Reflections on Jim Leape’s March Colloquium: Harnessing Global Markets for a Transition to Sustainability
This blog series represents our members’ reflections on the monthly MD4SG Colloquium on different topics related to mechanism design and access to opportunity. The latest talk by Jim Leape can be found online here.
Disclaimer: this article does not represent the viewpoints of Jim Leape; all errors belong to the authors.
In his March 2020 MD4SG Colloquium Talk, Jim Leape posed the question:
“In a world of 10 billion people, how can we build a shared prosperity that the Earth can sustain?“
Investigating this question is becoming increasingly urgent, given how much the needs of 7.8 billion of us are already straining the planet: greenhouse gases due to human activity have increased the average surface temperature of the earth by 1.4 degrees Fahrenheit over the past century,¹ and we have driven the percentage of land mammals living in the wild to a mere 4% by weight.² According to current projections, there will be 9.7 billion people by 2050.³ Securing a good life for all of us will require drastic economic changes.
Bringing this many people into prosperity will require making use of global markets, which have proved themselves to be vital engines of economic growth. At the same time, these markets have driven a massive depletion of resources and the escalation of greenhouse gas emissions, both of which are now threats to future prosperity. In the MD4SG Environment and Climate Working Group, we think about how markets can be harnessed to mitigate these very risks. Leape’s talk addressed questions that are central to this goal:
- What are some leverage points in the system to promote rapid change?
- How can we bring changes to scale across the globe?
- How can we reconcile environmental sustainability with social sustainability, especially with an eye towards small-scale consumers and producers?
Jim Leape — a senior fellow in the Stanford Woods Institute for the Environment and co-director of the Stanford Center for Ocean Solutions — addressed these questions during the first talk of the MD4SG Spring 2020 Colloquium Series, which is available online. Leape has more than three decades of conservation experience, including serving as Director General of World Wildlife Foundation (WWF) International and leader of the global WWF Network, one of the world’s largest conservation organizations.
During the colloquium, Leape described how NGOs, multinational corporations, and public actors have worked together to harness markets to address deforestation and overfishing, two major threats to global ecosystems. We think there is much to be learned from the challenges that these collaborations faced in translating commitments into action and expanding their initiatives to scale.
Palm oil and deforestation
Leape began with an overview of palm oil and its role in the rampant deforestation of tropical forests. Due to its low cost of production, palm oil can be found in about half of products sold in grocery stores, including snacks, cleaning products, and cosmetics.⁴ Unfortunately, increased demand for palm oil, which comes from the harvested fruits of oil palm trees, has led to significant rainforest deforestation across Southeast Asia and West Africa. Malaysia and Indonesia, which together produce 85% of the world’s palm oil,⁵ have experienced particularly heavy deforestation, as industrial plantations and smallholder farmers have burnt primary forests to clear space to grow oil palm trees.
Altering the dynamics of palm oil production is a daunting task. One major hurdle is the massive breadth of producers: around 40% of global palm oil is produced by 3 million smallholders, who cultivate only a few hectares of land each.⁶ To drive change across such a large number of players, activist organizations identified multinational corporations as points of leverage. Targeting these companies is promising for two reasons. First, since much of the supply of consumer goods is controlled by few companies, sustainability commitments by these companies can exert considerable pressure on upstream producers. Second, the threat of being linked to deforestation can be a strong lever for pushing companies with consumer-facing brands towards sustainability.
Indeed, as a reaction to Greenpeace campaigns calling out brands for their use of non-sustainable palm oil, transnational companies including Unilever and Nestlé committed to sourcing only palm oil that has been certified as sustainably produced. These companies furthered their commitment by partnering with NGOs and governments, forming the Tropical Forest Alliance (TFA) in 2012, to build more sustainable palm oil production chains.
Leape highlighted the story of palm oil as an example of pre-competitive collaboration, in which competing companies unite to address a problem they all face. Ultimately, downstream manufacturers like Unilever and Nestlé teamed with palm-oil producers to create more sustainable production supplies. This example of cooperative game theory helps address classical dilemmas such as the tragedy of the commons.⁷
Despite these concerted efforts by industry, however, it took the devastating forest fires of 2015 for the Indonesian government to take measures against deforestation. Palm oil now has higher levels of sustainability commitments by companies than other commodities contributing to deforestation, but there remain substantial problems with a lack of commitment by upstream producers, lack of traceability, and insufficient progress reporting.⁸
Another issue that Leape pointed out is reaching smallholder farmers: while certification of sustainable palm oil seems like a necessary component in reducing deforestation, these smallholder farmers often cannot afford to participate. Whereas larger plantations can easily recover the fixed costs of certifying their sustainable practices, paying for certification may not pay off for small farms. Addressing this challenge would be significant for not just the transition to environmental sustainability but also for social justice.
