Economic Evaluation of the Environmental Impact of Shipping from the Perspective of CO2 Emissions

In this research we evaluate the environmental economic impact of shipping from the perspective of CO2 emissions by implementing Marine Emission Trading Scheme (METS), as defined. This trading scheme is based on the EU Emissions Trading System (EU-ETS) program with adjustments for the shipping industry’s needs.
First, we evaluate the socio-economic cost of carbon emissions from seaborne trade activity per borne ton and per consumed ton fuel in both Business as Usual (BAU) and METS state. Then we continue to evaluate the relative socio-economic effect with regional segmentation, transportation mode, and the expected effect on the shipping industry from both the economic and environmental perspective.

The METS economic model is calibrated with the Fuel Consumption data (FC), forecasted FC growth rate (based on the proportion between FC growth rate and global trade growth rate), forecasted emission abatement rate (based on EU-ETS actual performance) and Emission Unit Allowance (EUA) prices. This generates an economic evaluation based on multiple CO2 emission scenarios, allowing us to estimate the socio-economic impact on the environment from seaborne trade activity per borne ton criteria and per consumed ton fuel criteria in BAU State and METS State.

The research shows that METS is effective, for an annual reduction rate of 7% or more, but its efficiency is dependent upon the low growth rate of fuel demand.
International shipping, in a state of BAU, is expected to increase its economic environmental influence by 356% from 2007 to 2030, with the maximum increase of CO2 emissions estimated at 324%. In contrast, implementation of METS is expected to decrease CO2 emissions between 54% and 93% with the maximum emission growth rate at 207%, and the minimum emission growth rate at 110%. In relation to the BAU state and the external costs per ton of fuel consumed under BAU is expected to grow by 16%, although with the expected rise in fuel prices this rate could decrease to 5%.
We found that under METS regulation this rate would grow only by up to 10% and decrease up to 4%. In addition, we found that calculations of external cost per transported ton are likely to create an imbalance between payments and actual contribution to the pollution problem.
To conclude, the current sea freight tariff system does not account for the external costs of CO2 emissions, and therefore we suggest that International Maritime Organization (IMO), must take charge, lead and coordinate an international program of emission trade, that could achieve effective reductions with minimum impact on business activity

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oikos International

posted July 26, 2016

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Alibaba.com between Economic Success and Corporate Responsibility

Abstract

The Alibaba Group was one of the biggest and fastest growing businesses in China for about ten years. Among many other companies under the holding’s umbrella, Alibaba.com had become the world’s most frequented market place in the Business to Business segment. The company provided an internet platform for especially small and medium sized companies, where western demands meet Asian supply.

Although the platform opened the door for many firms to the international markets, there was room for improvement. Due to the increasing access to information through the World Wide Web, customers had become more and more sensitive to what is known as corporate responsibility. Sustainable business models and fair working conditions were more than ever of huge importance for the customer. In order to respond to this trend, companies on the demand side had to make sure that their suppliers fulfill not only European standards.

This trend of corporate responsibility recently caused many complaints about the listing and transparency of the Alibaba platform. On the supply side, suppliers missed a tool for signaling their working and quality standards to their customers. There was hardly a way to differentiate from competitors on the webpage. On the demand side companies suffered the same problem vice versa. There was barely a way for small western companies to control and check quality and labor issues for their supply chain without long lasting selection and arrangement processes.

But not only direct users of Alibaba.com drew the attention to the Alibaba system. Years ago many NGOs (Non-Governmental Organizations) claimed for more transparency and social standards on the Alibaba.com homepage.

Jack Ma, the CEO of Alibaba, knew about these problems. However, he also knew that many firms that once started with poor standards were nowadays great companies with well-known products all over the world. With a higher entry barrier, these corporations would not have had the chance to enter the market at all. Developing from a small company with low standards to a firm with high standards was often a long and time-consuming process.

Triggered by the recent complaints Ma was challenged by several self-imposed questions. Ma knew that the listing and policy on his platform were deeply connected with those questions and that there would be no easy solution. Whatever he decided should be the best answer for all parties: The Company, the customers and society.

