June 2018: A paper authored by the International Institute for Sustainable Development’s (IISD) Scott Vaughan, President and CEO, and Ashley Racine examines trade in environmental goods and services (EGS) and the role of market-based sustainability standards in the context of the 2030 Agenda. The white paper was published by the World Economic Forum (WEF) as the ‘Environment’ part of its Policy Series on global value chains (GVCs).

The paper outlines four categories of EGS: goods and services for pollution prevention and control, the production of renewable energy, the conservation and management of natural resources, and environmental monitoring. The paper describes how domestic policies can drive EGS expansion, noting that “stringent domestic air and water pollution regulations typically trigger best-available technology options” to meet quality standards. The authors also note growing interest in greening particular sectors, such as shipping and transportation, and point to climate initiatives in the financial services sector as an indication that more capital is becoming available along clean energy supply chains.

The rapid growth of voluntary sustainability standards has raised concerns.

The paper highlights the importance of consumer demand, emphasizing that action is not driven purely by policies nor by companies. The authors argue that third-party certification standards can partially mitigate challenges around identifying “strictly sustainable products and services.” The 500+ standards currently in existence have arisen from both anticipation of future government action and rising consumer concern for environmental protection. However, the proliferation of voluntary sustainability standards (VSS), the authors note, has also raised concerns around “the diversity of different platforms, criteria, costs and possible non-discriminatory market access issues.” Identifying traceability and impact measurement as challenges to VSS, the authors emphasize that it is far “more difficult to measure the extent to which a particular standard has avoided” environmental damages, and that significant risks of greenwashing still remain.

Given the plethora of standards and certification schemes in existence, the authors highlight questions around comparability, noting a need to identify points of convergence. They flag that the SDGs and international trade policy offer a platform for such convergence. A first practical step to use that platform would be to examine “how the current suite of VSS relates to the SDGs.” The report points to existing thought leadership on this topic by the UN Global Compact and the Global Reporting Initiative (GRI).

Although VSS have been viewed as a potential barrier to trade, the paper emphasizes the opportunity to restructure standards to become enabling factors that leverage the market expansion of EGS, and thus achieve more sustainable global value chains. Doing so, the authors conclude, demands the consolidation of public and private actors, and further exploring the role of financing and investing tools as greening instruments.

The paper also analyzes trade policy interventions and describes recent discussions in the World Trade Organization (WTO) around tariff reduction on environmental goods. Although they note that the talks ultimately stalled, the authors highlight that the EU has demonstrated specific support to the EGS sector in bilateral trade agreements, particularly with countries in the Asia-Pacific region, which they note represents a key player in the EGS market worldwide in both imports and exports.

The GVC Policy Series is an output of WEF’s System Initiative on Shaping the Future of International Trade and Investment. [Publication: Global Value Chain Policy Series: Environment] [WEF Global Value Chains Platform]