Managing Sustainable Development

A Discussion Paper by the Commissioner of the Environment and Sustainable Development

Executive Summary

As the external auditor of the federal government, the Office of the Auditor General carries out performance audits that examine whether government programs are being managed with due regard for economy, efficiency, and the environmental effects of expenditures, and whether there are measures in place to determine their effectiveness. To carry out this work in relation to sustainable development, the Office needs to identify key management practices and processes that constitute due regard for environmental effects and that can be used to assess the government’s management practices for sustainable development.

From a management perspective, sustainable development presents some distinct challenges for which there has been limited practical guidance. The main objective of this study is to identify challenging aspects of managing sustainable development and to provide managers with examples of the types of practices and analytical techniques that will help them address these particular challenges.

This study is also intended to build awareness and support a dialogue with senior federal government officials on how such sustainable development practices and techniques can be put into practice. The study is the first step in identifying criteria for auditing management practices and performance as they relate to sustainable development.

Through their policies, programs, and regulations as well as the billions of dollars they spend each year, federal departments and agencies have a significant influence on almost every aspect of Canadian society. They have significant potential for contributing to sustainable development.

The Federal Sustainable Development Act defines sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their needs. Section 5 of the Act states that the Government of Canada “acknowledges the need to integrate environmental, economic and social factors in the making of all decisions by government.”

Sustainable development involves considering environmental, economic, and social objectives when developing and implementing public policies and programs. It also involves considering the needs of the present as well as the needs of future generations. Integrated decision making and a long-term approach to planning are defining characteristics of sustainable development and represent the key management challenges. This study offers a few examples that show how these distinct and challenging aspects of managing sustainable development can be accomplished in practice.

We identified three important requirements for managing sustainable development in the federal government:

• Applying suitable practices and analytical techniques. Managing sustainable development requires analytical techniques and management practices that compare and integrate environmental, social, and economic objectives and that address multi-year or long-term concerns. Analytical techniques such as cost-benefit analysis and multi-criteria analysis can help integrate environmental, economic, and social considerations. Foresight analysis, transition management, and modelling are useful for considering the potential long-term effects of proposed policies and programs. Stakeholder participation in the planning process is considered essential to helping organizations increase their knowledge, legitimacy, and performance.
• Acquiring and using good information. Effective management of sustainable development requires reliable, evidence-based information on the potential and actual effects of policies and programs on the economy, the environment, and society. Science-based information and analysis, suitable performance indicators, and well-functioning measurement and accounting systems are important for understanding and monitoring the environmental, economic, and social effects of policy and program initiatives.
• Applying relevant federal frameworks and directives. Existing federal legislation, cabinet directives, and frameworks indicate that considering environmental, economic, and social effects when developing policy and program proposals (that is, an integrated approach to planning) is a good management practice and a prerequisite for sustainable development.

Introduction

1. In 2007, the Auditor General asked an independent panel of experts, the Green Ribbon Panel, to examine how the Office of the Auditor General’s environmental and sustainable development mandate had been put into practice since it was legislated in 1995 and to identify opportunities within the mandate to serve Parliament better.

2. The panel’s report noted that, since 1995, the Office of the Auditor General has focused its efforts on environmental risk in its audit selection process. The report emphasized that the mandate of the Commissioner of the Environment and Sustainable Development includes both the environment and sustainable development and recommended that, as a priority, the Commissioner should articulate how he will factor the sustainable development component into his work plan. This study is a key step in that direction.

3. As the external auditor of the federal government, the Office carries out performance audits that examine how well government programs and activities have been managed, using criteria such as

• regulatory requirements,
• federal government policy and program commitments,
• generally accepted standards, and
• recognized good management practices.

4. Good management practices such as those reflected in the classic “Plan, Do, Check, Improve” model; International Organization for Standardization (ISO) management system standards; and the Canadian Institute of Chartered Accountants (CICA) criteria of control are applicable for managing any issue including sustainable development. Since these good practices are already recognized and well documented, this report focuses on two particularly challenging aspects of managing sustainable development:

• considering and integrating environmental, economic, and social effects; and
• considering these effects over time horizons measured in generations.

5. A key aspect of the Office’s audit mandate is to examine whether management has paid “due regard to the environmental effects of expenditures in the context of sustainable development.”¹ For sustainable development, “due regard” involves using practices and techniques to identify and compare the potential effects of policy and program proposals on the environment, the economy, and society over the long term.

6. There is limited guidance for incorporating or assessing due regard to sustainable development in the creation of public policies and programs. The primary objective of this study is to address that gap by identifying good management practices and analytical techniques that can be used to address these key management challenges of sustainable development.

7. A secondary objective is to build awareness of the challenges and create a dialogue with senior federal government officials on how the sustainable development practices and techniques presented in this study can be integrated into policy and program proposals.

8. The key management challenges of sustainable development and the analytical techniques, good practices, and information requirements presented here are intended to help guide management. This study represents a first step toward identifying criteria for examining, in our audits, the federal government’s management practices and performance in relation to sustainable development.

9. This study has four sections:

• The first section begins with the definition of sustainable development found in federal legislation and identifies its distinguishing characteristics from a management perspective.
• The second section describes the key management challenges of sustainable development and a selection of useful analytical techniques and practices for addressing these challenges and putting sustainable development into practice.
• The third section discusses measuring and reporting on sustainable development performance and outlines standards and best practices for indicators, accounting practices, certification, and reporting.
• The fourth section summarizes existing federal directives and frameworks intended to support sustainable development planning and decision making.

More details on our objectives, scope, and approach are in the About the Study section at the end of this study.

This is not an audit report; therefore, our observations should not be interpreted as an assessment or criticism of current federal government practices or performance.

Observations

Definition of sustainable development

10. The definition of sustainable development in the Auditor General Act is our starting point for examining the government’s management practices and performance. This definition is based on the 1987 Report of the World Commission on Environment and Development, commonly referred to as the Brundtland Report, which states that sustainable development “meets the needs of the present without compromising the ability of future generations to meet their own needs.” This definition was recently included in the Federal Sustainable Development Act.

