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Industry Matters for Sustainable Development - Unido

Industry Matters for Sustainable Development

Background Paper for the UNIDO Side Event on

Sustainable Industrial Development on 8 May 2007 at the

Commission for Sustainable Development (CSD-15)

Prepared by:

Research and Statistics Branch

This document can be found at https://www.unido.org/doc/65592


ACKNOWLEDGEMENT

This paper has been prepared by Ralph Luken, UNIDO Consultant, in collaboration with

Nobuya Haraguchi, UNIDO Industrial Development Officer.

The designations employed, descriptions and classifications of countries, and the

presentation of the material in this document do not imply the expression of any opinion

whatsoever on the part of the Secretariat of the United Nations Industrial Development

Organization (UNIDO) concerning the legal status of any country, territory, city or area

or of its authorities, or concerning the delimitation of its frontiers or boundaries, or its

economic system or degree of development. The responsibility for opinions expressed

rests solely with the authors, and publication does not constitute an endorsement by

UNIDO of the opinions expressed. The views expressed in this document do not

necessarily reflect the views of the Secretariat of the United Nations Industrial

Development Organization. Terms such as "developed, "industrialised" and

"developing" are intended for statistical convenience and do not necessarily express a

judgment. Any indication of, or reference to, a country, institution or other legal entity

does not constitute an endorsement. This document has not been formally edited.

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ABSTRACT

Industry provides a typical example of a sectoral aspect of sustainable development that

cuts across economic, social and environmental dimensions. Unfortunately, the

predominant systems of indicators designed to monitor trends in sustainable

development, the Indicators of Sustainable Development and the Environmental

Sustainability Index, provide virtually no data on the role of the industrial sector.

However a few industry-specific indicators are available in global databases and can be

interpreted from a sustainability perspective to illustrate trends in industry’s role in

achieving sustainable development. These trends show a significant improvement in

industry’s positive economic and social contributions to sustainable development but one

of declining importance compared to other sectors in most country groups. Taking only

the data available for energy use and carbon dioxide emissions into account, industry has

had an increased negative environmental impact, particularly in developing and least

developed countries that have failed to decouple industrial growth and energy

use. The results found would need to be tested with stronger and broader data and with

more rigorous analysis to be confident that this is a generalisable conclusion. Integration

of industrial development and environmental policies by national governments is seen as

an important way forward for enhancing the positive contribution of industry to

sustainable development and reducing its negative impact, yet few developing countries

have succeeded in making significant advances in policy integration since the Earth

Summit. One strategy that national governments could pursue to correct this situation is

to create an expanded set of environmental and social indicators for monitoring the role

of industry in sustainable development, encouraging greater participation by the

industrial sector in the sustainable development planning process, and modifying

industrial policies and programmes to reconcile industrial development and

environmental objectives.

ABBREVIATIONS: CSD-Commission on Sustainable Development; ESI-environmental

sustainability index; GDP-gross domestic product; ISD-indicators of sustainable

development; ILO-International Labour Organization; MVA-manufacturing value added;

NCPC-national cleaner production centres; NSDS-national sustainable development

strategy; NIE-Newly industrialized economies; SPI-sustainable production initiative;

UNEP-United Nations Environment Programme; UNIDO-United Nations Industrial

Development Organization.

NOTE: Unless otherwise indicated, ‘industry’ refers to the manufacturing sector and

includes all sub sectors listed under the major division D (or in earlier classifications as

major division 3) of the International Standard Industrial Classification of all Economic

Activities.

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TABLE OF CONTENTS

INTRODUCTION………………………………………………………………………...1

THE ROLE OF INDUSTRY IN SUSTAINABLE DEVELOPMENT…………………...1

ILLUSTRATIVE TRENDS IN INDUSTRY’S ROLE IN SUSTAINABLE

DEVELOPMENT…………………………………………………………………………2

DEVELOPING COUNTRIES’ EFFORTS TO INTEGRATE INDUSTRIAL AND

ENVIRONMENTAL POLICIES………………………………………………………...8

CHALLENGES FACED IN INTEGRATION EFFORTS………………………………13

MEASURES TO BE TAKEN BY NATIONAL GOVERNMENTS……………………18

SUMMARY……………………………………………………………………………...21

REFERENCES…………………………………………………………………………..25

END NOTES..…………………………………………………………………………...31

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INTRODUCTION

In the 1980s, a new concept—that of sustainable development—entered the

debate on development and the environment. i In retrospect, it can be said that the concept

not only helped to forge a compromise between the demands for economic growth on the

one hand and for environmental protection and conservation on the other, but also

stimulated the exchange of views on development in general. Reflecting a steadily

broadening discussion on sustainability, the literature on the subject has become vast,

almost to the point of intractability. If any addition to the many descriptions, statements

and analyses is to be justified, it has to offer at least some new views or interpretations.

This background paper on industry and sustainable development, written for

CSD-15, consists of five sections. Section One describes the role of industry in

sustainable development. Section Two assesses, based on the limited data available,

industry’s positive contribution to and its negative impact on sustainable development.

Section Three documents the efforts that selected developing countries are making to

integrate industrial and environmental policies and programmes with the aim of

enhancing industry’s positive contribution to and reducing its negative impact on

sustainable development. Section Four characterizes the major challenges to the

integration of industrial development and environmental objectives. Section Five presents

a set of short- and intermediate-term measures that could be taken by national

governments to enhance industry’s positive contribution to and reduce its negative impact

on sustainable development.

1. THE ROLE OF INDUSTRY IN SUSTAINABLE DEVELOPMENT

Industry provides a typical example of a sectoral aspect of sustainable

development along with such other sectors as agriculture, construction, etc. Industrial

issues figure prominently in the sustainability debate, cutting across economic, social and

environmental dimensions.

Economic development is frequently dependent on industrial development, both

with respect to the industrial sector’s pivotal contribution to economic growth and—even

more conspicuously—with regard to the structural transformation of an economy. The

importance of the latter is underlined by the fact that economic development is largely

thought of as being synonymous with industrialization. Industry acted as a dynamic force

in accelerating the pace of economic growth during the first and second industrial

revolutions. As a result, a number of countries emerged as new industrialized economies,

bearing testimony to what (Kaldor, 1967) observed some time ago: “the greater the

overall rate of growth, the greater is the excess of the rate of growth of industrial

production over the rate of growth of the economy as a whole”.

Although social development appears to be less closely linked to industry, it too is

strongly impacted by industrial development. Often, industrialization is seen as a motor

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ehind many of the processes usually termed “social transformation” and

"modernization”. More specifically, there are thought to be at least four ways in which

industry can help to achieve the goals of social development:

(i) Industry’s substantial contribution to economic growth helps to create a large portion

of the resources needed to fund social development programmes.

(ii) The creation of employment and, with it, the generation of income take place in the

industrial sector directly. Employment in turn is indirectly fostered in many cases in the

agriculture or service sectors through the linkages of these sectors to industry.

(iii) Industry contributes to poverty reduction by providing employment with higher

wages than does agriculture, and offers opportunities for promotion with the concomitant

higher wages.

(iv) Industry promotes various aspects of social integration through its general thrust

towards modernization and makes a specific contribution in some cases to the integration

of women through productive employment.

Industry impacts on the environment are felt acutely in relation to both the

production and consumption of manufactured goods. While most problems arising from

the consequences for the environment of the consumption of industrial products are an

economy-wide concern, the environmental effects of industrial production fall within the

purview of the industrial sector alone. Here the key to solving many of the problems lies

in technology. Since environmental problems caused by industrial production are due to

so-called external effects—outside the realm of the market mechanism—corrective

policy measures are needed to reduce or eliminate them. In most cases, the response of

industry to such policies is of a technological nature and usually does not have a

significant impact on competitiveness. ii Hence, industrial technology and its continuous

innovative change—if properly shaped by market and policy incentives—makes an

important contribution to solving the environmental sustainability problem.

2. ILLUSTRATIVE TRENDS IN INDUSTRY’S ROLE IN

SUSTAINABLE DEVELOPMENT

When it comes to illustrating trends in the sector-specific role of industry

enumerated above, there is a need for quantitative indicators. This is particularly so

because of the claims made above that the industrial sector makes a major contribution to

economic development and impacts on all three dimensions of sustainable development:

economic, social and environmental.

