WWF response to the International Development Committee inquiry into DFID’s Economic Development Strategy

May 2018

SUMMARY

      DFID needs to build sustainability considerations more systematically into its Economic Development Strategy, recognising the overarching importance of ensuring that partner countries’ development trajectories are environmentally sustainable.  Failure to do so will have negative impacts on recipient countries, locking them into outdated technologies, growth models and stranded assets.

      Negative environmental outcomes from inappropriate economic development damages future economic prospects and the wellbeing of local communities, and also costs more to clean up later. 

      Failing to invest in sustainable economic development also represents extremely poor value for money for the UK taxpayer.  The Treasury has recently updated its Green Book guidance on appraisal and evaluation[1], to better include environmental impacts. This update recognises the need to take environmental impacts into account when making spending decisions, ensuring value for money and that spending is in the public good without unintended negative consequences.  These principles should be applied in all DFID funding decisions.

      The model of economic development championed by DFID in its Economic Development Strategy (EDS) does not pay sufficient attention to the role of natural resources and natural systems in underpinning economic activity, nor does it commit to ensuring that economic development is environmentally sustainable.

      Natural resources and natural systems are fundamental to human life, underpinning our wellbeing, and our economies. Studies show that the economic value of nature is huge. Yet this value is not currently being factored into decision making. Instead, nature is often treated as a free resource, and the resulting exploitation has meant our natural resources are being overused, degraded and destroyed, pushing natural systems to dangerous tipping points.

      Environmental risks are a major threat to economic development and poverty reduction and are especially pressing for developing countries as backed up by extensive evidence. 

      ‘Natural assets’ need to be managed in a sustainable way that provides ongoing economic opportunities to current and future generations.

      DFID should revisit its economic development strategy to build a much greater emphasis on environmental sustainability and ensuring that economic development meets minimum social thresholds (as identified in the SDGs) and also keeps us within planetary boundaries.

      Delivering on the Sustainable Development Goals (SDGs) should be the overarching purpose of the EDS, while ensuring interventions in one SDG goal area do not undermine delivery in another.

      There is a wide range of tools and approaches that DFID can use to build environmental sustainability into its EDS, such as natural capital approaches.

NATURAL RESOURCES AND ECONOMIC DEVELOPMENT 

1. Unsustainable model of economic development: The model of economic development championed by DFID in its Economic Development Strategy (EDS) does not pay sufficient attention to the role of natural resources or ensuring that economic development is environmentally sustainable. Economic growth and development has been achieved off the back of resource exploitation, but, as emphasised in WWF’s Living Planet Report 2016,[2] this pattern of growth is unsustainable, with the world’s resources coming under increasing pressure, and the environmental constraints to growth increasingly visible.
2. All economies depend on the resources the natural environment provides – the atmosphere, water, soils, fuels, timber and metals. All the goods that we produce and trade ultimately rely on natural resources. The World Bank’s, Changing Wealth of Nations report states that 47% of GDP in LDCs is derived from natural capital.  Sustainable management of those resources makes good economic sense. Yet in many cases natural assets have not been managed sustainably, and the current economic system, with its emphasis on GDP growth in the short-term – rather than stocks of wealth which will underpin ongoing prosperity - is pushing the natural systems that we all rely on towards dangerous tipping points.
3. Economic growth driving environmental degradation: The ultimate, underlying driver of environmental degradation is the unsustainable pattern of consumption and production that have accompanied economic growth to date. The environmental impacts of this are now very visible, for example through climate change, pollution, water shortages and land degradation - all consequences of an economic system that takes for granted and fails to value natural resources and natural systems. Unsustainable supply chains are bad for business and for the economy. Pursuing an economic system that emerged when there were fewer people and plenty of resources is not fit for purpose now that there are 9 billion, going on 11 billion people and far fewer resources.
4. Sustainability needs to be more fully embedded in the EDS. In its economic development strategy DFID do not take full account of the role of natural resources and systems in underpinning a sustainable economy and the negative impacts that degrading these systems has on economic prospects and human wellbeing. We recommend that DFID undertake a review of how sustainable its programming is.
5. We don’t have to destroy the environment to address poverty. Decoupling economic development from environmental degradation and climate change makes good sense and is essential if the SDGs are to be met, if the Paris climate change agreement is to be honoured and if economic development is to be both sustained and sustainable over the longer term. This approach should be at the heart of all DFID policy including the EDS.

