Creating Sustainable Markets

Markets do work, but they work according to how they’re designed.

Let’s talk honestly about markets and sustainability. Many, myself included, argue the power of markets to drive change—that the only method powerful enough to drive sustainability globally and quickly is to unleash market forces. We give these mystical forces the potential to alleviate poverty, reduce population growth, solve climate change and save biodiversity, and that’s just for a start.

I still buy the argument. However, if we’re honest we’d have to concede performance to date has actually been abysmal.

Sure, there are some impressive examples of individual companies doing things unimaginable a few decades ago. However, the reality from the point of view of the planet and its people is that the income gap is widening, climate change is upon us and getting worse, China and India are gobbling up the world’s coal (and will soon be emitting the consequences). Then when forecasts in global economic growth are combined with the forecast consequences of what is, in reality, largely business as usual, the situation starts to look very ugly, very quickly.

So is market driven sustainability, like Marxism, something that will in hindsight be a case of “oh well, it seemed like a good idea at the time”?

Despite its failure to date, I would still say no—it is a sound idea, we just haven’t applied it yet. And given the state of the world’s ecosystem, we’d better get moving. Because while it’s easy to mount a well argued case that markets don’t work for sustainability (because currently that is a fact), I still don’t hear a viable alternative to deliver lots of sustainability quickly and globally.

What do we need to do? For a start, we have to move beyond the blame game. Consumers, disguised as members of the public in opinion polls, blame corporations for plundering the earth. The precious minority of corporations who are producing the products we need to move us forward, blame the consumer for not buying them. However, it is too convenient to just lay blame.

By the way, don’t you love the way companies expect consumers to behave differently than the companies themselves ever would? As if companies are going to do the right thing environmentally without a reasonable financial return, yet they somehow expect customers en masse to pay more for products that don’t deliver any additional benefit beyond the feel-good factor!

So we need to fix markets and make them work for sustainability, by focusing less on prescribing outcomes, and more on the mechanisms to get us there. The obvious and much discussed one is to get in place a global carbon trading system, one designed around absolute CO2 reductions in the range of 60% by 2050.

Another way we could start to fix markets is to put in place a series of environmental deposits on virtually all products and packaging. This would provide an incentive for consumers to return them after use and would give markets a rationale for developing the infrastructure to collect this material and recycle it. Governments can then leave the market to work out the details, while focusing regulatory power on the lever of deposits to gain the desired environmental outcome.
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For example, with drink bottles we now have very strong data from around the world that gives clear evidence that deposit systems can double recovery rates. They also create jobs and finance infrastructure while shifting public attitudes. So let’s start by rolling that out globally. But why stop at drink bottles? Why not put a deposit on all containers and while we’re at it, on mobile phones, on computers and on cars. Our research strongly suggests that corporate opposition to such schemes is overwhelmingly ideological—a genetic fear of regulation—rather than a rational position based on what’s good for business. As the corporate sector pleads for environmentalists to abandon ideology in progress toward sustainability, so too must they.

Markets do work, but they work according to how they’re designed. They have not been designed to achieve sustainability and until we redesign them they won’t, despite the good intentions of many market players—companies and consumers. So let’s start by designing the market to have our materials flow back into the market rather than having them dumped into the environment.

Of course some very big corporate players would fight this, as the big drinks companies have been doing for many years—resisting what has clearly been proven as the most effective way to increase recovery and recycling rates: putting a deposit on drink bottles. But big entrenched players will always resist change. They either need to get on board with the new world and be part of the solution, or we’ll have to let a bit of creative destruction deal with them—something markets are definitely very good at.