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Climate: Towards a just transition, with no stranded workers and no stranded communities

23 May 2017
by Guest author

By Sharan Burrow, General Secretary, International Trade Union Confederation (ITUC)

Ambitious action on climate is an imperative. The G20 leaders have a chance to reinforce the Paris Climate Agreement and raise ambition with concrete measures to ensure significant progress towards net zero economies and reap the benefits of investment now in jobs and economic growth.

There can be no doubt that a zero-carbon world is possible, but critical choices need to be made about how we manage the transition. The trade unions fought for the demand of a just transition with the result that the Paris Agreement included the requirement that national responses ensure just transition measures.

The OECD report Investing in Climate, Investing in Growth adds to the volume of evidence that there is economic advantage, there are jobs and we can secure the future for humanity.

However, the sectoral and economic transformation we face is on a scale and within a time frame faster than any in our history. And increasingly companies and investors are acting to avoid risk and build the foundations for a zero-carbon world.

Notwithstanding, stranded workers and stranded communities will result if inclusive planning which includes just transition measures does not feature in national development plans along with industry and investment strategies. We can work to prevent fear, opposition even inter-community and generational conflict if unions and community are consulted and sustainable jobs and decent work result.

People need to see a future that allows them to understand that, despite the threats, there is both security and opportunity.

The shift is on in energy. Renewable energy employed 8.1 million people around the world in 2015. And investment trends in this sector are beginning to outstrip that in fossil fuels.

But we cannot accept that workers and communities dependent on fossil fuels will be abandoned as investment shifts. These workers and their communities brought us the prosperity of today. This is why industrial transformation should generate both new sources of energy with new companies and transparent plans for existing companies to transition to renewable energy, energy storage, and energy efficiency, with the guarantee of decent work. To see new energy jobs paid a fraction of traditional energy jobs is not acceptable, and breaking down labour rights and standards is not the answer.

Beyond those vulnerable groups it is also about new industrial processes, new skills for new jobs, new investment and the opportunity to create a more equal economy that helps to reduce emissions, improves resilience and ensures the solidarity of compensation for loss and damage for those on the front lines of extreme weather events, water shortages or changing seasons.

Facilitating the social dialogue that allows government, business, trade unions and civil society groups to collaborate in national, industry and community planning for transition and decent work is the key. Clean technologies, energy efficiency, retrofitting, infrastructure built to green standards, investment, information technology and digital distributional systems, and demand management of all sectors inclusive of upstream and downstream supply chains: this is the imperative. It must be a just transition that leaves no one behind.

For coal and other fossil fuel companies in communities dependent on coal fired power stations, corporate transition with investment in new energy, new infrastructure, new industries and new jobs are vital. And some responsibility for community renewal needs to be enshrined whether directly or by exit funding arrangements.

For cities, the job opportunities are significant in green construction and retrofitting, electric mass transit and related services. It requires long-term investment, but creates jobs and drives growth.

For industry, renewable energy must be supplemented with cleaner industrial processes.

For workers, collective bargaining will ensure workers the essential support when there will be a need for redeployment, re-skilling and redeployment. Pensions for older workers must be secured. Sharing prosperity based on resource productivity must become a new tool for ensuring just wages and decent work within planetary boundaries.

For parents everywhere, a just transition can ensure strong communities and quality jobs for their sons and daughters.

There are good examples of progress emerging. And there are models for investment vehicles to secure progress but while businesses, unions and communities are acting, there are many gaps. The absence of appropriate government policies, funds and structures for a just transition makes it hard for workers, employers and communities to move forward on their own. In particular the need for targeted investment in infrastructure, regional redevelopment and social protection requires the broader scope and mandate that governments bring. Without more assertive action from governments, we risk seeing many more examples of unjust transition, with stranded workers and communities.

For governments to fulfil the Paris Climate Agreement, governments should ensure that job-related aspects of climate policies are part of their decarbonisation pathways. They should establish plans and strategies for a just transition.

This requires the urgent establishment of formal social dialogue mechanisms so that just transition strategies can be democratically designed for all levels–community, region, company and sector, and country. The ITUC has established a Just Transition Centre to support this vital social dialogue.

Just transition plans should be based on the ILO’s just transition guidelines.

And governments should establish just transition funds in all countries and for vulnerable communities, regions and sectors. The funds will support the implementation of just transition plans.

Just transition funds should cover investment in education, reskilling and retraining; extended or expanded social protections for workers and their families; and grant, loan and seed capital programmes for diversifying community and regional economies.