11. Section 7(2)(f) of the Auditor General Act calls on the Office to draw attention to cases where money has been spent “without due regard to the environmental effects of those expenditures in the context of sustainable development.” This mandate reflects Parliament’s expectation that the federal government will assess the potential environmental effects of federal policies and programs along with their expected socio-economic effects.

12. Over the past twenty years, numerous definitions of sustainable development and sustainability, based on the Brundtland definition, have appeared. One estimate suggests there are over 200 different definitions or interpretations of sustainable development, underscoring the fact that there are many opinions about what sustainable development means in theory and practice. Despite differing opinions, there is broad consensus that sustainable development involves integrating environmental, economic, and social considerations into public policies and programs and planning their implementation over the long term.

13. However, common to these many definitions are the pivotal concepts of integrated decision-making and long-term planning. For example, section 5 of the Federal Sustainable Development Act acknowledges “the need to integrate environmental, economic, and social factors in the making of all decisions by government.”

14. According to the United Kingdom (UK) federal Department for Environment, Food and Rural Affairs, a sustainable development policy or plan “simultaneously works towards a healthy environment, fair society and a sustainable economy.”² Such policies need to

• contribute to these three elements of sustainable development over the long term,
• be developed and implemented through participatory governance practices, and
• use a reliable evidence base for determining their impact.

Exhibit 1 includes more detail on the key characteristics of sustainable development.

Exhibit 1—Key characteristics of sustainable development

Key management challenges of sustainable development

Integration

15. Typically defined as combining separate parts or elements into an integral whole, integration has been difficult to put into practice when managing sustainable development. Government departments and agencies tend to be organized around distinct mandates with planning and decision-making processes that focus on specific issues, such as industry, transport, or natural resources. By contrast, sustainable development involves integrating economic, environmental, and social considerations simultaneously.

16. Before any meaningful integration can occur, decision makers need to identify, assess, and compare potentially conflicting values and objectives. For over 40 years, disciplines like natural resource economics and environmental economics have worked to quantify environmental costs (often referred to as externalities to market prices) and benefits in monetary terms. Tools that allow for a comparison of multiple and potentially conflicting goals are essential for policy integration.

17. Cost-benefit analysis and multi-criteria analysis are among the environmental valuation tools and approaches that can be used for assessing and comparing different objectives and underlying values. Using these approaches can contribute to the goal of understanding the trade-offs between, for instance, the cost of reducing a given pollutant and the benefits—such as reducing illness, absenteeism, and health care costs—which are given monetary values. By comparing the costs and benefits, policy-makers have some insight about the scope and magnitude of trade-offs between economic, social, and environmental goals.

18. While the insights and results of these analytical techniques may be imperfect, and while decision makers may not always give equal weight to potentially conflicting environmental, social, and economic values in their decisions, the techniques help decision makers to consider costs and benefits more broadly and make better-informed decisions.

19. Because sustainable development involves the consideration of multiple objectives, it requires engagement and cooperation across departments and agencies as well as between levels of government. Improving integrated decision-making or policy coherence is a challenging aspect of managing sustainable development. In 2007, for example, the UK federal Department of Health came to the conclusion that it was unlikely to achieve many of its physical activity targets (which were crucial to the success of its Obesity Strategy) without the Department for Transport boosting investments in cycling and walking paths—instead of spending more money on new and “improved” roads.³

20. A number of governments, including Canada’s, have taken steps to facilitate integration and policy coherence. For example:

• The Swedish government designated seven agencies to lead sixteen national environmental quality objectives, and three agencies to account for any crosscutting issues.
• The British government created the Department of Energy and Climate Change and the Sustainable Development Commission to better coordinate cross-sectoral issues.
• The Canadian government established Cabinet committees to consider such issues, including the Cabinet Committee on Economic Growth and Long-term Prosperity (which specifically references sustainable development) and the Cabinet Committee on Environment and Energy Security.

21. Section 6 of the Federal Sustainable Development Act also states that a committee of the Queen’s Privy Council for Canada⁵ shall have oversight of the development and implementation of the Federal Sustainable Development Strategy.

22. Analytical techniques and practices such as cost benefit analysis, multi-criteria analysis, and stakeholder participation can help government managers to integrate environmental, economic, and social considerations in policy and program proposals.

23. Cost-benefit analysis. Cost-benefit analysis is one of the most common and widely used analytical techniques for planning and decision making. First used in the 1930s, it continues to develop as a tool that can be used in many sectors, and is especially useful for measuring compliance costs and benefits over time. Cost-benefit analysis is typically used to quantify the benefits, costs and net benefits of a policy option or regulation, including how the impacts of a policy and regulations may be distributed across various stakeholders, sectors or regions. The Treasury Board of Canada Secretariat first published a guide on cost-benefit analysis in 1976. Using this analytical technique was made mandatory in 1999 for all significant regulatory proposals.⁶

24. Cost-benefit analysis is a valuable tool for planning and decision making for environmental management and sustainable development, but its users have been criticized for applying discount rates that place a lower value on the environmental benefits and costs to future generations than on benefits and costs to the current generation. Discount rates can make current environmental protection measures appear too costly compared to the future benefit of a healthy environment.

25. However, managers using cost-benefit analysis can choose a lower discount rate to better balance current and future benefits and costs. For example, The Economics of Climate Change,⁷ a review prepared for the UK government in 2006, used the low discount rate of 0.1 percent.

26. Multi-criteria analysis. Multi-criteria analysis is another common technique used in policy analysis. It allows decision makers to consider a full range of social, environmental, technical, economic, and financial criteria to assess policy or program options. In contrast to cost-benefit analysis, multi-criteria analysis explicitly recognizes the importance of non-monetary as well as monetary values in influencing policy decisions, and it includes techniques for incorporating stakeholder views and ranking different outcomes.

27. Since it can accommodate diverse criteria, incorporate stakeholder values, and be adapted to varying contexts, multi-criteria analysis is useful in planning and decision making for sustainable development.

