Oliver Balch meets the man who pioneered the concept of including social and environmental costs into economic valuations, and reports on his latest initiatives to help companies minimise the harm they do
Pavan Sukhdev owes his current career to a four-word acronym: TEEB. It is rare for a policy document to create much of a stir, especially one that is academically inclined and concerned with something as seemingly dry as economic “externalities”.
Yet when the global study on "The Economics of Ecosystems and Biodiversity" was published in interim form in 2008, the ripples were felt in the corridors of government departments and the boardrooms of multinational firms.
By the time the final version came out two years later, the language and concept of “natural capital”, namely, that capital exists in forms other than just financial (eg human, environmental, social, and so forth) and needs to be factored into economic evaluations, had already won wide acceptance.
Public patience has long been wearing thin with the idea that companies can extract economic profits from their exploitation of natural or human resources
Sukhdev, an Indian-born career banker, was a managing director at Deutsche Bank when his zeitgeisty report first came out. Building on the buzz, he went on to write a follow-up report for the UN Environmental Programme (which hosted the TEEB project) entitled, Towards a Green Economy.
His career since has been about doing what he can to make real the ideas that he expressed so cogently on paper.
To do so, he wears many hats. He chairs his own consultancy firm, GIST Advisory, specialising in measuring and quantifying the natural capital of companies. He sits on the board of various charities (including as president and board chair of WWF International). And, in the little free time left over, he pens articles, publishes papers, and speaks at conferences.
Was he surprised about the reaction that TEEB received? To an extent, yes. After all, one minute, he was at the helm of Deutsche Bank’s front office offshoring operation in Mumbai; the next, he was giving keynotes at the World Economic Forum in Davos and lecturing super-smart economics students at Yale.
But his confidence in the logic of natural capital and its relevance both to global governance and business was never in doubt. So too was his conviction that current methods of measuring economic activity and value are woefully lacking.
He was not alone in holding such beliefs. Public patience has long been wearing thin with the idea that companies can extract economic profits from their exploitation of natural or human resources, while asking others (read: taxpayers and/or the planet) to take on the social and environmental mess that they create.
Capitalism is enjoying 'the biggest free lunch in the history of the universe'
Contemporary capitalism is enjoying “the biggest free lunch in the history of the universe”, Sukhdev insists. And, as everyone knows, no free lunch lasts forever.
“People who are smart understand that this game of private profits, public losses, private profits, public losses cannot go on forever. So, they are looking for alternatives. They know that in their own long-term self-interest they need to change the system because otherwise it’s just a lose-lose, for everyone.”
If people fail to get this, he adds, then, likely as not, their ignorance is wilful. As in the case of the agrochemical industry, a particular bugbear of Sukhdev.
Manufacturers of pesticides and fertilisers dismiss as “asinine” the notion that small-scale, agro-ecological methods could ever meet the world’s increasing food needs. To bolster their arguments, the fertiliser industry points to increases in single-crop yields after the application of chemical inputs.
But what of the cost in soil productivity? What of the financial debt placed on farmers? What of the ill health that arises from water run-off and pollution?
“There are certain ways of farming that are less damaging. Yes, they make a few less pennies of profit for fertiliser companies and seed companies, but who cares? At the end of the day, we human beings are more important than the profits of Monsanto,” he states.
When I speak, I speak with confidence because I know what I'm talking about. I just have to now be more blunt than I have been in the past to get the message across
If Sukhdev sounds frustrated, that’s because he is. It is a frustration born, in part, out of intellectual irritation. Sukhdev graduated from Oxford, but with a degree in physics, not economics. At heart, he is beholden to logic and fact: take a problem, break it down, analyse it forensically, and then follow where the logic leads, even if it leads to re-writing how food is grown or questioning how economic “value” is conceptualised.
There is, however, a personal element to his frustration. Sukhdev’s uncle was a farmer in India. He grew up seeing rural poverty first-hand and is familiar with the realities that cause thousands of smallholder Indian farmers to commit suicide every year. He knows how farmers from the pesticide-rich fields of Punjab are shipped off to hospital in what locals colloquially call “the cancer train”.
Most of the policymakers and business executives he speaks to have never visited a smallholder’s plot, “they just don’t understand what it is to have 1.2 or 1.3 acres”. In the past, Sukhdev confesses to feeling embarrassed at spelling out the “blindingly obvious” to them. Now, aged 59 and conscious that time to resolve these macro issues is running out, he has no problem being more direct.
“When I speak, I speak with confidence because I know what I'm talking about. I just have to now be more blunt than I have been in the past to get the message across.”