The G20 Financial Stability Board’s Recommendations of the Task Force on Climate-Related Disclosures should be expanded to include disclosure of just transition plans for vulnerable workers and communities, consistent with disclosure of company plans for decarbonisation and management of climate risk.

The design of public and blended investment in low emissions infrastructure with the aim of creating decent, high value work throughout the value chain and with a focus on vulnerable communities and regions.

Investment in public transport, renewable energy and appropriate grid and storage infrastructure, zero emissions buildings, and infrastructure for electric vehicles should be prioritised.

When 64% of people in 15 of the G20 countries in the ITUC Global Poll 2017 want their governments to do more to promote a just transition to a zero-carbon economy, the mandate is there for governments to act.

The G20 group of countries can set the direction through both individual and collective action. This is a time for leadership, and where there are reluctant leaders other must simply set the pace.

 

References and further reading

The Just Transition Centre is at www.ituc-csi.org/just-transition-centre

The OECD report Investing in Climate, Investing in Growth, released on 23 May, provides an analysis of how low-emission and climate-resilient development can be achieved without compromising economic growth, competitiveness or well-being. Chapter 6 of the report provides a detailed discussion of just transition issues and how governments can manage them.To read the publication, synthesis report and related material visit:  www.oecd.org/environment/cc/g20-climate/

 

A dash of data: Spotlight on Irish households

18 May 2017
by Guest author

Esther Bolton, OECD Statistics Directorate

GDP growth always gets a lot of attention, but when it comes to determining how people are doing it’s interesting to look at other indicators that focus more on the actual material conditions of households. Let’s focus on a few alternative indicators to see how households in Ireland are doing.

GDP and household income

Real household disposable income per capita grew at the same pace as real GDP per capita in Q4 2016, both increasing 2.3% from the previous quarter. However, that does not mean that real GDP and real household income always grew in tandem as shown in chart 1. Real household income levels in Ireland only recently returned to their pre-crisis level (the index was 103.5 in Q4 2016 from a baseline value of 100 in Q1 2007 before the economic crisis), following more than 7 years below that level. On the other hand, real GDP per capita is up more than 27% since Q1 2007 (the index was 127.3 in Q4 2016) due to the remarkable growth rate seen in Ireland in Q1 2015.

What occurred in Ireland in 2015 reflects the growing importance of global value chains, combined with the increasing importance of “intangible assets” used in production, as multinational enterprises (MNEs), in particular, have sought to maximise profits and minimise costs, including through optimisation of their global tax burden, by (re)allocating some of their economic activities in different parts of the world. In 2015, MNEs relocated intangible assets to Ireland, where these assets are being used by Irish enterprises (including Irish affiliates of foreign MNEs) to generate value added.

This is an excellent example of why GDP should not be interpreted as an indicator of the purchasing power or the material well-being of a country. GDP is primarily a gross measure of economic activities on the economic territory of a country, and of the income generated through those activities. High levels of GDP thus do not necessarily mean high levels of income flowing to the residents nor does it mean that their growth rates will be similar(read this post for an explanation on Irish GDP large increase in 2015). A major reason is that some of the income generated by production may be repatriated to non-residents, for example in the case of income generated by affiliates of multinational enterprises.

The divergence between GDP and household disposable income can clearly be seen in Chart 1 with real GDP per capita growing sharply (by 21.3% in Q1 2015 from the previous quarter), while real household income increased by only 1.6%.

Chart 1

The presence of a significant number of foreign affiliates of MNEs (responsible for around half of Ireland’s business sector GDP, that is to say, excluding agriculture, most self-employment, the public sector and some financial services activity) is not the only reason why there can be a divergence between the growth of household income and GDP. Government interventions can also play a role.

As GDP was contracting throughout the quarters of 2008, household income was sustained by increased unemployment benefits and other social benefits received by households. As a result, between Q1 2008 and Q4 2008, the net cash transfers to households’ ratio showed a sharp increase; see Chart 2. Since Q4 2010 the ratio has trended down.

Chart 2

 

 

Confidence, consumption and savings

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household material well-being one may also want to look at households’ consumption behaviour.

Consumer confidence (chart 3) trended upward, from a low seen in Q1 2009, until Q4 2015 when it reached its peak (104.7). Since then it has been declining to 103.0 in Q4 2016, yet still 10 points higher than Q1 2009.