Initially UNIDO turned to two of the more prominent efforts underway to build

and apply systems of indicators of sustainability in development to illustrate trends in the

role of industry in sustainable development. There efforts are the Indicators of

Sustainable Development (ISD), an initiative of the Commission on Sustainable

Development (CSD), and the Environmental Sustainability Index (ESI), an initiative of

Columbia University. iii To be suitable, these systems would have had to meet the

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following criteria: (i) include globally comparable indicators in order that there could be

a cross-country comparison; (ii) measure all three dimensions of sustainability—

economic, social and environmental; and (iii) provide sufficient data about the industrial

(manufacturing) sector in developing countries. Unfortunately, neither system nor any

other system of indicators reviewed was found to meet all three criteria.

The one system that meets the first two criteria is CSD-ISD. However, as CSD-

ISD is designed for national use, the indicator values may not be comparable because of

national differences in definitions and methods. For the same reason, data on CSD-ISD

are not collected globally and the actual availability of data varies across countries and

indicators. Furthermore, CSD-ISD offers minimal encouragement for the use of sectoral

indicators except in the case of energy use (UNDESA, 2001 and 2007). The second

system with potential to meet the criteria, ESI, is a global assessment of environmental

change. ESI covers 142 countries on the basis of a set of 20 core indicators, each of

which combines from two to eight variables, for a total of 68 underlying variables.

Unfortunately, ESI has virtually no industry-relevant indicators for developing countries

(CIESIN, 2005). A third quasi-system, the report “Trends in Sustainable Development”,

is mentioned here, not because it is comparable to such fully fledged indicator system as

CDS-ISD but because it has a section on industrial development. However, the

presentation is limited to a description of various economic indicators of industrial

performance. It lacks any explicit information on the social (employment) and

environmental dimensions of sustainable development (UNDESA, 2006).

Given the limitations and complexities of these current indicators, UNIDO’s review

of trends was not able to draw on either CSD-ISD or ESI to characterize industry’s role.

Instead, it has relied almost exclusively on globally available, but limited, data from

international organizations, including the International Energy Agency (IEA),

International Labour Organization (ILO), World Bank, United Nations Environment

Programme (UNEP) and United Nations Industrial Development Organization (UNIDO).

These globally available data consist of the following:

• Economic indicators: manufacturing value added (MVA), MVA as a percentage

of gross domestic product (GDP) and MVA per capita (in most cases for 1990 and

2005); these basic data have been integrated by UNIDO’s Competitive Industrial

Performance index (UNIDO, 2004), which combines several economic variables

into one aggregate measure (available for 1980, 1990 and 2000).

• Social indicators: manufacturing labour force as a percentage of total labour

force, percentage of females in the manufacturing labour force and percentage

change in the numbers of employees in the manufacturing sector (available for

1990/1995 and 2000/2004 in most cases).

• Environmental indicators: energy use, water use, organic water effluent measured

as biological oxygen demand and carbon dioxide (1990 and approximately

2000/2004). Only the energy use data and the associated estimates of carbon

dioxide emissions are systematically collected and vetted by an international

organization (IEA, 2006a). The data on organic water effluent are only estimates

based on a combination of pollutant/engineering coefficients and manufacturing

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employment (World Bank, 2007). The data on water use are only total freshwater

withdrawals reported by approximately 150 countries for various years in the

1990s. Water withdrawals are then allocated to three sectors (agriculture,

domestic and industry) based on a 1987 formula. (FAO, 2007).

In a recent paper for UNIDO, the indicators for all the countries for which the

above data were reported (except for obvious outliers) were summarized for six country

groups: developed, transition, newly industrialized economies, China, and other

developing and least developed countries (Luken and Castellanos, 2006). These

groupings are those defined for the purposes of this background paper, but for the most

part are consistent with the groupings used by the United Nations, which are based on the

composition of selected economic and social statistics (UN STAT, 2005).

The remainder of this section will use industry-specific indicators, interpreted from

a sustainability point of view, to illustrate trends in industry’s role in sustainable

development as described in Section 1 above. Again, a distinction between the economic,

social and environmental dimensions will be drawn, using one trend for each dimension:

MVA for the economic, employment for the social and energy use for the environmental

dimension. In spite of the importance of the environmental dimension in monitoring

sustainability impacts, none of the other environmental parameters identified above could

be used in this paper. Carbon dioxide emission data, while available, were not used

because their addition would add little information on trends as they are closely

correlated with energy use. Water pollutant effluent and water withdrawal data for

industry were not used because they are not based on data collected in the field for these

specific parameters.

The trends in the economic contribution of industry to sustainable development are

described in Table 1, which presents the per capita MVA and average share of MVA in

GDP as general indicators of industrial development from an economic perspective. The

broad groups for which data are presented exhibit three different paths of industrial

development. The first is that of the vigorous growth of industry relative to population

growth and an increased share of MVA in GDP. Examples of such impressive

strengthening of the industrial base of sustainable development are NIEs of Asia and

China. The second is that of moderate industrial growth per capita, which, nevertheless,

suffices to bring a visible increase in per capita levels of industrial output and only a

small decline in the share of MVA in GDP. Developed market economies in their

aggregate, the majority of other developing countries and least developed countries have

followed this path during the recent past. The third is characterized by low industrial

growth and even by decline in the level of industrial development of some countries,

relative to population growth, sometimes owing to a contraction of industrial output. The

case in point is the transition economies, which experienced a sharp fall in industrial

production in the 1990s and only showed some recovery in the 2000s, as well as a large

decline in the share of MVA in GDP.

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Table 1. Manufacturing Value Added, 1990 and 2005

Country group

Average

MVA per

capita

Per

cent

change

Average

share of

MVA in

GDP

1990 2005

1990 2005

Developed market

economies (25/25)*

4,300 5,600 31 18.3 17.8

Transition economies

(20/22)

600 700 18 24.1 22.5

Newly industrialized

economies (7/7)

1,750 3,300 87 22.7 27.1

China (1/1) 100 480 372 29.3 39.4

Other developing

countries (79/92)

470 590 24 13.7 13.3

Least developed

countries (37/47)

70 90 27 9.5 9.0

*The first number for each country group is that of countries for which there was acceptable data (obvious

outliers excluded) to estimate average MVA per capita and average share of MNA in GDP and the second

number is that of countries in the country group.

Note: Newly industrialized economies are defined for this paper to include Hong Kong SAR; Indonesia;

Malaysia; Republic of Korea; Singapore; Taiwan, Province of China; and Thailand.

Source: UNIDO (2007a).

As previously mentioned, an illustrative trend in industry’s contribution to

the social component of sustainable development is the change in employment levels.

Table 2 summarizes trends in the direct contribution of the manufacturing sector to

employment by the six broad country groups referred to above, for the period 1990 to

approximately 2004. Three different patterns emerge from these data. In the first —

characteristic of NIEs—not only is the manufacturing sector a positive force in

employment but also the relative share of manufacturing in total employment continues

to rise in most countries. The second—exemplified by other developing countries and

least developed countries—is an increase in manufacturing employment in absolute terms

tempered by a decline in the relative share of manufacturing in total employment in many

countries. The third—exemplified by developed market economies, transition economies

and China—is no growth or a decline in manufacturing employment in absolute and

relative terms. iv Such negative effects on employment can be traced back to a long-term

trend of relative decline in the manufacturing sector in the most advanced countries,

whereas in transition economies and China the negative effects are due to significant

industrial restructuring and closure of state-owned enterprises. Data in Table 2, it should

be stressed, account merely for industry’s direct contribution to employment rather than

any indirect employment effects on other sectors of the economy.

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Table 2.Employment in Manufacturing, 1990-1991and approximately 2004

Country group

Employment

(10 3 )

Approx.

2004

Per cent

change

Per cent of

employment in

manuf./total

employment

1990 /

1995

2000/

2005

No.

with

+

share

1990-1991

Developed market economies

(22/25)* 60,300 60,400 1 20 17 2/22

Transition economies (8/22) 10,700 9,200 -15 21 19 2/8

Newly industrialized economies

(7/7) 19,800 26,000 31 14 15 3/7

China (1/1) 86,200 83,100 -4 13 11 -

Other developing countries (29/92) 29,800 37, 300 25 13 12 8/29

Least developed countries (6/47) 340 450 32 - - -

*The first number for each country group is that of countries for which there was acceptable data (obvious

outliers excluded) to estimate total employment and the second number is that of countries in the country

group. All data available from ILO and UNIDO were used for the estimates in the table.

Note: Newly industrialized economies are defined for this paper to include Hong Kong SAR; Indonesia;

Malaysia; Republic of Korea; Singapore; Taiwan, Province of China; and Thailand.