28. In its January 2009 Multi-Criteria Analysis manual, the UK federal Department of Communities and Local Government describes multi-criteria analysis as “any structured approach to determine overall preferences among alternative options, where the options accomplish several objectives.”⁸

29. Assessing financial and non-financial effects of policies and programs is challenging. The natural environment provides a complex set of values to individuals and benefits to society. For example, people are attracted to coastal areas for their scenic panoramas; however, they also use fish and other edible sea life caught in these areas as a source of food, and use the beaches for relaxing, exercising, and bird watching. Other values of coastal areas include

• climate modulation;
• physical protection provided by reefs;
• carbon sequestration and erosion control provided by coastal forests; and
• biodiversity, as reflected in particular species groups such as whales, coral reefs, and plants.

30. These examples are a small subset of a much broader array of ecosystem services and natural capital that may be relevant in environmental valuation. However, the effects of government policies and programs on ecosystem services and natural capital cannot always be valued by direct reference to observed market prices. Quantifying and placing values on those effects (both positive and negative) is nevertheless important to allow decision makers to compare the full costs and benefits of policy proposals. The challenge facing analysts is how to value such effects in comparable terms. A variety of techniques have been developed to do so (Exhibit 2).

Exhibit 2—Environmental valuation techniques

31. Stakeholder participation. Stakeholder participation is important at each stage of the “Plan, Do, Check, Improve” management cycle to gather insights and information; identify knowledge and knowledge gaps; and assure the relevance and robustness of policies, plans, and implementation strategies from a societal point of view. This practice is helpful in seeking input regarding the perceived values across society of different policy choices. It also has the potential to develop innovative solutions to complex problems or win-win solutions to conflicts related to sustainable development. Recognizing the importance of stakeholder participation, the Treasury Board of Canada Secretariat developed Guidelines for Effective Regulatory Consultations in 2007. Health Canada has also developed a policy toolkit for public involvement that provides principles, guidelines, and information for the effective involvement of citizens in government decision making on health issues.

32. There is broad consensus that stakeholder participation is essential to sustainable development. Consistent commitment to engaging people who are affected by or who can affect an organization’s activities, and responding to their concerns, helps organizations increase their knowledge, legitimacy, and performance. Values such as accountability and transparency, which are affirmed in the process, can also enhance an organization’s reputation and stature in the eyes of the community at large.

33. The following case study is an example of how stakeholder participation and other analytical techniques have been used to assess environmental and social values and of how these were integrated in planning and decision making.

Case Study 1—BC Hydro’s decision making for sustainable development

Long-term planning

34. A second challenging aspect of managing sustainable development is its time horizon. Definitions of sustainable development in the Brundtland Report, the Auditor General Act, and the Federal Sustainable Development Act call on decision makers to examine the potential effects of today’s policy choices on future generations.⁹

35. There are many fields in which long-term perspectives are necessary and commonplace. For major engineering and infrastructure projects, the planning horizon is typically measured in decades; for example, the Confederation Bridge, between New Brunswick and Prince Edward Island, was planned to last for a century. The combined effects of changing environmental factors were considered as part of a long list of stresses that might affect the bridge over the long term. Actions to reduce the impact of development projects on the environment may go on even after a project is finished. For instance, the joint federal-provincial environmental review panel for the Kearl Oil Sands Project (2007) noted the need for mitigation measures to protect the Athabasca River up to 2065 and perhaps beyond.

36. In the social sciences, the implications of an aging population and lower birth rates are examined over generations. Insurance and pension fund management involves analyzing demographic, mortality, and other data to forecast expected costs, assess risk, and set premium and payment policies. In pension fund management, increases in life expectancies beyond retirement have increased the need for long-term planning. Good practice also involves sensitivity analysis to understand the effect of changes in the variables.

37. Despite the prevalence of long-term planning in other sectors, governments face challenges in multi-year planning. The International Monetary Fund (IMF), for example, has noted that governments face systemic problems in forecasting uncertainties and in budget planning over time.¹⁰ A key challenge of managing sustainable development is aligning short-term objectives with long-term social, economic, and environmental goals. Three techniques that can facilitate long-term planning and alignment of short-term objectives with long-term goals are foresight analysis, transition management, and numerical modelling.

38. Foresight analysis. Foresight analysis uses a number of techniques including cost-benefit analysis, stakeholder participation, trend analysis, and forecasting to examine how current decisions and actions could affect the ability of future generations to meet their own needs and how current knowledge and emerging technology could be applied to meet those needs.

39. Foresight analysis involves identifying and assessing future risks and policy shortcomings, and developing alternative scenarios or futures, including the policies and strategies needed to achieve improved outcomes. It is being used by business and government in a number of countries, including Germany, the Netherlands, France, Australia, the United Kingdom, the United States, and Canada. This approach is a useful practice for managing sustainable development, because it has the benefit of

• creating interdisciplinary networks to solve problems;
• developing a foresight culture;
• increasing consensus among stakeholders on trends, risks, desired outcomes, and needed actions; and
• integrating results into policies and programs.

40. Transition management. Transition management combines foresight analysis with short-term experiments to solve persistent problems. The approach encourages ambitious thinking about positive transformation and technological and social innovation. It is particularly useful when incremental change or improvement is deemed insufficient and more fundamental change is needed. The product of transition management is a transition agenda to influence policy and accelerate the emergence and diffusion of more sustainable practices.

41. Transition management was highlighted in recent research by the federal government’s Policy Research Initiative, an organization that provides research support to Deputy Ministers on policy issues. It has also been applied in Germany and the Netherlands in areas of sustainable energy, mobility, agriculture, and housing. The following case study describes how foresight analysis and transition management were applied in Germany’s utility sector to help stakeholders understand and deal proactively with long-term sustainability challenges.

Case Study 2—Foresight analysis and transition management in Germany’s utility sector

42. Numerical modelling. Numerical models can be used to examine systems or processes that cannot be observed directly in their entirety, such as consumer preferences, the national economy, ecosystems, or the global climate system. The equations used in such models can be based on empirical evidence as well as assumptions about the system or process being studied. The equations attempt to reflect the determining aspects of the system or process and simplify or omit the rest. Models approximate the real world and are frequently used to study various policy scenarios over the medium or long term.

43. For example, Environment Canada has developed a model to assess the environmental and economic effects of policies on climate change. The Energy-Environment-Economy Model for Canada represents the various sectors of the Canadian economy, the energy system supply and demand for all fuels, and the greenhouse gases emitted to the environment as a result of economic activities.