Chart 3

Despite the recent downward trend in consumer confidence, the increase in household income helped boost real household consumption expenditure per capita (chart 4), which rose 0.5% in Q4 2016 from the previous quarter (from 95.7 in Q3 2016 to 96.2 in Q4 2016). Since Q1 2013 real household consumption expenditure per capita has increased in line with developments in real household income. However, Irish households are still buying less goods and services than before the crisis.

Chart 4

Because household income increased more than final consumption expenditure, the households’ savings rate (chart 5), which shows the proportion that households are saving out of current income, increased 1.2 percentage points to 13.5% in Q4 2016. The ratio has been trending up since Q1 2016, suggesting that households remain cautious about their future income.

Chart 5

 

Debt and net worth

The households’ indebtedness ratio, i.e. the total outstanding debt of households as a percentage of their disposable income, may reflect (changes in) financial vulnerabilities of the household sector and provides a useful yardstick to assess their debt sustainability.

The household indebtedness ratio dropped considerably since the crisis, by nearly 75 percentage points, from its highest point in Q4 2009 (230% of disposable income, compared with 155 % of disposable income in Q4 2016). This corresponds to the largest drop in the debt ratio seen amongst OECD countries. The decline was driven by a decrease in loans (primarily mortgages) and rising household income.

Chart 6

When assessing households’ economic vulnerabilities, one should also look at the availability of assets, preferably taking into account both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available, financial net worth (i.e. the excess of financial assets over liabilities) is used as an indicator of the financial vulnerability of households.

In Q4 2016, households’ financial net worth was stable at 214 % of disposable income (chart 7). Since Q1 2009, it has been trending up driven primarily by the reduction in household debt (as seen in chart 6) and increasing financial assets (mainly pension assets and currency and deposits). Between 2009 and 2016, household financial net worth increased by around 145 percentage points. However, some caution is needed interpreting this figure since financial net worth does not take into account housing assets which saw spectacular growth due to a bubble in house prices until it burst in 2007 followed by sharp declines afterwards.

Chart 7

 

Unemployment

The unemployment rate and the labour underutilisation rate (chart 8) also provide indications of potential vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s well-being. The unemployment rate was 7.1% in Q4 2016, pursuing the downward trend observed since Q1 2012 when it reached a peak of 15.1%. The labour underutilisation rate takes into account the share of underemployed workers and discouraged job seekers. Since Q4 2015, this rate has been twice the size of the unemployment rate, compared with around one and half time pre-crisis, indicating higher slack in the labour market.

Chart 8

Overall, the last quarter of 2016 saw a continued increase in Irish households’ material wellbeing with income and consumption per capita continuing to expand, a further decline in debt, an increase in financial net worth (although total net worth still remains below its pre-crisis level ) and a fall in the unemployment rate. However, the savings rate increased in line with declining consumer confidence (although consumer confidence is now much higher than its pre-crisis level). And despite the continued fall in the unemployment rate, many workers would prefer to work more, as indicated by the remaining high level of the underemployment rate.

One should keep in mind that households’ income, consumption and savings may differ considerably across various groups of households; the same holds for households’ indebtedness and (financial) net worth. The OECD is working on these distributional aspects and preliminary results can be found here and here.

To fully grasp people’s overall well-being, one should go beyond material conditions, and also look at a range of other dimensions of what shapes people’s lives, as is done in the OECD Better Life Initiative.

 

Useful links

Are the Irish 26.3% better off?”, OECD Insights post, 5 October 2016

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our household’s economic well-being dashboard.

We must tackle the growing burden of obesity

18 May 2017
by Guest author

Francesca Colombo, Head, Health Division, OECD Directorate for Employment, Labour and Social Affairs

In 2010, the OECD’s influential report, Fit not Fat:Obesity and the Economics of Prevention, warned about the rapidly rising challenge of obesity and its consequences for our health.

Nearly a decade later, the situation has unfortunately not improved enough. Our new data released today (http://www.oecd.org/health/obesity-update.htm) show that the obesity epidemic has spread further, even though this has happened at a slower pace than before. Today, over half of all adults and nearly one in six children are overweight or obese in the OECD area. In the United States and Mexico, one every three adults is obese (see our chart). Social disparities persist and have increased in some countries. Less-educated women are two to three times more likely to be overweight than those with a higher level of education.

Click to enlarge

Obesity rates have grown rapidly in England, Mexico and the United States since the 1990s. The outlook for the future is worrying, as new projections show a continuing increase of obesity, if no significant change occurs. Obesity rates are projected to increase at a faster pace in Korea and Switzerland where rates have been historically low.