Source: ILO (2007), Column 2B for all groups except least developed countries, for which there were no

ILO data. Data for least developed countries is taken from UNIDO (2007a).

Measuring energy use and energy intensity (as well as the closely related CO 2

intensity) of manufacturing captures one of the trends in the negative impacts of

industrial production on the environmental dimension of sustainable development. The

data in Table 3 paint a fairly optimistic picture of trends between 1990 and 2004 in this

important feature of the industry-environment relationship. For all six-country groups

energy use in the manufacturing sector as a share of total energy use declined and for four

of the country groups, energy intensity was reduced. In the case of energy, there are four

different paths among the six country groups. The first is a significant reduction in energy

intensity (relative decoupling) and a decline in total energy use (absolute decoupling), as

exhibited by transition economies. In this case, the average increase in MVA for the

group was 65 per cent, with significant negative and positive increases among the seven

countries of this group. The second is a significant reduction in energy intensity (relative

decoupling) and a large absolute increase in total energy use, as exhibited by NIEs and

China. In both groups, there was a radical change in the structural composition of the

manufacturing sector and, in the case of China, extensive closure of state-owned

enterprises. In both, there was also a significant increase in MVA, by almost 90 per cent

for NIEs and some 400 per cent for China. The third is a moderate reduction in energy

intensity (relative decoupling) and only a small increase in energy use, as exhibited by

developed market economies. The fourth is an increase in energy intensity (no

6


decoupling) and a large absolute increase in energy use as exhibited by other developing

countries and least developed countries.

Table 3. Energy Use in Manufacturing, 1990 and 2004

Developed market

Country Group

economies (23/23/23/25)*

Transition economies

(9/7/8/22)

Average

annual

growth

(%)

1990-

2004

Energy use

Average

energy use in

manufacturing

as a share of

total energy

use

Energy intensity

(Ktoe/1000constant

1995 US$ MVA)

CO 2 intensity

(Mt/1000constant

1995 US$ MVA)

1990 2004 1990 2004 1990 2004

0.4 27 24 0.24 0.20 0.5*10 -3 0.34*10 -3

-2.7 37 27 1.36 0.55 3.0*10 -3 1.4*10 -3

Newly industrialized economies (7/7/7/7) 7.8 25 24 0.24 0.21 0.6*10 -3 0.54*10 -3

China (1/1/1/1) 4.6 50 40 2.1 0.73 8.0*10 -3 2.5*10 -3

Other developing

countries (59/41/41/92)

Least developed

countries (11/10/5/47)

3.5 27 24 0.72 0.78 1.7*10 -3 1.8*10 -3

8.8 18 10 0.76 1.30 1.7*10 -3 1.9*10 -3

*The first number for each country group is that of countries for which there was acceptable data (obvious

outliers excluded) to estimate average annual growth and share of energy use. The second is that of

countries for which there was acceptable MVA data (obvious outliers excluded) to estimate energy

intensity. The third number is that of countries for which there was acceptable CO 2 data (obvious outliers

excluded) to estimate CO 2 intensity. The fourth number is the number of countries in the country group.

Note: (1) Newly industrialized economies are defined for this paper to include Hong Kong SAR; Indonesia;

Malaysia; Republic of Korea; Singapore; Taiwan, Province of China; and Thailand. (2) The decline rather

than the anticipated increase in CO 2 intensity in other developing countries occurs because there are

different countries used to estimate energy intensity and CO 2 intensity. If the same countries were used for

both calculations then CO 2 intensity would have increased between 1990 and 2004.

Sources: IEA (2006a) for energy, IEA (2006b) for CO 2 and UNIDO (2006) for MVA.

This optimistic trend in the reduction of industry’s negative impact on the

environmental dimension of sustainable development is offset to some extent by the

differences in energy intensity still remaining in 2004 among these groups. Energy

intensity was almost four times higher in developing countries than in developed market

economics and NIEs, and more than three times higher in China than in these two

groups. v In summary, illustrative trends in industry’s positive economic and social

contributions to sustainable development show a significant gain but one of declining

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importance compared to other sectors in most country groups and its negative

environmental impact, taking only the data available for energy use and CO 2 emissions,

show an increased detrimental effect, particularly in the case of other developing and

least developed countries that failed to decouple industrial growth and energy use.

Industry’s economic contribution, measured in terms of MVA per capita, increased

absolutely in all six country groups but, in relative terms, measured as the share of MVA

in GDP, it increased in only two (NIEs and China) of the six country groups between

1990 and 2005. Its social contribution, measured in terms of employment, increased

absolutely in terms of the number of employees in three of the six country groups (NIEs,

other developing countries and least developed countries) but, in relative terms,

manufacturing as a share of total employment increased in only one country groups

(NIEs) between 1990 and about 2004. Its environmental impact, measured in terms of

energy use, increased absolutely in five of the six country groups (not in transition

economies), which is a negative impact, and in relative terms, its impact, measured in

terms of energy intensity, increased in two of the six country groups (other developing

and least developing countries), also a negative impact, between 1990 and 2004.

3. DEVELOPING COUNTRIES’ EFFORTS TO INTEGRATE

INDUSTRIAL AND ENVIRONMENTAL POLICIES

As part of its preparatory activities for the World Summit on Sustainable

Development in 2001, UNIDO requested national experts in 15 developing countries to

assess the extent of the integration of industrial and environmental policies undertaken to

enhance the role of industry in sustainable development vi and, as part of its preparatory

activities for CSD 14 (2006), it requested national experts in six developing countries to

carry out similar assessments. vii This section draws on these assessments, as well as a

report of a UNIDO technical cooperation project on policy integration for sustainable

development in China (Yang, 2004), to describe developing countries’ efforts to achieve

such an integration of industrial and environmental policies in order to enhance the role

of industry in sustainable development.

Framework for assessment

The UNIDO review of national government efforts to integrate industrial

development and environmental policies started with a survey of the literature on

sustainable development integration efforts in developed and developing countries. The

objective of the survey was to find an appropriate analytical framework for characterizing

the extent of integration of these two sets of policies. Policy integration was defined as

both efforts to insert environmental considerations into industrial development policies

and programmes and industrial development considerations into environmental policies

and programmes. In other words, integration was defined as a two-way street. viii

The review identified four assessments of the sustainable development efforts of

developed countries, Dalal-Clayton (1996), Wallace (1996), Lafferty and Meadowcroft

8


(2000) and Steurer and Martinuzzi (2005) as well as several assessments of the

sustainable development efforts of developing countries—Angel and Rock (2001), Dalal-

Clayton et al. (2002), OECD/UNDP (2002), UNDESA (2002a) and UNDESA (2002b),

Luken and Hesp (2004), Rock and Angel (2005) and Volkery et al (2006). Only one of

these assessments contained an analytical framework for characterizing the extent of

policy integration (Luken and Hesp, 2003), and only three described industry-related

issues and offered some insights into or examples of the integration of industrial

development and environmental policies (Wallace, 1996; Luken and Hesp, 2003; and

Rock and Angel, 2005). However, only Luken and Hesp (2003) describe policy

integration as it would affect all three dimensions of sustainable development (economic,

social and environmental). For this reason, the following section draws on Luken and

Hesp (2003) and Luken (2006).

UNIDO proposed that the national experts characterize the degree to which

countries have aligned the two policy domains, industrial development ix and

environmental x , by identifying specific examples of three, increasingly demanding, levels

of policy integration: coordination, cooperation and coherence (Figure 1). xi Each

subsequent level is thought to have greater potential for identifying and balancing the

impacts of the two policy domains, which are inherently independent of each other, on

sustainable development.

Figure 1. Levels of policy integration

Coherence

Cooperation

Coordination

Source: Luken and Hesp (2003)

Policy domains

The most basic level of policy integration for sustainable development is a

requirement, often specified in legislation, for coordination between the two policy

domains. On the one hand, industrial development policy can be coordinated with

environmental policy to minimize or prevent the negative impact of industrial activity on

environmentally sensitive geographic locations and to accelerate the adoption of

environmentally sound technology. On the other hand, environmental policy can be

coordinated with industrial development policy to address the former’s impact on

industrial competitiveness and employment and to encourage utilization of advanced

9


process technologies, rather than pollution control equipment, for complying with

environmental norms.

Cooperative programmes and projects between industry extension services of the

two policy domains constitute the second, and more advanced type, of policy integration

for sustainable development. One example is an extension service for small and medium

enterprises (SMEs), supported by industrial development policy, which provides advice

on least-cost solutions for environmental compliance. Another is an environmental

covenant programme, an instrument of environmental policy that assigns first priority for

negotiated agreements on environmental compliance schedules to sub-sectors encouraged

by industrial development policy.

