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2019 | OriginalPaper | Chapter

4. Sustainability, Innovation, and Efficiency: A Key Relationship

Author : Daniele Schilirò

Published in: Financing Sustainable Development

Publisher: Springer International Publishing

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Abstract

Sustainability has become the emerging goal for countries, companies, and people. Sustainability usually refers to the need to develop models necessary for both human beings and our planet to survive. However, sustainability is not a short-term problem; it is above all a long-term issue, posing intergenerational equity problems. Moreover, sustainability requires efficiency. The efficient use of energy and of natural, material, and informational resources is vital for sustainability and sustainable development, which should be the major goal of every country, as established in Rio in 1992, and reaffirmed at Rio+20 in 2012. But any strategy aiming at sustainability and efficient use of resources must focus on innovation and technological progress. Consequently, innovation is fundamental to making sustainability possible and improving efficiency. Yet innovation for sustainability must be environmentally friendly (e.g., green technologies). The principle behind such a strategy is better instead of more. This chapter aims at highlighting the key relationship among sustainability, innovation, and efficiency. First, it examines the concept of sustainability, looking at the neoclassical literature on sustainability and its relationship with innovation. Then, it analyzes different theoretical approaches and discusses the policy issues for sustainability where innovation, natural capital, human capital, population, and institutions are fundamental factors.

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previous chapter Sustainable Development Versus Green Banking: Where Is the Link?
next chapter Socially Responsible Financial Markets
Footnotes
1
The Brundtland Report (World Commission on Environment and Development 1987) follows an all-encompassing approach in which economic, social, and environmental objectives are placed on the same logical level. However, an increasingly common criticism of this approach is that it does not take sufficient account of the limits imposed by the ecosystem. In fact, in the Brundtland Report (and this is perhaps the key to its success) the natural environment does not constitute a limit for economic growth, while synergies are emphasized.
 
2
European Commission (2014).
 
3
Solow (1973, 1974a, b, 1976, 1986, 1992, 1993, 2009).
 
4
Solow (1974a, p. 4) pointed out that a backstop technology is “a technology capable of producing or substituting for a mineral resource at relatively high cost, but on an effectively inexhaustible resource base.”
The concept of backstop technology was developed by Nordhaus (1973) and was very influential in energy economics; in fact, it is a technology for mobilizing energy that is not based on an exhaustible resource. Backstop technology, according to Nordhaus, is an ultimate technology resting on a very abundant resource base. This technology allows for a substitute process with an infinite resource base. See also Nordhaus (1993).
 
5
Hotelling’s rule states that the most socially and economically profitable extraction path of a non-renewable resource is one along which the price of the resource, determined by the marginal net revenue from the sale of the resource, increases at the rate of interest.
 
6
A limitation on the substitutability between natural capital and artificial capital is that natural capital has the feature of multi-functionality (all life-support functions); a similar feature is not shared by artificial capital (Pearce and Turner 1990).
 
7
Hartwick (1977, 1978), following Solow (1974b), showed in a number of models that keeping investment equal to the rents (really profits from the flow of depletion) from exhaustible resources under competitive pricing yields a path of constant consumption. Thus, altogether this is known as the Solow–Hartwick sustainability model (Solow–Hartwick sustainability was defined as “weak sustainability”).
 
8
The Hartwick’s rule consists in continuously zero net investment in human-made capital and natural resources, and it guarantees sustainability in the form of constant utility. Without disutility from degradation, the rule results in constant consumption as well as constant utility. The Hartwick’s rule has been extensively developed since its first appearance in Hartwick (1977).
 
9
Solow was aware that the concrete translation of sustainability into a policy is problematic, for example the deep uncertainty about environmental benefits and costs.
 
10
It is well known that the Hotelling rent or scarcity rent is the maximum rent that could be obtained while emptying the stock resource (Hotelling 1931).
 
11
Solow is arguing for comprehensive green national accounts that would allow some approximation to the volume of net investment in reproducible capital required for sustainability of national consumption (2009).
 
12
In the Appendix (Solow 2009, pp. 5–14).
 
13
Although Dasgupta is labeled a neoclassical economist (e.g., the Dasgupta-Heal model, 1974), he continued to work for a much wider economic science than classical or neoclassical theories.
 
14
This definition corresponds, de facto, to the Brundtland Commission report’s definition of sustainable development.
 
15
Dasgupta (2001, 2010, 2016).
 
16
Natural capital includes aquifers, ocean fisheries, tropical forests, estuaries, the atmosphere as a carbon sink—that is, ecosystems generally (Dasgupta 2010, p. 5).
 
17
An economy’s productive base will shrink if its stock of capital assets depreciates and its institutions are not able to improve sufficiently to compensate for that depreciation.
 
18
However, other than institutions, Dasgupta has expressed concern about population growth especially in poor countries (Dasgupta 1995).
 
19
The authors apply the framework to five countries that differ significantly in stages of development and resource bases: United States, China, Brazil, India, and Venezuela.
 
20
Dasgupta (2016).
 
21
The Agenda is an action program for people, the planet, and prosperity signed in September 2015 by the governments of the 193 member countries of the UN. It includes 17 Sustainable Development Goals (SDGs).
 
23
The European Council agreed on the 2030 climate and energy framework on October 23, 2014.
 
24
Among the actions proposed, there is a commitment to continue reducing greenhouse-gas emissions, setting a reduction target of 40% by 2030 relative to 1990 levels. There is also a renewable energy target of at least 27% of energy consumption, with flexibility for member states to set national targets (European Commission 2014). https://​www.​consilium.​europa.​eu/​en/​policies/​climate-change/​2030-climate-and-energy-framework/​.
 
25
European Commission (2015).
 
26
IPCC (2018).
 
27
Companies must rely on synthesis rather than separation to contain tensions between them, following a sort of contextual integration.
 
29
There are several problems with carbon pricing. However, more companies are using internal carbon pricing to drive their business decisions.
 
30
For instance, technological innovation plays a key role in curbing CO2 emissions.
 
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Metadata
Title
Sustainability, Innovation, and Efficiency: A Key Relationship
Author
Daniele Schilirò
Copyright Year
2019
Publisher
Springer International Publishing
Book
Financing Sustainable Development

Print ISBN: 978-3-030-16521-5

Electronic ISBN: 978-3-030-16522-2

Copyright Year: 2019

DOI
https://doi.org/10.1007/978-3-030-16522-2_4