44. This model shows how different policies and energy prices can affect the type and quantity of energy demanded by consumers and businesses. It also shows how such changes can affect greenhouse gas emissions, as well as savings and investments in the economy. Changes in buying patterns, savings, and investments affect production, trade decisions, consumption, income, and investment in the broader economy—which can, in turn, affect the country’s currency and fiscal balances and its interest and exchange rates. This model includes projections until 2020 for greenhouse gas emissions and for the gross domestic product (GDP) under different policy scenarios. These two major indicators—greenhouse gas emissons and GDP—can be used to evaluate the impact of policy alternatives.

45. While models can be valuable tools, the more complex the model and the longer the time horizon considered, the more the results will depend on the initial assumptions and will be subject to uncertainties. Best practices dictate that models be based on accurate data and be validated against historical trends, wherever possible. Given the uncertainties involved in modeling complex systems, it is important that the limits of the model and uncertainties of the results be clearly communicated to stakeholders.

Addressing the challenges

46. The European Commission and a number of member countries of the OECD are applying techniques and practices such as cost-benefit analysis, multi-criteria analysis, numerical modelling, foresight analysis, transition management, and stakeholder participation to examine options and alternatives for achieving policy objectives. The following case study describes how the European Commission uses an analytical tool called “sustainability assessment” to consider the positive and negative effects of policy proposals.

Case Study 3—Sustainability assessment at the European Commission

Measuring and reporting on sustainable development

Acquiring and using good information

47. Policy makers and managers cannot make informed decisions without access to good information, including science, measurement-based data, and statistics, as well as cost and performance information. To assess sustainable development policies, managers require measurable information (indicators) that reflect environmental, economic, and social values. For decades, rates of inflation, unemployment, interest, and economic growth have been monitored and used for economic policy analysis and decision-making.

48. A key challenge for managing sustainable development is to spell out in advance how the organization and its stakeholders will know when a program or a policy has achieved its expected results and contributed to sustainable development. To do so, managers need performance indicators and the capacity to obtain and analyze science and other evidence-based information on effects. Without measurable objectives and generally accepted indicators of sustainable development, it will be more difficult to mobilize public participation, assess management performance, or evaluate overall progress.

49. Several frameworks for organizing relevant information and indicators exist, including the Capital Framework approach suggested by Statistics Canada and the Pressure-State-Response (PSR) Framework, which was adopted and used by the Organisation for Economic Co-operation and Development (OECD) in the 1990s. The PSR framework was later expanded by the European Environment Agency to include driving forces and their impact,¹¹ (Exhibit 3). The categories are logically related: economic driving forces create environmental pressures that, in turn, modify the state of the environment. The state of the environment has an impact on society, such as health problems, that requires a policy response to reduce pressures, improve the state of the environment, and reduce or eliminate the impact.

Exhibit 3—A framework for performance indicators

50. The challenge for management is to examine a policy or program proposal to see how it could influence the relationships in the Driving forces-Pressure-State-Impact-Response Framework. Once the relationships have been identified, it is management’s responsibility to establish performance expectations and related measures and performance indicators and to obtain good quality information and statistics to assess progress.

51. Statistics Canada defines the elements of good-quality statistics in its Quality Assurance Framework (Exhibit 4). Some of these elements can be characterized as static in the sense that they tend to change relatively slowly and are always a consideration in managing quality. These elements are relevance, accuracy, timeliness, coherence, accessibility, and interpretability. Other aspects of quality are more dynamic and subject to quick changes as the measurement process evolves. These aspects are coverage, sampling, and non-response.

Exhibit 4—Statistics Canada—Quality Assurance Framework

52. To measure progress on sustainable development, we need well-functioning measurement and accounting systems and tools to acquire and analyze relevant data and performance information.

National indicators and accounts

53. National accounts indicate the state and behaviour of a nation’s economy. A country’s national accounts present the production, income, and expenditure activities of its government, corporations, and households; its economic relations with other countries; and its overall economic status in relation to other countries.¹²

54. National indicators and accounts help stakeholders understand whether conditions are improving or deteriorating, in relation to the government’s overall goals for society. For example, economic indicators such as rates of inflation, unemployment, interest, and economic growth are closely monitored, and the government’s monetary and fiscal policies, programs, and activities are adjusted to ensure that they continue to be aligned with the government’s overall goals. Over the past decades, national indicators and accounts have evolved from focusing exclusively on economic indicators to include social and environmental indicators.

55. National indicators. Some countries have recently developed national indicators to measure progress against socio-economic and environmental goals. Since 2005, the Canadian government has published its Canadian Environmental Sustainability Indicators, which include three of the six indicators recommended by the National Round Table on the Environment and the Economy:¹³ air quality, greenhouse gas emissions, and freshwater quality. The goal of these indicators is to provide Canadians with information on the state of their environment and on how it is linked with human activity.

56. The European Union (EU), Sweden, the United Kingdom (UK), and other countries have developed national-level environmental and sustainable development indicators to monitor their progress. The EU and UK indicators are linked to their federal sustainable development strategies.¹⁴ Sweden’s 16 National Environmental Objectives and related performance indicators provide a guide for government programs and initiatives in achieving the country’s goals.¹⁵

57. Norway has adopted a set of sustainable development indicators. Some relate to key elements of its national wealth, for example, level of education, freshwater quality, energy use, and sources of income. It is also considering including a sustainable consumption indicator. In contrast with Canada and some OECD countries where the environment ministry manages sustainable development indicators, Norway’s Ministry of Finance oversees them and includes among its main objectives “to contribute to . . . sustainable development.”¹⁶

58. Indexes have also been developed to measure the welfare of a nation. One of the best known examples is the World Bank Adjusted Net Saving (also known as Genuine Saving Index). According to the World Bank, this index measures “the true rate of savings in an economy after taking into account investments in human capital, depletion of natural resources and damage caused by pollution.”¹⁷ A negative number on this index would indicate that a country’s total wealth is in decline and that its policies are unsustainable. The World Bank publishes estimated Adjusted Net Savings for more than 100 countries, including Canada.¹⁸

59. Another well known example is the United Nations’ Human Development Index, which combines measures of life expectancy, literacy, educational attainment, and GDP per capita. According to the United Nations Development Programme, “human development” refers to widening people’s options and giving them greater opportunities for education, health care, income, employment, and so on.¹⁹ The Human Development Index measures and ranks a country’s progress on these issues.

