International Environmental Agreements: Politics, Law and Economics 2: 389–401, 2002.  2002 Kluwer Academic Publishers. Printed in the Netherlands.

Policy Coherence, Global Environmental Governance, and Poverty Reduction1 TOM JONES OECD Environment Directorate, Paris, France Accepted 6 May 2002

Abstract. This paper explores linkages between policy coherence, global environmental governance, and poverty reduction. It begins with a few thoughts on what these terms mean, and how they are linked. It then provides some perspectives on how the linkages might be improved over time. The paper takes the view that the most coherent institutional framework for both poverty reduction and environmental protection is likely to be one that is relatively decentralised, and based on a modular (networking) structure. The implication is that this framework should rely mainly on domestic and regional governance institutions, rather than on global ones. Effective management of environmental problems (both national and international) also implies a judicious mix of strong government institutions, smooth-functioning markets, and well-targeted infrastructure investments. The business and labour communities are therefore crucial. Other elements of civil society, notably the NGOs, also have important roles to play. Global environmental governance will have to overcome significant resistance insofar as the interests of the developing countries are concerned. Developing countries will need to be convinced that it is in their best interest to participate in global environmental institutions. The best way of making this case is to link (local) poverty reduction objectives explicitly to (both local and global) environmental protection goals. Bringing greater coherence to international trade, investment, and development co-operation policies could make an important contribution to strengthening these linkages. Investment is particularly important here – in the future, investment governance will likely prove to be more important for poverty reduction than environmental governance. Focusing on global environmental governance will not be enough. Key words: environmental institutions, governance, policy coherence, poverty reduction

Introduction This paper explores linkages between policy coherence, global environmental governance, and poverty reduction. It begins with a few thoughts on what these terms mean, and how they are linked. It then provides some perspectives on how the linkages might be improved over time. The paper is largely based on recent OECD reflections in these three areas. Unfortunately, these reflections are not yet comprehensive. For example, OECD has done considerable thinking about how domestic institutional reforms might support poverty reduction goals. It has done less thinking about the potential

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role of environmental institutions in such a process, whether domestic or international. However, it has done (and is currently doing) quite a bit of thinking about linkages in the reverse direction – in particular, the effects of policy coherence in supporting the goal of sustainable development, the “social” dimension of which is often cast in terms of the poverty reduction objective. Policy coherence as one element of good governance Previous OECD work on “good governance” suggests that the main elements of effective systems include:2 • An institutional and legal framework which supports the emergence of an enterprise-based economy; • Development of a competitive environment which enhances the efficient functioning of markets, including effective regulatory policies and strong competition laws and enforcement; • A good corporate governance framework providing for transparency of corporate structures and operations and the accountability of management; • A performance-oriented and efficient public sector; • Vigorous action to fight corruption and organised crime; • Sound national policies and institutional frameworks for environmental management; • Government investment in people through sound education and training policies, and strengthening social safeguards; and • Fair, equitable and efficient taxation policies. Work has been carried out within the OECD in several of these areas. For example, with its focus on the performance and efficiency of the public sector (i.e. the fourth of the above bullets), the OECD Public Management Agency describes its mission in the following terms:3 • Accountability: Government is able and willing to show the extent to which its actions and decisions are consistent with clearly defined and agreed-upon objectives. • Transparency: Government actions, decisions and decision-making processes are open to an appropriate level of scrutiny by others parts of government, civil society and, in some instances, outside institutions and governments. • Efficiency and effectiveness: Government strives to produce quality public outputs, including services delivered to citizens, at the best cost, and ensures that outputs meet the original intentions of policymakers. • Responsiveness: Government has the capacity and flexibility to respond rapidly to societal changes, takes into account the expectations of civil society in identifying the general public interest, and is willing to critically re-examine the role of government.