There are many reasons why we must tackle obesity. Obesity is a key risk factor for numerous chronic disease, such as diabetes and cardiovascular disease. The failure of health systems to tackle obesity leads to millions of deaths and disability. This also damages our economies. Obese people are less likely to be employed than normal-weight people. They are less productive at work due to more sick days and fewer worked hours, and they earn about 10% less than non-obese people (OECD/EU (2016), Health at a Glance: Europe 2016 – State of Health in the EU Cycle, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264265592-en.)

The good news is that much of this is preventable, as OECD work shows. Comprehensive policy packages, including school-based and worksite interventions, interventions in primary care settings, and broader regulatory and fiscal policies can address obesity effectively. A number of countries have recently implemented policies, ranging from tax measures (e.g. Belgium, Chile, Finland, France, Hungary, and Mexico) and subsidies to encourage active commuting instead of cars (e.g., Canada and France both at subnational level), to prescription of physical activity (e.g., France, Sweden), reformulation of food products (e.g., Canada, Chile, Korea, UK, Industry on its own) and change in portion sizes (e.g., France, Sweden, Turkey, UK, New York City ).

In the past few years, new policies to fight obesity have emerged, including communication. Improving nutrient information displayed on food labels through easy-to-understand symbol that is placed in front of pre-packaged food products can help consumers make healthier food choices. These symbols exist in Australia, Chile, Denmark, England, France, Iceland, Korea, Lithuania, New Zealand, Norway, and Sweden. Health promotion campaigns have also been spread through social media. Examples of health-promotion-dedicated website, mobile apps and online tools to help people change their behaviours can be seen in Chile, Estonia, England and the Netherlands. Some countries have reinforced the regulation of marketing of potentially unhealthy foods and sweetened beverages directed at children and young adults. Chile, Iceland, Ireland, and Mexico, for example, ban advertising of foods and beverages on television and radio during peak children audience hours. Other bans apply in schools (e.g., Chile, Spain, Turkey and Poland), in public transport (e.g., Australia) and in theatres (e.g. Norway). While the impact of these polices has not been fully evaluated yet, early evidence shows they empower people to make healthier choices, and can also affect food manufacturers’ behaviours.

These are just some examples. Most OECD countries are now using simultaneously complementary policy tools and creating synergies to promote healthier lifestyles. But there is no room for complacency. OECD countries on average still allocate only around 3% of their health budgets to public health and prevention. Addressing obesity requires investment, and comprehensive policies that target broad social and environmental determinants. Crucially, it requires strong leadership and political will.

 

Further reading

OECD Obesity Update 2017

Sassi, Franco (2010) “Fighting down obesity” OECD Observer No 281, October http://oecdobserver.org/news/fullstory.php/aid/3339/Fighting_down_obesity_.html

Raising revenues through carbon pricing can help the poor to pay for their energy bills

11 May 2017
by Guest author


Florens Flues and Kurt Van Dender, OECD Centre for Tax Policy and Administration

A widely heard criticism of carbon pricing is that it will simply hurt the poor. But just like other similar schemes with environmental aims, such as water charging, the opposite is true. It all depends on having the right policies in place.

One very effective policy for reducing air pollution and mitigating risks from climate change, such as storms, floods and sea level rise, is to raise taxes on domestic energy use. In fact, by taking just one-third of the revenues raised through such taxes to fund cash transfers, policy makers would make it easier for households to pay their energy bills, not harder.

The message that higher energy prices are indeed quite compatible with social policy objectives is the main finding from a new OECD working paper, “The impact of energy taxes on the affordability of domestic energy”.

Energy affordability is the ability of households to pay for the necessary levels of electricity and heating. While the concept of being able to pay of one’s bills has intuitive appeal, measuring affordability is challenging in practice.

The paper uses household level data covering 20, mainly European, OECD countries to analyse energy affordability at current energy prices and after a hypothetical, environmentally-related energy tax reform. It compares three indicators, which are based on expenditure shares, relative incomes, and a combination of both for the third (and strictest) indicator. The strict indicator says that households face energy affordability risk if they spend more than 10% of their disposable income on electricity and heating, and their income is less than 60% of the median income.

Energy affordability concerns are manifest at current prices. According to our strict indicator, less than 3% of Swiss households face energy affordability risk, while more than 20% in Hungary do; the median share is around 8%. Low energy affordability also results in utilities cutting off supply to households. More than 100 000 households see their electricity supply cut each year in France, Germany and Spain. In the United Kingdom more than 1.5 million households cut off their electricity supply because they cannot afford to top up pre-pay meters.