60. More recently, the Institute of Wellbeing at the University of Waterloo, in Ontario, published information on the Canadian Index of Wellbeing that it is now being developed.²⁰ The objective of the index is to establish a single indicator of wellbeing in Canada. When complete, this index will incorporate measures covering eight aspects of life, including the quality of the environment, the health of Canadians, and their overall standard of living. This initiative aims to provide a more accurate and comprehensive picture of the quality of life in Canada than the one provided by the GDP.

61. The use of sustainable development indicators continues to be problematic and affected by serious challenges, including data availability and quality. However, identifying indicators that are relevant to decision makers, citizens, and stakeholders outside the scientific and technical communities is vital to creating and maintaining demand for reliable, evidence-based data and statistics. Once again, stakeholder participation in the development of national indicators of sustainable development is important.

62. National accounts. Agenda 21 is a comprehensive plan of action to be implemented globally, nationally, and locally by United Nations organizations, governments, and civil society.²¹ Canada adopted Agenda 21, along with other members of the United Nations, at the conclusion of the 1992 Earth Summit. It included a program area on establishing systems for integrated environmental and economic accounting, with the main objective to expand the existing systems of national economic accounts in order to integrate environment and social dimensions in the accounting framework with the resulting systems to be established in all member states at the earliest date.²²

63. Satellite accounts enable “attention to be focused on a certain field or aspect of economic and social life. They are produced in the context of national accounts but are more flexible as they allow concepts, definitions, accounting rules and classifications to be changed, where it improves analysis.”²³ Environmental satellite accounts provide a framework for organizing information on the status, use, and value of natural resources and environmental assets (which are sometimes referred to as natural capital), as well as on expenditures on environmental protection and resource management. Such accounts could help decision makers understand the contribution of the environment to the economy and the impact of the economy on the environment and society.

64. In 2003, a report by the National Round Table on the Environment and the Economy stated that Canada’s current national accounts and economic indicators provide “a partial view of the factors that affect development, and they do not account for the true and full costs and benefits of economic decisions.”²⁴ The report recommended six environmental and sustainable development indicators that would “supplement and provide context for macroeconomic indicators such as the GDP.”²⁵ The report also recommended that the government improve and expand the system of national economic accounts to include new accounts that cover natural, human, and social capital. Furthermore, it recommended investing in improved monitoring and information systems “to overcome the paucity of good-quality, national-level information on environmental issues.”²⁶

65. Since then, Statistics Canada has been developing the Canadian System of Environmental and Resource Accounts. The system comprises the following three components:

• Natural resource stock accounts—measure quantities of natural resource stocks (oil, natural gas, minerals, and timber) and the annual changes in these stocks that result from natural processes and human activity.
• Material and energy flow accounts—record the flows of materials and energy, in the form of natural resources and wastes, between the economy and the environment.
• Environmental protection expenditure accounts—identify current and capital expenditures, made by business and government to protect the environment.

The information from these accounts is used to present Canada’s environmental assets alongside its produced assets in the national balance sheets, which are maintained by Statistics Canada as part of the national accounts.

Emerging accounting practices

66. Accounting for environmental issues has evolved from accounting for the cost of environmental cleanup and fines as they occur to identifying and accounting for environmental liabilities that are likely to occur and that could affect the financial position of an organization. Examples include accounting for the

• estimated liabilities associated with the cleanup of contaminated land,
• removal and cleanup of leaking underground storage tanks,
• removal of asbestos from buildings, and
• removal and replacement of PCB-filled lighting ballasts and transformers.

67. Recently, international organizations, such as the World Business Council for Sustainable Development and the Federation of European Accountants, have begun urging organizations and governments to begin accounting for potential expenses and liabilities that may be associated with managing their greenhouse gas (GHG) emissions. New Zealand recently booked in its Public Accounts liabilities and assets relative to the expected costs of acquiring GHG emission permits under the Kyoto Protocol.

68. Accounting for financial costs can be instrumental in helping organizations understand the business case for reducing waste, packaging, energy, and water use. The pressure to manage costs and preserve or enhance reputations continues to drive improvements in environmental management and corporate social responsibility.

69. The International Federation of Accountants has developed a sustainability framework to help professional accountants influence the way organizations integrate environmental, economic, and social considerations into their objectives, strategies, management, and definitions of success. The framework also includes advice on how to incorporate environmental and other sustainability issues in an organization’s financial statements and reports.²⁷

Environmental and sustainable development standards and certification programs

70. In an effort to respond to increasing consumer and investor concern about environmental and sustainable development issues, some organizations have adopted standards and principles that help integrate these concerns into an organization’s operational decisions and management culture.

71. For example, the environmental management system standards (ISO 14001) of the International Organization for Standardization (ISO) help organizations develop and implement environmental management policies and objectives that take into account their legal requirements and impact on the environment. According to ISO, the success of the system depends on commitment from all levels and functions of the organization, and especially from top management.

72. Standards that define good practices for corporate social responsibility are also gaining prominence. The social accountability standard (SA8000) was developed in 1997 by representatives of trade unions, human rights organizations, academia, retailers, manufacturers, and contractors (as well as consulting, accounting, and certification firms that were under the umbrella of Social Accountability International). This international standard for improving working conditions has now been adopted by hundreds of companies worldwide. Based on the principles of 13 international human rights conventions, SA8000 is a tool to help apply these norms to practical work-life situations. ISO is also developing social standards (ISO 26000) that will guide organizations on social responsibility.

