Why markets matter

Emma Blackmore's picture
Insight by 
Emma Blackmore
19 March 2012

Recognition of the role of markets and the private sector in contributing to sustainable development has been growing strongly in recent years. Where the 1992 Earth Summit assumed that government plans and international conventions would be the primary drivers of sustainable development, Rio 2012 has put the economy and markets at centre stage, with its emphasis on the green economy.

There is potential for markets and business to create long-term wealth for the poor, generate new and decent jobs, and use natural assets more sustainably. But the challenge is to set market signals and incentives that mobilise businesses to support sustainable growth — that is, to shape sustainable markets. This is where market governance mechanisms have an important role to play. 

Introducing Shaping Sustainable Markets

Shaping Sustainable Markets is a flagship research initiative from IIED’s Sustainable Markets Group. It explores how market governance mechanisms (MGMs) – the formal and informal rules used to govern markets – are designed and how they impact people, the planet and the economy. It’s a broad topic, but an important one. Well known examples include Fairtrade certification, carbon trading, and payments for environmental services.

Our new, redesigned website catalogues a wide range of market governance mechanisms and is useful for anyone wanting to find concise, detailed information on different types of mechanisms, or to find out which ones operate in particular sectors or geographical regions. Take a look at our database and sign up to our newsletter to keep up-to-date with our work. 

We’re helping to reveal the realities of how some of these mechanisms work on the ground: are they achieving their desired impacts or having unintended consequences? How can mechanisms’ design and implementation be improved?

We’ve already published research on standards, like ISO 26000, geographical indications and collective trademarks, investment principles like the Equator Principles or the Principles for Responsible Investment and helped develop and promote ideas for new mechanisms – like a small tax on all international flights to raise money for climate change adaptation. Our research on investment principles, for example, finds that they have a limited impact on sustainable development. Reasons for this include:

  • the vague language used by the principles which allows scope for lax interpretation of the principles by investors;
  • a lack of guidance on implementation on the principles;
  • and the difficulty in applying principles to particular asset classes.

What we’re up to this year

This year we’re carrying out research on Costa Rica’s payments for environmental service scheme, and mapping the use of ‘sustainability’ standards in south-south trade and investment. This research is a first step in exploring the type of standards being used, the drivers, and their potential effectiveness. The focus is on the trade and investment between China and Latin America and between Southeast Asia and Africa.

We’re also analyzing how to manage and avoid the escalation of complaints and grievances by local communities impacted by work carried out by the  natural resource investment sectors. Our research highlights the importance of a transparent, coherent and responsive overall approach to stakeholder engagement.

Grievance mechanisms form an integral part of the process. Our work demonstrates that grievance mechanisms need to be culturally appropriate, that communities have to be appropriately informed about the mechanism’s existence and how to use it, and that information on the use of the mechanism and the number and nature of grievances needs to be meaningfully fed into the company’s overall strategic management process. But there is still much to learn and we plan on publishing a paper later this year with further analysis on the use and effectiveness of grievance mechanisms by oil and gas, mining and forestry companies.

Get involved

We hope to influence policymakers and businesses in how they use and implement market governance mechanisms. But we’ll have more impact if we don’t go it alone. We’re looking for business professionals, policymakers and researchers to join our Community of Practice, aa forum for sharing knowledge, experience and practice relating to the use, design and implementation of market governance mechanisms. Knowledge sharing will happen both remotely – through a dedicated part of the website – and through face-to-face regular meetings and larger events or ‘summits’. If you’re interested in joining please email with information about who you are, what you do and why you’re interested in joining us.

We also welcome research contributions from external authors – particularly those from low- and middle-income nations – that meet our editorial and quality standards. We offer support for producing and marketing publications (including co-ordinating a rigorous peer review process) under the Shaping Sustainable Markets Series.

Visit the shaping sustainable market's website for further information.