The third and most advanced type of policy integration for sustainable

development is coherence among policies, i.e., holistic national visions for development.

“Coherence brings together the cumulative value-added from the contributions of

different policy communities” (OECD/UNDP, 2002:281). Such a shared vision, which no

country has yet put forward for industry, should be part of a national sustainable

development strategy (NSDS). xii That part of the strategy for industry would draw upon a

reasonable set of internally consistent coordination and cooperative measures between the

two policy domains in support of a shared vision. It would encourage synergies between

them in order to enhance the impacts of the two domains on the three dimensions

(environmental, economic and social) of sustainable development. More specifically, it

would harness the potential of industrial development policies to achieve environmental

objectives and of environmental policies to make the minimum intrusion on industrial

competitiveness within the constraint of respecting environmental norms xiii .

The bolder lines in Figure 1 trace the usual path of policy integration. The

integration path normally starts with coordination measures that, in turn, encourage

cooperative programmes and projects. Participants in cooperative programmes often

come to realize that policy convergence leads to greater benefits than stand-alone

initiatives. However, the path is not always as direct as the one suggested by the straight

lines; rather, it is usually a series of small and irregular measures. Moreover, the two

policy domains can include cooperative programmes and projects without any explicit

coordination and can call directly for more coherence without joint programmes and

projects. However, significant integration is achieved only when there is a dense set of

coordination and cooperative measures that are supportive of a shared vision. This degree

of policy integration is seen as an indicator of the commitment of governments to

enhance the positive socio-economic impacts of industrial development and reduce the

potentially negative environmental ones. xiv

Policies and programmes

This sub-section briefly describes some of the industrial development and

environmental policies and associated programmes that 12 of the 21 country reports

requested by UNIDO (those with more in-depth analyses) identified as having the

potential to enhance the role of industry in sustainable development, i.e., to affect at least

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two and, possibly, all three dimensions of sustainable development. These policies and

programmes are classified in Table 4 as efforts to achieve coordination, cooperation or

coherence.

Table 4. Examples of coordination, cooperation and coherence efforts in 12 developing

countries

Country Coordination Cooperation Coherence

Brazil

Chile

China

Brazilian agency for

industrial development

Cleaner production

agreements

Industrial development

policy banning

polluting industries;

environmental service

industry

NCPC; National policy on

industry, technology and

trade

Cleaner production centre,

national innovation system

NCPC; centre for

environmentally sound

technology transfer; hightech

development zones

Tenth (2000-

2005) and

eleventh (2006-

2010) five-year

plans

Egypt

India

Indonesia

Pakistan

South

Africa

Thailand

Tunisia

Industrial park location

reviewed by

environment ministry

Industrial policy

includes tax

depreciation for

pollution control

equipment

Program for pollution

control, evaluation and

rating

Industrial location

decisions; consultation

on environmental

standard setting

Integrated

manufacturing strategy

Environmental

considerations in

industrial estate

location and

management

Technology policy

promotes

environmentally sound

NCPC

NCPC

Environmental

certification

Environmental technology

programme for industry;

sub-sector cleaner

production centres for oil

and gas and leather

NCPC

Thailand Environmental

Institute

NCPC, national

programme for industrial

upgrading; sub-sector

Approach to the

eleventh five

year plan

(2007-2012)

Eighth (1997-

2001), ninth

(2002-2006)

and tenth NESD

(2007-2011)

plans

11


technology

Turkey Ministry of

Environment approves

location of industrial

estates established by

Ministry of Industry

and Trade

Zimbabwe Municipal by-laws;

Water Act for

environmental

protection and

economic efficiency

Note: Abbreviations spelled out in the text

Sources: various country reports

extension services

Joint training

programmes; cooperative

research programme for

cleaner technology in

export oriented subsectors

NCPC and related projects

Eighth (2001-

2005) and ninth

(2007-13) fiveyear

development

plans

The country reports described specific coordination efforts between industrial

ministries and associations and environmental ministries. For example, Zimbabwe’s new

Water Act, approved in 1999, aims to harmonize environmental protection and economic

growth. However, the degree of effectiveness of these measures should be questioned

because there appears to be in some countries insufficient coordination between

ministries, and limited awareness of sustainability issues among government

employees. xv

A number of country reports identified two similar types of cooperative

programmes. One is cleaner production/pollution prevention centres, which assist plants

in identifying changes in production processes that reduce pollutants and, in many

instances, improve productivity. These programmes exist in most of the countries

surveyed, with seven of the 12 hosting UNIDO-UNEP National Cleaner Production

Centres (NCPCs). The other type is industrial extension services, whose primary mission

is to enhance plant-level productivity. This type of programme operates in all of the

countries surveyed. In a limited number of countries these have a mandate to provide

technical advice on resource use and on pollution prevention and control issues as well as

the standard array of production issues. The National Programme for Industrial

Upgrading in Tunisia appears to be the most comprehensive of this type among the 12

countries. Industrial extension services in Chile, China and Turkey offer technical

assistance that includes an environmental component.

National experts in only four countries identified ongoing efforts that could be

classified as steps towards policy coherence in support of sustainable development. The

industrial development policies of China put forward in the tenth and eleventh five-year

plans (2000-2005/2006-2010) include measures that support environmental goals, and the

environmental policies include industrial restructuring as a complement to traditional

environmental management measures. xvi India’s eleventh five-year plan explicitly calls

for integration of development planning and environmental concerns. Thailand’s eighth

(1997-2001) and ninth (2002-2006) National Economic and Social Development (NESD)

plans called for integration of different polices relating to sustainable development and its

tenth (2007-2011) emphasizes the concept of sustainable development. Turkey’s eighth

12


five-year development plan (2001-05) combined industrial development and

environmental policies in a complementary effort to meet common objectives, but this

was implemented to only a limited extent, and its ninth plan (2007-13) calls for an

integrated technology and environmental strategy. However, in none of the countries is

there a reasonably complete set of measures to ensure the internally consistent

cooperation and coordination needed to support an emerging national vision for

sustainable development.

In conclusion, these 12 countries did not make substantial advances in the 1990s

in the policy integration needed to enhance the role of industry in sustainable

development. Based on the information in the country reports, they undertook only

limited efforts to coordinate the two policy domains and to implement cooperative

programmes. Moreover, only four of the 12 countries made tentative efforts to find

convergence among policies in support of sustainable development, and none appear to

have undertaken the difficult task of tracing back, in a comprehensive way, all of the

coordination and cooperative measures needed to support a coherent vision of sustainable

development. These findings about limited success with policy integration are

unsurprising as they are consistent with other surveys on the same topic for both

developed and developing countries (Lafferty and Meadowcraft, 2000 and Volkery et al,

2006, respectively). xvii

4. CHALLENGES FACED IN INTEGRATION EFFORTS

This section reflects on the challenges that developing countries face in their

efforts to integrate industrial development and environmental policies and programmes in

support of sustainable development. An attempt is made to qualitatively assess the extent

to which policy integration has been implemented.

National challenges

Carley and Christie (2000) and others argue that the most common reason for the

failure to effectively pursue sustainable development is that governments do not carry out

their basic role of supporting the process of designing and implementing sustainable

development strategies. xviii The process of sustainable development strategy formulation

(appropriate policies and programmes) must precede a strategy and be formulated in

scientific and economic terms; the strategy is only known at the end of the process.

According to Carley and Christie, as well as some of the authors of the 21 national

reports prepared for UNIDO, there is a lack of awareness of and know-how about

sustainability issues within ministries and government think tanks and little coordination

among them. Moreover, they do not realize that policies for sustainable development

need not only clear long-term objectives but also short- and medium-term measures to

encourage coordination and cooperation among the relevant participants.

13


More specifically, government support for the process of sustainable development

planning for the manufacturing sector requires enhancing institutional arrangements that

support:

• generation of data on the positive socio-economic and negative environmental

impacts of the manufacturing sector, in order to measure progress or the lack of it

towards sustainable development goals and dissemination of that information;

• participation of the industry in the preparation of sustainable development plans,

in particular, a nationally shared vision for advancement of the industrial sector;

• integration of policies using a sufficient number of coordinative and cooperative

measures supportive of a shared vision.

The remainder of this section describes the extent to which the institutional arrangements

in the 21 countries are actually supporting the three tasks of information generation,

participation of industry and integration of policies.

