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Summary Sustainability Economics- 3BA: International Business
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  • Course
  • Sustainability Economics
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  • Vrije Universiteit Brussel (VUB)

This is a summary for the course Sustainability Economics at the VUB based on everything that has to be know for the exam, including all lectures (Also all guest lectures).

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  • May 24, 2024
  • 35
  • 2023/2024
  • Summary

Subjects

  • sustainability
  • gdp
  • environment

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  • Vrije Universiteit Brussel (VUB)
  • Business Economics
  • Sustainability Economics
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3BA International Business: Summary Sustainability economics
Lecture 1: What is sustainability?
1. What is sustainability?
 Meeting the needs of the present without compromising the ability of future generations to meet their own needs.
 A sustainable system is a 3-legged stool model: we should have 3 pillars on the stool of sustainability, we have the environment (what is the impact
on the environment?), the economy and the social equity (social sustainability).
 We are looking at the kind of companies that are in the middle of the 3 bubbles: economic
(profit), environment and social (= the point of sustainability).
 Our human system (individuals, groups, institutions) are interacting with the ecosystem
(structure & functions) and this interaction (we are taking things from the earth like vegetables,
materials to make the products) but if we take/extract too much from the ecosystem it cannot
regenerate itself anymore.
e.g. We would be fishing and take all the fish from the ocean then new fish cannot be
generated.
 Sustainability is about the possibility for the ecosystem to regenerate, we can take but we must also give back so that there is this regenerated.
 Sustainability refers to sustaining the underlying pattern of health, resilience, and adaptability that maintain this planet in a condition where life as
a whole can flourish and that for this to be possible in the long term, the way modern societies organized shouldn’t be sustained, but rather re-
designed using a regenerative perspective.

2. What is a sustainable system?
 Three-nested model: Economy should be serving society within the environmental
planetary boundaries to be able to regenerate. Instead of having the society and
environment, being extracted for the economy in terms of profit making -> the
economy should serve society and not the other way around.
 What should we sustain? -> Nature with its biodiversity and ecosystem which makes
that everything is interlinked. We want life support services (Ecosystem services,
resources, environment) that make sure that we are nourished, have clean air, healthy food and we have the community (Culture, Groups, Places)
What has to be changed is the way in which we are treating these systems, how we are treating the people within the economy but also the
economy in itself but also the way society is being organized (social capital, states, regions, institutions).
 If we don’t change the way in which we are treating the earth, we will not survive.
 The role of the economy is to allocate scare resources to the communities to support them => Economics is the study of scarcity and its
implications for the use of resources (human, social, labour), production of goods and services, growth of production and welfare over time.
 Instead of having these allocations to have thriving communities and a planet, ecosystem that can regenerate and have enough resources to grow -
> the end-goal became profit, profit-maximization. The planet and the people became the means, instead of the end-goal.
 In the economic system, we have an input and we produce products and services -> value-added services (high when the value of the output is
high compared to the value of the initial inputs).
- Operations are often there for creating more value to the consumer. We also have the shareholders, we want more value and the human
resources who want value for their employees. We also have the value for society and for the planet but we made this value to be money but
value is much more than just money.

3. Planet boundaries
 We are extracting so much from the planet that we are passing the planetary boundaries.
 There are nine planetary boundaries (Climate change, novel entities, stratospheric ozone depletion, atmospheric aerosol loading, ocean
acidification, biogeochemical flows, freshwater use, land-system change, biosphere integrity). We are already crossing 6 of the 9 boundaries in
2023, in 2015 7 boundaries were assessed and 4 were crossed, in 2009 7 boundaries were assessed and 3 were crossed => if we are overpassing
these boundaries, it means that we are not able to regenerate anymore, that we are extracting too much.
 We need to keep be within these planetary boundaries but at the same time, there is a lot of poverty and inequality in the world and due to the
capital system, the inequality is getting worse and worse (difference between the very rich and very poor is getting higher and higher) -> we should
do something about it besides keeping up with the planetary boundaries -> we want to be in this safe and just space for humanity (treat people
well and keep within planetary boundaries).