In many countries domestic energy prices are rising, partly as a result of charges that finance the expansion of renewable energies. In practice, incentives for renewables often burden poor households, particularly because the poor tend to spend a higher share of their income on electricity and heating than the rich.

Unfortunately, some politicians have used this relationship to argue against stronger emission cuts. It is a blinkered view. Using taxes to make polluters pay for their emissions actually raises revenues that can be used to support households. This has been done to good social effect in Switzerland, for example.

The simulated energy tax reform aligns prices with environmental objectives, and increases energy prices by 11.4% on average for electricity, 15.8% for natural gas, and 5.5% for heating oil. Redistributing a third of the additional revenues resulting from this reform to poor households, by means of an income-tested cash transfer, is sufficient to improve energy affordability according to the three indicators. Under the strict indicator combining expenditure shares and relative incomes , energy affordability risk would decline by more than 10% on average across all countries considered. Uniform transfers are less effective at combatting affordability problems, although affordability would still improve according to the strict indicator.

Mitigating the adverse impacts of higher energy taxes, which are needed to cut harmful carbon emissions and air pollution, on energy affordability, requires no more than one-third of the revenues raised by the higher taxes. The remaining revenue can be used to make the tax mix for other social objectives, or for more inclusive growth.

References and further reading

Flues, F. and A. Thomas  (2015), “The distributional effects of energy taxes”, OECD Taxation Working Papers, No. 23, OECD Publishing, Paris, http://dx.doi.org/10.1787/5js1qwkqqrbv-en.

Flues, Florens, and Kurt van Dender (2017), “The impact of energy taxes on the affordability of domestic energy”, OECD Taxation Working Papers, No. 30, OECD Publishing, Paris, http://dx.doi.org/10.1787/08705547-en.

Kurt, Van Dender (11 October 2016), “Resistance is futile. Higher carbon process needed to guide the transition to carbon neutral growth”, OECD Insights blog, http://oecdinsights.org/2016/10/11/higher-carbon-prices-for-carbon-neutral-growth.

OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems, OECD Publishing, http://dx.doi.org/10.1787/9789264260115-en.

OECD (2015), Taxing Energy Use 2015: OECD and Selected Partner Economies, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264232334-en.

OECD work on taxaxation and the environment: www.oecd.org/tax/tax-policy/tax-and-environment.htm 

Smartphones are child’s play, but what about the child labour?

27 April 2017
by Guest author

Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

©Issouf Sanogo/AFP

Digital technology depends on energy, and that energy depends on minerals. Take cobalt, for instance. Use of this ferromagnetic metal can be traced back to Ancient Egypt when it was used to taint ceramics. Today cobalt is an integral part of rechargeable lithium-ion batteries that go into smartphones, lap tops and electric vehicles. The market for rechargeable lithium-ion batteries is expected to more than double to USD 77 billion by 2024. Hence, for the “fourth industrial revolution” to succeed and to meet our important climate goals, we need cobalt–but at what cost?

Recent press reports decry children, sometimes as young as 5 years old, working in cobalt mining under terrible conditions in the Democratic Republic of the Congo (DRC). These mines operate outside legal frameworks, without formal social, health or worker protection.

If your company operates in this sector, whether making or using cobalt-dependent batteries, or the digital products they go into, and no matter where that cobalt enters in your supply chains, you cannot afford to take these press reports lightly. So, what can you do? The DRC produces more than 60% of the world’s cobalt. Of this, most comes from large scale industrial mines, but around 30% comes from illegal mines where there is a marked risk of child labour being used. Given the DRC’s huge market share, it is likely that some of its cobalt is present in your supply chain.

But how can you be sure? It is not easy. True, the OECD Guidelines for Multinational Enterprises call on companies to scrutinise their supply chains for human rights, labour, environmental and corruption impacts, but these supply chains are incredibly complex and long. How to know where the cobalt comes from? After all, the buyer of the Congolese cobalt affected by child labour, may in this case be a Chinese cobalt smelter, which would be several links up the supply chain and completely unknown to your firm: a sub-sub-sub-sub-supplier, if you like.

To be fair, the OECD’s due diligence standard acknowledges that companies on the end of long supply chains cannot realistically know the mine of origin for all the metals in their product, but they should at least try to identify the smelters. But even if you manage to identify this smelter, what can you do to reduce your risk?