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• Forward vision: Government is able to anticipate future problems and issues based on current data and trends and develop policies that take into account future costs and anticipated changes (e.g. demographic, economic, environmental, etc.). • Rule of law: Government enforces equally transparent laws, regulations and codes. In a similar vein, the OECD Principles of Corporate Governance4 speak mainly to the third of the above bullets. These Principles are based on the premise that the corporate governance framework should: • Protect shareholders’ rights. • Ensure equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. • Recognise the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises. • Ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company. • Ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders. “Policy coherence” is therefore clearly an amalgam of several disparate ideas, each of which embodies only one part of the notion of “governance”. Even if we were to limit the idea of policy coherence to the efficient management of the public sector itself, we would find that it again only tells part of the story. This is because: • Policy co-ordination means getting the various institutional and managerial systems of government that formulate policy to work together. • Policy consistency means ensuring that individual government policies are not internally contradictory, and avoiding policies that conflict with reaching for a given policy objective. • Policy coherence goes further – it involves the systematic promotion of mutually reinforcing policy action across government departments and agencies creating synergies towards achieving the defined objective. Policy co-ordination is the part of the coherence problem with which governments have the most experience. Inter-agency meetings or committees already exist to iron out positions on issues that touch multiple policy “territories”. Policy consistency centres on avoiding conflict among policies in reaching for broader goals. Policy coherence takes a more positive view of how to reach those broader

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goals. It stresses the cumulative value-added that is possible from efficiently interweaving the contributions made by different policy communities. Policy coherence and poverty reduction The OECD has recently developed a Checklist for Policy Coherence and Poverty Reduction.5 The main policy areas covered by this Checklist are summarised in Table I. This list suggests that we should be looking at the poverty reduction goal through the lens of at least trade and investment policies; food and agriculture policies; natural resources and environmental policies; institutional support and governance policies; social policies; and macro-economic policies. Note that the premise is again that poverty reduction depends on considerably more than environmental governance, regardless of whether that governance occurs at the local or global levels. Corporate governance and poverty reduction6 Consider the example of the potential contribution of corporate governance to poverty reduction. Defined broadly, corporate governance refers to the private and public institutions, including laws, regulations and accepted business practices, which together govern the relationship between corporate managers and entrepreneurs (“corporate insiders”) on the one hand, and those who invest resources in corporations on the other. Investors include suppliers of equity finance (shareholders), suppliers of debt finance (creditors), suppliers of firm-specific human capital (employees) and suppliers of other tangible and intangible assets that corporations need in order to operate. Corporate governance institutions serve two key objectives. They stimulate improved performance of corporations – the principal generators of economic wealth (and poverty reduction) in society – by creating a business environment that motivates managers and entrepreneurs to maximise firm efficiency, returns on investment, and long-term productivity growth. They also contribute to corporate conformance with investor and society expectations, by limiting abuses of power as well as the wastage of corporate-controlled resources. It is possible for a country to sustain high rates of income growth for long periods of time, even in the absence of adequate systems of corporate governance. For example, a country could engage in a process of massive mobilisation of factors of production through various kinds of forced saving, high rates of ruralurban migration, mobilisation of female population into the manufacturing sector, or other equivalent strategies. However, decreasing returns to factor mobilisation must ultimately set in, so growth based on factor mobilisation alone cannot be sustained indefinitely. The key to achieving sustainable development (including both poverty reduction and environmental protection) in the long run will therefore be productivity growth.

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Table I. Areas of policy coherence – an extended list. 1. International trade in goods and services; foreign direct investment (FDI); related policies International negotiation issues: – Tariffs – Non-tariff trade barriers (NTBs): • Standards for products and services • Regulation of goods and services trade • Government procurement; tied aid • Rules of origin – Subsidies and countervailing duties – Preferential trading arrangements – Anti-dumping regimes – Intellectual property rights (IPRs) – International investment agreements – Official export credits and credit guarantees (incl. Mixed credits and agricultural credits) Capacity building Corporate governance Competition policy Maximising benefits of FDI in poor countries Tax havens and harmful tax competition Technology transfer issues: – Production and trade of generic drugs and their availability to the poor (partly IPR-related) – ICT: “Digital Divide” issues 2. Food and Agriculture Agricultural policies Agricultural trade Food security Food aid Hunger Agricultural research, including biotechnology Genetically modified organisms (GMOs) and trade in their products 3. Natural resources and environmental sustainability Global environment (e.g. climate change, ozone layer, biodiversity) Regional, sub-regional environment (e.g. acid deposition, marine pollution) Local environment as both a sustainability and a public-health issue (e.g. air, water, soil pollution) Sustainable exploitation of renewable resources (e.g. fisheries, forests) Use of non-renewable resources and minimising adverse environmental and social impacts The impacts of trade and investment on the environment 4. Governance issues Democracy and human rights Transparency Responsive public institutions The fight against corruption Civil service organisation and professionalism Labour rights