Generation and dissemination of information

An assessment of the extent to which the 21 countries fulfilled the first

institutional arrangement involved reviewing their effort to generate and disseminate

information on a regular basis about industry’s role in sustainable development. The most

obvious information they need to generate is data on the positive impacts of industry on

socio-economic development, on the potential negative employment impacts from

technology upgrading and on the negative impacts on the environment. The basic

economic indicators are various aspects of MVA. Those of social impacts are various

aspects of employment, both positive and negative, and poverty reduction. Those of

environmental impacts are pollutant loadings and resource utilization.

A limited range of data on the economic dimension and to a lesser extent on the

social dimension of sustainable development are usually collected frequently and are

reasonably current in the 21 countries surveyed. However, the only available data on the

environmental dimension in most of the 21 countries are on energy use and carbon

dioxide emissions.

What is missing are data collected at source on industrial discharge of

conventional water and air pollutants and use of water. A review of the 21 country

assessments showed that some countries have fragmented environmental data collected at

source for one point in time. Most others, if data were available at all from an

environmental ministry, have only engineering estimates [available from the World Bank

(Wheeler et al. 1995) and the World Health Organization]. xix Only four of the 21

countries—Brazil, China, Egypt and Turkey—have systematically collected industrial

pollutant data at source. The data for Brazil are collected by state environmental

protection agencies, which use different monitoring protocols. Thus there is no national

database in spite of the excellent work done by the state agencies, particularly Sao Paulo

State. The data for China are the most complete and comprehensive, reflecting a

combined effort of the World Bank and the State Environmental Protection Agency of

14


China. Unfortunately, the data are not solely for the manufacturing sector but for the

industrial sector as a whole, which includes mining and quarrying and utilities as well as

manufacturing. The data for Egypt are based on international emission factors corrected

by point-source measurements. These data are the basis of a snapshot inventory of

industrial pollutant loadings by sub-sector for 2002. Finally, the data for Turkey are atsource

discharge data for two points in time. For 1992, the State Institute of Statistics

collected data for the entire country but for 2000 it collected data only for three major

water basins that accounted for some 60 per cent of the national industrial output.

Unfortunately, there is no international organization systematically collecting and

vetting pollutant-release and water withdrawal data for the manufacturing sector, as is the

case with energy use. The United Nations Environment Programme focuses its efforts on

environmental quality (ambient conditions) data and not its precursors, pollutant releases

that affect environmental quality (UNEP, 2006).

In addition, the authors of the 21 reports looked specifically for efforts to

disseminate industrial pollutant data to the public. Given the general lack of data,

described above, it is unsurprising that only a few of the 21 countries disclose industrial

pollutant data to the public. The early pioneer in this field among the 21 countries was

Indonesia. With assistance from the World Bank, it established the Program for Pollution

Control, Evaluation and Rating (PROPER) in 1995 (World Bank, 2000). There are now

programmes in the Philippines and Viet Nam, with planning efforts underway in China

and Egypt.

Industry’s participation in sustainable development planning

An assessment of the extent to which the 21 countries met the second institutional

arrangement required reviewing the extent of the formal participation of the industrial

sector in sustainable development planning. For the purpose of this paper, formal

participation was defined in terms of three activities. The first activity was the

designation of a recognizable organizational focal point for formulating an NSDS or its

equivalent. xx The second was the explicit participation of representatives of the

manufacturing sector in the formulation of an NSDS. Explicit participation required both

a horizontal dimension embracing national chambers of commerce and industry and

sectoral associations and a vertical dimension embracing provincial/state chambers and

associations. The third activity was reporting on the impact of the manufacturing sector

on all three dimensions of sustainable development in either an NSDS or its equivalent,

together with submission of a country profiles to CSD.

Focal point for preparing and monitoring of an NSDS

In most countries, the appropriate focal points for preparing and monitoring an

NSDS or its equivalent are organizational arrangements recognized by national

governments. These are usually relatively independent national councils for sustainable

development or units primarily within environmental ministries but also within national

15


planning agencies. All of the 21 countries surveyed had national councils, many of them

working closely with the Earth Council. xxi

Participation of industry in the formulation of an NSDS

National experts in the 21 countries characterized the extent of industry

participation in the formulation of NSDSs or their equivalents. They rated participation at

one of five levels: (a) no industry participation, (b) industry participation but not

meaningful, (c) meaningful industry participation, (d) meaningful industry participation

and ownership and (e) meaningful industry participation, ownership and specific followup

(Table 5). In 11 of the 21 countries, there was no meaningful participation (categories

a and b). In the other ten, the national experts stated that there was meaningful

participation (categories c and d).

Reporting on the contribution of the manufacturing sector

An assessment of the extent to which the 21 countries met the third institutional

arrangement required reviewing the country profiles submitted to CSD at the time of the

World Summit on Sustainable Development (2002) to determine the extent of reporting

on the manufacturing sector. Only token attention was paid to the manufacturing sector,

based on a page count of the submitted profiles. This finding was surprising because the

manufacturing sector accounted, on average, for some 24 per cent of GDP among all

developing countries in 2005 (without China it was 21 per cent) and for a reasonably high

share of GDP in many of the 21 countries (Table 5).

Table 5. Industry in GDP (as of 2005) and country profiles (as of 2002)

Country

MVA

as %

of

GDP

Industry

participates

Pages

on

industry/

pages in

total

Country

MVA

as %

of

GDP

Industry

participates

Pages

on

industry/

pages in

total

Bolivia 16.2 b 1/50 Nigeria 4.8 d 2/77

Brazil 19.6 c 3/71 Pakistan 17.3 c 1/63

Cameroon 13.9 c 2/57 Philippines 22.0 d 1/56

Chile

South

17.0 a 1/58

Africa

18.3 c 1/89

China 36.0 d 1/55 Sudan 5.9 a 0/0

Colombia 12.7 b 3/131 Thailand 36.5 a 0/63

Côte

Tunisia

14.0 b 1/57

d’Ivoire

18.1 c 1/69

Egypt 18.8 b 1/73 Turkey 18.8 a 1/78

Ethiopia 5.1 c 1/47 Viet Nam 22.8 c 1/40

India 15.6 b 2/121 Zimbabwe 13.2 a 1/55

Indonesia 28.0 b 1/68

Source: Update of Luken (2006). UNIDO Statistics (2007) for MVA, 21 national reports/surveys for

participation, and /www.un.org/esa/agenda21/natlinfo for pages on industry found in country profiles.

16


Extent of policy integration and implementation

Characterization of the extent of policy integration in the 21 countries surveyed is a

challenging task. Quantitative characterization is impossible and qualitative

characterization is difficult. Still, an attempt to sum up the situation qualitatively is

attempted below, as is an effort to identify some of the reasons for the limited extent of

policy integration. In addition, the major shortcomings of environmental policy

implementation are identified because these need to be corrected before real progress can

be made in reducing the environmental impact of industrialization.

Qualitative assessment of the extent of policy integration

Based on the in-depth review of 12 countries, there appears to have been only a

limited degree of integration of industrial development and environmental policies and

programmes. While there are some promising examples of coordination and cooperation

aimed at reducing environmental pressure and, more broadly, at achieving sustainable

development, these are clearly not widespread or sufficient. For the most part, industrial

development and environmental policy formulation and implementation continue to

proceed along two separate roads in most countries.

There is considerable literature on the challenges to policy integration in general,

which describes numerous political issues such as political leadership and such

methodological issues as lack of awareness and policy analysis skills (Russel and Jordan,

2006 and Daffern and Wyatt, 2001). More specific literature exists on policy integration

for sustainable development (Carley and Christie, 2000). Rather than reiterate those

concerns, it is illuminating for the purposes of this paper to reflect on the challenges,

which may or may not apply to a particular country, that developing countries have

encountered in reconciling industrial development and environmental policy objectives as

well as in exploiting win-win possibilities that could satisfy both objectives. These are:

• Lack of vision: Absence of a vision of where the industrial sector is heading

and, if there should there be such a vision, then the absence of a detailed

strategy for its implementation, translates into confusion and vagueness about

the environmental implications of industrial development;

• Industrial configuration: In many cases, changes in industry-related

conditions needed to reduce the environmental impact of industry are beyond

the political and financial resources of governments. These include

appropriate physical infrastructure for pollution control and management,

phasing-out of old and often second-hand production technologies, changes in

deeply rooted industrial cultures that resist change of any kind and

improvements in educational and skill-formation systems;

• Predominance of social objectives over economic objectives: Technology

upgrading that results in reduced employment and closing of facilities for

environmental non-compliance are officially not policy options;

• The huge size of the informal sector: Most institutional arrangements protect

the operations of the informal sector and encourage its expansion, despite its

17


negative implications for industrial productivity, worker health and safety and

the environment;

• Existing industrial policy contradictions: On the whole, industrial

development policies do not offer incentives that favour non-polluting over

polluting industries, cleaner technologies over dirty ones, and high technology

over low value-added resource-based investments, despite general recognition

of the environmental damage resulting from industrial development.