There are several avenues to consider. You could join an industry association that, collectively, as the largest buyers of lithium batteries, has leverage over the cobalt smelters, pushing them to use international standards to source cobalt responsibly and prevent child labour; an example is the Responsible Cobalt Initiative. The industry association may reach out to government officials in China, for instance, to get their support in aligning the cobalt smelters with responsible international standards.

However, the main responsibility for due diligence regarding supply chains rests with your firm. The OECD can help, with a set of practical actions due to be published in 2017, which will explain in simple terms how to tackle the risks of the worst forms of child labour in the minerals supply chain.

Not all informality is bad per se. Roughly a fifth of the DRC’s population relies on this type of mining, despite the terrible conditions. So walking away from the DRC is not the answer either, even if it were feasible given the DRC’s share of production and the limited control you can hope to have over upstream suppliers. Clearly, the aim of any upstanding digital firm, both for moral and business reasons, is to work towards the prevention of child labour. Achieving this requires a collective effort to formalise and legalise the informal mining sector, remove children from the mines, and develop schools instead. This requires a herculean effort, and while companies can show intolerance to child labour and encouragement to tackle it, they cannot achieve change without working closely with the DRC government, local civil society and communities, as well as donors, to address the root causes of child labour. Only then can the cobalt supply chains be cleaned up for good.

Meanwhile, international organisations like ours can help put in place the conditions for progress. For instance, the China-OECD joint programme of work includes co-operation on responsible mineral supply chains. Indeed, the OECD has helped the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters (CCCMC), a Chinese industry association, set up the Responsible Cobalt Initiative. This includes international technology companies, battery manufacturers and Chinese smelters, working alongside the new Inter-ministerial Commission on Child Labour of the Congolese government, using the OECD Due Diligence Standards for Responsible Mineral Supply Chains.

It shows how crucial engagement with governments and players across the spectrum can be to prevent risks, improve welfare and protect integrity and human rights.

The digital revolution is so promising in many ways, and is a harbinger of a cleaner world. The onus is on us all to work ever harder together to ensure what goes into our technology respects the highest standards. Our technology will be even smarter, and fairer, as a result.

Links and further reading

By the same author:

Corporate leaders: Your supply chain is your responsibility”, in OECD Observer No 299, Q2 2014

Frankel, Todd (2016), “The Cobalt Pipeline: Tracing the path from deadly hand-dug mines in Congo to consumers’ phones and laptops”, in The Washington Post, 30 September

See also: Responsible Algorithms in Business: Robots, fake news, spyware, self-driving cars and corporate responsibility

Practical actions for companies to identify and address the worst forms of child labour in the minerals supply chain

https://mneguidelines.oecd.org/child-labour-risks-in-the-minerals-supply-chain.htm

Don’t miss: 11th Forum on Responsible Mineral Supply Chains, 2-4 May 2017

https://mneguidelines.oecd.org/icglr-oecd-un-forum.htm

 

©OECD Insights April 2017

For whom the budget cut tolls

25 April 2017
by Guest author

Bill Below, OECD Directorate for Public Governance

Staff reductions, salary cuts, the loss of benefits and truncated career opportunities blow a cold wind over the motivation of employees fortunate enough to survive downsizing. At the very moment when the affected company needs its remaining staff to take on the work of others, accept new roles and work longer hours for less, those employees undergo an overwhelming gamut of emotions affecting work performance: anger, resentment, job insecurity, low job satisfaction and a loss of trust. After all, a psychological contract has been broken as surely as watching your boss rip up your actual contract in front of you. Being one of the “lucky” ones doesn’t diminish the distress. Survivors’ emotions are so strong workforce specialists call them “sicknesses”—and they can be crippling, not just for those experiencing them, but for the organisation itself.

Good luck with that

The best employers understand this and take measures to help staff prepare for and work through the emotional turmoil of painful change. It’s not about altruism. Future performance will depend on management’s ability to minimise trauma and inspire support for the newly-shaped organisation. That’s why leading private sector firms prepare strategic plans in advance, set up cross-functional working groups, help managers with their people and communication skills and have detailed implementation and communication plans ready. They follow up with post-downsize employee care programmes and skills development to help staff adjust to new roles. And the public sector? Not enough, according to Engaging Public Employees for a High-Performing Civil Service (OECD 2016).

