to be; in- seen as some of deed, incomes do rise, and for some people Figure 1: Platform responsibilities they enable more work and better working the worst type conditions, but on the whole, they can also contribute to precarity and insecurity. Ad- of work.« ditionally, platforms do not accommodate workers’ aspirations or mobility. The on- demand workforce is designed to perform SITUATING PLATFORMS AND LABOR a specific task for the platform – there is PROTECTION IN BROADER LABOR little no pipeline for career progression es- MARKET SHIFTS pecially for those in low-skill work. They While platforms entered into the public im- bring greater consumer convenience and agination through a narrative of micro-en- benefits to technology companies but re- trepreneurship, autonomy, and independ- flect the continuing degradation of labor. ence, this narrative obscures the recent It is important that we keep these historical origins of platform work, which structural issues in mind as we design arose as a result of the financial crisis policies for the platform economy. These in 2008. The unavailability of jobs forced policies should not be thought of in isola- people to monetize their assets13 through tion from broader interventions needed ride-sharing or room-sharing platforms to improve the health and functioning of initially. Self employment was not a choice labor markets. Thus, reforms to improve but a necessity. The on-demand economy platform workers’ conditions should be was hailed by investors in Silicon Valley for placed within the larger context of improv-

192 193 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY ing rights for contractual workers gener- utes to alienation, a loss of bargaining ca- ally. With the shrinking of jobs in manu- pacity, and loss of solidarity. This is not to facturing and the automation of services, hark back to the past of work, but to push return to traditional forms of employment us further to think how digital technologies and labor market structures cannot be can enable solidarity and community. G20 expected. There is a need to devise new countries, through supporting research, forms of labor protection suited to new labor unions, and civil society, should also working arrangements and covering new support the development of new forms of job roles and workplaces. platforms – co-operatives that are worker- Finally, the link between work and owned and managed – as is already being place is important – beyond social protec- tried in some places. Equally, workers and tion and income security, work also builds worker-support organizations should be solidarity, gives meaning, and nurtures supported to leverage platforms for infor- aspiration. Decentralized work, whether mation-sharing that can correct informa- through platforms or contractual work, tion asymmetries, or aid in organizing and impacts social organization and contrib- unionizing workers.

1 International Labour Organization. (2020). World Employment and Social Outlook: Trends 2020. Geneva. 2 Fanggidae, V., M.P. Sagala, MP., D.R. Ningrum “On demand transport workers in Indonesia: Towards understanding the sharing economy in emerging markets”. Transformation in technology, transformations in work. JustJobs Network. 3 Tandem Research (2020, forthcoming) Gig work on digital labour platforms. USAID. 4 Aneja, U. And Shridhar, A.,(2019). Worker wellbeing on digital platforms in India: A study of Olacabs and Urbanclap in New Delhi. Tandem Research. Goa and Tandem Research (2020, forthcoming) Gig work on digital labour platforms. USAID. 5 Aneja, U., Shridhar, A., Sawhney, R.S., (2019). Worker wellbeing on digital platforms in India: A study of Olacabs and Urbanclap in New Delhi. Tandem Research. Goa. 6 EU law fixes minimum rights for 'gig economy' workers. (2019, April 16). BBC. Retrieved from https://www.bbc.com/news/world-europe-47947220 7 Newsom signs bill rewriting California employment law, limiting use of independent contractors. (2019, September 18). LA Times. Retrieved from https://www.latimes.com/california/story/2019-09-18/gavin- newsom-signs-ab5-employees0independent-contractors-california 8 Jha, S., & Alawadhi, N. (2019, September 18). Gig workers set to come under labour laws, get social security benefits. Business Standard. Retrieved from https://www.business-standard.com/article/economy-policy/ gig-workers-set-to-come-under-labour-laws-get-social-security-benefits-119091900052_1.html 9 Mason, S. (2018, November 20). High score, low pay: why the gig economy loves gamification. The Guardian. Retrieved from https://www.theguardian.com/business/2018/nov/20/high-score-low-pay-gamification-lyft-uber- drivers-ride-hailing-gig-economy 10 Aneja, U., Shridhar, A., Sawhney, R.S., (2019). Worker wellbeing on digital platforms in India: A study of Olacabs and Urbanclap in New Delhi. Tandem Research. Goa. 11 Forde, C., Stuart, M., Joyce, S., Oliver, L., Valizade, D., Alberti, G., Carson, C. (2017). The Social Protection of Workers in the Platform Economy. Policy Department, Economic and Scientific Policy. Leeds: European Parliament. 12 The Fairwork Foundation: Strategies for improving platform work. (2018). 13 van Doorn, N. (2017). Platform Labor: On the Gendered and Racialized Exploitation of Low-Income ServiceWork in the 'On-Demand' Economy. Information, Communication & Society, 20(6), 898-914. https://doi.org/10.1080/1369118X.2017.1294194 and Srnicek, N. (2017). Platform capitalism. Cambridge, UK: Polity. 14 Kessler, S. (2018). Gigged: the end of the job and the future of work. New York: St. Martins Press.

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nalists may also see changes due to nar- who will soon join the workforce of tomor- Education and rative algorithms, where facts and dates row. only need insertion to create simple news Although education has a major role in stories, a job that demands lower skilled preparing the new generation for the world social progress workers at lower wages. What will come of work, its role is not limited to ensuring next? Certainly more job extinctions in future employability or entrepreneurship. other branches, as machines learn to do It addresses all that is needed for a healthy, ever more sophisticated tasks. meaningful and active adult life, including In this context, it is extremely impor- the practical exercise of citizenship. The author: In recent years humanity has faced many tant for the G20 to think about how to pre- In times of acrimony and populism threats such as growing inequality, pop- pare the workforce of the future for this fuelled by a sense of alienation and the Claudia Costin ulism, aging societies and the narrowing of new reality, where not only new profes- loss of a perceived golden past, education Founder and Director of the demographic bonus (when the working sions might emerge, but the old ones (or at can build bridges and the vocabulary for a the Center for Innovation population is larger than the non-working). least their jobs) might be extinguished in renewed and more empathetic dialogue. and Excellence in Education Policy (CEIPE FGV), Rio de But there has been another threat in the successive waves. This is not only a matter It can also foster cultural flexibility and Janeiro, Brazil headlines, perhaps as prevalent as pop- of rethinking curricula in K-12, in technical develop the skills that emphasize what Global Solutions Fellow ulism and its response to the so-called mi- vocational education and training (TVET), makes us human. grant crisis: the extinction of jobs through and in higher education, but also of con- automation and robotization in a phenom- stant skilling, reskilling and upskilling of DEVELOPING SKILLS TO PREPARE enon branded “The future of work.” the workforce. FOR THE FUTURE Don’t get me wrong, I don’t think the Joseph Aoun, the president of Northeast- loss of jobs in some companies or the ern University, outlines in his book Robot- reshoring of others (since it has become »Education Proof: Higher Education in the Age of Ar- cheaper with automation to produce goods tificial Intelligence (2017), what he calls a back in the developed world) will have the can build “learning model for the future.” He cites cataclysmic consequences foreseen by three new literacies that will be essential: Frey and Osborne (2013), who have raised bridges and technological literacy, or a knowledge of alarms about the potential economic up- mathematics, coding and basic engineer- heaval of computerization. Many positions the vocabulary ing principles;, data literacy, or the ability might be created with the advances in arti- to understand and utilize big data through ficial intelligence. The problem is that they for a more analysis; and human literacy, which equips won’t employ the same people who will be us for social interactions, giving us the The institution: out of work, since the required skills will empathetic power to communicate, engage with others be completely different. and assess our “human capacity for grace It is, after all, not just drivers who face dialogue.« and beauty.” He adds to this four “cognitive losing their work in the near future with capacities” that people need in the digital the prospect of semi-autonomous cars, economy: systems thinking, entrepreneur- The Center for Excellence and Innovation in buses and trucks on roads across the de- In times of machine learning and algo- ship, cultural agility and critical thinking. Educational Policies (CEIPE) is a think-and- veloped world. Legal professionals may rithms that substitute intellectual work, it Systems thinking is a means to create new do-tank based at one of the most prestigious private schools in Brazil, the Brazilian School see their numbers diminish, as clerical is urgent to define exactly what needs to jobs as old ones are filled by machines. of Public and Business Administration of work traditionally done by novice profes- change in the education and training of- Entrepreneurship is a “creative mindset.” Getulio Vargas Foundation (EBAPE FGV). sionals is transferred to machines. Jour- fered to the present generation of learners Cultural agility is the capacity to not only

196 197 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY understand the complexities of the values as well, but they have become increas- Sobral stands out as champion in learning • Investing in early childhood devel- and attitudes of different countries and ingly important in a context of increased with solid curricula that includes social opment, through the integration of social local contexts, but also to show empathy inequality, political anger and polarization. and emotional skills and innovative ap- policies, including education, social pro- and discretion when dealing with people In a recent paper, the OECD (2018) has proaches to learning. This experience has tection and health, from pregnancy to 6 from all over the world. Critical thinking is added an important attitude and compe- been scaled up in the whole state and our years old, with initiatives such as house- about making judgments through rational tence that should be developed in different last national assessment among the 100 hold visits, vaccinations, conditional cash analysis. levels of education: student agency. It re- best performing schools in the country, 82 transfer systems, parenting schools, qual- Even in K-12, well before people enter fers to the student’s perception that she is are in different cities in Ceará. ity nursery- and pre-schools. higher education, competences may be responsible for her own learning – and that • Creating a system-wide clear cur- taught and learned to prepare them for the includes a commitment to building her EDUCATION AND INEQUALITY, riculum that defines the competences to future. These do not compete with the basic own future. This certainly addresses the PROMOTING SOCIAL PROGRESS be developed by every child and adoles- literacies that schools develop today, but need for developing a “learning to learn” Education policies can be designed so as cent and that also addresses the needs of rather complement them in important ways strategy, but also means engagement with to build equity or, on the contrary, to in- struggling children. and demand changes in the way we teach. her community and with our shared hu- crease social inequality. In various parts • Ensuring that the best teachers and These competences and attitudes in- man condition, which is best captured in a of the developing world there is a grow- principals work at the most challenging clude as a pre-requisite curiosity, creativ- global citizenship rubric. ing “apartheid”, separating children who schools with quality materials in a safe and ity and imagination, qualities that make have access to elite schools from those healthy learning environment, as done in us human and thus able to compete with who receive second-class instruction in schools in England, some states in the US machines and promote social progress. »Access to low-quality school settings, with low-paid, and in Brazil To foster these abilities, teaching must frequently absent teachers, often accom- • Including all school-age children in change in a substantive way; after all, it is schools does panied by low expectations. As a result, the system and following up with those not through rote learning that we become those societies, already encumbered by who may have dropped out of school, with creative thinkers or develop the curiosity not ensure large inequalities in income and in average the support of the social protection sys- needed for deep learning. Along the same years of schooling of the adult population, tem. Promising practices to bring back ad- lines, ensuring that the youth of the 21st fairer chances not only reproduce the prevalent unfair- olescents who have left school have been century remain in school and do not drop ness but even increase it. developed in slums in the city of Rio de Ja- out especially in the developing world, of moving Thus, just having access to schools neiro, in different provinces in India and in where young people abandon schools not does not ensure fairer chances of moving even in the US. only to work, but due to lack of interest in up the social up in the social ladder. When we don’t set • Establishing provisions for kids with what is being taught, demands much more up the system to ensure equity, countries disabilities, ensuring that schools include engaging classes. ladder.« experience not only greater inequality them, preferably in regular classrooms The new competences also include and exclusion, but also greater violence. with the additional support they need. collaborative problem solving, which de- In many of these nations, the result of • Structuring teaching and learning in mands not only the ability to incorporate I bring here two interesting examples poor schooling in vulnerable areas is an areas where good preservice education other people’s ideas, but also the pre- from my own country, Brazil. As we are increased number of young people who and proficient teachers are not available, paredness and intellectual leadership to struggling to ensure quality education are neither at school nor at work. Some including with the use of technology to push for the student’s own contributions. where the PISA results have positioned us of them join the growing cohorts of drug- support teachers. Another set of competences that can be among the 20 worst performing economies dealers or militias, as in many countries in Those are just some measures that learned at school are social and emotional participating in the last edition of the inter- Latin America and Africa. the G20 could consider to help build more skills, especially perseverance, resilience, national test, in 2018, one of the poorest To ensure that equity is built into edu- equitable school systems, but it is impor- empathy and self-efficacy. The latter were states has shown quite different learning cation systems, many measures should be tant to know that there is no silver bullet to certainly needed for traditional education outcomes. Among its less affluent cities, taken, such as: ensure quality education for all. There is,

