 I'm here with Pavan Sukhdev, CEO and founder of GIST Advisory and UN Goodwill Ambassador. Thank you for joining us. Pavan, you chaired a session earlier this morning here at the Forest Asia Conference talking about green growth in Southeast Asia. So I'm hoping that we can follow up with a little bit more questions as we try to understand what the green economy might look like in Southeast Asia and try and understand how lessons from our research at C4 can inform that transition. So to that end, as you've noticed, green economy issues have really kind of transcended a lot of the symposia that are being held during this conference. And the vision of economic transformation that it has is really a profoundly optimistic one and an important one of economic growth, but economic growth that doesn't only yield wealth, but doesn't do environmental harm or better yet delivers environmental benefits, promotes social equity. But to be honest, there's some concerns about maybe that some of this vision is a little bit over-optimistic. And I'm hoping that you can speak to us about, you know, how do we reconcile this optimism with so many of our lessons that have been about making hard choices? Well, optimism is a choice as well. When Winston Churchill was asked, was he an optimist or a pessimist, basically he replied an optimist because there's no point being anything else. And that's an argument that I buy. But I think to be realistic about what kind of economy we want, I don't think there's any disagreement that we want an economy that increases well-being. Nobody doesn't want that, or that increases social equity. In other words, narrows the gap between the rich and the poor, or does less environmental harm and creates less ecological scarcities. I don't think anyone would say they want an economy different from that. So actually desiring a green economy is not necessarily either optimistic or pessimistic. It's just a statement of, this is what we want. So maybe I can explain a little bit as to why some of us have reached the, or viewing it as perhaps concerns over the optimism. And that's that so much of our research, as I was mentioning earlier about the integrated conservation development program, this community conservation, payment for ecosystem services schemes, really hits on trade-offs. There might be ecosystem gains at one place, losses elsewhere. There might be communities that win and lose, and these are contentious decisions. Companies that gain, communities that lose, communities that gain, companies that lose. And those types of trade-offs tend to be the norm in our environment development experiences. But you missed the most important trade-off, which is the one, is the cause of us being here today, which is the trade-off between private wealth and public wealth. The reality is that what companies create in the process of deforesting is, A, a private wealth gain, because there's more profits at the end of it. But it's also a public wealth loss, because the ecosystem services of the forest no longer serve the communities who live there, no longer provide fresh water and nutrients to the farms in the neighborhood, no longer provide carbon storage for our climate security, no longer provide evapotranspiration for the generation of rainfall. All of these, whether it's rainfall or a stable climate or nutrients and fresh water for small farmers, these are public goods and services. They don't belong to anybody, they belong to everybody. And that's what's happening. It's not, it's the conversion of public wealth into private wealth. But the question is, is it a conversion that you want? In other words, is it converting a small amount of public wealth into large amounts of private wealth or is it the opposite? And my point is that today's model of policies, prices and institutions is converting a large amount of public wealth, which I've just described, into a small amount of private wealth. That does not make economic sense and it should stop. So the challenge is now, how do we align policies, align prices, align institutions, maybe even create new institutions, right Plas? In order to make this fundamental trade-off between public and private wealth actually work to the better of humanity. Agreed. And I think that, I mean, as your work at Teeb has showed, I mean, natural accounting is definitely... That's one of the toolkits. One of the tools through which the Teeb is. If you like, it is a policy measure. It's about accounting for wealth holistically and doing so at the national level, but doing in a way that ensures that policymakers and planners have the right information in their hands before they start embarking on changing policies and incentives. But how do we move from a situation where we know that often the private gains are the norm and those, again, those do involve public trade-offs? I mean, I understand that you're focused on incentives and tools that allow us to align those. But by and large, our experience shows that a huge majority of the cases, that's simply not the norm. That's because there's a stickiness to private gains. Right. Now, someone making a private gain, unless she or he is truly a good person and just wants to do public... CSR is perfectly legitimate. It's another tool. No? That's right. But once