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Table I (Continued). 5. Conflict and security issues Conflict prevention and resolution Arms trade 6. Social issues Education and training Social safety nets Public-health systems. Migration Public health issues like tropical diseases, tobacco 7. Broad economic and financial issues Macroeconomic policy Structural surveillance policies The international financial architecture Money laundering

Most developing countries are currently in the midst of a transition from predominantly relationship-based systems, and toward more rules-based approaches. In the economic sphere, this movement is from a relatively closed (inward-oriented; market-unfriendly) regime, toward more open and market-friendly systems. In the political sphere, the transition is from relatively undemocratic approaches, and toward more democratic ones. Some countries are, of course, more advanced in these transitions than others. Corporate governance has a central role to play in helping to increase the flow (and lower the cost) of the financial capital that firms operating in developing countries need in order to finance their investment activities. The importance of this role has grown considerably in recent years, and is likely to continue to increase in the future. The significant growth of portfolio equity flows from OECD to developing countries, especially by institutional investors, points to the potential for improved corporate governance in developing countries as a way of contributing to the stability of international financial markets. Equally important are the potential benefits of improved corporate governance for achieving productivity growth in the real economy of many developing countries. Volatility, combined with excessive rigidities and the wastage of human and material resources, often reflect the actions of self-dealing and rent-seeking behaviour by corporate insiders in a context of (clientelistic) relationship-based systems of local governance. These actions in turn represent serious obstacles to sustained productivity growth and poverty reduction. Removing these obstacles would contribute directly to poverty reduction.

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Global environmental governance Global environmental governance includes policy actions taken both domestically and internationally. Key elements of the global environmental regime include: INTERNATIONAL

AGREEMENTS

An important part of the global environmental governance architecture is multilateral environmental agreements (MEAs). A wide range of MEAs has grown up in recent years, most of which address single issues (e.g. UNFCCC, CITES). The broader context of sustainable development is today generating something of a dilemma for these accords. For one thing, their “environmental” mandates are becoming increasingly unclear, as the wider set of sustainable development goals is imposed on them (economic, environmental, and social – with the latter including poverty reduction). For another, the institutions associated with these agreements are not necessarily in the best position to handle the complex task of integrating across the three domains of sustainable development. Institutions charged with economic development probably play an even more important role than MEA-based institutions do. Institutions that deal with development (e.g. World Bank), trade (e.g. WTO, NAFTA), and investment (e.g. the business community and the banking system) are obviously important here. Due to the strong links between economic activities and environmental quality, these institutions are especially important in the global environmental governance architecture. However, these institutions do not typically interpret their mandates in terms of policy goals other than economic development (e.g. poverty reduction or environmental protection). These latter goals are often assumed either to result “naturally” from economic activity itself, or to be a problem for policy-makers in the poverty reduction and environmental protection fields themselves to resolve. CIVIL

SOCIETY

Much discussion of modern environmental problems concerns the need to engage the public more directly in solving those problems. This engagement can take various forms – information, public consultation, or active participation.7 Better environmental policies are more likely to occur when public preferences are taken into account. These preferences are easier to discern and interpret when they are based on well-designed consultation and participation processes. OECD governments use a range of tools to seek feedback on policy issues (opinion polls, surveys, comments periods, etc.). Guiding principles for successful information, consultation, and active participation include: • Strong political commitment to the process; • A basic citizen right to access information and to participate; • Clarity in the goals of the consultation process;

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Sufficient time and other resources to enable the process to succeed; Objectivity and equality of treatment in any information which is exchanged; Proper co-ordination of the process within government; and Accountability and ex post evaluation of the process.