Shortcomings of environmental policy implementation

While most of the 21 countries surveyed and many developing countries in

general have formulated environmental standards for industry, the pressing need remains

to improve compliance monitoring and enforcement. Admittedly, some of the more

advanced developing countries have recently set up compliance monitoring efforts that

generate data on pollutant releases to the environment, but these efforts are limited and

the information is not shared with the public. Second, better enforcement of

environmental standards, including the most basic step of tailored permits for major

industrial facilities, is needed to reduce the absolute level of pollutants going into the

environment. Little evidence was found in the 21 country reports that this was happening.

It was only with the threat, or the actual enforcement, of environmental standards that

industrialized countries were able to bring industrial facilities into compliance with

environmental standards. The same must be the case in developing countries if they want

to achieve significant and widespread reductions in pollutant discharge.

5. MEASURES TO BE TAKEN BY NATIONAL GOVERNMENTS

In light of the findings of the UNIDO survey of developing country policies and

programmes to integrate industrial development and environmental considerations, there

is a need for additional and accelerated efforts to achieve this integration with the

objective of enhancing the role of industry in sustainable development. One strategy that

national governments could pursue consists of three short- to intermediate-term, diverse

but inter-related, efforts. These are creation of an expanded set of environmental and

social indicators for monitoring the role of industry in sustainable development,

encouragement of greater participation of the industrial sector to ensure its ownership of

the sustainable development plan, and the design of new policies and programmes to

reconcile industrial development and environmental objectives and to support more winwin

solutions.

Environmental and social indicators

While there are sufficient number of indicators to characterize the economic

contribution of industry to sustainable development as mentioned in sections 2 and 4,

there is an absence of indicators on the negative impact of industry on the environment as

18


well as insufficient information to characterize its social impact, particularly in regard to

poverty reduction.

An expanded programme to collect data on industrial resource use and pollutant

release should begin with a review of existing national and international data and include,

as needed, an approximation of pollutant releases using engineering coefficients available

from the World Bank and World Health Organization. The World Bank’s Industrial

Pollution Protection System is more widely used (see India case study, CRISIL, 2006).

The expanded programme could then take one of three approaches to improve its

industrial resource use and pollutant database, the first being much more resourceintensive

than the other two. A first approach would be to undertake a systematic

monitoring of pollutant discharge in a heavily industrialized state or province, following

established sampling and analysis protocols. This approach was successfully used by Sao

Paulo State in Brazil. A second approach would be a self-monitoring and reporting

system along the lines initiated by the Pakistan Environmental Protection Agency. This

system made the country’s industry owners and operators responsible for systematic

monitoring and reporting of their environmental performance, saving the Agency

expense, time and effort, as well as enabling industry to make long-term provisions for

environmentally friendly production. A third approach would be a public disclosure

programme modelled on the Program for Pollution Control, Evaluation and Rating

(PROPER) in Indonesia. The Indonesian government classified the compliance of a

limited number of plants with water pollution standards. The simple colour-coded

compliance status was first disclosed to the plants, many of which improved their

performance, and was eventually made available to the public, resulting in further

improvements in compliance.

An expanded programme to characterize the positive effect of industry on the

social dimension of sustainable development would need to clarify several confusing

aspects of currently available data and to enhance them in at least one important way.

Two estimates of manufacturing employment are currently available, one, reported by

UNIDO, on only the formal sector and another, reported by ILO, which includes the

formal and informal sectors. The major differences between the two estimates need to be

reconciled to the extent possible in order to gain a better understanding of the changes in

employment that are taking place in a country. Then, for the purposes of policy

intervention, there needs to be a better appreciation of which industrial sub-sectors have

the greater potential for employment generation, which have the greater potential for

female employment generation, and the employment potentials of firms that produce

primarily for the export market and those that produce for the domestic market.

Perhaps the most difficult challenge for the design of policy interventions is to

know the potential of employment in different sub-sectors to reduce poverty.

Unfortunately, there is only limited empirical information on this topic, and the debate is

usually about the relative importance of agro-based and labour-intensive industrialization.

Some evidence supports the view that agro-based industrialization is a promising strategy

for poverty reduction in low-income countries, as documented for India (Ravallion and

19


Datt, 1999). Other, but more limited, evidence supports the view that employment of the

poor in labour-intensive industries—particularly, but not necessarily exclusively, those

supplying the export market—can immediately lift them out of poverty, even to the

degree of enabling some accumulation of productive assets. This view is documented

with reference to the garment industry in Bangladesh and Kenya, two countries with

strikingly different experiences in industrial development (Fukunishi, 2006).

Greater industry participation

One avenue for achieving greater industry participation would be a sustainable

production initiative (SPI) at the national level of government. SPI would be privatesector-led,

most likely undertaken by the leading national industrial association, which

would work with both industrial and environmental ministries. It would engage the

private sector in developing a consensus about the most appropriate actions to be taken to

pursue simultaneously industrial and environmental objectives. It would work with the

national governments to clarify industry’s roles and responsibilities with regard to

sustainable development and community-based groups. It would ensure greater

ownership by industry of NSDS or its equivalent.

Renewed efforts to integrate industrial development and environmental policies and

programmes

There is an extensive literature on policy appraisal methodologies that would be

useful for identifying potential policy and programme spill-overs (both positive and

negative). Although it is not reviewed or summarized in this paper, it should be consulted

before undertaking new national efforts to identify ways to integrate industrial

development and environmental policies and programmes. Methodologies worth

reviewing are the European Commission’s Integrated Impact Assessment (EC, 2003) and

the United Kingdom’s Environmental Policy Appraisal and Regulatory Impact Analysis

(Russel and Jordan, 2006).

What is suggested here is that governmental organizations take advantage of the

“could do” options that lie between “must do” and “must not do” policy options for

industrial development and environmental management policies for industry. xxii This

would entail pushing the boundaries of the “must not do options” to create a ‘”could do”

territory that lies outside the boundaries of existing “must do” policy and legal

obligations (Daffern and Wyatt, 2001).

A comprehensive description of the numerous policies and programmes that

might emerge from efforts to expand the decision space that lies between industrial

development and environmental policies is beyond the scope of this paper. However, one

proposal is put forward because its need is very evident in many of the 21 countries

surveyed and lies within the mandate of UNIDO.

This proposal is to give more support to sub-sector and regionally focused (state

or province) technology-upgrading programmes. These programmes would align all the

factors—both internal capabilities and external pressures on a firm—to mitigate the more

20


serious environmental pollution problems as well as reduce utilization of energy, water

and material resources, helping to create ‘factories for tomorrow’. To be successful, they

should be undertaken within the context of enhancing the technological capabilities of

firms to compete in domestic and international markets. In particular, they should

enhance firm capability to obtain and adapt increasingly sophisticated technology

developed elsewhere, not only abroad but by other firms within their own country that

have taken advantage of the international specialization of industrial production. Based

on the experience of first tier East Asian NIEs, building these capabilities within firms

requires substantial investments in engineering education, an incentive system that

rewards firms that have learned to upgrade, and assistance to indigenous firms when they

face difficulties convincing their developed-country joint venture partners to invest in the

technical upgrading of local firms (Rock and Angel, 2006).

Using technical extension institutions to build firm-level capabilities that enhance

environmental as well as general capabilities is a long-term effort. xxiii This is partially so

because the existing technical institutions themselves need to build up sub-sector-specific

environmental expertise. In the shorter term, other measures are clearly needed. One such

measure could be subsidized programmes for those willing to be the early movers in

using cleaner technologies. Without these measures, many firms, particularly SMEs,

would hesitate to use technically proven cleaner technology options. Another and less

costly measure would be enhanced information dissemination about the financial as well

as environmental benefits of cleaner technologies, and about the importance of

addressing environmental issues. xxiv (UNIDO, 2007b for more than 200 case studies and

Luken and van Rompaey, 2007).