again, you may create an eye hospital in Pakistan or open a small children's school in India and that has a value. You can calculate the value of educational and human capital created, improved health and so on. But the question is, what was the value of that which you created versus the value of that which you've destroyed because of the same communities and others are losing more than you've provided them by way of better health, better education? Was that a trade-off there that is acceptable? In the eyes of society, it's not, but the problem is such trade-offs are not even calculated, externalities as we call them, third-party impacts of doing business as usual, the business as usual being you are a government officer, give me a forest concession. I am a company. Burn the forest or clear it, do whatever it is that I want. Public suffers. That private gain that we have made, that private transaction has a public cost. Those are externalities. Today's systems of accounting, today's systems of disclosure do not even ask a corporation to measure, let alone report their externalities. And that's the number one change that's required. Corporations are two-thirds of the global economy and two-thirds of jobs. It cannot be that we will have a green economy if we have a corporation that is fairly and squarely heading us in the opposite direction. So we need to change that. And to change the corporation, like changing any, like evolving any species, you need to change policies, prices, and institutions. One of the institutions is accountancy, hence disclosure of externalities. It's a very important missing piece of the puzzle that I think is now being focused on by the efforts of TIB and its many partners, but I think it's really more urgent than perhaps others imagine. As you talk about changing those incentives and those policies, the regulatory measures, I'd like to ask a little bit about how you see the role of the state changing. I know you're working with Corporation 2020, your recent books. You're reflecting on how the corporations of the last century simply won't meet the needs of the current one. The corporate model of the past, what I call corporation 1920, is simply not going to deliver us the economy of tomorrow. So you see a transition in the private sector. Yes. It's an assisted transition. Well, that's right. So can you speak a little bit more? I'm curious about how you view the role of the state in changing. Because so much of the green economy literature that I've seen focuses very heavily on the state less as a regulator and more as an enabler of institutions and policies and incentives. And I'm just wondering what happens to the state as a regulator in this transition? It does regulate as well. And there are areas where the state's regulation has been part of the reason for our failures. I mean, the world of finance has seen collapses four times. If you go back for the last 25 years, massive global economic and financial crises, largely as a result of mismanaged finances at a global level. And therefore, that's a central banking and a finance ministry issue. So it's elements of the state, if you like, broadly speaking. If central bank is independent, it's not government in that sense. But then equally, you have the role of the state in persuading advertising associations to have clearer, firmer rules as to whether they're going to be purely persuasive in the way that advertising runs, or whether they're going to be informative and educational. And clearly, today, they are, I would say, probably 99% persuasive and 1% informative. That's got to change. The idea that an advertisement in common law is called an invitation to treat. That's a nice old phrase, an invitation to treat. As in, I'm not committing anything. I'm just inviting you to treat me. And that's the logic of the advertisement, which has to change. It would have to be by laws changing. And once again, the state is involved. And then I just mentioned accounting for externalities. Well, it's not the state, but it's regulators. As in, the accountancy regulators need to change the rules of reporting. To mandate. To mandate that, yes. Thou shalt disclose externalities. And by the way, here are some standards to help you do so. The guidelines. Guidelines and standards to help you do, though. And then finally, taxation. I mean, we always, these are things that you need to change. Taxation, we're constantly taxing the goods and not the bads as in hard work by individuals, salaries, income tax. Or corporate ingenuity and innovation. Therefore, we have corporation tax. But not the environmental damage. But the bads that we should be taxing is deforestation. It's resource destruction, resource use. Extraction of oil, extraction of minerals. Those are the bads. If we tax those, we will re-incentivize the value chain of corporate business. And I think that really is one of these key things that has to be changed. So another driver of corporate change. We've mentioned briefly corporate source of responsibility, the state. But another big driver, when we think about all the recent node deforestation pledges, has been market demand. And pressure from civil society and consumers. And I'm wondering, that's worked relatively well. So is it in the right direction? It's beginning