A VISION FOR A SUSTAINABLE ECONOMY

6. A strategy that goes beyond GDP: An economic development strategy needs broader objectives than just increasing income and GDP. Consideration should be given to the purpose of economy and who it is ultimately for, who benefits and the long term prospects for that economy given finite natural resources and the functioning of natural systems. An economic development strategy should take into account human rights and environmental issues and the needs of future generations.  Measures of progress must go beyond GDP to reflect whether the needs of those left behind are being met: DFID should be promoting this approach.
7. Doughnut Economics: Kate Raworth’s “Doughnut Economics” provides an excellent vision for a sustainable economy and it is a model that DFID should pursue.[3]  “Humanity’s 21st century is to meet the needs of all within the means of the planet. In other words, to ensure that no one falls short on life’s essentials (from food and housing to healthcare and political voice), while ensuring that collectively we do not overshoot our pressure on Earth’s life-supporting systems, on which we fundamentally depend – such as a stable climate, fertile soils, and a protective ozone layer.” The Doughnut with its social and planetary boundaries provides a new framework for that challenge (figure 1).

Source: Raworth 2017

8. Overshooting our Planetary Boundaries and failing to meet social thresholds: The doughnut uses the nine planetary boundaries, as set out by Rockstrom et al,[4] if these boundaries are exceeded (as shown in figure 2) there are potentially dangerous tipping points in Earth systems. The twelve social foundations are based on the SDGs. Between social and planetary boundaries lies an environmentally safe and socially just space in which humanity can thrive – as can be seen by figure 2 we are exceeding many of the safe environmental limits and failing to meet social limits too. The doughnut model would be an excellent starting point for DFIDs economic development strategy and one we recommend they explore. 

CLIMATE COMPATIBLE DEVELOPMENT

9. DFID should not be investing in Fossil Fuels: Achieving Sustainability requires economic transformation. DFID and any ODA including CDC investments should be supporting countries to transform their economies away from dependence on extractives and fossil fuels. ODA needs to be coherent with other UK progressive climate change policies and should not be providing funding or investments to grow fossil fuel industries, including natural gas. These will become stranded assets in future, and thus represent poor value for money for the UK taxpayer, and a poor investment for the recipient countries and other investors.  The EDS does not currently rule out DFID (and ODA more broadly) funding to fossil fuel industries – this should be explicit in future strategies. 
10. Climate compatible economic development: It is positive that DFID in their EDS state that they “will promote a ‘climate smart’ approach across our economic development work - including through sustainable energy and the effective economic management of natural resources and the environment.” However, much of the climate change content focuses on insurance – whereas adaptation, resilience and mitigation would be more appropriate themes. DFID should be explicit that it is championing and investing in a model of development that is consistent with a 1.5 degree warming scenario. We would advise the IDC to ask DFID whether fossil fuel investments currently feature in any funding via DFID in multilateral agencies or ODA more broadly, if so to what amount, where and what are the plans for phasing out all fossil fuel investments – including via CDC. 

INVESTMENT PORTFOLIOS

11. Avoiding stranded assets: DFID should ensure that it encourages countries to avoid investing in stranded assets. “Stranded assets are those that would be unprofitable under certain scenarios, which include the enforcement of a fair price on carbon and water, or improved regulation of labour standards in emerging economies.”[5] For example, there is financial and economic risk from investments that are high carbon and cannot be burned if the world is to stay below a 2C rise of global warming. High Carbon assets are one example of ‘stranded assets’ others include investments that fail to take account of environmental risks to the rate of return on investment, for example the availability of water for certain agricultural investments, which present an economic risk to investors and economies. We recommend the EDS includes analysis on environmental and climate risk and stranded assets.
12. Investing in natural infrastructure: Managing natural systems can be the best value for money when it comes to providing populations with services such as freshwater and clean air. For example restoring and managing wetlands and river basins can be the cheapest way of delivering fresh water to downstream cities. Investing in ‘natural infrastructure’ can be far cheaper than investing in ‘hard’ infrastructure such as water purification plants, and have positive co-benefits for livelihoods, climate change and nature. The roles of natural resources in providing ‘free services’ for people (like preventing soil erosion and flooding, and providing clean water downstream) are often overlooked, meaning that development investments can have unintended negative impacts on peoples livelihoods and resilience. These considerations are currently missing from DFIDs EDS.
13. Encouraging sustainable private capital: where DFID and ODA money is used to incentivise the investment of private capital in developing countries it should support investments that are environmentally sound, with clear environmental as well as social criteria and safeguards. WWF has significant expertise in linking conservation and the environment with finance and supporting financial institutions to reduce negative environmental impacts and develop financial mechanisms to assess environmental risks, invest in cost-effective natural infrastructure, and protect and encourage sustainable ecosystems, and we would be happy to support DFID in this regard.
14. Using DFID influence with Multilaterals: DFID in its EDS should be explicit that it will use its influence with multilaterals to ensure that their investment portfolios and spend are also channelled in an environmentally sustainable and climate compatible way.

