Sustainable markets

Sustainable markets can be loosely defined as those that contribute to stronger livelihoods and more sustainable environments. In linking with the pursuit of ‘sustainable development’, such markets have a multiple focus on social, environmental and economic outcomes. Sustainable markets aim to reflect the true costs (or externalities) of natural resource degradation, environmental pollution, and promote just and safe labour practices.

Key tools

In transitioning to sustainable markets, formal rules sometimes called market governance mechanisms (MGMS)are key potential tools to shape and govern markets. Examples could include Fairtrade certification, sustainable reporting and metrics, payments for ecosystem services or other market-based instruments. MGMs change the behaviour of consumers, investors or producers so that their decisions result in more sustainable outcomes. MGMs could provide economic signals or incentives, for example in pricing externalities. Regulatory mechanisms could prohibit or require certain practices by consumers or producers. Or cooperative mechanisms could create voluntary or more formal partnerships around environmental norms or standards.

Debates

There are a number of contentious issues and ongoing debates around sustainable markets, particularly in how to achieve sustainable markets. There are questions around the appropriate mix of policy instruments or mechanisms, and for which context.For example, a developing world country may require specific mechanisms to build sustainable markets, particularly where more informal or fledging economies exists. These also involve wider debates over how economic globalisation and trade can benefit countries where local capacities or institutions are weak.

Furthermore, there are unresolved debates over how much regulation or government intervention is appropriate in order to govern sustainable markets. For example, in pricing pollution like greenhouse gases (GHGs), there are competing arguments over whether there should be government-mandated taxes to limit pollution by economic disincentives or whether a market should determine the price to pollute. In many cases a mixture of both may be favourable.

Broader questions remain over whether sustainable markets can ever fully account for environmental externalities, such as those associated with pollution. This relates to whether an economic model focused on GDP rather than wellbeing can truly bring about the transformation outlined in sustainable development. There have been suggestions that a move away from a pure focus on GDP is required, towards an emphasis represented in methods such as natural capital accounting.

Organisations

A number of organisations are working in the sustainable markets field.

• The International Institute for Environment and Development’s Sustainable Markets Group develops research and analysis towards sustainable markets and the debates and innovations shaping markets. This research also includes a database of market governance mechanisms.
• The U.S based Skoll Foundation runs a programme on sustainable markets which focuses on areas such as responsible supply chains, access to finance for sustainable small and medium enterprises including clean energy companies and work on environmental standards and certification.
• The International Institute for Sustainable Development runs the Sustainable Markets and Responsible Trade initiative. This focuses on the sustainability of international trade and the design and implementation of supply chains.
• On a national level, the Mistra Center for Sustainable Markets, based in the Stockholm School of Economics aims to provide policy research and advice to Swedish actors working in sustainable markets.