With that in mind, he is working on a number of pilot projects to exemplify the practical effectiveness of natural capital. One such early-stage initiative aims to analyse an agro-ecological, regenerative form of farming in the Indian state of Andhra Pradesh, known as zero-budget natural farming. (See Innovative BNP Paribas loan helping 6 million Indian farmers go chemical-free)
He is also advising the Global Alliance for the Future of Food on a suite of small sustainable farming projects in the US, Canada, New Zealand and further afield. The goal is to road-test a framework developed by TEEB for Agriculture & Food (TEEBAgriFood), an initiative hosted by UNEP and made up of senior experts across agriculture, food, health and ecosystem economics.
What we are saying is, 'No, don't just measure yield; also measure health impacts, climate impacts, employment impacts, water impacts and so on'
As with all of Sukhdev’s efforts at driving change over the last decade, the framework builds on core principles spelled out in the initial TEEB report. One such tenet is that “nothing important is missed”. Every impact, every dependency (including externalities), needs to be individually examined and collectively evaluated.
Another is the idea of systems thinking. When evaluating a complex sector such as agriculture – which sees multiple actors using multiple technologies to produce multiple products, from multiple geographies, according to multiple regulations – only a holistic approach makes sense. If not, the individual dots just don’t add up.
“What we are saying is, ‘No, don't just measure yield; also measure health impacts, climate impacts, employment impacts, water impacts and so on. These are the big impacts of agriculture,’” explains Sukhdev.
He is quick to apply that same systems thinking to his efforts at advancing a wider understanding of “value”. Hence, the many organisational boards he sits on and the many groups he supports.
One he has backed from its inception is the Natural Capital Coalition, a multisectoral group that seeks to embed natural capital thinking in the private sector. Similarly, he is a long-standing advocate for the Social & Human Capital Coalition for many years. (The two groups merged in July).
This belief in working, not just thinking, at a systems level lies behind his latest venture; an online platform designed to act as a single, global, universally accepted framework for calculating externalities.
Sukhdev sees the publication of the TEEB report not as the conclusion of a process but as a springboard for action
“I want the movement to be so easy that everyone will start to do it,” he says, in reference to the pending Impact 360 platform, which is due to launch in early 2020.
As well as bringing some much-needed standardisation to the field, he hopes the service will drive down the cost of natural capital assessments, which, by his own admission, are prohibitively high for most organisations at present.
This has not stopped a number of his corporate clients going through the process. Examples include the Australian utility firm Yarra Valley Water and Swedish forestry firm Sveaskog, both of which have published fully integrated profit and loss accounts with the assistance of GIST Advisory.
But for all the attention heaped on the TEEB report, Sukhdev sees its publication not as the conclusion of a process but as a springboard for action.
Others have interpreted it similarly. Most notable is the Natural Capital Coalition, which brings together two-dozen different organisations (including big hitters such as the International Institute for Environment and Development and the International Finance Corporation) to advance common protocols and methods of working.
During a visiting fellowship at Yale after TEEB’s publication, Sukhdev wrote a book entitled “Corporation 2020”. In it, he lays out what he sees as the four major areas that require change for a green economy to become a reality.
By converting human insecurities into wants, wants into needs, needs into demand, advertising executives are 'destroying the fabric of humanity'
He has focused the bulk of his energies on the first: holistic measurement of corporate performance. It will require others to take up the remaining three: limiting the financial leverage available to corporations, revising global tax regimes (to shift from taxing “goods” such as labour to “bads”, such as carbon emissions, to quote ex-UK prime minister Tony Blair) and turning advertising on its head.
The latter is an issue that he is passionate about. By converting human insecurities into wants, wants into needs, needs into demand, demand into production, and production to profit, advertising executives are “destroying the fabric of humanity and our society”, Sukhdev argues. “I think time has come to call a halt to this, to call a spade a spade . . . Advertising has to be about information and communication, and less about persuasion and bullshit.”
Truth in advertising feels a long way from natural capitalism. But there are similarities in that at present, whether it is a television advert or a company’s annual account, it is only possible to get a partial picture of reality.
This disruptive, logic-driven former banker is no anti-capitalist. What he is against is a form of capitalism where the social and environmental harm caused by companies goes unaccounted for. Are private firms a force for good? We simply don’t know. Sukhdev won’t rest until we do.
CV: Pavan Sukhdev
WWF International, president
GIST Advisory, founder-CEO
Green Economy Initiative, head
2008 – 2011
TEEB, study leader
2008 – 2011
Deutsche Bank (including chief operating officer of Global Emerging Markets)
1994 – 2008
Australia and New Zealand Banking Group
1983 – 1994
Pavan Sukhdev will be one of more than 70 speakers at Ethical Corporation's Sustainability Reporting and Communications Summit in Amsterdam 16-17 October.TTEB UNEP GIST Advisory Natural Capital Coalition TEEBAgriFood Yarra Valley Water Sveaskog