4. System thinking – the Iceberg model (Meadows)
 The iceberg model is a tool to encourage system thinking
and helps you contextualize an issue as part of a whole
system. By asking you to connect an event or occurrence to
patterns of behaviour & trends (=consistent or prolonged
activity or behaviour), system and underlying structures
(=The structures that reinforce or encourage the patterns)
and mental models (= the underlying culture or beliefs that
fuel the structures). The iceberg allows you to see the
structures underlying the event because just like an iceberg,
90% of which is invisible beneath the water, these structures are often hidden below the surface. If you can identify them and connect them to the
events that you are seeing, you may be able to develop lasting solutions that target the whole system rather than short term, reactive solutions.



5. Antropocentric vs Biocentric

,  At this point we are thinking antropocentric (=considering human beings as superior, that we are the boss of nature and can extract everything and
that we can decide what we can take from nature, that nature serves us) but we should think more biocentric (Understand that we are part of
nature and that everything is interlinked e.g. if all the animals are killed, we cannot survive because we are part of this whole system) -> Changing
our world view
1) Transition 1.0 : Sustaining the Economic System 2) Transition 2.0 : From incremental change to ‘Generative’ system shift




6. Transition theory
 We are in a system of crisis, how will we get to another system? -> our current system wants to keep in balance. You have the legal rules, the
institutions, the way we do things, the way companies are there. The niches our the ones who do it in another way -> e.g. Stewardship ownership
companies (not one CEO, people within that company are stewards and a steward is a person that is going to see whether the organization is
working in a way that is going to benefit our society), Patagonia (About serving the ecosystem and the planet, all the profit that is made by
Patagonia comes in a foundation and that foundation has the mission to serve the planet) -> these are niches that we start to see and maybe they
will become the norm.
 We also have landscape: external pressures like climate crisis, covid -> if there is a pressure on the system, it might enable the niches or system to
be changed.
 Transition theory allows us to see that at this moment we are in a transition. It is clear that the current system is not working anymore (pressure on
the mobility, energy system but also on the way we are organizing the economy). Thanks to landscape pressures (e.g. Climate change, biodiversity
loss) and changing the way we are doing this, we might get there.
 Sustainability = capacity of a network to maintain its flow of energy, matter & information in changing contexts.
 We have Transition 1.0 that aims at changes in the prevailing system. This is important but its not enough. Transition 2.0 aims at mainstreaming
resilient alternatives to become the new normal (e.g. Build an alternative fleet before the tanker sinks) -> The aim is to thrive on Earth (life).

7. How do systems shift and species survive?
1) Always starts bottom-up with the emergencies of niche innovations (micro-level)
2) Engendering new, independent ecosystems, connecting the quintuple helix = co-evolution (meso-
level)
3) Increase ascendency by embedding successful (purposeful) innovation in new (macro-level)
institutions (Physical, legal & educational).
 Phase out maladapted (dysfunctional) practices and scale resilient (functional ones. Note that
Resilience (innovation, exploring diverse pathways) is not just the initial phase of a transition but a permanent feature of sustainable systems, for
the planet will continue to shift in non-linear, complex ways that require us to adapt. ‘Scaling’ does not mean turning niches into new ‘tankers’ but
connecting them in robust and efficient ecosystems.
 Exnovation: if we want to go towards a new system, we will have tog et rid of old things.
 SEVA: We are doing something for the better, greater good.

8. Definition of Sustainability Economics
 Study of economic systems that support human well-being and ecological health

9. Different views

BAU The big unravelling The great turning
Economics growth is essential for prosperity Economic decline Holding actions
Nature is a commodity Resource depletion Life sustaining systems and practices
Promoting consumption is good for the economy Climate change Shift in Consciousness.
The central plot is about getting ahead Social division and war
Mass extinction of species
 Evolutionists: Adam Smith (Invisible hand), John Mayard Keynes (Government interventions).
 Catastrophists: Thomas Robert Malthus (breakdown), Thomas Hobbes (Fortress world: war)
 Transformations: William Morris, Schumacher E.F. (communities in self-determination), John Stuart Mill (Post scarcity model)




Guest Lecture: Nespresso

,Sustainability is embedded in Nespresso’s identity since day 1.