Fisheries and overfishing
The second issue Leape discussed was the decline of fish stock around the world, which is driven by increasingly effective and destructive fishing practices. Despite the vast size of the world’s oceans, humans have altered the waters through plastic pollution, rising ocean temperatures, and overfishing.
Although often overlooked as a critical threat to oceans, overfishing has had substantial impacts on marine ecosystems. Between 1950 and 2000, the annual global fish catch increased from 18 million tons to 90 million tons⁹ as improvements in technology replaced small boats by giant vessels dragging mile-long nets far out at sea. The United Nations Food and Agriculture Organization estimates that, as a result, 77% of global fish stocks are either fully exploited or overfished.¹⁰ Far away from the world of seafood chefs, the depletion of fishing grounds has immediate consequences for large groups of people, most of all for small-scale fishers in coastal communities and the 1 billion people depending on seafood as their primary source of protein.¹¹
As in the case of palm oil, environmental action against overfishing began with public awareness campaigns, in which celebrities and chefs called upon customers to avoid particularly endangered species of fish. In a similar vein, Seafood Watch began releasing their consumer guides, which direct consumers towards fish whose production is most sustainable.
Under pressure from shifting consumer demands, Unilever and the WWF jointly formed the Marine Stewardship Council, which certifies fisheries with sustainable fishing practices. To change the system, both buyers and sellers had to get on board.
Originally, the commercial buyers who committed to sourcing from sustainable fisheries were small players: Whole Foods in the US, Sainsbury’s in the UK, and Migros in Switzerland. However, their commitment brought market credibility to the movement, which eventually prompted Walmart to join their ranks in 2006. The introduction of this giant buyer led to a steady rise in the number of fisheries getting certified. For example, prior to Walmart’s buy-in, the canned-tuna industry had largely ignored sustainability efforts; since then, large parts of this industry have organized for pre-competitive collaboration on sustainability. In the story of sustainable fishing, the path to scale began with bold action from small companies, which then convinced large corporations to act.
How can mechanism design help?
Environmental sustainability is a topic that is close to the heart of the MD4SG community. This spring, two of us (Lily Xu and Wanyi Li) are jointly leading a new MD4SG working group on Environment and Climate Change. We are a group of disciplinarily and geographically diverse researchers studying how computational methods can help address environmental challenges, particularly those that exacerbate the climate crisis.
Parts of Leape’s talk related to activism, which is invaluable for setting change into motion. After this, however, market mechanisms enable the transformation of goodwill and public commitments into lasting impact. Mechanism design as a field is particularly equipped to address information asymmetries and incentive issues in the sustainability space. As researchers studying mechanism design and related areas, we hope to identify new ways to bring about change.
In particular, we see a wealth of research questions related to sustainable practices in global markets. Our working group on the environment and climate brainstormed research directions that the MD4SG community might find interesting:
- Data markets. The seafood company Thai Union is compensating small-scale fish and shrimp farmers with cell phone minutes in exchange for data on their fishing practices and observations. Which farmers should they be requesting data from? What is the value of information added from each additional farmer who participates in the exchange? And how can we preserve the autonomy of these small-scale farmers in ensuring a fair exchange?
- Certifying sustainable practices. Leape’s talk highlighted the environmental and economic impact of introducing certification for sustainably-produced palm oil and seafood. The implementation of these certification programs raises many new questions. Where should we set the threshold for a sustainable practice? How do we ensure that smallholders receive an equal advantage from the certification process?
- Permit markets for fishery regulation. One way to address overfishing is to set up local or national markets where fisheries can trade permits for catch shares. Can peer-monitoring mechanisms alleviate the monitoring burden in these permit markets? Given heterogeneous preferences of fisheries and the large number of fish species, can auctions help with the initial allocation of these permits?¹² As fish stock levels change over time, how should regulators adjust the liquidity of permits?
- Coordination and cooperatives for smallholders. Since certifying each smallholder is costly, can we lower the barrier to entry for smallholders by certifying entire communities and regions? How should smallholders form cooperatives to leverage their collective action? More importantly, do cooperatives benefit every participating smallholder? If not, can we design mechanisms to address fairness issues within a cooperative? Can we incentivize local institutions to truthfully assess sustainability practices in their jurisdiction? How will this interplay with the incentives for individual farmers to increase the sustainability of their production?
Our working group is currently considering theoretical and practical approaches to some of these questions, and we hope to study them in the framework of our group. We welcome thoughts and suggestions!