Europe’s sustainability puzzle — time for systemic change

EPSC publication of 8 April 2019. Source: EPSC.

The UN 2030 Agenda, adopted by 193 countries in 2015, not only presents 17 goals, 169 targets and indicators to measure progress but also a clear deadline for reaching them. What kind of challenges does this pose to the EU and which scenarios can we identify in order to address these challenges? Saïd El Khadraoui, Advisor at the European Political Strategy Centre (EPSC), looks ahead, building on the key foresight scenarios presented in the EPSC’s note Europe’s Sustainability Puzzle.

By Saïd El Khadraoui, European Political Strategy Centre, European Commission

Sustainable development: everyone’s concern

Not so long ago, ‘sustainable development’ was considered exclusively an environmental issue or an agenda primarily targeted at developing countries. The adoption of the 17 Sustainable Development Goals (SDGs) in September 2015 by the member states of the United Nations was a collective recognition of the need for a new approach in the face of the megatrends that are reshaping the world. For Europe, the SDGs offer an opportunity for profound economic and societal transformation. In our recent publication Europe’s Sustainability Puzzle, we zoom in on the pressing and sometimes sensitive choices that Europe faces, posing questions and exploring solutions to some of the paradoxes that lie at the heart of its current socio-economic model and its long-term sustainability.

The starting point for the EU should be to recognise that any strategy for the SDGs must reflect Europe’s unique characteristics as a highly advanced economy in which citizens have become accustomed to high levels of social protection and private consumption, but which today faces significant structural challenges that are becoming increasingly intertwined and dependent on each other.

Growth, but not at the detriment of the planet

One initial dilemma is that, so far, high growth and prosperity have tended to come with higher levels of pollution and unsustainable resource use. Europe has already shown itself capable of decoupling GDP growth from emissions growth, thanks to significant progress on energy efficiency and investments in the clean economy. Yet decoupling remains a challenge as current efficiency gains are outweighed by increasing consumption levels or material extraction enabled by economic growth. In addition, the viability of our planet is endangered by other developments such as the loss of biodiversity.

Europe’s economy will therefore have to be much more ‘circular’ or resource-efficient. This will imply investing massively in sustainable physical infrastructure. Attracting sufficient levels of private investment will require putting in place sustainable finance systems that fully factor in environmental, social and ethical risks and opportunities.

Such transparency is critical to mitigating the risk of greenwashing, to allowing investors to make refined choices and reorient capital flows, and to triggering a change in corporate behaviour. It also implies that in a sustainable future, GDP growth or short-term profitmaking will no longer singularly define progress. Instead, measures can focus on rising wellbeing and fully integrate environmental and social impacts.

Fair burden-sharing and fair employment conditions

A second challenge is that although policies intended to curb climate change and environmental degradation will pay off in the long-term, they come with short-term costs that are burdensome for lower-income individuals, businesses in particular sectors, or regions. In some cases, this may spark strong social contestation.

Europe needs a systemic policy mix that takes into account pre-existing inequalities when imposing new costs on citizens, but also makes sure that sustainable alternatives are accessible and affordable in line with the expected consumption change. It also requires anticipatory measures to help regions to develop new growth strategies or workers to be reskilled for tomorrow’s economy.

Another challenge relates to the changing labour market and its impact on Europe’s social model. Forms of employment other than full-time, open-ended contracts have grown to encompass 40% of European labour market. This in itself is not necessarily undesirable as it may give some workers much-valued independence and autonomy while also potentially enabling a more flexible workforce to respond to the needs of new industries and emerging services.

However, non-standard work and social protection systems are currently not fully compatible, leaving people without full access to training opportunities and basic requirements, and giving rise to new inter- and intra-generational inequalities between those who are employed under contracts with full social rights and those who are not. All in all, this means that social security contributions need to be harmonised across different forms of employment as far as possible, and education and lifelong learning need to be shaped to facilitate effective skill use and match skills to evolving labour markets.

Saïd El Khadraoui of the EPSC speaking at the ECA Sustainability Reporting Forum on 17 June 2019.