to. I mean, there's a fair amount more today of forest certified product than there was 10 years ago. That's right. There's a hell of a lot more MSC, Marine Stewardship Council product than there was five years ago. But most of these are, as I understand it, targeting the large international. Absolutely. For a country like Indonesia, how do issues like reputational risk and market demand, which in fact just simply aren't the same as they are in the states or in Europe? How do you see that playing out? So you see, coming to it from the demand side, in other words, hoping that the citizen, when she becomes a consumer, will do the right thing by her children and society and so on and so forth, is kind of nice. But it doesn't always work that way, because price determines everything. Especially if you're poor. Why would you buy something that's even 5% more expensive or 10% more expensive when your key scarcity is money? And the reason why what you're buying is cheap versus something else is not because it's actually cheaper, but because the damage costs that are included in that thing have not been accounted for. Externalities again, you see? So now the whole thing comes full circle. So if you have to correct things on the ground in a developing country, you have to recognize that there's stuff that has to happen, which is global, international, across the entire sector. Just by changing Indonesian palm oil, you're not going to get the answers that you need. You need to change palm globally, just by changing Indonesia. Right, we've also got issues of leakage then. Leakage for all the time. It has to be done on an industry-wide basis. So there are certain issues that just have to be addressed through global collections of sectors, such as palm, such as beef, such as soy, et cetera, et cetera. But there are other things that can be done on the ground, locally. For instance, recognizing the importance of what the forest provide as incomes to the livelihoods of the poor. I've been involved in a study on Kalimantan Tengah recently for a project for the UNDP, called the LECB, the Low Emissions Capacity Building Project. One of our conclusions was when we measured the so-called GDP of the poor, that if we looked at the four different kinds of households in Kalteng, riverside households, deep forest interior households, agricultural households who collect rattan and sell it, and agricultural households who collect coal, we found that the average dependence of these households on free flows from nature, basically, whether it's collecting fuel wood, or whether it's collecting rattan and selling it, or whether it's collecting taro and cooking it, feeding to the pigs and selling the pigs, or whatever it is, one combination or the other of these activities, nature-based activities. Nature, as a contributor to the household incomes, on average, of these households, was 76%. That tells you that in order to get development happening on the ground in poor conditions, and these are not rich households, to get development happening on the ground, you need to focus on the GDP of the poor and ensure it's there. And then on top of that, build a layer of education, build a layer of health services, build a layer of additional incomes. So that kind of development would come by, for instance, engaging these communities in Red Plus, that would give you additional incomes, setting in place market methods which enable fair pricing, so that whatever they are gathering, whether it is timber or ratten or whatever it is that they are collecting and selling into the local market, gets them a fairer price, therefore gives them more income in the hands of the poor. These are some of the sort of interventions that can and must be designed at the local level. You don't have to rely on an international marketplace to do this. You, as a Bhupati, or as a province governor, perfectly capable of setting this in place. Of course, you've got to measure this, right? Because what's the chance that you're actually succeeding? You need to measure what you manage. So therefore, you set up a process to calculate what the GDP of the poor is and then make sure it grows. The example that you mentioned of Red Plus, I'm curious just in terms of trying to measure economic gains, because there's been, in fact, you were involved, I know, with looking at how red and the green economy can be mutually reinforced. Within that, there's a lot of thought that red payments represent continued economic growth for redistribution of wealth. Redistribution of wealth, yes. But at the same time, social equity, if benefits are fairly distributed and conservation, environmental, reduced emissions. But I'm wondering in terms of thinking about red as an engine of growth, how we do the accounting. For example, if we leave, if we consider red opportunity costs only at the site level, we can think of how much palm oil is generated by that area of land and so on. But what happens when we start to think at a larger scale? When we think about, for example, replacing our plantation with a red project involves not only the cost of that site, but it has upstream costs. It has implications downstream when you've got to change refineries, change to different types of oils. If you move from oil palm to corn or canola, major