Information and communications technologies (ICTs) are also transforming the relationships between citizens and their governments. All OECD governments provide an increasing amount of information via the Internet, and citizen groups are increasingly using the Internet in order to exert influence over governments. The result is improved integration of civil society views into the mainstream of environmental policy-making and policy implementation. Notwithstanding the obvious need to reconcile the citizen’s right to know with the individual’s right to privacy and the need to preserve confidentiality where disclosure of information would not be in the public interest, it is broadly recognised that transparency and effective systems for public involvement in decisions are important elements of modern environmental governance. Market pressure is also increasingly being used as a vehicle to change corporate environmental practices.8 The public is capable of launching effective information campaigns aimed at firms who do not conduct their affairs in a manner deemed to be environmentally (and socially) acceptable. Several recent high-profile cases involving large multinationals have resulted in a reduced public image, in boycotts of their products, and ultimately in reduced profits and share values, for the firms involved. Business is taking these problems seriously, and is actively working to reduce them. One important manifestation of that effort has been the recent development of voluntary codes of conduct for enterprises, and the growing adherence to such international standards/codes as ISO, EMAS, and the OECD Guidelines for Multinational Enterprises. One result is that multinational firms are increasingly likely to consider using standardised environmental practices in all plants of their operations (i.e. regardless of location) as one way of improving overall corporate environmental performance. Another result is that firms of all sizes and origins seem increasingly willing to engage actively and transparently in consultations with civil society. Poverty reduction and global environmental management In many developing countries, social and economic development, including alleviation of poverty, depend heavily on the proper use and effective management of environmental resources and related ecosystems. These are also often the same countries that are most threatened by the degradation of the regional and global environmental commons. Global environmental issues – especially climate change, biodiversity loss, and desertification – are therefore fundamentally linked to the poverty reduction objective.

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The OECD has recently been examining ways of better linking the global environmental agenda (especially as embodied in the Rio Conventions on climate change, biodiversity, and desertification) with the poverty reduction agendas of developing countries.9 The focus of the Rio Conventions is understandably placed on achieving environmental objectives. From the developing country perspective, however, the more pressing question is often how these Conventions could help in achieving development objectives. Obviously, these are different goals, but they are not always incompatible. OECD work suggests that compatibility can be enhanced by: (i) better understanding how development interests are actually harmed by the particular environmental problem at hand; ii) making sure that domestic implementation of the particular MEA takes proper account of the implications for development; and (iii) ensuring that implementation of the MEA’s provisions for financing, technology transfer, and capacity building are properly co-ordinated. Given the many domestic challenges and resource constraints they face, most developing countries will concentrate first on addressing national/local issues, rather than on international/global ones. Initiatives to assist developing countries in implementing international environmental agreements should therefore focus first on areas where national development and global environmental objectives go hand in hand. A new approach to development co-operation – one focusing on the goal of reducing poverty – was introduced in 1999 by the World Bank and the IMF. Under this approach, countries are invited to design their own development strategy, and to operationalise that strategy through a Poverty Reduction Strategy (Paper) (PRSP). This national strategy is intended to serve as the basis for all financial support from the Bretton Woods institutions. Other international and bilateral development agencies are also encouraged to use the PRSPs, to guide their support. While the PRSP approach was initially linked to access to debt relief in Highly Indebted Poor Countries (HIPC), it is progressively being extended to all recipients of IDA funds. The principles underlying PRSP approaches are also relevant in the context of assistance provided to middle-income countries (which do not receive IDA funds). A key principle is that PRSPs should be country-owned and country-driven. Another key principle is that of an integrated approach to development, taking account of the interdependence of social, economic, environmental governance, including the financial dimension. PRSPs are therefore intended to provide important reference points for the formulation and provision of external assistance programmes. They also provide the opportunity to foster the integration of plans aimed at responding to international environmental agreements with “mainstream” development strategies.