Handle with care

Yet, even with all the bells and whistles, downsizing efforts often fail to improve levels of efficiency, effectiveness, productivity and, in the private sector, profitability. That bodes poorly for countries hoping to relieve fiscal pressure with a “pure downsizing” approach. And research suggests there are many of them. From 2008 to 2013 the majority of OECD countries cut civil service budgets, 75% reduced or froze public wages and 62% cut training investments. During this period, public sector downsizing efforts included a full range of instruments (see chart). Despite the tenuous relationship between layoffs and productivity gains, 14 countries cited enhanced productivity as the desired strategic outcome of personnel reductions—without necessarily accounting for how that productivity would be accomplished. The data show that dismissals ranked fifth on a list of seven instruments, and were used more frequently than both decentralising government agencies and privatisation. Meanwhile, recruitment freezes and non-replacement of retiring staff, the first and second preferred downsizing instruments, while less violent, impose costs on organisations, including loss of institutional memory, loss of trust, a more concentrated workload, and in the case of hiring freezes, a lack of fresh thinking and experience entering the organisation.

Source: OECD (2014) Question 5, Survey on managing budgetary constraints: implications for HRM and Employment in Central Public Administration.

Pain ahead

Among survivors, reduced compensation probably has the most far-reaching impact on motivation, performance, perceptions of fairness and the quality of work. Cuts to compensation took different forms in different countries, from suspension of performance bonuses or top ups for holiday seasons, to decreases in overtime pay and simple wage cuts. Reductions can be temporary or part of ongoing public sector reform. For example, Germany no longer takes seniority into account in middle and top management and has adopted certain performance pay criteria, allowing high performers to rise faster to new levels.

One thing is sure: the old notion of a safe job in the civil service is profoundly changing: eight countries reported more personnel cuts in their central public administrations than in the private sector, five countries reported that it has become easier to dismiss public employees, and four countries reported that they have eased civil service job protections. The trend looks set to continue, to judge by the response to the survey question, “Will budgetary constraints and the subsequent need for stabilising national economies be an extra impetus to abolish employment as civil servants?” Over half of the 23 responding countries answered with “very much” or “somewhat”.

“Putting a man on the moon”

To help countries progress towards more effective management of human capital in the public sector, evidence-based tools are needed. The authors of the report look at employee engagement as a key performance indicator and a way forward. Engagement is the sweet spot where an individual’s personal values, goals and motivations align with those of the organisation. It helps gear their behaviour towards achieving goals, innovating more and working energetically albeit in paced, sustainable ways (so reducing the incidence of burnout).

The report analyses the use of employee surveys in monitoring public sector engagement. While a majority (21) of countries surveyed reported measuring employee engagement in some form, only a handful use the data regularly to support decision making—for now, at least. This is not enough, and policymakers involved in public sector reform should take heed.

The value of employee engagement has been illustrated by a story about President Kennedy’s 1962 visit to NASA following the announcement of his ambitious goals for manned spaceflight. After asking various engineers what they did, the president then turned to a janitor in the room and posed the same question. The janitor answered: “I’m helping put a man on the moon!” Engagement is about being in step with the bigger picture (although NASA’s morale was severely tested later that decade when budgetary plenty was replaced by unprecedented retrenchment). The good news is, engagement correlates to individual and organisational performance. Engaged employees are productive employees—an intriguing relationship at a time when governments strive to find a workable measure of public sector productivity.

Counting on goodwill

Inciting employees to connect to the bigger picture requires a culture of engagement. That means beefing up management skills and HR processes to levels found in well-run private sector firms. It also means attracting and retaining the best and the brightest. While many talented people turn to the public sector out of a belief in public service, counting on goodwill alone will only take government employers so far. When the dust settles, they will need to provide an attractive mix of job stability, compensation, engagement and professional growth opportunities—lessons that have gone unheeded by policymakers eager for the illusory gains of “fire and forget” downsizing.

 

Links and further reading

OECD (2016), Engaging Public Employees for a High-Performing Civil Service, http://oe.cd/HRM
This report was prepared by Daniel Gerson based on papers by Cristoph Demmke and Beatrix Behrens.

Public Employment and Management, www.oecd.org/gov/pem

OECD Directorate for Public Governance, www.oecd.org/gov

 

 

Can green bonds fuel the low-carbon transition?

19 April 2017
by Guest author

RachenArt/Shutterstock

Hideki Takada and Rob Youngman, OECD Environment Directorate

We know decarbonisation will require a massive shift of investment away from fossil fuel and into such areas as renewable energy, energy efficiency in buildings and industry, electric vehicles and public transport. A key challenge for policy makers is to understand how to make best use of available policy levers to help accelerate this shift towards low-carbon investment. This includes facilitating the financing of low-carbon investment, including financing through equity investment or – on the debt side – through bank loans and bonds.