198 199 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 SHAPING THE DIGITAL ECONOMY ERA: IMPULSES FOR EDUCATION AND LABOR MARKET POLICY however, one approach to be avoided: ac- habits are acquired in infancy, prevent- But although social progress should and children should be the main concern cepting that we should offer second-class ing malnutrition, stunting and obesity, are be sought by the way we organize cur- in any policy area, even in times of social teaching and learning to disadvantaged certainly important goals associated with ricula, teaching, and learning environ- unrest and uncertainty about the future. kids. programs. ments, it is as an integrated imperative, At the end of the day, children and ado- As for personal freedom, quality edu- an organic pursuit, that in the long run lescents will be the next generation to try cation contemplates the competences to education helps promote social progress. to build a better world, facing a situation »We should be developed in kids, especially “student With every child in school learning what is where populism is growing and work as we agency”, i.e. learning to make choices, expected at her age and grade, developing know it is being threatened on a growing include personal take responsibility for their own schooling her full potential, social progress happens scale. It is better to have prepared them to and participate actively in their commu- naturally. find a different way of doing this than the freedom, nities. The exercise of personal freedom That is why quality education should be way we, the present generation in charge demands not only laws and regulations prioritized among all public policies. In- of fixing the world’s problems, might even- nutrition and that protect rights, but also an informed clusive development starts with education tually have failed at. citizenship that supports them – and this safety as should be taught in schools. The same approach should be taken elements that toward well-being. Good curricula incor- porate self-care and health promotion. schools should But there is also a recommendation to be taken into consideration: Schools should promote.« not be places where toxic stress is pre- sent even within an ill-founded intention of improving learning. Mental health initi- But social progress is not only con- atives are important to both students and nected with equity. When, in 2010, some teachers. world leaders got together to create a Along the same lines, safety is a con- measure of development that would in- cern, both to ensure that pupils are pro- corporate social and environmental com- tected during classes and that they learn ponents, they created the Social Progress safe behavior. This includes not harming Imperative, which later became the Social others and not endangering their own lives Progress Index, to deal with basic human and health. This theme could and should needs, well-being and opportunity. be included in what is taught in schools If we are to build on the ideas behind and may demand the support of qualified this indicator and connect them to educa- professionals, in addition to teachers. tion, we should also include personal free- Schools in conflict areas, as mentioned dom, nutrition and safety as elements that before, such as slums controlled by drug- schools should promote. In many coun- dealers or militias or in countries stricken tries, for example, free lunch is provided by war, should benefit from some kind of to underprivileged pupils in public schools, affirmative action to ensure that children Frey, C. B. and Osborne, M. (2013)- The future of employment: How susceptible are jobs to computerization- Oxford Martin Programme on the Impacts of Future Technology. and in some of them, such as in Brazil, to are not only protected in their regular Aoun, J. (2017) – Robot-Proof: Higher Education in the age of Artificial Intelligence, The MIT Press, every student attending a public school. schools or in refugee camps, but also out Cambridge. Campaigns to ensure that good nutritional of respect for their right to learn. OECD Education (2018) – OECD Education 2030-working paper.

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Page 206 Smart implementation Achieving of complex change processes the Sustainable Christoph Beier Renate Kirsch Development GIZ Page 212 Implementing Goals the SDGs Elisabeth Bollrich Jochen Steinhilber Friedrich-Ebert-Stiftung

Page 218 Gender equality for a sustainable future Julia Kulik G20 Research Group GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5

Page 224 Raising compliance with G20 commitments Jessica Rapson John Kirton G20 Research Group

Page 234 Making gender equality a reality Juliane Stein-Zalai Kiel Institute for the World Economy GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS

A recoupling of social, political, environ- implementation process and identified 15 Smart implementation mental and economic progress requires principles that enhance the smart imple- expertise in managing complex societal mentation of policies and that support suc- transformations, or change projects, on cessful program implementation with the of complex change a national level in partner countries, as objective of contributing to societal change well as on a regional and global level. The for a more sustainable development. In success of recoupling hinges less on iden- this article, we present a few principles of processes tifying new paradigms and designing new smart implementation that are particularly policies. It requires primarily smart imple- relevant for achieving recoupling. mentation of good policies. Cooperation management facilitates the A focus on smart implementation is crucial for two reasons: First, because »Gaining public recoupling of progress toward sustainable the challenge for most countries is less in designing but more in implementing support for development policies. Countries often lack the capac- ity to translate abstract polices into op- recoupling erational programs and/or to manage the implementation of such programs. This ideals entails The authors: The institution: is when sound reform ideas and policies become stuck, derailed, sabotaged or re- Christoph Beier creating versed. Second, reform champions often Programm Director fail to manage controversial stakeholder cooperation "Good Governance for interests constructively – in a manner Local Development", As a federal enterprise, GIZ has over 50 years South Caucasus, GIZ that gives the reform process a productive platforms.« of experience in a wide variety of areas, includ- drive and direction. Gaining public support ing economic development and employment for recoupling ideas entails creating coop- promotion, energy and the environment, eration platforms where different interests IMPLEMENTATION CAN SUPPORT Renate Kirsch as well as peace and security. GIZ works in demand around the globe – from the German can be negotiated fairly and transparently. RECOUPLING OF SOCIAL, POLITICAL, Lead Governance Advisor, government to European Union institutions, For this, the spectrum of relevant and le- ENVIRONMENTAL AND ECONOMIC Governance and Conflict the United Nations, the private sector and gitimate interests must be identified and PROGRESS Department, GIZ governments of other countries. openly presented, the fair representation The learning project confirmed some The main commissioning party is the German of interest groups assured, and mecha- knowledge about how change happens, Federal Ministry for Economic Cooperation nisms identified for the efficient and fair which can be found in GIZ’s management and Development. bargaining over interests. model Capacity WORKS1. First, complex GIZ accompanies public, private and change occurs neither in a linear fashion non-governmental partners in societies nor at an even pace. It can only be steered in implementing complex societal change to a limited extent, which makes it vital to projects. The focus on implementation agree on interim goals and requires agile sets it apart from many other development and iterative adaptation in management. organizations not directly involved in im- Second, promoting cooperation (between plementing measures. In a recent learn- several individuals and/or organizations) is ing project, GIZ programs retraced their an effective way of shaping societal change

206 207 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS processes. GIZ chooses cooperation man- people together who had not previously nancing mechanisms for climate change realigning goals to ever-changing local agement as the core principle guiding pro- interacted, is the instrument of choice to mitigation measures. But before address- circumstances. This room to maneuver ject implementation. In our work, coopera- generate possible solutions to problems ing this issue, it was necessary to solve the is particularly important when the aim is tion has proven to be an important success and promote partnership. highly politicized topic of discontinuing fuel to recouple social, political, environmen- factor for developing new and publicly ac- Dennis Snower (2019) mentions two subsidies, so that decision-makers could tal and economic agendas, and this must cepted solutions to problems. Cooperation objectives for supporting the recoupling work on the actual topic at hand. Next to be understood, backed and facilitated by brings new constellations of actors togeth- of social, political and economic progress: reacting to challenges, projects also har- organisations providing process advice, er to generate new ideas for solutions. First, “to create not just commonality of in- ness dynamics and use opportunities to along with their commissioners. Colm Solutions to problems are often un- terest, but commonality of purpose”2, and promote and accelerate change process- Kelly from PwC, for example, states in his known when GIZ program teams take up second, to “create new moral narratives es. The governance program in Tunisia re- vision brief on recoupling economic di- work in partner countries; instead, they relevant to both our local, regional, nation- sponded to the dynamics of a new political mensions that it will “be critical to nurture must be identified and developed. This is al and global problems.” The process of situation following the “Arab Spring”. The agility, adaptability and reskilling in the done in collaboration with local stakehold- fostering cooperation and the instruments new political decision-makers showed in- workplace of the future.”4 The same holds ers. GIZ’s teams can play a helpful role described here facilitate exactly this: New terest in considering a decentralisation true for any dimension of societal change in convening stakeholders who otherwise stakeholder constellations and initiated reform – an idea the GIZ project had cham- and recoupling. would or could not meet on their own to cooperation can facilitate joint action that pioned with the previous government on deliberate and negotiate ideas and inter- drives the process of recoupling forward. several occasions. GIZ was able to rapidly JOINT RESPONSIBILITY OF GIZ ests. It can be quite resource- and time- support the new political leadership with PROGRAM TEAMS AND PARTNERS FOR intensive to obtain acceptance from all SMART IMPLEMENTATION REQUIRES advice on such a reform. PROJECT IMPLEMENTATION SHAPES stakeholders to jointly discuss solutions FLEXIBILITY FOR CHANGES OF COURSE, WHAT IS DONE, HOW IT IS DONE AND for a common problem. But this is exactly THE OPTION OF REALIGNING GOALS WHEN where there is potential to recouple pro- AND DECISION-MAKING AT LOCAL »The room to Sharing responsibility with partners for gress and find more comprehensive and LEVEL implementing projects and achieving sustainable solutions. In the recent learning project, retracing maneuver is agreed goals is a key and overarching International best practices often pro- important decisions during the implemen- principle of cooperation in GIZ projects. vide a starting point for local actors and tation of a GIZ project revealed the obsta- important GIZ thus accepts that local conditions and program teams in their search for possible cles, imponderables and inconsistencies local capacity shape implementation more solutions. But each of these ideas must be GIZ teams can face. Programs respond to when the aim is than external factors. GIZ’s support con- adapted to fit local conditions. This is often such challenges or changes by adapting sists in helping to shape and facilitate the done through experiment. Generic con- their strategies, activities and cooperation to recouple partners’ process of desired change. The cepts are crafted and modulated until they partners, thus deviating from jointly agreed partners determine the type, direction achieve the required accuracy necessary plans. These adjustments happen continu- social, political, and speed of change. When designing a to fit the local situation. Program teams ally throughout the entire implementation program, GIZ compares these ideas with describe how they often hand-pick actors, process. They are the norm, not an excep- environmental those of the commissioning parties, and it strategies, processes and concepts to craft tion, and yet they remain unpredictable. must meet the challenge of negotiating a solutions that perfectly match local chal- Responding to imponderables can cost a and economic compromise acceptable to all parties. The lenges. For many GIZ program managers, great deal of time and resources. At the extent to which local partners identify with this accurate match defines the quality of same time, adjustments are necessary to agendas.« the goals and approaches of the project service provided to clients and enhances support and advance the partners’ change determines – and in some cases limits – the sustainability of results. process. Obstacles a governance project in what is done, how it is done and when. Stakeholder consultations, with par- Indonesia experienced illustrate this point: Implementation requires scope for Moreover, ownership fluctuates ticular attention to bringing groups of The project advised two ministries on fi- adapting and changing course and for throughout implementation. Chang-