Nespresso was the idea of an engineer in 1970 and then in 1986, Nespresso was born (with the first line: Original line). In 1989: Nespresso club. From 1996:
You could buy the machines and Coffee caps via the interest, before the sale of the machines was via phone + new line, the professional line. In 2000: First
Nespresso shop. In 2006: George Clooney became the face of Nespresso. In 2014: Vertue Line.

Since 2003: Sustainability Quality program

- Quality: the quality of the beans produced using better farming practices
- Sustainability: the environmental, social and economic durability of what we do.
- Productivity: Optimize a tree’s production of quality beans in order to improve the farmer’s economic welfare.

Their partners are essential to their success, there is a Nespresso sustainability advisory board (NSAB) -> made up of NGO’s, academics, international
organisations and brand ambassador George Clooney, the board channels external advice on the role of private sector organizations in addressing societal
and environmental challenges.

A LOW CARBON ECONOMY IS THE ONLY FUTURE Coffee farmers are seeing the impacts of climate change first hand. Extreme weather patterns are becoming
more and more prevalent and scientific forecasts predict that by 2050, climate change could reduce the global area suitable for coffee production by 50%.

Nespresso coffee has a –23% lower carbon footprint -> The pads are designed to be exactly enough for one cup of coffee, and the quality is maintained in the
cups until you use them. When you make a pot of coffee, it is probable that you will not consume all this coffee and if you use a bag of coffee then each time
you open the bags, some of the quality disappears.

5 strategic priorities: Climate Net zero, Regenerative Coffee, Empower communities, Advance circularity, B-corp certified (B Corp is a global
movement of companies using business as a force for good, Nespresso is one of the biggest companies to be B-corp certified).

A big milestone of Nespresso: You can throw the empty capsules in the ‘blue bag’

Recycling: They recycle the capsules, each new cup is made out of 80% recyclable materials. They use recyclable materials to make new products -> useful
partnerships.

Environment and social sustainability priorities:

- Increase market recycling rate in 2023 to reach global 2025 target of 50%
- Renewable electricity: shift to 100% renewable electricity in all Nespresso premises
- Relove: Act towards circularity by contributing to RELOVE project to 5% global sell-out target by 2025
- Our People & communities: Devise Market plan to positively impact our People & communities for 2023.

Lecture 2: Pluralistic thinking
Future oriented business economist have a pluralistic view of the economy

 They possess a framework that is broader than the neoclassical framework. A pluralistic approach to politics embraces many different philosophies
such as capitalism and socialism.

Rethinking Economics: Global network of students and organisers fighting for a new way of teaching and practising economics so that it truly helps us deal
with the real-world challenges we all face today like climate collapse and inequality.

- Our goals: Advocating for pluralism in economics education and democratize the economic field
- Origins: the 2008 financial crash

1. School of thought
 Approaches that share hypotheses, methods and similar research questions.
 ‘Glasses’ (prism of analysis) through which you see and analyse the economy.
 Neoclassical economics: currently the dominating school of thought in economic education.
 Key assumptions and aspects:
- Main concern: efficient allocation of scare resources that maximizes consumer welfare.
- Economies are made up of individuals
- Human beings are: rational individuals with fixed and given preferences, also called the “home economicus”
- Economies change through: individual optimizing decisions
- Favoured methods: equilibrium models and econometrics
- Typical policy recommendations: free market or government intervention, depending on assessment of market and government failures.

2. Different hypotheses
 Hypothesis 1: rational individuals (methodological individualism)
- Neoclassical theory analysis society through the prism of the individual (and not of structures or institutions). In short, for neoclassical economist,
society is the sum of its individuals. In social sciences, the approach is called methodological individualism.
- In this approach, each individual is considered as an economic agent making perfectly rational decisions in an autonomous way
- The view of the human being is generally referred to as “Homo economicus”
 Hypothesis 2: individuals want to maximize utility.
- Neoclassical theory defines utility as the satisfaction that individuals derive from the consumption of goods. This is how economists often define
'well-being'. The aim of the rational individuals will be to maximise this utility given a certain set of constraints.
 Hypothesis 3: in self-regulating markets at equilibrium
- Self-regulating markets at equilibrium are the setting in which economic interaction take place.

