Before the COVID-19 pandemic erupted, governments’ pledges for sustainable development were flourishing, most notably as countries signed up to the United Nations Sustainable Development Goals (SDGs). However, the devastating health and economic impacts of COVID-19 on the decade-long progress to fight poverty have forced governments to rethink their socioeconomic models so that they do not compromise human health and ecosystems. In this context, voluntary sustainability standards (VSS) are being increasingly recognized as potentially transformative tools for governments to realize their sustainability commitments.
This 4th Flagship Report aims to provide an understanding of the role of government as a vehicle to drive the adoption of VSS. The effectiveness of VSS to contribute to sustainable development partly depends on their degree of adoption by economic operators. In this respect, governments can play a significant role through public procurement and trade policy.
The integration of VSS into public procurement and trade policies is potentially a powerful means to upscale their adoption. Public procurement represents, on average, 12 per cent of gross domestic product (GDP) in countries of the Organisation for Economic Co-operation and Development (OECD), and up to 30 per cent of GDP in developing countries. Given the magnitude of such spending, in combination with the pressing need for sustainable production and consumption, sustainable public procurement (SPP) has become imperative. In addition, trade policy is increasingly being used to pursue non-trade objectives, including those relating to sustainability.
This report seeks to answer the following key questions:
• What are the determinants of VSS adoption at country level?
• How can public procurement and trade policy serve to increase VSS uptake, and how do they contribute to the effectiveness of VSS?
• What are the key considerations and implications of VSS integration into SPP and trade policy?
Based on these questions, the report analyses VSS adoption dynamics and trends, and the drivers for their adoption in SPP and trade policy. The following are its major observations.
VSS are gaining ground, especially among diversified, export-oriented economies with relatively well-functioning governments and higher levels of development.
The number of VSS, their geographical coverage and the market shares of certified products are, overall, increasing at the global level. However, while VSS are being actively adopted in all countries, their adoption levels vary greatly across countries. VSS adoption scores are more or less aligned with income levels: large developed and middle-income countries tend to have more VSS. Thus, Brazil, China, the United States and many European countries have adopted many VSS;. middle-income countries such as Viet Nam, Indonesia and India also score fairly high on VSS adoption, suggesting that an export-oriented industrialization policy can influence higher VSS activity. Similarly, low-income countries, such as Ethiopia and the United Republic of Tanzania, also score high in VSS adoption due to their export commodities, such as coffee, which tend to be certified by multiple certificates. Generally, it is found that open economies with diversified economic sectors, relatively well-functioning governments and a high of development tend to adopt more VSS.
Increase in VSS adoption is driven by consumer and business demand, and by their integration into public policy.
Markets with a relatively high level of consumer demand for sustainable products can lead to an increased adoption of VSS. Business demand can also increase VSS uptake, as VSS can serve as a means for differentiation and reputational risk management, and as proof of compliance with due diligence requirements or with government regulations. Depending on the structure of the economic sector, and more specifically on its level of concentration, VSS can also spread more or less easily, as business actors with strong bargaining power can influence other actors along the value chain to take up VSS. Lastly, SPP and trade policy play a particularly important role in the integration of VSS into public policy.
SPP can strengthen the design of VSS.
This will depend on how VSS are integrated into legal frameworks, and on the criteria established to recognize VSS in the context of SPP. Considering that procurement is involved in many segments of the value chain (i.e. sourcing of a commodity, purchasing the commodity, and quality control), the integration of VSS into SPP could foster the supply of sustainable products. It would also provide governments with additional enforcement mechanisms, and induce efforts to promote capacity-building. This in turn could create a spillover effect on the community of VSS, both in terms of scaling them up and making them more reliable and credible with regard to how they are designed and how they operate. This report identifies three challenges to enhancing the potential of VSS in SPP. First, procurement policies should strengthen requirements for the recognition of VSS. Currently, the integration of VSS into SPP involves requirements that are related mainly to their standard-setting processes, but rarely to their standards enforcement procedures, such as monitoring, conformity assessment, complaints handling and sanctions. Requirements relating to these other components need to be further developed. Second, there are no, or very few, VSS available for products for public procurement in several prominent sectors (e.g. the health sector). Third, there is a risk that SPP discriminates by excluding products or services of similar environmental and social performance but that do not hold certificates due to the high costs of certification.
Free trade agreements, preferential trade agreements, market access regulations and export promotion measures are relevant instruments to increase VSS uptake.
Between 2010 and 2017, VSS have been increasingly incorporated into some free trade agreements (FTAs), although it may be too early to detect a clear trend. Still, such inclusion tends to be more prominent in FTAs involving the European Union (EU), which reflects the Union’s commitment to promoting fair and ethical trade schemes in its trade policies. In preferential trade agreements (PTAs), and in generalized systems/schemes of Preferences (GSP) in particular, it has been observed that both VSS and GSP schemes aim to foster sustainable development and good governance, and proposals are discussed to integrate VSS into the GSP of the European Union. Moreover, making market access conditional on certification and developing export promotion measures in favour of certification can contribute to further upscaling VSS adoption.
Integrating VSS into SPP and trade policies might also produce several challenges.
A strong increase in demand for VSS could create capacity issues, with some VSS schemes lacking the capacity to deal with the increased demand. Besides, the current lack of availability of VSS for products in the prominent sectors of public procurement might lead to the creation of additional labels, thereby aggravating the problem of a proliferation of VSS. This could increase confusion for consumers and economic actors in distinguishing between credible and non-credible VSS. There is also a possible risk of proliferation of recognition systems with more or less similar requirements but also possible small differences in requirements. This would make it difficult for various VSS schemes to comply with them all. Additionally, if an increase in business demand for VSS does not align with consumer demand for VSS, it might lead to the problem of over-certification. Moreover, there is a possible distributional effect of upscaling VSS related to the “stuck to the bottom” problem, whereby some producers, especially in least developed countries (LDCs), are excluded from the VSS dynamics as they cannot afford high certification costs, which present a significant barrier to their adoption of VSS. This report explores governments’ role in upscaling VSS adoption through SPP and trade policy. It shows that VSS can generate significant impacts on the ground and transform market dynamics. Hence, boosting the uptake of VSS could improve their overall effectiveness in contributing to sustainability on a large scale.
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