208 209 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS ing stakeholder constellations (e.g. after to play in this. Second, it entails ongoing jects. It ensures that despite all issues ful, but it says little about the effectiveness elections) or a change in political priori- monitoring of the political dimensions of that may arise, projects stay attuned to lo- of the results. It is only the process – the ties can alter partners’ or commissioners’ the reform process, to assess changes cal problems, capacity and solutions. The way in which results are achieved – that ownership of agreed goals, approaches or that require the program to respond. process itself influences which and how gives an idea of their quality and effec- timelines. Smart implementation implies Using a multi-level approach for pro- results are achieved. This leads to tension tiveness. Smart implementation therefore that ownership is constantly reviewed and ject design is a way of dealing with imple- in daily program management because means keeping track of both the results ensured. It is a precondition for the sus- mentation risks through political action. A teams must respond to the rationale of the orientation and the process orientation tainability of achieved results. A case from programme design that involves measures different actors involved (partners, local and steering projects using both forms of Peru illustrates what this means in daily at individual, organizational and political actors, head office, commissioners). On logic. life: The program aimed to reduce and levels enables the balancing of bottle- the one hand, a project seeks to achieve In summary, implementation that facil- prevent violence against women. The pri- necks, deadlocks or a lack of synchroniza- pre-defined objectives and indicators (re- itates a recoupling toward sustainable pro- vate sector was identified as a societal en- tion during implementation. It allows pro- sults orientation) in order to be account- gress focuses on cooperation. It is charac- tity that could assist in changing attitudes gram teams to maintain contact with the able to commissioners about progress. terized by a process- and partner-oriented and preventing violence against women. cooperation partners even if the process On the other hand, strategies, processes way of working, in which technical consul- The program began by wooing the private stalls at one level. and activities are continually being adapt- tancy is combined with policy, process and sector as a partner in advocating for the ed to local changes (process orientation) organizational consultancy. This requires cause and taking action to prevent abuse to ensure that support is effective and reflective management in collaboration and violence in the workplace and at home. »Successful sustainable. One of the consequences of with the partners. Reflective management Knowledge of the local context and con- this parallel focus is that program man- helps to link previous interactions and tacts of the national program staff helped recoupling agers integrate two different rationales experiences to future plans and can thus identify options for cooperation. Yet, it took into their implementation strategies that give transformations direction and drive. many tries to find the right hook to capture requires are not always compatible and can lead Successful recoupling requires capac- the attention of business and get partners to conflicting objectives. A consequence ity to implement new policy ideas and to to engage. Research initiated by the pro- capacity to is that projects must seek a balance be- steer national, regional or global change gram calculated the monetary effects of tween achieving short- to medium-term processes. Such capacity needs to be built partner violence for businesses, and this implement results within a project cycle, while aiming for and with all involved stakeholders. At- spurred local businesses to engage in at long-term societal change that easily tention to smart implementation and in- awareness-raising and training. new policy takes a decade. vesting in the capacity to implement are The strong focus on process allows aspects that deserve more attention in the SMART IMPLEMENTATION ideas and to the qualitative aspect of development to debate on how to achieve a recoupling for ACKNOWLEDGES THAT SOCIETAL be taken into account. Recording progress social, political, environmental and eco- CHANGE IS POLITICAL IN NATURE steer change and change by measuring results is use- nomic progress. Smart implementation means under- standing the political context not as an ex- processes.« ternal or given framework, but to see it as part of the options for action. This has two consequences for program teams. First, SMART IMPLEMENTATION MEANS 1 GIZ GmbH Ed. 2015: Cooperation Management for Practitioners. Managing Social Change with the rules of political action not only have to FOCUSING ON BOTH RESULTS AND Capacity WORKS. Springer Gabler Verlag. be familiar, project partners and staff must PROCESSES 2 Dennis J. Snower 2019: Toward global paradigm change: Beyond the crisis of the liberal world order; In: Global Solutions Journal, Vol. IV, page 25. also have mastered them so well that they The principle of assuming joint responsi- 3 Ebenda, p. 10. can act within them. The national program bility for implementing projects explains 4 Colm Kelly 2019: Repurposing our economies – and our businesses. In: Global Solutions Journal, staff members have an indispensable role the strong focus on process in GIZ pro- Issue 4, p. 27.

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FIELDS OF TRANSFORMATION portunity in stone, undermines democracy Implementing The relationship between society and the and political stability and exacerbates al- economy undergoes reassessment at ienation within society. Moreover, it is a times of crisis. This is shown above all model in which the accumulation of eco- the SDGs by the major crises or transformations of nomic power goes hand in hand with politi- capitalist development in which the busi- cal influence – over legislative processes, ness models and modes of regulation new trade agreements and social and en- On the relationship between sustainable characteristic of a certain period of devel- vironmental standards. opment began to disintegrate. The future development and the global commons course of the digital transformation and the challenges of coping with environ- »The crisis of mental change will force such a reassess- ment – but under conditions of extreme democracy is The authors: The institution: social inequality. Enormous technological leaps, a reorganization of economic power Elisabeth Bollrich often rooted in and momentous changes in the relation- Coordinator Dialogue ship between employees and companies on Globalisation, the withdrawal will lead to a fundamental transformation Global Policy and Development Department, of the mode of production. of democracy However, we will not be able to meet Friedrich-Ebert-Stiftung Friedrich-Ebert-Stiftung (FES) is the oldest these challenges by persisting with the ex- political foundation in Germany, with a rich from its role isting economic policy in many countries Jochen Steinhilber tradition in social democracy that dates back to its founding in 1925. Our work is devoted based on the simple credo “private before in shaping the Head of the Department to the core ideas and values of social democ- state.” The hallmarks of this economy are Global Policy racy – freedom, justice, and solidarity. This is short-termism and an evaluation of com- economy.« and Development, the mandate the foundation has adopted in its Friedrich-Ebert-Stiftung panies geared exclusively to profit, coupled programmes for political education, inter- with exaggerated expectations concerning national cooperation as well as scholarship returns on investment. It is nourished by a A GLOBAL WAVE OF PROTESTS programmes and research. And this connects us to social democrats and free trade unions. “rationality myth,” the myth that markets CALLING FOR CHANGE (AGAIN) Friedrich-Ebert-Stiftung maintains its own and market decisions are fundamentally Today a wide range of protest movements representations in over 100 countries of Africa, rational. What Randy Martin calls the “fi- have emerged around the globe. Despite Asia, the Middle East, Latin America, Europe nancialization of daily life” has reached a the major differences in how these strug- and North America. point where many private and municipal gles play out at the local level, among their decisions concerning issues such as hous- common themes are rising inequality, ing, social protection and the energy sup- extreme poverty, austerity packages, the ply are now massively influenced by the corruption of the powerful and the ecologi- financial markets. This is a model in which cal emergency. These protests have also the public interest is adapted to the needs clearly taken their inspiration from each of the markets instead of the economy be- other. Clear signs of contestation and con- ing geared to the public interest. It gives flict can be seen in cities throughout the rise to extreme inequality, which in turn world where the increasing commodifica- carves social relations of power and op- tion of public space is threatening basic

212 213 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS living conditions and the well-being of PUBLIC INFRASTRUCTURE by social pressure to develop their own municipalities, communities and regions. poorer communities in particular. INVESTMENTS solidarity-based solutions and build a new It requires spaces for municipal decision- The widely discussed crisis of democ- Many of these disputes turn on how to or- social infrastructure. They are attempts at making and financial support, for example racy is often rooted in this withdrawal of ganize the “fundamental economy” – for ex- self-organization by groups who otherwise to establish business cycles between local democracy from its role in shaping the ample, energy systems, social protection, cannot find any protection or use in the and regional companies and local public economy. This is also shown by the nu- medical care, transport and nursing, but market economy structures, such as the “anchor institutions” (administrations, hos- merous waves of protest across the globe also banking, the internet and food – to en- countless informal workers, Indigenous pitals, schools). And it must be supported in recent years. In many countries, and sure that everyone can enjoy a secure and populations and other, often marginalized by democratic participatory institutions in especially in large cities, “service deliv- civil life. We all participate in this “invisible groups. These initiatives remain precari- the workplace and the local community. ery protests” are the order of the day in economy” every day. And it is precisely this ous and are at risk of being co-opted by Democratic and inclusive social infra- struggles over affordable housing, trans- public daily economy that has come under market interests if they are successful. structures begin in people’s immediate vi- port, energy and food and against the com- pressure in recent decades as a result of cinity and must also be decided there. How- modification of public space. Although the privatizations and the large wealth funds ever, they require the support of (nation-) specific triggers of these protests differ in search of constantly new, high-yield in- »SDGs are state and global action. Societies oriented widely, the protesters’ demands mostly vestment opportunities. In many countries, to the common good need a functioning concern economic justice, “real democ- it has been largely dismantled or converted seen as an state – and not, as in recent years, a state racy” and rights. They combine criticism into a profit-oriented, and hence often ex- that operates only as a crisis manager, sta- of the erosion of the elementary founda- clusive, service economy. investment bilizer and protector where the markets tions of everyday social life and of the un- In order to reduce inequality, specifi- have failed or as a paternalistic state. In- coupling of the economy from the needs of cally also in times of change, and to “re- opportunity, stead the state must play the role of an “en- large sectors of the population with criti- embed” important sectors of the economy abler” (Elinor Ostrom) of structures that cism of increasingly authoritarian styles of in society (Polanyi), we need a range of as the next serve the public interest. It must ensure government. The authoritarian practices new approaches to the public good on dif- the right mix of private companies, coop- in question range from corrupt moderni- ferent levels. Today numerous local at- business erative approaches and public enterprises, zation regimes, to austerity policies ap- tempts to protect communities or promote protect spaces of freedom from the pres- parently without alternative, to crisis man- natural or social public goods (often born frontier for sure to enhance profitability and provide agement in Europe that is largely free from out of protests) are already operating un- “development tools” (technology, capital democratic control. der the banners of the “commons” or “sol- start-ups.« and knowledge) for public interest projects. A good seismograph for an exist- idarity-based economies.” These include ing or impending crisis of capitalism is such diverse approaches as workers’ and WE MUST BEWARE OF SDG-WASHING when it embraces its opponents. Recent producers’ cooperatives, energy coopera- Nevertheless, they make two points IN FINANCE examples include the announcement by tives and credit unions, relief funds and clear: public or cooperative property must The largest “public interest” or transfor- this year’s World Economic Forum that participatory households. Even in the US, be created where markets, competition and mation project being conducted at pre- it will develop a manifesto that rewrites some ten million people are employed in private property are failing to fulfill their sent is probably the implementation of the the goals of business and government ac- companies that are wholly or partly em- purpose or to fulfill it adequately; and this Sustainable Development Goals (SDGs). tion, and the public statement by leading ployee-owned – three million more than requires more joint social-ecological busi- And here again the question is: Should American CEOs that the shareholder val- the number of members of private-sector ness experiments that supplant market- the process be driven by private capital or ue approach is no longer working. The old unions. Granted, we should not paint these and profit-oriented structures in those ar- by the public good? Should it serve profit questions about the relationship between developments in an overly romantic light. eas in which the benefits for society and the or the public interest? Considering the capitalism and democracy and who the Many initiatives are born out of sheer ne- environment outweigh profits. The renais- various initiatives that were and are being economy is supposed to serve are back on cessity due to the failure of the market sance of a form of “everyday communism” launched around sustainability – with an the agenda. and the state, so that people are driven (Wolfgang Streeck) is occurring above all in SDG Summit in 2019 that adopted a Politi-