AuthorsKannika Leelapanyalert, David Beschorner, Kim Nadine Reckmann and Marie Aslanian
InstitutionCollege of Management, Mahidol University, Thailand
Competition Year2016
PlaceRunner up
TrackCorporate Sustainability
Key WordsAlibaba, corporate sustainability, supplier, NGO, B2B
CoursesInternational marketing
Target AudienceMBAs
Permission rightsThis case is part of the oikos free case collection. Download a free online copy below. If you are a faculty member and you are interested in teaching this case, you can request a free teaching note by sending us an email to freecase@oikos-international.org.
DownloadFree Case
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oikos International

posted June 27, 2016

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Cocoa Sourcing – Sustainability Challenges and Emerging Corporate Response

The chocolate industry is confronted with serious sustainability challenges in cocoa production that may put long term cocoa supply at risk. Although sustainability challenges have been a concern for the industry for some years, the challenges have become more complex and increasingly urgent. Hence, it is analysed how chocolate manufacturers started to address the challenges. Additionally, the influence of these emerging corporate responses on global cocoa sourcing and on the sustainability challenges is assessed. The comprehensive review of the emerging corporate responses of six Switzerland-based companies shows that the responses represent similar approaches towards sustainable cocoa sourcing. The assessment of the influence on global cocoa sourcing reveals major effects on the cocoa procurement market. About the effect of the emerging corporate responses on the sustainability challenges in cocoa production no conclusive statement can be made because of the incomplete data basis. Overall, the chocolate companies see themselves as being in transition to sustainable cocoa sourcing.

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oikos International

posted June 18, 2016

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Business and Human Rights in the Post-Westphalian Era: A Democracy-Based Assessment

The modern concept of human rights and its accompanying international legal regime were developed under the umbrella of the Westphalia international governance framework. Globalization, though, puts into question some of the fundamental pillars of Westphalia, particularly its state centric premise. As the regulatory power of the state declines, corporations, in conjunction with other non-state agents, engage in the provision of public goods and participate in the regulation of the vacuums left behind by waning states. Globalization forces us to re-think, not only the way governance is exercised at the international political arena but, more crucially to this project, how and who should assume the responsibilities derived from human rights in a context where the state is not the exclusive actor anymore.

Scholars in the business and human rights debate (BHR) have discussed extensively about why should corporations assume these responsibilities, and what should be their ideal scope. Today, the assumption that corporations do have human rights responsibilities is almost undisputed. Yet, how should corporations discharge these responsibilities? The BHR field has remained relatively silent on this question. As the debate expands, this question becomes highly topical to address. This is the central research question of this dissertation.

The main BHR responsibilities accounts have tended to adopt a commoditized conception of human rights. As a consequence, the guidance they offer on the question of how to realize the corporate human rights responsibilities is limited. Typically, human rights victims are presented as passive agents in the realization of their rights, while the responsibilities of corporations are conceived to start and end with the provision of certain goods, capabilities or resources. A democracy perspective on the BHR debate will reveal that such materialistic approach to the realization of human rights responsibilities strengthens, rather than weakens, potential patterns of injustice and domination. Human rights are not exhausted by the provision of certain goods. They also have a political dimension that must be realized. Such dimension entails that we all have the right to demand and provide justification for all those institutions that bind us. This is what the philosopher Rainer Forst labels as the basic right to justification.

Any just and complete realization of human rights inexorably requires realizing this basic right. Thus, this dissertation defends the thesis that when corporations are identified as human rights duty bearers they should discharge their responsibilities guaranteeing, in the first place, the right to justification. The best way to comply with this provision, I argue, is for corporations to create institutions or initiatives that facilitate or grant the right to justification to the victims of human rights abuses. These institutions, I claim, should be constructed around four premises: they should be victim-centered, able to adapt to different political and social contexts, oriented towards solving the injustices that led to the human rights violations, and functioning along the parameters of deliberative democracy.

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oikos International

posted June 10, 2016

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Modern Day Slavery in the Textile Industry

oikos Leipzig hosts a speech and discussion on modern day slavery in the textile industry. Further information (in German) is available here.