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Improving the linkages – some potential ways forward Existing environmental institutions have demonstrated that they sometimes have difficulty generating all the results desired by the MEAs with which they are associated.10 One solution that some have advanced for overcoming these problems is that of a World Environment Organisation (WEO).11 In theory, a WEO might help consolidate key environmental issues “under one roof”, thereby contributing to policy coherence. It might also promote the adoption of a common dispute settlement arrangement, as well as providing the environmental community with a counterbalance to the power of global economic institutions, such as the WTO. It is argued that this would reduce transaction costs, and mobilise a stronger degree of support (both political and financial) for environmental goals overall. Cutting against this view is the perception that, whereas the mandates of economic institutions are reasonably clear (e.g. increased trade, financial stability, etc.), MEAs represent a virtual cacaphony of policy objectives – and an everwidening set at that. Viewed in this context, attempts to apply the same logic to MEAs as are applied to international economic agreements seem perilous at best. The net result of such an approach might eventually resemble “gridlock” more than “coherence”. It is also difficult to visualise how the notion of a centralised global environmental governance structure would square with the general need for local solutions to environmental problems. The notion of “free trade” has universal appeal; the notion of “uniform environmental responses” does not. MEAs can establish general guidelines for action, but local environmental conditions vary, making the global application of such guidelines problematic in most cases (except for truly global environmental problems, such as climate change).12 Despite their problems, however, properly constructed and integrated multilateral arrangements are likely to remain the foundation stones of global environmental governance for the foreseeable future. Frameworks for action that are negotiated among different nations are the keys to leveling the playing field, and establishing the rules under which governments, businesses, NGOs, and citizens can work together toward common goals.13 If we focus mainly on the international aspects of the global environmental governance architecture, what specific opportunities exist for improvement? Four key priorities for successful international environmental institutions have been suggested:14 • Solid grounding in science as a basis for their authority. Without this underpinning, the legitimacy of the institution will ultimately be eroded. • Increased use of quantitative norms and standards. MEAs that are confined to dealing with procedural issues will increasingly be questioned on the basis of their actual contribution to improved environmental performance. Quantitative norms also make it easier to monitor compliance.

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• Financial incentives and other mechanisms to encourage active participation in the MEA. Without adequate funding, many MEAs will not be acceptable to the developing countries – either because they see themselves as not the major cause of the problem under discussion, or because they do not have sufficient resources to respond effectively to that problem. This need for funding will increasingly require consideration of competitiveness questions alongside environmental ones in the formulation of new MEAs. • Stronger reliance on the private sector and civil society to contribute to the goals of MEAs. The recent coming into force of the (Aarhus) Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters is an important step in this direction. • Increased compliance monitoring and stronger dispute settlement arrangements. The Kyoto Protocol on Climate Change is an example of a recent MEA in which most of these elements figure prominently. However, other existing MEAs are stronger on some elements than they are on others. The Convention on Biodiversity, for example, lacks strong scientific support of the type embodied in the Framework Convention on Climate (i.e. IPCC). Liberalisation of international trade and investment can also be positive forces for both environmental protection and poverty reduction, provided the environmental governance system in place when that liberalisation occurs is adequate. This suggests that it will be in the interests of OECD countries to contribute to improved environmental governance capacities in developing nations, as a way of maintaining political momentum toward economic liberalisation (and of reducing poverty in the long-term). Such an approach would increase the likelihood that developing countries would benefit from trade and investment liberalisation, thereby increasing their support for that liberalisation in the first place. Another area in which there are clear links between poverty reduction and environmental protection is that of technology transfer. It is clearly inappropriate from an environmental perspective for developing countries to have to go through the same stages of technology experimentation that developed countries have undergone. If a technology exists that would reduce global environmental pressures, it makes sense for that technology to be applied wherever it may be capable of benefiting the environment. Positioning environmental governance as an important contributor to the achievement of economic (and thus, poverty reduction) goals is therefore the most likely way forward.15 Environmental institutions are therefore part of the essential infrastructure that has to be in place as a necessary condition for sustained economic growth and poverty reduction. These institutions must continue to provide evidence concerning the functioning of ecosystems that are under stress from economic activities. Based on these findings, norms must be set, monitored and enforced. On the other hand, evironmental institutions also need to recognise that effec-