214 215 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS cal Declaration entitled “Gearing up for a of going fossil free, that is, to tackling the possible solution. The concept of the com- In view of the developments in recent decade of action and delivery for sustain- risks posed by climate change. But it must mons accords sustainability priority over years, there is little to suggest that the im- able development” – one might think that also consider the social implications of in- the rationale of profit maximization. It con- pending challenges could be met success- mobilization for the SDGs has been suc- vestment (social responsibility). There is a ceives of the economy instead as part of fully by even more reliance on the market, cessful. But the SDGs are chronically un- broad consensus that the capital required the broader cultural and social context. It even more profit orientation and even more derfunded. The recognition that we are be- to meet the SDGs is beyond the scope of must be re-coupled with human rights and self-interest. Economic policy is always at hind on SDG finance led the World Bank in public finance. Dialogue on SDG finance – societal values such as dignity, solidarity, the same time social policy. We cannot 2017 to adopt its strategy for “Maximizing or the lack thereof – usually begins with social equity, environmental protection, abandon the crucial questions of who pays Finance for Development” and to introduce a statement that public finance alone will democracy and transparency. the price of change, how transitions can a cascade approach. In the same year, the be insufficient. Public finance seems to be We need public funding and provision be managed fairly, and what contributes to German government initiated a “Hub for in crisis because of increasingly stretched of public goods by states. This would al- the public good to the free play of the mar- Sustainable Finance (H4SF),” and in 2018 public balance sheets. So, if we are to have ready represent a shift away from the cur- kets. Many difficult issues remain open, the UNDP launched its initiative “SDG Im- any chance of meeting the SDG goals, we rent understanding that public funding will such as the relationship between public pact,” which advocates investment strate- probably first need to get public finance be used only where private sector finance interest-oriented and private sectors and gies with positive social and environmental right. cannot be leveraged. In addition, we need between entrepreneurial autonomy and impacts. There are many more such initia- supranational mechanisms. Global in- social control or the mobilization of public tives, but the bottom line is to get “from vestment funds seem to acknowledge the funds. There is no master plan that could billions to trillions” (World Bank) by provid- »Economic policy global commons and in addition have the lead us infallibly to an economy oriented to ing private finance with incentives to con- potential to “transform private goods (like the common good. We must instead pursue tribute to achieving the SDGs. However, is always at country data) into public goods accessible a wide variety of concepts and approaches, leveraging the private sector for sustain- to all” (Arian Hatefi: The costs of reaching and these certainly include public reflec- able development comes with its own chal- the same time the health-related SDGs, 2017). tion and a public debate. lenges – a number of failed public-private partnerships bear witness to this. social policy.« Increasingly, SDGs are seen as an in- vestment opportunity, as the next busi- ness frontier for start-ups. Yet, there has CONCLUSION been little progress toward achieving the The SDGs address problems that affect SDGs at a time of surges in global liquid- every country. International trade, global ity. But as the T20 Task Force on the 2030 knowledge for development, and the pro- Agenda for Sustainable Development vision of environmental protection, health, wrote in this Journal (Vol. 1 Issue 2), fi- financial stability and security have “non- nancing the 2030 Agenda must go hand excludable” (i.e. shared) benefits. Such in hand with financial market regulation. global public goods transcend nation- Developing green instruments in finance – states. But the provision of global public the whole idea behind sustainable finance goods and management of cross-border – is all well and good. But as long as it externalities is currently suffering from is primarily seen as a business opportu- a severe collective action problem at the nity, addressing systemic risks still gets global level. Establishing a long-term short shrift. Moreover, the responsibility sustainable and community-based insti- of finance under the sustainable finance tution, that is, a “commons,” recognized umbrella is too often restricted to the goal by the (regulatory) state appears to be a

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decision-making. Although the G20 has sources increase the workload of female Gender equality for addressed climate change, gender equal- farmers as it becomes harder for them to ity and health, it has done so in separate, secure household essentials. Consequent- siloed ways. Addressing the intersection of ly, girls are the first to leave school to help a sustainable future these issues and prioritizing the partici- manage the workload, thus decreasing pation of women in climate change deci- school enrollment rates for girls. Chang- sion making will lead to more equitable ing animal migration patterns and loss of G20 governance of the gender equality-climate and effective governance. It will also help biodiversity are increasing food insecurity contribute to meeting the United Nations and reliance on unhealthy, store-bought change link Sustainable Development Goals (SDGs), foods. The resulting chronic undernutrition to which the G20 remains committed. The leads to higher rates of obesity and non- G20’s 2020 Summit in has an op- communicable diseases such as diabetes. portunity to make progress on the link be- Weather-related crises and disasters also The author: INTRODUCTION tween gender equality and climate change, increase rates of gender-based violence, Scientists, stakeholders and the public as it aligns with Saudi Arabia’s two priori- with women and girls most at risk. Julia Kulik largely recognize the intense connec- ties of “Empowering People” and “Safe- Director of Research for tion between climate change and human guarding the Planet.” the G20 Research Group health. For many G20 members, wildfires, based at the Munk School »Given their of Global Affairs and flooding, extreme heat and Arctic thaw are THE CHALLENGE Public Policy consistently harming the health of their Climate change is the defining challenge unique citizens. The integral role of gender and its of our time. Rising temperatures cause intersection with climate change and hu- deadly extreme weather events at an in- knowledge and man health are also now widely recognized. creasing and alarming rate. Public opin- Women and girls are the most vulnerable ion polls now indicate that the majority of experience, to the associated health harms of climate people in all countries surveyed consider change in the Global South and also expe- climate change a “major threat to their women must rience gender-differentiated harms in the nation,” which makes it a truly global con- Global North. This vulnerability is driven by cern. The impacts of climate change, how- be empowered women’s confinement to traditional roles ever, are not equally distributed. Women The institution: as the primary users and managers of nat- and girls are disproportionately vulner- to lead in ural resources and as primary care givers. able, largely due to socially constructed It is exacerbated by other intersecting fac- norms that make them poorer and confine addressing tors such as poverty and indigeneity. Tradi- them to traditional caretaking roles. This tional food sources are increasingly at risk, is particularly true in the Global South, climate change The G20 Research Group is a global network which is leading to the increased onset and where women make up a large percentage of scholars, students and professionals in the prevalence of non-communicable diseases of the agricultural labor force, and also in at the global academic, research, business, non-govern- such as diabetes. Extreme weather events the Global North and specifically for Indig- mental and other communities who follow the increasingly cause displacement, death enous women who often experience the level.« work of the G20 leaders, finance ministers and and stress-related mental illnesses. impacts of climate change first and at a central bank governors, and other G20 institu- tions. It is directed from Trinity College and Yet, despite their unique lived expe- more rapid rate. Because women tend to be poorer, have the Munk School of Global Affairs and Public riences and vast knowledge, women do Changing patterns of rainfall, in- lower levels of access to financial informa- Policy at the University of Toronto. not participate fully in climate change creased drought and scarce natural re- tion and services, and have restricted de-

218 219 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS cision-making ability, they are less able to to gender equality were absent altogether ing a specific target with a built-in, multi- yet Hamburg did not link gender to climate adapt and respond to climate crises. The from the next summits in Pittsburgh and year timeline on gender equality. change. Nonetheless, the G20 has made existing barriers to women’s full econom- Toronto. They appeared again in Seoul in In 2017, at the Hamburg Summit host- commitments that will contribute to ad- ic, political and social participation limit 2010 with references to promoting gender ed by German Chancellor , dressing the challenges within that link. their ability to make decisions not only at equality in the context of development and gender equality had its biggest surge. It These include empowering rural women the individual household level, but also acknowledging the gender gap in health. received priority placement in the chair’s and girls by increasing their access to fi- within the international frameworks gov- During this time, the G20 failed to trans- preamble. It carried forward references to nance and increasing the representation of erning climate change control. Given their late its deliberation on gender equality into gender equality and development, as they women and girls in STEM. unique knowledge and experience, women real, actionable commitments. related to the SDG agenda. It also men- must be empowered to lead in addressing tioned labor market inclusion and equity. G20 performance on climate change climate change at the global level. It made new references to the importance The G20 governance of climate change » The G20 has of education in science, technology, engi- also had a slow start. Much of the atten- G20 PERFORMANCE ON GENDER neering and mathematics (STEM) and of tion paid between 2008 and 2010 came in EQUALITY AND CLIMATE CHANGE made significant digital skills for girls. It expanded attention the context of the global financial crisis, Since the G20 first met at the leaders’ level to female entrepreneurship. It also paid including green growth and climate fi- in Washington, DC, in 2008, it has increas- progress in particular attention to female employment nance. The G20 also noted the importance ingly broadened its focus to include issues in Africa, supporting financial inclusion of supporting the negotiations under the beyond its original purpose to contain and expanding for female farmers and rural women, and UN Framework Convention on Climate control financial crises. Over the years, ending gender-based violence. Change. During this period, the G20 made as experts and the broader public began the scope of The Hamburg Summit was an effective significant commitments to phase out in- to recognize the adverse economic impli- example of gender mainstreaming, some- efficient fossil fuel subsidies over the me- cations of gender inequality and climate its attention thing that gender equality scholars and dium term and to support investments in change, the G20 has expanded its attention experts have been advocating for many alternative sources of renewable energy. to these two issues. Despite this increase on gender years. Attention plunged, however, at the From 2010 to 2016, G20 summit atten- and the evidence that women across the 2018 Buenos Aires Summit. The summit tion expanded by including the concepts globe are disproportionately affected by equality.« documents did refer to Canada’s adoption of green transportation and green cities. climate change, the G20 has failed to ac- of the “Gender Results Framework,” which Other subjects of note included low-car- knowledge the connection in its public de- tracks performance on gender equal- bon infrastructure, environmentally sus- liberations. As such, the following two sec- Between 2012 and 2016, attention to ity and identifies what is needed to move tainable food production and vehicle emis- tions assess the institution’s performance gender equality in communiqués gradually forward. Attention rebounded at the 2019 sions. During this period, the G20 leaders on gender equality and climate change increased in both size and scope. The focus Osaka Summit, where leaders reaffirmed committed to climate finance with a pledge separately. was predominantly on the full economic their commitment to increasing female to support the operationalization of the participation of women, with references to labor force participation, addressing the Green Climate Fund. G20 performance on gender equality skills training, equal pay for equal work, fair gender gap in unpaid care work, support- Attention to climate change spiked at G20 leaders first addressed gender equal- and equitable treatment in the workplace ing girls’ and women’s education in STEM, the 2017 Hamburg Summit. It referred to ity at the London Summit in 2009, by re- and financial inclusion. The 2014 Brisbane and empowering women in the agro-food an extensive range of subjects including ferring in their communiqué to building a Summit produced arguably the most well- sector. support for the UN’s Paris Agreement, en- fair and family-friendly labor market for known G20 gender equality commitment — The G20 has made significant progress ergy efficiency, climate resilience, disaster both men and women. This was an indi- to reduce the gap between men and women in expanding the scope of its attention on risk insurance and climate finance. Howev- rect recognition that expanded social poli- in the labor force by 25% by 2025. This was gender equality. Most notably, the 2017 er, the 2018 Buenos Aires Summit failed to cies would enable women to participate considered a major achievement, as it was Hamburg Summit, which made a major ef- make any significant progress on expand- more fully in the labor force. References the first time leaders committed to meet- fort towards gender mainstreaming. And ing the scope and level of ambition of its

220 221 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS commitments on climate change. In fact, and “Safeguarding the Planet,” the Ri- the United States reiterated its withdrawal yadh Summit could make real progress. from the Paris Agreement and the G20 re- It should do so in the first instance by re- treated from its commitment to end fossil iterating its commitment to women’s full fuel subsidies. At the 2019 Osaka Summit, and equal economic, political and social very little was done to help control climate inclusion, with a specific reference to their change, apart from expressing support for equal participation in climate change ne- innovative clean energy technology. gotiations and related decision-making. A Over the last 12 years, the G20 has component of this commitment should be failed to recognize the unique and differen- a report on progress made since the G20 tiated impacts of climate change on wom- began making such commitments in 2012. en in its summit communiqués. It has also Second, G20 members should promote failed to connect climate change to human public understanding of the issue through health in any significant way, even despite the collection and dissemination of gen- historically high levels of heat since 2019, der-disaggregated data on the impacts of which caused deaths across France, India, climate change. Third, the G20 should rec- Canada and, most recently, Australia. ognize the impact of unsustainable popu- lation growth by integrating family plan- PROPOSAL ning into its climate change commitments, This policy brief recommends that the including access to contraception and 2020 G20 Riyadh Summit acknowledge and the protection of sexual and reproductive act on the link between climate change health rights and education. Fourth, the and gender equality. If it is committed to G20 should reaffirm its commitment to ed- taking real action on the priorities Saudi ucating girls, particularly in STEM, which Arabia outlined when it assumed its presi- can contribute to greater female participa- dency, including “Empowering People” tion in the renewable energy sector.