73. A wide variety of environmental and sustainable development labelling and certification programs are now used to promote environmental responsibility within organizations. These largely voluntary programs provide the public with environmental information: “By enabling environmental criteria to be considered during purchasing decisions, labelling and certification programs help individuals to ‘vote through the marketplace’ for more environmentally responsible products.”²⁸

74. In many sectors, including mining, forestry, agriculture, transport, and tourism, third-party certification systems have been in place for over a decade and continue to evolve. In the forest sector, for example, some firms have adopted Forest Stewardship Council principles and standards for responsible forest management and forest products. According to the Forest Stewardship Council, its label provides a credible link between responsible production and consumption of forest products, enabling consumers and businesses to make purchasing decisions that benefit people and the environment as well as providing ongoing business value.²⁹

75. The sustainable development performance of leading sustainability-driven companies is also tracked by the Dow Jones Sustainability Index (DJSI). Before being included in the DJSI, corporations are evaluated against criteria such as climate change strategies, energy consumption, human resource development, knowledge management, stakeholder relations, and corporate governance. The DJSI can help investors identify companies that place emphasis on sustainability principles in both their corporate and investment strategies. A Canadian based equivalent of the DJSI is the Jantzi Social Index.³⁰

Reporting progress

76. Corporate reporting on environmental management and sustainable development issues has a relatively short history. The first environmental reports were published in the late 1980s by companies from the chemical industry which, at the time, had serious image problems.³¹ Environmental reporting in the 1990s was influenced by the EU Eco-Management and Audit Scheme, a management tool for companies and other organizations to evaluate, report, and improve their environmental performance.³²

77. By 2000, more and more companies started to enlarge their corporate reports to include social issues, leading the way for sustainability reporting. The most important drivers for the quality of sustainability reports are the guidelines of the Global Reporting Initiative (GRI). More than 1,500 private and public organizations worldwide are now using the sustainability reporting methods developed by GRI. It sets out the principles and indicators that organizations can use to measure and report their economic, environmental, and social performance.³³

78. The Office of the Auditor General has identified criteria for assessing the fairness and reliability of performance information in the performance reports of the organizations it audits:

• Fairness. Performance information on objectives is considered fair if it is relevant, meaningful, attributable, and balanced. Reported results must focus on outcomes and identify program activity types and outputs. They must also include expectations and benchmarks against which performance can be compared.
• Reliability. Performance information is considered reliable if it is valid, consistent, comparable, and easily replicated to produce similar performance results.

Federal planning processes

A foundation for sustainable development

79. There is a wide array of frameworks, policies, guidelines, and directives in place at the federal level in Canada that call upon management to consider environmental effects and objectives, as well as social and economic benefits, in planning and decision making. The following section highlights some of those that call on departments and agencies to address environmental and sustainable development considerations.

80. Framework for the Application of Precaution (2003). The government’s Framework for the Application of Precaution in Science-based Decision Making about Risk can be applied to planning and decision making for sustainable development. Introduced by the Privy Council Office, the framework sets out guiding principles for exercising precaution in decision making when there is a lack of full scientific certainty, where this could lead to risk of serious or irreversible harm.³⁴

81. Framework for Science and Technology Advice (2000). To ensure that its policy, regulatory, and management decisions are informed by sound science and technology, the federal government established the Framework for Science and Technology Advice: Principles and Guidelines for the Effective Use of Science and Technology Advice in Government Decision Making. According to the framework, management needs to

• anticipate the needs for scientific advice;
• draw advice from a variety of sources;
• ensure the quality, integrity, and objectivity of the science it uses;
• apply a precautionary approach; and
• employ transparent and open decision-making processes.³⁵

82. Cabinet Directive on Strategic Environmental Assessment (2004). Strategic environmental assessments allow decision makers to analyze the potential positive and negative environmental effects of government proposals on an equal basis with anticipated economic and social effects. The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals makes it mandatory for all departments and agencies to assess the environmental impact of their proposed policies, plans, and programs.³⁶ The directive calls for a Strategic Environmental Assessment when a proposal that will be submitted to an individual minister or Cabinet for approval includes activities that could affect the environment, either positively or negatively.

83. The Cabinet Directive also encourages strategic environmental assessments of other policy, plan, or program proposals. For example, an initiative may be selected for assessment to help implement departmental goals for sustainable development, or one may be selected if there are strong public concerns about possible environmental consequences.

84. Cabinet Directive on Streamlining Regulation (2007). The Cabinet Directive on Streamlining Regulation requires departments and agencies to consider the potential impact of any new or existing regulation on the environment, as well as on the health, safety, security, and social and economic well-being of Canadians.³⁷ The Cabinet Directive also instructs departments and agencies to provide interested and affected parties with an opportunity to participate at all stages of the regulatory process. To this end, in 2007, the Treasury Board of Canada Secretariat developed Guidelines for Effective Regulatory Consultations.³⁸

85. The Cabinet Directive reaffirms the importance of the Precautionary Principle, stating:

When there is a risk of serious or irreversible harm, the government recognizes that the absence of full scientific certainty shall not be used as a reason for postponing decisions to protect the health and safety of Canadians, the environment, or the conservation of natural resources.³⁹

86. The Cabinet Directive also indicates the government’s commitment to developing regulations “based on evidence and the best available knowledge and science in Canada and worldwide.” It indicates that “Departments and agencies are to respect Canada’s international obligations in such areas as human rights, health, safety, security, international trade, and the environment” and emphasizes the importance of identifying, preventing, mitigating, and tracking the adverse impact of a regulation, including its impact on the environment.⁴⁰

87. The Cabinet Directive on Streamlining Regulation is accompanied by the Canadian Cost-Benefit Analysis Guide (2007), which states that

all regulatory departments and agencies are expected to show that the recommended option maximizes the net economic, environmental, and social benefits to Canadians, business, and government over time more than any other type of regulatory or non-regulatory action.⁴¹

88. The Treasury Board of Canada Secretariat has established the Centre of Regulatory Expertise to help departments better implement the Cabinet Directive on Streamlining Regulation. The Centre provides expert advice, training and peer-review particularly in the areas of developing regulatory impact analysis statements, cost-benefit analysis, and performance measurement.

89. Memoranda to Cabinet. When departments develop new policy and program initiatives, they use memoranda to Cabinet to obtain Cabinet approval. Memoranda to Cabinet must provide the rationale for the policy or program with clear objectives, expected results and outcomes, options, and risks. When preparing memoranda to Cabinet, departments are required to include, where appropriate, information on sustainable development aspects and results of strategic environmental assessments. Departments are also directed to “articulate expected results and how they will be measured (i.e. identify key indicators such as social, economic, environmental, etc.).”⁴² In the description of its role, the Privy Council Office indicates that it works with each department and agency to ensure that its memoranda are ready for Cabinet consideration before they are submitted and helps departments and agencies integrate sustainable development concerns in their policy and program proposals.