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oikos International

posted May 13, 2016

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oikos FutureLab 2016

The oikos FutureLab is the biggest event in the annual oikos calendar which gathers representatives from the entire oikos community. It provides a 2-day platform for 140 participants to inspire, discover and develop joint perspectives on the future of sustainability in management and economics. More information is available here.

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oikos International

posted April 22, 2016

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Corporate Governance and Firm Performance: The Sustainability Equation?

In order to achieve a sustainable growth and to respond to social pressures, firms develop their Corporate Social Responsibility (CSR) policy. Corporate Governance, especially the board of directors, plays here a strategic role by integrating the environmental, social and societal objectives in the decision-making process. Based on the French case, this dissertation analyzes how corporate governance may foster CSR inside firms. First, I demonstrate that CSR motivation is an important trigger of CSR awareness. Second, I study how the composition of board of directors theoretically affects firm outcomes. Third, I evaluate three CSR demands from shareholders, stakeholder and society in terms of board composition (independence, stakeholder representation and gender diversity inside the boardroom) and their impact on firm performances. I conclude with some recommendations in terms of public policy and regulation to foster sustainable development through firms.

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oikos International

posted March 22, 2016

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Evaluating and Enhancing the Impact of Sustainability Reporting Tools (SRTs)

Sustainability reporting tools (SRTs) have proliferated in order to meet the demand of stakeholders for higher transparency on environmental and social issues. Despite the increasing reliance on SRTs in decision making, much is still unknown about their effectiveness. If SRTs prove to be ineffective, they may pose a serious obstacle to sustainable development as well as to the discourse associated with it. To address this gap, this thesis evaluates the impact of SRTs in the context of companies as well as the building/infrastructure sector, in order to enhance their impact. In evaluating the impact of SRTs, four investigations are conducted. First, the link between environmental, social and governance (ESG) and financial performance is analysed using univariate, multivariate and portfolio analysis. Data for the period 2008-2010 are used. Results show that there is a weak relationship between ESG and financial performance represented by a wide range of financial ratios and stock returns. The portfolio of ESG leaders does not outperform the ESG laggards. Although analysts’ forecast error is found to be negatively correlated to ESG, this observation is not significant. Second, the behaviour (price movement, index trend and trading volume) of the FTSE4Good Australia Index and its constituents are examined using a Markov chain analysis. Based on the results obtained, these company stocks do not seem to demonstrate superior performance. Third, an examination of building SRTs reveals that: variation in criteria scores and weights need to be accounted for; there is no large difference in occupants’ satisfaction levels between a sustainable building (ascertained by building SRTs) and a non-sustainable building; and criteria scores are inconsistent for buildings with similar sustainability awards. Fourth, the current state of sustainability reporting of publicly-listed Australian construction companies is investigated. Contrary to expectation, the state of sustainability reporting is found to be poor with high evidence of graph obfuscation. That is, there is a biased use of graphs to depict favourable criteria in sustainability reports. Corroborative evidence from all four investigations appears to suggest that the effectiveness of SRTs is questionable. To enhance the impact of SRTs, this thesis presents an alternative multi-criteria framework to assess sustainability performance of companies and building/infrastructure projects based on second order moment thinking. This framework is designed to overcome existing limitations and encompasses six different elements: (i) Criteria selection; (ii) Quantitative measurement scales for the criteria; (iii) Characterising each criterion by measures of central tendency and dispersion; (iv) The distinction of additionality; (v) Criteria weighting; and (vi) Combining criteria to give an overall sustainability score characterised by a measure of central tendency and a measure of dispersion. A tree form classification model of companies’ sustainability performance is proposed. This model is developed using a combination of agglomerative hierarchical clustering and classification and regression tree (CART) techniques. Extending this model, the link between different clusters of companies (‘Leader’, ‘Average’ and ‘Laggard’) and sustainability maturity levels is established. As well, the fuzzy-based approach is recommended as a way to measure project sustainability maturity levels. While the nature of return–risk efficient portfolio frontier has been discussed at length in the literature, it has not been extended to incorporate the analysis of sustainability issues, as done in this thesis. Leveraging on a few concepts such as the centre of gravity (COG) and Euclidean distances, the superiority of portfolios is differentiated by accounting for both return–risk and ESG–variance. These tools adopted are original contributions to help enhance stakeholders’ decision making process.