Hawken P. “Project Drawdown”. 2017. https://www.drawdown.org/the-book Kirton J. and Warren B. “G20 Climate Change Governance: Performance, Prospects, Proposals.” Paper prepared for the pre-G20 summit conference on “Prospects and Possibilities for Japan’s ,” Soka University, Tokyo, Japan, December 10, 2018. http://www.g20.utoronto.ca/biblio/G20_Climate_Change_ Governance_181210.pdf Kirton J. and Warren B. “The Missing Link: G20 Governance of Climate Change and Food Security.” Prepared for the China Journal of International Relations, 1, 2018. 1 Fagan. Kulik, J. “G20 performance on gender equality.” In G20 Japan: The 2019 Osaka Summit, edited by J. Kirton and 2 UN Environment Programme. M. Koch, 94-95. 2019. http://bit.ly/G20Japan 3 Women Deliver. Fagan M. “A Look at How People around the World View Climate Change.” Pew Research Centre, April 18, 2019. 4 Kulik. https://www.pewresearch.org/fact-tank/2019/04/18/a-look-at-how-people-around-the-world-view-climate- change 5 Kirton and Warren, “G20 Climate Change Governance” and “The Missing Link.” UN Environment Programme. “Empowering women on the frontlines of climate change.” March 8, 2019. https:// 6 Kirton and Warren “G20 Climate Change Governance: Performance, Prospects, Proposals.” www.unenvironment.org/news-and-stories/story/empowering-women-frontlines-climate-change 7 Women Deliver. Women Deliver. “Invest in Girls and Women to Tackle Climate Change and Conserve the Environment: Deliver for 8 Hawken. Good.” 2017. https://womendeliver.org/wp-content/uploads/2017/09/2019-10-D4G_Brief_ClimateChange.pdf

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It finds that G20 members generally extracted. Commitments are defined as Raising compliance comply with their summit commitments. discrete, specific, politically binding, pub- Furthermore, seven instruments appear licly expressed, and collectively agreed to to have significant effects on compliance statements of intent; they are promises with G20 commitments rates. These instruments are: the num- by summit members to undertake future ber of total commitments produced at action to move toward, meet, or adjust to the summit, the number of official docu- reach a welfare target. They must also be Two evidence-based instruments ments released at the summit, the inclu- measurable. sion of a specific date in the commitment, the hosting of a same-subject ministerial meeting, the binding level of the commit- »G20 members ment, mention of developing countries in The authors: ABSTRACT the commitment, and the number of com- generally G20 leaders can enhance compliance mitments on the same subject produced Jessica Rapson with their collective G20 summit commit- at the summit. comply with Senior Researcher at the ments through the informed use of two Of these instruments, the hosting of G20 Research Group and instruments over which they have direct a same-subject ministerial meeting and the G7 Research Group their summit control. By hosting same-subject minis- the binding level of the commitment have terial meetings and using highly binding the most plausible causal relationship commitments.« language in their commitments, G20 lead- with compliance. Same-subject ministe- John Kirton ers may increase the probability of those rial meetings – that is, meetings of G20 Director of the G20 and G7 commitments being realized. These in- ministers on a specific subject relevant The team then selects a subset of pri- Research Group struments have significant effects on G20 to a commitment (e.g. macroeconomic ority commitments that best represent Co-director of the BRICS compliance even when gross domestic policy) – may enhance information sharing the central priorities and overall achieve- Research Group product (GDP), GDP per capita, change in and policy coordination, while using more ments of the summit including those from Co-director of the Global GDP per capita, and year effects are con- binding language in commitments could both its built-in and innovative agendas. Health Diplomacy Program trolled for. foster a shared sense of urgency for col- They code the commitments for the pres- lective and coordinated actions.3 Thus, by ence of particular compliance catalysts or INTRODUCTION hosting same-subject ministerial meet- constraints – elements thought by summit A major criticism of G20 summit govern- ings and using highly binding language, the analysts and practitioners to raise or lower The institution: ance is the failure of members to comply G20 may be able to increase compliance. compliance. with the summit commitments that their Compliance for each commitment is leaders collectively make, possibly com- METHODOLOGY then measured on a three-point scale, promising the effectiveness of the institu- For each G20 summit, the G20 Research where each member is awarded +1 for full The G20 Research Group is a global network tion.1 It is thus important to know the de- Group, led by teams from the University compliance, 0 for a work in progress, or -1 of scholars, students and professionals in the gree to which members comply with their of Toronto and the Russian Academy of for non-compliance. Analysts assess each academic, research, business, non-govern- commitments and, above all, how such National Economy and Public Administra- member’s compliance with the priority mental and other communities who follow the compliance can be improved to better ad- tion (RANEPA), identify the official summit commitments according to a standardized work of the G20 leaders, finance ministers and dress the issues that the G20 seeks to re- documents issued by the G20 leaders and method outlined in the compliance coding central bank governors, and other G20 institu- 2 5 tions. It is directed from Trinity College and solve. This study attempts to answer this extract the passages that contain commit- manual. the Munk School of Global Affairs and Public question using the latest data assembled ments.4 Within these documents, the pas- Since 2008, the G20 Research Group Policy at the University of Toronto. by the G20 Research Group. sages that constitute commitments are and RANEPA have produced compliance

224 225 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS reports on the progress made by each G20 ject, compliance is highest for commit- Figure 1: Effect of total number of commitments on G20 compliance member in meeting the priority commit- ments on macroeconomic policy at 80%, ments made at each summit. They have followed by financial regulation at 77%, also published an interim compliance re- energy at 73%, climate change at 69%, port, timed to assess progress at the half- development at 67%, and trade at 67%. By way point between summits. member, compliance is highest for the Eu- The data analyzed in this study came ropean Union and United Kingdom at 85%, from 5,407 individual G20 member as- followed by Germany at 84%, Canada at sessments of compliance with 277 com- 84%, Australia at 83%, Korea at 75%, Ja- mitments made at summits from 2008 to pan and the United States at 74%, China 2018. The effects of eight instrumental at 71%, Brazil at 69%, Italy at 68%, Mexico variables on these compliance scores were and Russia at 65%, South Africa at 62%, assessed using a polynomial regression Argentina and Indonesia at 60%, Turkey at model, controlling for possibly confound- 57%, and, lastly, Saudi Arabia at 56%. ing effects of GDP and year. Variables affecting compliance RESULTS The study assessed the effects of eight Commitments instruments: the number of total commit- The 14 summits that have taken place be- ments produced at the summit, the num- tween November 2008 in Washington, DC, ber of official documents released at the and June 2019 in Osaka, Japan, have pro- summit, the inclusion of a specific date in duced a total of 2,725 commitments. These the commitment, the hosting of a same- commitments cover a broad range of sub- subject ministerial meeting, the binding jects including macroeconomic policy with level of the commitment, mention of de- Figure 2: Effect of number of documents on G20 compliance 476 commitments; financial regulation veloping countries in the commitment, with 350; trade with 175; energy with 157; the number of commitments in the same labor and employment with 153; financial subject produced at the summit, and the institutional reform with 144; crime and number of words in official documents. corruption with 128; food and agriculture When controlling for these variables and with 123; technology with 94; and climate the effects of GDP and year, the number change with 91. Over time, the number of of words in official documents released at commitments made at each summit has summits had no significant effect on com- generally risen, with a peak of 529 com- pliance. The seven remaining significant mitments made at the Hamburg Summit in instruments are discussed below. July 2017. Number of total commitments Compliance The relationship between the total number Members’ compliance with their leaders’ of commitments produced at a given sum- priority commitments has generally risen mit and a G20 member’s compliance with over time. Overall, average compliance is any specific commitment from that sum- 71%. The highest compliance was 79% at mit is convex (Figure 1). On average and Buenos Aires in November 2018. By sub- holding all other variables constant, as

226 227 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS the number of overall commitments made Number of documents creases G20 compliance by 5.15%. This date. This is significant at the 1% level increases, compliance decreases until it The relationship between the total number slope decreases by 0.4% per additional (p = 0.000). reaches a minimum at 236 commitments, of official documents produced at a given document until compliance is minimized and then increases. This is significant at summit and a G20 member’s compliance at six documents. After this point, each ad- Same-subject ministerial meeting the 5% level (p = 0.014). for any specific commitment from that ditional document increases G20 compli- Compliance was significantly higher for For the first 236 commitments, on av- summit is convex (Figure 2). On average ance by 5.15% with an increasing slope of commitments on the same subject as a erage and holding all other variables con- and holding all other variables constant, 0.4% per document. ministerial meeting (Figure 4). On average stant, each additional 10 commitments as the number of official documents pro- and holding all other variables constant, decrease G20 compliance by 0.95%. This duced increases, compliance decreases Specific date commitments on the same subject as such slope decreases by 0.002% per additional until a minimum at six documents, and Compliance was significantly lower for a ministerial meeting had 4.4% higher 10 commitments until compliance is mini- then increases. This is significant at the commitments that contained a specific compliance than those without. This is sig- mized at 236 commitments. After this point, 5% level (p = 0.012). date (Figure 3). On average and holding nificant at the 1% level (p = 0.000). each additional 10 commitments increase For the first six documents produced, all other variables constant, commitments G20 compliance by 0.95% with an increas- on average and holding all other variables with a specific date had 15.12% lower Binding level ing slope of 0.002% per 10 commitments. constant, each additional document de- compliance that those without a specific Each commitment was categorized by

Figure 3: Effect of specific date on G20 compliance Figure 4: Effect of same-subject ministerial meeting on G20 compliance

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Figure 5: Effect of binding level on G20 compliance whether it used words that indicated a high- Mention of developing countries er or a lower degree of binding, as defined Compliance was significantly higher for in the Compliance Coding Manual.6 For commitments that did not mention de- example, the words “promise,” “are deter- veloping countries (Figure 6). On average mined to,” and “pledge” indicate a high de- and holding all other variables constant, gree of binding, while “support,” “should,” commitments that did not mention devel- and “urge” indicate a low degree of binding. oping countries had 9.53% higher compli- Compliance was significantly higher ance that those that mentioned develop- for commitments that contained words in- ing countries. This is significant at the 1% dicating a higher binding level (Figure 5). level (p = 0.000). On average and holding all other variables constant, commitments with a higher bind- Number of same-subject commitments ing level had 12.33% higher compliance The relationship between the number of that those that contained words indicating same-subject commitments produced at a lower binding level. This is significant at a given summit and G20 member compli- the 1% level (p = 0.000). ance for any specific commitment from that

Figure 7: Effect of mention of developing countries on G20 compliance

Figure 6: Effect of same-subject commitments on G20 compliance

230 231 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS summit is positive (Figure 7). On average may nonetheless wish to include specific RECOMMENDATIONS that these two strategies have an effect on and holding all other variables constant, as deadlines in their commitments. Despite potential confounds and the seem- G20 compliance, even when economic fac- the total number of same-subject commit- The low percentage of variance ex- ingly low explanatory power of the model, tors and the effects of other instruments ments increases, compliance increases. there nonetheless remains evidence to are controlled for. Specifically, on average, This is significant at the 1% level (p = 0.002). suggest that the two instruments with the compliance is 4.4% higher when a same- On average and holding all other vari- »It is high-est potential for a causal mechanism subject ministerial meeting is held and ables constant, each additional 10 same- for compliance also are significantly corre- 12.33% higher when a higher level of bind- subject commitments increase G20 com- recommended lated with compliance. These are, as pre- ing language is used. pliance by 2.6%. viously mentioned, the hosting of a same- It is thus recommended that G20 lead- that G20 subject ministerial summit and the binding ers host same-subject ministerial meet- DISCUSSION level of the commitment text. Although the ings and use strong language for high-pri- Of the seven instruments found to signifi- leaders host benefits of these two instruments may ority commitments to enhance compliance cantly affect compliance, the hosting of a seem obvious, the analysis in this study and im-plementation of their collective same-subject ministerial meeting and the same-subject now offers em-pirical evidence to confirm G20 summit commitments. binding level of the commitment text have the most plausible potential for a causal ministerial relationship with compliance. Specifically, meetings of G20 ministers on a specific meetings.« subject relevant to a commitment may enhance information sharing and policy coordination, and using more binding plained by the variables included in this language in commitments could foster study (approximately 7%) should also be a shared sense of urgency for collective noted. This value may indicate that com- and coordinated actions.7 Caution should pliance is determined mostly by factors be taken, however, in concluding that the outside the control of the G20 and actions effects found in this study are definitely of leaders are, to a large degree, inde- causal. pendent of commitments made at G20 The remaining instruments have a summits. 1 Kokotsis, 194. substantially more dubious relationship Finally, there are potential issues with 2 Kirton and Larionova, 3-4. 3 with compliance, making it difficult to de- the categorical coding mechanism used Slaughter, 37; Larionova, Rakhmangulov, and Shelepov, 211. 4 Kirton and Larionova, 264. termine any causal connection. For exam- by the G20 Research Group. The categori- 5 Global Governance Program, 23. ple, the number of commitments made at cal codes used may not correspond to the 6 Global Governance Program, 5-6. a summit might be the result of uniquely continuous values they were given in this 7 Slaughter, 37; Larionova, Rakhmangulov, and Shelepov, 211. synergistic collaboration among the lead- study. For example, a score of 0 indicates ers that produces both high compliance partial compliance, which was treated as Global Governance Program, Trinity College, University of Toronto. Compliance Cod-ing Manual and a high number of commitments. 50% compliance in the study, but the true for International Institutional Commitments. August 19, 2019. Kirton, J. and Larionova, M., eds. Accountability for Effectiveness in Global Governance. Further, some instruments might have degree of compliance could be much high- Abingdon: Routledge, 2018. an effect on compliance but might not be er. This could make the effect of the vari- Kokotsis, E. “G20 and BRICS: Enhancing Delivery Legitimacy.” International Organisations Research Journal 12, desirable for leaders to change. For in- ables examined on compliance in terms of no. 2 (2017): 195-207. stance, including a specific date is asso- percentages very different, and possibly Larionova, M., Rakhmangulov, M., and Shelepov, A. “Explaining G20 and BRICS Compliance.” In Accountability for Effectiveness in Global Governance, edited by J. Kirton and M. Larionova, 193-215. ciated with lower compliance as it makes higher. Abingdon: Routledge, 2018. compliance more difficult, yet G20 leaders Slaughter, A.M. A New World Order. Princeton: Princeton University Press, 2004.