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tive implementation of these goals is also partially dependent on economic institutions, including those of the private sector. Some priority therefore needs to be given to further developing the capacity of economic institutions to understand and contribute to the realisation of environmental objectives. Policy integration seems to be the key here. The broad message must be that environmental goals are often compatible with poverty reduction and other economic objectives; indeed, they may be mutually supportive of these objectives. The recent decision in the Doha Declaration16 to explore the linkages between the MEAs and WTO disciplines could therefore be an important step in the direction of enhanced policy integration. Conclusions This paper takes the view that the most coherent institutional framework for both poverty reduction and environmental protection is likely to be one that is relatively decentralised, and based on a modular (networking) structure. The implication is that this framework should rely mainly on domestic and regional governance institutions, rather than on global ones. Effective management of environmental problems (both national and international) also implies a judicious mix of strong government institutions, smoothfunctioning markets, and well-targeted infrastructure investments. The business and labour communities are therefore crucial. Other elements of civil society, notably the NGOs, also have important roles to play. Global environmental governance will have to overcome significant resistance insofar as the interests of the developing countries are concerned. Developing countries will need to be convinced that it is in their best interest to participate in global environmental institutions. The best way of making this case is to link (local) poverty reduction objectives explicitly to (both local and global) environmental protection goals. Bringing greater coherence to international trade, investment, and development co-operation policies could make an important contribution to strengthening these linkages. Investment is particularly important here – in the future, investment governance will likely prove to be more important for poverty reduction than environmental governance. Focusing on global environmental governance will not be enough. Notes 01. Paper prepared for an RIVM Workshop on Global Environmental Governance and Implications for Poverty Reduction, Amsterdam December 11, 2001. The views expressed in this paper are those of the author alone, and do not necessarily reflect the opinions of either the OECD or its Member countries. 02. OECD (2000). “Key Elements of OECD’s Work on Governance Issues.” DIAL/ECSS(2000)5. 03. www.oecd.org/puma/mission

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04. OECD (1999). OECD Principles of Corporate Governance. OECD: Paris. 05. Text abridged from OECD (2001). Policy Coherence for Poverty Reduction: Checklist and Consultation Paper. Document DCD(2001)3. 06. Text abridged from Charles Oman (2001). “Corporate Governance and National Development”. OECD Technical Papers, N° 180. 07. See OECD (2001). Citizens as Partners: Information, Consultation, and Public Participation in Policy-Making. OECD: Paris. 08. See OECD (1997). Globalisation and Environment: Preliminary Perspectives. OECD: Paris. 09. See OECD (2001). “DAC Guidance on Mainstreaming the Rio Conventions. Draft documents prepared for a meeting of the DAC Task Force on Global Environmental Conventions”, The Hague, 15–16 November. 10. Classen, Eileen (2001). “Global Environmental Governance – Issues for the New US Administration”. Environment, Jan/Feb, p. 28. 11. See OECD (2001). OECD Environmental Outlook to 2020. (Chapter 24). OECD: Paris. 12. Even the efficacy of the multilateral trading regime has been under growing scrutiny in recent years – as witnessed by the rapid development of regional trade agreements. In a similar vein, attempts to develop a multilateral arrangement for investment activity have so far proven unsuccessful. 13. Classen, op. cit. 14. Text abridged from Waller-Hunter (1998). “Appropriate Institutions for the 21st Century. Paper presented to IUCN 50th Anniversary Seminar”. Fontainebleau, France. 15. Waller-Hunter, op. cit. 16. See World Trade Organisation (2001). “Ministerial Declaration”. Ministerial Conference, Doha, 9–14. Document WT/MIN(01)DEC/W/1.