90. Treasury Board submissions. Treasury Board submissions translate policy rationale and objectives into programs that will achieve those objectives. Guidance for federal government officials preparing Treasury Board submissions indicates that, “where appropriate, consideration should be given to the sustainable development implications of initiatives submitted to the Treasury Board.”⁴³

91. Overall, our review of federal legislation, cabinet directives, management frameworks, processes, and guidance indicates that these documents frequently refer to management’s responsibilities for considering environmental, economic, and social effects and objectives, during the development of policy and program proposals. However, guidance for managers on how to fulfil their responsibilities remains limited, and there is no emphasis on considering long-term effects in planning over multiple generations.

Conclusion

Integrated decision-making and long-term thinking

92. Managing sustainable development begins at the planning stage of the “Plan, Do, Check, Improve” management cycle. It involves considering interrelated environmental, economic, and social effects and considering policy and program objectives over an intergenerational time-frame. This integrated and long-term approach is a particularly challenging aspect of managing sustainable development.

93. Managing sustainable development includes using

• analytical techniques, such as cost-benefit analysis and multi-criteria analysis that integrate environmental, economic and social considerations;
• techniques such as foresight analysis, transition management, and modelling that consider time-horizons of decades rather than a few months or years; and
• reliable science and evidence-based information including performance indicators.

94. It also includes applying relevant government guidance and directives intended to support a sustainable development approach throughout the “Plan, Do, Check, Improve” management cycle.

95. The Green Ribbon Panel recommended that the Commissioner of the Environment and Sustainable Development articulate how he will factor sustainable development into his work plan. We concluded from our study that good management practice for sustainable development can be organized into the following three categories:

• applying suitable practices and analytical techniques,
• acquiring and using good information, and
• applying relevant federal frameworks and directives.

96. As a next step, the Commissioner plans to identify criteria for examining the federal government’s management practice and performance in relation to sustainable development.

Applying suitable practices and analytical techniques

97. Suitable practices and techniques for managing sustainable development incorporate stakeholder participation and facilitate long-term thinking and a meaningful comparison and integration of environmental, economic, and social costs and benefits. This may lead to the following audit questions:

• Has management applied practices and analytical techniques that facilitate both integrated decision-making and long-term planning?
• Did the policy or program analysis compare environmental, social, and economic benefits and costs and identify necessary mitigating measures?
• Were provisions made for the participation of concerned stakeholders in the planning process?

Acquiring and using good information

98. Good information is important during the development of public policy and programs because it helps ensure that potential environmental, economic, and social effects are well-understood and that objectives for these three aspects of sustainable development can be appropriately considered before action is taken. Good information is also essential throughout the implementation of policies and programs, so progress relative to performance expectations can be gauged, corrective action can be taken, and progress on sustainable development results can be reported.

99. Existing indicators, frameworks, and criteria for good information and statistics can help management organize and ensure the quality of information, for managing and reporting on sustainable development initiatives. Acquiring, maintaining, and using good information for planning and decision making is a good management practice. This may lead to the following audit questions:

• Have indicators and accounts been identified to monitor progress?
• Has the department or agency established the capacity to monitor progress on its indicators and maintain its accounts?

Applying relevant federal frameworks and directives

100. Acknowledging and managing the interrelatedness of environmental quality, economic prosperity, and social progress over the long term is fundamental to managing sustainable development. A number of federal frameworks and directives call on management to consider environmental effects and objectives, along with social and economic benefits in planning and decision making. Section 5 of the Federal Sustainable Development Act states that “the Government of Canada . . . acknowledges the need to integrate environmental, economic and social factors in the making of all decisions by government.”

101. Applying available guidance in order to fully comply with existing federal directives related to integrated decision-making and sustainable development is a good management practice, and it may lead to the following audit questions:

• Have relevant federal directives and guidance been followed?
• Have effective management mechanisms (for example training, review, and coordination) and resources been developed for applying such directives and guidance?

About the Study

Objectives

The main objective of this study is to identify the particularly challenging aspects of managing sustainable development, and to provide examples of the types of practices and analytical techniques that can help managers address these challenges.

This study is also intended to build awareness and support a dialogue with senior federal government officials on how such sustainable development practices and techniques can be put into practice. The study represents a first step toward identifying criteria for examining management practices and performance in relation to sustainable development.

Scope and approach

In establishing the scope of the study, we chose to focus on good practices for managing the development and implementation of government policies and programs intended to have a broad influence on Canadian society. There is limited guidance for incorporating or assessing due regard to sustainable development in the creation of public policies and programs. This study aims to address that gap by focusing on good management practices and analytical techniques that can be used to address the key management challenges of sustainable development.

We reviewed federal legislation, guidance and other documentation, and literature on sustainable development, which included analytical techniques and planning and decision-making processes. We summarized existing case studies on how such practices are being used to meet sustainable development objectives. These examples were drawn from publicly available documents. We did not carry out additional work to validate the results or representations presented.

We drew on the knowledge and advice of senior officials across the federal government, including central agencies and departments and experts in the field of public administration and sustainable development planning in Canada, the European Commission, Norway, Sweden, the United Kingdom, and the United States.

In this study, we highlight a selection of practices and analytical techniques described in the literature that we found applied in Canada and elsewhere. We selected those we believe reflect a sustainable development approach and are commensurate with the expectation, set out in the Auditor General Act, that the federal government pay due regard to the environmental effects of its expenditures in the context of sustainable development.

Work for this study was substantially completed on 24 November 2009.

Study team

Principal: Andrew Ferguson
Director: Jacques Prescott

Marc-André Lafrance
Boris Romaguer
Stéphane Thériault

For information, please contact Communications at 613-995-3708 or 1-888-761-5953 (toll-free).