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fora of the world’s most powerful econo- which was established during Canada´s Making gender mies. This article begins by summarizing G7 Presidency the year before. The GEAC the 2019 French Presidency’s approach to issued the “Biarritz Partnership”,3 a report advancing gender equality and the results which identifies 79 laws worldwide that equality a reality it achieved. It argues that it is time for the advance the rights of girls and women and G7 to increase policy action in this field and calls on the G7 members to improve their then offers recommendations for how the legislative frameworks to promote gender We need concrete policy action, substantial G7 can accelerate progress towards wom- equality. Giving special weight to the re- en’s empowerment and gender equality port, Macron invited prominent GEAC rep- funding and multilateral cooperation within the G7 and beyond. resentatives to present their recommen- dations to the leaders of the world's major advanced economies at the Biarritz Sum- »Equality needs mit. Moreover, to ensure gender equality The author: How many years will it take to achieve was not only treated as an issue in its own gender equality? According to the World right but prioritized throughout the entire Juliane Stein-Zalai to become both Economic Forum´s latest Global Gen- G7 process, the French Presidency includ- Research Associate, der Gap Report, at the current rate of ed gender-related topics in the agenda of Kiel Institute for the World a top priority change, it would take 99.5 years to close all ministerial meetings. Economy the overall global gender gap. To achieve and a core issue Overall, it seems that the considerable gender equality in economic participa- efforts made by the French G7 Presidency tion and opportunities, it would require on the agendas led by President Macron paid off, as the Bi- as much as 257 years.1 These projections arritz Summit yielded meaningful results are sobering for all girls and women who of the G7 and for gender equality. The exclusion of gen- suffer injustices because of their gender der equality in the principal G7 Leaders´ on a daily basis. They are also bad news the G20.« Declaration adopted in Biarritz should for the economy, as equal access between not be given too much weight, since only men and women to opportunities and life a brief list of issues was produced instead The institution: changes is not only a moral and social im- THE FRENCH G7 PRESIDENCY 2019 of a comprehensive final communiqué. In perative but would also bring considerable Setting the ambitious goal to make gender fact, gender-related issues found their way economic benefits. A 2015 study by the Mc- equality a global cause, the 2019 French into a number of G7 documents issued at Kinsey Global Institute found that if women G7 Presidency rightly placed gender is- the summit in Biarritz. What is more, sep- played an “identical role in labor markets sues high on its agenda. To ensure that arate declarations and statements on the to that of men” in terms of labor-force par- gender equality would feature prominently subject, such as the Declaration on Gen- The Kiel Institute for the World Economy is ticipation, hours worked, and the sector in the G7 discussions, three months prior der Equality and Women’s Empowerment an international center for research in global mix of employment, up to 26 percent could to the summit, the French held a ministe- as well as a statement on the promotion economic affairs, economic policy consult- be added to global annual GDP in 2025.2 rial meeting dedicated to this theme. This of women's entrepreneurship in Africa, ing, and economic education. The Institute For countries to remain competitive, they followed the example of the Italians, who were issued. By joining the Biarritz Part- engages especially in creating solutions to need to make gender equality an integral were the first to organize a G7 ministe- nership on Gender Equality, G7 members urgent problems in global economic affairs. It part of their economic strategies. This is rial meeting on gender equality in 2017. committed to individual legislative meas- advises decision makers in policy, business, and society and informs the broader public why equality needs to become both a top Furthermore, French President Emma- ures that advance gender equality and to about important developments in international priority and a core issue on the agendas nuel Macron extended and renewed the support non-G7 countries to improve their economic policy. of the G7 and the G20, the main economic Gender Equality Advisory Council (GEAC), legislative frameworks as well. The scope

234 235 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS and ambition of the political and financial at least a critical number of them, speed GEAC and the Women 7 and ratify the rel- the G20 to increase both the outreach and contributions in the fight against gender up their individual efforts and translate the evant international gender equality stand- legitimacy of their efforts. The G20 is the inequality, however, vary widely among G7 commitments they have made into action. ards such as the Istanbul Convention and natural platform to create international countries. While some countries, notably What it really takes to empower women the Convention on the Elimination of All momentum, as the G20 countries have France, have defined significant concrete and make gender equality a reality are not Forms of Discrimination Against Women made many commitments and started sev- financial commitments, the US, for in- more and more rhetorical commitments (CEDAW) and push other states to follow eral initiatives related to gender equality, stance, has not announced any concrete and ambitious strategic frameworks but suit.5 Second, all G7 states should rigor- which are complementary to G7 actions. funding pledge.4 Unfortunately, several the concrete implementation and close ously review their legislative frameworks Above all, the G7 states need to comply measures listed in the Annex for the Biar- monitoring of existing schemes as well as with a view to gender equality, abolish dis- with the commitments they have made at ritz Partnership on Gender Equality lack the provision of robust long-term funding. criminatory laws and enact and implement the G20 level, such as reducing the gender ambition. Attempts to include reproductive In the last few years, the G7 has delivered new ones,6 drawing on the legislative pack- labor force participation gap by 25 percent rights in the G7 documents, that is the ba- workable strategies, programs and ini- age put forward in the Biarritz Partnership by 2025 compared to 2012, and should en- sic right to freely decide whether and when tiatives to fight gender inequality, such as and going beyond the not-too-ambitious courage and help other G20 states to follow to have children, failed once again; accord- the Biarritz Partnership and the Affirma- individual commitments made in Biarritz. suit. In three of the G7 countries, namely ing to close observers of the negotiations, tive Finance Action for Women in Africa In order to continuously track and assess Italy, the US and Canada, the decline in this was mainly due to US resistance. (AFAWA) initiative. Furthermore, there are the G7´s efforts to advance gender equali- gender gap is not in line with the expected numerous international regulations, road- ty, the G7 should implement a comprehen- progress towards meeting the “25 by 25 FROM RHETORIC TO ACTION maps and projects, such as the 2030 Agen- sive accountability framework as proposed target”.10 Furthermore, the G7 should lev- What then are the prospects for advancing da and the International Fund for Survivors by the GEAC. In addition to this, the G7 erage their influence in the international gender equality worldwide if even a fully of Conflict-Related Sexual Violence, which should actively assist developing countries organizations surrounding the G20, such committed presidency of a small group of require the political and financial sup- in initiating similar legislative processes. as the International Monetary Fund, World comparatively like-minded countries is un- port of the G7 to produce tangible results. Third, G7 members should provide finan- Bank and the OECD. These institutions are able to stimulate all its members to take Where overall G7 action is not manageable, cial support to women´s rights organiza- important partners for building networks strong and determined action to strength- coordinated and individual actions by those tions and initiatives promoting women´s and knowledge on the one hand, and for en women´s rights? As a club of liberal willing to lead are the right way to go. economic empowerment on a regular implementing and monitoring specific pol- democracies and major economic powers, basis. This requires increasing financial icy action on the other. G7 countries have both the responsibility resources in both domestic budgets and To make a proportionate and overdue and the capacity to advance equal rights. » We cannot wait development assistance.7 By setting the contribution to making gender equal- The uncomfortable reality is, however, that goal to devote 50 percent of its develop- ity a reality at the global level, G7 coun- breakthrough progress by the G7 in fur- another century ment aid to projects to reduce gender in- tries need to step up their engagement by thering gender equality is unlikely as long equalities,8 France has taken a first step in backing up their commitments with both as equal rights continue to be viewed as a to close the that direction. Fourth, the G7 need to bet- funding and concrete policy action and by “niche issue” in many public administra- ter integrate their initiatives into the work using their influence in the G20 and inter- tions, most notably, but not exclusively, gender gap.« of the United Nations (UN), in particular national organizations. As we cannot wait in the US. Transforming the tradition- the 2030 Agenda, by aligning their policies another century to close the gender gap, ally “soft” issue into a generally acknowl- with the targets defined under the Sustain- it is time to turn rhetoric into action. While edged “hard” economic one is possible CONCRETE POLICY ACTION, able Development Goal 5 and continuously costs may appear high in the short term, but requires time and political leadership, SUBSTANTIAL FUNDING AND checking progress against these targets.9 investing in gender equality will have high which are both scarce resources. Despite ENHANCED MULTILATERAL Finally, the G7 should intensify and im- returns for both women and men around all these difficulties, however, achieving COOPERATION prove collaboration and coordination with the globe. substantial progress on gender issues So where to start? First, all G7 countries comes within reach if the G7 countries, or should follow the recommendation by the

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1 World Economic Forum (2019): “Global Gender Gap Report 2020”, available online at www3.weforum.org/ docs/WEF_GGGR_2020.pdf, p. 6. 2 McKinsey Global Institute (2015): “The power of parity: How advancing women’s equality can add $12 trillion to global growth”, available online at https://www.mckinsey.com/featured-insights/employment-and-growth/ how-advancing-womens-equality-can-add-12-trillion-to-global-growth 3 See Gender Equality Advisory Council (2019): “Biarritz Partnership for Gender Equality”, available online at https://www.elysee.fr/admin/upload/default/0001/05/cfb1e2ba2b9aa09c1660f1b6df2cabbc815eecc2.pdf 4 For a comprehensive list of G7 commitments under France’s leadership in 2019, see Ruthrauff, J., Thompson, L. and Cahill, M. (2019): “France Called for a Feminist G7, but Did the G7 Deliver? A Report Card on the 2019 G7 Commitments to Gender Equality”, Washington, DC: International Center for Research on Women and Center for Democratic Education, available online at https://www.icrw.org/report-card-on-2019-g7-commitments- to-gender-equality/ 5 See Gender Equality Advisory Council, p. 2, and W7 (2019): “G7: Women 7 Alternative Gender Declaration”, August 23, 2019, available online at http://www.feministscount.org/assets/presse/18%20-%20G7%20-%20 Women%207%20Alternative%20Gender%20Declaration%20-%20August%2023%202019.pdf 6 This recommendation has been prominently put forward by the Gender Equality Advisory Council. 7 For a similar recommendation, see Women 7 (2019): “Towards a truly feminist and transformative G7. General recommendations of the W7”, May 9, 2019, available online at https://www.feministscount.org/assets/presse/7%20-%20EN%20-%20Towards%20a%20truly%20feminist%20 and%20transformative%20G7%20-%20General%20recommendations%20of%20the%20W7%20-%20May%209%- 202019.pdf 8 French Ministry for Europe and Foreign Affairs (2018): “France’s international strategy for gender equality (2018-2022)”, available online at https://www.diplomatie.gouv.fr/IMG/pdf/meae_strategie_-__en_cle076525.pdf, p. 7. 9 A similar point has been made by Kulik, J. (2019): “Advancing Gender Equality at the G7 Biarritz Summit: “Good Steps Taken, Big Opportunities Missed”, November 12, 2019, available online at http://www.g7g20. utoronto.ca/comment/191112-kulik.html 10 See OECD and ILO (2019): “Women at Work in G20 countries: Progress and policy action”, available online at https://www.oecd.org/g20/summits/osaka/G20-Women-at-Work.pdf, p. 6.