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oikos International

posted December 25, 2015

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Interested in Renewable Energy Finance 2.0? We’d love to hear from you

photovoltaic cells and high voltage post.

For investments in renewable energy consumers, electric utilities as well as private and institutional investors use a wide range of financial instruments. In the past few years, innovative models like leasing, power purchase agreements, green bonds, yieldcos and crowdfunding – “renewable energy finance 2.0” – have moved up the agenda in this context. Earlier this week, we invited 22 participants from academia, business, policymaking, NGOs and the media to discuss these instruments during a roundtable in Zurich, Switzerland. The goal of the event was to strengthen the links between theory and practice, to develop an overview on innovative financing models for renewable energy and the existing research thereon as well as to identify knowledge gaps and possible research questions. It was the first “oikos Roundtable” that we organized – and in view of the encouraging participant feedbacks most probably not the last one.

Martin Stadelmann from South Pole Group introduced the topic by outlining the traditional financing model for renewable energy: around 30% equity and 70% debt are raised; project returns come from energy market prices or feed-in tariffs. He gave two examples for innovative instruments: an Indian concentrated solar power (CSP) plant using a power purchase agreement to market its energy and a Turkish geothermal plant using leasing; both plants were partly financed with loans from public sector institutions. He also highlighted the role of support funds like the Swiss technology fund that provides loan guarantees for small and medium enterprises, of CO2 certificates for the funding of electricity production from bio methane, of electricity certificates and of up-front-sales of green electricity to end consumers.

Johanna Köb from Zurich Insurance Group presented yieldcos, securitization and green bonds. While yieldcos allow energy firms to spin off and go public with power plants that already provide stable returns, securitization offers a way to mix, package and standardize financial claims on different energy assets in a way that meets the risk and return requirements of different investors. Institutional investors, like pension funds and insurance companies, often have a preference for stable and foreseeable returns, which is why they invest most of their portfolios in bonds. Consequently, emission of green bonds, whose returns are earmarked for environmental activities, has seen rapid growth in the past years. Since green bonds currently provide similar returns to their non-green counterparts, the green focus is predominantly a transparency and sensitization tool. The market for green bonds is likely to diversify and develop more sophisticated and impactful products over time.

Benjamin Schmid from the Swiss Federal Institute for Forest, Snow and Landscape Research (WSL) gave an overview on the state of Swiss renewable energy cooperatives. He circumscribed energy cooperatives as one possible form of community energy where a regionally defined group of citizens provides the majority of the capital for an energy facility, co-manages the project and often shares certain non-financial goals. Over the past 120 years in Switzerland energy cooperatives have developed in three phases: one early boom around the turn of the century (construction of local distribution grids) and two recent ones (focus on renewable energies). The introduction of public support policies for renewable energies as well as the accidents in Chernobyl and Fukushima had an increasing effect on the development of energy cooperatives. Today, almost 300 cooperatives exist, which, however, manage relatively small energy capacities or solely operate the local distribution grids. They are mainly financed through a high share of equity and through classic bank loans.

Vivid discussions started during the presentations and were continued in three break-out sessions. The group discussions also served to develop the following more detailed research questions in the three topic areas:

Power purchase agreements, leasing, contracting, loans and grants
• Which actors are able to bear which prices and risks? This question is important, inter alia, when transitioning from public support-based schemes to market price schemes in renewable energy financing.
• Which financing instruments can reduce risk in which market segments (different technologies for electricity and heat, small scale vs. commercial/industrial vs. large scale)?
• Are end consumers in Switzerland and Northern Europe as open as North Americans to the leasing model for renewable energy? Or do other means to integrate end consumers have more potential, like the up-front-sale of electricity as currently offered by the city of Zurich’s utility?