Footnotes

1. Auditor General Act, section 7(2)(f) (Return)

2. Department for Environment, Food and Rural Affairs (UK) website, “What Makes a Policy Sustainable?” (accessed 28 January 2010). (Return)

3. (UK) National Heart Forum, Cross-Government Obesity Unit, Faculty of Public Health, Healthy Weight, Healthy Lives: A Toolkit for Developing Local Strategies, 2008, p. 44; United Kingdom National Institute of Health and Clinical Excellence, NICE Public Health Guidance 8: Promoting and Creating Built or Natural Environments that Encourage and Support Physical Activity, 2008, p. 8; Porritt, J., The Standing of Sustainable Development, November 2009, p. 16. (Return)

4. Organisation for Economic Co-operation and Development, Policy Brief: Policy Coherence: Vital for Global Development, July 2003, p. 2. (Return)

5. Members of the Queen’s Privy Council for Canada are appointed by the Governor General. They include not only members of the present ministry but also former ministers and other distinguished persons recommended by the Prime Minister (accessed 2 February 2010). (Return)

6. Privy Council Office, Government of Canada Regulatory Policy, November 1999, pp. 2–3. (Return)

7. Nicholas Stern, Office of Climate Change, The Stern Review on the Economics of Climate Change, 2006. (Return)

8. Department for Communities and Local Government, Multi-Criteria Analysis: A Manual, 2009, p. 151. (Return)

9. Auditor General Act, section 2; Federal Sustainable Development Act, section 2. (Return)

10. Peter Heller, International Monetary Fund, Who Will Pay? Coping with Aging Societies, Climate Change and other Long-term Fiscal Challenges, 2003, page x. (Return)

11. European Environment Agency, 1999. Technical Report No 25. Environmental Indicators: Typology and Overview. 10 pp. (Return)

12. Adapted from Statistics Canada website (under web section National Income and Expenditure Accounts, accessed 1 February 2010). (Return)

13. The National Round Table on the Environment and the Economy, Environment and Sustainable Development Indicators for Canada, 2003. The Round Table, which was created to identify, explain, and promote sustainable development to all sectors of Canada (p. i), created six indicators of assets it considered “necessary to sustain a healthy economy, society and environment for Canadians” (p. xi). The six indicators covered air quality trends, freshwater quality, greenhouse gas emissions, forest cover, extent of wetlands, and human capital (educational attainment) (pp. xviii–xix). (Return)

14. Eurostat, Measuring Progress Towards a More Sustainable Europe: 2007 Monitoring Report of the EU Sustainable Development Strategy,” 2007, p. 2; Organisation for Economic Co-operation and Development, Good Practices in the National Sustainable Development Strategies of OECD Countries, 2006, p. 28. (Return)

15. Swedish Environmental Protection Agency, Sweden’s Environmental Objectives in Brief, 2008, p. 2. (Return)

16. Norway Ministry of Finance, Long-term Perspectives for the Norwegian Economy, 2009, p. 6. (Return)

17. World Bank website, “Adjusted Net Saving” (accessed 29 January 2010). (Return)

18. World Bank website, “Adjusted Net Saving—ANS 2006 by countries (Excel spreadsheet)” (accessed 29 January 2010). (Return)

19. United Nations Development Programme (UNDP), Human Development Report 2007/2008: Fighting Climate Change: Human Solidarity in a Divided World, 2009, p. 83; UNDP website, “The Human Development Concept” (accessed 29 January 2010). (Return)

20. Institute of Wellbeing, How Are Canadians Really Doing? The First Report of the Institute of Wellbeing, 2009. (Return)

21. UN Department of Economic and Social Affairs, Division for Sustainable Development website, “Agenda 21” (accessed 29 January 2010). (Return)

22. UN Department of Economic and Social Affairs, Division for Sustainable Development, Agenda 21, 1992, para. 8.42. (Return)

23. UK National Statistics Publication Hub website (under topic “Satellite Accounts”, accessed 1 February 2010). (Return)

24. The National Round Table on the Environment and the Economy, Environment and Sustainable Development Indicators for Canada, 2003, pp. xvii–xviii. (Return)

25. Ibid., pp. xviii. (Return)

26. Ibid., pp. xviii. (Return)

27. International Federation of Accountants website, “Sustainability Framework” (accessed 29 January 2010). (Return)

28. Tom Rotherham, 1999. “Selling Sustainable Development: environmental labeling and certification programs.” The Dante B. Fascell North-South Center, University of Miami (accessed 4 February 2010). (Return)

29. Forest Stewardship Council website, “About FSC” (accessed 29 January 2010). (Return)

30. Jantzi-Sustainalytics website, “Jantzi Social Index” (accessed 29 January 2010). (Return)

31. Especially following the largest chemical accident in 1984 at a Union Carbide plant in Bhopal, India, which killed 3,000 and injured 100,000. (Return)

32. EU Eco-Management and Audit Scheme (EMAS) website, “What Is EMAS?” (accessed 29 January 2010). (Return)

33. Global Reporting Initiative website, “World Governments Take Notice of Sustainability Reporting” (accessed 29 January 2010). (Return)

34. Government of Canada, A Framework for the Application of Precaution in Science-Based Decision Making About Risk, 2003, pp. 4, 13. (Return)

35. Government of Canada, A Framework for Science and Technology Advice: Principles and Guidelines for the Effective Use of Science and Technology Advice in Government Decision Making, 2000, pp. 3, 4, 6, 8, 9. (Return)

36. Canadian Environmental Assessment Agency, Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, 2004, p. 1 (Return)

37. Government of Canada, Cabinet Directive on Streamlining Regulation, 2007, p. 3. (Return)

38. Treasury Board of Canada Secretariat, Guidelines for Effective Regulatory Consultations, 2007. (Return)

39. Government of Canada, Cabinet Directive on Streamlining Regulation, 2007, p. 5. (Return)

40. Ibid., pp. 1, 6, 9. (Return)

41. Treasury Board of Canada Secretariat, Canadian Cost-Benefit Analysis Guide: Regulatory Proposals, 2007, p. 1. (Return)

42. Privy Council Office, “Memorandum to Cabinet Template,” 2008, pp. 1–2. (Return)

43. Treasury Board of Canada Secretariat, A Guide to Preparing Treasury Board Submissions, 2007, p. 19. (Return)