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Page 242 Structural reforms Demographic to make the most of demographic change change: Luiz de Mello Yvan Guillemette Implications for OECD Page 249 How does population Macroeconomic aging affect the effectiveness of monetary and fiscal Policy policy? Naoyuki Yoshino Hiroaki Miyamoto Asian Development Bank Institute GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 DEMOGRAPHIC CHANGE: IMPLICATIONS FOR MACROECONOMIC POLICY

can be decomposed into two components: latest population projections from the Eu- Structural reforms the employment-to-population ratio and ropean Commission (for European coun- labor productivity. The first of these com- tries) and the United Nations Population ponents can be further decomposed into Division (for other countries), this support to make the most of a working-age population ratio (ratio of ratio is projected to decline in most coun- population aged 15 to 74 to total popula- tries over the coming decades. This effect tion) and an aggregate employment rate alone is projected to lower real GDP per demographic change (ratio of employment to the working-age capita by about 3% across G20 countries population). A declining employment-to- through to 2060, all else equal (Figure 1). population ratio does not mean that liv- Support ratios are projected to increase ing standards will fall outright, because it over this period only in Argentina, India, The author: INTRODUCTION can be compensated by labor productivity Indonesia, Israel, Mexico and South Africa, The world is going through rapid demo- growth. However, for a given rate of labor due to higher fertility rates and lower life Luiz de Mello graphic change. In most G20 countries, productivity growth, a falling employment- expectancies. At the other extreme, the Director of the Policy employment-to-population ratios are set to-population ratio hampers improve- largest declines in support ratios are pro- Studies Branch at the to decline through to 2060, putting down- ments in living standards. jected in Korea, Spain and Japan, subtract- Economics Department of the OECD ward pressure on progress in living stand- The working age population ratio is a ing between 15% and 25% to real GDP per ards. In this context, labor market reforms summary indicator of the age structure of capita through 2060. can potentially boost employment rates the population. It tends to fall with popula- Aggregate employment rate projec- The co-author: Yvan Guillemette and thus help offset part of, or all of, the tion aging, indicating that each person of tions are obtained from a cohort approach, The institution: drag on living standards due to adverse working-age must “support" an increasing incorporating generational trends and demographics. At the same time, where number of young and old. According to the societal changes, such as rising female populations are still young, favorable de- mographics can be a harbinger of greater prosperity in the future, especially if sup- Figure 1: Contributions to projected change in real GDP per capita between The Organisation for Economic Co-operation ported by policies that encourage the youth 2020 and 2060 and Development (OECD) is an international to stay in education and employment, and organisation that works to build better policies acquire the skills they need to thrive in for better lives. Our goal is to shape policies rapidly changing economies and societies. that foster prosperity, equality, opportunity and The diversity of experiences among G20 well-being for all. We draw on almost 60 years of experience and insights to better prepare countries calls for different policy actions the world of tomorrow. in different countries. Together with governments, policy makers and citizens, we work on establishing international DEMOGRAPHIC CHANGE IS PROJECTED norms and finding evidence-based solutions TO WEIGH ON LIVING STANDARDS IN to a range of social, economic and environ- MOST COUNTRIES mental challenges. From improving economic The OECD Economics Department regu- performance and creating jobs to fostering larly generates long-run GDP projections strong education and fighting international tax for individual G20 economies using a evasion, we provide a unique forum and know- ledge hub for data and analysis, exchange of model based on a conventional production experiences, best-practice sharing, and advice function.1 Accordingly, projected changes Source: OECD long-term baseline scenario as of December 2019. on public policies and global standard-setting. in living standards (real GDP per capita)

242 243 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 DEMOGRAPHIC CHANGE: IMPLICATIONS FOR MACROECONOMIC POLICY employment rates and rising educational standards by 14.5% among G20 countries manent policy reform package between by 24 percentage points of GDP per capita attainment. The approach also integrates by 2060. This calls for policy action to lift 2020 and 2030 that, for a number of policy per unemployed worker, lowers union bar- already-legislated future changes in statu- employment rates and raise labor produc- indicators, would close half of the current gaining excess coverage (defined as the tory retirement ages. Projected changes in tivity, depending on initial country condi- gaps relative to simple (unweighted) av- difference between the coverage of col- employment rates arise from differences tions and gaps in policy settings relative to erages of these indicators for the top five lective contracts and union density) by 9 in the employment propensities of differ- good performers. performing countries. In this exercise, the percentage points of the workforce, raises ent cohorts combined with shifts in the magnitudes of the policy changes depend, public spending on family benefits in kind demographic structure of the population. for each country and indicator, on the gap by 0.6 percentage points of GDP, lengthens The larger the differences between entry/ »Where relative to best practices, defined as the maternity leave by 12 weeks, and lowers exit rates into/from employment of differ- policy settings in place in the best per- tax wedges for single earners and couples ent age cohorts, and the larger the size populations forming countries according to the latest by about 10 percentage points of labor differences between cohorts, the more the available data. The exercise assumes that costs. aggregate employment rate changes over are young, only half of the gaps close over the reform The actual parameters of the reform time in the baseline scenario as various period in recognition of the difficulty of im- package differ for each country depending cohorts progress through their active life favorable plementing these structural reforms. on distance to best practices. Implemen- cycles. More specifically, the reform pack- tation raises employment rates for all age Population aging tends to depress the demographics age considered in the simulation exercise groups, but especially for the youth and aggregate employment rate, because em- is as follows. The median country raises prime-age women. For the OECD coun- ployment rates generally decline past the can be a spending on active labor market policies tries, by 2040 the aggregate employment prime employment ages of 25 to 54. How- ever, population aging is not the only influ- harbinger ence on employment rates. In many coun- tries, especially the more advanced ones, of greater Figure 2: Impact of labor market reforms on OECD employment rates the negative aging effect is offset, at least in part, by other cohort dynamics, mainly prosperity.« rising female employment rates. Indeed, in the OECD area the projected change in the employment rate adds 4% to GDP per LABOR MARKET REFORMS CAN RAISE capita by 2060 (Figure 1). In the G20 area, EMPLOYMENT RATES however, a falling aggregate employment Labor market reform appears particularly rate subtracts 11.5% from living standards desirable in the context of demographic by 2060, reflecting declining employment change to encourage higher employment rates in India and China. Although cohort and longer working lives. OECD work on models for these countries are less reli- the impact of labor market reforms on the able given data gaps, the limited informa- economy is extensive, but the specific poli- tion available suggests that female em- cy effects used in the long-term model are ployment rates, in particular, have been from the recent work of Gal and Theising declining. (2015[2]) and Égert and Gal (2017[3]). Putting together the working age pop- A simulation exercise illustrates the Source: Guillemette, Y. and D. Turner (2018), The Long View: Scenarios for ulation ratio and employment rate effects, potential effects of selected labor market the World Economy to 2060, OECD Economic Policy Papers, No. 22, OECD projected changes to employment-to- reforms. Consider, for example, a case Publishing, Paris, https://doi.org/10.1787/b4f4e03e-en. population ratios are set to depress living where OECD countries implement a per-

244 245 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 DEMOGRAPHIC CHANGE: IMPLICATIONS FOR MACROECONOMIC POLICY rate is about 6.5 percentage points higher ployment reacts actually drags down the projected declines in employment-to-pop- tainment) and the quality of instruction, than in the baseline scenario, an outcome amount of capital available per worker, ulation ratios. whereas promoting trade openness means that is driven in large part by the boost to hence the slight negative growth contribu- lowering both tariff and non-tariff barriers female employment coming from improve- tion of capital intensity. This would spur INFLECTING THE TREND DECLINE IN to the flow of goods and services across ments to family benefits and maternity investment to rise and eventually capital LABOR PRODUCTIVITY GROWTH borders. leave (Figure 2). In terms of policies, tax intensity would also contribute positively When it comes to emerging-market econo- To illustrate the effects of these re- wedge reductions have the largest im- to growth. OECD living standards would mies and developing countries, distances forms, a reform simulation exercise akin pact on the aggregate employment rate, be some 4% higher than in the baseline to best practices are especially large in the to the one presented above can be con- because they affect employment rates for scenario when the reforms are fully im- areas of governance, education and trade sidered for Brazil, Russia, India, Indone- the youth, prime-age men and older work- plemented in 2030 and 10% higher by 2060 openness. Reforms in these areas could sia, China and South Africa, the so-called ers. Lowering tax wedges and increasing (Figure 3, Panel B). greatly accelerate the catch-up in living BRIICS countries. The simulation exercise family benefits in kind would promote not The cumulative improvement in living standards by boosting labor productivity shows that improving governance, edu- only employment among the lower-income standards relative to the baseline sce- growth. The goal of improving governance cational attainment and trade openness segments of the population but also the nario is as much as 12% to 15% in coun- should be interpreted as targeting a wide to median OECD levels over the next 40 integration of women in the labor market tries that are currently furthest away from range of objectives, from reducing corrup- years could boost living standards by 30% (OECD, 2017[4]). best practices on the set of labor market tion, improving law enforcement and the to 50% relative to a baseline scenario of In turn, rising employment rates would policies considered here, including Italy, judicial process, increasing the effective- no policy change (Guillemette, 2018[1]). boost trend real GDP per capita growth Belgium, Spain, France, Greece and Slo- ness of public services and the account- Governance appears a particularly potent by two-thirds percentage points in the venia (Figure 4). Except for Spain, these ability of those in power, to enhancing source of potential economic gains in Rus- OECD area at the peak toward the end of policy-induced gains would be enough to access and voice of the citizenry in public sia, while Brazil, China and India also have the reform implementation period (Figure fully compensate the negative contribution affairs. Improving education means mak- much to gain by boosting educational at- 3, Panel A). The rapidity with which em- on GDP per capita growth stemming from ing gains in both quantity (educational at- tainment. The influence of greater trade

Figure 3: Impact of labor market reforms on OECD trend real GDP per capita Figure 4: Impact of labor market reforms on real GDP per capita

A. Growth, % pts difference from baseline B. Level, % difference from baseline

Source: Guillemette, Y. and D. Turner (2018), The Long View: Scenarios for Source: Guillemette, Y. and D. Turner (2018), The Long View: Scenarios for the World Economy to 2060, OECD Economic Policy Papers, No. 22, OECD the World Economy to 2060, OECD Economic Policy Papers, No. 22, OECD Publishing, Paris, https://doi.org/10.1787/b4f4e03e-en. Publishing, Paris, https://doi.org/10.1787/b4f4e03e-en.