SUSTAINABLE DEVELOPMENT GOALS

15. Sustainable Development Goals: DFID economic development strategy should align much more clearly to the Sustainable Development Goals. While the goals are mentioned in the strategy the links between specific SDG goal and targets and DFID’s objectives and interventions are not explicit. Delivering the SDGs should be the overarching purpose of the EDS and each objective should demonstrate how it delivers against specific SDG targets in specific countries.
16. Delivering on all the SDGs: There are 17 Sustainable Development Goals and 169 targets that integrate social, economic, environmental and governance aspects of development. The Economic Development Strategy needs to support all four of these areas of development in a balanced way. SDG 8 on “decent work and economic growth” is an obvious focus for the EDS but this needs to be delivered in a way that is compatible with all the goals. 
17. SDG 8 – decent work and economic growth: is to “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”. This goal has obvious links to the EDS, but this goal can be approached in very different ways and with different implications. For example “sustained” and “sustainable” growth are both referred to in the title of the goal but these ideas are in tension with each other if growth is being ‘sustained’ by reliance on fossil fuels and natural resource exploitation then it is far from ‘sustainable’. For example GDP goes up even when that GDP is attained by cutting down forests or overfishing – despite the long term damage to fish stocks and to the services provided by forests such as freshwater provisioning - which in turn will limit future economic activity. ‘Sustained’ growth can therefore be far removed from the idea of a sustainable economy.
18. SDG 8.4 target – decoupling growth and environmental degradation. We strongly welcome SDG target 8.4 "improve progressively, through 2030, global resource efficiency in consumption and production, and endeavour to decouple economic growth from environmental degradation, in accordance with the 10-year framework of programmes on sustainable consumption and production, with developed countries taking the lead". This is a progressive target that DFID should champion in its EDS. However, it could be in tension with other targets eg 8.1 which focuses on sustaining per capital GDP growth for reasons outlined above.
19. Policy Coherence for Sustainable Development (PCSD): DFID need to have processes in place to ensure its approach to delivering one area of the SDGs doesn’t undermine delivery of other goals and targets. For example, how it is approaching delivery of goal 8 (Decent Work and Economic Growth) and goal 9 (Industry, Innovation and Infrastructure) infrastructure or economic growth) is consistent with a healthy and sustainable environment (goals 14 and 15), and indeed in line with the “climate change” goal (13) and “Sustainable Consumption and Production” (goal 12).
20. Leave no one Behind: is a key principle of the Sustainable Development Goals and DFID’s Economic Development Strategy should ensure it meets the needs of poor and marginalised communities. The model of economic growth that has guided economic development over recent decades has failed to deliver for those who are “left behind”, exacerbating rather than reducing inequality and distributing the benefits from “growth” unevenly and unfairly. DFID should review how its programming delivers economic development from the perspective of those that are “left behind” and make reaching poor and marginalised groups and reducing inequality a priority. 