SUMMARY

This paper has examined several aspects of why industry matters for sustainable

development. In brief, it describes the role of industry in the pursuit of sustainable

development; the positive contributions it has made and the negative impacts it has had;

the extent, based on a survey of a limited number of developing countries, to which

governments have made and still need to make efforts to integrate industrial development

and environmental policies in support of sustainable development, and the challenges

they face in doing so; and the efforts that could be made, both nationally and

internationally, to enhance industry’s contribution to sustainable development, and

reduce its negative impact. The key findings and proposals are:

Industry provides a typical example of a sectoral aspect of sustainable

development that cuts across economic, social and environmental dimensions.

• The objective of monitoring sustainability in development has led to various

efforts at building and employing systems of indicators. An example of such a

system is ‘Indicators of Sustainable Development (ISD)’, developed at the

initiative of the Commission on Sustainable Development (CSD). However, as the

CSD-ISD system is designed for national use, the indicator values may not be

21


comparable across countries, their availability varies across countries and across

indicators, and they essentially ignore the industrial sector.

• A few industry-specific indicators, taken from limited globally available

databases and interpreted from a sustainability perspective, are presented in this

paper to characterize industry’s role in sustainable development. These show that

the positive economic contribution of industry to sustainable development,

measured in absolute terms as MVA per capita, increased in all six-country

groups (developed market economies, transition economies, NIEs, China, other

developing countries and least developed countries). In relative terms, measured

as the share of MVA in GDP, however, it increased in only two (NIEs and China)

of the six country groups between 1990 and 2005. Its positive social contribution

to sustainable development, measured in absolute terms as the number of

employees, increased in three of the six country groups (NIEs, other developing

countries and least developed countries). In relative terms, measured as

manufacturing employment as a share of total employment, however, its positive

contribution increased in only one country group, NIEs, between 1990 and about

2004. Its negative environmental impact, measured in absolute terms as energy

use, increased in five of the six country groups (not in transition economies). In

relative terms, measured as energy intensity, its negative environmental impact

increased in two country groups between 1990 and 2004. In short, industry’s

positive contributions to economic and social development were significant but of

declining importance compared to other sectors in most country groups. Taking

only the data available for energy use and carbon dioxide emissions into account,

industry has had an increased negative environmental impact, particularly in

developing and least developed countries that have failed to decouple industrial

growth and energy use. The results found would need to be tested with stronger

and broader data and with more rigorous analysis to be confident that this is a

generalisable conclusion.

• The integration of industrial development and environmental policies by national

governments is seen as an important and cost-effective way forward for

enhancing the positive contributions of industry to and reducing its negative

impacts on sustainable development. For the purposes of this paper, such policy

integration is defined as both efforts to insert environmental considerations into

industrial development policies and programmes and industrial development

considerations into environmental policies and programmes. The 12 country

reports commissioned by UNIDO show that these countries failed to make

significant advances in policy integration since the Earth Summit (1992). They

undertook only limited efforts: only four made tentative efforts to find

convergence among policies, and none appear to have undertaken the difficult

task of tracing back, in anything like a comprehensive way, all the potential

coordination and cooperation measures needed to support a coherent vision of

sustainable development. These findings are consistent with other surveys on such

policy integration for both developed and developing countries.

• The 12 country reports commissioned by UNIDO found that developing countries

face a number of challenges in their efforts to integrate industrial development

and environmental policies and programmes in support of sustainable

22


development; in particular, there are inadequacies in their institutional

arrangements to generate and disseminate data, there is a lack of participation of

their industrial sector in sustainable development planning and there is a need for

coordinated and cooperative policy and programme measures.

• The findings of the above-mentioned UNIDO survey of developing country

integration efforts show that governmental institutions need to take more

advantage of the “could do” options open to them. This would, undoubtedly,

enhance industry’s positive contribution to sustainable development and reduce

its negative impact. One strategy that national governments could pursue to

expand their set of options consists of three short- to intermediate-term, diverse

but inter-related efforts. These are the creation of an expanded set of

environmental and social indicators for tracking the role of industry in sustainable

development, the encouragement of greater participation by the industrial sector

in the sustainable development planning process, and modification of industrial

policies and programmes to reconcile industrial development and environmental

objectives.

• One of the most pressing needs is an internationally-led effort to systematically

collect and vet indicators/ benchmarks that illustrate trends in industry’s role in

sustainable development: (i) The greatest need is in the environmental area. Even

in terms of energy use there are acceptable data for only 70 out of 139 other

developing and least developed countries to compare changes between 1990 to

2004 (see Table 3). There are no data to assess trends in the discharge of

conventional water and air pollutants, heavy metals and persistent organic

pollutants, something that falls within the mandate of UNEP, and only estimates

of water withdrawal by industry, something that FAO is attempting to do. Nor are

there data on the material intensity of production by manufacturing sub-sectors xxv

and fixed expenditures for pollution control equipment, which falls within the

mandate of UNIDO. (ii) There are also data needs in the social area. A

combination of ILO and UNIDO sources provide acceptable data for only 35 out

of 139 other developing and least developed countries to compare changes in

employment between1990/1991 and 2004 (See Table 2). An effort is needed, too,

to reconcile the reported percentage increases in manufacturing employment by

ILO, which reports on employment in the formal and informal sector, and

UNIDO, which reports on manufacturing employment only in the formal sector.

Finally, there is a need for data that will improve understanding, at present very

limited, of the role of employment in the industrial sector on poverty reduction,

which is a major objective of the Millennium Development Goals. (iii) There are

also some data needs in the economic area. While MVA data are reasonably

complete, there are no acceptable data for more than 20 other developing or least

developed countries to compare changes between 1990 and 2005 (see Table 1)

• The other pressing need is for new efforts to integrate industrial development and

environmental policies to reduce the significant environmental implications of

industrial development. No attempt is made in this paper to identify the full range

of possibilities. However, one proposal is put forward because its need is very

evident in many of the 21 countries surveyed and lies within the mandate of

UNIDO. This is to enhance the capacity of sub-sector and regionally focused

23


(state or province) technology-upgrading programmes, which lie at the heart of

UNIDO’s crosscutting mandate. These programmes would align all the factors—

both internal capabilities and external pressures on a firm—to mitigate the more

serious environmental pollution problems and reduce the utilization of energy,

water and material resources. To be successful, the programmes should be

undertaken within the context of enhancing the technological capabilities of firms

to compete in domestic and international markets.

24


REFERENCES

Abdel-Latif, A. and Elailah, D. (2006). “The Interactions between Industry and the

Environment”. Report prepared for UNIDO. UNIDO, Vienna. www.unido.org/csd-15 [3

April, 2007].

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END NOTES

i Starting from the Brundtland Commission’s definition (1987) and its various interpretation—in particular,

the one contained in Agenda 21—three main dimensions of sustainable development can be identified:

economic, social and environmental (WCED, 1987). Briefly stated, the growth of economies and their

structural transformation has always been recognized as being at the core of development. Viewed from a

broad angle, development encompasses not only the strengthening of the material income base but

enhancement of human capabilities and extension of personal choices. Such a view of development

transcends the narrow concept of development-as-economic-growth and also emphasizes the importance of

social development in the context of sustainable development. The natural resource-environmental

constraint to human development is the main reason for concern about sustainability because of the

increasingly negative impact of development on the environment. More precisely, the economic processes

of production and consumption draw to a greater or lesser extent on services provided by natural resources

and the physical environment (air, water and land). These resources consist of two broad types: natural

resources (in the narrow conventional sense as inputs into the production process) and environmental

resources (in their capacity to neutralize or absorb pollutants released into the environment). (UNIDO,

1998a)

ii

Based on several case studies, a UNIDO report on the relationship between competitiveness and

environmental compliance concluded based on several case studies that in general (except for certain smallscale

and/or resource intensive firms) the impact of environmental regulations on compliance costs and,

therefore, on competitiveness is insignificant (UNIDO, 1995).

iii

The International Institute for Sustainable Development homepage lists some 500 national and local

indicator efforts (www.iisd.org). Under the UN Statistics Office, indicator-monitoring systems are being set

up in many developing countries (see www.undp.org/mdgs). The Paris 21 group on development

cooperation has a Task Team on Improved Statistical Support for Monitoring Development Goals, with two

projects on the Millennium Declaration indicators system: one on country reports, looking at national data

sources and ways of improving national capacities to support the indicators and the other on international

statistics for the indicators and ways of improving harmonization and links to national sources

(www.paris21.org/htm/TT_impmdg.htm).