Sustainable public finance and demographic changes

A fourth challenge is our public finance. Demographic change has long been recognised as a ticking time bomb for fiscal sustainability. Most Member States have started implementing significant reforms to their pension systems. However, a number have already reversed these, or are promising their electorate that they will. In addition, other demographic and societal changes will increase pressure on social protection budgets. These include rising numbers of single parents, the growing need to reconcile work and family life, fewer continuous careers, and the growing need to reskill today’s workers for the jobs of tomorrow. Furthermore, sources of revenue are coming under ever-greater pressure as multinationals, platform and digital companies are not necessarily paying their fair share of taxes or social security contributions, while tax competition between member states creates additional difficulties in this regard.

These developments thus require a more strategic fiscal approach centred around the modernisation of taxation tools and public services as well as European cooperation to address tax avoidance and profit shifting by multinational enterprises.

Outsourcing unsustainable practices to… maintain our lifestyle?

The next risk is turning a blind eye to the outsourcing of unsustainable practices. Indeed, what is often overlooked is that advanced, post-industrial economies shift emission-intensive production to developing countries and emerging regions. Up to 75% of the emissions embodied in the final consumption of goods and services are emitted elsewhere in the world. Poorer countries need help to grow along sustainable development pathways and to enable them to leapfrog over polluting infrastructure while continuing to climb up the human development index. But should we also track and price externalities more effectively, and how can we do this?

The sixth risk we have identified is a difficult one: our lifestyle. As an individual’s income rises, so does their environmental footprint, as it tends to be associated with where people live, how they move, and what they eat.

Public policies have a defining role in individual consumption patterns. Spatial planning and public transport policies, for instance, are critical in determining the carbon footprint of inhabitants and can create unsustainable lock-ins. There is of course a role for research and innovation: new models of producing, consuming and recycling can bring people closer to sustainable lifestyles. Public procurement, budgeting and taxation measures, coupled with awareness-raising and ‘nudging’ techniques, could work to effectively and collectively alter harmful consumption patterns without simply delegating responsibility to individuals.

Linking innovation more closely to desired outcomes

Finally, coming back to innovation. This is and will remain one of the main ingredients for a sustainable transition but does not automatically lead to sustainable outcomes. The more innovative (and wealthy) an economy becomes, the faster economic obsolescence accelerates, and the more resources are consumed and waste generated.

Mission-oriented innovation is therefore needed to embed sustainability within economic innovation. It involves focusing not only the direction, but also the rate, of innovation, allowing economic growth in Europe to be harnessed toward sustainable and equitable outcomes. It should be paired with the application of the ‘innovation principle’, ensuring that the impact on innovation is fully assessed across all stages of the innovation process. Alongside this, public funding will continue to play a key role in de-risking and leveraging private investments, and steering them in the right direction, as well as in bridging the gap from labs to commercialization.

Good data and reporting as conditions for successful transition

In conclusion, it becomes clear that a near-simultaneous shift is needed in markets, policymaking, industry, science, and even culture. It is about an all-encompassing change implying changes throughout and across all market sectors and value chains, from product design and business models to service provision and trade. Furthermore, these shifts will have to happen from the very local level up to the European level and beyond and will require efforts and long-term actions from all stakeholders.

The transition, therefore, needs to be managed. To get there, metrics will be crucial, these being less about linear growth and more about sustainability, progress, convergence and forecasting. This applies to countries but also to companies, and all starts with good data, drawn from good reporting. This is also where auditors enter the picture, by providing assurance that this data is accurate, comprehensive and reliable. Equally, however, we need consistent leadership and oversight at EU level.

This article was first published on the 3/2019 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

This article summarises the EPSC’s note ‘Europe’s Sustainability Puzzle’, published in April 2019. The paper seeks to accompany the European Commission’s Reflection paper ‘Towards a Sustainable Europe by 2030’, aimed at stimulating further reflection on the EU’s vision and strategy for the long-term implementation of the sustainable development goals (SDGs), as part of the broader ‘Future of Europe’ debate launched in March 2017 by European Commission President Juncker. The views expressed in the note are those of the authors and do not necessarily correspond to those of the European Commission.

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