SECTORS AND SUPPLY CHAINS

21. Circular Economy: DFID’s economic development strategy should do more to champion circular economy approaches as part of DFIDs programming and approach, and this would tie directly to delivery of SDG target 8.4 discussed above, as well as Goal 12 on sustainable production and consumption. Tearfund’s report on circular economy in low and middle income countries provides some excellent ideas and recommendations that DFID could further explore.[6] 
22. Supply chains: We welcome the references to supply chains in the EDS and this is an area where DFID could have a significant impact. Supply chains that source products in poorer parts of the world can either support sustainable economic development in source countries or can have negative social and/or environmental impacts. Food and fashion supply chains are good examples. Responsible sourcing of products is therefore critical to supporting the delivery of the SDGs. We encourage DFID, working with private sector and other parts of government, for example Defra as it delivers its “25 Year Environment Plan”, to develop its programming in this area, and consider how the UK’s supply chains for commodities, products and services can positively contribute to the achievement of the SDGs around the world.  
23. Plastics: It is positive to see DFID’s recent announcements on plastics. The plastics problem is a good example of how economic development can have unforeseen and damaging consequences on the environment that loop back to impact on human health and economic development.[7]  In its EDS DFID should be setting itself up to shift incentives and behavior in the economic system to avoid “environmental externalities” like plastic and other pollution. A circular approach to production in the economy could address much of this issue.
24. Agricultural investments: Agriculture is a key focus for economic development in many of DFID’s partner countries and as such a key component of an EDS. DFID need to be clear that the model of agriculture they are supporting is environmentally sustainable, for example taking into account water scarcity issues. They should also ensure that they are not promoting agriculture that will lead to deforestation or other natural habitat loss.  Land Use Planning processes, involving multiple stakeholders, are an important way to do this.  They help to decide what activities should go where in a landscape, looking at interdependences between different uses of land, assessing potential competing uses of the land, the needs of the community, and the economic potential of the natural resources that are contained in that area.  They are important for ensuring a more coherent and sustainable development trajectory is achieved, that maximises benefits for local communities and avoids conflicts over land and resources.
25. Blue Economy: The EDS is surprisingly silent on the value of the Blue Economy and the role of oceans in economic development. The OECD suggest that by 2030, the ‘Blue Economy’ (all economic sectors which have a direct or indirect link to the ocean) “could outperform the growth of the global economy as a whole, both in terms of value added and employment”.[8] The potential of the oceans is therefore highly significant and an area where DFID should be investing and engaging.  The Blue Economy is also a sector where a sustainable approach is paramount, as unsustainable economic activity is eroding the oceans’ natural resources that future economic opportunities depend on.
26. Tourism potential: Tourism is a sector that low income countries often identify for potential economic growth. Natural assets such as wildlife, forests and areas of natural beauty are a key draw for tourists. Preserving and restoring these assets is therefore key for growth in the tourist sector, this includes domestic as well as international tourism. 

TOOLS AND APPROACHES

27. DFID’s Growth Diagnostics: sustainability and resilience did not feature strongly in DFID’s Growth Diagnostics, we recommend developing a Sustainable Growth Diagnostic Tool to better inform decision making.
28. Tools and approaches for building in sustainability: There is a comprehensive set of tools and approaches that DFID could use to build sustainability into it’s EDS. These include spatial planning, natural capital assessment and scenario planning and other multi-stakeholder processes which can facilitate negotiated solutions to competing demands on natural resources like land and water. [9] WWF would be happy to provide advice and support on how to do this.  
29. Measuring Natural Capital: DFID programmes should assess impacts on natural capital when planning interventions, through using the kinds of approaches set out in the Treasury Green Book. Natural Capital stocks should be measured in addition to GDP to better assess a country’s true economic performance and potential for sustainable development, as required under the Sustainable Development Goals.
30. Specific tools: specific tools DFID can deploy to build a better understanding of environmental risks and incorporate the value of nature into its decision-making. For example natural capital approaches are being increasingly adopted by governments, businesses and investors. Examples include: 

a)      InVEST – to map natural assets, value the benefits they provide and undertake scenario analysis on impact of alternative development options.

b)     OPAL – to analyse the impact of infrastructure projects on natural capital benefits, assess which communities will be affected, and identify compensation / mitigation measures.

c)      Waterworld – to analyse water-related risks from specific developments and analyse different land use, land management and climate change scenarios.

d)     Hydropower Sustainability Assessment Protocol – assesses hydropower projects against various sustainability criteria

e)      Natural Capital Protocol – helps business assess their dependence and impact on natural capital.

31. Examples of how tools can be used:

a)      Myanmar:  Used InVEST to assess the best location of a new road to minimise risks associated with flooding, soil erosion and impacts on wildlife.

b)      Belize: Use of natural capital tools and participatory approaches to develop coastal management plan and balance competing objectives: tourism, fisheries, storm damage etc.

c)      China: Creation of Ecosystem Function Conservation Areas based on natural capital assessments, to guide the type of development that is allowed in different areas.

d)     Colombia: Government legally requires the assessment of natural capital impacts and benefits to people in all infrastructure development permit decisions.

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