iv The conclusion about decline in the manufacturing production is well known. As countries mature, MVA

gains tend to come from productivity improvements rather than employment increases. Thus as the

economic structure of countries mature, they need to upgrade their economic structure to have growth in

service and knowledge industries in response to decreasing employment opportunities in manufacturing

industries.

v Within any country group, there was considerable variation among countries that have reasonably similar

compositions of the manufacturing level and levels of MVA. For example, energy intensity was 27 per cent

higher in Indonesia than Thailand, 195 per cent higher in Guatemala than in Costa Rica while at the same

time it was 145 per cent higher in Honduras than in Guatemala (meaning 625 per cent higher in Honduras

than in Costa Rica).

vi

The 15 countries are Bolivia, Cameroon, Chile, China, Columbia, Cóte d’ Ivoire, Ethiopia, Nigeria,

Pakistan, Philippines, Sudan, Tunisia, Turkey, Viet Nam and Zimbabwe (Luken et al., 2002).

vii The countries are Brazil (Seroa de Motta, 2006), Egypt (Abdel-Latif and Elailah, 2006), India (CRISIL,

2006), Indonesia (Resosudarno and Isham, 2006), South Africa (McCarthy and van der Merwe, 2006) and

Thailand (Tambunlerchai and Sutummakid, 2006).

viii An informative exploration of the various meanings of integration in regard to the environment can be

found in Scrase and Stheate (2002).

31


ix The industrial development policy domain includes a wider range of policy instruments than industrial

policy per se (Sercovich et. al., 1999). “A distinction needs to be made between industrial policy, which is

aimed at changing the sectoral allocation of resources through short-run redistribution measures such as

subsidies, import restrictions and credit allocation, on the one hand, and industrial development policy,

which is aimed at increasing the productivity of resources in the medium- and long-run through capability

building on the other. Capability building refers to skill enhancement, scientific and technological progress,

capital accumulation, quality upgrading, resource mobilization, environmental sustainability and market,

institutional and regional development” (p.9).

x The environmental policy domain includes the main categories of environmental policy instruments:

command and control, such as licensing; economic incentives, such as taxes and fines; voluntary

agreements, such as negotiated covenants; and information disclosure, such as pollutant release inventories

(OECD, 1997).

xi In its description of what most governments do to integrate policies, the OECD Development Assistance

Committee has used similar criteria with slightly different terminology. These are coordination, consistency

and, more rarely, coherence. “Most governments, and certainly all of those in the OECD, have institutions

and management mechanisms for policy coordination. Officials will have familiarity with the interministerial

or inter-agency machinery in which an entity with primary responsibility for a policy decision

will bring together others that could be affected by or have an interest in it, to iron out a common position.

Such coordination often involves whittling down an original proposal to obtain consensus, in the lowestcommon-denominator

fashion. Policy consistency has more to do with the design and implementation of

policies of several ministries or agencies to support an overall objective, usually defined and articulated at a

high political level. Poverty reduction is such an objective. The key idea behind consistency lays in the

avoidance of policies that conflict in reaching for the defined goal. Policy coherence aims still higher. It too

operates to achieve politically defined goals, but looks beyond the removal of policy contradictions to a

more creative enterprise that harnesses all relevant policy actions to enhance the achievement of an

objective. It stresses a notion of cumulative value added from the contributions of different policy

communities, thus moving beyond mere consistency to a more positive, stronger vision of how objectives

can be achieved” [OECD DAC (2001b) as quoted in OECD/UNDP (2002) pp. 280-281]. The criteria used

here are very similar to those stated by Scrase and Sheate (2002) and taken from Hall (1993).

“…assessments can contribute to adjustment of existing policies, to the design, selection and

implementation of new policies and ultimately changing the central goals and sets of values informing

problem definitions and policy directions” (p 275).

xii A national sustainable development strategy (NSDS) sets out the measures a country intends to take to

progress towards its specific sustainability goals. As defined by the UN Department of Economic and

Social Affairs (UNDESA), NSDS is a coordinated, participatory and interactive process of thoughts and

action to achieve economic, environmental and social objectives in a balanced and integrated manner. The

process encompasses situation analysis, formulation of policies and action plans, implementation,

monitoring and regular review. It is a cyclical and interactive process of planning, participation and action

in which the emphasis is on managing the progress towards sustainability goals rather than producing a

plan as an end product” (UNDESA 2000a).

xiii

Within the industrial policy regime, there is often a trade-off between increasing productivity (the

economic dimension of sustainable development) and increasing employment (the social dimension of

sustainable development in regard to industry). The trade-off was not addressed in the 12 in-depth country

reports that form the major basis of this paper. For a discussion of the trade-off, see Lanndmann (2004).

xiv On the basis of their review of environmental and development policies in Asia, Angel and Rock (2001)

concluded that policy coherence is the most cost effective approach to the twin goals of poverty reduction

and environmental improvement. They found only a “few good examples of policy integration in action”.

xv For example, CCICED (2003) has raised questions about the extent to which China’s policies for the

manufacturing sector are encouraging sustainable development.

32


xvi In 1996, the Government ordered the closure of many small town- and village- enterprises, some 72, 000

in 15 sub-sectors, due to severe pollution of the Huai River. As a result, more than 4,000 small pulp and

paper mills with an annual capacity of less than 5,000 tons were closed between 1996 and 1997. These

mills had no effluent treatment plants and produced mainly poor quality packing grades of paper from agroresiduals.

In addition, the operation of numerous printing- and writing-paper-producing machines was

stopped (OECD, 2001c).

xvii

Lafferty and Meadowcraft (2000:433-5) state that high consumption societies have also only made

limited advances in policy integration in the 1980-98 timeframe and, often, so-called policy integration was

superficial, so the difficulties of integration are not those of developing and transition economies alone.

Volkery et al. (2006:2048) write: “Despite some true progress made, our findings indicate that countries are

still at the early stages of learning toward effective action for sustainable development. This applies both to

developing and developed countries. Key unsolved challenges include (a) coordination with the national

budget, (b) coordination with sub-national sustainable development strategies, and (c) coordination with

other national-level strategy processes”.

xviii

UNIDO called attention to the need for better integration of industrial and environmental policies

during its preparatory work for UNCED in 1992 (UNIDO, 1992).

xix

See World Bank (2007), [World Development Indicators]. The organic water pollutant discharge is

measured in terms of biochemical oxygen demand (BOD), which refers to the amount of oxygen that

bacteria will consume in breaking down waste. The basis for the estimate of BOD effluent comes from a

World Bank study of manufacturing effluent by sub-sectors in 13 countries (Hettige, Mani and Wheeler,

1998). Estimated BOD data for the manufacturing sector are available for 11 of the 21 countries; they are

not available for Côte d’Ivoire, Ethiopia, Nigeria, Sudan, Tunisia and Viet Nam. Turkey is the only country

where it was possible to compare data collected-at-source with World Bank data on BOD, but only for

pollutant intensity and not for pollutant loadings. In the case of data collected-at-source and Turkish MVA,

pollutant intensity was 1.14 tons/per million US$ of MVA in 1992 and 0.338 tons/per million US$ of

MVA in 2000. In the case of World Bank data on BOD and MVA, pollutant intensity was 1.77 tons/per

million US$ of MVA in 1990 and 1.24 in 1999.

xx

NSDS equivalents include national development plans, national conservation strategies, national

environmental action plans, national Agenda 21s, United Nations Development Assistance Frameworks,

World Bank Comprehensive Development Frameworks and World Bank Poverty Reduction Strategies.

xxi The Earth Council, an international non-governmental organization, was created in September 1992 to

promote and advance the implementation of the Earth Summit agreements. Its main activities include

economics and sustainable development, governance, mediation and conflict resolution and public

participation.

xxii

The density of the policy space that lies between industrial development and environmental

management policies for industry is explored in considerable detail for eight developing countries in Luken

and van Rompaey (2007).

xxiii There is extensive literature on building technological capabilities in firms in developing countries. No

attempt has been made to include the findings from this literature in the recommendations in this paper.

One starting point for reviewing the literature is Romijn (2001).

xxiv Similar efforts are also needed in the European Union. In a European survey, more than 75 per cent of

the firms polled requested information about cleaner technologies and best available technology solutions

(EC, 1995).

33


xxv

Industrial production data in the UNIDO International Yearbook of Industrial Statistics has data that

would allow measurement of material intensity of production across 28 manufacturing sub-sectors and the

manufacturing sector as a whole. It is done simply by measuring the share of MVA in gross output. An

increase in the share of MVA in gross output over a period implies reduction in the material intensity of

production.

34

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