Green bonds have gained considerable prominence in recent years as one way to finance the transition to a low-carbon economy. These bonds are an instrument which is used to finance green projects that deliver environmental benefits. The green bond market is still young – it got started only ten years ago – but has experienced rapid growth.  With growing market appetite for such bonds, annual issuance rose from just USD 3 billion in 2011 to USD 95 billion in 2016. Many initial green bond issuances were made by public finance institutions such as the European Investment Bank and the World Bank.

Green bonds have become increasingly popular amongst banks, corporates, and national and local governments to finance green projects. In 2016 Apple issued a USD 1.5 billion green bond backing renewable energy for data centres, energy efficiency and green materials, becoming the first technology company to issue a green bond. Other landmark issuances in 2016 included Poland’s sovereign issuance – making it the first country to issue green bonds to fund projects that address climate change.  Last year also saw the first municipal green bond issuance in Latin America (Mexico City), which raised USD 50 million to pay for energy-efficient lighting, transit upgrades and water infrastructure.  This year, in January, the French government announced the largest sovereign green bond issuance to date – EUR 7 billion – to fund the energy transition.

Why do green bonds trigger such interest?

Bond finance is a natural fit for low-carbon investments such as renewable energy infrastructure, which is characterised by high up-front capital costs and long-dated income streams. They also can offer several benefits to both bond issuers and investors. For example, by issuing green bonds, bond issuers diversify and expand their funding sources by attracting investors who would not normally purchase their bonds. “Over-subscription” of green bonds – i.e. cases where demand exceeds the amount of bonds being issued – can also provide benefits.  For example, excess demand for the French sovereign green bond issuance (EUR 23 billion versus the EUR 7 billion actually issued) allowed the government to raise several times more capital than initially targeted.  Issuers can also gain reputational benefits by highlighting their green activities. At the same time, green bonds can help investors satisfy ESG (environment, social and governance) objectives while also securing risk adjusted returns.

The new OECD report Mobilising Bond Markets for a Low-Carbon Transition, published today, takes a closer look at the importance of green bonds and policy actions to promote further growth of this market. The report also provides a unique quantitative framework for analysing potential bond market evolution and the contribution it can make to financing key low-carbon sectors: renewable energy, energy efficiency and low-emission vehicles. The analysis provides a projection of the four major markets (China, the European Union, Japan and the United States) between 2015 and 2035 under a two degree scenario identified by the International Energy Agency. The results of the analysis suggest that by 2035 green bonds have the potential to scale to USD 4.7-5.6 trillion in outstanding securities and USD 620-720 billion in annual issuance for these key three sectors in the four markets.

While these figures may seem large on an absolute basis, they are small (approximately 4%) relative to the scale of debt securities markets in general – in 2014 USD 19 trillion of bonds were issued in the four markets and USD 97 trillion of outstanding debt securities were held globally. In these deep pools of capital, there is plenty of room for the green bond market to grow.

The OECD report finds that bond markets have the potential to play a significant role in the transition to a low-carbon economy. Nevertheless, as the green bond market evolves, it faces a range of challenges and barriers. Greater transparency may be needed to avoid confusion, inefficiency and the risk of “greenwashing” where bonds are sold as “green bonds” but projects financed by those bonds do not deliver expected green benefits.  Policy makers are faced with the challenge of developing green guidelines and standards and, in particular, defining international rules without imposing overly stringent requirements that could raise issuance costs. Striking a balance between securing market confidence and reducing green transaction costs will be critical and the right set of policies will be crucial.  In addition, while the green bond market can facilitate the financing of projects, it cannot itself create a pipeline of bankable projects.  Governments will need to set ambitious policies to ensure low-carbon investment needs are met. Ultimately, credible and consistent energy and climate policy and attractiveness of low-carbon projects will be the drivers of investment.

For a closer look at the potential contribution of the green bond market to the low-carbon transition and policy options see: Mobilising Bond Markets for a Low-Carbon Transition just released today.

Join us on 28 April at 13:30 CEST to discuss Green Finance and Investment at our next free OECD Green Talks LIVE webinar.  For more information and to register: http://bit.ly/GreenTalks

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Useful links

Mobilising Bond Markets for a Low-Carbon Transition

Green Talks Live: Green finance and investment

Growth, Investment and the Low-Carbon Transition

Centre on Green Finance and Investment

Financing Climate Change Action

Green bonds: Country experiences, barriers and options