Voluntary agreements or binding regulation?

13th August 2012

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Experts debate the best way to get firms to improve their environmental performance

Bob Gordon
Environment policy adviser at the British Retail Consortium

The way the world does business needs to change. And fast, because we’re living in rapidly changing times. But how are we going to get there at the required pace?

We know that regulation can be effective. Look at the Landfill Tax Directive or the Ecodesign Directive. Both have pushed the market in the right direction over a sustained period of time. There is a place for legislation when the commercial drivers are not sufficiently compelling. But the problem with regulation is that it tends to focus on pulling up the bottom end of the market, which can be a slow process.

What we need is to create the right conditions for a race to the top, to put the right framework in place so that businesses strive to be the best because it is in their interests. And that’s where voluntary approaches have so much to offer.

Voluntary agreements work with the grain of business – ensuring the actions businesses take don’t just meet environmental objectives but also bring commercial gains. Get the voluntary approach right and it can stimulate a seismic shift through innovation because the benefits can be felt throughout a company. Given the right conditions, organisations will radically reduce their environmental impact as well as gain a competitive advantage.

There are good fiscal reasons to adopt more sustainable methods of doing business. We know the near future will bring significant changes to weather patterns and increased risks of disruption, as well as greater fluctuations in price and in the availability of resources.

We need to be sure we’ll be able to continue to supply good-quality products at affordable prices. Retailers and brands that adjust to these risks will be better placed than those that do not. The case for change makes itself, no regulation required.

There are plenty of good examples from the retail sector. The Courtauld Commitment has achieved massive reductions in packaging and food waste, preventing more than a million tonnes of food and packaging waste between 2005 and 2010.

The On-Pack Recycling Label is used by more than a hundred companies on over 60,000 product lines and has driven up recycling rates.

The recently established Product Sustainability Forum is addressing the gargantuan task of pioneering ways to improve the environmental performance of everyday products over their entire life cycle, from manufacture to disposal.

Regulation has its place but, given the pace of change we need to see, incentivising best practice and stimulating innovation are essential. Let the most responsive to change thrive under progressive voluntary initiatives and let the laggards lose ground as they fail to evolve with the times.

Alan Whitehead
MP for Southampton Test and a member of the energy and climate change committee

The problem with arguments that suggest environmental goals can better be reached through voluntary measures than through regulatory requirements is that there are plenty of anecdotes, but little actual evidence that the voluntary approach works.

On the other hand, there is quite a lot of evidence that voluntary measures fail to result in the intended environmental protection. Relying on voluntary measures means businesses that want to do the right thing by taking on additional environmental costs are put at a disadvantage and face undercutting from less responsible competitors.

And because all businesses see the same policy landscape and assume they will be undercut in this manner, there is a slow and inexorable trend against any company being more environmentally responsible than they are required to be: a classic “prisoner’s dilemma”.

These perceptions about disadvantage are simply not borne out by the evidence either. A recent Defra-commissioned report on environmental regulation and competitiveness concluded that when regulations are introduced there may be “a modest productivity penalty in the short term … [but] there is evidence of a countervailing innovation push over the longer term.”

In other words, regulation works by stimulating newer and better practices among companies because, among other things, they are all subject to the same rules. Regulation creates the level playing field necessary to drive innovation.

The case for regulation to reduce impacts on the environment is, at heart, fairly simple. If you want to achieve real shifts in those impacts, regulation will do it; voluntary agreements, by and large, will not.

There is, of course, such a thing as over-regulation, and a necessary check for any proposed legislation is whether the goal of the regulation will be achieved with the minimum cost and complexity.

There is a very real red-tape challenge to be had in continuously reviewing whether there are simpler ways of lowering environmental impacts. Good regulation must focus on fairness – no loopholes, no preferences – giving all concerned an equal chance to succeed. And that also goes for “leakage” – the extent to which, in interconnected markets, regulation needs to be compatible and minimise the shift of activities to a less regulated market.

Bearing in mind these caveats, regulation must remain at the heart of good environmental practice. In the end, it’s a case of whether or not we are serious about environmental objectives, and in many areas of industrial and commercial life, such as air quality, carbon emissions and resource depletion, we cannot afford not to be serious.

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