, - Neoclassical theory comes with mathematisation and modulization of economic activity.
- The most famous model is the one of a market with a demand and supply curve in equilibrium
- Because of this mathematisation and modulization, many economist will claim that their discipline is a natural science.

3. Shortcomings/flaws of these Hypotheses
 We don’t take into account the role of history, institutions and cultural differences which shape individuals. (Hypothesis 1)
 We also don’t take into account power relation and systematic discrimination. (Hypothesis 1)
 Humans are not perfectly rational -> We don’t take into account that all humans are different, have different personalities, characteristics and a
different gender. (Hypothesis 1)
 “Utility” is a narrow view of what constitutes well-being. We don’t always maximize our utility (might be because we don’t have sufficient
income/resources available to maximize our utility). (Hypothesis 2)
 Markets are created and shaped through institutions. (Hypothesis 3)
 We don’t think about the geographical and cultural differences that shape every economy. (Hypothesis 1/3)
 We also don’t take into account the limited rationality of human behaviour (biases, heuristics). (Hypothesis 2)
 If we wait until the market regulates itself, this can take some time and in the meantime, many problems can arise. (Hypothesis 3)

4. Different kinds of schools of thoughts
1) Behavioural economics:
 Behavioural economics is at the intersection between economics and psychology. Its purpose is to depict the limits of economic agents' rationality
in order to explain why humans make irrational choices.
 Human beings are not perfectly rational (shaped by biases, emotions and heuristics) and reciprocal (not fully selfish or altruistic)
 Analysis of agents ' behaviours and choices
2) Feminist economics:
 Focuses on the interdependencies of gender relations and the economy. Care work and the partly non-market mediated reproduction sphere are
particularly emphasised by this school of thought.
 “Homo economicus”: important to consider gender differences in economic analysis
 Care work
 Gender and marketability of domestic work.
3) Maxian Political Economics:
 Focuses on the exploitation of labour by capital. The economy is not conceived as consisting of neutral transactions for exchange and cooperation
but instead as having developed historically out of asymmetric distributions of power, ideology and social conflicts.
 Economies are made up of Classes
 Analysis of “Class struggles,” (e.g. Labour vs Capital) rather than individual preferences.
 Analysis of the capitalist "mode of production"
4) Post Keynesian Economics
 Post Keynesian economics focuses on demand rather than supply. The market is not the unique coordination platform and the state is not only the
market’s warranty but takes a greater and active part in the economy.
 Stabilization of effective demand through active fiscal
 Goal: full employment
 Public investments and economic growth as a tool
5) Ecological Economics
 The core idea of ecological economies is that humane economic activity is bound by absolute limits. Interactions between the economy, society
and the environment are analysed, while always keeping in mind the goal of a transition towards sustainability.
 Economies are made up of Ecological and socioeconomic systems. Analysis of material and energy flows
 Re-embedding economics within Planetary boundaries
 Strong sustainability
6) Institutional Economics
 Institutional economics focuses on the role of social institutions in terms of laws or contracts, but also those social norms and patterns of human
behaviour that are connected to the social organization of production, distribution and consumption in the economy.
 Institutions are more than the sum of individuals composing them.
 Individuals are social beings: History as well as the social and political context matter.
 Study of commons & other forms of economic organization.
 The history of economic thought
- These schools have a history
- Their emergence is linked to their social and historical context.
- There are power struggles between school of thought.
5. More schools of thought
 Decolonial Economics: A decolonial perspective reminds us that life is a complex tapestry of experiences, not a mirror of performance or economic
gain
 Evolutionary Economics: believe the economy is dynamic, constantly changing, and chaotic, rather than always tending toward a state of
equilibrium.
 Complexity economics: Complexity economists study the emergence of structures and the unfolding of patterns in the economy
 Austrian school economics: set apart by its belief that the workings of the broad economy are the sum of smaller individual decisions and actions.
 Other disciples: Economic History, Economic Geography, Economic sociology, Economic anthropology.

6. Issues with the neoclassic economics
1) Issue 1: Climate change:
 Neoclassic: CO2 emissions are “negative externalities”-> put a price on CO2 to “solve externalities and create markets for carbon emissions.
 Ecological economies:
- Boundaries on resources use and production

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