246 247 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 DEMOGRAPHIC CHANGE: IMPLICATIONS FOR MACROECONOMIC POLICY openness is comparatively small, but larg- on is projected to fall by 2060 in six of the est in Brazil given relatively high import G20 countries, including Japan and China. How does population tariffs. Even where the population will continue For all countries, raising labor produc- to grow, workers are getting older. Given tivity growth by moving to best practices findings that suggest a negative associa- aging affect the in various policy areas appears especially tion between productivity growth and the desirable in the current context where pro- average age of the workforce, investing in ductivity growth has been trending down youth through more and better education effectiveness of and some research suggests that there and boosting productivity with institutional could be a negative link between demo- and policy reforms seems all the more ap- graphics and productivity growth (Feyrer, pealing. monetary and fiscal 2007[5]; Jones, 2020[6]). If productivi- ty growth depends on the generation of Luiz de Mello and Yvan Guillemette, OECD new ideas and inventions, and if the rate Economics Department. The analysis and policy? at which this occurs is proportional to the opinions presented in this article are the size of the population, then it is worriso- authors’ own and do not necessarily reflect me for productivity that global population those of the OECD and the Organisation’s growth is slowing, and that the populati- member and partner countries. The author: INTRODUCTION How does population aging affect the ef- Naoyuki Yoshino fects of macroeconomics policies? Due to Dean, Asian Development declining fertility and rising life expectan- Bank Institute cy, many countries are facing rapid aging of their populations. According to the popula- tion projection by the United Nations, the old-age dependency ratio (the proportion The co-author: Hiroaki Miyamoto of people aged 65 or older in a working- 1 See Box 1 in Guillemette and Turner (2018[7]) for an overview of the model and for references to more detailed explanations. age population) will double by 2050 (Fig- ure 1). These demographic changes cause Égert, B. and P. Gal (2017), “The quantification of structural reforms in OECD countries: A new framework”, qualitative and quantitative changes in the OECD Economics Department Working Papers, No. 1354, OECD Publishing, Paris, demand and supply of the entire economy. https://dx.doi.org/10.1787/2d887027-en The institution: Feyrer, J. (2007), “Demographics and Productivity”, The Review of Economics and Statistics, Vol. 89/1, In response to population aging, research pp. 100-109. analyzing the impact of population aging Gal, P. and A. Theising (2015), “The macroeconomic impact of structural policies on labour market outcomes in on the macroeconomy is growing. How- OECD countries: A reassessment”, OECD Economics Department Working Papers, No. 1271, OECD Publishing, Paris, https://dx.doi.org/10.1787/5jrqc6t8ktjf-en ever, little attention has been paid to the Guillemette, Y. (2018), Speeding up economic catch-up in the BRIICS with better governance and more impact of population aging on the effec- education, OECD EcoScope, https://oecdecoscope.blog/2018/09/17/speeding-up-economic-catch-up-in- the-briics-with-better-governance-and-more-education/ tiveness of macroeconomics policies. The Asian Development Bank Institute is The purpose of this article is to study Guillemette, Y. and D. Turner (2018), “The Long View: Scenarios for the World Economy to 2060”, an Asian think tank focused on identifying OECD Economic Policy Papers, No. 22, OECD, Paris, https://doi.org/10.1787/b4f4e03e-en how population aging would affect the effective development strategies for Asia and Jones, C. (2020), “The End of Economic Growth? Unintended Consequences of a Declining Population”, macroeconomic effects of monetary and NBER Working Papers, No. 26651, National Bureau of Economic Research. the Pacific, and on providing support to ADB fiscal policies. It is based on a longer paper OECD (2017), Bridging the Gap: Inclusive Growth 2017 Update Report, OECD, Paris, http://www.oecd.org/ member countries in managing development inclusive-growth/Bridging_the_Gap.pdf challenges. (Yoshino and Miyamoto, 2019) that exam-

248 249 GLOBAL SOLUTIONS JOURNAL ∙ ISSUE 5 DEMOGRAPHIC CHANGE: IMPLICATIONS FOR MACROECONOMIC POLICY ines the effects of population aging on eco- ing a panel data of Organisation for Eco- have a more important role. Our model of taxes paid by workers. In the economy, nomic performance and the effectiveness nomic Co-operation and Development suggests that postponing retirement age the pension benefits are transfers from tax of monetary policy by using a dynamic sto- (OECD) countries. We identify the fiscal by paying a productivity wage rate and payments by workers to retirees. Since the chastic general equilibrium (DSGE) model policy shocks as forecast errors of govern- asking people to work as long as possible amount of pension benefits per retiree is with heterogeneous households (compris- ment spending, estimate their output ef- are helpful factors. This policy recommen- fixed, an increase in the proportion of the ing young and old households). fects, and examine how population aging dation would increase the labor force and working population reduces each worker’s The novelty of the study is the devel- modifies the output effects of fiscal policy reduce the burden of social security ex- tax burden. As a retired person receives a opment of a tractable DSGE model that shocks. penses. Budget deficits would decrease, fixed amount of pension benefits and con- enables us to examine the effects of demo- We find that demographic structure and fiscal sustainability could be achieved sumes all of it in each period, consumption graphic changes on the economy without affects the output impact of government even if the economy is faced with an aging of retirees does not change. In contrast, assuming the life-cycle of the agents. Our spending shocks. While in non-aging econ- population. worker consumption increases due to the model shows that a decline in the working omies, the government spending shock Most related to this study is Yoshino reduction of tax. This leads to a higher ag- population reduces aggregate output, con- increases output significantly in both the and Miyamoto (2017), which shows that gregate consumption. sumption and investment by reducing total short- and medium-term, in aging econo- population aging weakens the effective- labor supply in the long run. We also find mies, output responses are not statisti- ness of macroeconomic policies by us- that the effectiveness of monetary policy cally significant. ing a new Keynesian DSGE model. Imam »Demographic diminishes when the working population These results have important policy (2013) and Wong (2019) also point out that declines. implications. Our analyses show that population aging would reduce the effects structure The article also empirically examines neither monetary policy nor fiscal policy of monetary policy on inflation and output. the effect of population aging on the out- would be effective in aging economies, Rachedi and Basso (2019) show that fiscal affects the put effects of fiscal policy shocks by us- and structural reform measures would multipliers depend on the age structure of the population at the state level in the US. output impact QUANTITATIVE ANALYSIS of government Figure 1: Old-age dependency ratios (%) The economic model in Yoshino and Miy- amoto (2019) allows the examination of spending how a demographic change influences the economy. We first examine the long-term shocks.« effects of a change in the proportion of the working population on the aggregate econ- omy. We then investigate how a change of The positive disposable income ef- demographic structure alters the effec- fect caused by a reduction of taxes also tiveness of monetary and fiscal policies in reduces the labor supply of each worker. the short run. However, an increase in the working popu- lation caused by making retired people re- The long-term effect of population aging turn to the labor force pushes up the total An increase in the proportion of workers labor supply, leading to higher output. The caused by making retired people return to decrease in the proportion of retirees re- the labor force increases output, aggre- duces the amount of investment of each gate consumption, aggregate investment, worker. However, aggregate investment Source: United Nations. and total labor input. These responses can increases due to the increase in the work- be understood by examining the response ing population.

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Interestingly, wages rise as labor par- the economy to the monetary policy shock. 1%. In this and subsequent figures, the (2019). The output effects of government ticipation increases. This is because the in- However, it does affect the quantitative re- horizontal axis measures years, while the spending shocks differ between countries crease in the working population increases sponses of endogenous variables to the vertical axis measures the deviation from with a high share of youth population (non- the capital–labor ratio. Since an increase shock. pre-shock in percent for output. Dashed aging economies) and countries with a low in the working population increases work- Population aging weakens the effective- lines indicate 90% confidence bounds. An share of youth population (aging economy). ers’ consumption, welfare increases as la- ness of monetary policy on the economy. In expansionary government spending shock In non-aging economies, the positive gov- bor participation increases. particular, the positive impact of the mon- increases output by about 0.1% in the ernment spending shock increases out- etary policy shock on consumption is weak- same year. Using the sample average of put by about 0.3% in the same year and ened in an aging economy. This is because government spending as a share of GDP, by about 1.5% in the medium term. The »Population the proportion of the working population this implies a short-term fiscal multiplier implied short-term fiscal multiplier is that is positively affected by the expan- of 0.7. The government spending shock 1.46. In contrast, in aging economies, the aging sionary monetary policy shock decreases. also has long-lasting effects on output. response of output is not statistically sig- Given the fact that consumption accounts Output increases by about 1.1% four years nificant. This result is consistent with the weakens the for about 60% of gross domestic product after the shock. prediction of Yoshino and Miyamoto (2017). (GDP) in the Japanese economy, the reduc- We now turn to examining how popu- They show that macroeconomic impacts effectiveness tion of total consumption brings about a lation aging affects the output impact of of fiscal policy shocks are weakened when significant negative impact on the econo- the government spending shock. Figure 3 population aging occurs by using a new of monetary my. While monetary policy has had less of shows the results of the empirical analysis Keynesian DSGE model with heterogene- an impact on investment in recent years, as further detailed in Yoshino and Miyamoto ous households. policy on the shown in the work of Yoshino, Taghizadeh- Hesary, and Miyamoto (2017), our result economy.« implies that the effects of monetary policy are weakened in an aging economy. Figure 2: Output effects of an expansionary government spending shock

Dynamics of aging populations and EFFECTIVENESS OF FISCAL POLICY monetary policy AND POPULATION AGING We now examine the dynamic responses Population aging also affects the output ef- 1.8 of the economy to a monetary policy shock fects of a government spending shock. The 1.6 and how population aging affects the ef- government spending shock is identified 1.4 fectiveness of monetary policy. by a forecast error, and its output effects 1.2 Lowering the interest rate increases are estimated by using the local projec- 1 inflation. In turn, the resulting decrease in tion method. Using data from the OECD’s 0.8 Percent the real interest rate boosts consumption Statistics and Projections Database, we 0.6 and investment. Increased demand puts find that the output effect of fiscal policy 0.4 upward pressure on the process of produc- is more likely to be smaller in countries 0.2 tion factors, leading to higher wages and where population aging is proceeding. 0 increased working hours. An expansionary monetary policy Empirical results shock on an economy with a lower propor- We first examine the average effect of tion of workers also has a dynamic effect. the government spending shock. Figure Note: t=0 is the year of the shock. Solid and dashed lines denote the point estimates A change in the demographic structure 2 displays the impulse responses to an and 90% confidence bands, respectively. does not affect the qualitative responses of increase of government consumption by

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CONCLUSION fiscal policies have been implemented to The world is in the midst of a demographic help the Japanese economy recover. Al- change toward population aging. Popula- though these macroeconomic policies tion aging can have significant effects on have brought temporary relief, a number the macroeconomy. This article studies of studies show that the effectiveness of how population aging affects the effective- monetary and fiscal policies has dimin- ness of monetary and fiscal policies. By ished (Nakahigashi and Yoshino, 2016; using a DSGE model and panel data analy- Yoshino et al., 2017). This is consistent with sis, we find that population aging weakens results of our analyses. the output effect of monetary and fiscal Our analyses suggest the following pol- policies. icy recommendations for Japan: (1) post- We can draw out important policy im- pone the retirement age and ask people to plications from our analyses. As neither work as long as possible; and (2) the wage monetary policy nor fiscal policy would be rate must be based on productivity rather effective in aging economies, structural than following a seniority-based wage rate. reform measures would have a more im- These two recommendations will increase portant role. the labor force and reduce the burden of Let us consider specifically the case social security expenses. Budget deficits of Japan, which has the world's oldest will decline, and fiscal sustainability could population. Japan's economy continues be achieved even if the economy is faced to suffer from long-term stagnation that with an aging population. The results for dates back to bursting of its economic Japan may also be applicable to other G20 bubble three decades ago. Monetary and countries facing aging populations.

Figure 3: Population aging and output effects of government spending shocks

Iman, P.A., 2013. “Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness.” IMF Working Paper No. 13/191. Nakahigashi, M., Yoshino, N. 2016. Changes in Economic Effect of Infrastructure and Financing Methods. Public Policy Review 2(1): 47–68. Rachedi, O., Basso, H. S. 2019. The Young, the Old, and the Government: Demographics and Fiscal Multipliers. Mimeo. Wang, A. 2019. Refinancing and the Transmission of Monetary Policy to Consumption. Mimeo. Yoshino, N., Taghizadeh-Hesary, F., Miyamoto, H. 2017. Decline of Oil Prices and the Negative Interest Rate Policy in Japan. Credit and Capital Market. Yoshino, N. Miyamoto, H. 2017. Declined Effectiveness of Fiscal and Monetary Policies Faced with Aging Note: t=0 is the year of the shock. Solid and dashed lines denote the point estimates Population in Japan. Japan and the World Economy 42: 32-44. and 90% confidence bands, respectively. Yoshino, N. Miyamoto, H. 2019. How Does Population Aging Affect the Effectiveness of Monetary and Fiscal Policies? ADBI Working Paper No. 1064.

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