Green bonds, yieldcos, and securitization
• Is green really green – do green bonds need a central certification scheme to protect their credibility?
• What does it take for institutional investors to increasingly invest into sustainable infrastructure, e.g. changes in financial regulation, adjustment of financing models to better meet institutional investor needs, proof of derisking via ESG integration?
• How can we overcome the bottleneck of a lack of bankable projects? This is linked with the question of how to make small, decentralized projects bankable, e.g. in Switzerland.
• How will the pricing system of the energy market be organized in the long run – energy only or capacity markets?
• Do sustainability criteria in infrastructure lead to lower risks?

Energy cooperatives and crowdfunding
• How can the legal definition of “own consumption”, which gives favorable terms to small producers and direct users of renewable energy in Switzerland, be widened to also include production and consumption from bigger power plants owned by cooperatives?
• What are models for fruitful cooperation between utilities and cooperatives?
• How can the full potential of cooperatives be tapped by implementing a favorable regulatory framework?

If you are interested in tackling one of these questions in your bachelor, master, or PhD thesis, we’d love to hear from you.

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oikos International

posted October 23, 2015

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oikos Members Pursue International Impact

On June 21st, 2015, three oikos members traveled to New York City with a bag full of aspirations and enthousiasm. Anita Negri, Julia Weber (oikos Vienna, COMMIT Manager) and Nikolay Ivanov (oikos Copenhagen, CBS PRME), first attended the GRLI Annual Meeting (June 21st and 22nd).

On the first day of the GRLI AGM, the oikos team met with Chris Taylor, the so-called, mentor of COMMIT. Chris has been involved in GRLI for a long time and is the key link in the cooperation between oikos and GRLI for COMMIT. He is also a a consultant at the Oasis School. This meeting served to revise and complete last-minute details for the workshop that the team would host on the second day of the GRLI AGM.

After an interesting introduction, a magnificent dinner was held next to the World Trade Center. Over dinner several interesting conversations were held which brought multiple perspectives together on how to advance cooperation between business and universities and how the educational systems around the world vary. The interest in COMMIT rose as well, as the vast presence of faculty was interested in understanding how we can truly make a step forward to achieving more responsible management education.

On the second day of the GRLI AGM, the COMMIT workshop was amongst the many workshops which were proposed. The workshop focused on asking challenging questions to the participants and making them realize the pressing need to change management education and our methodologies. With the use of several innovative methods, amongst which the collaboratory, the COMMIT workshop was named a success. The outcomes included commitments from professors and deans which will be soon published and an overall increase in awareness and understanding of the possibilities to further explore alternatives in teaching. The GRLI AGM closed with another magnificent dinner where like-minded people continued making plans and commitments to improve current educational systems.

On June 23rd the PRME Global Forum started. After the opening speeches, the first panel discussion took place. This panel also featured the oikos President, Anita Negri. By bringing a youth perspective on the need to change management education, Anita pointed out several points that she gathered throughout her work within, and outside, oikos. She highlighted the need for more collaboration, a true integration of sustainability and responsibility in all courses, an improvement in skills and values directed at students and more. Her interventions were very well received and sparked interesting discussions in the round tables that followed.

The first day was continued with another panel discussion and parallel workshops where participants got in touch with best practices and started new partnerships and projects.

The second day featured another workshop hosted by oikos and COMMIT: the student perspectives workshop. The organisers were delighted to see a full room for this workshop where, not only oikos and COMMIT were presented, but also student organizations from New Zealand, Brazil and Canada displayed their achievements and goals. Throughout the session groups were formed to discuss three topics: what changes are required in curricula, what changes are required in teaching and what changes are required in universities. Each team chose their preferred topic and each team was requested to present their findings in a creative manner. The session also featured some dancing to convey the message that education should include more fun!

The PRME Global Forum was concluded with a closing ceremony, a lot of smiles, achievements and positive outlooks for the future.

On behalf of the oikos community, we would like to thank GRLI and PRME for having given us the opportunity to participate to these events and contribute with our youth perspectives. Join all these creative and pro-active minds in changing education, we can do this!

Some more insights on the conferences can be found on Anita’s twitter account.

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oikos International

posted July 6, 2015

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