costs, how do you think about then those economic ramifications that are not currently thought about usually in red accounting? Well, I'd go back to the first principles and that's a great point you raise, by the way. I'd go back to first principles and say, why is it that we are designing and indeed thinking about red plus purely as a forestry exercise? What we want at the end of the day is a terrestrial carbon marketplace. All terrestrial carbon. Just to consider other sectors as well. Absolutely. So if you have palm, think about the additional sequestration of carbon by going in making a sustainable palm. If you're growing rice, think about how would you use less water for that rice, making it more sustainable? Think about the whole landscape and I think this conference that you have here for Estacia is really about landscapes and this has to be one of the discussion topics. How do we think in terms of a terrestrial carbon market? A green carbon market, as some call it and not just think narrowly of red plus as purely a forestry exercise. That's a fact. And when you do that then you will get the win-win solutions in terms of, okay, a community or a collection of community in a particular area asked to enhance their landscape values for carbon and for biodiversity and for the other ecosystem services that forests deliver and then rewarded for success in doing so. One last question in terms of operationalizing that. We've been talking a little bit about economic valuation action in a very different context. Thinking about previous at C4, we're thinking about how can economic valuation be used to calculate natural damage assessments from deforestation to then think about what the legal ramifications are which are ideas that have been relatively well developed in the US but in a place like Indonesia is it's still incipient. And one of the barriers that we keep that we've run up very quickly has to do with data scarcity. Of course at C4 this is one of the things that we're concerned with but not only data scarcity but transaction costs. The transaction costs of this incredibly elaborate nuanced proposed new accounting method where we consider all of these externalities and put values on them are incredibly high. What do you think, how do we try and get around some of those? I mean some are inescapable. There is no perfect set of numbers that any location, any province governor or any Bhupati can use but the kind of guidance that can be provided today is firstly a hell of a lot better than it was five or 10 years ago. So I think we need to take some confidence from that. I'm not just talking carbon values, I'm talking freshwater values, biodiversity values. A whole range of ecosystem benefits are much better measured today and much better assessed than they were earlier. And improving all of us. So I think the best is the enemy of the good. I think that's what we need to avoid. Let's just say that okay, yes we will construct a scheme which rewards the following five ecosystem services including carbon of course, right? Carbon storage as well. And here are the prices in this area, this area and this area that we're gonna ascribe. And here's our rationale for this matrix of prices. If we sit the communities and the province governors down, give them the rationale. I bet you at the end of the day looking at a collective gain, there will be some degree of disagreement which would gradually coalesce and then you would have agreement. Well using these as tools for negotiation and consensus I think is great sense. So this is about valuation use not only for damage assessment which is of course possible, but valuation use as a means of relative pricing of one benefit versus the other. And of course you would need to be careful about trade offs because if your relative pricing were for the sake of argument, heavily in favor of freshwater and not in not carbon or heavily carbon focused and not on the others, then you would get behavior change which reinforces that. Which reinforces that. If you had a kind of 100,000 situation for carbon versus the other four important ecosystem services, you would basically get what we call the empty forest syndrome. But basically you've got forests essentially being kept for sticks of carbon. Every other species and undergrowth and the soil not considered. Well this is a legitimate concern of red though. That's right because single ecosystem services are valid. And therefore we have to create these valuation bundles if you like. And negotiate the valuation bundles at the end of the day. The science is only as good as its translation into economics and its translation in turn into policy. So unless the national government, the provincial governors and the Bhupathis who are relevant for a particular pilot red plus actually sit down and agree as these are the five important things that our forest deliver. We're gonna be rewarded thus. For increasing or maintaining these five different things. And here's a group called SIFOR who's gonna measure them and tell us a year after year whether we've succeeded or failed in these going up. So I think this kind of experimentative approach really has to be engaged. The best is the enemy of the good. That's fair enough. Okay. Thanks very much Pavan. My pleasure. Thanks.